Title: Virginia State Bar v. Goggin
Citation: N/A
Docket Number: 991943
State: Virginia
Issuer: Virginia Supreme Court
Date: June 9, 2000

Present:  All the Justices 
 
VIRGINIA STATE BAR 
 
v.  Record No. 991943     OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
June 9, 2000 
RODNEY GOODE GOGGIN, ET AL. 
 
FROM THE CIRCUIT COURT OF STAFFORD COUNTY 
Thomas A. Fortkort, Judge 
 
 
In this appeal, the Virginia State Bar challenges the 
judgment of the trial court that ordered funds in an 
attorney's trust account distributed among claimants of the 
funds on a pro rata basis.  We will reverse the judgment of 
the trial court and remand the case for entry of a new 
distribution order because, to the extent possible, funds in 
an attorney's trust account should be distributed in 
accordance with clearly ascertainable ownership interests of 
the funds. 
 
The State Bar, in connection with an attorney 
disciplinary proceeding, filed a complaint and petition 
pursuant to Code § 54.1-3936.  The State Bar sought 
appointment of a receiver to take possession of the attorney's 
trust account and other assets and to make recommendations 
regarding the proper distribution of the assets.  The trial 
court granted the State Bar's petition and appointed a 
receiver. 
 
In his report filed with the trial court, the receiver 
concluded that the amount of verified claims against funds 
that were to be held in trust by the attorney exceeded not 
only the amount in the trust account, but also the total 
amount available to the receiver, including the attorney's 
operating accounts, accounts receivable, and cash received 
from the sale of assets.  However, the receiver reported that 
$375,764.27 of the available funds in the trust account could 
be traced to deposits made on behalf of six specific 
claimants.  Based on the ability to trace these funds, the 
receiver recommended that they be disbursed in accordance with 
the ascertainable ownership interests.  The receiver went on 
to conclude that Code § 54.1-3936(E) prefers "trust creditors 
over other creditors as to all [the] funds [available] whether 
actually held in trust or not."  The receiver proposed that 
the remaining available funds be distributed among the trust 
account claimants on a pro rata basis. 
 
Following a hearing, the trial court rejected the 
recommendation of the receiver regarding the disbursement of 
funds and ordered that the funds be disbursed among all 
claimants on a pro rata basis.  In its ruling, the trial court 
did not reject the receiver's conclusion that § 54.1-3936(E) 
prefers trust account creditors over general creditors, nor 
did it reject the methodology used by the receiver to trace 
 
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the ownership interests in the trust account.  The basis for 
the trial court's ruling was that it believed a pro rata 
disbursement plan was "the fairest distribution scheme in a 
totally unfair situation."  The State Bar appealed, asserting 
inter alia that the trial court's order failed to follow 
"well-established Virginia case law regarding trusts," and the 
"statutory directives set forth in Va. Code §§ 54.1-3936 and 
6.1-2.23."  We agree with the State Bar. 
Clients' funds deposited in an attorney's trust account 
are funds held in trust.  As such, the claim of such clients 
for return of the funds is more than merely a personal claim 
against the attorney for the payment of the sum of money on 
deposit.  The clients retain an equitable or beneficial 
ownership interest in the funds.  Broaddus v. Gresham, 181 Va. 
725, 731-32, 26 S.E.2d 33, 35-36 (1943).  The deposit of one 
client's funds in an account with funds of other clients does 
not destroy the beneficial interest of the clients in the 
funds so deposited.  Thus, the clients are entitled to those 
funds to the extent their equitable ownership interests can be 
traced.*  
                     
* Attorneys are authorized to deposit clients' funds in a 
single trust account with a subsidiary ledger.  See former 
Virginia Code of Professional Responsibility, DR 9-103(A)(3), 
Rules of Court, Part 6, Section II, now Rule 1.15(e)(iii), 
effective January 1, 2000. 
 
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Furthermore, in this case, some of the funds deposited in 
the attorney's trust account were deposited with the attorney 
acting as a settlement agent and thus are subject to § 6.1-
2.23.  That statute provides that such funds "shall be the 
property of the person . . . entitled to them under the 
provisions of the . . . agreement and shall be segregated 
. . . in a manner that permits the funds to be identified on 
an individual basis."  This provision is consistent with the 
principle that claimants to the proceeds of an attorney's 
trust account retain ownership in those funds and are entitled 
to recover the full amount of their identifiable ownership 
interest where possible. 
 
If all or part of a claimant's ownership interest cannot 
be traced to specific funds in the trust account, the right to 
recovery is not lost, but that right does not attach to funds 
identified as owned by another.  Under such circumstances, the 
right to recovery runs to funds not traceable to a specific 
owner, and a pro rata distribution would be appropriate. 
 
For these reasons, we will reverse the distribution order 
of the trial court and remand the case for entry of a new 
distribution order consistent with the law set forth in this 
opinion. 
Reversed and remanded.
 
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