FIRST AMERICAN HOLDINGS v. Preclude, Inc.FIRST AMERICAN HOLDINGS v. Preclude, Inc.
FIRST AMERICAN HOLDINGS, INC., a Florida corporation; and First American Banking Corporation, Appellants,
v.
PRECLUDE, INC., a Florida corporation; and Arnold, Matheny & Eagan, P.A., Appellees.
District Court of Appeal of Florida, Second District.
*1232 Geoffrey Todd Hodges of G.T. Hodges, P.A., Lutz, for Appellants.
John Calhoun Bales and Kimberly S. Mello of John Bales Attorneys, St. Petersburg, for Appellee Arnold, Mathеny & Eagan, P.A.
No appearance for Appellee Preclude, Inc.
DAVIS, Judge.
First American Holdings, Inc., and First American Banking Corporation (collectively, "the Bank") challenge the final judgment dissolving a writ of garnishment. The issue presented here is whether an attorney who is holding a client's funds in the attorney's trust account must, uрon receipt of a writ of garnishment, stop payment on a check drawn on those funds and delivered to the payee client. While we certify the issue as a matter of great public importance, we hold that an attorney does have a duty to stop payment on such a check. Accordingly, we reverse the trial court order dissolving the writ.
These proceedings began when the Bank sought to collect on a $26,000 judgment it had obtained against Preclude, Inc. In an unrelated lawsuit, Preclude, which is represented by the law firm of Arnold, Matheny & Eagan, P.A. ("AME"), had obtained a $50,000 settlement from Greenleaf Products, Inc., which Greenleaf had agreed to pay into AME's trust account pursuant to the terms of the settlement. The details of these lawsuits are not relevant to this action.
On June 19, 2002, the Bank served AME with a writ of garnishment seeking to collect its $26,000 judgment from the $50,000 Greenleaf settlement. However, because AME had not yet received the settlement *1233 payment from Greenleaf, AME answered that while Greenleaf was indebted to Preclude, AME did not currently hold any funds belonging to Preclude. Two days later, on June 21, 2002, AME received the proceeds of the settlement and dеposited them into its trust account. On that same date, AME issued two trust account checks on those funds. One, in the amount of $26,736.24, was made payable to AME's operating account for attorneys' fees. The other, for the balance of the funds, was made payable to Preclude. The check to Preclude was hand delivered to the president of Preclude on that same day.
Four days later, on June 25, 2002, the Bank served a second writ of garnishment on AME, again attеmpting to collect on the judgment against Preclude. Once again, AME answered the writ by denying that it was in possession or control of any funds that were the property of Preclude. Upon subsequent review of the records, however, thе Bank determined that as of June 25, 2002, the check issued to Preclude had not yet been presented for payment to AME's bank. In fact, it was not presented for payment until June 28, 2002, after AME had answered the writ of garnishment denying possession of the funds.[1]
The Bank filed this action seeking to hold AME responsible for the payment of the funds represented by the trust account check issued to Preclude, arguing that AME's answer had not been truthful. The Bank argued that since the check had not yet cleared the bank, the funds were still in AME's trust account at the time of the service of the second writ and that AME had a duty to issue a stop payment order for the check and to preserve the funds for the Bank's collection. AME argued thаt such a duty only applied to banks and that since it was not a bank, it did not have such a duty. It further argued that since the check was in the personal possession of Preclude, AME did not have possession or control of the funds at the timе that the second writ was served.
The trial court agreed with AME. Basing its ruling on Hiatt v. Edwards,
The Florida garnishment statute requires that upon being served with a writ of garnishmеnt, the garnishee must serve an answer stating whether it is indebted to the defendant and what sum the garnishee "has in his or her possession or control at the time" that the writ is served. § 77.04, Fla. Stat. (2002). Additionally, the law makes the garnishee liable for any amount thаt it holds but fails to properly report in the answer or fails to retain for the benefit of the garnishor. § 77.06. As a general rule, funds held by an attorney in his trust account are subject to garnishment. Robert C. Malt & Co. v. Colvin,
Florida courts have determined that a bank has a duty to retain funds subject to garnishment in that situation. See Gelco Corp. v. United Nat'l Bank,
While the courts of several states have determined that a nonbank garnishee has no duty to stop payment on a previously delivered check that has yet to clear thе garnishee's bank, see Cent. Sec. & Alarm Co. v. Mehler,
A review of the out-of-state opinions that distinguish between bank and nonbank garnishees suggests that the underlying concern is the liability of the nonbank garnishee to innocent third parties who might have accepted the check from the payee in exchange for value before service of the writ of garnishment. If the nonbank garnishee stops payment on the check, it might subject itself to liability to an innocent third party. However, the Florida garnishment law addresses this concern. Section 77.06(3) provides that the garnishee shall not be held liable to the defendant or "to any other person claiming the same or any interest therein or claiming to have sustained damage" due to the garnishee's retention, in good faith, of the funds until the matter is properly resolvеd by the garnishment procedures.
