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Huston v. Exchange Bank

Supreme Court of Iowa

November 13, 1985

Thomas H. HUSTON, As State Superintendent of Banking, State of Iowa, Applicant,
v.
EXCHANGE BANK, A Private Bank, Bloomfield, Iowa; Peter Burchette and Mrs. Nan Burchette Cameron, Respondents. D.W. HARRIS and Vern M. Ball, Appellants,
v.
Thomas H. HUSTON, Superintendent of Banking, as Receiver of Exchange Bank, Appellee.

Vern N. Ball, Bloomfield, for appellants.

Page 625

Mark E. Schantz and Jon P. Sullivan of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, and Howard O. Hagen, Asst. Atty. Gen., for appellee.

Considered by HARRIS, P.J., and McGIVERIN, LARSON, CARTER, and WOLLE, JJ.

CARTER, Justice.

This appeal concerns the action of the receiver of an insolvent "private bank" denying priority status to the claims of two lawyers seeking recovery of funds deposited as client trust accounts. The district court upheld the action of the receiver. We affirm the judgment of the district court.

D.W. Harris and Vern M. Ball are lawyers practicing in Bloomfield, Iowa. At the time the Exchange Bank of that city was placed in receivership on September 13, 1983, D.W. Harris had on deposit in that bank the sum of $5109.13 in an account entitled "D.W. Harris Client Trust Account." Vern M. Ball had on deposit with the Exchange Bank on that date the sum of $21,330.15 in an account entitled "Ball Law Office--Client Trust Account." It is not disputed that these accounts were established by the deposit of funds which came into the possession of the lawyers through their representation of clients and that the funds so deposited were the property of the clients.

Within the time fixed by court order for the filing of claims in the receivership, both lawyers filed claims with the receiver seeking priority status for the two accounts identified above. They alleged that, in depositing their clients' funds in the Exchange Bank, they were acting under an agreement with the bank that (a) these funds would be kept separate from and not be commingled with the other funds of the bank, and (b) the depositors' claim to such funds would be based on a right of possession in specific property rather than as a general creditor of the bank.

At the hearing held on these claims in the district court, D.W. Harris testified that, as a young lawyer in Bloomfield during the great depression, he had become aware that "many attorneys were badly burned" on account of having deposited clients' funds in banks which had failed. He testified that he had discussed this problem at length with Heinrich C. Taylor, a Bloomfield lawyer, who represented the Exchange Bank and who had been in the banking business himself at one time. Harris testified that Taylor informed him it was possible to establish a client trust account in a manner in which the bank becomes a trustee as well as the lawyer and thereby obligated to keep the funds in such account separate from the general assets of the bank. Harris testified that based upon Taylor's advice, he arranged with R.M. Shields the "operating officer" of the Exchange Bank to establish such an arrangement for Harris's client trust account at that bank. His testimony further indicated that local lawyers Paul Proctor and Vern Schlegel had similar arrangements with the Exchange Bank for their client trust accounts.

Claimant Vern M. Ball testified that he had practiced law in Bloomfield since 1963. He stated that, although he had never personally made any arrangement with the Exchange Bank to hold the funds deposited in his client trust account separate from its other assets, he had assumed from conversations with D.W. Harris that this was the practice of the bank in handling all client trust accounts.

Peter Burchette, president and partial owner of the Exchange Bank at the time of its closing in September of 1983, also testified at the hearing on the claims. He testified that he had been president of the bank for twenty-one months and an employee of the bank for eighteen years. He further testified as follows:

Q. Were you acquainted with R.M. Shields? A. Yes.

Q. To the best of your knowledge or best of your recollection was there any agreement between the bank and Mr. Harris as to the existence of some ...


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