Marcus, Santoro & Kozak v. Hung-Lin Wu

• Decision Date: 02 November 2007
• Docket Number: Record No. 062357.
• Citation: 652 S.E.2d 777
• Court: Virginia Supreme Court
• Parties: MARCUS, SANTORO & KOZAK, P.C., et al. v. HUNG-LIN WU, et al.

652 S.E.2d 777

MARCUS, SANTORO & KOZAK, P.C., et al. v. HUNG-LIN WU, et al.

Record No. 062357.

Supreme Court of Virginia.

November 2, 2007.

Lawrence H. Glanzer (Karen M. Crowley, Chesapeake; Paul K. Campsen, Norfolk; Marcus, Santoro & Kozak; Kaufman & Canoles, on briefs), for appellants.

James H. Rodio (Jennifer E. Dure; Holland & Knight, on brief), McLean, for appellees.

Present: HASSELL, C.J., KEENAN, KOONTZ, KINSER, LEMONS, and AGEE, JJ., and LACY, S.J.¹

OPINION BY Justice G. STEVEN AGEE.

Marcus, Santoro & Kozak, P.C. (MSK) and Kaufman & Canoles (K & C) (collectively "the Firms") appeal from the judgment of the circuit court of the City of Virginia Beach which found both parties liable upon a garnishment summons for the payment of funds held in their respective trust accounts from a judgment debtor who was their client. The circuit court determined that the lien of a writ of fieri facias under Code § 8.01-501 required the Firms to cease disbursing funds from their trust accounts in satisfaction of accrued legal fees and related costs and to pay those funds to a judgment creditor effective with the issuance of the writ of fieri facias. For the reasons set forth below, we will affirm the judgment of the circuit court.

BACKGROUND AND PROCEEDINGS BELOW

On May 12, 2005, Hung-Lin Wu and the Wu Trust (collectively "Wu") obtained two judgments in a Florida state court, one against Stanley F.C. Tseng and another against several business entities affiliated with Tseng (collectively "Tseng").² Wu domesticated the judgments in the Circuit Court of the City of Virginia Beach on August 16, 2005.

Tseng retained MSK to represent him personally, and K & C to represent his affiliated business entities, with regard to various proceedings initiated by Wu in an attempt to collect on the judgments in both Virginia and Florida. Tseng entered into a written representation agreement with each law firm which provided that he would deposit a sum certain into a trust account maintained by the law firm as a "retainer." The written agreement with K & C provided "This retainer will be applied toward services heretofore and hereafter rendered and out-of-pocket costs," but gave no further explanation as to the basis for withdrawals from the trust account. The written agreement with MSK did not specifically address the disbursement of funds. As agreed, Tseng deposited $155,000 into K & C's trust account and $125,000 into MSK's trust account. K & C made the first disbursement from its trust account for payment of its fees and costs on August 26, 2005. MSK made the first disbursement from its trust account for fees and costs on August 19, 2005.

In an attempt to collect on the judgments, Wu requested that the Clerk of the Circuit Court of Virginia Beach deliver a writ of fieri facias against Tseng to the Sheriff of Virginia Beach pursuant to Code § 8.01-466.³ The writ was delivered to the sheriff on October 7, 2005. In its June 14, 2006 letter opinion, incorporated into the final order, the circuit court found that K & C and MSK were served with a notice of the lien of fieri facias on October 7, 2005. The Firms made no assignment of error to that finding. Tseng was not served with the notice of lien.

On October 14, 2005, the circuit court issued a garnishment summons against each law firm. Each garnishment summons contained a new writ of fieri facias and provided another notice of the lien of fieri facias. Tseng was served with the MSK garnishment summons on October 21, 2005 and MSK was served with that garnishment summons on October 24, 2005. K & C and Tseng were served with the K & C garnishment summons on November 14, 2005. The Firms had continued to disburse funds from their respective trust accounts during the period between the date of the issuance of the writ of fieri facias and service of notice on the Firms, October 7, 2005, and the dates of service of the respective garnishment summonses.

On November 18, 2005, the return date on the garnishment summonses, the Firms filed separate motions to dismiss the garnishments. In addition, each law firm delivered to the circuit court a check payable to Wu in an amount equal to the balance of its trust account as of the date that law firm and Tseng had been served the applicable garnishment summons. K & C paid $48,600.13, the remaining balance in its account as of November 14, 2005 when K & C and Tseng were served the garnishment summons. MSK paid $19,574.53, the remaining balance in its account as of October 24, 2005, the date by which both it and Tseng had been served with the garnishment summons.

