What should a lawyer do with settlement funds he is holding for clients he cannot locate, and when can he deduct his fee?

Plain-English summary

The inquiring lawyer had represented two clients (father and daughter) as beneficiaries under various wills of deceased relatives and had received substantial settlement sums, consisting of two checks that had become "stale-dated" (but could be renewed) and some funds in his trust account. He had been unable to pass the money to the clients because he could not locate them by mail or telephone. He asked what course of action to take and whether it would be ethically proper to expend some of the funds to locate the missing clients.

The Committee observed that, as a fiduciary holding the funds, the lawyer had certain duties imposed by law, and it pointed to W. Va. Code § 30-2-13 on an attorney's liability for failure to pay over monies collected. On the facts described, the Committee saw no ethical problem as long as the lawyer maintained the identity of the funds separate from his own and adhered strictly to DR 9-102. It recommended that the lawyer renegotiate the expired checks and place all of the clients' funds into a separate interest-bearing passbook account naming him as trustee for the clients, then petition the court in the proceedings to direct payment of the funds to the general receiver of the court, to be held until the clients could be located.

On deducting the attorney fee earned before the clients were located, the Committee turned to Canon 11 (Dealing with Trust Property) of the former Canons and to DR 9-102(B), which require that client money be reported and accounted for promptly and not commingled with the lawyer's own. Citing ABA Opinion 27 (May 5, 1930), the Committee noted there is no impropriety in deducting fees when remitting funds. Whether the lawyer could deduct earlier hinged on whether there was an express written fee agreement: with a written agreement evidenced by a document, the lawyer could deduct at any time as long as a proper accounting was rendered when the funds were disbursed; without a prior written contract, the lawyer should wait until he located the clients and deduct the fee when the funds were remitted.

Currency note

This opinion was issued in 1978, before West Virginia replaced its Code of Professional Responsibility with the Rules of Professional Conduct, effective January 1, 1989, and before later rule revisions, including the comprehensive 2015 amendments. 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 or requirement mentioned here.

Common questions

Q: What should a lawyer do with settlement funds he cannot deliver because the clients cannot be found?

A: The opinion recommended renegotiating the stale checks and placing all the clients' funds into a separate interest-bearing passbook account naming the lawyer as trustee, then petitioning the court in the proceedings to direct payment of the funds to the general receiver of the court until the clients could be located.

Q: Was it an ethical problem to hold the funds while trying to locate the clients?

A: The opinion found no ethical problem on the facts described as long as the lawyer maintained the identity of the funds separate from his own and adhered strictly to DR 9-102; it also pointed to W. Va. Code § 30-2-13 on an attorney's liability for failure to pay over monies collected.

Q: When could the lawyer deduct his fee from the funds?

A: The opinion concluded that if there was an express written fee agreement evidenced by a document, the lawyer could deduct his fee at any time so long as a proper accounting was rendered when the funds were disbursed; without a prior written contract, he should wait until he located the clients and deduct the fee when the funds were remitted.

Background and rules framework

The opinion applied the West Virginia Code of Professional Responsibility and the former Canons of Professional Ethics. DR 9-102 governed the preservation of client funds, requiring the lawyer to keep client money separate from his own and not commingle it. DR 9-102(B) carried forward the principle stated in Canon 11 (Dealing with Trust Property) that money collected for a client should be reported and accounted for promptly and never commingled with the lawyer's own. W. Va. Code § 30-2-13 addressed an attorney's liability for failure to pay over monies collected.

Citations and references

Rules of Professional Conduct (Code of Professional Responsibility and former Canons, as cited):

• DR 9-102 (preserving the identity of client funds)
• DR 9-102(B) (prompt accounting; no commingling)
• Canon 11 of the former Canons of Professional Ethics (Dealing with Trust Property)

Statutes:

• W. Va. Code § 30-2-13 (attorney's liability for failure to pay over monies collected)

Other opinions cited:

• ABA Opinion 27 (May 5, 1930) (no impropriety in deducting fees when remitting client funds)

See also

• WVSB Ethics Op. 78-7: Finance charges on delinquent fee accounts
• WVSB Ethics Op. 82-5: Protecting a doctor's fees out of a client's recovery
• ABA Formal Op. 475: Safeguarding fees subject to division

Source

• Landing page: https://wvodc.org/Legal-Ethics-Opinion
• Original PDF: https://storage.googleapis.com/msgsndr/Rgd68xOkcVdteTsBkf6O/media/66a7ea7e3c9fe0f0b345e811.pdf

Original opinion text

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

WEST VIRGINIA STATE BAR JOURNAL
Spring, 1979
Volume 5, Number 1

EXPEND FUND TO LOCATE MISSING CLIENTS

LEGAL ETHICS INQUIRY 78-6

Reference is made to your letter in which you indicate that during the past two years you have represented two individuals, father and daughter, as parties in litigation as beneficiaries under various wills of deceased relatives. You state that you have received substantial sums in settlement of these cases, consisting of two checks which are now "stale-dated" (but could be renewed) and some funds in your trust account, and that you have been unable to pass the money on to your clients because you have been unable to locate them by mail or telephone. You ask for advice as to what course of action you should take and, secondly, would it be ethically proper for you to expend some of the funds to attempt to locate the missing clients. It is not clear from your letter the reason that you allowed two checks to become "stale-dated." However, it is assumed that the checks require the endorsement of your clients, which you were unable to obtain, thereby causing them to expire.

As a fiduciary holding these funds, there are certain duties and obligations imposed upon you by law. You should be mindful of the provisions of W. Va. Code § 30-2-13 concerning the liability of an attorney for failure to pay over monies collected. However, in the factual situation as you describe it, there appears to be no ethical problem and as long as you maintain the identity of the funds from your own, adhering strictly to the provisions of DR 9-102, then there should be no such problem.

It is the recommendation of this Committee that you renegotiate the expired checks and place all of the funds belonging to those clients into a separate interest-bearing passbook account naming you as trustee for the clients. You should then petition the court in the proceedings, asking the court to direct you to pay over the funds to the general receiver of the court to be held until the clients can be located.

Concerning the question of deducting your attorney fee due for your representation prior to locating the clients, Canon 11 of the Canons of Professional Ethics entitled "Dealing with Trust Property" states:

Money of the client or collected for the client or other trust property coming into the possession of the lawyer should be reported and accounted for promptly, and should not under any circumstances be commingled with his own or be used by him.

DR 9-102(B) of the Code of Professional Responsibility has carried forth this same basic principle.

The ABA Committee on Legal Ethics held in its Opinion 27 (May 5, 1930) that:

There is no impropriety in an attorney deducting his fees when remitting the funds he receives for his clients. (Emphasis added)

The question of when you should deduct your fee hinges upon whether or not there has been any express written agreement with your client as to the amount of your fee. If there has been such an agreement and you have a document evidencing such, then it is the opinion of this Committee that you may deduct your fee at any time as long as a proper accounting is rendered to the client when his funds are disbursed. In the event that there is no prior written contract concerning your fee agreement with your clients, then you should wait until you locate them and at the time the funds are remitted then you may deduct your fee.