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Trustees of Clients'' Security Fund of Bar of New Jersey v. Beckmann

Decided: June 30, 1976.


Gelman, J.s.c.


The issues presented here concern questions of priority in the payment of claims of creditors from a fund in court. The facts are not in dispute.

George Avery Beckmann is an attorney at law of the State of New Jersey who is presently under indictment for the embezzlement of funds from a client. The indictment was handed up on April 17, 1975 and avers that on or about December 23, 1974. Beckmann embezzled $6900 from certain clients. On May 22, 1975 the trustees of the Clients' Security Fund (trustees) filed a complaint against Beckmann in this court pursuant to R. 1:28-8 for the appointment of a custodial receiver of the entire estate of Beckmann, including his law practice. A temporary restraining order was signed on that date which, among other things, restrained all persons from commencing or prosecuting any action or obtaining any judgment, preference or lien against the assets of Beckmann.

On May 30, 1975 a custodial receiver was appointed and the restraints against creditors and claimants were continued.

Subsequent to these actions being taken the trustees received claims from other clients of Beckmann involving defalcations allegedly committed by him. The total of the claims filed with the Trustees as of this date is $20,343. The investigation of the trustees has not been completed and additional claims may be filed.

At the time the trustees filed their complaint a mortgage foreclosure action was pending in this court in which Beckmann was named a defendant by reason of a second mortgage he held on the subject real estate. This mortgage had been given on May 29, 1968 to secure an indebtedness owing to Beckmann in the amount of $15,000. Beckmann was also the assignee of a third mortgage, dated May 30, 1972, on the same property and for the same amount. The real estate was sold at sheriff's sale on July 25, 1975, resulting in a surplus of $22,755.44, and an order was entered on July 31, 1975 directing that the surplus funds be paid over to the custodial receiver.*fn1

Notices of claims against Beckmann have been filed with the receiver aggregating $68,695.71, inclusive of the claims filed with the trustees by Beckmann's clients. These claims include personal unsecured obligations of Beckmann for bank overdrafts, attorney's fees, telephone bills, personal expenses, and alimony and support payments due his former wife pursuant to a judgment of divorce entered prior to the inception of these proceedings. The receiver has applied to the court for an order fixing the priority, if any, of the claims to be paid from the fund and for the payment of administration expenses.

The principal claimants -- the trustees and Beckmann's former spouse -- assert the right to priority over each other as well as over all other claimants. The trustees, who will be subrogated to the rights of Beckmann's clients to the extent their claims are paid by the trustees (R. 1:28-3 (e)), urge they have absolute priority on the theory that Beckmann commingled trust funds with those of his own, and a constructive trust or equitable lien should therefore be imposed on all property of Beckmann, including any property acquired by him with the use of trust assets.

Mrs. Beckmann's claim is founded upon a judgment of divorce entered on February 18, 1975, under the terms of which she was awarded alimony and support at the rate of $180 a week plus certain additional benefits, including the payment of $2000 attorney's fee to her attorney. Additionally, her husband was ordered to assume responsibility for the payment of certain loans then outstanding for which she had cosigned. On October 3, 1975 an order was entered in this proceeding authorizing Mrs. Beckmann to obtain a judgment fixing the amount of arrearages due to her under the divorce judgment, and judgment was entered on that date in the amount of $19,614.67. The judgment represents the sum of unpaid support and alimony (of which $540 was unpaid as of May 30, 1975, the date the receiver was appointed), unpaid insurance premiums and attorney's fees, and an unsecured loan of Beckmann which Mrs. Beckmann paid as cosigner ($12,224.67).

Mrs. Beckmann claims absolute priority over all creditors on two theories: first, that she is a judgment creditor by virtue of her judgment of divorce entered on February 18, 1975, which fixed Beckmann's financial obligations to her, and second, that public policy favors the claim of a former spouse for support and alimony over those of his commercial creditors.

With the adoption of R. 1:28-8 the Supreme Court has authorized proceedings which are sui ...

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