Must a lawyer report another lawyer for failing to segregate disputed funds a third party claims under a lien?

Plain-English summary

An attorney who took referrals through a bar association lawyer referral service owed the association 25% of her contingent fee, about $31,250, under Rule 7.2(b)'s authorized referral charge. After the association asked her to segregate the disputed funds, she filed a petition to adjudicate the association's lien, arguing the charge was an improper fee split and disproportionate. The trial court upheld the lien. The bar association's officers asked whether they had to report her to the ARDC for failing to segregate and apparently spending the money, both before and after the lien was finally adjudicated.

The Committee separates the question of whether a rule was violated from whether the violation must be reported. It accepts that failing to keep funds claimed by a third party separate generally violates Rule 1.15(c). But Rule 8.3 requires reporting only specific categories of misconduct: criminal acts that reflect on the lawyer's honesty or trustworthiness, and conduct involving fraud, deceit, or misrepresentation. A good-faith challenge to the size and validity of the fee is none of those. The opinion observes that "Deadbeats are not necessarily thieves," and distinguishes In re Himmel (a lawyer who concealed a cashed settlement check and lied to a client) on the ground that this attorney openly disputed the fee rather than hiding anything.

Turning to the period after the lien is finally adjudicated and collection begins, the Committee allows that continued refusal to pay despite a court order "may amount to theft" if it shows intent to permanently deprive, which would be reportable. But it concludes that under Skolnick v. Altheimer & Gray, the knowledge needed to trigger a reporting duty must be more than suspicion; the facts described, even after the adjudication, raise only a strong suspicion and are insufficient to establish knowledge of theft. So the reporting officers remain under no duty to report.

Currency note

This opinion was issued in 2002, before Illinois adopted its current Rules of Professional Conduct effective January 1, 2010. The Illinois Rules cited here use the pre-2010 numbering. Subsequent rule amendments or later opinions may have changed the analysis. Verify against current rules before relying on any specific rule cited here.

In practice

Under the Illinois rules as they stood at the time, the opinion holds that knowledge of another lawyer's failure to segregate disputed funds, standing alone, did not trigger Rule 8.3's reporting duty, because that duty reaches only criminal conduct bearing on trustworthiness and conduct involving fraud, deceit, or misrepresentation. The Committee treats a good-faith lien challenge as outside those categories, and treats post-judgment non-payment as reportable only when the reporting lawyer has knowledge (more than suspicion) of an intent to permanently deprive.

Common questions

Q: Does failing to keep disputed third-party funds separate violate the rules?

A: The opinion accepts that it generally violates Rule 1.15(c), which requires a lawyer to keep funds claimed by a third person separate pending resolution of the dispute. But it treats that as a separate question from whether the violation must be reported.

Q: Must a lawyer report a colleague who won't pay a fee a third party claims?

A: No. The opinion concludes a good-faith refusal to pay a disputed fee is not a crime, fraud, deceit, or misrepresentation, so it does not fall within Rule 8.3's mandatory reporting categories.

Q: Does a final court ruling that the money belongs to the claimant change the answer?

A: Not by itself. The opinion says continued non-payment after a final order "may amount to theft" if it shows intent to permanently deprive, but the reporting duty requires knowledge of that intent, which the described facts do not establish.

Q: What standard of knowledge triggers the duty to report?

A: Citing Skolnick v. Altheimer & Gray, the opinion states the knowledge must be more than mere suspicion but less than certainty; a strong suspicion of intent to deprive is not enough.

Background and rules framework

The opinion interprets Illinois Rule 8.3(a) (reporting another lawyer's misconduct, corresponding to Model Rule 8.3) together with Rule 1.15(c) (safekeeping and segregation of disputed third-party property, corresponding to Model Rule 1.15) and the misconduct definitions in Rule 8.4 (Model Rule 8.4). The referral charge itself is authorized by Rule 7.2(b). The Committee's analysis turns on which violations Rule 8.3 makes reportable, not on whether Rule 1.15 was breached.

Citations and references

Rules of Professional Conduct:

• Model Rule 8.3 / Illinois Rule 8.3(a) (reporting professional misconduct)
• Model Rule 1.15 / Illinois Rule 1.15(c) (safekeeping disputed third-party funds)
• Model Rule 8.4 / Illinois Rule 8.4(a)(3)-(4) (criminal acts; conduct involving dishonesty)
• Illinois Rule 7.2(b) (authorized referral-service charges)

Cases:

• In re Himmel, 125 Ill. 2d 539, 533 N.E.2d 790 (1988), scope of the duty to report
• Skolnick v. Altheimer & Gray, 191 Ill. 2d 214, 730 N.E.2d 4 (2000), knowledge needed to trigger reporting
• In re Clayter, 78 Ill. 2d 276, 399 N.E.2d 1318 (1980), technical conversion under Rule 1.15

Other opinions cited:

• ISBA Advisory Opinion 93-3 (1993): duty to keep disputed funds separate and use of interpleader

See also

• ABA Formal Op. 04-433: Reporting Misconduct of a Non-Practicing Lawyer
• ABA Formal Op. 03-431: Reporting an Impaired Lawyer Outside the Firm

Source

• Landing page: https://www.isba.org/ethics/opinions/0104