Can a lawyer take fees owed from an earlier unrelated case out of a client's judgment or settlement funds in the lawyer's trust account?

Plain-English summary

The committee considered whether an attorney may offset, against a judgment due a client from one cause of action, an amount the client owes the lawyer on a previous unrelated case. It answered with a qualified yes that turns on a written agreement.

The committee started from DR 9-102(A)(2), which permits a lawyer to withdraw funds owed to the lawyer when they are due unless there is a dispute over the amount. It declined to address whether the lawyer might have a lien, noting it cannot answer questions of law. Surveying decisions from other jurisdictions (In re Geralds, Florida Bar v. Sawyer, Greenbaum v. State Bar), the committee observed that most states require at least notice to the client before withdrawal, and that one court (In re Marine) held the lawyer and client must reach an explicit agreement on three points before any "when due" withdrawal: the right to expect a specific claimed fee, the amount the lawyer is entitled to, and the time payment is expected; absent such agreement a prudent lawyer should not assume a right to withdraw. It also noted DR 9-102(B)(4)'s duty to promptly deliver funds the client is entitled to receive, and the ABA's suggestion (Informal Opinions 1375 and 1376) that an unresolved dispute over funds may be put to an action adjudicating all claimants' rights.

The committee concluded that a lawyer may enter a written contract at the time of employment, with full disclosure, allowing the lawyer to offset all fees against future judgments or settlements. But absent such a written contract, the lawyer may not withdraw amounts due for an unrelated cause of action, because any fee not paid promptly is in dispute within the meaning of DR 9-102(A)(2). The committee said a lawyer should be careful at closing not to withdraw the funds then, though with a contract executed at that point and full disclosure the lawyer could pay the fees. Otherwise the lawyer must remit the client's funds or resort to a legal remedy outside the committee's jurisdiction.

Currency note

This opinion was issued in 1980 under Kentucky's former Code of Professional Responsibility (in effect 1971 to 1990), before the Kentucky Bar Association's 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer take fees owed from an old case out of a client's settlement funds?

A: Only with a written agreement. The opinion concluded that absent a written contract authorizing the offset with full disclosure, the lawyer may not withdraw fees for an unrelated matter.

Q: Why is an unpaid fee treated as disputed?

A: The committee held that any fee not paid promptly by the client is in dispute within the meaning of DR 9-102(A)(2), which permits withdrawal of due funds only when there is no dispute over the amount.

Q: What kind of agreement permits the offset?

A: A written contract entered at the time of employment, with full disclosure, allowing the lawyer to offset all fees against future judgments or settlements.

Q: If there is no agreement, what must the lawyer do with the funds?

A: Remit to the client the funds the client is entitled to receive, or resort to a legal remedy, which the committee said is outside its jurisdiction.

Background and rules framework

The opinion applies the Code's safekeeping-of-property rules, DR 9-102(A)(2) (withdrawal of due, undisputed fees) and DR 9-102(B)(4) (prompt delivery of client funds). The modern analogs are Model Rule 1.15 (safekeeping property; segregation of disputed funds) and Model Rule 1.5 (fees). The committee's central move is to treat a promptly unpaid fee, especially one from an unrelated matter, as disputed, so that the funds may not be unilaterally withdrawn without a prior written agreement.

Citations and references

Rules of Professional Conduct:

• DR 9-102(A)(2) and DR 9-102(B)(4) (safekeeping and delivery of client funds); modern analogs Model Rule 1.15 and Model Rule 1.5

Cases:

• In re Geralds, 263 N.W.2d 241 (Mich. 1978), notice to client before withdrawal
• Florida Bar v. Sawyer, 334 So.2d 259 (Fla. 1976), notice before withdrawing funds
• Greenbaum v. State Bar, 15 Cal.3d 893 (Cal. 1976), notice before withdrawal
• In re Marine, 264 N.W.2d 285 (Wis. 1978), explicit three-point agreement required before "when due" withdrawal

