MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2000-13
Distribution of Funds from Escrow to Third Parties when Client Says Not to Pay
This opinion addresses the following two factual scenarios. In both, the attorney represents a plaintiff in a personal injury matter. In the first, the attorney indicates that the attorney "retained" an expert to evaluate the claim. After the expert provided an opinion contrary to the client's position, the client refused to allow the attorney to pay the expert from funds paid in advance by the client and placed in escrow for litigation costs. In the second case, the attorney "executed a professional service agreement", with his client, which the Committee assumes is a retainer agreement, referred the client to a medical doctor for treatment and sent a letter to the doctor advising him that the lawyer "would try to protect his bill for payment." In addition, the client had also incurred bills from other health care providers before she engaged the attorney. Upon the attorney's receipt of Personal Injury Protection ("PIP funds") and the settlement proceeds, the client has told the attorney not to pay any of the providers.
Both scenarios involve an analysis of the following Rules of Professional Conduct. Rule 1.2 requires an attorney to "abide by the client's decisions concerning the objectives of the representation…" but that duty is limited by the lawyer's obligations under the Rules of Professional Conduct "or other law." Also, the comment to Rule 4.4 states that the lawyer's responsibility to a client "requires a lawyer to subordinate the interests of others to those of the client, but that responsibility does not imply that a lawyer may disregard the rights of third persons." The primary Rule applicable here is Rule 1.15(b) which provides, in pertinent part:
Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive.
In each of the above scenarios the lawyer has received funds in which a third party and his client claim an "interest" and the question is what to do with the funds when these two interested parties disagree as to distribution.
These issues have been addressed often by this Committee. They are resolved in essence by the terms of the clients' initial approval for payment to the various third parties and are, therefore, generally legal issues which this Committee does not decide.
Nevertheless, the Opinions are instructive.
In Opinion 96-16, the inquirer represented a plaintiff who had received treatment from civilian and military physicians. After settlement, but before the funds were distributed, the client allowed payment for the former but not the latter. The Committee opined that the lawyer's obligation turned on the exact terms of the Assignment and Authorization signed by the client.
In Opinion 98-9, the client had signed two "letters of protection" for two doctors' bills and, after settlement, "changed her mind" and told the lawyer not to pay the doctors. Under those circumstances, the Committee looked to the Comment to Rule 1.15 which provides, in part:
Third parties, such as client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.
Because the client had signed agreements to pay the doctors, the Committee opined that the lawyer could refuse to surrender the funds to the client. Further, depending on the precise terms of the letters of protection, we advised that the lawyer may have other legal obligations. We proposed the lawyer may choose to have a court decide to whom the money should go and referred the inquirer to Advance Finance Co. v. Trustees of the Clients' Security Trust Fund, 337 Md. 195 (1995) which addresses the legal obligation of an attorney vis a vis claims by third parties to proceeds of a tort settlement.
Finally, in Opinion 97-20, a hospital that tad treated the client for injuries sustained in an accident claimed an interest in settlement funds received by the attorney. The attorney learned that because the client belonged to an HMO, the hospital could not bill the client directly for the funds. The client had never agreed to pay the hospital directly. Absent any assignment from any other party giving the hospital a legal right to the money, the lawyer determined that the hospital's claim had no legal merit. As a result, the Committee opined that the lawyer could release all of the funds to the client. See also Opinions 97-9 and 99-5.
Resolution of the first scenario depends on whether the client entered into any agreement to pay the expert. If the client never agreed to pay for the expert, the lawyer may not pay the expert with the client's funds over the client's objection.
A stickier situation arises where the client in fact agreed in some fashion to pay the expert and now refuses to authorize payment to the expert. The question is whether the lawyer can rely on the client's prior approval to release the funds. If the prior agreement is binding, and the client's current decision does not constitute a legal withdrawal of her consent, the lawyer may rely on the prior agreement and release the funds to the client. This issue is a legal one which the Comment to the Rule suggests should be left to a court to decide. This Committee cannot resolve legal issues. One option available to an attorney in this situation is to interplead the money in court and ask a judge to determine the respective rights to the funds. See, e.g., Opinion No. 2000-30.
If, on the other hand, the lawyer does not believe that he or she had obtained the client's binding agreement to pay the expert in the first instance, then the lawyer must follow the client's current directive and may not release the funds. Instead, the lawyer must hold the funds separate and may seek judicial intervention to decide what to do with the funds. Again, the issue is a legal one dependent upon the legal interpretation of any consent previously obtained.
Resolution of the second scenario turns on the terms of the "professional service agreement" and whether it authorized the lawyer to pledge the client's funds in payment of the health care providers. According to the inquiry, the lawyer did not contract to pay the doctor out of the settlement funds, but only said he would "try to protect" the doctor's bill. If the client had not authorized the lawyer to offer to pay the doctor out of the settlement funds, the lawyer may be required to release all of the funds to the client. The inquiry does not indicate any agreement from the client with regard to the health care providers the client saw prior to engaging the lawyer, so the lawyer is not required, over the client's objection, to hold funds for these providers. Again, interpretation of the terms of the agreement is a legal issue which this Committee cannot decide.
References: Ethics Dockets 1997-9, 1999-5 and 2000-30.