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DCBAR October 18, 1994

Must a lawyer pay settlement money to the client when a third party, like a government Medicaid lienholder, also claims part of it?

Short answer: The opinion concluded that when both the client and a third person claim an interest in settlement proceeds held in the lawyer's IOLTA account, the lawyer must not disburse the disputed portion to the client if the lawyer reasonably believes the third party has a just claim, such as a perfected Medicaid lien. The disputed funds must be held until the dispute is resolved by agreement or court order, while any undisputed portion is paid out promptly.

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This page answers the general question as of 1994. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.

Currency note: this opinion is from 1994
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Disclaimer: Advisory only. Not binding precedent.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Opinion 251 (adopted October 18, 1994) addressed a personal-injury lawyer who had received settlement proceeds for a client whose medical expenses had been paid by the District of Columbia. The District asserted a Medicaid lien over the proceeds under the Health Care Assistance Reimbursement Act (D.C. Code § 3-507 et seq.), seeking reimbursement. The lawyer disputed parts of the lien (some charges were unrelated to the injuries, some were excessive, and the lien was subject to compromise), but the District had not agreed to reduce it. The client asked the lawyer to disburse all the proceeds to him, and the lawyer, expecting the client would spend the money, asked whether he could instead hold the lien-subject funds in his IOLTA account.

The committee concluded that he could and should. Rule 1.15 generally requires a lawyer to deliver promptly to a client or third person any funds they are entitled to receive, and Comment [4] recognizes that third parties may have just claims against funds in the lawyer's custody, which the lawyer may have a duty under applicable law to protect against the client's wrongful interference. Where a lawyer holds funds he reasonably believes are subject to a perfected statutory lien, the committee concluded that lien is a third-party "just claim," so the lawyer should refuse to disburse the contested proceeds to the client and instead hold the disputed funds until the dispute is resolved. The committee noted that District law makes a person who disposes of lien-covered funds personally liable to the District for a year for amounts it cannot recover.

The committee added that the undisputed portion of the proceeds must be delivered promptly to the client under Rule 1.15(b), that the lawyer may at the client's request try to negotiate the disputed claim, and that pending resolution by agreement or court order the lawyer must hold the contested proceeds under Rule 1.15(a) and render a full accounting on request, subject to the confidentiality rules of Rule 1.6.

Currency note

This opinion was issued in 1994, before the District of Columbia's adoption of the 2007 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must a lawyer pay the client all the settlement money on request?

A: No, not the disputed part. The committee concluded that a lawyer may distribute to a client only the funds the client is entitled to receive, and must withhold amounts subject to a third party's just claim.

Q: Does a government Medicaid lien count as a "just claim"?

A: Yes, where it is perfected. The committee concluded that a statutory lien the lawyer reasonably believes is perfected is a third-party just claim under Comment [4] to Rule 1.15, so the lawyer should not disburse the contested proceeds to the client.

Q: What happens to the disputed funds?

A: They stay in the account. The committee concluded the lawyer must hold the disputed proceeds under Rule 1.15(a) until the dispute is resolved by agreement or court order, while paying out any undisputed portion promptly.

Background and rules framework

The opinion interpreted D.C. Rule 1.15 (safekeeping property, including the duty under Rule 1.15(b) to deliver funds a client or third person is entitled to receive and Comment [4] on third parties' just claims) and Rule 1.6 (confidentiality, which governs the accounting the lawyer renders). It applied the District's Health Care Assistance Reimbursement Act lien provisions.

Citations and references

Rules of Professional Conduct:

  • D.C. RPC 1.15(a), (b) / Model Rule 1.15 (safekeeping property; third-party claims)
  • D.C. RPC 1.6 / Model Rule 1.6 (confidentiality, governing the accounting)

Statutes:

  • D.C. Code § 3-507 et seq. (Health Care Assistance Reimbursement Act; Medicaid lien)

Cases:

  • In re Cassidy, 432 N.E.2d 274 (Ill. 1982), no censure where the lawyer withheld funds subject to third-party liens
  • Leon v. Martinez, N.Y. Ct. App. No. 103 (July 7, 1994), the rule creates ethical duties to third parties with claims to funds the lawyer holds

See also

Source

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