When a lawyer takes a client to a new firm and a fee is later awarded, what does the lawyer owe the former firm, and how must the disputed fee be handled?

Plain-English summary

A lawyer (Attorney X) began representing a client in a workers' compensation claim while at ABC Law Firm, then left for another firm; the client stayed with her. The Industrial Commission released ABC from the case but acknowledged its entitlement to a portion of any fee awarded. The case settled, the Commission approved the total fee, and the fee and settlement checks are to be sent to Attorney X. The opinion answers five questions about her duties.

The opinion concludes Attorney X must notify ABC of the awarded fee and its amount, because the rules require lawyers to deal honestly with each other and to comply with the law and court orders (Rule 8.4(c) and (d)). The fee check must be deposited intact in her trust account, since Rule 1.15-2(g) requires mixed funds (funds belonging to the lawyer received together with funds of the client or others) to be deposited intact. Client consent is not needed to disburse the fee where the Commission has already approved the total fee and the client has no liability to ABC; the dispute is between ABC and Attorney X, making the client's consent irrelevant.

The opinion also concludes Attorney X must advise the client of the client's obligations to ABC or others with claims against the settlement funds, because Rule 1.4(b) requires explaining a matter enough for informed decisions; if the client owes litigation expenses or medical liens, she should advise the client and may withhold funds to pay medical liens (citing 2001 FEO 11). Finally, acting in good faith, she may withdraw and pay herself any undisputed portion of the fee and should disburse any undisputed portion to ABC, but the disputed portion must remain in trust until the dispute is resolved by agreement or litigation, guided throughout by her duty of honesty to ABC.

In practice

Under this opinion, as the North Carolina rules stood at the time, the fee-division dispute between a departed lawyer and her former firm is handled through honesty and the trust-account rules rather than through the client: notify the former firm, deposit the combined check intact, pay out only what is undisputed, and hold the contested portion in trust pending resolution. The opinion treats the client's consent as unnecessary to the fee disbursement when the court has fixed the total fee and the client bears no liability to the former firm, while still requiring the lawyer to keep the client informed of the client's own obligations.

Common questions

Q: Does the departed lawyer have to tell the former firm about the awarded fee?

A: Yes. Opinion #1 concludes Attorney X must notify ABC of the fee and its amount, because Rule 8.4(c) and (d) require dealing honestly with other lawyers and complying with the law and court orders.

Q: Where does the fee check go?

A: Into the trust account, intact. Opinion #2 concludes Rule 1.15-2(g) requires the mixed fee check to be deposited intact in the lawyer's trust account.

Q: Can the lawyer pay herself her share before resolving the dispute?

A: Only the undisputed part. Opinion #5 concludes she may, in good faith, withdraw and pay herself any undisputed portion and disburse any undisputed portion to ABC, but the disputed portion must remain in trust until resolved by agreement or litigation.

Q: Is the client's consent needed to disburse the fee?

A: No, where the total fee is already court-approved. Opinion #3 concludes that if the Commission approved the total fee and the client has no liability to ABC, the dispute is between ABC and the lawyer and the client's consent is irrelevant.

Background and rules framework

The opinion interprets Rule 8.4(c) and (d) (misconduct involving dishonesty and conduct prejudicial to the administration of justice, the counterpart to Model Rule 8.4), Rule 1.15-2(g) (handling of mixed funds in the trust account, within the area of Model Rule 1.15), and Rule 1.4(b) (communication, the counterpart to Model Rule 1.4). It applies these to a fee divided between a departed lawyer and her former firm under an Industrial Commission order, and relies on 2001 FEO 11 regarding medical liens.

Citations and references

Rules of Professional Conduct:

• Model Rule 8.4 (misconduct); N.C. Rule 8.4(c), (d)
• Model Rule 1.15 (safekeeping property); N.C. Rule 1.15-2(g)
• Model Rule 1.4 (communication); N.C. Rule 1.4(b)

Other opinions cited:

• 2001 Formal Ethics Opinion 11: withholding funds to pay medical liens

See also

• ABA Formal Op. 475: Safeguarding Divided Fees
• ABA Formal Op. 487: Fee Split With Prior Counsel
• NC State Bar 2009 FEO 4: Credit Card Trust Acct

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2003-formal-ethics-opinion-11/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry #1:

Attorney X worked for ABC Law Firm when she began the representation of Client in a workers' compensation claim. Prior to the resolution of the workers' compensation claim, Attorney X left the firm to join another firm. Client chose to continue to be represented by Attorney X. The Industrial Commission entered an order releasing ABC Law Firm from further representation and acknowledged ABC's entitlement to a portion of any legal fee ultimately awarded in the case by the Industrial Commission.

Client's workers' compensation case settled. An order was entered by the Industrial Commission approving the settlement and the total attorney's fee to be paid from the settlement. The settlement proceeds have not been delivered to Attorney X for disbursement. Separate checks for the client's settlement proceeds and the approved legal fee will be sent to Attorney X. Is Attorney X required to notify ABC Law Firm that the Industrial Commission has awarded a legal fee in the case and to notify the firm of the amount of the fee?

Opinion #1:

Yes, the Rules of Professional Conduct require lawyers to deal honestly with each other and to comply with the law and court orders. Rule 8.4(c) and (d).

Inquiry #2:

When the check for the legal fee is received by Attorney X, where should it be deposited?

Opinion #2:

Rule 1.15-2(g) requires mixed funds to be deposited in a lawyer's trust account intact: "When funds belonging to the lawyer are received in combination with funds belonging to the client or other persons, all of the funds shall be deposited intact."

Inquiry #3:

Should Client's consent be obtained prior to disbursing any of the legal fees from the money deposited into Attorney X's trust account?

Opinion #3:

No, if the Industrial Commission has already approved the total amount of the legal fee and Client has no liability to ABC Law Firm for the fee, the dispute is between ABC and Attorney X and Client's consent is irrelevant

Inquiry #4:

Is Attorney X required to advise Client of Client's obligations relative to ABC Law Firm or any other party with a claim against the settlement funds?

Opinion #4:

Yes. Rule 1.4(b) requires a lawyer to explain a matter to a client to the extent reasonably necessary to make informed decisions about the representation. If Client is liable to ABC for litigation expenses or to a provider for medical expenses, Attorney X should advise Client of and may withhold the funds to pay medical liens as provided in 2001 Formal Ethics Opinion 11.

Inquiry #5:

May Attorney X determine the amount of her share of the legal fee and disburse that amount to herself without the specific consent of ABC Law Firm

Opinion #5:

Yes, if Attorney X, acting in good faith, determines that her entitlement to a specified portion of the legal fee is undisputed, she may withdraw this amount from the trust account and pay it to herself. She should also disburse any undisputed portion of the remaining fee to ABC Law Firm. The disputed portion of the legal fee must remain on deposit in the trust account until the dispute with ABC Law Firm is resolved by agreement or litigation. In determining the amount of her fee, Attorney X must be guided by her duty of honesty to the members of ABC Law Firm. See opinion #1 above.