THE STATE BAR OF CALIFORNIA STANDING COMMITTEE ON PROFESSIONAL RESPONSIBILITY AND CONDUCT
Formal Opinion No. 2013-187
California Ethics Opinions
ISSUE: Who is entitled to the refund of
remaining advanced fees at the end of a case where fees were paid by a
DIGEST: Where a third-party pays the attorney’s fees for a client and there are funds remaining after the representation is concluded, the attorney must return the balance to the payor, rather than to the client, unless the agreements with the client and the payor specify otherwise.
INTERPRETED: Rules 3-310(F), 3-700(D)(2), and 4-100 of the Rules of Professional Conduct of the State Bar of California.1
Code of Civil Procedure section 285.1.
Labor Code section 2802.
STATEMENT OF FACTS
Attorney is retained by Spouse to handle Spouse's dissolution of marriage. Spouse's Parent agrees to pay the attorney’s fees on an hourly basis and the attorney’s costs, and advances a sum to the lawyer for that purpose. There is no dispute that Attorney made all proper disclosures under rule 3-310(F), including “disclosure” under rule 3-310(A)(1), and Spouse consented in writing after such disclosures. Spouse’s Parent also signed an agreement, covering payment arrangements and her acknowledgement of the restrictions specified in rule 3-310(F). Neither agreement addresses the disposition of any surplus funds at the end of the case. Upon termination of the representation, Attorney files a Notice of Withdrawal pursuant to Code of Civil Procedure section 285.1.2 Spouse insists unused sums in the trust account be disbursed to her, while Spouse’s Parent asks for the money to be returned to her.3
There are several common circumstances in which a third-party may pay the attorney’s fees and/or costs for a party to litigation or a transaction. For example, parents may pay the attorney for fees incurred on behalf of their adult child in a domestic relations or criminal matter. Employers often pay the fees for an employee being sued, such as pursuant to Labor Code section 2802.4 Sometimes the attorney is representing both the employee and the employer.
In commercial lending transactions, the borrower sometimes pays the fees of the lender’s attorney.5 In any such case, rule 3-310(F)6 sets forth that the third-party must not be allowed to interfere with the client-lawyer relationship, or have access to confidential client information. Rule 3-310(F) does not answer the question of what happens to surplus funds when the case ends.