Can a New York lawyer pay settlement proceeds to a third party at the client's request instead of to the client directly?

Plain-English summary

A lawyer settled a personal injury action and, after paying fees, disbursements, liens, and expenses, plans to distribute the net proceeds the client is entitled to receive. The client is incarcerated, has no checking account, and cannot open one, so the lawyer proposes to make the check payable to the client or a third party ("John Client or Mary Friend"). The committee concludes the Rules of Professional Conduct do not prevent the lawyer from distributing the proceeds to a third person at the client's request.

The committee anchors the analysis in Rule 1.15(c)(4), which requires the lawyer to "promptly pay or deliver to the client or third person as requested by the client or third person" the funds the client or third person is entitled to receive. It reads the rule's focus as the duty to act promptly (noting disciplinary matters under the predecessor DR 9-102(c)(4) that turned on delay), and reads the "as requested by the client or third person" language as answering the inquiry directly: because the client has requested the third-party payee, Rule 1.15(c)(4) does not bar it. The committee adds that the lawyer should advise the client that, once paid, the third party will have full control over the funds.

On the rule's closing phrase, funds the person is "entitled to receive," the committee applies Rule 1.2(a) (the lawyer abides by the client's decisions about the objectives of the representation): if the client instructs the lawyer to deliver funds to a third party, that third person is "entitled to receive" them within the meaning of Rule 1.15(c)(4). The committee reads N.Y. State 717 (1999) consistently, noting that a client-authorized payment to an unsecured provider would fall within the rule's permissive language. The opinion rests on a clear client authorization; while not ethically required, the committee suggests it might be prudent to follow Rule 1.0(e) and have the authorization confirmed in writing.

In practice

The opinion holds that, under the New York rules as they stood in 2012, a lawyer may honor a client's clear direction to pay settlement proceeds to a named third person, and that doing so does not violate Rule 1.15(c)(4). The committee identifies the controlling factor as a clear instruction from the client; it characterizes a written confirmation under Rule 1.0(e) as prudent rather than required, and notes the lawyer should make the client aware that the third party will then control the funds.

Common questions

Q: Can I make a settlement check payable to someone other than my client if the client asks?

A: Yes. Per paragraphs 4 and 8, Rule 1.15(c)(4) does not prevent distributing the funds to a named third person when the client clearly requests it.

Q: Do I need the client's authorization in writing?

A: Not as an ethical requirement. Per paragraph 7, the committee says a writing confirmed under Rule 1.0(e) "might be prudent" but is not ethically required.

Q: What should I tell the client before paying the third party?

A: That the third party will then have full control over the funds. Per paragraph 4, the committee directs the lawyer to give the client that advice.

Background and rules framework

The opinion interprets New York Rule 1.15(c)(4) (Model Rule 1.15, the duty to promptly pay or deliver funds the client or third person is entitled to receive), read together with Rule 1.2(a) (Model Rule 1.2, abiding by the client's decisions about the objectives of representation) and Rule 1.0(e) (the definition of "confirmed in writing"). The committee treats a clear client direction as making the designated third party a person "entitled to receive" the funds.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / NY Rule 1.15(c)(4) (prompt payment or delivery of funds)
• MR 1.2 / NY Rule 1.2(a) (abiding by the client's objectives)
• MR 1.0 / NY Rule 1.0(e) (confirmed in writing)

Cases:

• Matter of Jebb, 46 A.D.3d 167 (4th Dep't 2007), and Matter of King (4th Dep't 2006), discipline turning on failure to act promptly under DR 9-102(c)(4).

Other opinions cited:

• N.Y. State 717 (1999): construing "entitled to receive the funds" to include providers with valid assignments or liens.

See also

• NY State Bar Op. 1127: Settlement funds in the attorney trust account
• NY State Bar Op. 1109: Paying clients with pre-paid debit cards
• NY State Bar Op. 1060: Delegating escrow sub-account tasks to nonlawyer staff

Source

• Landing page: https://nysba.org/ethics-opinion-946/