When an Arizona lawyer holds settlement funds subject to a disputed health care provider lien, what must the lawyer's ER 1.15(f) notice to the lienholder include?
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This page answers the general question as of 2020. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
The Arizona Attorney Ethics Advisory Committee consolidated three inquiries (file numbers EO-19-0004, EO-19-0005, and EO-19-0007) that all turned on ER 1.15(f), the "safe harbor" that lets a lawyer distribute disputed property in the lawyer's possession to the client after giving notice to a third person who claims an interest. The setting is a personal injury recovery: a client is injured by a tortfeasor, a licensed health care provider perfects a lien against the client's third-party recovery under A.R.S. sections 33-931 through 33-936, and the client disputes the lien. The lawyer wants to pay the client without filing an action over the dispute, so the lawyer serves an ER 1.15(f) notice giving the lienholder 90 calendar days to commence an action.
The committee answers two questions. First, what the notice must contain. Reading ER 1.15(f) against Comment 1 (2014 amendment), which requires notice "sufficient to allow the third person to take appropriate action to protect its interests," the committee concludes that in the health care lien context the notice must identify the tortfeasor and the tortfeasor's insurer (if any), because that information is needed to file suit to enforce the lien (citing Blankenbaker v. Jonovich), and must state the amount of the recovery, because without it the lienholder cannot decide whether pursuing the claim is worthwhile. Because sharing this information may reveal client confidences, the lawyer must obtain the client's informed consent, confirmed in writing, and advise the client of the advantages and disadvantages of distribution under ER 1.15(f)(2).
Second, the committee addresses whether a lawyer who is still seeking a recovery, and so holds no disputed property, must answer a lienholder's requests for information. It concludes the lawyer need not. The duties in ERs 1.4, 4.4, and 1.15 to safeguard property and notify a claimant arise only "upon receiving funds or other property" under ER 1.15(d) and (e); before the lawyer holds the property, there is no ethical duty owed to the third party, and ER 1.6 prohibits sharing information about the representation without the client's consent.
In practice
The opinion holds that, under the Arizona Rules as they stood when it issued, an ER 1.15(f) notice in a disputed health care provider lien matter is "sufficient" only if it identifies the disputed property and the amount of any funds, the client, the tortfeasor and the tortfeasor's insurer if known, the date of the recovery, and the proposed distribution, along with contact information and an acknowledgment that the lawyer holds the property. The notice must go out promptly after the lawyer receives the property, and the client must give informed consent, confirmed in writing, to the disclosures it contains. The opinion also holds that, before a lawyer holds any disputed property, the lawyer has no duty under ERs 1.4, 4.4, or 1.15 to respond to a third party's requests for information about a future recovery. Because rules and later opinions may have changed, verify the current text of ER 1.15 and A.R.S. sections 33-931 through 33-936 before relying on these specifics.
Common questions
Q: What must an ER 1.15(f) notice to a disputed health care lienholder include?
A: The opinion lists the contents: a description of the property and the amount of funds if any, the client's name, the tortfeasor and the tortfeasor's insurer if known, an acknowledgment that the lawyer holds the disputed property, contact information for the third party to give notice of any action, the date of the third-party recovery, and the proposed distribution.
Q: Why must the notice name the tortfeasor and insurer and the recovery amount?
A: The opinion reasons that this information is what lets the lienholder protect its interest: the identity of the tortfeasor and insurer is needed to file suit to enforce the lien (citing Blankenbaker v. Jonovich), and the amount of the recovery is material to deciding whether commencing an action is worthwhile.
Q: Does the client have to agree before the lawyer sends the notice?
A: Yes. Because the notice discloses information relating to the representation, the opinion states the client must give informed consent, and ER 1.15(f)(2) requires the lawyer to advise the client of the advantages and disadvantages of distribution and obtain the client's consent, confirmed in writing.
Q: Must a lawyer answer a health care provider's requests for information before the lawyer holds any settlement funds?
A: No. The opinion concludes that the duties under ERs 1.4, 4.4, and 1.15 arise only when property comes into the lawyer's possession; before then there is no ethical duty to the third party, and ER 1.6 bars disclosing information about the representation without the client's consent.
Q: How long does the third party have to act after receiving the notice?
A: The opinion describes the ER 1.15(f) procedure as giving the third party 90 calendar days from service to initiate legal action and notify the lawyer in writing; if no such notice arrives, the lawyer may, after consulting the client and obtaining informed consent, distribute the funds to the client.
