Must a lawyer pay a client's medical creditors out of a recovery, and may a lawyer make a Rule 68 offer of judgment knowing there are no funds to pay it?

Plain-English summary

The Committee answered two questions. First, whether an attorney violates the rules by remitting recovery funds directly to the client, ignoring liens (such as medical bills) the attorney knew or should have known about, when the client then fails to pay the creditors. Second, whether an attorney violates the rules by filing a proper Rule 68 offer of judgment for a reasonable amount knowing there are no funds to pay it, where opposing counsel does not know this.

On the first question, the opinion concluded the attorney violated no ethical considerations or disciplinary rules in remitting the funds. It reasoned that attorneys are bound by their representations, so if the attorney had represented or led others to believe he would reimburse them, he must do so; but absent any such commitment, there is no violation in not forwarding funds directly to medical providers. The opinion noted its view of the substantive law, that Alaska medical providers do not customarily acquire liens on a third-party recovery (though they may have a contract action against the client or a subrogation right against the third party), and stated its basic position that an attorney has no duty to a non-client other than to avoid misrepresenting (citing DR 7-102).

On the second question, the opinion concluded there was no breach so long as the offering attorney made no express or implied representation that the judgment would be paid. It reasoned that it is part of the adversary system for the receiving attorney to evaluate and inquire into the worth of the judgment, and that, absent misrepresentation, the offering attorney violates no rule by not undertaking that investigation for his opponent.

Currency note

Ethics Opinion 80-1 was vacated in part by Alaska Ethics Opinion 86-4 as to the first question (an attorney's handling of funds subject to third parties' claims); read this page together with Opinion 86-4, which governs that subject. This opinion was issued in 1980, before the Alaska Bar Association's adoption of the Alaska Rules of Professional Conduct (it applies the former Code of Professional Responsibility) and before the 2009 revisions to those rules. The cited substantive law on medical liens may have changed. Treat this page as historical context, not current guidance. Verify against current rules and current law before relying on any specific rule or point mentioned here.

Common questions

Q: Must a lawyer pay a client's medical creditors out of a recovery?

A: Under this opinion, absent any commitment or representation by the lawyer that he would reimburse them, the lawyer did not violate the rules by remitting the funds to the client; this holding was later vacated in part by Opinion 86-4, which should be consulted.

Q: What duty does a lawyer owe to a non-client creditor of the client?

A: The opinion stated that an attorney has no duty to a non-client other than to avoid misrepresenting, but its analysis of funds subject to third-party claims was vacated in part by Opinion 86-4.

Q: Can a lawyer make an offer of judgment knowing there are no funds to pay it?

A: The opinion concluded a lawyer may file a proper offer of judgment knowing no funds exist, so long as he makes no express or implied representation that the judgment would be paid; evaluating its worth is part of the adversary system.

Background and rules framework

The opinion applied the former Code's rule barring misrepresentation in representing a client (DR 7-102), the subject now reflected in Model Rule 4.1 (truthfulness to others), and touched the handling of funds in which others may claim an interest, now treated by Model Rule 1.15 (safekeeping property). Its first holding has since been vacated in part by Opinion 86-4.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• DR 7-102 (no misrepresentation; duty to a non-client) (cf. Model Rule 4.1; Model Rule 1.15 on funds subject to third-party claims)

Other opinions cited:

• Alaska Ethics Opinion 86-4 (vacates the first holding of this opinion in part)

See also

• Alaska Ethics Op. 86-4: Disputed Third-Party Claims to Client Funds
• Alaska Ethics Op. 92-3: Third-Party Claims to Client Funds
• Alaska Ethics Op. 90-3: Funds for a Client Who Cannot Be Located

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/80-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Ethics Opinion No. 80-1
Propriety of Attorney Remitting to His Client Monies the Attorney
Received on the Client's Behalf when the Attorney Either Knew or Should
Have Known that there were Liens on that Money; (Vacated by 86-4)
Propriety of an Attorney Filing a Proper Offer of Judgment when that
Attorney is Aware that there are not Funds Available to Pay the
Judgment, if Accepted.
The Ethics Committee has been asked the following two questions:

1. Attorney "A", in the course of his representation of his client, either
   knew or should have known that certain liens had arisen such as medical bills.
   Thereafter, Attorney "A" receives monies on behalf of his client which he
   immediately remits to the client, ignoring the liens. The client in turn fails to
   pay the creditors who were looking to the recovery as a source from which to be
   compensated. Has the attorney violated any ethical considerations?
2. Attorney "A" represents X, a plaintiff in a personal action. Attorney "B"
   represents defendant Y. Attorney "B" files a proper Rule 68 offer of Judgment
   for a reasonable amount. X instructs Attorney "A" to accept the offer of
   judgment and Attorney "A" does so. It turns out that there are not funds, nor
   have there ever been funds, to pay the judgment. Attorney "B" knew this when
   the offer was made and accepted. Attorney "A" did not. Has Attorney "B"
   violated any ethical consideration?
   With respect to question 1, it is the Committee's opinion that the
   attorney has violated no ethical considerations or disciplinary rules in remitting
   the funds to his client. Obviously, attorneys are bound by their
   representations, and if Attorney "A" has represented to others, or led others to
   believe, that he would make reimbursement to them, then he must perform in
   accordance with those representations. Absent any commitment on the
   attorney's part, however, there is no violation of ethical considerations by
   failing to forward funds directly to the providers of medical care. A portion of
   the Committee's consideration is colored by its understanding of the
   substantive law, which is that providers of medical care in the State of Alaska
   do not customarily become entitled to "liens" on the proceeds of any third party
   recovery, although those providers may well have a contract action against the
   client, or a subrogation right against the third party. The Committee's basic
   position, however, is that an attorney has no duty, other than to avoid
   misrepresenting, to one not his client (see DR 7-102).
   With respect to question 2, the Committee likewise feels that there has
   been no breach of any ethical consideration or disciplinary rule, so long as
   Attorney "B" made no representation, express or implied, that the judgment
   1

would be paid. It is part adversary system for Attorney "A" to evaluate and
make appropriate inquiry into the worth of the judgment, and so long as no
misrepresentation is involved, Attorney "B" violates no ethical consideration in
failing to undertake that investigation on behalf of Attorney "A".
Adopted by the Board of Governors on September 8, 1980.

2