Can a lawyer apply court-awarded fees held in trust to a client's unpaid balance when the client won't respond?

Plain-English summary

The inquiring attorney won an order setting aside a judgment against his client and then defeated the opposing party's appeal, obtaining a Court of Appeals award of roughly $5,700 in costs and attorney's fees against the opposing party. The client's balance owed to the attorney for fees and costs exceeded $7,560. The attorney deposited the award in his trust account and repeatedly wrote the client, saying he intended to apply the funds to the balance and asking the client to arrange payment of the rest. The client never responded and could not be reached by phone.

The committee concluded the attorney could apply the funds. It started from the normal duty to notify the client promptly of funds received in which the client has an interest (ER 1.4(a), ER 1.15(b)), but found the circumstances decisive: the funds were awarded to compensate the attorney for his fees and costs, were considerably less than the amount he believed he had earned, and the client had not objected to the fee amount or the proposed application. Because the fees were "unlikely to be disputed," the attorney could justifiably apply the court-awarded funds to the balance due. The committee cited ethics committees in New Hampshire and Connecticut reaching the same result when a client is missing and the fees are indisputably earned.

The committee added that the situation "may present a case for the application of an attorney's common-law retaining lien," but stressed it cannot give advice on pure questions of law and pointed the attorney to Arizona authority (National Sales and Service Co. v. Superior Court) on the validity and scope of such liens.

Currency note

This opinion was issued in 1991, before Arizona's 2003 adoption of the Ethics 2000 revisions to the Rules of Professional Conduct. The safekeeping rule (ER 1.15) and the related Supreme Court trust-account rule have since been revised. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer take his fee from court-awarded funds in trust without the client's explicit consent?

A: Under this opinion, yes, in these circumstances. The committee concluded the attorney could apply the funds because they were awarded for his fees, were less than he had earned, and the unresponsive client had not disputed the amount, making the fees "unlikely to be disputed."

Q: What if the client disputes the fee?

A: The opinion's reasoning rests on the absence of a dispute. ER 1.15(c) and Supreme Court Rule 44 (quoted in the opinion) require the disputed portion to stay in trust until the dispute is resolved, and the Comment to ER 1.15 cautioned that a lawyer may not hold funds to coerce a client into accepting the lawyer's position.

Q: Does an unresponsive, missing client change the duty to notify?

A: The opinion treated the repeated written notices, combined with the client's silence and the funds being awarded for the attorney's fees, as enough; it cited New Hampshire and Connecticut opinions allowing a lawyer to credit indisputably earned fees when the client cannot be located.

Q: Did the committee decide whether a retaining lien applied?

A: No. The opinion noted the facts might support a common-law retaining lien but declined to opine on that question of law, directing the attorney to National Sales and Service Co. v. Superior Court for Arizona law on retaining liens.

Background and rules framework

The opinion applies the safekeeping and communication rules as they stood in 1991. ER 1.15 (Model Rule 1.15) required lawyers to keep client and third-party property separate, to keep disputed funds segregated until a dispute is resolved (ER 1.15(c)), and not to use trust funds to coerce a client. ER 1.4 (Model Rule 1.4) governed communication, including notice of funds received. ER 1.3 (Model Rule 1.3) and ER 1.16 (Model Rule 1.16) were also listed. The opinion also quotes Rule 44 of the Rules of the Supreme Court of Arizona on trust accounts.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / AZ ER 1.15 (safekeeping property; disputed funds)
• MR 1.4 / AZ ER 1.4 (communication; notice of funds)
• MR 1.3 / AZ ER 1.3 (diligence)
• MR 1.16 / AZ ER 1.16 (declining or terminating representation)

Court rules:

• Rule 44, Rules of the Supreme Court of Arizona (trust accounts; duty to deposit and safeguard client funds)

Cases:

• National Sales and Service Co. v. Superior Court, 136 Ariz. 544, 667 P.2d 738 (Ariz. 1983), validity and scope of attorney retaining liens in Arizona

Other opinions cited:

• New Hampshire Bar Opinion 1984-5/11 (1985): lawyer may withdraw indisputable fees when the client is missing
• Connecticut Bar Informal Opinion 89-24 (1989): lawyer may credit indisputably earned funds when the client cannot be located

See also

• AZ Ethics Op. 91-01: Safekeeping a Client's Property
• AZ Ethics Op. 90-11: Scope, Safekeeping, and Expediting

Source

• Landing page: https://tools.dev.azbar.org/RulesofProfessionalConduct/ViewEthicsOpinion.aspx?id=625

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

4/1991

Attorney may apply court-awarded attorney's fees and costs to the balance owed him if client is not responding to repeated telephone calls and letters.