Background and rules framework
The opinion interprets ER 1.15(f) (safekeeping property; the disputed-property safe harbor) together with ER 1.15(d) and (e) (a lawyer's duties on receiving property in which a third person claims an interest), and considers ER 1.4 (communication; Model Rule 1.4), ER 1.6 (confidentiality; Model Rule 1.6), and ER 4.4 (respect for the rights of third persons; Model Rule 4.4). The statutory backdrop is Arizona's health care provider lien statute, A.R.S. sections 33-931 through 33-936, which lets a licensed provider lien a client's third-party recovery. The committee relies on Comment 1 to ER 1.15 (2014 amendment) for the standard that notice must be sufficient to let the third person protect its interests, and on Blankenbaker v. Jonovich for what enforcing such a lien requires.
Citations and references
Rules of Professional Conduct:
- MR 1.15 / Arizona ER 1.15(d), (e), (f) (safekeeping property; distribution of disputed property)
- MR 1.4 / Arizona ER 1.4 (communication)
- MR 1.6 / Arizona ER 1.6 (confidentiality)
- MR 4.4 / Arizona ER 4.4 (respect for rights of third persons)
Statutes:
- A.R.S. sections 33-931 through 33-936 (health care provider liens on a third-party recovery)
- A.R.S. section 33-934 (two years to file suit to enforce a health care provider lien)
Cases:
- Blankenbaker v. Jonovich, 205 Ariz. 383, 71 P.3d 910 (2003), health care provider lien enforceable against the tortfeasor or insurer
- Ruben M. v. Arizona Dep't of Econ. Sec., 230 Ariz. 236, 282 P.3d 437 (App. 2012), plain meaning of a rule's text usually governs its interpretation
- Smart Indus. Corp., Mfg. v. Superior Court, 179 Ariz. 141, 876 P.2d 1176 (App. 1994), comments provide context to the rules
- In re Estate of Fogleman, 197 Ariz. 252, 3 P.3d 1172 (App. 2000), comments provide context to the rules
See also
- AZ Ethics Op. 04-03: Client Funds, Property, and Liens
- AL Ethics Op. 1990-48: Interpleading Disputed Trust Funds
- AL Ethics Op. 2003-02: Honoring a Creditor Protection Letter
Source
- Landing page: https://www.azcourts.gov/cld/Attorney-Ethics-Advisory-Committee/Opinions-Issued-by-the-Committee
- Original PDF: https://www.azcourts.gov/Portals/0/26/AEA%20Committee/Issued%20Opinions/EO-19-0004-0005-0007.pdf?ver=2021-02-05-115740-613
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
SUPREME COURT OF ARIZONA
ATTORNEY ETHICS ADVISORY COMMITTEE
Ethics Opinion File Nos. EO-19-0004, EO-19-0005, and EO-19-0007
The Attorney Ethics Advisory Committee was created in accordance with Rule 42.1 and Administrative Order No. 2018-110 and 2019-168.
Rule 1.15(f) of the Arizona Rules of Professional Conduct (“ER 1.15(f)” or “the Rule”) provides an ethical
“safe harbor” to lawyers who distribute disputed property—including funds—in the lawyer’s possession
after providing notice to third persons known to claim an interest in the property. See ER 1.15 cmt. 1 (2014
amendment). The questions before the Attorney Ethics Advisory Committee (the “Committee”) are: what
constitutes sufficient notice under ER 1.15(f) where the lawyer is in possession of property that is the subject
of a disputed health care provider lien asserted under A.R.S. §§ 33-931 through 33-936, and what
obligations does the lawyer have to respond to requests for information before coming into possession of
the property?
Based upon the language of ER 1.15(f), Comments to the Rule, and lawyers’ ethical obligations to their
clients, the Committee concludes notice under the Rule, in this context, is sufficient if it includes:
• a description of the property, including the amount of funds if any;
• the client’s name;
• the name of the tortfeasor and the tortfeasor’s insurance carrier (if known);
• an acknowledgment that disputed property is in the lawyer’s possession;
• the mailing address, telephone number, and email address where the third party can provide notice
to the lawyer of the commencement of an action by the third party asserting an interest in the
property;
• date of the third-party recovery; and
• the proposed distribution of the disputed property (e.g., to the client).
