You have presented a hypothetical situation in which a personal injury client [Client] sought medical
treatment from Medical Group for injuries sustained in an automobile accident. Client did not have
any health insurance coverage nor the means to pay for medical treatment. Client entered into an
agreement with Medical Group authorizing Lawyer to pay directly to Medical Group sums due and
owing for medical services rendered, and to withhold such sums from any settlement, judgment, or
verdict as may be necessary to adequately protect Medical Group. Client also agreed to give a lien
on his case to Medical Group against any and all proceeds of any settlement, judgment, or verdict
which may be paid to Lawyer or Client as a result of the injuries for which he had been treated.
Furthermore, Client agreed to be directly and fully responsible to Medical Group for all medical bills
submitted for services rendered, and also agreed that payment was not contingent on any settlement,
judgment, or verdict by which he might eventually recover such fee. Lawyer signed his name below
language in the Agreement which stated that he agreed to observe all terms of the Agreement
between Client and Medical Group and that he specifically agreed to withhold such sums from any
settlement, judgment, or verdict as might be necessary to protect Medical Group. Medical Group
provided treatment to client, deferred collection on Client's unpaid account, and cooperated with
Lawyer by providing Lawyer with copies of medical bills and reports which Lawyer submitted to
the tortfeasor's insurance carrier. In negotiating a settlement with the insurance carrier, Lawyer
asserted that Medical Group's services and the fees charged were reasonable and necessary for the
treatment of Client's accident-related injuries.
Lawyer subsequently received a settlement on Client's personal injury claim. Although Lawyer had
received bills from Medical Group, he did not pay any of the settlement proceeds to Medical Group.
Instead, Lawyer paid Medical Group's portion directly to Client who said he was having financial
difficulties and that he preferred to pay Medical Group directly. Ultimately, Client did not pay any
portion of the proceeds to Medical Group as payment of their bill.
Under the facts you have presented, you have asked the committee to opine on whether it was ethical
for Lawyer to pay over the proceeds to Client, rather than Medical Group, when Lawyer had agreed
to pay Medical Group directly for services rendered and to withhold such sums from any settlement
as might be necessary to protect Medical Group.
The rule applicable to your inquiry is Rule 1.15 (c)(4) of the Virginia Rules of Professional Conduct which provides:
Neither the former Code of Professional Responsibility nor the Rules of Professional Conduct
specifically address the lawyer's dilemma when both the client and a third party claim entitlement
to the same funds. In Legal Ethics Op. 1413 (1992) the committee addressed a situation identical
to the facts you present. Applying DR 9-102 (B)(4), which is identical to Rule 1.15 (c)(4), the
committee concluded that the determination of the ownership of the funds in question raised required
a legal determination beyond its purview. Id. The committee also observed that the version of DR
9-102 (B)(4) in effect at that time seemed to address only the preservation of client funds rather than
funds ostensibly owed to some third party. While it is true that the caption for DR 9-102 was
entitled "Preserving Identity of Funds and Property of a Client" the full text of DR 9-102 imposed
more obligations than simply preserving the identity of client funds and property.
Well before LEO 1413 was issued, the Virginia Supreme Court concluded, in the context of a
settlement attorney handling a real estate closing, that the lawyer's fiduciary duties under Canon 9
extended to protecting funds owed to or claimed by third parties, and not simply the client. Pickus
v. Virginia State Bar, 232 Va. 5, 348 S.E.2d 202 (1986) (decided under former DR 9-102). Pickus,
a new attorney, allowed a coercive client, the seller, to receive directly the settlement proceeds
without having determined whether a prior deed of trust lien on the subject real estate had been
released. As things turned out, the prior lien had not been satisfied. The Court upheld the
disciplinary board's finding that DR 9-102 had been violated, holding that DR 9-102 was
promulgated to protect third parties as well as clients. 232 Va. at 14.
The committee believes that the issue is not who is "entitled" to the funds in the attorney's
possession, but rather what does Rule 1.15 (c)(4) require when both the client and a third party claim
a right to those same funds? The committee's answer is that the attorney must take a course of action
that will protect the interests of both the client and the third party. Thus it would be unethical for
Lawyer to disburse the funds in question to the client when the client, by agreement or by law, is
under a legal obligation to deliver those funds to another. See Alaska Bar Ass'n Ethics Op. 92-3
(1992) (lawyer may not follow client's instruction to disregard facially valid assignment or statutory
lien in favor of third party; lawyer should advise client that he will withhold funds until dispute is
resolved). The committee believes that a lawyer's obligations under Rule 1.15 (c)(4) do not extend
to all general creditors of the client, but only those persons who have an interest in the settlement
proceeds either by law or assignment.
