The Kentucky Court of Appeals ruled in the challenge by Angela Ford for garnishment of attorney fees for Fen Phen Defendants -Generally attorneys allowed to keep earned fees
MILDRED ABBOTT, ET AL.
SHIRLEY A. CUNNINGHAM, ET AL.
ENTERED 07/20/2012 OPINION AFFIRMING IN PART, REVERSING IN PART,
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BEFORE: CLAYTON, STUMBO, AND THOMPSON, JUDGES.
CLAYTON, JUDGE: This is an appeal from interlocutory orders of the Boone Circuit Court. For the foregoing reasons, we affirm in part, reverse in part and remand this action to the trial court for further findings consistent with this opinion.
The Appellants are former clients of Appellees Shirley A. Cunningham, Jr., William J. Gallion and Melbourne Mills, Jr. (the “Judgment Debtors”). The Judgment Debtors were members of Tandy, LLC. The originaljudgment from which this action sprang was a 2007 money judgment in theamount of $42,000,000 against the Judgment Debtors. Appellees David E. Davidson and Stephen S. Dobson, III were attorneys for Cunningham with whom they had a written flat fee agreement in a 2007 criminal case in federal court (the “Criminal Case”).
Appellees Cors and Bassett, LLC were also attorneys for Cunningham and Gallion and were paid out of their client trust account on an hourly basis.
Appellee Mary Meade-McKenzie was counsel for Gallion in the Civil Case.
Appellee James A. Shuffett represented Mills in the Criminal Case and Civil Case matter pursuant to a flat fee agreement. Fulkerson & Kinkel represented Mills in amalpractice action. At the time the garnishment was received, the deductible that
Mills had paid had been exhausted and Fulkerson & Kinkel were being paid by the malpractice insurance carrier.
O. Hale Almand, and W. Robert Lotz represented Gallion. Almand had a flat fee agreement to represent Gallion in the Criminal Case. Lotz had a
retainer agreement with Gallion which was paid to Lotz as the work was performed. Lotz was contractually obligated to represent Gallion in the federal Criminal Case. Andre F. Regard represented Tandy, LLC and was paid by the interim receiver. The attorneys representing the Judgment Debtors will hereinafter be referred to collectively as the “Attorneys.”
In compensation for fees in both cases, the Judgment Debtors transferred monies to the Attorneys. Thereafter, the Appellants filed garnishments on the accounts of the Attorneys and eventually filed a petition in the Boone Circuit Court to enforce the garnishments through attachment of assets.
Attorneys fought the attachment, arguing that the transferred cash was payment for services they provided and would continue to provide in the Criminal Case and/or the Civil Case. The trial court denied the Appellants’ petition to attach garnished
assets. After an in camera review of the fee, the trial court granted the Attorneys leave to apply the money they held in client trust accounts as legal fees accrued by the Judgment Debtors and gave the Appellants a lien on any monies which were
not used as attorney’s fees.
Appellants now ask us to review the trial court’s denial of their petition, arguing that the trial court incorrectly found that the contents of an attorney’s client trust account either do not belong to the client or are not subject to garnishment.
Cors & Bassett, Fulkerson & Kinkel, and Regard had already applied all the funds that they held as retainers as fees in their escrow accounts prior to service of the garnishment. Consequently, we find there were no remaining fees upon which an attachment would stand against these Attorneys and affirm the decision of the trial court as to them.
Appellants argue that since the garnishment statute does not provide an exception for garnishees that have been retained as counsel of the debtor, the money paid to the Attorneys and which remained in their trust accounts at the time of their judgment was subject to garnishment. The Attorneys representing the Judgment Debtors in the Criminal Case, however, argue that their written flat fee agreement with the Judgment Debtors existed months before the Appellants obtained their judgment against them in August of 2007.
Appellants argue that funds held by a debtor’s attorney are not exempt from attachment even if they have been transferred to the attorney. In other words, they contend that they are entitled to recover the monies the Attorneys have in their
escrow/client trust accounts.
Rules of the Supreme Court (SCR), Rules of Professional Conduct, 3.130, provides that the contents of an attorney’s escrow account belong to the clients for which they have been deposited.
The Attorneys, however, argue that a “flat fee” arrangement is different. In SCR 3.130(1.5(8)), a “flat fee” is considered different due to the added risk the
attorney takes should litigation and representation of the client be more difficult than first expected.
Appellants, on the other hand, contend that the “flat fee” agreements for legal services do not defeat the impact of the garnishments and that
the funds may be attached. In the present case, however, there was not a “portion” of the fee designated as nonrefundable. Instead, the entire fee was earned when the Attorneys took their fee from the Judgment Debtors. Their argument, in essence,
is that the fee was earned upon their acceptance of it.
Kentucky Bar Association Ethics Opinion E-380, which provides that:
Lawyers may designate some amount of a client’s written fee payment for a particular case or matter as a “NON-REFUNDABLE RETAINER” with the intention to make it clear to the client that a portion of the fee is earned at the time of payment and commencement of the representation, and that if the client discharges the lawyer, this advanced fee payment will not be returned.
the trial court found there were no remaining monies which could be attached until after representation by the Attorneys had come to a conclusion. The trial court also reserved the right to examine the fees of Davidson, Almand, Dobson and Lotz for “reasonableness”after the Criminal Case was over.
We conclude that a “flat fee,” such as the ones accepted in the Criminal Case herein, is earned immediately by the attorney due to the inherent risk the attorney takes by accepting the fee and representation of the client regardless of the time
and effort which could be involved. There is no indication in this action that the Attorneys did not continue to represent the Judgment Debtors. However, nonrefundable fees must be reasonable. The trial court acknowledged this fact and
reserved the issue until after the conclusion of the Criminal Case.
the trial court reserved to make a finding on the issue of the reasonableness of the fees until after the Criminal Case was finished. We must, therefore, remand this action to the trial court for a finding on this issue
STUMBO, JUDGE, CONCURS.
THOMPSON, JUDGE, CONCURS AND FILES SEPARATE OPINION.
BRIEF FOR APPELLANTS:
Angela M. Ford
Seth Jared Johnston
BRIEF FOR APPELLEES
MELBOURNE MILLS, JR. AND
JAMES A. SHUFFETT:
James A. Shuffett
BRIEF FOR APPELLEE CORS &
Jeffrey J. Harmon
BRIEF FOR APPELLEE W.
W. Robert Lotz
BRIEF FOR APPELLEE ANDRE F.
Katherine W. Ross
Andre F. Regard
BRIEF FOR APPELLEES CALVIN
FULKERSON AND LYNN,
FULKERSON, NICHOLS AND
Calvin R. Fulkerson
J. Christian Lewis
BRIEF FOR APPELLEES DAVID E.
DAVIDSON, STEPHEN S. DOBSON
III AND O. HALE ALMAND:
J. Stephen Smith
Fort Mitchell, Kentucky
NO BRIEFS FILED FOR
APPELLEES SHIRLEY A.
CUNNINGHAM, JR.; J. GALLION;
AND MARY MEAD-MCKENZIE