The insurer paid my client more than the ambiguous award seems to require, and I escrowed the difference. Must I tell the other side it may have overpaid?

Plain-English summary

The inquiring attorney represented a client in a matter in which a judge awarded the client benefits, but the award is unclear about the amount owed: under one interpretation the client is entitled to $X, and under the other to $Y, which is less than $X. Both the attorney and the client believe the judge intended $Y, and the attorney so advised the insurance company's attorney. Neither party has asked the judge to clarify the award. The insurance company issued the client a check for $X; the attorney disbursed $Y to the client and held the difference in escrow pending the Panel's advice. The attorney asked whether he must notify the other side that it may have overpaid.

The opinion notes at the outset that the client may be committing the crime of larceny by taking possession of funds the client believes were paid by mistake, citing State v. Hector, 402 A.2d 595 (1979), but says it does not analyze the elements of that crime and instead focuses on the attorney's ethical obligations. It concludes the attorney must notify the other side that he is holding the possibly overpaid funds in escrow under Rule 1.15(b), because the other side has an interest in funds it may have paid by mistake.

The opinion then applies Rule 1.2(d), cautioning that the attorney may be assisting the client in a criminal act if he enables the client to take the funds. Under Rule 4.1(b), a lawyer must disclose a material fact to a third person when necessary to avoid assisting a client's crime or fraud, unless disclosure is prohibited by Rule 1.6. The opinion concludes Rule 1.6 does not require the client's consent to disclose the possible overpayment, because disclosure is impliedly authorized to carry out the representation (citing Opinion 93-45), so under Rule 4.1(b) the attorney should disclose. Finally, the opinion states the attorney is also obligated to reveal the possible overpayment under Rule 8.4(c), because it is dishonest to allow the client to take mistakenly paid funds and fail to disclose that to the other side.

In practice

Under this opinion, the ambiguous award plus a check for the higher amount creates a possible overpayment the other side has an interest in, and the opinion converges four rules on a single duty to disclose. Rule 1.15(b) requires notifying the other side that the funds are held; Rule 1.2(d) warns against enabling the client's possible larceny; Rule 4.1(b) requires disclosing the material fact to avoid assisting the client's crime, with Rule 1.6 no bar because disclosure is impliedly authorized; and Rule 8.4(c) treats silent acquiescence in the client taking the funds as dishonest.

Common questions

Q: Must the lawyer tell the other side it may have overpaid?

A: Yes. The opinion concludes the attorney must notify the other side under Rule 1.15(b) that he holds the funds, and must disclose the possible overpayment under Rules 4.1(b) and 8.4(c).

Q: Doesn't confidentiality (Rule 1.6) prevent the disclosure?

A: No. The opinion concludes Rule 1.6 does not require the client's consent because disclosure is impliedly authorized to carry out the representation, citing Opinion 93-45.

Q: What is the risk if the lawyer stays silent and lets the client keep the money?

A: The opinion states the client may be committing larceny by taking funds paid by mistake, that the lawyer may be assisting a criminal act under Rule 1.2(d), and that staying silent would be dishonest under Rule 8.4(c).

Background and rules framework

The opinion interprets Rhode Island Rules of Professional Conduct 1.15(b) (safekeeping property; notice to a third person), 1.2(d) (not assisting a client's crime or fraud), 4.1(b) (disclosing a material fact to avoid assisting a client's crime or fraud, subject to Rule 1.6), 8.4(c) (misconduct involving dishonesty, fraud, deceit, or misrepresentation), and 1.6 (confidentiality), analogs of the corresponding Model Rules. It reads Rule 1.6's implied-authorization exception to allow the disclosure and cites State v. Hector on the underlying larceny concern.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / RI RPC 1.15(b) (safekeeping property; notice to a third person)
• MR 1.2 / RI RPC 1.2(d) (not counseling or assisting client crime or fraud)
• MR 4.1 / RI RPC 4.1(b) (disclosure to avoid assisting client crime or fraud, subject to Rule 1.6)
• MR 8.4 / RI RPC 8.4(c) (misconduct: dishonesty, fraud, deceit, or misrepresentation)
• MR 1.6 / RI RPC 1.6 (confidentiality; implied authorization)

Cases:

• State v. Hector, 402 A.2d 595 (R.I. 1979), larceny and funds taken by mistake

Other opinions cited:

• RI EAP Opinion 93-45 (Issued August 25, 1993): disclosure impliedly authorized to carry out the representation

See also

• RI EAP Opinion 93-64: disputed settlement funds and a bank in receivership under 1.15
• RI EAP Opinion 93-55: reporting an escrow lawyer's Rule 1.15(b) delay under 8.3

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%2093-81.pdf

Original opinion text

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

(FINAL)
ETHICS ADVISORY PANEL
OPINION #93-81, REQUEST #423
Issued December 8, 1993

The inquiring attorney represented a client in a matter in which a judge awarded the client benefits. The trial judge's award is unclear in respect to the amount of money owed to the client. Under one interpretation, the client is entitled to receive $X in benefits; under the other interpretation, the client is entitled to receive $Y which is less than $X. Both the inquiring attorney and the client believe that the judge intended the client to receive $Y and the inquiring attorney so advised the insurance company's attorney. Neither party has requested the judge to clarify the award. The client was issued a check for $X by the insurance company. The inquiring attorney disbursed $Y to the client and retained in escrow the difference between $X and $Y pending the advice of this Panel. The inquiring attorney asks whether he/she must notify the other side that it may have paid more than it was required to pay pursuant to the judge's award.

As an initial matter, the Panel notes that the client may be committing the crime of larceny if he/she takes possession of funds that he/she believes were paid by mistake. State v. Hector, 402 A.2d 595 (1979). The Panel does not here undertake an analysis of the elements of that crime to determine whether such a charge could be sustained. Rather, the Panel focuses on the inquiring attorney's ethical obligations under the Rules of Professional Conduct.

Based on the facts as presented by the inquiring attorney, the Panel believes that the inquiring attorney must notify the other side that he/she is holding in escrow the funds that it may have overpaid pursuant to Rule 1.15(b). That Rule provides as follows:

(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third persons, shall promptly render a full accounting regarding such property.

Under these facts, it appears that the other side has an interest in the funds inasmuch as it may have paid the funds by mistake. It is therefore the Panel's opinion that the inquiring attorney must notify the other side that he/she is holding the funds.

Rule 1.2(d) also addresses the inquiring attorney's ethical obligations and provides as follows:

A lawyer shall not counsel a client to engage, or assist a client in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. (emphasis added)

As stated above, the Panel believes the client or the inquiring attorney may be committing larceny if he/she takes possession of funds that he/she believes were paid by mistake. The Panel therefore cautions the inquiring attorney that he/she may be assisting the client commit a criminal act in violation of Rule 1.2(d) if he/she enables the client to take possession of the funds.

Rule 4.1(b) similarly addresses a lawyer's obligation to avoid assisting criminal conduct by a client. That Rule provides as follows:

Rule 4.1 Truthfulness in Statements to Others. - In the course of representing a client a lawyer shall not knowingly:

(b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

The Comment to Rule 4.1 provides that:

Paragraph (b) recognizes that substantive law may require a lawyer to disclose certain information to avoid being deemed to have assisted the client's crime or fraud. The requirement of disclosure created by this paragraph is, however, subject to the obligations created by Rule 1.6.

Under the facts of this inquiry, the Panel does not believe that Rule 1.6 (Confidentiality of Information) requires the inquiring attorney to obtain the client's consent in order to disclose the possible mistake in overpayment to the other side. The Panel believes that disclosure is impliedly authorized in order to carry out the representation. See, Opinion #93-45 (Issued August 25, 1993). Therefore, pursuant to Rule 4.1(b), the inquiring attorney should disclose the information to the other side to avoid being deemed to have assisted a potentially criminal act by the client.

Finally, the Panel notes that the inquiring attorney is also obligated to reveal the possible overpayment pursuant to Rule 8.4(c). That Rule provides as follows:

8.4 Misconduct. - It is professional misconduct for a lawyer to
(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

The Panel believes that it is dishonest for the inquiring attorney to allow his/her client to take possession of funds that the inquiring attorney believes were paid by mistake and to fail to disclose that information to the other side.

The Panel's guidance is restricted to interpretations of the Rules of Professional Conduct and does not extend to issues under the State Ethics Code or any other rules, regulations or laws that may have bearing on the issue raised by this inquiry.