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87-F-109 - Attorney handling of Settlement Proceeds and client objects to payment of medical expenses




Inquiry is made concerning the ethical obligations of a lawyer in the handling of settlement proceeds on behalf of a personal injury client when the client objects to the payment of medical expenses.

A lawyer should hold property of others with the care required of a professional fiduciary. Disciplinary Rule 9-102 of the Code of Professional Responsibility requires the lawyer to keep funds of the client in an identifiable bank account, maintain complete records thereon, render appropriate accounts to the client, and promptly pay and deliver to the client the funds which the client is entitled to receive.

Disciplinary Rule 7-102 of the Code prohibits the lawyer from assisting the client in fraudulent conduct. DR 7-102(B)(1) specifically requires the attorney to counsel the client against
perpetration of a fraud upon another and, if the client insists on fraudulent conduct, to reveal the potential fraud to the affected person. The client has no privilege of confidentiality with respect to proposed fraudulent activity. See DR 4-101.

There is no clear ascertainable ethical authority concerning the lawyers ethical duties when there is a dispute between the client and third-party concerning the right to funds held by the lawyer on behalf of the client. The Idaho Supreme Court in the case of Bonanza Motors Inc. v. Webb, 104 Idaho 234, 657 P2d 1102 (1983) in a legal issue held that a lawyer must not deliver funds to a client when the lawyer has notice that a third-party has a superior right to the funds. The lawyer was found liable in an action by the creditor when the lawyer paid the entire judgment to the client after having received a copy of an instrument by which the client had assigned part of his judgment award to a third-party creditor, and provided that the lawyer should pay the creditor directly when the funds were received.

This ethics opinion holds that a lawyer who has notice that a creditor of the client has a lien or assignment to the funds held on behalf of the client is ethically obligated to segregate and retain the disputed funds until the dispute is resolved. Payment of the disputed amount into court for a resolution of the matter is permissible after the parties have had a reasonable opportunity to resolve the dispute.

This 16th day of September, 1987.


W. J. Flippin
Henry H. Hancock
Edwin C. Townsend