The notice must be sent promptly after the lawyer receives the disputed property under ER 1.15(d).
However, where the lawyer does not have possession of any disputed property, a lawyer is not required by
ERs 1.4, 4.4, or 1.15 to respond to requests for information by third parties who may have an interest in
any future recovery being sought by the client.
ISSUE PRESENTED:
1. What information is required in a notice served under ER 1.15(f) in the context of a disputed
health care provider lien?
2. Must a lawyer who does not have possession of any disputed property respond to requests for
information from interested third parties with possible claims against a future recovery?
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FACTUAL BACKGROUND:
A lawyer has a client who has been injured by a tortfeasor. The client has either obtained a recovery
from the tortfeasor, which is in the lawyer’s possession, or the lawyer is seeking to obtain such a
recovery for the client.
As a result of the client’s injury, healthcare services were provided to the client by a duly licensed
healthcare provider. The healthcare provider has asserted and perfected a health care provider lien
against the client’s third-party recovery under A.R.S. §§ 33-931 – 33-936.
Under this statute, a licensed healthcare provider may file a lien against a third-party recovery to
secure amounts owed to the provider for the injury-related health care. See Blankenbaker v.
Jonovich, 205 Ariz. 383, 387 ¶¶ 17-18, 71 P.3d 910, 914 (2003). The lien is enforceable against
the tortfeasor or the tortfeasor’s insurance carrier, and the healthcare provider has two years to file
suit to enforce such a lien. See A.R.S. § 33-934.
The client disputes the validity or enforceability of the health care provider’s lien, and the lawyer
would like to distribute the recovery to their client without filing an action concerning the dispute.
After consultation with the client, the lawyer provides notice pursuant to ER 1.15(f) that, unless the
third party commences an action within 90 calendar days of service of the notice, the recovery will
be distributed to the client.
There is some controversy over what information must be contained in a notice under the Rule.
Some healthcare providers have argued an ER 1.15(f) notice must include the name of the
tortfeasor, the name of the tortfeasor’s insurer, the amount of any applicable recovery, and date of
settlement.
There is also a dispute over whether a lawyer who is seeking a recovery for a client must respond
to requests for information from health care providers before any recovery being obtained by the
client. Some healthcare providers have filed complaints with the State Bar of Arizona, pursuant to
ERs 1.4, 4.4, and 1.15, against lawyers who have not responded to requests for information. The
Committee agreed to address these disputes in EO-19-0005 and EO-19-0007.
RELEVANT ETHICAL RULES:
ER 1.4. Communication
(a) A lawyer shall:
(1) promptly inform the client of any decision or circumstance with respect to which the
client’s informed consent, as defined in ER 1.0(e), is required by these Rules;
(2) reasonably consult with the client about the means by which the client’s objectives are
to be accomplished;
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(3) keep the client reasonably informed about the status of the matter;
(4) promptly comply with reasonable requests for information; and
(5) consult with the client about any relevant limitation on the lawyer’s conduct when the
lawyer knows that the client expects assistance not permitted by the Rules of Professional
Conduct or other law.
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make
informed decisions regarding the representation.
(c) In a criminal case, a lawyer shall promptly inform a client of all proffered plea agreements.
ER 1.6. Confidentiality of Information
(a) A lawyer shall not reveal information relating to the representation of a client unless the client
gives informed consent, the disclosure is impliedly authorized in order to carry out the
representation or the disclosure is permitted or required by paragraphs (b), (c) or (d), or ER
3.3(a)(3).
(b) A lawyer shall reveal such information to the extent the lawyer reasonably believes necessary
to prevent the client from committing a criminal act that the lawyer believes is likely to result in
death or substantial bodily harm.
(c) A lawyer may reveal the intention of the lawyer’s client to commit a crime and the information
necessary to prevent the crime.
(d) A lawyer may reveal such information relating to the representation of a client to the extent the
lawyer reasonably believes necessary:
(1) to prevent the client from committing a crime or fraud that is reasonably certain to result
in substantial injury to the financial interests or property of another and in furtherance of
which the client has used or is using the lawyer’s services;
(2) to mitigate or rectify substantial injury to the financial interests or property of another
that is reasonably certain to result or has resulted from the client’s commission of a crime
or fraud in furtherance of which the client has used the lawyer’s services;
(3) to secure legal advice about the lawyer’s compliance with these Rules;
(4) to establish a claim or defense on behalf of the lawyer in a controversy between the
lawyer and the client, to establish a defense to a criminal charge or civil claim against the
lawyer based upon conduct in which the client was involved, or to respond to allegations
in any proceeding concerning the lawyer’s representation of the client; or
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(5) to comply with other law or a final order of a court or tribunal of competent jurisdiction
directing the lawyer to disclose such information.
