Disputes over trust account funds can be a challenge for lawyers, requiring careful navigation of ethical and legal obligations. What happens when a parent pays for a child’s representation, but the child terminates the representation and demands the remaining advance fee the lawyer is holding in the trust account?
Recently issued Advisory Opinion 202503 provides valuable guidance on how lawyers should handle such situations, emphasizing the importance of adhering to the Washington State Rules of Professional Conduct (RPCs). Below are key points of the opinion, offering guidance for handling disputed funds—but be sure to read the entire opinion for the best understanding.
Key Duties of Lawyers in Handling Disputed Funds
Lawyers primarily owe duties of competent representation, loyalty, and communication to their clients. However, there are circumstances where lawyers also owe duties to third persons. RPC 1.15A(f) mandates that lawyers promptly deliver property, including funds, to the rightful recipient. If ownership of the funds is disputed, RPC 1.15A(g) requires lawyers to maintain the disputed property in trust until the matter is resolved. Lawyers must also take reasonable steps to resolve the dispute, which may include commencing an interpleader action to obtain a court determination.
Washington Comment [9] to RPC 1.15A clarifies that the extent of a lawyer’s efforts to resolve disputes depends on factors such as the amount in dispute, the availability of alternative dispute-resolution methods, and the likelihood of informal resolution. Lawyers must communicate with all claimants to understand the basis of their claims and conduct a preliminary analysis of the strength of each claim, including reviewing any supporting documentation.
General Principles for Handling Disputed Funds
Advisory Opinion 202503 outlines general principles for lawyers managing disputed funds. If multiple parties claim an interest in the funds, the lawyer must keep the disputed portion in trust until the issue is resolved. Any undisputed funds should be promptly distributed to the rightful recipients. For example, if a lawyer holds $100 in trust, with a client claiming $70 and a third party claiming $40, the lawyer should distribute $60 to the client and $30 to the third party, while retaining the disputed $10 in trust.
Lawyers are not responsible for adjudicating material issues of fact or law. Instead, they should inform claimants of their options, including resolving disputes informally or through legal action, such as interpleader. Lawyers may set reasonable time limits for holding disputed funds and, with consent, transfer the funds to an interest-bearing account while awaiting resolution. An earlier opinion, Advisory Opinion 2213, explores a lawyer’s duties when a third-party insurer makes a claim to funds in the lawyer’s possession but the lawyer’s client has instructed the lawyer to disburse those funds solely to the client.
Special Situations
The opinion addresses two specific scenarios involving disputed funds:
- Client vs. Third Party Disputes: Disputes may arise when a third party provides funds for a client’s representation and later contests the distribution of remaining funds. For example, a family member may claim that funds provided for another family member’s legal representation were intended as a loan, while the client may assert they were a gift. In such cases, the lawyer must investigate the basis of each claim, review any relevant documentation, and assess the validity of the claims. If the dispute is foreseeable, the lawyer should consider drafting a written agreement in advance to clarify the distribution of remaining funds.
- Disputes Among Multiple Clients: When multiple clients contribute funds for joint representation, disagreements may arise over how to distribute any remaining funds. Lawyers should encourage clients to agree in advance on the distribution of excess funds to avoid conflicts. If disputes occur, the lawyer must conduct a factual and legal analysis to determine the validity of each claim. The lawyer’s duties of competent representation, diligence, and communication require proactive measures to prevent conflicts and ensure fair resolution.
Conclusion
Advisory Opinion 202503 underscores the importance of ethical and professional conduct when handling disputed trust account funds. Lawyers must balance their duties to clients and non-clients, maintain disputed funds in trust, and take reasonable steps to resolve conflicts. By adhering to the RPCs and following the guidelines outlined in this opinion, lawyers can navigate these complex situations while upholding their professional responsibilities.
Sandra Schilling. Sandra is a professional responsibility counsel with the WSBA Advancement department. She supports the WSBA Ethics Line. Legal professionals with concerns about legal ethics can call the Ethics Line at 206-727-8284 and receive help analyzing ethical issues. For other issues, Sandra can be reached at sandras@wsba.org or 206-239-2118.