FACTS

The inquiring attorney was retained by a client in 1988 for the purpose of setting aside a judgment that had been entered against the client. The inquiring attorney succeeded in having the judgment set aside, and the opposing party filed an appeal. The inquiring attorney was also successful in defending against the appeal. The Court of Appeals entered an award against the opposing party and the opposing party's .attorney for costs and attorney's fees in the amount of approximately $5,700.00. The present balance owing by the client to the inquiring attorney for costs and attorney's fees is in excess of $7,560.00.

The inquiring attorney received payment of the court-awarded costs and attorney's fees, and deposited it in his trust account. He has repeatedly written his client, both before and after receipt of the payment, advising' the client that he intends to apply these funds to the balance due him on the client's account, and requesting that the client make arrangements for the payment of the remaining balance. The inquiring attorney has received no response from his client about this matter, and has not been able to reach the client by telephone.

QUESTION

May the inquiring attorney, with ethical property, apply court-awarded attorney's fees and costs to the balance owed him by his client, when the client is not responding to the inquiring attorney's repeated telephone calls and letters?

ETHICAL RULES INVOLVED

**ER 1.3. Diligence **

A lawyer shall act with reasonable diligence and promptness in representing a client.

Comment to ER 1.3: ...A lawyer should act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf. . .

ER 1.4. Communication

Comment to ER 1.4: ... The guiding principle is that the lawyer should fulfill reasonable client expectations for information consistent with the duty to act in the client's best interests, and the client's overall requirements as to the character of representation. . .

ER 1.15. Safekeeping Property

(a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. Funds shall be kept in a separate account maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client or third person. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.

Comment to ER 1.15: ... Lawyers often receive funds from third parties from which the lawyer's fee will be paid. If there is a risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed. . .

E.R. 1.16. Declining or Terminating Representation

(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.

Comment to ER 1.16: . . . The lawyer may retain papers as security for a fee only to the extent permitted by law. . .

RULES OF THE SUPREME COURT

Rule 44. Trust Accounts; Interest Thereon

(a) Duty to deposit client funds. All funds of clients paid to a lawyer or law firm shall be deposited in one or more identifiable interest-bearing trust accounts maintained as provided in this rule, and no funds belonging to the lawyer or law firm shall be deposited therein except as follows:

2. Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.

(b) Duty to safeguard client property. A lawyer shall:

4. Promptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive.

OPINION

Essentially, the inquiring attorney asks whether he can ethically apply court-awarded attorney's fees and costs toward earned fees and accrued costs without first obtaining his client's specific consent.

Typically, the inquiring attorney should notify his client promptly of the receipt of any funds or other property in which the client has an interest. See ER 1.4(a) and ER 1.15(b). However, in this case: (1) the funds were awarded by the court to the client to compensate the inquiring attorney for his fees and costs incurred by him; (2) the court-awarded funds are in an amount considerably less than the amount the inquiring attorney believes he has earned and is entitled to receive; and (3) the client has not objected to the amount of the inquiring attorney's fees, or to his proposed use of the court-awarded fees and costs in his possession toward satisfaction of the client’s indebtedness to him arising from the representation. Under the circumstances, the inquiring attorney's fees are unlikely to be disputed by the client and the inquiring attorney may justifiably apply the court-awarded funds to the balance due.

Ethics committees in other jurisdictions have addressed this issue and have come to the same conclusion. See, e.g., New Hampshire Bar Association Ethics Committee Opinion 1984-5/11 (March 12, 1985) (ABA/BNA Lawyers' Manual on Professional Conduct, p. 801:5708) (lawyer may withdraw fees and expenses from funds in his trust account where the client is missing and the fees are unlikely to be disputed); Connecticut Bar Association Committee on Professional Ethics, Informal Ethics Opinion 89-24 (September 27, 1989) (ABA/BNA Lawyers' Manual, supra, p. 901:2064) (lawyer may credit account with funds indisputably earned when the lawyer cannot locate his client).

Although this committee is prohibited from giving advice on pure questions of law (see the Committee's Statement of Jurisdictional Policies, Paragraph 6(a)), we believe that the inquiring attorney's question may present a case for the application of an attorney's common-law retaining lien. See Thornton on Attorneys at Law, (1914), §§ 573-577; Brown on Personal Property (3d ed. 1975), § 13.9; Restatement, Security, (1941), § 62(b) and Comment i; Restatement 2d, Agency, (1957), § 464(b) and Comment j; 7 Am. Jur. 2d “Attorneys at Law" (1941), §§ 315-323, especially § 317; 7A C.J.S. "Attorney and Client" (1980), § 358; and Anno., 3 A.L.R.2d 148-160 (1949). For the law with respect to the validity and scope of retaining liens in Arizona, the committee recommends that the inquiring attorney consult National Sales and Service Co. v. Superior Court, 136 Ariz. 544, 667 P. 2d 738 (1983).

In conclusion, the Committee on Rules of Professional Conduct holds that the inquiring attorney may ethically apply the court-awarded attorney's fees and costs to the balance due him from his client for attorney's fees and costs indisputably earned and incurred by him in representing his client.

©State Bar of Arizona 1991