I'm holding settlement money that both my client and a physician claim, and the disputed amount is small. Can I park it in a separate savings account, and do I have to file an interpleader action if they never settle?

Plain-English summary

This was a follow-up to Opinion 97-17, in which the panel had advised the inquiring attorney that Rule 1.15(b) required protecting disputed settlement funds, in which a physician claimed an interest the client disputed, by retaining them in trust until resolution or, after a reasonable time without resolution, paying them into the court registry through interpleader. In this request, the attorney stated that the disputed amount was not substantial and that an interpleader action would not be cost-efficient for the client, and asked (1) whether the disputed amount could be placed in a savings account, and (2) whether the attorney was obligated to file an interpleader action if the dispute was not resolved.

The panel answered that the attorney may place the disputed amount in a separate savings account held in trust pending resolution, relying on the trust rule's provision permitting a lawyer to deposit client funds, other than nominal or short-term funds, in an interest-bearing account and to account to the client for the interest. On the second question, the panel concluded that Rule 1.15(b) does not require filing an interpleader action if the dispute cannot be resolved. Where a client and a third person such as a physician each claim funds in the lawyer's possession, the lawyer may not disburse the disputed amount to either and must hold it in trust until resolution. After a reasonable time and failed efforts to resolve, a lawyer who no longer wishes to remain a stakeholder still has an obligation to protect the disputed amounts, and filing an interpleader that deposits the funds in the court registry is a permissible option under the Rules.

Currency note

This opinion was issued in October 1997, 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. 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 Treat this page as historical context, not current guidance.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 a lawyer put disputed settlement funds in a separate savings account?

A: Yes. The opinion concluded the lawyer may hold the disputed amount in a separate savings account in trust pending resolution, under the trust rule's provision allowing deposit of non-nominal client funds in an interest-bearing account.

Q: Does a lawyer have to file an interpleader when a client and a third party can't agree?

A: No. The opinion concluded that Rule 1.15(b) does not require an interpleader action; it is a permissible option, not a mandatory one.

Q: What must the lawyer do if the dispute drags on for years?

A: The opinion said the lawyer may not disburse the disputed amount to either claimant and must continue to protect it in trust, and may choose to file an interpleader that deposits the funds in the court registry.

Background and rules framework

The opinion applied Rhode Island Rule of Professional Conduct 1.15 (Model Rule 1.15), the trust-account and safekeeping-property rule. The panel noted that nominal or short-term client funds go into IOLTA accounts, that whether funds are nominal or short-term is for the lawyer to determine, and that the rule permits depositing a client's other funds in a separate interest-bearing trust account with interest accounted to the client. On the interpleader question, the panel read Rule 1.15(b)'s duty to protect funds in which clients and third persons claim an interest as requiring the lawyer to hold disputed amounts in trust, with interpleader as one permitted means of doing so, citing Opinion 97-17 and General Informational Opinion No. 7.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 / RI RPC 1.15(b), 1.15(d), 1.15(g) (safekeeping property; trust accounts; IOLTA)

Other opinions cited:

• RI EAP Op. 97-17 (1997): duty to protect disputed settlement funds by retaining them in trust or paying them into the court registry
• RI EAP General Informational Opinion No. 7 (1997): a lawyer's Rule 1.15(b) obligations when third persons may claim settlement funds

See also

• RI EAP Op. 98-14: Splitting a contingent fee with a disbarred referring attorney
• RI EAP Op. 97-22: Duty to report another lawyer's trust-account misuse

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%2097-20.pdf

Original opinion text

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

Final

                    RHODE ISLAND SUPREME COURT
             ETHICS ADVISORY OPINION 97-20, REQUEST No. 726
                          Issued October 9, 1997

Facts:

    The inquiring attorney recently sought a Panel advisory opinion relating to his/her obli-

gations under Rule 1.15(b) in the disbursement of a client's settlement funds in which a physi-
cian claimed an interest which the client disputes. The Panel advised the inquiring attorney that
under Rule 1.15(b) he/she has an obligation to protect disputed funds in his/her possession by ei-
ther retaining them in his/her trust account until resolution, or if after a reasonable time no reso-
lution is reached, paying them into the court registry in an interpleader action. R. I. Sup. Ct. Eth-
ics Advisory Opinion 97-17(1997). In the instant follow-up request, the inquiring attorney states
that the amount in dispute is not substantial and that an interpleader action would not be cost-
efficient for his/her client.

Issues Presented:

    The inquiring attorney now asks (1) whether the amount in dispute may be placed in a

savings account, and (2) whether he/she is obligated to file an interpleader action if the dispute is
not resolved.

Opinion:

    (1) The inquiring attorney may place the disputed amount in a separate savings account in

trust pending resolution. (2) The inquiring attorney is not obligated to file an interpleader action
if the client and the physician are unable to settle the dispute. The inquiring attorney has an
obligation to protect the disputed funds by either retaining the funds in a trust account until reso-
lution or depositing them in the court registry in an interpleader action.

Reasoning:

    Rule 1.5(d) requires lawyers to deposit clients' funds which are nominal in amount or to

be held for a short period of time in interest-bearing trust accounts known as IOLTA accounts.
Whether clients' funds are nominal in amount or to be held for short time periods shall be deter-
mined solely by the lawyer. Rule 1.15(d)(2). Lawyers may elect not to deposit clients' funds in
such accounts. Rule 1.15(f). In addition, Rule 1.15(g) permits lawyers to deposit a client's funds
in a separate trust account. Paragraph (g) provides:
Final 97-20
Page 2

           (g)    Nothing in this Rule shall preclude a lawyer or law firm
           from depositing any funds of a client other than those funds de-
           scribed in paragraph (d) of this Rule in an interest bearing account
           and accounting for the interest to such client.

Pursuant to Rule 1.5(g), the inquiring attorney may hold the disputed funds in trust in a separate
savings account.

     Regarding the inquiring attorney's second question, Rule 1.15(b) does not require the in-

quiring attorney to file an action in interpleader if a dispute over a portion of the settlement funds
cannot be resolved. In General Informational Opinion No. 7 (1997) the Panel addressed a law-
yer's obligations under Rule 1.15(b) in the disbursement of a client's settlement funds in which
third persons such as medical providers may have an interest. Rule 1.15(b) requires lawyers to
protect funds in their possession in which clients and third persons may have an interest. Where
a client and a third person, such as a physician, each claim to be entitled to certain funds in the
possession of a lawyer, the lawyer may not disburse the disputed amounts to either of them, and
is required to hold those amounts in trust until resolution. Resolution may be nowhere on the ho-
rizon and a lawyer could end up holding disputed funds for months, even years. After a reason-
able time and after failed efforts to resolve the dispute, a lawyer may decide that he/she no longer
wishes to remain a stakeholder. However, the lawyer still has an obligation to protect the dis-
puted amounts. Filing an interpleader action in which the funds are deposited in the court regis-
try is a permissible option under the Rules.