Ethics Docket No. 1990-16

MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 1990-16

Trusts Funds: Duty of Attorney to Pay Clients’ Creditors from Proceeds of Settlement

Your inquiry poses a problem regarding proper disbursement of settlement funds received on behalf of your client when a third party makes a claim upon a certain portion of those funds. You state in your letter that the services rendered by the third party are not related to the personal injury action which is the subject of the representation, however, the third party has produced to you various IOUs, signed by your client, authorizing disbursement of these sums, represented by the IOUs, from the proceeds of settlement.

In Docket 88-64, we affirmed that the lawyer had an ethical obligation to hold funds, which were the subject between a client and a third party related to services rendered in connection with the action, in a place of safekeeping for a period of time. Thereafter, the lawyer was free to disburse the sums to the client, so long as the third party was notified of the disbursement thereby triggering his right to pursue the client for any amounts claimed by the third party. In Docket 88-64, however, we were not presented with a situation where the client had explicitly authorized the lawyer to withhold certain funds from settlement for payment to the third party. In that event, the Committee believes that a disbursement of the funds to the client, in derogation of the client's instruction and authorization, would be improper.

We have also stated that there is a dispute between the client and third party as to the amount due under the IOUs. Your client has signed a statement noting that only three weeks' vehicle rental is due to third party, which third party contends is insufficient but is unable to accurately identify the correct sum presently due. The question raised as to your obligation to the third party is a legal one on which this Committee does not opine.