The Florida Bar
PROFESSIONAL ETHICS OF THE FLORIDA BAR
April 2, 2004
April 2, 2004
When the lawyer in a personal injury case is in possession of settlement funds against which third persons claim an interest, there is no bright line rule that can address all situations. An attorney cannot assist a client in unlawfully avoiding statutory liens or court orders involving the funds. If the lawyer is a party to the agreement giving rise to the claim, the lawyer must comply with the lawyer’s agreement. If the client is a party to the agreement, the lawyer must consider the terms of the agreement, whether the agreement is enforceable, and whether the client wants to contest the agreement. The lawyer may assist the client by providing advice as to the client’s rights and obligations and by negotiating with the third party on behalf of the client. If the lawyer owes a legal duty to the third person, the lawyer must inform the third person of the lawyer’s receipt of the funds and must hold disputed funds in trust. Whether the lawyer owes a legal duty to protect the third person’s interests is a legal question, outside the scope of an ethics opinion. Before taking action that is adverse to the client, the lawyer should give the client the opportunity to seek independent legal advice.
Note: This opinion was approved by The Florida Bar Board of Governors on April 2, 2004.
RPC: 4-1.1, 4-1.4, 4-1.5(f)(5), 4-1.7, 4-1.16, 5-1.1, 5-1.2
The Professional Ethics Committee and bar ethics staff have received many inquiries involving a lawyer's duty when the lawyer, in a personal-injury settlement, is in possession of client's funds against which there are claims being made by third parties. In most, but not all cases, the inquiry involves claims by medical doctors or other providers for payment of outstanding bills for medical treatment or services.
It is because of all of the variables mentioned below that the staff is most frequently required to advise an inquiring attorney that they can provide little assistance. Many times the answer involves issues of law that are outside the scope of an ethics opinion. Unfortunately, many times the inquiry involves efforts to resolve an ethical problem that has already arisen and may involve potential ethical violations that have already taken place rather than actions that can be taken to avoid future ethical violations. See, Rule 2, Fla. Proc. For Ruling on Questions of Ethics.
For these reasons and reasons given below, it is impossible for the Committee to announce any bright line rule that applies in all situations. Pronouncements by out-of-state committees on ethics provide some guidance but often are case specific to the law applicable in the other states. Even pronouncements by courts of this state cannot be blindly relied upon since they are often case specific in the factual applications, or the opinions lack factual information needed to provide a clear answer for a lawyer faced with a specific problem.
Nevertheless, the Committee endeavors in this opinion to provide some guidance to lawyers analyzing the particular factual situation with which they are faced. The listing of factors is not complete. The factors are those most prominent in cases involving problems arising out of the recovery of personal-injury settlements, since that issue most frequently prompts a call to the ethics hotline. Other factors may apply in situations involving a lawyer’s receipt of funds or property under other circumstances (e.g., funds held by an attorney as an escrow agent in a real estate transaction; funds held under a trust).
Factors to consider:
1. Is there a rule governing the situation?
The rule most frequently referenced is Rule 5-1.1, Rules Regulating The Florida Bar (formerly Rule 4-1.15(b)) which reads:
(e) Notice of Receipt of Trust Funds; Delivery; Accounting. 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.
While this rule is somewhat specific to the occasion, other rules may impact the question. Obviously, a lawyer has an obligation to act in the client's best interests. Likewise, rules governing a lawyer's obligation when conflicts of interest are anticipated or actually arise may impact a decision in specific cases. Rule 4-1.7. The lawyer's obligation to keep the client informed of actual or potential problems arising during representation may apply. Rule 4-1.4. In addition, a lawyer has an ethical duty of competence. Rule 4-1.1.
2. Under what circumstances have the funds come into the lawyer's possession?
In personal-injury cases, funds paid by defendants are almost always paid to the client and the lawyer jointly. The transaction is seldom completed without accompanying agreements, usually in writing. The settlement agreements are signed by the client before funds are delivered, and, at a minimum, there is an exchange of correspondence leading up to the delivery of funds. These writings must be carefully reviewed since they may create obligations regarding the funds that are binding not only on the client, but also on the lawyer. A lawyer has an ethical duty to abide by the lawyer’s own agreements, and may have both an ethical and legal obligation to comply with agreements made by the lawyer on the client's behalf and as the client's agent. A lawyer also has an ethical obligation to advise the client to comply with legally binding agreements the client has made. Additionally, a lawyer has an ethical duty to fully inform a client of the potential effect of signing any agreement reviewed by the lawyer. Finally, a lawyer has an ethical duty not to bind the client to a disadvantageous agreement without consultation and agreement.
