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 92-38
Client Smith was injured while driving a company truck in October of 1990. Smith proceeded with claims for workers' compensation and for PIP coverage on the truck. The workers' compensation carrier refused to pay the treatment bill of a specialist. The PIP carrier agreed to pay only medical expenses not paid under workers' compensation. In November of 1991, Client Smith agreed to a settlement and final release of a workers' compensation claim. The Order stated that the carrier was to be responsible for all authorized medical expenses.
Client Smith and his attorney thought that the specialist's bill was not covered in the order, and Client Smith paid the entire expense. The attorney told the PIP carrier that the workers' compensation carrier did not pay this bill and consequently the PIP carrier paid this expense to Client Smith.
The workers' compensation carrier then paid the medical specialist, and the specialist reimbursed to Client Smith's attorney the amount paid directly by Smith. The attorney now holds the refund in trust.
Client Smith demands that his attorney refrain from communicating with either insurance carrier. He demands that the funds be released to him. Throughout the previous negotiations, Client Smith and his attorney always insisted that the PIP carrier was not entitled to a set-off for the amount paid by the workers' compensation carrier.
Questions:
1. What are the attorney's duties of disclosure, especially considering that he induced the PIP carrier to pay the bill based upon a representation that the workers' compensation carrier refused to pay the bill?
2. What are the attorney's ethical responsibilities in regard to the sum in trust?
Summary:
The attorney does not have a duty of disclosure to a third party unless the disclosure is necessary to prevent a fraudulent act by his client. The attorney is obligated to turn over the funds to his client upon demand.
Opinion:
Rule 4.1 states that in the course of representing a client, a lawyer shall not knowingly: (a) make false statement of material fact to a third person or (b) fail to disclose a material fact to a third person when a disclosure is necessary to avoid assisting a criminal or fraudulent act by a client. The comment points out that a lawyer is required to be truthful when dealing with others on a client's behalf. On the other hand, the lawyer has no affirmative duty to inform an opposing party of relevant facts.
This committee will not define what constitutes a fraudulent act. If, as a matter of the law, the failure to disclose the payment would be fraudulent or would assist the client in a fraudulent act, the lawyer would disclose the information. However, in Mendelsohn v. Whitfield (S.C. Ct. App. 4/5/93), the court said that a statement's truth or falsity is determined at the time it is made. If as a matter of the law, therefore, it is not fraud for the client to keep the money which has been paid, it follows that the attorney has no duty of disclosure to either of the insurance carriers.
Rule 1.6 describes as attorney's obligations regarding confidentiality of information. Rule 1.6(a) states that a lawyer shall not reveal information relating to representation of a client "unless the client consents after consultation," except for impliedly authorized disclosures. In this factual situation, the client has specifically demanded that his attorney not make a disclosure. It is clear then that the attorney should not make such disclosure unless the facts fall within the further exceptions stated in Rule 1.6(b).
Rule 1.6(b) defines two exceptions which allow an attorney to reveal information. On exception is allowed by 1.6(b)91) "to prevent the client from committing a criminal act." Again, this committee will not seek to define a criminal act. Unless the attorney is convinced that his client will be committing a criminal act, however, he may not make the disclosure.
Rule 1.2 which defines Scope of Representation, continues in the same vein. Rule 1.2(a) states that a lawyer shall abide by a client's decisions concerning the objectives of representation, subject to certain provisions. Rule 1.2(d) states that a lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent. The lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel a client to make a good faith effort to determine the application of the law.
We recognize that a rule requiring a lawyer not to disclose to the PIP carrier the existence of the workers' compensation carrier's payment may be criticized as permitting the client to benefit by virtue of an erroneous earlier statement. However, it appears the current rules require that result absent fraud or criminal act.
Rule 1.15 addresses the issue concerning the attorney's ethical responsibilities in regard to the money in trust. Rule 1.15(b) states that 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. This rule goes on to state that "except as stated in this Rule or otherwise permitted by law or by agreement with the client, the lawyer shall promptly deliver to the client or third person, any funds or other property that the third person is entitled to receive, and, upon request by the client or third person, shall promptly render full accounting regarding such property." The Comment to this Rule points out that third parties, such as a client's creditors, may have just claims against funds in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third party claims against wrongful interference by the client. The comment states that "however, a lawyer should not unilaterally assume to arbitrate a dispute between a client and the third party."