Comment  to Rule 1.15 offers some guidance:
If a third party has a valid statutory lien,(1) contract or court order that grants an interest in the
settlement proceeds, the lawyer may not ignore the third party's interests and deliver the funds in
question to the client, even if the client directs the lawyer to do so. See Aetna Casualty & Surety Co.
v. Gilbreath, 625 S.W.2d 269 (Tenn. 1981) (lawyer has duty to honor employer's statutory workers'
compensation lien against settlement with third party); California Formal Ethics Op. 1988-101
(lawyer whose client agreed to pay recovery proceeds to health care provider may not ignore
agreement and disburse all funds to client upon client's instruction); Maryland Ethics Op. 94-19
(1993) (lawyer must disregard client's instruction not to pay creditor when client had valid
assignment with creditor); Ohio Ethics Op. 95-12 (1995) (lawyer must disregard client's instruction
not to pay physician when client had earlier agreed to pay medical bills from settlement proceeds);
and South Carolina Ethics Op. 94-20 (1994) (if lawyer knows that client has executed valid doctor's
lien he may not comply with client's instruction to disregard it; no principle of confidentiality or
client loyalty permits lawyer to violate ethical obligations owed to third parties).
By the same token, a lawyer should not disburse the client's funds to a third party if the client
contests such action. See Connecticut Informal Ethics Op. 95-20 (1995) (lawyer cannot pay money
over to creditor over client's objection); Pennsylvania Bar Ass'n Ethics Op. 92-89 (1992) (lawyer,
whose client was ordered to pay child support arrearage, cannot release funds from real estate sale
without client consent).
The committee opines that a lawyer who knows that his client has made a valid assignment of rights
to the proceeds of a settlement or has allowed for the creation of a consensual lien on the settlement
cannot disregard the third party assignee or lienholder's rights, notwithstanding a client's directive
to do so. Rule 1.15 recognizes circumstances in which a lawyer may refuse to surrender property
or funds to a client when a third party asserts what appears to be a valid claim to such property or
funds. In your hypothetical, Lawyer is charged with notice of Client's assignment to Medical Group
since Lawyer also signed the Agreement. The lawyer's ethical duty does not require Lawyer to
make a legal determination as to who is entitled to the proceeds, only that Lawyer protect the
interests of both the client and the third party who appear to have conflicting claims to the funds or
property. It is the opinion of the committee that if a dispute arises concerning the rights of third
parties to funds held by the attorney on behalf of a client, the attorney must segregate the amount
in dispute until the dispute can be resolved. If the dispute cannot be resolved, the attorney may
interplead the funds into court and request that the court determine the legal entitlement to the funds.
See Alabama Bar Ethics Op. 90-48 (1990) (lawyer whose client executed assignment of proceeds
to chiropractor but later instructed lawyer to disregard assignment should interplead the disputed
funds into circuit court in order to establish the rights of the parties).
In conclusion, the committee opines that it was unethical for Lawyer to disburse funds to Client
where Client had agreed to pay such funds to Medical Group out of the settlement proceeds and that
Lawyer should have withheld or interpleaded the disputed funds assuming Client would not
authorize payment to Medical Group. To the extent that this opinion is inconsistent with LEO 1413,
that opinion is hereby overruled.
June 26, 2000
1. A physician, registered nurse, registered physical therapist and private and public hospitals have a statutory medical lien on the personal injury claim of any patient who is treated by such health care providers for injuries caused by the negligence of another. The physician, nurse, or therapist has a lien up to $500. The hospital lien is protected up to $2000. A pharmacy that fills prescriptions for medicine prescribed by a health care provider is protected as well up to $500. Va. Code § 8.01-66.2 (Michie 1999). If the client's employer paid workers' compensation benefits, the employer may have a workers' compensation subrogation lien against a recovery from a third party tortfeasor. Va. Code §65.2-310 (Michie 1995).