in the Trust Account "at the hour of the signing of the freeze
order," and were the property of the client Credit Bancorp at
that moment. Id.
Baker & McKenzie also contends that it is entitled to the Trust
Funds because it had already rendered the services which would
have entitled it to draw down the Trust Account prior to the
freeze order, although it had not actually done so. Baker &
McKenzie relies primarily on Securities and Exch. Comm'n v.
Interlink Data Network of Los Angeles, Inc., 77 F.3d 1201 (9th
Cir. 1996) for the general proposition that ownership of a
retainer passes to the law firm at the time services are
rendered. The court in Interlink confronted a somewhat
different factual situation than the one herein. In Interlink,
the law firm contended that under its retainer agreement it
became the owner of funds paid in advance at the time of
payment. See Interlink, 77 F.3d at 1204. The court analyzed the
retainer agreement and concluded, based on the terms of that
agreement, that the firm was entitled to the portion of the funds
for which services had been rendered prior to the freeze order
rather than based on the date of payment. See id. at 1204-06.
Interlink does not stand for a general proposition of law
dictating that this Court conclude that ownership of the Credit
Bancorp Trust Fund passed to Baker & McKenzie at the time
services were rendered.*fn1
The terms of the fee agreement at issue in the instant case
support the conclusion that the Trust Funds did not become the
property of Baker & McKenzie until a transfer from the Trust
Account to the firm's general account was actually effectuated.
In this agreement, Baker & McKenzie states that the retainer
funds "will be held" in the Trust Account and that Baker &
McKenzie "will apply all or a part of that advance in payment of
[its] monthly billing." The agreement does not provide that funds
automatically become the property of Baker & McKenzie as services
are rendered but, instead, requires that Baker & McKenzie take
affirmative steps to "apply" the Trust Funds to its own account.
These steps were above and beyond those involved in generating
and sending out invoices. The agreement provides for an element
of discretion on the part of Baker & McKenzie both as to whether
to apply the funds in this manner and the timing thereof. In
addition, as Baker & McKenzie notes in its legal memorandum,
under the terms of the engagement letter Baker & McKenzie
obtained payment for legal services either from the retainer or
in the form of direct payment from Credit Bancorp. Finally, the
agreement provides that any monies remaining in the Trust Account
at the end of the engagement will be refunded to Credit Bancorp.
Thus, the terms of the fee agreement indicate that the transfer
of ownership over the Trust Funds was not automatic upon the
rendering of services — nor even when invoices were rendered.
Therefore, the monies remaining in the Trust Account at the time
of the freeze order were still the property of Credit Bancorp.
Finally, Baker & McKenzie also cites to Singapore law in
support of its contention that it owned the Trust Funds as of the
asset freeze. Assuming arguendo that Singapore law applied — a
proposition for which Baker & McKenzie does not provide legal
authority — it would not change the result herein. Singapore
Rule 7(1)(a) permits attorneys pursuant to certain kinds of fee
arrangements to draw funds from a client account after
presentation of a bill to the client. See Singapore Legal Prof.
R. 7(1)(a) (funds "may be drawn" from client account); see also
Chia Ah Sim v. Ronny Chong & Co., 1993 SLR LEXIS 535, at *17
(High Court, Feb. 2, 1993) (client account funds "can be
withdrawn" after bill delivered). Permission to withdraw such
funds, however, does not mean that transfer of ownership over
those funds occurs automatically.
Entitlement To A Set Off
The conclusion that the Trust Funds are owned by Credit Bancorp
— and therefore, by the Receivership estate — rather than by
Baker & McKenzie, does not mean that Baker & McKenzie may not
assert a claim like any other creditor. In this regard, the Court
notes that Baker & McKenzie has raised the argument that, even if
the Trust Funds are a Credit Bancorp asset, it is entitled to
"preferential treatment" over other Credit Bancorp creditors in
the form of an offset for Credit Bancorp's indebtedness for
unpaid legal services. The value of those unpaid services,
according to Baker & McKenzie, is more than $302,532.79.
It would be premature at this juncture for the Court to
determine whether Baker & McKenzie is entitled to be treated
differently from other creditors. Two proposed plans for a
partial distribution of the receivership estate, one submitted by
the SEC and one submitted by counsel for certain intervenors, are
presently before the Court for consideration. The Court is
accepting customer comments on these proposals through June 28,
2000. The Court will also accept comments from Baker & McKenzie
by that date regarding any entitlement to raise its offset claim
in relation to the proposed partial distribution and how the
Court should treat such a claim.
It is so ordered.