In the motions for summary judgment the Firms contended that they had remitted all the funds to which Tseng was entitled. At a hearing and in memoranda filed in the circuit court, Wu contended that the law firms should have remitted amounts equal to the account balances on October 7, 2005, the date the writ of fieri facias was delivered to the sheriff, and therefore that the sums remitted were deficient. Citing Code § 8.01-501 for the proposition that the issuance of the writ of fieri facias on October 7 perfected a lien on the funds in the trust accounts, Wu contended that the Firms were obliged to cease disbursing funds from their respective trust accounts on that date and were liable to him for any funds disbursed after that date.

The Firms did not contest in the circuit court that Wu could proceed by garnishment, but argued the garnishment process he used was ineffective as a matter of law to reach any funds prior to the actual date of service of the garnishment summons. The Firms asserted that they were "person[s] making a payment to the judgment debtor" under Code § 8.01-502, and as such, the liens created under Code § 8.01-501 were ineffective against them without the statutory conditions precedent being met. That statutory condition precedent under Code § 8.01-502 included service of a notice of lien on both the Firms as garnishees and the judgment debtor, Tseng. For that reason, the Firms contended they were entitled to disburse funds from the trust accounts until the date on which both they and Tseng were served with the garnishment summonses.

In its letter opinion, the circuit court ruled that the Firms were liable to Wu for the balances remaining in the respective trust accounts as of October 7, 2005, because: "According to [Code] § 8.01-501, the lien of fieri facias was effective on the date it was delivered to the sheriff, which the parties agree was October 7, 2005, unless the § 8.01-502 provision applies." The circuit court rejected the Firms' argument that they were "person[s] making a payment to the judgment debtor" under Code § 8.01-502 when they disbursed funds from the trust accounts. The circuit court opined that funds held in the trust accounts represented payment in advance for legal fees not yet incurred and that the balances in the trust accounts at any particular time remained Tseng's property. The circuit court found that although the Firms would be obligated to refund to Tseng any portion of an advanced legal fee that had not been earned when the representation terminated, a "potential future obligation" to pay Tseng did not qualify the law firms as "person[s] making a payment to the judgment debtor." Accordingly, the circuit court ruled that the lien under the writ of fieri facias on the funds in the trust accounts was effective on October 7 despite the lack of service of a notice of lien on Tseng until a later date.

Pursuant to its letter opinion, the circuit court entered an order denying the Firms' motions for summary judgment. The circuit court ordered that K & C pay to Wu $67,903.24, which represented the amount K & C disbursed from its trust account between October 7, 2005 and November 14, 2005, the date by which service of the K & C garnishment summons was made on both K & C and Tseng. The circuit court also ordered that MSK pay to Wu $27,661.76, which represented the amount MSK disbursed from its trust account between October 7, 2005, and October 24, 2005, the date by which the MSK garnishment summons had been served on MSK and Tseng. We awarded the Firms this appeal.

DISCUSSION

The issues raised in this appeal solely involve issues of law, which we review de novo. Janvier v. Arminio, 272 Va. 353, 363, 634 S.E.2d 754, 759 (2006); Sheets v. Castle, 263 Va. 407, 410, 559 S.E.2d 616, 618 (2002).

The Firms make six assignments of error to the judgment of the circuit court which can be condensed to four arguments: (1) The circuit court erred in ruling that the funds in the Firms' trust accounts were property owned by Tseng instead of a contract obligation by the Firms to pay Tseng any unearned funds upon the termination of representation; (2) The circuit court erred in holding the lien of the writ of fieri facias "directly reached the trust accounts" instead of the Firms' contractual obligation to Tseng; (3) The circuit court erred in its application of Code § 8.01-502 by finding that the Firms were not "persons making a payment to the judgment debtor", and (4) the circuit court "erred in holding that the execution lien" of the writ of fieri facias under Code § 8.01-501 "was perfected and fully effective" as to the Firms upon delivery of the writ to the sheriff without "service of the notice of that lien upon anyone." We address each argument in turn.

A. Tseng's Interest in the Trust Accounts

The Firms argue that Tseng's interest in the trust accounts, into which he deposited his funds under the retainer agreements, was only a bare contract right. They contend Tseng had no property right or ownership interest in the trust account funds.⁴ Instead, the Firms argue that they and "Tseng were in a debtor-creditor relationship" essentially in the same capacity as a commercial bank and a depositor. The Firms posit they only had a "legally enforceable contractual obligation ... to repay Tseng the unearned and unused retainer deposits." Thus, the...