State Bar of Arizona Ethics Opinions
91-10: Safekeeping Property
Attorney may apply court-awarded attorney's fees and costs to the balance owed him if client is not responding to repeated telephone calls and letters.
April 2, 1991
The inquiring attorney was retained by a client in 1988 for the purpose of setting aside a judgment that had been entered against the client. The inquiring attorney succeeded in having the judgment set aside, and the opposing party filed an appeal. The inquiring attorney was also successful in defending against the appeal. The Court of Appeals entered an award against the opposing party and the opposing party's .attorney for costs and attorney's fees in the amount of approximately $5,700.00. The present balance owing by the client to the inquiring attorney for costs and attorney's fees is in excess of $7,560.00.
The inquiring attorney received payment of the court-awarded costs and attorney's fees, and deposited it in his trust account. He has repeatedly written his client, both before and after receipt of the payment, advising' the client that he intends to apply these funds to the balance due him on the client's account, and requesting that the client make arrangements for the payment of the remaining balance. The inquiring attorney has received no response from his client about this matter, and has not been able to reach the client by telephone.
May the inquiring attorney, with ethical property, apply court-awarded attorney's fees and costs to the balance owed him by his client, when the client is not responding to the inquiring attorney's repeated telephone calls and letters?
ETHICAL RULES INVOLVED
ER 1.3. Diligence
A lawyer shall act with reasonable diligence and promptness in representing a client.
Comment to ER 1.3: ...A lawyer should act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf. . .
ER 1.4. Communication
(a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.
Comment to ER 1.4: ... The guiding principle is that the lawyer should fulfill reasonable client expectations for information consistent with the duty to act in the client's best interests, and the client's overall requirements as to the character of representation. . .
ER 1.15. Safekeeping Property
(a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. Funds shall be kept in a separate account maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client or third person. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.
(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.
(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.
Comment to ER 1.15: ... Lawyers often receive funds from third parties from which the lawyer's fee will be paid. If there is a risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed. . .
E.R. 1.16. Declining or Terminating Representation
(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.
Comment to ER 1.16: . . . The lawyer may retain papers as security for a fee only to the extent permitted by law. . .
RULES OF THE SUPREME COURT,
Rule 44. Trust Accounts; Interest Thereon
(a) Duty to deposit client funds. All funds of clients paid to a lawyer or law firm shall be deposited in one or more identifiable interest-bearing trust accounts maintained as provided in this rule, and no funds belonging to the lawyer or law firm shall be deposited therein except as follows:
2. Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.
(b) Duty to safeguard client property. A lawyer shall:
4. Promptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive.
Essentially, the inquiring attorney asks whether he can ethically apply court-awarded attorney's fees and costs toward earned fees and accrued costs without first obtaining his client's specific consent.
Typically, the inquiring attorney should notify his client promptly of the receipt of any funds or other property in which the client has an interest. See ER 1.4(a) and ER 1.15(b). However, in this case: (1) the funds were awarded by the court to the client to compensate the inquiring attorney for his fees and costs incurred by him; (2) the court-awarded funds are in an amount considerably less than the amount the inquiring attorney believes he has earned and is entitled to receive; and (3) the client has not objected to the amount of the inquiring attorney's fees, or to his proposed use of the court-awarded fees and costs in his possession toward satisfaction of the client’s indebtedness to him arising from the representation. Under the circumstances, the inquiring attorney's fees are unlikely to be disputed by the client and the inquiring attorney may justifiably apply the court-awarded funds to the balance due.
Ethics committees in other jurisdictions have addressed this issue and have come to the same conclusion. See, e.g., New Hampshire Bar Association Ethics Committee Opinion 1984-5/11 (March 12, 1985) (ABA/BNA Lawyers' Manual on Professional Conduct, p. 801:5708) (lawyer may withdraw fees and expenses from funds in his trust account where the client is missing and the fees are unlikely to be disputed); Connecticut Bar Association Committee on Professional Ethics, Informal Ethics Opinion 89-24 (September 27, 1989) (ABA/BNA Lawyers' Manual, supra, p. 901:2064) (lawyer may credit account with funds indisputably earned when the lawyer cannot locate his client).
Although this committee is prohibited from giving advice on pure questions of law (see the Committee's Statement of Jurisdictional Policies, Paragraph 6(a)), we believe that the inquiring attorney's question may present a case for the application of an attorney's common-law retaining lien. See Thornton on Attorneys at Law, (1914), §§ 573-577; Brown on Personal Property (3d ed. 1975), § 13.9; Restatement, Security, (1941), § 62(b) and Comment i; Restatement 2d, Agency, (1957), § 464(b) and Comment j; 7 Am. Jur. 2d “Attorneys at Law" (1941), §§ 315-323, especially § 317; 7A C.J.S. "Attorney and Client" (1980), § 358; and Anno., 3 A.L.R.2d 148-160 (1949). For the law with respect to the validity and scope of retaining liens in Arizona, the committee recommends that the inquiring attorney consult National Sales and Service Co. v. Superior Court, 136 Ariz. 544, 667 P. 2d 738 (1983).
In conclusion, the Committee on Rules of Professional Conduct holds that the inquiring attorney may ethically apply the court-awarded attorney's fees and costs to the balance due him from his client for attorney's fees and costs indisputably earned and incurred by him in representing his client.
Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.
©State Bar of Arizona 1991
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