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Court of Appeal:
Court Properly Foiled Effort to Insulate Funds From Levy
Opinion Says Recitation in Retainer Agreement That Moneys Provided by Client Immediately Became Property of Law Firm Before Any Services Were Performed Pursuant to That Agreement Lacks Validity
By a MetNews Staff Writer
A law firm did not own funds in a client trust account despite a recitation in the engagement agreement that the money was “deemed earned” by the firm “when received,” Div. One of the Fourth District Court of Appeal has held, affirming a determination that a notice of levy served by a judgment creditor of the client is enforceable.
The opinion was filed Tuesday but was not publicly posted until Thursday. Acting Presiding Justice Joan K. Irion authored it.
Deposited in the client trust fund maintained by Higgs Fletcher & Mack (“HFM”) was $585,000, provided to HFM, in two installments, by Jack I. Mann, an attorney on voluntary inactive status. Mann stipulated to a $12 million judgment being entered against him and in favor of Nicholas Dickson, individually and as trustee of the M. Chris Dickson Revocable Living Trust, and judgment was entered on Aug. 8, 2022.
The engagement agreement was entered into two days earlier. Between that time and the service on HFM of the notice of levy on Aug, 22, 2022, the firm performed no services under the contract, but said it expected to provide representation in three matters valued at a minimum of $948,260.
Verified Claim
Responding to the notice, HFM filed with the Sheriff’s Department a verified third party claim pursuant to Code of Civil Procedure §§720.110-720.130 asserting that its interest in the funds was superior to that of Dickson, ownership having been transferred to it. In response to its petition for a determination as to the validity of its claim, then-San Diego Superior Court Judge Julia C. Kelety (now a justice of Div. One of the Fourth District Court of Appeal) declared that Mann’s attempt to vest ownership of the funds in HFM was “intended to delay or hinder or defraud” Dickson and was invalid.
Agreeing, Irion said that notwithstanding the wording of the engagement agreement, “the Rules of Professional Conduct are clear that a flat fee is, in fact, not earned until services are provided.”
She declared:
“Because there was no evidence that HFM provided any legal services under the Engagement Agreement prior to August 22, 2022, the flat fee paid according to the Engagement Agreement belonged to Mann on that date. The trial court properly denied HFM’s third party claim because HFM did not establish ownership of the $585,000 that it received from Mann and placed in its client trust account.”
Not ‘Absolutely Dispositive’
Although siding with Dickson, Kelety rejected his contention that the fact that the funds were in a client trust account was “absolutely dispositive” as to Mann’s ownership of the money. Irion shared that view.
Dickson relied on rule 1.15(a) of the Rules of Professional Conduct which says:
“All funds received or held by a lawyer or law firm for the benefit of a client...including advances for fees, costs and expenses, shall be deposited in one or more identifiable bank accounts labeled ‘Trust Account’ or words of similar import....”
Irion responded:
“On its face, rule 1.15(a) addresses only where a lawyer or law firm should place funds held for the benefit of a client. The rule does not categorically state that a law firm may never hold its own funds in a client trust account.”
She noted that the rule, in fact, spells out “limited circumstances in which a law firm’s own funds may be held in a client trust account.”
Separate Agreement
HFM argued that even if the Aug. 6, 2022 agreement did not vest ownership of funds in HFM, Kelety abused her discretion in denying a motion for reconsideration by which the firm attempted to show that it at least had a lien on $53,457.95 of the $585,000 based on services it had provided under a 2021 agreement. Finding no merit in the contention, Irion said:
“It is undisputed that the evidence regarding the 2021 Agreement existed at the time HFM filed its third party claim. HFM easily could have identified the 2021 Agreement as a second ground for its third party claim, but it chose instead to rely solely on its claim of ownership based on the Engagement Agreement.
“HFM has presented no “satisfactory explanation” for its failure to identify the 2021 Agreement as an alternative ground for its third party claim.”
Founded in 1939, HFM bills itself as “San Diego’s oldest full-service law firm.”
The case is Dickson v. Higgs, Fletcher & Mack, LLP, 2024 S.O.S. 2459.
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