2006 Code of Virginia § 54.1-3936 - Protection of client interests in proceedings pending disciplinary action

54.1-3936. Protection of client interests in proceedings pendingdisciplinary action.

A. If Bar Counsel has reasonable cause to believe that an attorney isengaging in any activity which is unlawful or violates the Virginia Rules ofProfessional Conduct and which will result in loss of property of one or moreof the attorney's clients or any other person, Bar Counsel may submit an exparte petition to the circuit court of the city or county wherein theattorney who is the subject of the petition resides or is doing business forthe issuance of an order authorizing the immediate inspection by andproduction to representatives of the petitioner of any records, documents,and physical or other evidence belonging to the subject attorney or anyprofessional partnership, professional limited liability company, orprofessional corporation with which the subject attorney is associated. Thecourt may issue such order without notice to the attorney if the petition,supported by affidavit of the petitioner and such other evidence as the courtmay require, shows reasonable cause to believe that such action is requiredto prevent immediate loss of property of one or more of the subjectattorney's clients or any other person. The papers filed with the courtpursuant to this subsection shall be placed under seal.

B. If Bar Counsel has reasonable cause to believe that an attorney isengaging in any activity which is unlawful or in violation of the VirginiaRules of Professional Conduct and which will result in loss of property ofone or more of the attorney's clients or any other person, Bar Counsel mayfile a petition with the circuit court of the county or city wherein thesubject attorney resides or is doing business. The petition may seek thefollowing relief: (i) an injunction prohibiting the withdrawal of any bankdeposits or the disposition of any other assets belonging to or subject tothe control of the subject attorney or any professional partnership,professional limited liability company, or professional corporation withwhich the subject attorney is associated; and (ii) the appointment of areceiver for all or part of the funds or property of the subject attorney'slaw practice or of any professional partnership, professional limitedliability company, or professional corporation with which the subjectattorney is associated. The subject attorney shall be given notice of thetime and place of the hearing on the petition and an opportunity to offerevidence. The court, in its discretion, may require a receiver appointedpursuant to this section to post bond, with or without surety. The papersfiled with the court under this subsection shall be placed under seal untilsuch time as the court grants an injunction or appoints a receiver. The courtmay issue an injunction, appoint a receiver or provide such other relief asthe court may consider proper if, after a hearing, the court finds that suchrelief is necessary or appropriate to prevent loss of property of one or moreof the subject attorney's clients or any other person.

C. In any proceeding under subsection B, any professional partnership,professional limited liability company, or professional corporation withwhich the subject attorney is associated and any other person or entity knownto Bar Counsel to be indebted to or having in his possession property, realor personal, belonging to or subject to the control of the subject attorney'slaw practice and which property Bar Counsel reasonably believes may becomepart of the receivership assets, shall be served with a copy of the petitionand notice of the time and place of the hearing.

D. The receiver shall, unless otherwise ordered by the court, (i) prepare andfile with the Virginia State Bar an inventory of all case files under thesubject attorney's control; (ii) notify in writing all of the subjectattorney's clients of the appointment and take whatever action the receiverdeems appropriate to protect the interests of the clients until such time asthe clients have had an opportunity to obtain successor counsel, and in thecase of a deceased attorney, notify in writing the personal representative,if any, of the deceased attorney's estate and the commissioner of accounts ofthe circuit court in which the deceased attorney's estate is beingadministered that the receiver may have a claim against the deceasedattorney's estate for fees and costs of the receivership; (iii) identify andtake control of all bank accounts, including without limitation trust andoperating accounts, over which the subject attorney had signatory authorityin connection with his law practice; (iv) prepare and submit an accounting ofreceipts and disbursements and account balances of all funds under thereceiver's control for submission to the court within four months of theappointment and annually thereafter until the receivership is terminated bythe court; (v) attempt to collect any accounts receivable related to thesubject attorney's law practice; (vi) identify and attempt to recover anyassets wrongfully diverted from the subject attorney's law practice, orassets acquired with funds wrongfully diverted from the subject attorney'slaw practice; (vii) terminate the subject attorney's law practice; (viii)reduce to cash all of the assets of the subject attorney's law practice, andin the case of a deceased attorney notify in writing the personalrepresentative, if any, of the deceased attorney's estate, and thecommissioner of accounts of the circuit court in which the deceasedattorney's estate is being administered of any proposed liquidations ofassets; (ix) determine the nature and amount of all claims of creditors,including clients, of the subject attorney's law practice; and (x) prepareand file with the court a report of such assets and claims proposing adistribution to such creditors and, in the case of a deceased attorney,notify in writing the personal representative, if any, of the deceasedattorney's estate and the commissioner of accounts of the circuit court inwhich the deceased attorney's estate is being administered of the proposeddistribution of the receivership funds. Upon the court's approval of thereceiver's report, at a hearing after such notice as the court may require tocreditors, the personal representative of the subject attorney's estate andthe commissioner of accounts of the circuit court in which the deceasedattorney's estate is being administered, the receiver shall distribute theassets of the subject attorney's law practice first to clients whose fundswere or ought to have been held in trust by the subject attorney, then to thereceiver for fees, costs, and expenses awarded pursuant to subsection E, andthereafter to the general creditors of the subject attorney's law practice,including clients whose funds were not required to have been held in trust bythe subject attorney, and then to the subject attorney or the subjectattorney's personal representative.

E. A receiver appointed pursuant to this section shall be entitled, uponproper application to the court in which the appointment was made, to recoveran award of reasonable fees, costs, and expenses. If there are not sufficientnontrust funds to pay the award, then the shortfall shall be paid by theVirginia State Bar, to the extent that the Virginia State Bar has fundsavailable. The Virginia State Bar shall have a claim against the subjectattorney or the subject attorney's estate for the amount paid.

F. The court may determine whether any assets under the receiver's controlshould be returned to the subject attorney or the subject attorney's personalrepresentative during the receivership.

G. This statute is declared to be remedial. Its purpose is to protect theinterests of clients adversely affected by attorneys who have engaged inmisconduct. It is to be liberally administered in order to protect thoseinterests and thereby the public's interest in the quality of legal servicesprovided by Virginia attorneys.

(1985, c. 418, 54-74.01; 1988, c. 765; 1992, c. 574; 1997, c. 239; 2005,cc. 184, 212.)

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