When a third party claims part of a client's settlement funds the lawyer is holding, must the lawyer hold the money or pay it to the client?

Plain-English summary

Opinion 293 (adopted July 1999, revised February 2000) responded to recurring inquiries about settlement funds a lawyer receives for a client when someone other than the client claims an interest in the money. Under Rule 1.15(b), a lawyer who receives funds in which a client or third person has an interest must promptly notify them and deliver what they are entitled to; under Rule 1.15(c), property whose ownership is in dispute must be kept separate until the dispute is resolved, with the undisputed portion distributed.

The committee distinguished two situations. Where the dispute is between the lawyer and the client, the client's mere assertion of a claim is enough to bar the lawyer from taking the disputed property; citing In re Haar, there is no requirement that the dispute be genuine, serious, or bona fide. Where the claim comes from a third party, the committee held the assertion alone is not enough, because treating any third-party claim as a freeze could function as an unconstitutional prejudgment attachment. The third party must have a "just claim" that "applicable law" obligates the lawyer to protect, as Comment [4] to Rule 1.15 provides, and the lawyer must not unilaterally arbitrate the dispute.

The committee identified types of "just claims" that trigger the duty to notify, distribute the undisputed portion, and safeguard the disputed portion: a served attachment or garnishment on a money judgment; a statutory lien on the proceeds of the matter (for example, a Medicaid lien, as in Opinion 251); a court order directed to the specific funds; and a contractual assignment the lawyer joined or ratified (the local "Authorization and Assignment" used in contingent-fee personal-injury cases). It read the disciplinary decision In re Thomas narrowly, as resting on a recognized statutory lien plus a lawyer-and-client agreement to honor it, rather than as freezing funds on any third-party claim. By contrast, general unsecured creditors, including judgment creditors who have not attached the funds, have no interest the lawyer must honor. Where proceeds are insufficient to satisfy competing just claims, the committee suggested the lawyer let the claimants resolve priority among themselves and, if necessary, file an interpleader action.

Currency note

This opinion was issued in 1999 (and revised in 2000), before the District of Columbia's adoption of the 2007 revisions to the Rules of Professional Conduct. 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: If a client disputes funds the lawyer holds, can the lawyer keep its share?

A: The opinion concluded no. Under Rule 1.15 and In re Haar, the client's mere assertion of a claim, even one not genuine or serious, bars the lawyer from taking the disputed property until the dispute is finally resolved.

Q: Does a third party's claim freeze the client's funds?

A: The opinion concluded only if it is a "just claim" that applicable law obligates the lawyer to protect; a mere unsecured creditor's claim does not, and freezing on any bare claim could raise due-process problems akin to prejudgment attachment.

Q: What counts as a "just claim"?

A: The opinion listed a served garnishment or attachment, a statutory lien on the matter's proceeds, a court order directed to the specific funds, and a contractual assignment the lawyer joined or ratified.

Q: What should the lawyer do with the disputed portion?

A: The opinion held the lawyer must keep the disputed portion in a separate account, distribute the undisputed portion, not arbitrate the dispute, and, if competing just claims cannot be resolved, may file an interpleader action.

Background and rules framework

The opinion interpreted D.C. Rule 1.15 (safekeeping property), including the notice and prompt-delivery duties of Rule 1.15(b), the separate-account and dispute provisions of Rule 1.15(c), and Comment [4]'s "just claims" and "applicable law" language. Because Comment [4] incorporates external civil-liability law, the committee referenced D.C. case law on when a lawyer is liable for disbursing funds subject to a third party's claim.

Citations and references

Rules of Professional Conduct:

• D.C. RPC 1.15 / Model Rule 1.15 (safekeeping property; Comment [4] "just claims")

Cases:

• In re Haar, 667 A.2d 1350 (D.C. 1995) (client's mere claim freezes disputed funds)
• In re Thomas, 740 A.2d 538 (D.C. 1999) (discipline for failing to hold funds subject to a statutory lien)
• Heffelfinger v. Gibson, 290 A.2d 390 (D.C. 1972) (lawyer liable for disbursing in disregard of a lien he agreed to honor)
• Travelers Ins. Co. v. Haden, 418 A.2d 1078 (D.C. 1980) (mere knowledge of a claim insufficient to create liability)

Other opinions cited:

• D.C. Ethics Op. 251 (1994)
• Conn. Informal Op. 95-20 (1995); N.Y. State Op. 717 (1999); Ohio Op. 95-12 (1995)

See also

• DC Ethics Op. 359: Missing Client's Trust Funds
• DC Ethics Op. 379: Charging Liens and Confidentiality
• ABA Formal Op. 02-427: Security Interest to Secure a Fee
• RI EAP Op. 2008-03: Lawyer Holding a Disputed Medical-Payment Check Must Hold It or Interplead

Source

• Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-293