If a client assigns part of a settlement to a third party but later tells the lawyer not to pay, what does the lawyer do with the money?

Plain-English summary

Before settling a personal injury claim, the lawyer received the client's written assignment of part of the settlement proceeds to a third party. The client then instructed the lawyer not to pay the assigned portion, based on good-faith objections that the payment should not be made. The committee assumed the lawyer reasonably believed both the client's and the third party's positions were taken in good faith.

On that assumption, the committee concluded that the lawyer is not obligated to pay the disputed $800 to either the third-party attorney or the client, and that the $800 should be deposited in an interest-bearing trust account until entitlement to the funds is resolved by agreement or adjudication. The committee enclosed Formal Opinion No. 185 (1990) as related but not directly on point, and pointed to Rule 1.15(c) of the Model Rules and its comment, while noting that rule had not been adopted in Washington.

Currency note

This opinion was issued in 1997, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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. The opinion referenced ABA Model Rule 1.15 (safekeeping property), noting Washington had not adopted that version at the time.

Common questions

Q: Must the lawyer follow the client's later instruction not to pay the third party?

A: The committee concluded the lawyer is not obligated to pay either the third party or the client when both positions are taken in good faith.

Q: What should the lawyer do with the money?

A: The committee said the disputed funds should be deposited in an interest-bearing trust account until entitlement is resolved by agreement or adjudication.

Q: Does a prior written assignment settle the question?

A: Not by itself on these facts. The committee treated the funds as disputed because the client raised good-faith objections after the written assignment, so the lawyer holds the funds pending resolution.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 1.15 (safekeeping property), referenced by the opinion and noted as not then adopted in Washington

Other opinions cited:

• Washington State Bar Association Formal Opinion No. 185 (1990), enclosed as related but not directly on point

See also

• WA Ethics Op. 1428: Disputed Funds in Trust
• WSBA Ethics Op. 1128: Unclaimed Trust Funds
• WSBA Ethics Op. 1125: Possessory Lien on Client Property

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=800

Original opinion text

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

Advisory Opinion: 1726
Year Issued: 1997
RPC(s): RPC 1.15(c); Formal Opinion 185
Subject: Lawyer's obligation to honor assignment of funds by client to third party against client's subsequent instructions

Your question concerns your ethical obligation to pay part of the settlement proceeds on a personal injury claim to a third party. Prior to settling your client's claim, you received the client's written assignment of part of the settlement proceeds to a third party. However, the client subsequently instructed you not to pay the assigned part of the settlement proceeds to the third party based on his good faith objections that the payment should not be made.

Assuming you reasonably believe the positions of your client and third-party attorney to be taken in good faith, the Committee is of the opinion that you are not obligated to pay the $800 to the third-party attorney or to your client. The $800 should be deposited in an interest-bearing trust account until the entitlement to the funds has been resolved by agreement or by adjudication.

I am enclosing for your information Formal Opinion No. 185 (1990) of the Washington State Bar Association, which is not directly on point but discusses related issues. You may also want to review Rule 1.15(c) of the Model Rules of Professional Conduct, though that rule has not been adopted in Washington. The comment to the model rule addresses this issue. See American Bar Association, Annotated Model Rules of Professional Conduct 233-34, 244 (3d. ed. 1996).