Can a lawyer withdraw and dispose of escrowed settlement property when the client stops responding and the settlement cannot be completed?

Plain-English summary

A lawyer negotiated a settlement between his client (A) and a represented business partner (B). The deal required B to deliver a release and A to deliver a $135,000 check and a prototype, all to the lawyer, who would forward them once he had everything. B delivered the release and A delivered the check, but A never delivered the prototype and then stopped responding to calls and a certified letter. The lawyer asked whether to forward the check to B, keep trying to reach A, or withdraw.

The opinion concludes that A's failure to respond has at least made the representation unreasonably difficult under Rule 1.16(b)(5), and may indicate the client discharged the lawyer (a mandatory withdrawal ground under Rule 1.16(a)(3)), so the lawyer has good cause to withdraw after a final effort to reach A. But withdrawal alone does not resolve the problem, because the lawyer holds the check and release in what is in substance an escrow, making him a fiduciary to both A and B under Rule 1.15(c) and Massachusetts case law.

The opinion advises the lawyer not to simply return the items, since B could claim ownership of the check. Instead, it has him send A a letter setting a date-certain withdrawal unless A cooperates, and then notify both sides that, because the settlement cannot be completed, one of two things must occur within 30 days: the parties give agreed written instructions, or one party files a court action for instructions. If neither happens, the opinion characterizes filing a bill of interpleader and depositing the property with the court as the safest course, with the lawyer careful to reveal only what is necessary and to avoid disclosing client confidences.

In practice

Under the Massachusetts rules as they stood at the time of the opinion, two duties run in parallel. The opinion holds that an unresponsive client supplies good cause to withdraw under Rule 1.16(b), and possibly a mandatory ground under Rule 1.16(a)(3) if the silence signals discharge, but only after a final effort to reach the client.

The opinion holds that the lawyer's escrow role makes him a fiduciary to both parties under Rule 1.15(c), so he may not unilaterally return the property. Per the opinion, the path is to notify both sides, set a deadline for agreed instructions or a court filing, and, failing that, seek court instructions by interpleader while limiting disclosure of client confidences.

Common questions

Q: My client stopped responding. Is that enough to withdraw?

A: The opinion concludes a client's failure to respond at least makes the representation unreasonably difficult under Rule 1.16(b)(5), and may be a discharge that mandates withdrawal under Rule 1.16(a)(3), but it advises a final effort to reach the client first.

Q: I'm holding settlement money and a signed release. Can I just give them back?

A: The opinion advises against simply returning them, because as escrow agent the lawyer is a fiduciary to both parties under Rule 1.15(c) and the other side could claim the funds. It directs notifying both parties and seeking instructions.

Q: What if the parties never give me instructions?

A: The opinion characterizes filing a bill of interpleader and depositing the property with the court as the safest course, with the lawyer revealing only what is necessary and protecting client confidences.

Background and rules framework

The opinion interprets Massachusetts Rule of Professional Conduct 1.16 (declining or terminating representation), including the unreasonable-difficulty ground in 1.16(b)(5) and the discharge ground in 1.16(a)(3), together with Rule 1.15(c) (prompt notice and delivery of trust property to a client or third person). It treats the lawyer's holding of settlement items as an escrow that imposes fiduciary duties to both parties. These correspond to the like-numbered ABA Model Rules.

Citations and references

Rules of Professional Conduct:

• MR 1.16 / Mass. R. Prof. C. 1.16 (withdrawal; 1.16(a)(3) discharge, 1.16(b)(5) unreasonable difficulty)
• MR 1.15 / Mass. R. Prof. C. 1.15(c) (notice and delivery of trust property)

Cases:

• Kaarela v. Birkhead, 33 Mass. App. Ct. 610 (1992), an escrow agent is a fiduciary of both parties
• Matter of Discipline of Two Attorneys, 421 Mass. 619 (1996), escrow agent's duties

See also

• ABA Ethics Op. 471: surrendering papers and property to a former client
• MA Bar Ethics Op. 06-03: withdrawal

Source

• Landing page: https://www.massbar.org/publications/ethics-opinions/ethics-opinion-article/ethics-opinions-2011-opinion-11-01/opinion-11-01