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COBAR February 12, 2008

If a Colorado lawyer already took earned fees out of the trust account and the client then disputes the bill, must the lawyer put the disputed money back into trust?

Short answer: No. The opinion concludes that once fees are properly withdrawn from trust under Rule 1.5(f) and the fee agreement, a later client dispute does not turn the money back into client property, and returning it to a trust account holding other clients' funds would be improper commingling under Rule 1.15(a). The lawyer may, but need not, hold the disputed amount in a separate single-purpose trust account, and must return funds only if the lawyer determines the charge was actually a mistake.

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This page answers the general question as of 2008. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.

Currency note: this opinion is from 2008
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Plain-English summary

Opinion 118 (adopted February 12, 2008) answers a narrow trust-accounting question: when a lawyer has properly withdrawn earned fees from the client trust account, and the client disputes the fee only after the withdrawal, may or must the lawyer return the disputed amount to the trust account? The premise is that the withdrawal was proper, meaning the lawyer withdrew in good faith, in payment of a statement, in accordance with Rule 1.5(f) and the fee agreement, with no dispute known at the time of withdrawal.

The Committee concludes the lawyer is not required, and indeed not permitted, to return the disputed amount to a trust account that holds funds of any clients. Its reasoning is that once funds are properly withdrawn they are the lawyer's property, and a client's later expression of dissatisfaction does not make them client property again; depositing the lawyer's own funds into a client trust account would be commingling in violation of Rule 1.15(a). The opinion aligns with the State Bar of California's Formal Opinion 2006-171 and Oregon State Bar Formal Opinion 2005-149 and the Restatement, and distinguishes Vermont's contrary opinion as resting on different rule language (a former disciplinary rule barring withdrawal of disputed amounts).

The opinion adds two qualifications. First, the lawyer may, but is not required to, place the disputed amount in a separate trust account that holds nothing but that disputed amount. It reads Rule 1.15(c), which requires keeping disputed property separate, as limited to property in which both the lawyer and a non-client third party claim an interest, not a fee disputed only by the client. Second, if the lawyer reviews the matter and determines the client is correct (for example, the client was double-charged or a withdrawal was not credited due to a bookkeeping error), the lawyer would have an obligation to return the mistakenly transferred funds to the trust account, unless the problem is otherwise promptly resolved, such as by direct payment to the client or, with the client's consent, a credit on the next monthly bill.

In practice

Under the Colorado rules as they stood at the time of the opinion, the analysis turns on whether a dispute existed at the moment of withdrawal. The opinion holds that a fee properly withdrawn from trust before any dispute is the lawyer's property, that a later client dispute does not require or permit re-depositing it into a trust account holding other clients' funds (Rule 1.15(a) commingling), and that Rule 1.15(c)'s segregation requirement applies to third-party claims rather than a fee the client alone disputes. It also holds that the lawyer may use a separate single-purpose trust account for the disputed amount, and must return funds to trust where the lawyer concludes the charge was a genuine error. Because Colorado's trust-account and advance-fee rules (including the Rule 1.5(f) and Rule 1.15 provisions quoted here) have been amended since 2008, confirm the current rule text and numbering before relying on the specifics.

Common questions

Q: A client disputed my bill after I already paid myself from the trust account. Do I have to put the money back?

A: No. The opinion concludes that funds properly withdrawn from trust before any dispute do not regain trust status when the client later disputes the fee, and returning them to a trust account that holds other clients' money would be commingling under Rule 1.15(a).

Q: Am I allowed to put the disputed amount back in trust to be safe?

A: Not into a trust account holding other clients' funds. The opinion treats that as commingling. It does allow the lawyer to place the disputed amount in a separate trust account that holds only that amount, but does not require it.

Q: Does Rule 1.15(c) force me to keep the disputed fee separate?

A: The opinion reads Rule 1.15(c) as limited to property in which both the lawyer and a non-client third party claim an interest, so it does not, by itself, require segregating a fee that only the client disputes.

Q: What if I look at the bill and realize the client is right?

A: Then you must return the funds. The opinion says that if the lawyer determines the client was charged in error (for example, double-billed or not credited for a prior payment), the lawyer is obligated to return the mistakenly transferred funds to trust unless the problem is promptly resolved another way, such as direct payment or a credit on the next bill.

Background and rules framework

The opinion interprets Colo. RPC 1.15(a) (holding client and third-person property separate from the lawyer's own) and 1.15(c) (segregating disputed property until interests are severed), together with Colo. RPC 1.5(f) as it then read (advances of unearned fees are client property to be held in trust until earned). The pivot is characterization: funds properly withdrawn for earned fees are the lawyer's property, so the anti-commingling rule, not the disputed-property rule, controls when only the client contests the fee after the fact.

Citations and references

Rules of Professional Conduct:

  • Colo. RPC 1.15(a) / Model Rule 1.15 (safekeeping property; no commingling)
  • Colo. RPC 1.15(c) / Model Rule 1.15 (segregating disputed property)
  • Colo. RPC 1.5(f) / Model Rule 1.5 (advances of unearned fees held in trust until earned)

Cases:

  • Guzzetta v. State Bar of California, 43 Cal. 3d 963, 741 P.2d 172 (Cal. 1987), restoration of funds wrongfully withdrawn from a trust account (distinguished)

Other opinions cited:

  • State Bar of California Formal Op. 2006-171 (2006): funds properly withdrawn and later disputed need not be re-deposited
  • Oregon State Bar Formal Op. 2005-149: lawyer need not replenish trust account when a client disputes a fee after withdrawal
  • Vermont Bar Ass'n Advisory Ethics Op. 1998-05: contrary result under former DR 9-102 (distinguished)

See also

Source

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