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VIRGINIA STATE BAR v. GOGGIN, et al.



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VIRGINIA STATE BAR

v.

GOGGIN, et al.


June 9, 2000

Record No. 991943

VIRGINIA STATE BAR

v.

RODNEY GOODE GOGGIN, ET AL.

FROM THE CIRCUIT COURT OF STAFFORD COUNTY

Thomas A. Fortkort, Judge

Present: All the Justices


OPINION BY JUSTICE ELIZABETH B. LACY

In this appeal, the Virginia State Bar challenges the judgment
of the trial court that ordered funds in an attorney’s trust
account distributed among claimants of the funds on a pro rata
basis. We will reverse the judgment of the trial court and remand
the case for entry of a new distribution order because, to the
extent possible, funds in an attorney’s trust account should be
distributed in accordance with clearly ascertainable ownership
interests of the funds.

The State Bar, in connection with an attorney disciplinary
proceeding, filed a complaint and petition pursuant to Code
? 54.1-3936. The State Bar sought appointment of a receiver
to take possession of the attorney’s trust account and other
assets and to make recommendations regarding the proper
distribution of the assets. The trial court granted the State
Bar’s petition and appointed a receiver.

In his report filed with the trial court, the receiver
concluded that the amount of verified claims against funds that
were to be held in trust by the attorney exceeded not only the
amount in the trust account, but also the total amount available
to the receiver, including the attorney’s operating accounts,
accounts receivable, and cash received from the sale of assets.
However, the receiver reported that $375,764.27 of the available
funds in the trust account could be traced to deposits made on
behalf of six specific claimants. Based on the ability to trace
these funds, the receiver recommended that they be disbursed in
accordance with the ascertainable ownership interests. The
receiver went on to conclude that Code ? 54.1-3936(E)
prefers "trust creditors over other creditors as to all
[the] funds [available] whether actually held in trust or
not." The receiver proposed that the remaining available
funds be distributed among the trust account claimants on a pro
rata basis.

Following a hearing, the trial court rejected the
recommendation of the receiver regarding the disbursement of
funds and ordered that the funds be disbursed among all claimants
on a pro rata basis. In its ruling, the trial court
did not reject the receiver’s conclusion that
? 54.1-3936(E) prefers trust account creditors over general
creditors, nor did it reject the methodology used by the receiver
to trace the ownership interests in the trust account. The basis
for the trial court’s ruling was that it believed a pro rata
disbursement plan was "the fairest distribution scheme in a
totally unfair situation." The State Bar appealed, asserting
inter alia that the trial court’s order failed to
follow "well-established Virginia case law regarding
trusts," and the "statutory directives set forth in Va.
Code ?? 54.1-3936 and 6.1-2.23." We agree with the
State Bar.

Clients’ funds deposited in an attorney’s trust account are
funds held in trust. As such, the claim of such clients for
return of the funds is more than merely a personal claim against
the attorney for the payment of the sum of money on deposit. The
clients retain an equitable or beneficial ownership interest in
the funds. Broaddus v. Gresham, 181 Va. 725, 731-32, 26
S.E.2d 33, 35-36 (1943). The deposit of one client’s funds in an
account with funds of other clients does not destroy the
beneficial interest of the clients in the funds so deposited.
Thus, the clients are entitled to those funds to the extent their
equitable ownership interests can be traced.[1]

Furthermore, in this case, some of the funds deposited in the
attorney’s trust account were deposited with the attorney acting
as a settlement agent and thus are subject to ? 6.1-2.23.
That statute provides that such funds "shall be the property
of the person . . . entitled to
them under the provisions of the . . . agreement and
shall be segregated . . . in a manner that permits the
funds to be identified on an individual basis." This
provision is consistent with the principle that claimants to the
proceeds of an attorney’s trust account retain ownership in those
funds and are entitled to recover the full amount of their
identifiable ownership interest where possible.

If all or part of a claimant’s ownership interest cannot be
traced to specific funds in the trust account, the right to
recovery is not lost, but that right does not attach to funds
identified as owned by another. Under such circumstances, the
right to recovery runs to funds not traceable to a specific
owner, and a pro rata distribution would be
appropriate.

For these reasons, we will reverse the distribution order of
the trial court and remand the case for entry of a new
distribution order consistent with the law set forth in this
opinion.

Reversed and remanded.

FOOTNOTES:

[1] Attorneys are authorized to
deposit clients’ funds in a single trust account with a
subsidiary ledger. See former Virginia Code of Professional
Responsibility, DR 9-103(A)(3), Rules of Court, Part 6, Section
II, now Rule 1.15(e)(iii), effective January 1, 2000.

 

 

 

 

 

 

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