My client won't authorize release of escrowed closing funds to a general contractor even though I've told her she isn't entitled to more work, and no lawsuit has been filed. What should I do with the money?

Plain-English summary

An attorney who represented a real estate purchaser in 1988 asked the panel what to do after a closing dispute over escrowed funds. At the closing, the house her client was purchasing had not been completed, and the client, the seller, and the bank all agreed the attorney would escrow money from the seller's proceeds equal to the amount the seller owed the general contractor, to be paid to the contractor upon completion of construction. About a month later, the general contractor notified the attorney the remaining work had been completed. The attorney's client contended some of the work was done improperly and insisted additional work was required under the purchase and sale agreement, a position she maintained despite the attorney's advice that she was not entitled to any additional work. The client refused to authorize release of any escrowed funds, and no litigation had been commenced.

The panel quoted Rule 1.16(b), which permits a lawyer to withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the client's interests, or if the client insists upon pursuing an objective the lawyer considers repugnant or imprudent. The panel found that by refusing to authorize release of funds the attorney believed rightfully belonged to another, the client was insisting upon conduct the attorney found repugnant or imprudent. The panel held the attorney should immediately withdraw from representing the client, commence an interpleader action naming the client and the general contractor, and deposit the disputed funds with the court. Because the situation fell within Rule 1.16(b)(3), it was immaterial whether the withdrawal would adversely affect the client.

Currency note

This opinion was issued in July 1989, after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.16(b)(3) as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process. 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 Treat this page as historical context, not current guidance.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 mentioned here.

Common questions

Q: What should I do if my client won't authorize release of escrowed funds that don't belong to her?

A: According to this opinion, the attorney should immediately withdraw from the representation, commence an interpleader action naming the client and the other claimant, and deposit the disputed funds with the court.

Q: Does it matter if withdrawing hurts my client's case?

A: No, not under this opinion's facts. The panel held that because the situation fell within Rule 1.16(b)(3), where the client insists on conduct the lawyer considers repugnant or imprudent, it is immaterial whether the withdrawal adversely affects the client.

Q: Do I need to wait for litigation to be filed before taking action on disputed escrowed funds?

A: The opinion addresses a situation where no litigation had been commenced and still directs the attorney to withdraw and commence an interpleader action, rather than waiting for the dispute to be litigated in an existing case.

Background and rules framework

The opinion applies Rule 1.16(b)(3) of the Rhode Island Rules of Professional Conduct, as adopted effective November 15, 1988, which permits withdrawal when a client insists upon pursuing an objective the lawyer considers repugnant or imprudent regardless of adverse effect on the client, to an attorney holding escrowed real estate closing funds that the client refused to authorize releasing to a general contractor she was not entitled to withhold payment from.

Citations and references

Rules of Professional Conduct:

• MR 1.16 (declining or terminating representation)
• RI RPC 1.16(b)(3) (withdrawal where the client insists on repugnant or imprudent conduct, as adopted November 15, 1988)

Statutes:

• None cited.

Cases:

• None cited.

Other opinions cited:

• None cited.

See also

• RI EAP Opinion 88-15: Withdrawal as Counsel for a Guardian Who Repeatedly Fails to File Required Probate Accounts
• RI EAP Opinion 88-06: Withdrawal From a Medical Malpractice Case After the Client Refuses to Fund the Only Remaining Expert

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2089-16.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

DIGEST OF ETHICS ADVISORY PANEL
OPINION #89-16, REQUEST #62
Issued July 20, 1989

An attorney seeks Panel advice concerning the proper course of action in the circumstances described. The attorney advises the Panel that in 1988 she represented a real estate purchaser and that at the closing the house which her client was purchasing had not been completed. The attorney states that her client, the seller and the bank all agreed that she would escrow money from the seller's proceeds equal to the outstanding amount which the seller owed the general contractor. The attorney adds that all parties agreed that this money would be paid to the general contractor upon completion of the construction.

The inquiring attorney states that approximately one month later the general contractor notified her that the remaining work had been completed. The attorney's client contends that some of the work has been done improperly, and insists that additional work is required under the purchase and sale agreement. The client persists in taking this position despite the fact that the inquiring attorney has advised her that she is not in fact entitled to any additional work. The client refuses to authorize release of any of the escrowed funds. The inquiring attorney states that no litigation has been commenced regarding this matter and asks the Panel what steps to take and what to do with the escrowed funds.

Rule 1.16, "Declining or Terminating Representation," provides, in pertinent part:

(b) . . . A lawyer may withdraw from representing a client if withdrawal can be accomplished without material adverse effect on the interests of the client, or if:

(3) The client insists upon pursuing an objective that the lawyer considers repugnant or imprudent.

By refusing to authorize release of the funds the inquiring attorney is holding which the attorney believes rightfully belong to another, the client is insisting upon conduct which the attorney finds "repugnant or imprudent." The Panel takes the position that the attorney should immediately withdraw from representation of the client, commence an action to interplead the client and the general contractor and deposit the funds at issue with the court. Because the situation described falls within the ambit of Rule 1.16(b)(3), it is immaterial whether the attorney's withdrawal impacts adversely on the client or not.

Ethics Advisory Panel advice is protective in nature. There is no requirement that an attorney abide by a Panel opinion, but if he or she does, he or she is fully protected from any charge of impropriety.