Must a New York lawyer holding funds under a retaining lien sue the client to resolve a disputed fee?

Plain-English summary

A lawyer held funds a client had deposited to secure the lawyer's fee and believed there was a valid retaining lien on them. The client disputed the lawyer's right to the claimed fee. The lawyer had tried to resolve the dispute through negotiation and had offered to arbitrate, but those efforts failed. The committee was asked whether the lawyer, having exhausted good-faith efforts short of litigation, must sue the client to resolve the fee dispute.

The committee concluded the lawyer need not bring suit. Where the lawyer has been zealous in efforts to settle the dispute without litigation and believes in good faith that acceding to the client's position without suit would result in fraud or gross imposition by the client, the lawyer may continue to hold the funds and is not ethically required to sue, leaving to the client the decision whether to litigate. The lawyer may sue if he chooses, but need not. The committee reasoned that whether the lawyer or the client starts the suit, the ultimate burden on the client is not substantially different, and it saw no virtue in requiring the lawyer to be the one to impose it, so long as the same good-faith standard applies. The lawyer must, however, continue to hold the funds in a separate account and may not use them as his own, which supplies a substantial incentive to get the dispute settled. The committee overruled the statement in N.Y. State 224 (1972) that, once a retaining lien attaches, the lawyer should take prompt steps to secure a judicial determination.

Currency note

This opinion was issued in 1984, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (fees now appear at Rule 1.5 and safekeeping of disputed property at Rule 1.15). 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 Treat this page as historical context, not current guidance.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: Must a lawyer with a retaining lien sue the client over a disputed fee?

A: No. The committee held the lawyer need not sue, provided the lawyer has zealously tried to settle the dispute and believes in good faith that nonpayment would result in fraud or gross imposition.

Q: Can the lawyer simply keep holding the disputed funds?

A: Yes, in a separate account. The committee held the lawyer may continue to hold the funds but must keep them separate and may not use them as the lawyer's own.

Q: Does this change earlier guidance?

A: Yes. The committee overruled in part N.Y. State 224 (1972), which had said the lawyer should promptly seek a judicial determination once the retaining lien attached.

Background and rules framework

The opinion read DR 9-102(A)(2) and DR 9-102(B)(4) on holding and accounting for disputed funds, together with DR 5-103(A)(1) on a lawyer's lien. The closest current Model Rule analogues are Rule 1.5 (fees, including fee disputes) and Rule 1.15 (safekeeping property, including property in dispute).

Citations and references

Rules of Professional Conduct:

• MR 1.5 (fees)
• MR 1.15 (safekeeping property; disputed property)
• NY DR 5-103(A)(1); DR 9-102(A)(2); DR 9-102(B)(4)

Other opinions cited:

• N.Y. State 224 (1972): overruled in part; had required prompt judicial determination once a retaining lien attaches
• N.Y. City 82-22 (1983): lawyer must hold disputed funds separately and not use them as his own

See also

• NY State Bar Op. 591: Retaining lien and a malpractice release
• NY State Bar Op. 570: Advance fee payments and trust account treatment
• NY State Bar Op. 599: Nonrefundable minimum fee retainer

Source

• Landing page: https://nysba.org/opinion-567/