Virginia has always been a pro-creditor state and, while its reputation as a pro-creditor state has been historically strong, it has eroded somewhat in the past few years . Despite such erosion – which may have been consistent with the economic times – Virginia’s pro-creditor tendencies continue on, and are reinforced by the Virginia Supreme Court which, ultimately, necessitates that even those attorneys who represent debtors be careful when they work in this Commonwealth.
The case of Marcus, Santoro & Kozak, P.C. v. Wu, 274 Va. 743 (2007)deals with the situation in which a debtor, seeking representation to defend against judgments in Virginia, deposited significant funds into his attorneys’ bank account, which was then garnished by counsel for the Plaintiff. As might be imagined, the Defendant’s attorneys fought. However, the attorneys still had to, after paying themselves, deposit into the court the balance of their client’s trust account, as of the date that they had been served with the garnishment summons. Those attorneys then stood back, and took the position that they had sent to court all of the money to which the judgment creditor was entitled. When that position was challenged, the Circuit Court opined that their obligation to turn over the Defendant’s funds, held by them, reached back to the date that the Writ of Fieri Facias was delivered to the sheriff, as opposed to the earlier date that they were served with the garnishment summons, and that the “…funds held in the trust account represented payment in advance for legal fees not yet incurred and that the balances in the trust account at any particular time remain [the debtor’s] property.”
The Virginia Supreme Court subsequently found that funds held in an attorney’s trust account, subject to future payment for legal fees, belong to the client – the debtor/defendant in this case and that the attorney is merely a fiduciary holding that money for the client. Moreover, the Court opined that the creditor asserts “no greater rights against the garnishee than the judgment debtor, himself, possesses.” Id. at 753. Indeed, “a garnishment reaches any intangible property interest of the debtor and that property interest is not constricted to a narrow category of a debtor-creditor obligation.” Id. at 754. Therefore, the debtor’s “property interest in the trust accounts could be attached in garnishment…” Id. at 755. Additionally, according to the Court, the Lien of Fieri Facias (the garnishment lien in this case) was effective on the date “delivered to the sheriff.” As such, if the law firm had paid itself from the client’s trust account after that date of delivery to the sheriff, it would need to reach back and pay the creditor with that money!
Most recently, in PS Business Parks, L.P. v. Deutsch & Gilden, Inc., 2014 WL 1499567(VA 2014), the Virginia Supreme Court cited Marcus, Santoro & Kozak, P.C. v. Wu as authority in a case where a judgment creditor sought funds held by a bank for a judgment debtor. The judgment debtor, Deutsch & Gilden, Inc., kept those funds in a bank account that was set to reduce to a zero balance on a daily basis, with funds washing to and from subsidiary accounts. The funds were then held overnight, on a short term basis, in the subsidiary accounts so as to maximize accrued interest. However, because of the daily movement between these accounts, the Supreme Court remanded the case to the originating circuit court to “conduct a detailed inquiry into [the bank’s] indebtedness to Deutsch for funds in [the relevant account] over the garnishment period.” PS Business Parks, L.P. at *6. Through such inquiry, the circuit court was then to determine how much of the funds that washed back and forth on a daily basis actually belonged to the judgment debtor, Deutsch. Note, however, that the other, unrelated, account was determined not to be property of the judgment debtor, even if the funds in such account washed and ‘comingled’ with the judgment debtor’s funds.
In PS Business Parks, LP, The Supreme Court also cited another classic Virginia garnishment case, Virginia National Bank v. Blofeld, 234 Va. 395 (1987). The holding in this case compelled an ordinary garnishee to hold funds subject of the garnishment between the date of service of the summons upon it and the return date of the garnishment. Such obligation is quite different than that imposed in many other states, where the amount to be held by the garnishment is measured solely upon the date of service of the garnishment itself. In Virginia, however, the garnishment hold is of a longer duration, a factor forgotten frequently by garnishees.
As the above cited cases make clear, while Virginia’s representation as a pro-creditor state may have eroded a bit in the past, it still stands firmly as a pro-judgment creditor state. If there are any questions on how this firm can assist your efforts in obtaining the benefit of Virginia’s laws, please do not hesitate to contact us.