3. What circumstance forms the basis of a claim against the client's funds?
a. Some claims are based on statutorily created liens over which neither the client nor the lawyer has any direct control. The claim exists whether or not the client consents. Examples of such liens are Medicare or Medicaid liens, Social Security liens, and liens under state hospital lien laws. In representing the client, the lawyer has an obligation to know and apply the law. The lawyer also has an obligation to inform the client of the impact of the law on the client's potential recovery so the client is fully informed in considering a potential settlement. The lawyer could potentially place the client at grave risk if this type of claim is ignored. The client, and even the lawyer in some cases, may be civilly or criminally liable if such liens are ignored or if there is any concealment or false statement of facts made in connection with enforcement of such liens. A lawyer who knowingly assists a client in unlawfully avoiding such liens is violating his or her ethical obligation to follow and uphold the law.
b. Some claims are based on the actions of courts or administrative bodies. These may be court orders directed to the client, or possibly to the lawyer, regarding such funds. The lawyer's obligations, as well as the client’s, are similar to the situation involving statutory liens with an emphasis on the lawyer's duty to become fully familiar with the status of the law as applied to the particular client.
c. Most other claims are based upon interests created by private contract between the client and others, or between the lawyer and others. Some agreements are based on an agreement of a lawyer as agent of the client. Problems may arise when one party claims a contract exists, while the other party denies all or some of the claimed terms of the purported contract. Obviously the many different factual situations providing a factual basis for these claims make it impossible for any clear ethical guidance to be developed. All of the many factual issues arising in the formation and possible breach of contracts may be involved. To the extent the lawyer acts, or appears to act, as an agent of the client, the many issues in the law of agency arise. Most importantly, from the standpoint of the lawyer, these many factual possibilities greatly raise the problem of actual or apparent conflict of interest between the client and the lawyer. Such conflicts may create ethical problems for the lawyer, particularly if the client is unsophisticated in matters of contract or agency and is relying upon the lawyer to protect the client's interest in these matters. A lawyer has an ethical duty to urge the client to abide by the client’s lawful contracts, but at the same time has an ethical duty to assist the client, by all legal means, to reject or avoid contracts that are not legally enforceable against the property in the lawyer’s possession. The lawyer has an obligation to avoid conflicts of interest before they arise, and has an ethical obligation regarding the handling of conflicts of interest after they arise, including the obligation to fully inform the client of the basis of such conflict. See, Rule 4-1.7. While the law of contract forms the basis of most claims, allegations have been made based upon fraud or unjust enrichment, and may indirectly involve illegal activities revolving around improper avoidance of government regulations or even improper marketing activities of doctors or lawyers. Thus, again no bright line guidance can be given by this committee.
4. "Letters of Protection" and other agreements
There is no clear legal definition of a "letter of protection." The term means different things to different medical providers, to different lawyers, and to different clients. The term is applied loosely to include assignments, a term which itself has many definitions. The documents involved often refer to liens although there is rarely any statutory or judicial basis for the use of such term, and there is almost always a lack of any information as to how such claimed liens can be perfected or enforced except through litigation.
This section discusses any claims involving any alleged agreement (oral or written) under which a person claims the right to a client's funds held by a lawyer regardless of how that agreement is characterized. It does not include any claim based on statutory, administrative or judicial action. It basically involves a claim based on contract. Several crucial issues dominate discussions of the ethical and legal rights and duties of lawyers and clients when problems arise under such agreements.
a. To what extent is the lawyer a party to the agreement? Obviously, a lawyer has an ethical duty to comply with the lawyer’s own lawful contracts freely entered into, absent some lawful defense. The lawyer, of course, may be a direct party to the agreement. The lawyer may be a party as the agent of the client, disclosed or undisclosed, apparent or actual, limited or general.
b. If only the client is a party to the agreement, the lawyer must consider the terms of the agreement, whether the agreement is enforceable, and whether the client wants to contest the agreement.