Similarly, the language of section 673.409(1), Florida Statutes (2002), stating that the check does not create an assignment of the funds, supports the proposition that the garnishee maintains "possession or control" of the funds until the check is paid by the garnishee's bank and that the nonbank garnishee must report *1235 and retain the funds once served with a writ of garnishment.
The final issue, then, is whether there is any reason to treat attorneys' trust accounts differеntly from bank and nonbank garnishees, both of which are required to retain the funds for the benefit of the garnishor. AME suggests that an attorney's trust account should be treated differently because unlike a bank, an attorney is not a neutral third party in a garnishment proceeding; rather, an attorney has a professional duty to protect his or her client's interests, putting the attorney in a potentially precarious position if he or she stops payment on a check contrary to the client's interests.
This argument is premised on the reasoning that since the funds held by the attorney in the trust account are, in fact, the client's, the attorney has a fiduciary duty to pay those funds only at the direction of the сlient. Accordingly, retaining the funds for the benefit of the client's creditor would violate that fiduciary duty. However, this argument leads to the erroneous conclusion that the attorney's trust account should not be subject to garnishment. See Robert C. Malt & Co.,
Our conclusion is further supported by rule 5-1.1 of the Rules Regulating the Florida Bar, which sets forth an attorney's obligations regarding trust acсount funds. Although subparagraphs (a) and (b) recognize that a client's funds held in an attorney's trust account are held in "trust" and direct that such funds be handled pursuant to the instruction of the client, subparagraph (e) provides that where a third pаrty claims an interest in the client's funds, the attorney must promptly notify the client or third party of the receipt of such property. This requirement is consistent with our interpretation of the garnishment statute. Likewise, subsection (f) supports our dеcision because it directs that if a dispute arises over the ownership of the funds, the attorney is to hold the funds until the dispute is resolved. Since the garnishment statute specifically states that the execution and delivery of a chеck does not transfer control of the funds to the payee until the payee presents the check for payment, it is clear that an attorney maintains control of the funds in his or her trust account until presentment and, acсordingly, must comply with the garnishment statute as to those funds in his or her control.
Based on our review of the statutory and decisional law, we conclude that Florida does impose on both bank and nonbank garnishees the duty to retain funds held by thе garnishee even after a check on those funds has been drawn by the garnishee and delivered to the payee. Furthermore, we can conceive of no reason to create a third category for attornеys' trust accounts. Accordingly, we conclude that the attorney garnishee has the same duty as other nonbank garnishees, even in matters related to trust accounts. We therefore reverse the trial court's order dissolving the writ of garnishment and remand for further proceedings consistent with this opinion.
However, we recognize that this is a case of first impression that addresses a question of great importance to attorneys and their clients. As such, we certify the following question as one of great public importance:
*1236 DOES AN ATTORNEY GARNISHEE HAVE A DUTY TO ISSUE A STOP PAYMENT ORDER FOR A CHECK DRAWN ON HIS OR HER TRUST ACCOUNT AND DELIVERED TO THE PAYEE PRIOR TO THE RECEIPT OF A WRIT OF GARNISHMENT IF THE SERVICE OF THAT WRIT OCCURS PRIOR TO THE PRESENTMENT OF THAT CHECK FOR PAYMENT TO THE ATTORNEY'S BANK?
Reversed and remanded; question certified.
SILBERMAN and VILLANTI, JJ., Concur.
NOTES
Notes
[1] The funds paid to AME's operating account are not subject to this appeal.