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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