(6) to prevent reasonably certain death or substantial bodily harm.
(7) to detect and resolve conflicts of interest arising from the lawyer’s change of
employment or from changes in the composition or ownership of a firm, but only if the
revealed information would not compromise the attorney-client privilege or otherwise
prejudice the client.
(e) A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of,
or unauthorized access to, information relating to the representation of a client.
ER 1.15. Safekeeping Property
(a) A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in
connection with a representation separate from the lawyer’s own property. Funds shall be kept in a
separate account maintained in the state where the lawyer’s office is situated, or elsewhere with the
consent of the client or third person. Other property shall be identified as such and appropriately
safeguarded. Complete records of such account funds and other property shall be kept by the lawyer
and shall be preserved for a period of five years after termination of the representation.
(d) 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. Except as stated in this Rule or otherwise permitted
by law or by agreement between the client and the third person, a lawyer shall promptly deliver to
the client or third person any funds or other property that the client or third person is entitled to
receive and, upon request by the client or third person, shall promptly render a full accounting
regarding such property.
(e) When in the course of representation a lawyer possesses property in which two or more persons
(one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer.
The lawyer shall promptly distribute any portions of the property as to which there are no competing
claims. Any other property shall be kept separate until one of the following occurs:
(1) the parties reach an agreement on the distribution of the property;
(2) a court order resolves the competing claims; or
(3) distribution is allowed under section (f) below.
(f) Where the competing claims are between a client and a third party, the lawyer may provide
written notice to the third party of the lawyer’s intent to distribute the property to the client, as
follows:
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(1) The notice shall be served on the third party in the manner provided under Rules 4.1 or
4.2 of the Arizona Rules of Civil Procedure, and must inform the third party that the lawyer
may distribute the property to the client unless the third party initiates legal action and
provides the lawyer with written notice of such action within 90 calendar days of the date of
service of the lawyer’s notice.
(2) If the lawyer does not receive such written notice from the third party within the 90-day
period, and provided that the disbursement is not prohibited by law or court order, the lawyer
may distribute the funds to the client after consulting with the client regarding the advantages
and disadvantages of disbursement of the disputed funds and obtaining the client’s informed
consent to the distribution, confirmed in writing.
(3) If the lawyer is notified in writing of an action filed within the 90-day period, the lawyer
shall continue to hold the property separate unless and until the parties reach an agreement on
distribution of the property, or a court resolves the matter.
(4) Nothing in this rule is intended to alter a third party’s substantive right.
Comment [2014 Amendment]
[1] New paragraph (f) allows a lawyer to distribute funds or property in the lawyer’s possession after
providing notice to third persons known to claim an interest. Notice under paragraph (f) must be sufficient
to allow the third person to take appropriate action to protect its interests. Although there is no one form
of notice that will be acceptable, the notice should generally include at least the following: (a) a description
of the funds or property in the lawyer’s possession; (b) the name of the client claiming an interest in the
funds and other information reasonably available to the lawyer that would allow the third person to identify
the claim or interest; (c) a mailing address, telephone number, and email address where the third party can
provide notice to the lawyer of the commencement of an action asserting an interest in the fund or property;
and (d) the proposed distribution of the funds or property. . . .
ER 4.4. Respect for Rights of Others
(a) In representing a client, a lawyer shall not use means that have no substantial purpose other
than to embarrass, delay, or burden any other person, or use methods of obtaining
evidence that violate the legal rights of such a person.
(b) A lawyer who receives a document or electronically stored information and knows or
reasonably should know that the document or electronically stored information was
inadvertently sent shall promptly notify the sender and preserve the status quo for a
reasonable period of time in order to permit the sender to take protective measures.
