Ethics Opinion

Opinion 02-4

FLORIDA BAR ETHICS OPINION
OPINION 02-4
April 2, 2004
Advisory ethics opinions are not binding.
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:
Opinions:

4-1.1, 4-1.4, 4-1.5(f)(5), 4-1.7, 4-1.16, 5-1.1, 5-1.2
67-36

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.1 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 6736 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.2 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

1 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.
2 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.

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.
Conclusion
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.