December 2007
Practice Tips from Bar Counsel
RPC 1.15 (Safekeeping Property)
IF FUNDS IN DISPUTE, YOU CAN’T DISTRIBUTE.
BY PHIL PATTEE, ASSISTANT BAR COUNSEL
Okay, let’s go over this again. You with the remote, pay attention. We’re going to explain this one more time.
When you receive money on behalf of other people, you have to keep it safe. That’s called safekeeping. In fact, the Rules of Professional Conduct have a rule called Safekeeping Property. It’s RPC 1.15.
Now, pursuant to RPC 1.15, formerly Supreme Court Rule 165, “all funds received or held for the benefit of clients by a lawyer or firm, including advances for costs and expenses,” shall be deposited into a trust account.
So, the money is in the trust account. What do you do with it?
After determining who’s supposed to get the money, you distribute it promptly. However, disputed funds must remain in trust until the dispute is resolved.
RPC 1.15(e) states that when a lawyer possesses funds “in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved.” (Parentheses in original.)
RPC 1.15(e) then directs the lawyer to promptly distribute undisputed funds. (Emphasis added.)
The problem of disputed funds usually arises in personal injury matters that have medical bills and attorney fees amounting to more than the settlement. Everyone wants their perceived fair share, especially your client, and there’s not enough to go around.
When disputes arise over money in the trust account, it’s the lawyer who gets caught in the middle. Everybody starts screaming that they have an obvious, iron-clad, star-spangled claim on the cash, and the attorney is violating RPC 1.15 by not promptly issuing them a trust account check.
Unfortunately, here is where attorneys get into trouble. After diligent, good-faith negotiations have accomplished nothing, lawyers often make the mistake of unilaterally discounting everybody’s share. The lawyer then doles out the lawyer-determined percentage of settlement funds.
Or, the lawyer sends a discounted check with the words “full accord and satisfaction,” or similar legal-sounding language, on the face of the check. The underlying legal theory, later known as the attorney’s defense, is that the dispute was resolved when the recipient negotiated the check and, by doing so, agreed to the reduction.
In both of the above scenarios, the attorney has lost control of funds before the dispute was resolved. RPC 1.15 requires an attorney to protect funds “until the dispute is resolved.” Putting a trust account check in the mail prior to resolution of a dispute is not protecting the money. You might as well send an envelope full of cash.
Attorneys have a duty to protect the interests of clients and third parties. We do not unilaterally adjudicate claims and divide property. If a dispute arises, the attorney must protect settlement funds in a trust account and, if necessary, request a court to direct distribution of the money.1 In other words, file an interpleader and let a judge decide who gets what.
Remember: No dispute, money distributed promptly. Dispute, money stays in trust account. No resolution possible, interplead. Please.
FOOTNOTE:
1Achrem vs. Expressway Plaza Limited Partnership, 112 Nev. 737, 917 P.2d 447 (1996).