Can a firm hold back a client's share of a settlement to apply it against the client's other unpaid bills to the firm?

Plain-English summary

Opinion E-83-7 addressed whether a law firm may withhold a client's share of a settlement fund to apply it against the client's general indebtedness to the firm. The committee answered no.

On the facts, firm Y had dealings with corporation X since 1979, and X was indebted to the firm's former service-corporation entity ($17,500) and to its successor partnership ($8,000). The firm no longer represented X but, before terminating, had settled a contingent fee collection case in which the client would receive two-thirds of the settlement. The committee noted that under prior Opinion E-80-8 an attorney may acquire a common law lien for fees, but that the lien is limited to services rendered in that particular action and does not extend to fees in another case or other claims against the client unless the client agrees, citing Freyer v. Mutual Benefit Health and Accident Assoc. Assuming the settlement proceeds were deposited in a client account separate from firm funds, the committee explained that the portion due the firm may be withdrawn when due unless disputed by the client (SCR 20.50(1)(b)), and that SCR 20.50(2)(d) requires an attorney to promptly pay or deliver to the client, on request, funds the client is entitled to receive. Assuming the client did not dispute the fee for the contingent fee settlement, the firm could withdraw that fee, but because the client refused to apply its share of the proceeds against the general indebtedness, the firm could not retain the funds to which the client was entitled.

Currency note

This opinion was issued in 1983, before Wisconsin's July 1, 2007 adoption of the revised Rules of Professional Conduct for Attorneys (the state's Ethics 2000 update), and it applies the former Code's trust-account provisions (SCR 20.50). Handling of client funds and disputed amounts is now governed by SCR 20:1.15 / Model Rule 1.15. 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here.

Common questions

Q: Could the firm keep the client's settlement share to cover the client's other unpaid bills?

A: No. The committee held the firm could not retain funds the client was entitled to in order to offset the client's general indebtedness from other matters.

Q: Could the firm take its own fee from the settlement funds?

A: Yes, where undisputed. The committee said the portion due the firm may be withdrawn when due unless the client disputes it, in which case the disputed amount stays until the dispute is resolved.

Q: How far does an attorney's lien reach?

A: Per the opinion and Freyer, the lien is limited to services rendered in that particular action and does not cover fees in another case or other claims unless the client agrees.

Background and rules framework

The opinion interpreted the former Code's trust-account rules: SCR 20.50(1)(b) (withdrawing the lawyer's portion unless disputed) and SCR 20.50(2)(d) (prompt delivery of the client's funds on request), against the common law of attorney's liens. Client funds are now governed by SCR 20:1.15 / Model Rule 1.15.

Citations and references

Rules of Professional Conduct:

• Wis. SCR 20.50(1)(b), 20.50(2)(d) / Model Rule 1.15 (withdrawing undisputed fees; prompt delivery of client funds) (former Code provisions)

Cases:

• Freyer v. Mutual Benefit Health and Accident Assoc., 45 Wis. 2d 106, 172 N.W.2d 338 (1969), scope of attorney's lien

Other opinions cited:

• Wis. Formal Opinion E-80-8: attorney's common law lien for fees
• Wis. State Bar Memo Opinion 10/75: withdrawing undisputed fees

See also

• WI Ethics Op. E-88-5: Client Trust Funds and Property
• WI Ethics Op. E-09-01: Third-Party Liens on Funds Held in Trust
• WI Ethics Op. E-85-13: Divorce Fee Collection and Withholding Final Papers

Source

• Landing page: https://www.wisbar.org/formembers/ethics/pages/formal-opinions.aspx
• Original PDF: https://www.wisbar.org/formembers/ethics/Ethics%20Opinions/E-83-7.pdf