Florida Supreme Court holds that lawyer whose trust account check to client has not cleared has duty to stop payment when served with writ of garnishment seeking those funds  [Added 5/2/08]

    Law Firm represented Client in a matter that settled, with Client's adversary agreeing to pay the proceeds into Law Firm's trust account.  In an unrelated matter, Bank sought to collect on a judgment against Client.  Bank served Law Firm with a writ of garnishment before Law Firm received the settlement proceeds. Law Firm answered that it did not currently hold any funds belonging to Client.  Law Firm received the settlement proceeds into its trust account 2 days later.  Law Firm wrote 2 checks on those proceeds, one to Law Firm for its fees and the other to Client. Law Firm hand-delivered the check to Client.

    Four days later Bank served another writ of garnishment on Law Firm.  Law Firm answered by denying that it was in "possession or control" of any funds of Client.  Bank later learned that, at the time Law Firm answered, the trust account check to Client had not cleared.  Bank sought relief against Law Firm, alleging that the funds were in Law Firm's possession when it received the second writ of garnishment and that, therefore, Law Firm had a duty to issue a stop payment order for the check in order to preserve the funds for Bank.  Law Firm argued that any such duty only applied to banks, not to nonbank garnishees.  Agreeing with Law Firm, the court granted the firm's motion to dismiss.  Bank appealed.

    The Second DCA reversed, stating:  "[W]e conclude that Florida does impose on both bank and nonbank garnishees the duty to retain funds held by the 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 attorneys' trust accounts. Accordingly, we conclude that the attorney garnishee has the same duty as other nonbank garnishees, even in matters related to trust accounts."  Recognizing the matter as "a case of first impression that addresses a question of great importance to attorneys and their clients," the Second DCA certified the question to the Florida Supreme Court.  First American Holdings, Inc. v. Preclude, Inc., 955 So.2d 1231 (Fla. 2d DCA 2007).

    The Supreme Court approved the Second DCA’s decision.  The Court first decided that the funds in question remained in the "possession or control" (see Fla.Stat. sec. 77.01) of Law Firm after the check was written but before it was presented for payment.  The Court next concluded that Florida law makes no distinction between bank and non-bank garnishees.  Finally, the Court addressed the issue of whether "attorneys should be exempt from any stop payment duty because of the nature of attorney trust account checks and the Rules Regulating the Florida Bar."  The Court noted that "the special relationship between an attorney and his or her client is an insufficient basis upon which to circumvent the requirements of the garnishment statute."  The Court summarized its decision:  "We conclude that Florida law imposes on both bank and non-bank garnishees the duty to retain funds held by the garnishee, even after a check on those funds has been drawn by the garnishee and delivered to the payee.  We hold that the funds remain in the possession or control of an attorney garnishee if service of the writ of garnishment occurs after a check drawn on an attorney's trust account has been written and delivered to a client but before presentment to the attorney's bank.  Accordingly, pursuant to the provisions of the garnishment statute, the attorney in those circumstances has an obligation to inquire of the bank as to the status of the funds in its account and to issue a stop payment order if he or she has the ability to do so.  This decision is consistent with the garnishment statute and prior case law interpreting the statute, as well as the Rules Regulating the Florida Bar."  Arnold, Matheny and Eagan, P.A. v. First American Holdings, Inc., ___ So.2d ___, 33 Fla. L. Weekly S268 (Fla., No. SC07-1136, 5/1/2008), 2008 WL 1901686.

Lawyer who intentionally misappropriated trust funds, but had "impaired judgment" due to medications and mental health difficulties, is suspended rather than disbarred.  The Florida Bar v. McFall, 863 So.2d 303 (Fla. 2003).