MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2012-15
Whether it is ethical for settlement funds that are to be deposited by agreement into an escrow account pending the disposition of a medicare payments may be placed in an interest bearing account for the sole benefit of the settled injured Plaintiffs?
REFERENCES: Maryland Rules of Professional Conduct, Rule 1.15; Md. R.Civ.Pro, Rules 16-607, 16-608
You have requested an opinion concerning whether it is ethical for settlement funds that are to be deposited by agreement into an escrow account pending the disposition of Medicare liens may be placed in an interest bearing account for the sole benefit of the settled injured Plaintiffs. This inquiry has been made by both counsel for plaintiffs and defendant.
The inquiry, as clarified by subsequent communications with the inquirers (“Inquiry”), provides the amount Medicare claims to have paid is approximately the same as the amount of settlement funds. The parties have agreed that the entire amount of the settlement funds will be remain in escrow until any potential lien under the Medicare Secondary Payor Act has satisfied in full. The Inquiry additionally provides that plaintiffs are in negotiations with Medicare to reduce the amount of the lien that Medicare will ultimately claim, that as a quadruple amputee the plaintiff has asserted hardship. The Inquiry notes that Medicare regularly reduces and negotiates the final amount of the claim it may assert, in part based on the amount of attorneys’ fees and costs involved in the litigation.
A. Applicable Rules
Safekeeping of property is governed by Maryland Lawyers’ Rules of Professional Conduct (“MRPC”) at Rule 1.15. In pertinent part, this Rule states:
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.
(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.
In addition, Md. R.Civ. Pro. 16-607 & 16-608 are also instructive. Pursuant to Rule 16-607(b)(3), dealing with co-mingling of funds, a lawyer may pool and commingle the funds held by a client or beneficial owner with funds held for other clients or beneficial owners. Section 16-608, relating to interest on funds in attorney trust accounts, provides:
Any interest paid on funds deposited in an attorney trust account, after deducting service charges and fees of the financial institution, shall be credited and belong to the client or third person whose funds are on deposit during the period the interest is earned, except to the extent that interest is paid to the Maryland Legal Services Corporation Fund as authorized by law. The attorney or law firm shall have no right or claim to the interest.
B. Discussion
Initially, it is clear that settlement funds belonging to a party may be placed in an interest bearing account where the interest will be provided to that party. It is also clear that the attorney or firm shall have no right or claim to the interest.
It is equally clear that funds belonging to one person may not be placed in an interest bearing account where the interest will be credited to someone other than the person whose funds are on deposit.
In the context of your Inquiry, one issue that needs to be resolved is to whom the settlement funds belong at that time it is received by plaintiff’s counsel. You may need to consider, among other sources, the Medicare laws and regulations (such as 42 U.S.C. §1395y) as well as to the cases and laws relating to liens in general. The Committees notes that attorneys often use the term “Medicare Lien” loosely. The term is used to describe a variety of funds relating to Medicare, including, for example, payments by Medicare, payments that may be paid by Medicare, payments that are paid by Medicare, conditional payments by Medicare, conditional amounts that Medicare may claim that it has a right to or lien upon, amounts that Medicare has, is or will negotiate to be paid, as well as amounts that Medicare actually has a lien upon.
In a personal injury or medical malpractice matter, typically, in connection with or upon settlement of a claim, the plaintiff’s attorney will make a written request to the Medicare Secondary Payer Recovery contractor for the Centers for Medicare and Medicaid Services (CMS) seeking a “conditional payment letter” showing any payments made by Medicare for the injury. Upon receiving the CPL, the attorney usually will negotiate with Medicare as to which payments were for the injury and which were not. Counsel will then provide evidence of the settlement amount, attorneys’ fees, costs and other information to Medicare in attempt to lower the amount Medicare will ultimately claim. Medicare will usually offset its recovery by a proportionate amount of the fees and costs of the litigation. Finally, Medicare will prepare a final demand for payment letter showing the amount it claims it is entitled to recover from the settlement. To determine the “ownership” of the settlement funds, you should determine when the actual Medicare Lien is established.
In the opinion of the Committee, the answer to your inquiry turns on a legal question: at the time of settlement, when defendant’s counsel turns the settlement funds over to plaintiff’s counsel, whether those funds belong to the plaintiff or Medicare. As the Committee does not opine on legal questions, you must determine that answer on your own. If the answer is that the funds belong to plaintiff, then the settlement funds may be placed in an interest bearing account where interest will be credited to plaintiff. If the funds belong to someone other than plaintiff, or belong to the plaintiff and others, then the interest may not be credited solely to plaintiff absent some other agreement with those other parties.
ASSIGNED TO: T. Christine Pham
DATE ASSIGNED: April 20, 2012
DATE DISTRIBUTED: May 25, 2012