I held money a client advanced for an arbitrator's fee in my trust account, then the client fired me before the arbitration ended and the arbitrator hasn't billed. Do I pay the arbitrator or return the money to the client?

Plain-English summary

The inquiring attorney had represented a client in a matter heard by a private arbitrator over several sessions. Before the arbitration, the attorney obtained a sum of money from the client for the arbitrator's fee and deposited it in the client account. The client then discharged the attorney before the arbitration concluded, and the arbitrator had not yet submitted a bill. The attorney asked whether, on receiving the arbitrator's bill, the funds should be paid to the arbitrator or must instead be returned to the client.

The Panel concluded that Rules 1.15(b) and 1.17(d) require the attorney to (1) return to the client the portion of the funds exceeding the arbitrator's actual fee; (2) pay the arbitrator if the attorney has the client's authority to do so; and (3) if the attorney lacks the client's authority, hold the disputed funds in trust until the dispute is resolved, or pay them into the court registry in an interpleader action. Under Rule 1.17(d), the client is entitled to any unused portion of the escrowed funds, so the attorney must determine the arbitrator's actual fee to date and return the excess with an accounting.

The Panel explained that Rule 1.15(b) obliges an attorney holding funds in which a client or third person has an interest to promptly notify that person and forward funds they are entitled to receive, but that under the attorney's duty to abide by the client's decisions about the objectives of representation (Rule 1.2(a)), payment to a third party may be made only with the client's consent. Thus, unless the client instructed the attorney not to pay the arbitrator or the attorney knows the client disputes the arbitrator's fee, the attorney has a duty to notify the arbitrator and pay the fee from the earmarked funds. If the client directs the attorney not to pay (a demand to return the entire advance is effectively such a direction), or if the attorney knows of a dispute over the fee, the attorney may not pay; instead the attorney must notify the arbitrator that he holds earmarked funds but lacks authority to release them, hold the disputed funds in trust until the matter is resolved, and if it is not resolved within a reasonable time may pay them into the court registry in an interpleader proceeding.

Currency note

This opinion was issued in 1996 (Opinion 96-33, issued November 14, 1996), after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rules 1.15, 1.17, and 1.2 as they stood at the time. 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 these safekeeping and termination rules. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: After discharge, do I return the arbitrator advance to the client or pay the arbitrator?

A: Both, in part. The Panel said you must return the portion exceeding the arbitrator's actual fee, and you may pay the arbitrator's actual fee only if the client authorizes it.

Q: Can I pay the arbitrator over the client's objection?

A: No. Under Rule 1.2(a) payment to a third party requires the client's consent; a client's demand to return the entire advance is effectively a direction not to pay the arbitrator.

Q: What do I do if the client disputes the arbitrator's fee?

A: The Panel said you must notify the arbitrator that you hold earmarked funds but lack authority to release them, hold the disputed funds in trust until the dispute is resolved, and if it is not resolved in a reasonable time, pay them into the court registry in an interpleader proceeding.

Background and rules framework

The opinion interprets Rhode Island Rule of Professional Conduct 1.15(b) (safekeeping property; notice, delivery, and accounting for funds in which a client or third person has an interest), the analog of Model Rule 1.15, together with Rule 1.17(d) (protecting a client's interests on termination of representation, including refunding an unearned advance, the Rhode Island counterpart to Model Rule 1.16(d)) and Rule 1.2(a) (abiding by the client's decisions about the objectives of representation, Model Rule 1.2). The Panel harmonized the duty to third persons under Rule 1.15(b) with the client's control over third-party payment under Rule 1.2(a).

Citations and references

Rules of Professional Conduct:

• MR 1.15 / RI RPC 1.15(b) (safekeeping property; notice, delivery, accounting)
• MR 1.16 / RI RPC 1.17(d) (protecting client interests on termination; refunding unearned advance)
• MR 1.2 / RI RPC 1.2(a) (abiding by client decisions on objectives)

Other opinions cited:

• RI EAP Opinion 94-76: a lawyer must return the unused portion of funds advanced for expenses, with an accounting
• RI EAP Opinion 91-37: interpleading disputed funds into the court registry

See also

• RI EAP Opinion 94-76: a lawyer cannot keep expense funds for fees and must refund the unused portion under Rule 1.15
• RI EAP Opinion 96-35: after discharge a lawyer may not charge for transferring the file but may file an attorney's lien

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%2096-33.pdf

Original opinion text

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

ETHICS ADVISORY PANEL
OPINION NO. 96-33, REQUEST NO. 698
Issued November 14, 1996

FACTS:

The inquiring attorney represented a client in a matter which was heard before a private arbitrator at several sessions. Prior to the arbitration, the attorney obtained from the client a sum of money for the arbitrator's fee and deposited the money in his/her client account. The client discharged the inquiring attorney before the conclusion of the arbitration hearing. The arbitrator has not yet submitted a bill for his/her services.

ISSUE PRESENTED:

The inquiring attorney asks whether the funds on deposit for the arbitrator should be paid to the arbitrator upon receipt of the arbitrator's bill or whether the funds must be returned to the client.

OPINION:

Rule 1.15(b) and Rule 1.17(d) of the Rhode Island Supreme Court Rules of Professional Conduct require the inquiring attorney to (1) return to the client that portion of the funds which exceeds the actual fee of the arbitrator; (2) pay the arbitrator if he/she has the client's authority to do so; and (3) if he/she does not have the client's authority to pay the arbitrator, the inquiring attorney must hold the disputed funds in trust until the dispute is resolved, or may pay them into the court registry in an interpleader action.

REASONING:

Rule 1.15(b) which addresses this inquiry states:

(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.

Also pertinent to this inquiry is Rule 1.17(d) which states:

(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned.

Under Rule 1.17(d), the client would be entitled to any unused portion of the funds escrowed for the arbitrator's fee. Therefore, the inquiring attorney must undertake efforts to determine from the arbitrator his/her actual fee to date, and then return to the client, with an accounting, the portion of the funds which exceeds the actual fee of the arbitrator. See Rhode Island Supreme Court Ethics Advisory Panel Opinion 94-76.

Rule 1.15(b) imposes a duty on an attorney who is in possession of funds in which a client or third person has an interest to promptly notify the client or third person. The Rule further requires the attorney to forward to the client or third person any funds that the client or third person is entitled to receive. Under an attorney's concomitant obligation to abide by his or her client's decisions concerning the objectives of representation, payment to a third party may only be made with the client's consent. See Rule 1.2(a). Therefore, unless the client in the instant request has instructed the inquiring attorney not to pay the arbitrator or unless the inquiring attorney has knowledge that the client disputes the arbitrator's fee, the inquiring attorney has a duty to notify the arbitrator and to pay his/her fee out of the funds earmarked for this purpose.

The inquiring attorney may not pay the arbitrator's fee out of the funds in his/her possession if the client has directed him/her not to pay it. A demand by the client that the inquiring attorney return the entire amount advanced for the arbitrator's fee is effectively a direction not to pay it. Similarly, the inquiring attorney may not pay the arbitrator's fee if he/she knows that the there exists a dispute relating to the arbitrator's fee. Under these circumstances, the Panel believes that the inquiring attorney has an obligation to notify the arbitrator that he/she is in possession of funds earmarked for the arbitrator's fee, but does not have the authority of the client to release them. Without the client's authority to pay the arbitrator, the inquiring attorney must hold the disputed funds in trust until the matter is resolved. If the matter is not resolved within a reasonable time, the inquiring attorney may pay the funds into the court registry in an interpleader proceeding. See Rhode Island Supreme Court Ethics Advisory Panel Opinion 91-37.