Can a lawyer keep disputed unpaid fees by withholding them from settlement funds the lawyer holds for the client?

Plain-English summary

The committee was asked whether the balance of unpaid attorney's fees could be withheld from funds the attorney held for the client. It answered no, holding that an attorney does not have the authority to unilaterally determine the amount of the fee and withhold it from funds held for the client over the client's objection.

The committee applied Rule 1.15, which requires a lawyer to hold client property separate from the lawyer's own. It explained that Rule 1.15(a) carries forward the segregation and record-keeping duties of former Disciplinary Rule 9-102 but, unlike DR 9-102(a), no longer contains affirmative authority for a lawyer to withdraw funds to which the lawyer claims entitlement. Where the lawyer claims part of the held funds, Rule 1.15(c) governs instead: the property must be kept separate until there is an accounting and severance of interests, and any disputed portion stays separate until the dispute is resolved.

Reviewing authority from several states, the committee noted that even under DR 9-102 a unilateral withdrawal required agreement on three points (the right to look to the client for the fee, the amount, and the time of payment) and that the majority view is that, on termination, a lawyer may not withdraw fees or expenses from client trust funds without the client's consent. Because the facts indicated the amount owed was in dispute, the attorney could not offset fees from the settlement amount. The committee added that Montana's attorney-lien statute (section 37-61-420(2), MCA) attaches to a verdict or judgment in the client's favor, but observed there was no such verdict or judgment here, that it was unclear whether the lien reached a property settlement, and that the attorney had not brought an action to enforce any lien.

Currency note

This opinion was issued in 1991, before the State Bar of Montana's adoption of the 2004 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 Treat this page as historical context, not current guidance.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: Can a lawyer take disputed fees out of money held for the client?

A: No. The opinion concludes the lawyer cannot unilaterally set the fee and withhold it over the client's objection.

Q: What does Rule 1.15 require when the lawyer and client both claim the held funds?

A: The opinion applies Rule 1.15(c): the property is kept separate until an accounting and severance, and the disputed portion stays separate until the dispute is resolved.

Q: Does Montana's attorney-lien statute let the lawyer keep the money?

A: The opinion notes section 37-61-420(2), MCA, attaches a lien to a verdict or judgment for the client, but found no such verdict or judgment here, doubted whether the lien reached a property settlement, and observed the attorney had filed no action to enforce it.

Background and rules framework

The opinion interprets Montana Rule of Professional Conduct 1.15 (Safekeeping Property; Model Rule 1.15), comparing it to former ABA Disciplinary Rule 9-102 and applying the dispute provision of Rule 1.15(c). It references Montana's statutory attorney's lien, section 37-61-420(2), MCA.

Citations and references

Rules of Professional Conduct:

• Mont. R. Prof. Cond. 1.15 (safekeeping property) / Model Rule 1.15
• ABA Model Code DR 9-102 (predecessor segregation rule)

Statutes:

• Mont. Code Ann. section 37-61-420(2) (attorney's lien)

Cases:

• In re Marine, 264 N.W.2d 285 (Wis. 1978), three points of agreement required before withdrawal
• Committee on Legal Ethics of the W. Va. State Bar v. Tatterson, 319 S.E.2d 381 (W. Va. 1984), consent required to withdraw disputed fees
• Kelleher Law Office v. State Compensation Insurance Fund, 691 P.2d 823 (Mont. 1984), statutory attorney's lien

See also

• State Bar of Montana Ethics Op. 910529: Collecting Delinquent Accounts From Trust Funds

Source

• Landing page: https://www.montanabar.org/For-Attorneys/State-Bar-Resources/Ethics-Opinions
• Original PDF: https://www.montanabar.org/Portals/MONTANA/910226.pdf

Original opinion text

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

Ethics Opinion
QUESTION PRESENTED: May the balance of unpaid attorney's fees be withheld from funds held by the attorney for the client?

ANSWER: No. An attorney does not have the authority to unilaterally determine the amount of the fee and withhold it from the funds held for the client over the client's objection.

