Opinion 2007-12
(October 2007)

The inquirer asks about distribution of funds to several union members upon collection of a judgment under the Pennsylvania Wage Payment and Collection Law. The judgment stems from a lawsuit against the contractor who wrote the checks to union members. However, some members were able to get their checks cashed at a check cashing agency. The inquirer asks when he collects on the judgment, if he is required to give the proceeds to the check cashing agency or the member who cashed the check. In addition he asks what he should do if the amount collected is less than the amount of the judgment.
Pennsylvania Rule of Professional Conduct Rule 1.1 (the "Rules") Competence provides that, A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.


Rule 1.15 Safekeeping Property provides in part that:
(c) When in connection with a client-lawyer relationship a lawyer is in possession of property in which two or more persons, one of whom may be the lawyer, claim an interest, the property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.

This rule requires an attorney to safeguard funds in the attorney's possession when the attorney is aware of a claim against those funds by a third party, such as for example, a statutory lien, or where the payment or reimbursement from the client's share is protected by agreement with the attorney or the client. In the circumstances of this inquiry, although the inquirer is aware of the cashing of the checks, and consequently of the claim that the agency could make against the particular individuals who received the funds, the Committee presumes from the inquiry that there has been no communication between the inquirer and the check cashing agency.

The Committee advises that the appropriate action for the inquirer to take in this matter depends on the substantive law regarding real parties in interest. Although the inquirer's client is (and representational agreement is with) the union, if under substantive law the check cashing agency is the real party in interest, then the inquirer must directly advise the agency of his possession of the funds and their possible entitlement. If substantive law does not make the agency a real party in interest the inquirer's duty as counsel to the union is to advise the union of the potential claim of the check cashing agency against the union members and those members' duty to repay the funds to the check cashing agency.

As it is the Committee's experience that check cashing agencies are given wide latitude in collection of such debts against those who use their services, Rule 1.1 also requires that the inquirer make it clear to the union what their fiduciary responsibilities are to their individual members as regards communicating this information to them. The union should make the individual members who received cash from the checks that were eventually dishonored aware that they face litigation by the agency against them personally. Should there be any dispute between the parties as to the entitlement to the funds, then Rule 1.15c requires that the inquirer notify all such parties that the funds have been placed in escrow pending resolution of those entitlements.

The second part of the inquiry asks about determining distribution where the amount of net proceeds (after deduction of the inquirer's statutorily mandated costs and fees is made), does not cover the full amount of the claims, and where as here, the inquirer has no individual fee agreements with the actual recipients of the funds collected.

The Committee believes that in these circumstances, the net proceeds should be distributed proportionally to the appropriate recipients in relationship to the relative amounts of their respective claims. This is on the theory that no one recipient should have priority over another. The inquirer should explain the distribution in the transmittal letter to each recipient. Similarly, unless specifically prohibited by statute, the Committee advises that it would also be appropriate for the inquirer to pro-rate his share of his fees after deduction of his costs in calculating the appropriate distribution amounts.

CAVEAT: The foregoing opinion is advisory only and is based upon the facts set forth above. The opinion is not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. It carries only such weight as an appropriate reviewing authority may choose to give it.