Lawyers who fail to pay their bills can face disciplinary problems.

I own a good-sized legal support service firm. My firm serves subpoenas, files pleadings, etc. I have run into situations where an attorney has been paid for services and the services are then contracted with my company, but then the attorney will not pay me. Some of the services have been depositions or service of process, and then are unpaid. Does this violate the Rules of Professional Conduct?

Lawyers, like everyone else, have to pay their bills. This is particularly true of bills for a service provider, such as a court reporter or people who are serving subpoenas for the lawyer. Many of these services do not require a lawyer to pay in advance because a lawyer is supposedly honest and trustworthy. Legal support services rely on the integrity of an attorney and expect a lawyer to make payment as soon as the bill is received.

In a perfect world, a lawyer should immediately pay. If the lawyer is not sure the client will have the funds to pay, then the lawyer shouldn’t order the services until the client pays the funds and the lawyer escrows those funds until the service is provided and the bill is presented.

If the lawyer orders these services and the client doesn’t pay, then ultimately the lawyer has to make the payment. If the lawyer has promised to make the payment, the lawyer could potentially have disciplinary violations for misleading under Rule of Professional Conduct 8.4(c) or even Rule of Professional Conduct 4.1(a).

But the situation is different and far worse for the lawyer if the client has already paid the lawyer for those services. If lawyers have taken those funds and then not paid the court reporter or the subpoena service or processor, etc., then the lawyer has a serious problem because the lawyer has committed conversion.

Conversion or theft, whether it is a small or large amount, can clearly impact the lawyer’s license, particularly if it is misuse of funds. Under Rule of Professional Conduct 1.15, a lawyer has an obligation to hold a client’s funds or funds of third parties in an escrow account until funds become due.

That requirement includes cost payments given by a client in advance. (See Rule of Professional Conduct 1.15(b).) The lawyer must then timely disburse these monies when due from the person who provided the cost services.

If there is some dispute as to the services, then the lawyer has to maintain the monies in escrow until the dispute is resolved, per Rule 1.15(f). Therefore, if the lawyer has a dispute with the service processor or the court reporter over the cost or how the services were provided, then the lawyer has to maintain the funds given to the lawyer by the client in escrow until that dispute is settled.

If the lawyer should disburse the funds to the client or use the funds for him or herself, that would clearly violate Rule 1.15(f) and also violate Rule 1.15(b), because the lawyer would be converting client’s funds. This can be a serious violation.

Any time there is misuse of funds, a suspension is possible. Massive misuse of funds or continued misuse of funds can well result in disbarment, depending on other mitigating and aggravating circumstances that would be considered by a hearing committee and, ultimately, by the Pennsylvania Supreme Court in deciding the case.

The lawyer could potentially face criminal charges for theft of cost funds if the lawyer is holding a client’s funds for the specific service and the lawyer converts those funds elsewhere. Whether any district attorney’s office would bring criminal charges for the theft of the funds or the theft of the services remains to be seen, but there is always that possibility.

When a lawyer doesn’t pay the service provider, it obviously hurts the reputation of the legal profession in the eyes of the service provider. There is really no excuse for this type of conduct. A lawyer cannot use other people’s money, no matter how desperate the lawyer’s financial situation may be. There is absolutely no defense to a disciplinary proceeding for a lawyer to say he or she desperately needed the money for living or other expenses and therefore took someone else’s funds.

If lawyers are receiving money from clients to pay specific services, the lawyer must escrow those funds and then pay them immediately upon receipt of the bill for the services. If the lawyer misused those funds or “borrowed” those funds for a period of time, then the lawyer is faced with conversion and misuse of funds under Rule 1.15.

This is a serious problem that can result in substantial discipline if the problem continues or if there are multiple examples. Every lawyer who is not placing cost monies in escrow and/or utilizing these costs for other reasons should immediately change that practice.

A lawyer representing multiple clients in a settlement must be careful to obtain informed consent from all of them.

I represent three passengers in a motor vehicle accident against the driver and a third party. There is about $500,000 of coverage, but the injuries to the three people are fairly severe. Can I represent all three and how do I resolve the settlement issues, as any one of them could argue their damages are in excess of $500,000?

Representing clients in an aggregate settlement is a very difficult and potentially serious problem. The starting point for analyzing this is the conflict of interest rule, Rule of Professional Conduct 1.7. There could be a concurrent conflict of interest under Rule 1.7, because a lawyer may favor one client over another in this very difficult situation when the amount of money is not enough to cover the injuries to the three separate clients. Rule 1.7 prohibits representation if there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibility to another client. There can be informed consent under certain circumstances, but the lawyer has to believe that he or she can provide competent and diligent representation to each party for the issue of informed consent to be reached.

But the inquiry doesn’t stop there, because under the special conflict of interest rules under Rule of Professional Conduct 1.8, there is a specific category under 1.8(g). That reads as follows:

“A lawyer who represents two or more clients shall not participate in making an aggregate settlement of claims of or against the clients, or in a criminal case an aggregate agreement as to the guilty or nolo contendere pleas, unless each client gives informed consent. The lawyer’s disclosure shall include the existence and nature of all claims or pleas involved and of the participation of each person in the settlement.”

This rule is very clear that if a lawyer is representing one or more clients in reference to an aggregate settlement, the lawyer cannot do so unless each of the clients gives informed consent. Informed consent can only occur after full disclosure. The wise lawyer would do the full disclosure in writing. The wise lawyer would also get the consent back in writing.

Comment 13 to Rule 1.8(g) helps to clarify the situation. The comment notes that differences or willingness to accept settlement offers are “among the risks of common representation of multiple clients by a single lawyer.”

The comment notes that Rule of Professional Conduct 1.2(a) protects each client’s right to have the final say as to the settlement. The comment also notes that the lawyer “must inform each of them [each client] about all of the material terms of the settlement, including what the other clients will receive or pay if this settlement or plea offer is accepted.”

Informed consent must be given at the beginning of the representation, not the end.

This issue was highlighted when the American Bar Association in 2006 issued a formal opinion through its ethics committee entitled 06-438. This formal opinion requires that the consent mentioned above has to be obtained from the client before the joint representation can begin.

The opinion requires a rather detailed disclosure, including the amounts expected as well as the amount the other party may get. This makes it very difficult because one may have to violate attorney-client privileges of confidentiality to provide this information to each client.

This situation only arises when there are limited funds available and the damages exceed those funds. A wise lawyer should try to avoid these kinds of conflicts.

Therefore, the answer is that when dealing with multiple clients and an aggregate settlement, the lawyer must think this kind of case through from the very beginning. The lawyer may not be able to represent multiple clients. But the starting point is informed consent. It may be better if the lawyer picks one client and the others go to other lawyers.

A lawyer can never let his or her own personal desire to get a bigger fee because of multiple clients interfere with his or her judgment as to what is best for the individual clients. The clients have to consent to the settlement and it is hard to imagine if all had serious injuries that all would agree to an equal amount or agree to one person getting more than another.

The best practice is not to represent multiple clients in these limited aggregate settlement situations. But the bottom line is if a lawyer does, informed consent should be documented in writing all over the file with letters and conversations with the client. •

Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pa. 19381.