When a client tells the lawyer to pay all settlement proceeds to her and not the medical providers, must the lawyer follow the client or honor the medical-lien statute?

Plain-English summary

A lawyer settled a client's personal injury claim without filing suit and held the proceeds. The lawyer had received the client's medical bills, which were undisputed, and had actual notice of them, but the providers had not taken the steps in G.S. §44-49 to perfect the statutory lien. The client instructed the lawyer to pay all proceeds to her and not the medical bills. The inquiry asked whether RPC 69 required the lawyer to pay the client rather than follow the distribution scheme in G.S. §44-50.

The opinion explained that RPC 69 ruled an attorney has an ethical obligation to disburse funds belonging to the client as the client instructs, in the absence of a valid lien in favor of a health care provider, under Rule 10.2(e), and that from the standpoint of the Rules of Professional Conduct the situation is the same whether the case settled before or after litigation began. It declined to interpret G.S. §44-50, stating that is beyond the ethics committee's purview. It framed the result as turning on that legal question: if the statute imposes a lien on settlement proceeds in the lawyer's hands when the lawyer has actual notice of the provider's claim and no suit has been filed, the lawyer may pay the undisputed claim despite the client's objection; if a lien is not perfected by the lawyer's actual notice in those circumstances, the lawyer must abide by the client's instructions on disbursement.

Currency note

This opinion was issued in 1992, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. Subsequent rule amendments, statutory changes, or later opinions may have changed the analysis, including the operation of the medical-lien statutes. Treat this page as historical context, not current guidance. Verify against current rules and statutes before relying on any specific requirement mentioned here.

Common questions

Q: Must a lawyer follow a client's instruction to pay settlement proceeds only to her, not to medical providers?

A: In the absence of a valid provider lien, yes. The opinion held that under RPC 69 and Rule 10.2(e) the lawyer must disburse as the client instructs when there is no valid lien.

Q: Does it matter whether the case settled before or after a lawsuit was filed?

A: No, for purposes of the ethics rules. The opinion held the situation is the same under the Rules of Professional Conduct either way.

Q: Does the lawyer's actual notice of the medical bills create a lien the lawyer must honor?

A: The opinion did not decide that. It held the interpretation of G.S. §44-50 is beyond the ethics committee's purview; if that statute creates a lien on these facts, the lawyer may pay the undisputed claim over the client's objection, and if not, the lawyer must follow the client.

Background and rules framework

The opinion applied North Carolina Rule 10.2(e), the trust-account provision on disbursing client funds (corresponding to Model Rule 1.15), as construed in RPC 69, and expressly left the construction of the medical-lien statutes, G.S. §44-49 and §44-50, to the courts. The analysis turns on whether a valid lien exists; absent one, the client's disbursement instructions control.

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property; disbursing client funds)
• North Carolina Rule 10.2(e) (disbursement of client funds absent a valid lien)

Statutes:

• N.C. Gen. Stat. §44-49 (perfection of medical provider lien)
• N.C. Gen. Stat. §44-50 (distribution of proceeds subject to medical lien)

Other opinions cited:

• North Carolina RPC 69 (duty to disburse as the client instructs absent a valid lien)

See also

• NC Ethics Op. RPC 127: conditional delivery of settlement proceeds
• NC Ethics Op. RPC 150: linking trust and business accounts

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-125/

Original opinion text

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

Inquiry:

Lawyer A represents a plaintiff in a personal injury action. During the course of settling the case, the attorney receives medical bills from medical care providers which treated the client for the personal injuries. Settlement is reached without the filing of a lawsuit. There is no dispute over the medical bills. The client instructs Lawyer A to pay all proceeds of the settlement over to her and to not pay the medical bills. The medical care providers have not taken the steps set forth in G.S. §44-49 to perfect the lien provided in that statute, but Lawyer A has actual notice of the bills (see G.S. §44-50). Does RPC 69 mandate that the attorney pay the settlement proceeds to the client rather than following the distribution scheme set forth in G.S. §44-50?

Opinion:

RPC 69 ruled that an attorney has an ethical obligation to disburse funds belonging to the client as instructed by the client in the absence of a valid lien in favor of a health care provider. Rule 10.2(e). From the standpoint of the Rules of Professional Conduct, the situation is the same regardless of whether the case is settled before or after the initiation of litigation. The interpretation of G.S. §44-50 is beyond the purview of the ethics committee. Suffice it to say that if that statute has the effect of imposing a lien upon settlement proceeds in the hands of an attorney when the attorney has received actual notice of the medical care provider's claim and suit has not been filed, then the attorney may pay the medical care provider's undisputed claim in spite of his client's objection. If, on the other hand, a lien is not perfected by the attorney's acquisition of actual notice under such circumstances, the attorney would have to abide by the instructions of the client in regard to the disbursement of the proceeds of settlement.