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 94-20
Where a client has signed a "doctor's lien" and the attorney has knowledge of the lien, but the attorney has not signed anything with the third party agreeing to honor the lien, and there is nothing in the retainer agreement or fee contract concerning payment of bills to medical providers who have been assigned a portion of the proceeds, and client requests the attorney to disregard the "doctor's lien," is it ethical for the attorney to pay the money to the client and disregard the lien?
Summary:
A lawyer who knows his or her client has made a valid assignment of litigation proceeds to a medical care provider may not ethically ignore the assignee's rights and pay the assigned funds to the assignor-client.
Opinion:
SC Bar Advisory Opinion 93-14 held that an attorney who puts in the contingent fee contract a statement that "attorney is to honor all written statements signed by the client giving any medical care provider a lien" may ignore the client's request to disregard the "doctor's lien." The Committee held that the fee agreement spelled out the parties' rights, and that one of the agreed objectives of representation would be payment of medical providers' bills. The Committee further held, citing Rule 1.15(b):
Once the attorney knows of assignments which have been made by client in favor of medical care providers, he is prevented from disbursing to the client monies in which the care provider has an interest.
The question considered in this opinion differs from that raised in Opinion 93-14, in that the facts presented here assume there is no provision for a lien in favor of medical care providers in the attorney's contingency fee contract.
Whether a valid assignment exists in favor of a client's medical care providers is a question of law.1 For purposes of this opinion, it is assumed that a valid assignment exists.
Whether the client's lawyer has knowledge of the assignment prior to disbursing litigation proceeds is a question of fact, and, for purposes of this opinion, it is assumed that the lawyer does have such knowledge.
Courts in several cases have rejected lawyers' positions that they were entitled to disburse assigned funds to their assignor-clients rather than to clients' medical care provider-assignees. Most recently,in Leon v. Martinez, 1994 WL 319298 (1994), New York's Court of Appeals brushed aside the defendant lawyers' claim "that compliance with the alleged assignment would have require them to violate their ethical duties to their client . . . ." The court noted tat the lawyer is ethically obligated only to give the client funds in the attorney's possession which the client is entitle to receive, "which is not the case to the extent that the client has conveyed a right to those funds by an enforceable assignment." The court further noted tat ethical duties may run "to third parties as to funds in the possession of the attorney to which those third parties are entitled." The court summed up its holding as follows:
Assuming an enforceable assignment by [the client] to plaintiffs is proven, upon execution of that assignment, [the client's] interest in that portion of the recovery vested in the plaintiffs as assignees, and [the lawyer] was then ethically obligated not only to notify that plaintiffs upon his receipt of the funds . . . but also to pay the funds to the plaintiffs as the persons then entitled to receive them . . .
Leon is consistent with two recent cases, Berkowitz v. Haigood, 256 N.J. Super. 342, 606 A.2d 1157 (1992), and Herzog v. Irace, 594 A.2d 1106 (Me. 1991). Like Leon, both dealt with the assignment situation. In both Berkowitz and Herzog, the personal injury case client had assigned a share of the lawsuit's proceeds to his doctor, and then instructed the lawyer not to honor the assignment. In both cases the clients took the money, and the doctors sued the lawyers. In both cases the assignments were ruled valid and the lawyers ended up personally liable. Both courts analyzed the issue as one of contract law. See Berkowitz, 606 A.2d at 1159; Herzog, 594 A.2d at 1108. Both courts rejected the defendant lawyer's argument that ethical restraints entitled the lawyer to disregard the assignment and pay the assigned funds to the assignor- client. See also Romero v. Earl, 111 N.M. 789, 810 P.2d 808 (1991) (client's purported unilateral revocation of valid assignment and doctor's lien does not justify payment of assigned funds to client).2 Rule 1.15(b) identifies ethical duties that lawyers owe directly to a third person, including the duties to notify the third person when the lawyer receives property in which the third person "has an interest," and the duty to deliver to the third person "any funds or other property that the . . . third person is entitled to receive." The committee concludes that no principle of client loyalty or confidentiality requires or permits a lawyers to violate his or her ethical obligations owed under Rule 1.15(b).
Very recently, in Matter of Edwards, Opinion No. 24138 (August 15, 1994), South Carolina's Supreme Court disciplined a lawyer for violating 1.15 in connection with a doctor's lien, due to "failing to notify medical providers of the receipt of funds in cases and by failing to deliver those funds as agreed." It appears that the doctor's lien assignment form in Matter of Edwards was actually signed by the lawyer. However, the Committee finds nothing in Rule 1.15 that makes its applicability dependent on the lawyer executing any document relating to the client's assignment of litigation proceeds.
1 According to one contract law authority, no particular words are necessary to effect an assignment; it is only required that there be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things assigned. See, 4 Corbin on Contracts § 879, at 28 (1951).
2 The New Mexico court analyzed the lawyer's obligation as a straight-forward contract law duty: The writing was an assignment to Romero of Rascon's right to the proceeds of the award. See S & W Trucks, Inc. v. Nelson Auction Serv., Inc., 80 N.M. 423, 457 P.2d 220 (Ct. App. 1969) (language of assignment need not be formal, rather it need only manifest an intention on part of owner to transfer a right or interest in property); 4 A. Corbin, Corbin on Contracts § 879 (1951) (same). Earl [the lawyer], as obligor with notice of the assignment, was required to pay the assignee. Id. § 890. The obligor is liable to the assignee if the funds assigned subsequently are paid to the assignor in violation of the assignment. Bonanza Motors, Inc. v. Webb, 104 Idaho 234, 236,657 P.2d 1102, 1104 (Ct. App. 1983).