When a California attorney has notice of a medical lien on client settlement funds, may the attorney disburse the funds to the client per the client's instructions, or to the lienholder over the client's objection?
LACBA Ethics Opinion 478: Medical Liens; Disbursement of Client Funds
Short answer: Under former California Rules 4-100 and 4-210 as analyzed in 1994, the committee concluded that an attorney with notice of a medical lien on settlement funds may not simply disburse the contested funds to the client (even on the client's instruction) nor may the attorney unilaterally pay the lienholder without client consent. The committee identified that the attorney owes fiduciary duties to both the client and the third-party lienholder; the attorney's options are to obtain the consent of both parties to hold the disputed funds in trust pending resolution, or to file an interpleader action divesting the attorney of responsibility for the funds.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Los Angeles County Bar Association's view of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Currency note
This opinion was issued in 1994, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. Former Rule 4-100 corresponds to current Rule 1.15 (safekeeping property of clients and other persons); former Rule 4-210 corresponds to current Rule 1.8.5. 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 Treat this page as historical context, not current guidance.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.
Plain-English summary
The committee considered an attorney who filed a personal-injury suit for a client whose medical services were paid by a health plan. Before settlement, the attorney received a notice of lien from the health plan and a copy of a lien acknowledgment form signed by the client. On settlement, the client instructed the attorney not to pay the lien and to remit the settlement funds. At the attorney's request, the client signed a form acknowledging personal responsibility for the debt.
The committee identified Rule 4-100 as requiring the attorney to "promptly pay or deliver, as requested by the client, any funds...which the client is entitled to receive." The committee identified that normally disbursing trust funds per client instructions would be appropriate, but here the notice of lien and the client's executed acknowledgment gave rise to fiduciary duties to the health plan that conflict with the duty to obey client instructions.
Citing Crooks v. State Bar (quoting Johnstone v. State Bar), the committee identified the fiduciary-duty doctrine: when an attorney receives money on behalf of a third party who is not the client, the attorney is nevertheless a fiduciary as to that third party. Citing In the Matter of Respondent P and LACBA Formal Opinion 454, the committee identified that the same fiduciary duties apply as if an attorney-client relationship existed.
The committee identified that because the client may not be "entitled to receive" the full sum where a third party has what appears to be a legitimate interest, Rule 4-100 does not require remittance of the full amount; the attorney must, however, release funds not in dispute. The committee further identified that the attorney may not simply pay the contested funds to the health plan. Citing ABA Informal Opinion 1295, the committee identified that the attorney's responsibility is to represent the client and not the physician; Rule 4-210 permits payment of client-incurred expenses to third persons out of recovery funds only where the client consents. Where the client does not consent, the attorney should not disburse to a third party (LACBA Formal Opinion 368).
The committee identified two viable options. First, the attorney may obtain the consent of both the client and the lienholder to hold the funds in trust pending resolution; the retained funds must be placed in the trust account and limited to the disputed amount, with other funds appropriately disbursed. Without consent of both, the attorney may not unilaterally hold disputed funds (authorization under Rule 4-100(A)(2) applies only to disputes between the attorney and the client). Second, the attorney may commence an interpleader action, divesting the attorney of responsibility and leaving resolution to the court.
In footnotes, the committee identified that the client's subsequent acknowledgment of personal responsibility for the debt does not alleviate the lienholder concerns because an agreement between attorney and client cannot alter or eliminate fiduciary duties to the lienholder. The committee identified that an interpleader action may create an attorney-client conflict (outside the opinion's scope). The committee identified the Interprofessional Guidelines (California Medical Association and State Bar) as offering alternative procedures.
Common questions
Q: When a California lawyer has notice of a medical lien on settlement funds, may the lawyer pay the client per the client's instructions?
A: Per the opinion, no, with respect to the disputed amount. The committee identified that the attorney's fiduciary duty to the lienholder prevents simple disbursement to the client.
Q: May the lawyer pay the lienholder over the client's objection?
A: Per the opinion, no. Citing ABA Informal Opinion 1295 and Rule 4-210, the committee identified that the lawyer cannot disburse funds to a third party for client-incurred expenses without client consent.
Q: Does the client's acknowledgment of personal responsibility for the debt change the analysis?
A: Per the opinion (footnote), no. An attorney-client agreement cannot alter or eliminate the attorney's fiduciary duties to the lienholder.
Q: What can the lawyer do?
A: Per the opinion, two options: (1) obtain consent of both client and lienholder to hold the disputed amount in trust pending resolution (with non-disputed funds released to the client); or (2) commence an interpleader action.
Q: Can the lawyer hold the disputed funds unilaterally without both consents?
A: Per the opinion, no. The committee identified Rule 4-100(A)(2)'s authorization to hold disputed funds as applying only to disputes between the attorney and client.
Background and rules framework
The opinion interprets former California Rule of Professional Conduct 4-100 (handling of funds, including 4-100(A)(2) on disputed portions) and Rule 4-210 (payment of client expenses to third persons). The committee anchored the fiduciary-duty analysis in Crooks v. State Bar, Johnstone v. State Bar, and In the Matter of Respondent P. The California Medical Association/State Bar Interprofessional Guidelines (Revised 1991) are referenced as offering alternative procedural options.
Citations and references
Rules of Professional Conduct (former):
- California Rule 4-100 (handling of funds)
- California Rule 4-210 (payment of client expenses)
Cases:
- Crooks v. State Bar, 3 Cal.3d 346 (Cal. 1970), fiduciary duty to third party
- In the Matter of Respondent P, 2 Cal. State Bar Ct. Rptr. 622 (Rev. Dept. 1993)
- Johnstone v. State Bar of California, 64 Cal.2d 153 (Cal. 1966), fiduciary duty
- Miller v. Rau, 216 Cal.App.2d 68 (1963), civil liability to lienholder
- Pearlmutter v. Alexander, 97 Cal.App.3d Supp. 16 (1979)
Other opinions cited:
- ABA Informal Opinion 1295
- LACBA Formal Opinions 368 (June 16, 1977), 454
- State Bar of California COPRAC Formal Opinion 1988-101
- Interprofessional Guidelines (CMA and State Bar, Revised 1991)
See also
- LACBA Opinion 496: Liens on Recovery in Unrelated Case
- LACBA Opinion 484: Commingling and Security-Deposit Retainers
- LACBA Opinion 485: Personal Funds in Trust Account for Bank Charges
Source
- Landing page: https://lacba.org/?pg=ethics-opinions
- Original PDF: https://lacba.org/docDownload/2010942