Lawyer loses bid to collect from client’s tax refunds

A bankruptcy judge has blocked a lawyer’s efforts to collect on an unpaid legal bill, ruling that a state court’s “turn over” orders did not constitute valid liens against as-yet undelivered federal tax refunds.

The decision means the lawyer’s entire $17,507 judgment for legal fees, costs and interest will be discharged in bankruptcy, despite orders from a general district judge directing payment of the client’s tax refunds. The client received a total of $4,496 in tax refunds, but ignored the court orders to pay them to her former attorney.

The decision from U.S. Bankruptcy Judge Rebecca B. Connelly is Knight v. Eppard (VLW 012-4-006).

The ruling leaves Harrisonburg lawyer Lisa L. Knight empty handed after representing Monica Brown in divorce proceedings in 2008 and 2009, according to court records. Knight did not return a call for additional information as of press time.

Knight filed suit to collect her bill in 2010 and won a judgment for $14,890.22 in Rockingham County General District Court. Apparently finding no other property to levy on, Knight obtained two orders from that court ordering her former client, now known as Monica Eppard, to turn over her 2010 and 2011 state and federal income tax refunds.

Eppard failed to turn over her tax refunds as ordered and filed for bankruptcy.

Knight asked the bankruptcy judge to declare that the “turn over” orders created a lien on the tax refund money and the client’s refusal to make payment amounted to conversion, making the amount of the refunds a non-dischargeable debt.

Knight’s collection effort foundered on two facts, however. One, when the general district court orders were entered, the client had not yet received the tax refunds at issue. Two, Knight failed to show the client had malicious intent in keeping the tax refunds.

Connelly said the general district court’s orders did not “effectuate or convey to Lisa Knight a property interest in the future tax refunds of Monica Eppard.” Hence, no lien was created.

Connelly also found no willful and malicious injury to Knight.

“Absent sufficient facts to support a finding that the debtor intended to spend a refund that she knew did not belong to her, without justification or cause, the court cannot find that the violation of the Rockingham General District Court order constitutes a willful and malicious injury to property excepting the debt from discharge,” Connelly wrote.

Any penalties for Eppard’s failure to pay over the tax refunds would have to come from the general district court, Connelly said. “Violation of the state court collection order subjects Ms. Eppard to sanctions but was not in this case conversion of property or injury to property,” Connelly wrote.

Eppard was represented by David L. Meeks of Staunton. Knight was represented by Dana J. Cornett of Harrisonburg. Neither returned calls for comment as of press time.