Ethics Issues Concerning Disputed Funds Held in
an NJ Attorney Trust Account

FREQUENTLY ASKED QUESTIONS

The New Jersey version of Rule of Professional Conduct (“RPC”) 1.15 relates to an attorney’s duty to safekeep property for a client or other third party. As more particularly set forth below, the New Jersey Supreme Court Advisory Committee on Professional Ethics Opinion 747 (September 17, 2024) (“Advisory Committee Opinion 747”) has provided guidance on some of the ethical issues involved in determining when disputed funds may or may not be released from a trust account.

The following are a series of frequently asked questions (FAQs) in that regard. The Nissenbaum Law Group welcomes potential clients who are seeking legal advice concerning an attorney’s obligations with regard to safekeeping disputed property pursuant to RPC 1.15.

FAQ # 1 – What are the general guidelines when there is a dispute as to the disposition of property being held by an NJ attorney in their trust account?

RPC 1.15(c) sets forth a fairly straightforward procedure to be followed when an attorney is holding property as to which there are competing claims. The subsection states, “(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.”

FAQ # 2 – How quickly must the dispute be resolved?

RPC 1.15(b) states, “(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive.” The requirement under subsection (b) of RPC 1.15 that the money be returned “promptly” when someone requests it, cannot always result in that being done.

Advisory Committee Opinion 747 suggests a potential resolution of that contradiction by stating that if an attorney cannot promptly resolve the dispute, they may wish to “initiate a [New Jersey Court] Rule 4:57 action and turn the monies over to the court to resolve the dispute and determine who is entitled to receive the monies.” Id. at 3.

Indeed, Rule 4:57-1 states, “[i]n an action in which any part of the relief sought is a judgment for a sum of money or the disposition of a sum of money, a party, on notice to every other party, and by leave of court, may deposit with the Superior Court Trust Fund all or any part of the sum.”  In other words, an attorney facing this dilemma can typically apply to deposit the funds in court.

FAQ # 3 –Is there a scenario in which an attorney may simply turn the monies over to one or another of the parties disputing their right to the funds?

There are situations in which an attorney has done everything reasonable to determine whether a claim made as to funds has any real efficacy or is simply frivolous. If the attorney determines that it is frivolous, and “the lawyer has made efforts to resolve the dispute amicably; and the lawyer’s good faith review of the controlling documents clearly demonstrates that release of the monies is authorized; the lawyer may turn over the monies to the party entitled to receive them.  In such cases, the lawyer must inform the client about the dispute and provide appropriate advice about potential civil liability.” Id.

FAQ # 4 – Are there any advisable approaches to forestall the potential for resulting litigation after a dispute over trust account monies is resolved?

There is no doubt that a party who has made a claim to funds held in an attorney trust account that is disputed can withdraw that objection at a later point. While that does not prevent the party from following up with a lawsuit for damages related to the underlying circumstances of the claim to the funds and how it was handled, there are certainly common sense ways that such a risk can be minimized.

The most obvious would be to obtain a release of liability from the client before the funds are taken out of the trust account. However, there is an obvious problem with that approach: the attorney who is holding those funds in trust would also be the same person seeking a release of liability for the manner and mode of the disposition of those funds from trust. That creates an obvious conflict of interest.

Accordingly, the better approach is to insist that if a release is going to be signed, the claimants to the funds be advised that they should obtain independent counsel to negotiate any release of liability that the parties may be inclined to sign. Again, that does not necessarily mean that the parties should be required to sign a release of liability in order to obtain the funds from trust. Instead, this would apply in the unique situation in which the parties or the attorney have raised the issue of whether or not they should all sign a general release of liability in furtherance of putting the entire dispute behind them. Under such circumstances, the non-attorneys would typically need counsel since it would not be appropriate for the attorney holding the funds to act as counsel in advising them about whether or not to sign a release in that attorney’s favor.

Dispute Over the Disposition of Monies Held in Their Trust Account?

The Nissenbaum Law Group welcomes inquiries from attorneys facing disputes relating to funds held in their attorney trust accounts, including issues raised by third parties over monies held on their behalf. Contact us, today.