ETHICS OPINION 565-1968 RETENTION OF FUNDS OF CLIENT TO SECURE PAYMENT OF FEE

NUMBER 565

QUESTION.

 

I respectfully request your advice, counsel and guidance in the following matter:

 

I am presently holding funds of my former client:, John Doe, in the amount of $20,199,70, representing the remaining balance payment: arising out of negotiation and settlement of an action between him and his brother in which the total sum of $40,199.70 was recovered.

 

In the past three years, I rendered extensive professional services to John Doe during which time fees were never questioned, and payment constantly promised. Because of John Doe’s financial condition, continuous tight cash position and my close personal relationship with him and his family over a thirty-year period, I agreed to and accepted his constant and repeated assurances that I would be fully paid out of these last funds recently collected from his brother and which I now hold.

 

At no time prior to my collection of these funds did he question the amount of fees to be charged or my right to charge fees on the various matters in which he engaged my professional services. At all times, he promised immediate payment after the collection of the aforesaid funds,

 

Now that the funds have been collected, he completely repudiated our former agreement and demanded immediate transfer to him of all monies in my possession, When I requested him to honor our agreement to authorize me to retain the sum of $13,270.00 representing fees to date, exclusive of his present business deal, he summarily discharged me as his attorney.

 

John Doe has demanded immediate payment of the funds, and it is obvious that he is attempting to evade payment of his just debt to me.

 

Since his repudiation, I have expended every effort to reasonably resolve this matter to the mutual satisfaction of the respective parties. However, I failed. He insisted upon immediate payment of all monies with the matter of acceptable fees to be determined unilaterally by him at a later time. Although settlement attempts were failing, I continued to write letters and make telephone calls with the hope of being permitted to turn the monies over to an escrow agent of his choice, and referring the entire matter of fees to arbitration. John Doe has adamantly refused to discuss the issue.

 

If I turn these funds over to John Doe, a resident of California, his repudiation of our prior agreement, his refusal to make any payment and his continual poor cash position, leads to the conclusion that he will dissipate these funds, thereby successfully evading payment of his just debt to me.

 

The Canons of Ethics should not be used as both a sword and a shield by an unscrupulous client, to be turned against the attorney, thus allowing the client to escape payment of fair and reasonable fees.

 

With the Committee’s knowledge and advice. I now prefer to proceed with court action to enforce an attorney’s lien, and obtain a warrant of attachment for the aforesaid funds, I believe it is not proper for a. previous attorney-client relationship to hinder me in any court action, and to avoid collection of just fees.

 

After you have had an opportunity to study the matter and review the enclosed documents, if you feel it necessary, I shall be glad to meet with the Committee at its convenience to supply further details and answer any questions.

 

My query is: “May I continue to hold the collected funds and attach them pending determination of my impending litigation?”

 

If not, how may I keep the funds in New York to secure payment of my fees?

 

Thank you for your patience, courtesy and kind cooperation.

 

ANSWER.

 

This Committee has long recognized the ethical propriety of counsel withholding funds which belong to a client in order to secure payment of an agreed fee. N.Y.C.L.A. Op. No’s. 384, 330, 66 and 7; also A.B.A, Formal Op. No’s. 27 and 250, A.B.A. Informal Op. No. 859; Drinker, H.S. Legal Ethics (1963) P. 171.

 

Although the ultimate right of counsel to withhold these funds is a matter of substantive law upon which no committee on professional ethics should properly express an opinion, there seems to be no doubt that a good faith belief in the substantive validity of counsel’s claim to the withholding is sufficient to avoid professional criticism.

 

The justification for this procedure lies in the fact that the Canons must not be construed to deprive counsel of his personal rights and remedies under the law unless the exercise thereof offends the public view of the profession. Insofar as the client has reneged upon an agreement for compensation, it is the client and not counsel who seeks to take advantage of the professional relationship. Since this fact must be deemed self-evident, the lawyer who seeks to protect himself under such circumstances does not reasonably call forth public disapprobation.

 

Applying the foregoing principles to the case at hand, the inquirer may ethically retain a portion of his client’s funds in a sum reasonably related to the amount of agreed compensation and an amount representing the reasonable value of those services with respect to which there has been no agreement, provided he deposits the same in a special account, immediately notifies his client of the deposit and expeditiously causes legal proceedings to be instituted whereby the ultimate right to the funds withheld can be determined in a court of law. Of course, the inquirer should remit to his client forthwith any amount which exceeds the permissible limits of withholding as aforesaid.

 

Whether the remedy of attachment is available to the inquirer is, again, a matter of law upon which this Committee expresses no opinion. We note, however, that with respect to those funds which may be properly retained by counsel as aforesaid, there would appear to be no ethical objection to the remedy of attachment, N.Y.C.L.A. Op. No. 196.

 

July 23, 1968