Medical providers and disputed settlement funds
Rule 5-1.1(f) of the Rules Regulating The Florida Bar requires lawyers to maintain funds in trust if there is a dispute over the funds between clients and third parties with valid legal claims to the funds and the lawyer owes a legal duty to the third parties. If third parties do not have valid legal claims to the funds, the lawyer should disburse the funds to the rightful owner. Whether the third parties (frequently medical providers) have a valid legal claim to the funds is a legal question.
Rule 5-1.1(f) states:
(f) Disputed Ownership of Trust Funds. When in the course of representation a lawyer is in possession of property in which 2 or more persons (1 of whom may be the lawyer) claim interests, the property must be treated by the lawyer as trust property, but the portion belonging to the lawyer or law firm must be withdrawn within a reasonable time after it becomes due unless the right of the lawyer or law firm to receive it is disputed, in which event the portion in dispute must be kept separate by the lawyer until the dispute is resolved. The lawyer must promptly distribute all portions of the property as to which the interests are not in dispute.
The comment to the rule elaborates:
Third parties, such as a client’s creditors, may have lawful claims against funds or other property in a lawyer’s custody. A lawyer may have a duty under applicable law to protect these third-party claims against wrongful interference by the client. When the lawyer has a duty under applicable law to protect the third-party claim and the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved. 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.
Florida Bar Ethics Opinion 02-4 is also instructive and provides the following guidance to determine legal duties and resolving disputes over funds held in trust:
The comment (to Rule 5-1.1) 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.
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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 client’s 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.
As the rule and the opinion make clear, the question of whether the plaintiff’s lawyer owes a legal duty to medical providers with outstanding bills is a question of law that is not answered by the ethics rules. If the medical providers have valid legal claims to the funds held in trust, the plaintiff’s lawyer should hold the funds in trust until the dispute can be resolved. If the providers have no such claims and/or the plaintiff’s lawyer owes no legal duty to the third parties, there is no such duty to hold and resolve under Rule 5-1.1. As Opinion 02-4 explains, the plaintiff’s lawyer may directly negotiate a resolution on behalf of the client regarding disputed bills or ultimately deposit the funds into the court registry as part of an interpleader action. The plaintiff’s lawyer may not disburse funds to the client simply because the client instructs the lawyer to do so. Whether the third parties have a valid legal claim to the funds is a legal question beyond the scope of the ethics rules.
If a lawyer does not address a valid legal claim to the funds, the lawyer may be subject to discipline by the Florida Supreme Court. See The Florida Bar v. Pintaluga, 130 So. 3d 1278 (Fla. 2013), in Supreme Court Case No. SC13-1021. In this case, a medical provider notified the lawyer of a “letter of protection” signed only by the client and stated that the medical provider expected the lawyer to protect the medical provider’s interests based on the client’s agreement, the lawyer did not disavow any intent to protect the medical provider’s interests, the lawyer relied on the treatment and medical bills in the case, the lawyer attempted to negotiate down the lien but paid the money in dispute to the client when the medical provider would not accept a lower amount. In this case, the Court issued a consent judgment for a public reprimand.
Also see The Florida Bar v. Harris, 531 So. 2d 151 (Fla. 1988) (attorney suspended for 6 months for failure to honor letter of protection to medical provider); The Florida Bar v. Shuminer, 567 So. 2d 430 (Fla. 1990) (attorney disbarred for, among other violations, failing to honor medical lien on recovery); The Florida Bar v. Neely, 587 So. 2d 465 (Fla. 1991) (lawyer disbarred for, among other violations, disbursing funds to client that should have been held in trust for doctor who had been given a letter of protection by lawyer); The Florida Bar v. Walker, 672 So. 2d 21 (Fla. 1996) (attorney suspended for 30 days for signing a letter of protection to a medical provider when another attorney had already obtained a recovery for the client in the case, and there was therefore no case pending from which recovery would be made); The Florida Bar v. Krasnove, 697 So. 2d 1208 (Fla. 1997) (attorney suspended for one year for failing to pay medical providers from settlement that the attorney and client had agreed to be paid to the medical providers and instead using the money for the attorney’s own purposes); The Florida Bar v. Sweeney, 730 So. 2d 1269 (Fla. 1998) (Attorney disciplined for failure to inform a hospital that he had received funds on its behalf and for failing to distribute funds properly under the settlement agreement. The Court stated that “the failure to pay Tampa General the money provided by Oak Casualty for that purpose and the use of the money for another purpose were acts done with an intent to defraud Tampa General and the State of Florida, which administers Medicaid.”); The Florida Bar v. Thomas, 698 So. 2d 530 (Fla. 1997) (attorney suspended for 90 days for keeping portion of settlement payment in his client’s case for the attorney’s own use); and The Florida Bar v. Silver, 788 So. 2d 958 (Fla. 2001) (Attorney disciplined for failing to notify medical provider to whom attorney had provided letter of protection when received medpay payment. Court also stated in a footnote that The Florida Bar failed to charge him with violation for taking “full contingent fee” on medpay.).
