Distribution of Disputed Legal Fees
Adopted: January 19, 2007
Opinion rules that under certain circumstances a lawyer may consider a dispute with a client over legal fees resolved and transfer funds from the trust account to his operating account to pay those fees.
Inquiry #1:
Attorney represents Client in a personal injury matter. Client signs a written fee agreement and agrees to pay Attorney 30% of any recovery made in his case. After negotiations with the insurance carrier, Attorney settles Client's case. Attorney receives the settlement check and release and places the funds in his trust account. Client signs the release but disputes the 30% contingent fee. Pursuant to Rule 1.15-2(g),Attorney holds the disputed fees in his trust account and disburses the remainder appropriately.Attorney then gives Client notice of the State Bar's Fee Dispute Resolution Program as required under Rule 1.5(f). Client elects to participate in the process by filing a petition. AfterAttorney provides a response to the petition and the State Bar staff reviews the file, it is determined that Client's dispute is not meritorious and the staff issues a dismissal letter.
Notwithstanding the dismissal, Client continues to object to the payment of the fee. Because fee dispute resolution is nonbinding,Attorney continues to hold the funds in his trust account.Attorney would like to transfer the funds from the trust account to his operating account.
When mayAttorney consider the dispute resolved and transfer the funds without Client's consent?
Opinion #1:
A lawyer is required to hold disputed legal fees in his trust account until the dispute is resolved. Rule 1.15-2(g) and Rule 1.15, comment [13]. Therefore, a client who continues to dispute a legal fee but takes no action to recover the funds, in effect, forces the lawyer to hold the disputed funds in trust indefinitely. To avoid this anomalous result, the lawyer may transfer the funds from the trust account to his operating account after the dismissal of a petition by the State Bar's Fee Dispute Resolution Program, but only if he has given the client reasonable notice that the funds will be transferred to the operating account if no legal action is taken by a certain date. Providing 30 days notice for the client to take legal action to recover the funds should be a reasonable amount of time. If, within that time frame, the client files a lawsuit to recover the funds, the lawyer must continue to hold them in trust.
Inquiry #2:
Assume the same facts as in Inquiry #1, except thatAttorney indicates, in his response to the fee petition, a willingness to reduce his fee to try to resolve the controversy.Attorney and Client agree to have their dispute mediated by the State Bar's Fee Dispute Resolution Program, but they reach an impasse during the mediation process. The State Bar staff sends a letter to Client andAttorney notifying them that the file has been closed due to an impasse.
If Client continues to dispute the fee but takes no legal action, mayAttorney transfer the disputed funds from the trust account to his operating account?
Opinion #2:
Yes, so long asAttorney has given adequate notice to Client of his intent to transfer the funds as set forth in Opinion #1, and Client does not file a lawsuit to recover the funds within the notice period.
Inquiry #3:
Assume Client notifiesAttorney that he disputes his 30% contingent fee, but fails to file a fee dispute petition or to initiate legal action to recover the disputed funds.
When may Attorney consider the dispute resolved and transfer trust funds to the operating account to pay his fee?
Opinion #3:
In the absence of oversight from the Fee Dispute Resolution program, a lawyer may transfer disputed funds in his trust account only if (1) he has given the client 30-days written notice of the fee dispute program required under Rule 1.5(f); (2) the client fails to elect fee dispute resolution; (3) the funds held in the trust account are for services rendered and are not clearly excessive; and (4) after the 30 days has expired with no fee petition filed by the client, the lawyer gives the client a second written notice, as required in Opinion #1, that the funds will be transferred to the operating account unless the client initiates legal action within 30 days. If, at any point during the 30 days, the client elects to participate in the fee dispute program or initiates legal action to recover the funds, the lawyer must hold the funds in trust pending resolution of the dispute.