ANALYSIS: Rule 1.15 of the Rules of Professional Conduct provides, in pertinent part:

(a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. Funds shall be kept in a separate account maintained in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.

ABA Disciplinary Rule 9-102(a)(2) states that:

(2) Funds belonging in part to a client and in part to the lawyer (presently or potentially) or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.

Rule 1.15(a) continues the requirements for segregation of funds and record-keeping that were initially prescribed by Disciplinary Rule 9-102. DR 9-102(a) permitted a lawyer to withdraw funds to which he or she was entitled, unless there was a dispute, in which case the attorney was permitted to withdraw only the undisputed portion. This provision left open whether the client had to be notified in advance of the withdrawal, and how the client was to signal that a dispute existed. Rule 1.15(a) no longer contains affirmative authority for such withdrawals. When a lawyer is or claims to be entitled to a portion of the funds being held, Rule 1.15(c) is applicable instead. Under that subsection, the lawyer may not disburse any funds to himself until after there has been an accounting and agreement by the beneficiary. Hazard, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct (1987) at 282.

Even under DR 9-102, in order to unilaterally withdraw funds from a client's trust account, agreement had to be reached between the attorney and the client on at least three points: (1) the right of the attorney to look to the client for the payment of these fees; (2) the amount to which the attorney is entitled; and (3) the time at which payment will be expected. In the Matter of Marine, 264 N.W.2d 285, 288-89 (Wis., 1978). See also Comm. on Legal Ethics of the W. Va. State Bar v. Tatterson, 319 S.E.2d 381, 386 (W.Va. 1984); Matter of disciplinary Proceeding against Sawyer, 656 P.2d 503, 505 (Wash. 1983); Jackson v. State Bar, 600 P.2d 1326, 1329 (Cal. 1971); and ABA/BNA Lawyers' Manual on Professional Conduct (1990) at 901:310 (Illinois Ethics Opinions 88-15 (1989) in which it was held that a lawyer may transfer his clients' funds held in trust for payment of fees only after giving notice and receiving written consent). Some states permitted withholding of client funds under DR 9-102, but only after the client had agreed to the amount of the fee. ABA/BNA Lawyers' Manual, supra, at 45:1204.

In the instant case, the facts suggest that the amount owed the attorney is in dispute. Thus, according to the decisions cited above, the attorney would not be permitted to offset fees from the settlement amount.

It is true that there is some authority to the contrary. See ABA/BNA Lawyers' Manual, Supra, Ethics Opinions (1980-85) at 801:3902 (Kentucky Ethics Opinion E-233 91980), in which it was held that, in the absence o a written contract entered into at the time of employment allowing the lawyer to offset his fees on any unrelated judgment or settlements which the client may obtain in the future, the lawyer could withdraw an amount due on a related matter.)

The majority view, however, is that, upon termination of representation, a lawyer may not withdraw funds from client trust accounts as a lawyer's fees or reimbursement for expenses without the consent of the client. ABA/BNA Lawyers' Manual on Professional Conduct (1987) at 45:1202, citations omitted. The client must agree on the right of the lawyer to make the withdrawal, the amount to which the lawyer is entitled, and the time of the withdrawal. Id., citations omitted.

It should be noted that in Montana, pursuant to section 37-61-420(2), MCA, an attorney who appears for a party is considered to have a lien upon a client's cause of action for which attaches to a verdict, report, decision, or judgment in the client's favor and the proceeds thereof in whose hands they may come. Kelleher Law Office v. State Compensation Insurance Fund, 691 P.2d 823, 826 (Mont., 1984). However, there is no indication that such a verdict or judgment was rendered by a court in favor of this particular client, and it is unclear whether the lien may attach to a property settlement. See Hill v. Turley, 710 P.2d 50, 57-58 (Mont. 1985). Nor has the attorney brought an action to enforce such a lien even if it were appropriate in this case. See 7 Am.Jur.2d Attorneys at Law, sec. 345 (1980).

An attorney does not have the authority to unilaterally determine the amount of the fee and withhold it from funds held for the client over the client's objection.

THIS OPINION IS ADVISORY ONLY