In Kentucky, must a lawyer pay a third party who provided services on a client's case, and must the lawyer honor a third party's claim to client funds the lawyer holds?

Plain-English summary

The opinion answered when a lawyer must ensure payment to someone who provided services on a client's case, and whether the lawyer must honor a third party's ownership claim to client property in the lawyer's hands. The Committee began by noting the inquiry mixes law and ethics and that it could respond only on the ethics (KBA E-297).

On payment, the Committee concluded that a lawyer has an ethical and legal duty to ensure payment to a provider the lawyer hired to furnish services in furtherance of the client's claim, where there is no valid dispute that the services were performed. Drawing on Rule 1.15(b), the KBA/KMA Interprofessional Code, and Minnesota Opinion 7, the Committee reasoned that a lawyer who orders or obtains services without making clear that the provider should look solely to the client is responsible for payment; absent such circumstances, a lawyer is not an insurer of third-party claims. On third-party claims to client funds, the Committee concluded that where the lawyer is placed in the position of a surety or a third party asserts a properly made claim, the lawyer should protect the disputed funds until the dispute is resolved or the lawyer is ordered to distribute, citing Leon v. Martinez and Unigard Insurance Co. v. Tremont (a lawyer who ignored an insurer's statutory lien committed conversion). Reading the Comments to Rule 1.15, the Committee added that disputed funds should be kept in trust, that a lawyer may not hold funds to coerce a client, and that a lawyer should not unilaterally arbitrate a dispute between the client and a third party. As to Question 2, the Committee concluded a lawyer may refuse to surrender property to the client but is not under an ethical obligation under the Rules to protect third parties' interests.

Currency note

This opinion was issued in 1995 and predates the Kentucky Supreme Court's substantial 2009 revisions to the Rules of Professional Conduct (SCR 3.130), as the opinion's own prefatory note states. The opinion refers to Rule 1.2(e), which the bar notes was deleted with the substance moved to amended Rule 1.4(a)(5), and to Comments 2 and 3 of Rule 1.15. Treat this page as historical context, not current guidance.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: Did a Kentucky lawyer have to pay a service provider the lawyer hired on a client's case?

A: Yes, where the lawyer hired the provider without making clear the provider should look solely to the client, and there was no valid dispute the services were performed. The Committee grounded this in Rule 1.15(b) and the Interprofessional Code.

Q: Was the lawyer responsible when the lawyer did not hire the provider, or when there was no recovery?

A: Per the opinion, absent circumstances placing the lawyer in the role of surety, a lawyer is not an insurer of third-party claims; the duty turns on whether the lawyer ordered or obtained the services without disclaiming liability.

Q: What should the lawyer do when a third party claims funds the lawyer holds for the client?

A: The Committee concluded the lawyer should keep the disputed funds in trust and protect them until the dispute is settled or the lawyer is ordered to distribute, and should not unilaterally arbitrate the dispute or hold funds to coerce the client.

Background and rules framework

The opinion interprets KRPC 1.15 (safekeeping property, including handling funds in which a third party claims an interest; Model Rule 1.15), with reference to KRPC 1.2 and KRPC 4.1 (Model Rules 1.2 and 4.1). The analysis turns on whether the lawyer assumed responsibility for the provider's payment and on the lawyer's duty to safeguard, rather than adjudicate, disputed funds.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / KRPC 1.15 (safekeeping property; funds subject to third-party claims)
• MR 1.2 / KRPC 1.2 (scope of representation)
• MR 4.1 / KRPC 4.1 (truthfulness to others)

Cases:

• Leon v. Martinez, 614 N.Y.S.2d 972 (N.Y. 1994), on protecting funds subject to a third-party claim
• Unigard Ins. Co. v. Tremont, 430 A.2d 30 (Conn. 1981), a lawyer who ignored an insurer's statutory lien committed conversion

Other opinions cited:

• KBA E-297; Minnesota Op. 7 (1983); D.C. Op. 251 (1995); KBA/KMA Interprofessional Code

See also

• KBA Ethics Op. E-380: Non-Refundable Retainers and the Trust-Account Requirement
• KBA Ethics Op. E-379: Reporting Nonpaying Clients to a Credit Reporting Agency

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-383.pdf

Original opinion text

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

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-383
Issued: July 1995

Since the adoption of the Rules of Professional Conduct in 1990, the Kentucky Supreme Court
has adopted various amendments, and made substantial revisions in 2009. For example, this
opinion refers to Rule 1.2(e), which was deleted and the substance was moved to amended
Rule 1.4(a)(5), and to Comments 2 and 3 of Rule 1.15. Lawyers should consult the current
version of the rules and comments, SCR 3.130 (available at http://www.kybar.org) before
relying on this opinion.

