I hold a client's fund earmarked only for expenses, and now the former client owes me unpaid hourly fees. Can I keep the expense funds to cover my fees under Rule 1.15?

Plain-English summary

The inquiring attorney had been retained by a group of related corporations, Client X, to perform a variety of legal services, compensated by a weekly salary. In addition, Client X gave the attorney a sum for the attorney's out-of-pocket expenses on Client X's behalf, and the attorney rendered regular accountings of this expense fund. After the arrangement had been in effect for some time, the client discharged the attorney; although the attorney sought to withdraw from all matters, the attorney and client agreed that the attorney would continue to represent Client X in certain matters at specified hourly rates. The attorney now asserted that Client X had failed to pay the agreed hourly compensation, and asked whether the attorney could retain the funds in the client's account toward fees, whether the attorney could sue the former client for outstanding fees, and whether the disputed funds should be held separately.

The Panel set out Rule 1.15(c) ("Safekeeping Property"), which requires property claimed by both the lawyer and another to be kept separate until an accounting and severance, with any disputed portion kept separate until the dispute is resolved.

The Panel opined that it did not perceive any basis for the attorney's claiming an interest in the client's funds held for the express and sole purpose of paying expenses. If, as the attorney stated, the representation of Client X has been completed, the attorney should return to Client X any balance in the expense account with an accounting. The Panel noted the result would be otherwise if the attorney were holding funds received from the client or a third party with the understanding that all or a portion of those funds would be used to pay the attorney's fees. It encouraged the attorney to attempt to arbitrate the fee dispute before the Rhode Island Bar Association Committee on Fee Disputes, and declined to opine on the attorney's claim against Client X as a matter of substantive contract law.

Currency note

This opinion was issued in 1994 (Opinion 94-76, issued December 6, 1994), after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.15 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, which amended 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 mentioned here.

Common questions

Q: Can I keep a client's expense fund to cover fees the client hasn't paid?

A: The Panel concluded no. It saw no basis for claiming an interest in funds held solely to pay expenses, and said any balance should be returned with an accounting if the representation is complete.

Q: Would it be different if the funds were meant to cover fees?

A: Yes. The Panel noted the result would be otherwise if the attorney held funds from the client or a third party with the understanding that some or all would be used to pay the attorney's fees.

Q: How should the fee dispute be resolved?

A: The Panel encouraged the attorney to try to arbitrate the dispute before the Rhode Island Bar Association Committee on Fee Disputes, and declined to opine on the underlying contract claim.

Background and rules framework

The opinion interprets Rhode Island Rule of Professional Conduct 1.15 (safekeeping property), the analog of Model Rule 1.15. Rule 1.15(c) governs property in which the lawyer and another claim interests and requires disputed portions to be held separate. The Panel found no lawyer interest in funds earmarked solely for expenses, distinguishing funds understood to be available for fees.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / RI RPC 1.15(c) (safekeeping property; funds held for expenses versus funds available for fees)

See also

• RI EAP Opinion 94-50: disputed state lien on a settlement held separate under Rule 1.15
• RI EAP Opinion 94-63: a retainer is a refundable fee advance under Rule 1.5

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%2094-76.pdf

Original opinion text

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

ETHICS ADVISORY PANEL
OPINION #94-76 REQUEST #550
Issued December 6, 1994

The inquiring attorney had been retained by a group of related corporations, Client X, to perform a variety of legal services for which he had been compensated by a "weekly salary." In addition, Client X gave the inquiring attorney a sum for the inquiring attorney's out of pocket expenses on behalf of Client X. The attorney rendered regular accountings of this expense fund.

After this arrangement had been in effect for some time, the client discharged the inquiring attorney. Although the inquiring attorney sought to withdraw from all matters involving Client X, the attorney and client agreed that the attorney would continue to represent Client X in certain matters and would be compensated at specified hourly rates.

The inquiring attorney now asserts that Client X has failed to pay the agreed hourly compensation. The inquiring attorney seeks the Panel's opinion as to whether the attorney can retain the funds in the client's account in payment of the attorney's fees, whether the attorney may sue the former client for outstanding fees and whether or not the disputed funds should be held in a separate account.

Rule 1.15 entitled "Safekeeping Property" states in pertinent part:

(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.

The Panel does not perceive any basis for the attorney's claiming an interest in the client's funds that are held by the attorney for the express and sole purpose of paying expenses. If, as the attorney states, the representation of Client X has been completed, the attorney should return to Client X any balance in this expense account with an accounting. The result would be otherwise if the attorney were holding funds received from the client or a third party with the understanding that all or a portion of those funds would be used to pay the attorney's fees.

The Panel encourages the inquiring attorney to attempt to arbitrate the fee dispute before the Rhode Island Bar Association Committee on Fee Disputes. In other respects, the attorney's claim against Client X is a matter of substantive contract law as to which the Panel declines to opine.