NO. 85-171 INTHE SUPREME COURT OF THE STATE OF MONTANA 1986

WILD WEST MOTORS, INC., Plaintiffand Respondent,

-vs- *WRCELLAMAELINGLEI DefendantandAppellant,

APPEAL FROM: District Court of the Eleventh JudicialDistrict, Inand for the County of Flathead, TheHonorableMichaelKeedy,Judgepresiding.

COUNSELOF RECORD:

ForAppellant: Hash,Jellison,O'Brien & Bartlett; JamesC. Bartlett, Kalispell,Montana

For Respondent: Measure, Ogle & Ellingson; JeffreyD. Ellingson, Kalispell,Montana

Filed: Submittedon Briefs: June 28, 1985 Decided: November 18,1986

ClerkPlr. Justice John C. Sheehy delivered the Opinion of the Court.

In this cause,we determine that a prejudgmentwrit of attachment issued by the District Court, Eleventh Judicial District, Flathead County, was in error and we therefore vacate the same. We further determine that thepossessionby the attorney for Wild West Motors, Inc. of S10,000 due to Marcellamae Lingle "in trust" is in violation of the Canons of Professional Ethics, and we direct the immediate transfer of those fundsby the attorney toMarcellamaeLingle. In a decree of dissolution of marriage between Marcellamae Lingle and Robert L. Lingle on July 29, 1980, in the same District Court, the separation and property settlement agreement between the married persons was incorporated as apart of thedecree. Under the terms of the agreement, now decretal, Robert was to pay Marcellamae $200 permonth, continuing until such time ashepaid "to wife the cash sumof $10,000." The cash payment of $10,000was agreed to be a property division,apparently to be derived from the sale of marital real estate by the husband. It is specificallydesignated "notalimony ormaintenance." When Robert had paid monthly payments amounting to approximately $10,000, he apparently thought that his total obligations under the decreed agreement were complete. Plarcellamae s attorney,however, insisted in writing that in addition to the monies already paid, Marcellamae was to receive a cash sum of $10,000 as a property division, and that until the cash paymentwasmade by Rohert, the $200 per month payments continued.Robert, contending he did not understand that part of the property settlement a.greement,sought counsel other than the attorney who had represented him in the dissolution action. He retained Jeffrey D. Ellingson ashis attorney on April 23, 1984. On Robert's behalf, Ellingson contactedboth Robert's former attorney and the attorney for l\larcellamae. Marcellamae was adamant that she was entitled to the full amount of the cash payment and that the monthly payments continued until she received the cash payment. The malpractice carrier for Robert's former attorney denied any claim. In the meantime, in November, 1982,Robert Lingle, Jr. the son ofRobert andMarcellamae, purchasedunder a contract and security agreement a 1983Toyota 4x4pickup. Marcellamae signed the contract and security agreement as a co-buyer, apparently in accommodation for her son. The vehicle was purchased atWild West Motors, Inc. Thepurchasers under the contract did not make the payments as required, and the vehiclewas repossessed and resold,resulting in a deficiency of $4,241..76still owing on the contract. Ellingson had begun representingWild West Motors, Inc.

on January 19, 1984. On August 22, 1984, he became aware of the claim of Wild West Motors, Inc. against Marcellamae for the deficiency under the contract. Ellingson, as attorney for Wild West Motors, Inc., undertook to collect the deficiency fromMarcellamae. It appears indirectly from the papers here filed that Robert Lingle, Jr. was probably judgment-proof

