UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 91-10
Plaintiffs in personal injury actions frequently come to me after having already been to doctors, chiropractors, hospitals, and the like. Frequently, they have signed what are designated "irrevocable lien and assignment." The gist of these documents is that the plaintiff gives the medical provider a lien on the proceeds of any settlement which the plaintiff might receive from a third party. The documents often provide that the plaintiff assigns his claim to the medical provider, to the extent of the medical provider's bill. Clients frequently change their minds and ask that the attorney not deduct anything from the settlement for payment of the medical provider's bill.
Questions:
1. Must the lawyer honor his client's wishes in such a case?
2. If the lawyer must honor his client's wishes, what must he or may he tell the medical provider if he/she contacts the lawyer about payment?
3. The above scenario assumes that the lawyer has not signed, i.e. become a party to the assignment. If he has become a party to the assignment, may he then require the client to honor it?
4. If the lawyer reaches an impasse with the client in any of the scenarios described above, what measures can he take through the Bar, the courts, etc., to resolve the matter without prejudicing his client's interest?
Summary:
1. The documents in question constitute collateral agreements between the client and a third party to which the attorney is not a party; therefore, the attorney's duty of loyalty to his client requires him to pay the proceeds directly to his client.
2. The attorney must be truthful in responding to inquiries from the client's creditors (Rule 4.1). However, such truthfulness would allow the attorney to refuse to comment, since an attorney must keep a client's business confidential unless the client authorizes disclosures. (Rule 1.6).
3. If the attorney is a party to the assignment, he must still honor his client's requests, but fairness requires that he disclose his client's instructions to the assignee as soon as possible and give the assignee a reasonable period of time to take legal action before disbursal. 4. Since the above rules are mandatory, the attorney has no discretion in what policies to follow.
Opinion:
The Comment to Rule 1.7 states that "Loyalty is an essential element in the lawyer's relationship to a client." The Preamble to the Rules of Professional Conduct states: "As advocate, a lawyer zealously asserts the client's position under the rules of the adversary system." The duty of an attorney to be loyal to his client is the foundation of our legal system. Rule 1.7 (b) states that a lawyer must not allow his responsibilities to a third person to interfere with his duty to be loyal to his client.
In this case, the client has directed the lawyer not to pay certain bills. Breach of contract is not a criminal offense, so the attorney is not assisting a client in committing a crime. In fact, the bankruptcy laws could allow a client to declare bankruptcy and simultaneously protect the proceeds of a personal injury settlement from the Bankruptcy Trustee. Since the lawyer was not a party to the contract, his duty of loyalty to his client requires that he pay the settlement proceeds to the client unless a court order has been issued to the contrary.
The attorney is required by Rule 1.6 to keep all matters "relating to representation" confidential, unless the client consents, or in order to prevent a future crime. Rule 1.6 is mandatory and not discretionary. Therefore, the attorney cannot reveal the existence of a settlement to a third party unless the client consents. However, Rule 4.1 would prohibit the attorney from telling the creditor that the case was not settled if in fact it was, or from making any false statements to the creditors. Rule 1.6 simply requires the attorney to refuse to comment.
The situation is somewhat different if the attorney has signed an assignment form himself. His duty of loyalty to his client still requires him to follow his client's wishes as set out above.
However, when the lawyer has signed the assignment form himself, he can have no doubt about the right of the third party to collect. Accordingly, under Rule 1.15 (b), these funds are definitely funds "in which a ...third person has an interest." In such cases, "upon receiving funds...a lawyer shall promptly notify the ...third person, and give that person a reasonable time to bring legal action before disbursing the funds." The lawyer need not actually pay the funds to the third person, even where the third person's right to the funds is clear, because Rule 1.15 (b) states that payment to the third party shall be made except as...otherwise permitted by law or by agreement with the client. No such exception exists in the first sentence of Rule 1.15 (b) regarding disclosure, so disclosure is still necessary. However, payment of the creditor is prohibited by duties of loyalty and zealous advocacy set out in Rule 1.7 and in the Preamble to the Rules of Professional Conduct, unless a court orders such payment.
Rules 1.6 and 1.15 (b) are somewhat contradictory with regard to the duty of confidentiality as opposed to the duty to notify third parties of the receipt of funds to which the third party is clearly entitled. The best resolution of this conflict is to require the attorney to disclose in cases wherein he signed the assignment, since the right of the third party to the proceeds is clear; however, where the attorney did not sign the assignment, his duties of loyalty and confidentiality require him to accept the idea that the assignment may not be valid for some reason, thus requiring that the strict language of Rule 1.6 be followed.
When the attorney has signed the assignment, his duty to disclose the assignee also requires him to give the assignee a reasonable time to bring legal action before the attorney disburses the funds. (See S.C. BAR ETHICS ADVISORY OPINION 81-14).