Can my firm set off unpaid legal fees and expenses against funds I'm holding for the client?

Plain-English summary

The inquiring attorney asked whether the attorney's law firm has a right of setoff against client funds for the payment of outstanding legal fees and expenses.

The panel took the position that this situation is governed by Rule 1.15(c) of the Rhode Island Rules of Professional Conduct, which provides in part that if a dispute arises between a lawyer and another person concerning their respective interests in property, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved. The panel stated that the law firm does not have the right of setoff. Instead, the law firm should deposit the disputed amount in the client fund account. If the fee dispute with the client cannot be resolved, then the attorney may consider filing an interpleader action.

Currency note

This opinion was issued in 1992, after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.15(c) as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process, which renumbered and amended several provisions, including the safekeeping-of-property rule. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Can my firm just deduct unpaid fees from the client's funds?

A: Per the opinion, no. The panel stated that the law firm does not have a right of setoff against client funds.

Q: What should I do with the disputed amount?

A: Per the opinion, deposit the disputed amount in the client fund account and keep it separate until the dispute is resolved, as Rule 1.15(c) requires.

Q: What if the fee dispute cannot be resolved?

A: Per the opinion, the attorney may consider filing an interpleader action.

Background and rules framework

The opinion applies Rhode Island Rule 1.15(c) (safekeeping property), corresponding to Model Rule 1.15. The rule requires that when a lawyer and another person dispute their respective interests in property the lawyer holds, the disputed portion be kept separate until resolution. The panel read this to foreclose a self-help setoff of unpaid fees, directing instead that the disputed funds stay in the client fund account, with interpleader available if the dispute persists.

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property)
• RI RPC 1.15(c)

Statutes:

• None cited.

Cases:

• None cited.

Other opinions cited:

• None cited.

See also

• RI EAP Op. 91-53: Holding Disputed Fee Funds in Escrow
• RI EAP Op. 91-56: A Discharged Contingency Lawyer's Quantum Meruit Recovery
• RI EAP Op. 91-81: A Disputed Collection-Agency Fee

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2092-12.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

DIGEST OF ETHICS ADVISORY PANEL
Opinion #92-12, Request #221
Issued January 14, 1992

An attorney seeks Panel advice as to whether the attorney's law firm has a right of setoff against client funds for the payment of outstanding legal fees and expenses.

The Panel takes the position that this situation is governed by Rule 1.15(c) of the Rhode Island Rules of Professional Conduct, which states in part that if a dispute arises between a lawyer and another person concerning their respective interests in property, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved. The Panel states that the law firm does not have the right of setoff. Instead, the law firm should deposit the disputed amount in the client fund account. If the fee dispute with the client cannot be resolved, then the attorney may consider filing an interpleader action.