Question 1:

Does a lawyer have an ethical obligation to ensure payment to an individual who has
provided services to, or on behalf of the lawyers client, or in the furtherance of the
clients case:
a) if the lawyer hired the individual provider?
b) if the lawyer did not hire the individual provider?
c) if, under the same circumstances as 1(a) and 1(b) above, no recovery is
had, or the recovery is insufficient?
d) if the client directs the lawyer not to pay the third person, and instead
directs the lawyer to deliver all funds or property to the client?

Question 2:

Do the Rules of Professional Conduct require a lawyer to recognize and comply with
a third person's claim of ownership to the client's property that is in the lawyer's
possession?

Answers:

1(a). Yes. l(b), l(c), l(d), and 2. See Opinion.

References:

KBA E-297; Leon v. Martinez, 614 N.Y.S.2d 972 (N.Y. 1994); Rule(s) 1.2(d) & (e),
1.15(b) and 4.1; Unigard Ins. Co. v. Tremont, 430 A.2d 30 (Conn. 1981);
KBA/KMA Interprofessional Code, Minnesota Op. 7 (1983). Dist. of Col. Op. 251
(1995).
OPINION

The inquiry presents mixed questions of law and ethics and this committee is limited to
responding based upon matters of ethics. See KBA E-297.
Regarding Question 1(a):

An attorney has an ethical as well as a legal obligation to ensure payment to a third party
employed by the attorney to provide services in furtherance of the client's claim where there is no
valid dispute that the services were performed in accordance with the employment.
Under certain circumstances an attorney is required by the applicable law of the case to
ensure payment to a third party. See Rule 1.15(b); Interprofessional Code, para VI and VII.
Reference is also made to Minnesota Op. 7 (1983), which provides:

Opinion 7 Costs of litigation; Fees.
An attorney may not deny responsibility for the compensation of services rendered
by doctors, engineers, accountants, attorneys or other persons, when the attorney
requested the services without explicitly stating that the provider should not look to
the attorney for payment. Lawyers should expressly disclaim liability in writing at
the time the services are requested. A lawyer ordering services is liable as a
principal for those services absent an express disclaimer. A lawyer may not, by
deceitful or fraudulent means, seek to avoid financial obligations. DRs 102 (A) (4)
(5). 7-101(A)(1)(2)(7). (Adopted 1/26/74, amended 10/26/79, repealed 1/7/83).
In those situations where the attorney ordered the performance of services for the client,
participated in obtaining services for the benefit of the client, obtained services for the benefit of the
client without making it clear to the provider of such services that the provider should look solely to
the client, or where the lawyer conferred with a third party, with the client's knowledge, to take no
present action against the client, for example, a third person's pursuing a collection action against
the client until the settlement of the client's claims which is the basis of the lawyer's representation
of the client, the lawyer has an obligation under the Rules of Professional Conduct to ensure
payment of those services. However, absent these circumstances, an attorney is under no ethical
obligation to assume the role of an insurer of third party claims. When an attorney accepts such a
role at the direction of the attorney's client or where such a role is imposed on an attorney as a result
of representing the client, then the attorney is bound by the Rules of Professional Conduct to fulfill
the responsibility as part of the lawyer's duty to the client.
Regarding Question 1(b):
See above.
Regarding Question 1(c):
See above.
Regarding Question 1(d):
If an attorney is under a duty imposed by law, then the attorney is required to comply with
the law. Where prior actions of the client or the circumstances of the representation place the
attorney in the position of a surety, then the attorney’s conduct must comply with the law of surety.
If a dispute should arise between the client and the third party, concerning a properly asserted claim,
then the attorney should protect the funds and property until the dispute is settled or until ordered to
distribute the funds or property. See Leon v. Martinez (citing DR 9-102, the predecessor to Rule
1.15(b); Unigard Ins. Co. v. Tremont (lawyer who ignored insurer’s statutory lien committed
conversion); Rule(s) 1.2(d) & (e) and Rule 4.1.
In this regard the following Comments to Rule 1.15 provide guidance that has applicability
here.

(2) Lawyers often receive funds from third parties from which the lawyer's
fee will be paid. If there is 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. ... .
(3) Third parties, such as a client's creditors, may have just claims against
funds or other property in a lawyer's custody. A lawyer may have a duty under
applicable law to protect such third party claims against wrongful interference by the
client, and accordingly may refuse to surrender the property to the client. However,
a lawyer should not unilaterally assume to arbitrate a dispute between the client and
the third party.
Regarding Question 2:
In the circumstances stated above, an attorney may refuse to surrender the property to the
client, but the attorney is not under an ethical obligation, under the Rules of Professional Conduct,
to protect the interests of third parties. See comments at page 262 of the American Bar
Association's text, Annotated Model Rules of Professional Conduct, Second Edition (1992).

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.