Other opinions cited:

• ABA Informal Opinions 1375 and 1376 (action to adjudicate competing claims to disputed funds)

See also

• KBA Ethics Op. E-292: Withdrawing Disputed Fees
• KBA Ethics Op. E-247: Failing to Appear Over Unpaid Fees
• KBA Ethics Op. E-269: Discharged Contingent-Fee Lawyer

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-233.pdf

Original opinion text

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

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-233
Issued: May 1980

This opinion was decided under the Code of Professional Responsibility, which was in effect from 1971 to 1990. Lawyers should consult the current version of the Rules of Professional Conduct and Comments, SCR 3.130 (available at http://www.kybar.org), before relying on this opinion.

Question:

May an attorney offset, against some judgment due his/her client from one cause of action, an amount due the lawyer on a previous unrelated case?

Answer:

Qualified yes.

References:

DR 9-102(A)(B); In re Geralds, 263 N.W. 2d 241 (Mich. 1978); Florida Bar v. Sawyer, 334 So.2d 259 (Fla. 1976); Greenbaum v. State Bar, 15 Cal.3d 893 (Cal.1976); In re Marine, 264 N.W.2d 285 (Wisc. 1978); ABA Informal Opinion 1375, 1376

OPINION

DR 9-102(A)(2) of the Code of Professional Responsibility permits an attorney to withdraw from the client's funds any sum owing to the lawyer or the law firm when it is due unless there is a dispute over the amount due. The Ethics Committee is not authorized to answer questions of law. Therefore, we cannot consider whether an attorney may have a lien on these funds.
A number of jurisdictions have considered this question from a legal as well as an ethical viewpoint. Most states will say that the lawyer must at least give some notice to the client as to the imminent withdrawal of funds See In re Geralds, 263 N.W.2d 241 (Mich. 1978); Florida Bar v. Sawyer, 334 So.2d 259 (Fla. 1976); Greenbaum v. State Bar, 15 Cal.3d 893 (Cal. 1976).
One court has found that the attorney and the client must reach an explicit agreement about the attorney's right to withdraw clients' funds "when due." For the attorney to withdraw funds from the client's trust account, even "when due" the attorney and client must at least agree on three points:
(1) the right of the attorney to expect the client to pay a specific claimed fee,
(2) the amount to which the attorney is entitled,
(3) the time at which payment is expected.

The court further held in absence of an agreement with the client on these matters, a reasonably prudent attorney should not assume that he may withdraw funds pursuant to DR 9-102(A)(2). In re Marine, 264 N.W. 2d 285 (Wisc 1978).

DR 9-102(B)(4) requires that the attorney promptly pay or deliver to the client upon request any funds, securities or other properties which the client is entitled to receive (emphasis added). In ABA Informal Opinion 1375 and 1376 the American Bar Association Ethics Committee suggested that when there is a conflict between an attorney and client about who is entitled to funds in an attorney's possession and when this conflict is not quickly and amicably resolved, an attorney may properly file an action for the adjudication of the rights of all claimants. The respective interests of the lawyer and client can be protected by court order in an adversary proceeding or by private agreement of the parties.
The Committee feels that an attorney may very well enter into a written contract with the client at the time of employment allowing the lawyer to offset all lawyer's fees on any judgment(s) or (settlement(s)) in the future (assuming full disclosure). However, in absence of a written contract of employment it is our opinion that the lawyer may not withdraw amounts due the lawyer for an unrelated cause of action. We feel any fee not paid promptly by the client is in dispute within the meaning of DR 9-102(A)(2).
A lawyer should be zealous at the time of closing out the one case not to withdraw the funds at that time. Although, with a contract executed at that time and after full disclosure the lawyer could issue another check to the lawyer in payment of these fees.
In the absence of the above the lawyer must remit to the client the funds the client is entitled to or resort to a legal remedy of which this Committee has no jurisdiction.

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor rule). The Rule provides that formal opinions are advisory only.