# . On April 23, 1984, therefore,under the facts of this case, Ellingson was representing Wild West Plotors, Inc. for its claim against Marcellamae arising out of the purchase ofthe Toyota vehicle. Hewas also representingRobert Lingle, Sr. in the cash payment dispute arising out of the marital dissolution between Robert Lingle, Sr. and Marcellamae Lingle. In Ellingson'sownwords,this is whathappened: On August 28, 1984, I met with Bob Sr. He had decided at that time to pay over the additional $10,000 payment to Bartlett [Marcell-amae's attorney] under the terms of the property settlement agreement with Marcellamae. He decided not to pursue any further claim against either Marcellamae or [the former attorney]. I told him at that meeting that Ihad been approachedby Wild West to bring a claim againsthis son,Bob Jr. and his formerwife, Marcellamae, as joint and several obligors for the deficiency. I told him that the claim would be for approximately $5,000. I asked him whether he had any objections to my bringing the claim against his former wife, Marcellamae. Rob Sr. stated that he had no such objection. By that time he was quite angry with his formerwife and thinking that she was not deserving of the additional $10,000. It was at that meeting of August 28, 1984 that I first discussed with Bob Sr. the possibility of attaching the $10,000 payment in order to pay off my other client, Wild West. I told Bob Sr. that Wild West had agreed not to go after Bob Jr. for repayment if they could collect from Marcellamae. Bob Sr. was very pleased with the idea of having some of the $10,000 pay off his son's debt rather than go to his formerwife. His only concernwas that he not be held liable for any further payment after paying the $10,000 into my trust account. I advised him that I would discuss the matter with DuganAnderson ofWild West and.getback to Bob Sr. I called Dugan Anderson also on August 28, 1984, and explained the situation to him. Iadvised Mr. Anderson thatBob Sr. would allow the attachmentof the $10,000 so long as he was held harmless from any other claims as a result of that attachment. Mr. Anderson agreed to such an indemnification agreement and asked me to draft the appropriate documents. DuganAnderson toldme that Bob Jr. was apparently insolvent and that Wild West's only possible means of collecting was against Marcellamae. Marcellamae also appeared to be judgment proof in tha-ther only substantial asset was her home, protected by a homestead exemption. Itappeared, therefore,that the only way Wild West would be able to recover the deficiencywould be by attachment of the $10,000 from Bob Sr. to Marcellamae.Bob Sr. deposited $10,000 intomy trust account on August 31, 1984. Robert Lingle, Sr. and his wife, Ardeth Lingle, on August 31, 1984 signed the agreement with Wild West Motors, Inc. and Wild West signed the same on September 5, 1984. By its terms, Lingle paid $10,000 to Ellingson to be held in trustby him until such times as the funds "areduly attached through proper legal process or until Wild West Motors, Inc. directs Jeffrey D. Ellingson to pay all or any of such funds to Marcellamae Lingle in full satisfaction of the above described decree of dissolution." The agreement further provided that Wild West Motors, Inc. would pay the $200 per month to Marcellamae during the pendency of the agreement until payment to Marcellamae was complete. Wild West was granted a lien in the $10,000 for any payments made by it. In a further letter to Robert Lingle, Sr., on September 4, 1984, Ellingson made clear that by the execution of the agreement with Wild West Motors, Robert Lingle was to be fully indemnified by Wild West Motors from any further loss

or claim which Marcellamae might make againsthim. On October 24, 1-984,Wild West Motors, Inc. filed suit against Marcellamae Lingle for the deficiency arising out of the purchase of the Toyota vehicle. On the same date, Ellingson, as attorney for Wild West Motors, Inc. filed a motion for a prejudgmentwrit of attachment of $6,000 of the monies now held in trust by him, as attorney for Robert Lingle, Sr. After briefs and hearing, the District Court ordered a prejudgmentwrit of attachment against the "trust" funds. By stipulation the funds have been placed in an interest-bearing account awaiting the final disposition of thematter by the courts.Marcellamae appealed to this Court from the prejudgment writ of attachment. She contends for various reasons that the writ was issued in error, including her contention that the son, Robert Lingle, Jr. had signed a promissory note after his default for the amount of the deficiency which constitutedanovation. Wild WestMotors, Inc. has responded that the writ of attachment was properly issued; that the monies impounded are a debt due to Marcellamae; and that no novation arosebecause of thepromissory note. Upon examination of the matter on appeal, this Court determined that further findings of factwere necessary from theDistrictCourt. Accordingly,we remanded to theDistrict Court for a full determination relating to the facts concerning the property settlement agreement, and particularly the attorney-client relationships that existed between Wild West Motors, Inc., Robert Lingle, Sr., and Jeffrey D. Ellingson. The above statementof facts reflects those findings

# . The findings of the District Court in answer to our remand came tous on March 1,1986. TheDistrict Court found that since Ellingson had kept Wild West Motors, Inc. and Robert Lingle,Sr. fully informed of all risksand advantages of the attachment of the said $10,000 and since it was in both parties' interests to have the funds attached from Ellingson's trust account, there was no impropriety on Ellingson's part during the course of these events. The court found that Robert Lingle, Sr. had requested the attachment to be made, was agreeable to the attachment in order to have his son's debtpaid by his formerwife and was apparently more than happy to have the funds attached, if they did not go to his former wife, and the credit for such"funds did clear off Robert Lingle, Sr.'s son's debt with Wild West Motors." The District Court apparently judged Ellingson's professional conduct under Rules 1.7 and 1.8 of the Rules of Professional Conduct relating to conflict of interest. Ellingson did, in truth, reveal to his clients, Wild West Motors, Inc. and RobertLingle,Sr. all of the facts relating to the transaction. Their interests were not adverse: Robert Lingle, Sr. could save his son from an unpaid judgment, and at the same time cause a reduction of the monies he had agreed to pay Marcellamae. Wild West Motors, Inc

