MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2021-02
How Does an Attorney Proceed Ethically When the Client Refuses to Endorse the Check from a Judgment Debtor and the Debtor Then Offers to Reissue the Check and Make It Payable to the Attorney Alone?
You have asked our opinion on: (1) whether a Maryland attorney may ethically accept payment by a judgment debtor directly to that attorney after that attorney obtains a judgment on a client’s behalf; and (2) whether a Maryland attorney may subsequently issue various payments from the judgment proceeds upon a rejected proposed settlement distribution.
We believe it is proper for the attorney to secure the judgment proceeds but we do not believe it is proper to make disbursements in light of the client’s objections.
We understand the facts as follows. Your firm represented a client in a personal injury trial. Your client was awarded medical bills and lost wages but the jury awarded nothing for pain and suffering damages. No appeal was taken and a judgment was entered. The judgment debtor mailed you a check for the judgment payable to the client and you. Your office then provided a proposed Settlement Memorandum to the client. The client then notified you that she was refusing to sign the Settlement Memorandum and check for the judgment. The judgment debtor has indicated that it is willing to reissue the now stale check payable to your firm’s IOLTA account.
REISSUANCE OF DRAFT IN FIRM’S NAME
A Maryland attorney has an obligation to keep safe the property and funds of their clients. Maryland Attorneys’ Rules of Professional Conduct (“MARPC”) Rule 19-301.15. An attorney also is required to keep safe the property and funds of clients and third parties with the care required of a professional fiduciary. Id.., cmt. [1].
We previously addressed this issue in the context of a Maryland attorney being in possession of a settlement check issued to both the client and the attorney, which the client refuses to sign. We concluded that the Maryland attorney should file an interpleader, inter alia, to seek authority to negotiate the check. See MSBA Ethics Docket No. 2009-01 (“The Committee concludes that it would be appropriate for Attorney to file a civil action to adjudicate his right to a portion of the settlement proceeds and to obtain the right to negotiate the check for purposes of obtaining his fee and distributing the remainder of the proceeds.”)(emphasis added); MSBA Ethics Docket 2004-22 (“The Committee believes that Rule 1.15 allows you to file an action to properly adjudicate the entitlement of all parties to the proceeds of the recovery and to seek authority to negotiate the check and sign the releases necessary to consummate the arbitration.”). See also MSBA Ethics Docket No. 2000-30 (opining that an interpleader is the appropriate vehicle to resolve a conflict between a third party and a client over funds that an attorney holds in trust) (emphasis added).
Your case is distinguishable because the judgment debtor is willing to reissue the check directly to you. Rule 1.15 contemplates that an attorney may hold property of clients and/or third persons even when the property is subject to continuing dispute. MARPC Rule 19-301.15 (“An attorney shall hold property of clients or third persons that is in an attorney’s possession in connection with a representation separate from the attorney’s own property.”). See also MARPC Rule 19-301.15(e) (acknowledging that held property may be subject to dispute).
Accordingly, we believe that it is ethical to take possession of the judgment proceeds under these specific circumstances so long as the attorney also complies with the obligations set forth in MARPC Rule 19-301.15(d)-(e).
DISBURSING JUDGMENT PROCEEDS
A Settlement Memorandum is an accounting prepared at the conclusion of a case wherein the attorney obtains consent from the client to disburse the property in a specified fashion.
Assuming arguendo that your firm was already in possession of the disputed funds, we do not believe that your firm is permitted ethically to disburse the disputed funds. Because your client has indicated that she is refusing to sign the Settlement Memorandum, we believe this indicates that your client is objecting to all of the distribution. “When an attorney in the course of representing a client in possession of property in which two or more persons (one of whom may be the attorney) claims interests, the property shall be keep separate by the attorney until the dispute is resolved. The attorney shall distribute promptly all portions of the property as to which the interests are not in dispute.” MARPC Rule 19-301.15(e). Therefore, you are ethically required to keep safe the portion of the funds that are disputed until such dispute is finally resolved.
You may have additional obligations to notify other person(s) having a legal interest in the judgment proceeds, such as a lien or assignment. In Att’y Griev. Comm’n v. Ellison, the Maryland Court of Appeals determined that a violation of Rule 1.15 occurred because the attorney, who was in possession of settlement proceeds, made no effort to contact third-party healthcare providers claiming that they had received a partial assignment of the settlement proceeds. 384 Md. 688, 867 A.2d. 259 (2005).
We continue to believe that the proper mechanism to resolve this dispute is the filing of an interpleader action. See MSBA Ethics Docket Nos. 2018-03, 2009-01, 2004-22, and 2000-30.
REFERENCES:
Rules cited:
- MARPC Rule 19-301.15 & cmt. [1]
Cases cited:
- Att’y Griev. Comm’n v. Ellison, 384 Md. 688, 867 A.2d. 259 (2005).
Ethics Docket Nos. cited:
- Ethics Docket No. 2000-30
- Ethics Docket No. 2004-22
- Ethics Docket No. 2009-01
- Ethics Docket No. 2018-03