After a jury found that two San Antonio lawyers defrauded a clientand wrongfully took her money, a Bexar County trial court judge signed a final order allowing the plaintiff a highly unusual remedy: a constructive trust on a defendant’s Interest on Lawyers’ Trust Account (IOLTA).
On Jan. 4, 408th District Judge Larry Noll signed the final order in Isabel Sloan v. Law Office of Oscar C. Gonzalez, et al., which awarded plaintiff Isabel Sloan more than $400,000 in damages and found that Sloan had “established the right to the remedy of a constructive trust.” Noll’s order allows Sloan to trace property related to the litigation to the IOLTA bank accountbelonging to defendant San Antonio attorney Oscar C. Gonzalez and/or his law office.
Dan Pozza, a San Antonio attorney who represents Gonzalez and his firm, says he plans to file a motion to set aside the verdict in the case. Pozza says his clients deny any wrongdoing and argues that Sloan did not have an attorney/client relationship with them.
Turton represented himself in the litigation and could not be reached for comment.
Texas Disciplinary Rule of Professional Conduct 1.14 mandates IOLTA accounts, by requiring attorneys to keep their clients’ money in an interest bearing account, separate from a lawyer’s money.
In her March 20, 2012, third amended petition, Sloan alleged that Gonzalez, his firm The Law Office of Oscar C. Gonzalez, and Eric Turton represented her in a probate dispute. She alleged that, after agreeing to settle her case for $100,000, she was only given one-fourth of the proceeds, the remainder of which was deposited into Turton’s IOLTA account. She alleged Turton misapplied the remaining $75,000 — some of which benefited Gonzalez, including payments Turton made to Gonzalez for rent and expenses, among other things.
Gonzalez, his firm and Turton filed pleadings denying the allegations. In a March 9, 2012, response, Gonzalez and his firm specifically deny that Turton was their employee and that they shared in or divided a legal fee with Turton, among other things.
According to its October 2012 verdict, a Bexar County jury found that Gonzalez, his firm and Turton had committed fraud and that Gonzalez and Turton had committed gross negligence.
A Matter of Trust
Carl Kolb, a San Antonio solo who represents Sloan, says that, while it is unusual for a court to allow a plaintiffto place a constructive trust on a lawyer’s IOLTA account to recover property, it was warranted in this case because his client proved in a jury trial that the defendants wrongfully tookher money.
“I’ve never heard of it in my life, but I know you can get a constructive trust” on misapplied funds, Kolb says, and there should be “no quarter” for such funds: “You simply cannot secret it and protect it.”
Gonzalez did not return a telephone call seeking comment.
Sam Drugan, managing partner of San Antonio’s Warren, Drugan & Barrows, was recently retained by Gonzalez and his firm to fight the constructive trust on the firm’s and/or Gonzalez’sIOLTA account.
“I agree: I’ve never seen a garnishment of an attorney’s IOLTA account. I think it’s highly unusual,” Drugan says.
Drugan says Gonzalez will file a motion for intervention to quash the garnishment of trust funds that “are not property of the judgment entered.”
“In the first place, we deny that the money [related to the final judgment] is in the IOLTA account,” Drugan says. “And he [Gonzalez] denies that he was involved in any wrongdoing at all in the matter.”
Dan Pozza, a San Antonio attorney who also represents Gonzalez and his firm, says he plans to file a motion to set aside the verdict in the case. Pozza says his client is also considering filing a motion to correct, modify or reform the final judgment because of the constructive trust placed on Gonzalez and/or his firm’s IOLTA account.
“That may be something the trial court may entertain,” Pozza says. “That would seem to be an odd thing to have in a judgment: a constructive trust imposed on an account which by definition is not owned by the judgment debtor — the judgment debtor being Oscar Gonzalez.”
On June 22, 2012, the Commission for Lawyer Discipline entered a judgment of disbarment against Turton after concluding that he “failed to hold funds belonging to Isabel Sloan separate from his own property” and that he “failed to promptly deliver to Isabel Sloan fund that Mrs. Sloan was entitled to receive.”
Daniel Sheehan, a partner in Dallas’ Daniel Sheehan & Associates who has represented clients in legal-malpractice cases for nearly 30 years, says that, while he’s also never seen a constructive trust placed on a lawyer’s IOLTA account, such actions should be limited to the property a plaintiff is seeking to recover.
“IOLTA accounts are necessarily repositories for someone else’s money,” Sheehan says. “My concern would be that an IOLTA account has potentially several clients’ funds in it — none of it belongs to the lawyer, if the account is administered properly.”
“The flip side of that is lawyers can use the sanctity of an IOLTA account as a way to protect stolen funds or funds received by fraud from the plaintiff. And constructive trustsdo get imposed on property identified as belonging to the plaintiff,” Sheehan says. “My feeling is that the order should be very restrictive in terms of what funds inan IOLTA account are subject to the judgment.”