# .was assured of collecting a deficiency it might nototherwiseget. There is,however, another Rule of Professional Conduct againstwh.ichEllingson'sactionsmust be weighed. Rule 1.15 of the Rules of ProfessionalConductprovides in (b): Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rul-e or otherwise permittedby laworby agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property. Ellingson's duty under the foregoing rule was upon receiving the monies in trust forMarcellamae to deliver the monies to her promptly. Ellingson's client, Robert Lingle, Sr. owed those monies to Marcellamae, in a marital matter entirely separate fromthevehicle purchase. Ellingson could not properly "by agreement with his client" frustrate the payment toMarcellamae. Ifhis agreement with Robert Lingle, Sr. interfered with his duty of prompt payment as trustee, Ellingson as an attorney should not have accepted the trust.Having accepted the money in trust, it was his duty to transmit itpromptly toMarcellamae. Insteadhewithheld the funds from Marcellamae fromAugust 31, 1984,whenhe received the funds in trust, to March 8, 1985,when the prejudgment writ of attachmentwas ordered.. The distributionof fundsto Marcellamae is still subject to his signature and control today. Und.erRule 4.4 of the Rules of ProfessionalConduct, it is stated: In representing a client, a 1-awyershall not use means that have no substantial purpose other than to embarrass,delay,orburden a thirdperson,. 

# .. The prejudgment writ of attachment issued by the District Court was in error. Ellingson admits he holds the money ''in trust." A voluntary trust is created when the trustor indicates with reasonable certainty the subject, purpose and beneficiary of the trust. Section 72-20-108, MCA. The subject of this trustwas the $10,000; thepurpose of the trust was to satisfyRobert Lingle, Sr.'s contractual obligation to Marcellamae; and Marcellamae was the beneficiary of the trust. In all matters concerning this trust, Ellingson was bound to act in good faith toward his beneficiary and not to obtain any advantage therein over Marcellamae by the slightest adverse pressure of any kind. Section 72-20-201, MCA. He was prohibited from using or dealing with the trust property for his own benefit or for any other purposenot connected with the trust in any manner. Section 72-20-203,MCA. The prejudgment writ of atta.chment order issuedby the DistrictCourt included attorney fees for Ellingson's firmof $734.35. When a party undertakes the obligation of a trustee to receive money or property for transfer to another, he takeswith it the duty of undivided loyalty to the beneficiary of the trust. The undivided loyalty of a trustee is jealously insisted on by the courts which require a standard with a "punctilio of 

### an honor the most sensitive." Meinhard v. Salmon (N.Y. 1928), 164 N.E. 545. A trustee must act with the utmost good faith towards the beneficiary, Campbell v. U.S. (9th Cir. 1926), 12F.2d 873,and may not act inhis own interest,or in the interest of a third person. Restatement 2d., Trusts,S 170(1). Upon developmentof an irreconcilable conflict between self-interest and fiduciary responsibility, the trustee has a choice of subordinating his self-interest

or resigning his trust. A trusteemay not deal with himself

as an individual concerning the trust funds for any purpose not connected with the trust. In re Al.lard Guardianship

(1914), 49 Mont. 219, 141 P. 661. Even though here the trustor, Robert Lingle, Sr., authorized the self-dealing of the trustee, Ellingson as trustee was required to renounce all self-interest and to act in finest loyalty to the beneficiary within the terms of the trust. 76 Am.Jur.2d Trusts, 538-539, S 319. If the terms of the trust make 1-oyaltyto the beneficiary impossible, the trustee should decline the trust. There was a route open to Wild West Motors, Inc. which might have brought about a prejudgment attachment of the $10,000 payment. Section 27-18-405, MCA, provides for the attachment of debts or credits in the possessi.on of a third person. Robert Lingle,Sr.'s contractualdebt toMarcellamae

was attachable, certainly before the transfer of the funds in trust to Ellingson. Once Ellingson received in trust possession of the legal payment for transfer to Marcellamae,his trust relationship barred his acting in any way disadvantageouslytoMarcellamae. The prejudgmentwrit of attachment issued in this cause in the District Court is hereby vacated and set aside. Jeffrey D. Ellingson, as an officer of this Court, is hereby directed to pay over to Marcellamae, through her attorney, the full amount of $10,000, plus any accrued interest thereon. Because this Court was not aware that the order of the District Court in answer to our remand was on file in this Court from March 1, 1986 through October 1, 1986, the monthly payments to Marcellamae which may otherwise be due for that period are herewith excused. Remittitur of this cause shall occur forthwith.

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# A Justice 

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We Concur:

t Justices