MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2008-03
Duty of Attorney Under Rule 1.15 With Respect to Disputed Settlement Proceeds
You state that you have a client who executed an Assignment of Funds (“Assignment”) in favor of a physician. You also indicate that the doctor was paid from an insurance policy, in accordance with the health insurance fee schedule and that the Assignment is for the remainder of the balance of the outstanding bill (“balance bill”).
This Committee does not address questions of law, and thus will not address the right of the doctor to balance bill; it will however, address the duty of an attorney with respect to disputed settlement proceeds.
Both you and your client are in the best position to determine the validity of the Assignment as a potential claim against the settlement proceeds..Ifyou determine that the physician has no legal right to balance bill, the statute of limitations has run on collections of the debt or of the Assignment, or some other valid legal position, then the Committee believes you may ethically disburse the funds to your client. However, where there exists a genuine dispute as to the disposition of settlement funds, an attorney has a duty that arises underRule 1.15.
Under Rule 1.15 (Safekeeping Property)
(a) A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Funds shall be kept in a separate account maintained pursuant to Title 16, Chapter 600 of the Maryland Rules, and records shall be created and maintained in accordance with the Rules in that Chapter. Other property shall be identified specifically as such and appropriately safeguarded, and records of its receipt and distribution shall be created and maintained. Complete records of the account funds and of other property shall be kept by the lawyer and shall be preserved for a period of at least five years after the date the record was created.
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(d) 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 deliver promptly 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 render promptly a full accounting regarding such property.
(e) When a lawyer in the course of representing a client is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall distribute promptly all portions of the property as to which the interests are not in dispute
There are updates to Rule 1.15 that are effective as of January 1, 2008. Be mindful that one update is the addition of stricter record keeping requirements. Records of funds “shall be created and maintained in accordance with the Rules in that Chapter. Other property shall be identified specifically as such and appropriately safeguarded, and records of its receipt and distribution shall be created and maintained.” Rule 1.15 (emphasis added). See also Rule 16-606.1, for more detailed guidelines on the newly revised attorney trust account record-keeping requirement, and Rule 16-167.
Rule 1.15 (d) & (e) addresses disputes between clients and third parties regarding entitlement to funds held by an attorney. The Rule, read in conjunction with the comment, requires an attorney to safeguard genuinely disputed property pending a resolution of entitlement to them. Comment 5 contains guidance on this issue:
In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the funds or property to the client until the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.
(emphasis added). This Committee is of the opinion that if you determine that the physician has a non frivolous claim and is legally entitled to the funds, you must retain the funds in compliance with Rule 1.15. In Ethics Docket 2000-30, we addressed the appropriate use of an interpleader action.
In summary, 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 must keep the funds in compliance with Rule 1.15.
You may review prior committee opinions at www.msba.org. We trust that this opinion is responsive to your inquiry and thank you for seeking its assistance.
REFERENCES:
Rule 1.15(a), (d) & (e), Md. Rules of Professional Conduct
Rule 16-606.1
Rule 16-167
Ethics Docket No. 2000-30
Ethics Docket No. 04-06
ASSIGNED TO: Charles S. Winner, Esq.
DATE ASSIGNED: September 10,2007
DATE DISTRIBUTED: