Rule 1.15(e) in Context

Disputed Claims to Client Property

Rule 1.15(e) in Context

Rule 1.15(e) applies when a lawyer holds property that two or more people claim, and the lawyer may be one of the claimants.¹ It issues two commands. The lawyer must keep the property separate until the dispute is resolved, and must promptly distribute every portion in which the interests are not in dispute.² "Property" is broad. It covers funds to be applied to a transaction, a payment in satisfaction of a judgment or settlement, and an advance deposit against fees, as well as valuable documents and items of evidentiary value.³ A settlement check and a client's original documents can therefore both fall under the rule. Later sections take the two commands one at a time. This section shows where paragraph (e) sits in the rest of Rule 1.15.

Two neighboring paragraphs frame it. Paragraph (a) is the foundation. The lawyer must hold client and third-person property separate from the lawyer's own, keep funds in a separate account in the state where the lawyer's office is situated (unless the client or third person consents to another location), identify and safeguard other property, and preserve complete records for a period after the representation ends.⁴ Paragraph (d) governs delivery. On receiving property in which a client or third person has an interest, the lawyer must promptly notify that person, promptly deliver what the person is entitled to receive, and give a full accounting on request.⁵ The delivery duty begins with a qualifier: "Except as stated in this rule or otherwise permitted by law or by agreement with the client."⁶ Paragraph (e) is the exception "stated in this rule" for competing claims. When ownership is contested, the lawyer holds the contested portion in separate custody and does not deliver it.⁷

The exception exists because prompt delivery assumes the lawyer knows who is entitled to the property. When two people claim the same property, handing it to either one decides the dispute in that person's favor, and the lawyer has no authority to decide it. The freeze matters most when the lawyer is the claimant, because the lawyer controls the account and could otherwise settle the question by paying herself. Paragraph (e) closes that door. The contested portion stays in separate custody, out of the reach of both claimants, until the dispute ends.⁸ The freeze also has limits. It covers only the contested portion, so the lawyer cannot hold an entire payment hostage to gain leverage over the client. The undisputed portions must still go out promptly.⁹

The check, the trust account, and the lawyer's work are the same in both matters. Only one fact changed the answer: a second person now claims part of the same money. On an exam, a settlement check in the stem should prompt you to ask first whether anyone besides the client claims a share of it.

The separation that paragraph (e) demands belongs to a core fiduciary duty, which is to safeguard property that the lawyer receives but that belongs to the client or to third persons.¹⁰ Discipline for violating that duty is severe. A lawyer who withdraws unearned funds from the trust account, even meaning to replenish them, as with a "loan," faces presumptive disbarment.¹¹ Paragraph (e) applies the same discipline of separation to a narrower case, in which the owner of the property is itself uncertain.