The Louisiana Supreme Court recently amended Louisiana Rule of Professional Conduct 1.15(d) to clarify a lawyer’s duty with respect to the interests of third parties in funds or other property in the lawyer’s possession. The rule change becomes effective on December 1, 2022. Here are the main takeaways:
- The amended rule recognizes that third parties may have valid claims against funds or property of the client that are in the lawyer’s custody. In such cases, the rule now places an affirmative duty on lawyers to “protect such third-party claims against wrongful interference by the client.”
- The amended rule clarifies that the lawyer must not surrender the property to the client until the third-party claims are resolved.
- The amended rule now prohibits lawyers from unilaterally trying to arbitrate the dispute between the client and the third-party. The lawyer should, however, advise the client and the third-party that the disputed funds will remain in the lawyer’s trust account or the registry of the court, until the dispute is resolved.
- Prior versions of Rule 1.15(d) defined a “third person’s interest” as one of which the lawyer has actual knowledge and was limited to (i) statutory lien or privilege, (ii) a final judgment addressing disposition of those funds or property, (iii) a written agreement by the client or the lawyer on behalf of the client guaranteeing payment out of those funds or property. The amended rule adds another circumstance in which a lawyer must protect the third-party property: when there is an instruction by the client to the lawyer to use any remaining funds or property not otherwise protected under the rule to pay another obligation of the client.