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OPINION
The Rules of Professional Conduct are rules of reason, not to be hyper-technically construed to their logical
extremes. See Arizona Rules of Professional Conduct, Preamble, ¶ 14. When interpreting rules, “[u]sually,
the plain meaning of the text is the best reflection of intent and [courts] look no further unless the language
is ambiguous or the plain meaning would lead to an absurd result. Ruben M. v. Arizona Dep’t of Econ. Sec.,
230 Ariz. 236, 240, 282 P.3d 437, 441 (App. 2012).
Under ER 1.15(d), a lawyer must promptly notify any third person with interest in the property in the
lawyer’s possession and deliver the property to that person if their interest is undisputed. Under ER 1.15(e),
a lawyer must hold any property to which there are competing claims until the competing claimants agree
upon a disposition or a court resolves the claims. ER 1.15(f), however, allows a lawyer to distribute disputed
property to the lawyer’s client, without being deemed to have violated their ethical obligations to competing
claimants, so long as the lawyer gives those claimants notice and an opportunity to take appropriate action
to protect their interests.
In other words, ER 1.15(f) creates an ethical safe harbor for a lawyer to disburse property that is subject to
a disputed claim with a third party. Subject to the client’s approval, ER 1.15(f) provides lawyers the option
of serving a written notice upon the third party of the lawyer’s intent to distribute the property to the client
unless the third party provides the lawyer with written notice that a legal action was initiated within 90
calendar days of the date of service of the lawyer’s notice.
Nothing in ER 1.15 itself provides any specific guidance regarding what must be included in the notice.
Comments, however, provide additional context to the rules. See, e.g., Smart Indus. Corp., Mfg. v. Superior
Court In & For Cty. of Yuma, 179 Ariz. 141, 147, 876 P.2d 1176, 1182 (App. 1994); In re Estate of
Fogleman, 197 Ariz. 252, 257, 3 P.3d 1172, 1177 (App. 2000). The Comment to ER 1.15, states notice
must be “sufficient to allow the third person to take appropriate action to protect its [claimed] interests.”
ER 1.15 cmt. 1 (2014 amendment).
In the context of a health care provider lien asserted under A.R.S. § 33-931 through A.R.S. § 33-936, the
identity of the tortfeasor and the tortfeasor’s insurance carrier, if any, is needed to file suit to enforce a lien.
See Blankenbaker, 205 Ariz. 383, 71 P.3d 910. Therefore, the Committee determines that “sufficient”
notice under ER 1.15(f) requires the lawyer to provide the identity of the tortfeasor and tortfeasor’s insurer,
if any.
Also, the Committee determines that an adequate notice should include information regarding the amount
of the recovery. Without information about the amount of the recovery, the third person lacks sufficient
information to enable them to determine what action may be necessary and appropriate to protect their
claimed interest. For example, the amount of the recovery is likely to be material to the decision whether
it is worthwhile to commence an action to assert an interest in that recovery, and a notice that does not
contain this information leaves the third party without adequate information to make an informed decision
regarding whether and how to proceed. This interpretation of the rule is supported by the language of the
comment providing that the notice should generally include at least “a description of the funds or property
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in the lawyer’s possession” that is “sufficient to allow the third person to take appropriate action to protect
its interests.” ER 1.15, cmt. 1 (2014 Amendment).
Clients must, of course, give consent to the lawyer to share confidential information in the notice, but it
will typically be in the client’s interest to do so as taking advantage of ER 1.15(f) can speed up the process
of getting the property disbursed promptly and without additional expense. Also, since ER 1.15 does not
alter a third-party’s legal rights, see ER 1.15(f)(4), clients must also be advised, as required by ER
1.15(f)(2), as to the advantages and disadvantages of receiving the disputed property, and lawyers must
obtain the client’s informed consent, confirmed in writing, to the disbursement.
However, the Committee determines that, where a lawyer does not have possession of any disputed
property, a lawyer is not required by ERs 1.4, 4.4, or 1.15 to respond to requests for information by third
parties who may have an interest in any future recovery being sought by the client.
Likewise, nothing in ERs 1.4, 4.4, or 1.15 requires a lawyer to respond to requests for a “status” or
“reasonable requests for information” from a third-party claimant. A lawyer’s obligation to safeguard
property in which a third party claims an interest, and provide the claimant with notice, only arises when
the property comes into the lawyer’s possession. See ER 1.15(d),(e) (specifying that the lawyer must act
“[u]pon receiving funds or other property in which a client or third person has an interest.”). Prior to a
lawyer receiving a recovery, there is no ethical duty owed to the third party. Indeed, sharing information
about a lawyer’s representation of a client is prohibited by ER 1.6 unless the client has consented.
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