First American Holdings v. Preclude, Inc.

• Decision Date: 11 May 2007
• Docket Number: No. 2D06-317.,2D06-317.
• Citation: First American Holdings v. Preclude, Inc., 955 So.2d 1231 (Fla. App. 2007)
• Parties: 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.
• Court: Florida District Court of Appeals

955 So.2d 1231

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.

No. 2D06-317.

District Court of Appeal of Florida, Second District.

May 11, 2007.

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, Matheny & 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, upon 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 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 deposited 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 attempting 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, the 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 that 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 time that the second writ was served.

The trial court agreed with AME. Basing its ruling on Hiatt v. Edwards, 52 Ga.App. 152, 182 S.E. 634 (1935), the trial court granted AME's motion for summary judgment and entered final judgment dissolving the second writ of garnishment. The Bank now appeals that judgment.

The Florida garnishment statute requires that upon being served with a writ of garnishment, 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 that 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, 419 So.2d 745 (Fla. 4th DCA 1982); Wilkerson v. Olcott, 212 So.2d 119 (Fla. 4th DCA 1968). However, the issue we must resolve is whether funds held in the attorney's trust account are still considered to be in the "possession or control" of the attorney at the time the attorney receives the writ of garnishment if the attorney has previously drawn a check on those funds and has personally delivered it to his client but the client has not yet presented the check for payment.

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, 569 So.2d 502 (Fla. 3d DCA 1990). In Gelco, the Third District noted that "`[a] check or other draft does not of itself operate as an assignment of any funds in the hands of the drawee available for its payment . . . .'" Id. at 503 (alteration in original) (quoting § 673.409(1), Fla. Stat. (1989)). The court then concluded, "The fact that a check has been written and delivered to the payee prior to service of the writ of garnishment is not a basis for relief from the writ." Id. The court specifically rejected the argument that upon receipt of the check by the payee, the payor effectively assigned the funds still in the payor's account pending the payment of the check. Thus, upon receipt of a writ of garnishment, a bank must place a stop payment on the account to protect the funds in the account for the benefit of the garnishor even if a check drawn on the account has already been delivered to the payee. The question we must resolve is whether an attorney is held to the same duty with regard to the funds held in the attorney's trust account.

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 the garnishee's bank, see Cent. Sec. & Alarm Co. v. Mehler, 125 N.M. 438, 963 P.2d 515 (1998); Schwerdt, Grace & Niemackl v. Speedway Festivals, Inc., 7 Kan.App.2d 40, 637 P.2d 477 (1981), the only case in Florida that addresses this issue suggests that Florida does place such a duty on the nonbank garnishee, see Michael Acri Boxing...