Earlier this month, I blogged on a lawyer’s duties when a third-party asserts an interest in funds that a lawyer is holding in trust on behalf of a client. The post focused on a 2012 advisory opinion in which the Virginia State Bar concluded that:
- “In the absence of a valid third-party interest in the funds, the lawyer owes no duty to a creditor of the client and must act in the best interests of the client.
It’s a helpful opinion. Yet, the question remains: what is a “valid third-party interest?”
The opinion provides some guidance. For instance, valid third-party interests include statutory liens, judgment liens, and court orders or judgments specific to the funds.
Last week on his Professional Responsibility Blog, Professor Alberto Bernabe posted about an advisory ethics opinion that the Texas Center for Legal Ethics issued last September. The opinion, which is here, provides additional guidance on the critical question “what is valid third-party interest?”
Per the Texas opinion, a lawyer’s duties to a third-party are triggered “only when the third party has a matured legal or equitable interest in those particular funds.” The opinion adds that:
“A matured legal or equitable interest in particular client funds exists when the interest is based on:
- a. A statutory lien,
- b. A judgment that adjudicates ownership or disposition of the funds in question,
- c. A court order regarding the funds in question,
- d. A written assignment conveying an interest in the funds in question,
- e. A right of subrogation regarding the funds in question. or
- f. A signed letter of protection or similar agreement formed to aid the lawyer in obtaining the funds in question, which promises payment upon collection.”
If you or your firm often possesses client funds in which third-parties claim interests, I recommend giving the Texas opinion a read. It analyzes interests asserted by insurers, hospitals, doctors, and former employers.
In addition, the opinion addresses another important question: what happens when a client discharges a lawyer and instructs the lawyer to send the client the funds without paying the third-party claims?
The Texas answer:
“If a lawyer is obligated under [the rules] to withhold client funds from the client due to the claim of a third party who has a matured legal or equitable interest in the funds, the lawyer’s obligation to the third party survives and is unaffected by the client’s termination of the lawyer-client relationship.”
As usual, I don’t know how the Vermont Supreme Court or one of the PRB’s hearing panels would decide this issue. However, I’ll say this: while not verbatim, Vermont’s rule is essentially the same as the rules in Virginia and Texas.