MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2004-06
How long must an attorney hold disputed funds in escrow before he may disburse the funds to his client when the client and third-party do not appear to be in active litigation over the disputed funds?
In your recent inquiry, you state that in 1999, you settled a personal injury claim. You took the appropriate fee, paid all litigation expenses and disbursed the remaining funds to the client, except for $6800, which you deposited into your escrow account with your client's permission. The $6800 represents a disputed claim between a treating physician and your client. You advised that the physician had been paid some money by a health insurer, but claimed a right to "balance bill" the remaining $6800 to your client. Your client's position is that the physician should have accepted the insurance payment as payment in full.
You further state that, pursuant to MRPC 1.15 (Safekeeping Property), you determined that you would hold the $6800 in your escrow account, and advised the client that you would distribute the funds in any manner the client and physician agreed upon, or upon court order.
By letter dated November 1, 1999, you advised the physician of the situation, but received no response. On December 1, 2000, you received another bill from the physician, which you forwarded to the client. Since December 1, 2000, you have had no contact from the physician. Your client periodically inquires as to whether you can disburse the funds to her. You state that there has been no documented waiver of the statute of limitations on your or your client's part.
Your question is whether, pursuant to MRPC 1.15, you may ethically disburse the $6800 to your client, given the fact that so much time has passed and the doctor has not filed suit against the client nor made any communication in three years. You also inquire as to how long an attorney must retain disputed funds when the client and third party do not appear to be engaged in active litigation to resolve the dispute.
You state that you have considered filing an interpleader; however, you were concerned that at least some of the fees associated with the resolution of the interpleader would have to come from client funds. Subsequent to the initial inquiry letter, you advised that the client did not execute any agreement assigning settlement proceeds to the physician.
Furthermore, you advised that in the November 1, 1999 letter to the physician, you stated that you were holding funds, however, without documentation of the physician's ability to balance bill the client, you had no authority to disburse any funds to him. It was your understanding that the physician would attempt to obtain such documentation from the insurance company. No such documentation was ever received.
In Ethics Docket 2000-30, the Committee concluded that the filing of an interpleader action is entirely consistent with an attorney's obligations under MRPC 1.15. You may also want to review Ethics Dockets 1994-19, 1995-41, 1997-09 and 1998-14, which addressed related inquiries regarding third-party funds. Those opinions are available at www.msba.org.
MRPC 1.15(b) provides that:
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 and, upon request by the client or third person, shall promptly render a full accounting regarding such property.
The comments to MRPC 1.15 further state that a lawyer should hold property of others with the care required of a professional fiduciary. Moreover, third parties, such as client's creditors, may have just claims against funds 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.
The Ethics Committee does not render opinions on legal issues. In considering whether you may disburse the $6800 to your client, you should first determine whether MRPC 1.15 even applies by determining whether the physician is "entitled" to the funds, i.e. that he has a legal interest in the $6800. If you determine that the physician has no legal interest, because he had no right to balance bill, the statute of limitations on collection of the debt has run, or otherwise, then the Committee believes that you may ethically disburse the funds to your client.
Conversely, should you determine that the physician is legally entitled to the funds; you must continue to retain the funds in compliance with MRPC 1.15, and contact the physician in effort to resolve the matter. If you are unable to do so, you may need to institute an interpleader action.
There is no limit on how long an attorney needs to retain disputed funds, regardless of the fact that the client and third party are not engaged in activity to resolve the dispute. The issue is whether you are able to make the determination that no person other than your client is entitled to the funds. Until that determination is made, you should keep the funds in compliance with MRPC 1.15.
REFERENCES:
Opinions of the Maryland Ethics Committee: 1994-19, 1995-41, 1997-09, 1998-14 and 2000-30
MRCP 1.15