c. Is a conflict of interest involved because both the client and the lawyer (directly or as a claimed agent) are claimed to be parties to the agreement. A lawyer has numerous ethical obligations in situations involving actual or potential conflicts of interest. Complete and full disclosure of potential and actual conflicts of interest is required. It is unethical for a lawyer to avoid a conflict by taking action adverse to the client’s interest. The lawyer’s only option may be to withdraw from representation. See Rule 4-1.16.
d. What can a lawyer do to resolve a dispute between the client and a medical provider? The comment to Rule 5-1.1 is instructive:
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, and where appropriate the lawyer should consider the possibility of depositing the property or funds in dispute into the registry of the applicable court so that the matter may be adjudicated. (Emphasis added).
The comment illustrates that the lawyer cannot unilaterally arbitrate a dispute between the client and the third person. In other words, the lawyer cannot take it upon himself or herself to decide who is entitled to what. Likewise, the lawyer may be prohibited from disbursing the disputed funds to anyone until the dispute is resolved. The lawyer’s ethical duty turns on whether or not the lawyer owes a legal duty to the third person. The rule itself does not create a legal duty to a third person; such a legal duty arises independently of the rule. Where the lawyer owes a legal duty to the third person, the lawyer must, under Rule 5-1.1(e) and (f), notify the client and third person of the receipt of the funds or property, but the lawyer must retain the disputed funds or property in trust until the dispute is resolved. Any undisputed funds must be distributed to the appropriate person. It should be noted that in contingency fee cases no distributions can be made until the client signs the closing statement as required by Rule 4-1.5(f)(5). In the event of a dispute over whether a third person should be paid, the attorney should do a partial closing statement disclosing what undisputed amounts are being distributed and disclosing what is being held in trust pending resolution of the dispute. Whether the lawyer owes a legal duty to a third person is a legal question outside the scope of an ethics opinion and therefore is not determined in this opinion.
The only Florida ethics opinion on the issue of protecting a third person’s interest in the face of the client’s countermanding instructions arose in a personal-injury context. Opinion 67-36 dealt with a situation where the client executed an assignment with a medical provider for payment of unpaid medical bills out of the proceeds of the client’s personal-injury claim. Once the personal-injury case was settled, the client withdrew authority for the lawyer to retain part of the proceeds to pay the medical bills. It does not appear from the opinion whether the client disputed the medical bills or simply instructed the lawyer not to disburse directly to the provider. Whether a particular lien has been perfected or a particular assignment is valid and enforceable is a legal question, beyond the scope of an ethics opinion. See, Rule 2, Florida Bar Procedures for Ruling on Questions of Ethics. In response to the question of what the lawyer ethically was required to do, the Committee stated that the lawyer “should initially endeavor to assist his client and the physician in effecting a compromise.” (Emphasis added.) The Committee further recommended that if that effort failed, the lawyer “should institute an interpleader action in a court of competent jurisdiction naming his client and the physician as defendants.” We believe that the Committee, by suggesting that the lawyer assist the client and the physician in effecting a compromise, did not mean to suggest that the lawyer act as a neutral arbitrator or mediator of the dispute. Likewise, we do not interpret the Committee’s opinion to suggest that an interpleader action was the only alternative to settlement.
To resolve the dispute, the lawyer must give honest advice to the client concerning the client's rights, obligations and risks. The lawyer may act as a negotiator for the client, but not as an arbitrator. If a conflict of interest between the client and lawyer already exists, the lawyer should fully and completely inform the client of the basis of the conflict and suggest that the client seek independent counsel regarding the client's position. The lawyer should take no action which would be against the client's interests unless fully confident that under the law such action must be taken, and then the action should be taken only after fully advising the client of the intended action and the basis for the intended action. If possible, the client should be given an opportunity to seek independent legal counsel before any action is taken against the clients interests, such as depositing the funds or property into the court registry to allow the court to decide how the funds or property are to be distributed. In any event, the lawyer at all times must act as an advocate for the client in resolving the dispute.
While the information above may be of marginal assistance to a lawyer already faced with a dispute between the lawyer, the client, and the doctor involved, it is the hope of the Committee that publication of this opinion will provide assistance to lawyers in their future dealings on this difficult issue, and provide a framework whereby lawyers may avoid ethical and legal pitfalls when asked to assist clients in dealing with their difficult economic and medical issues in personal injury cases.