I hold settlement funds and a collection agency claims part of them for a client's hospital bill I am not sure was paid. Can I pay the client, or must I hold the money?

Plain-English summary

The inquiring attorney represented a client who had been hospitalized. A lien was recorded by the hospital and some of the hospital claims were turned over to a collection agency before a settlement. Eventually a discharge of the liens was obtained by the hospital and an arrangement to pay the medical insurance was made. Before remittance to the client, the attorney received written claims from the collection agency and is unsure whether the hospital has been paid in full. The attorney's concern is the further distribution of the funds to the client if the hospital was not in fact paid in full.

The panel said Rule 1.15(c) and its comments apply. Under Rule 1.15(c), when a lawyer possesses property in which both the lawyer and another person claim an interest, the property shall be kept separate until there is an accounting and severance of interests; if a dispute arises, the portion in dispute shall be kept separate until the dispute is resolved. The comments to Rule 1.15 note that third parties, such as a client's creditors, may have just claims against funds in a lawyer's custody; a lawyer may have a duty under applicable law to protect such claims against wrongful interference by the client and accordingly may refuse to surrender the property to the client, but a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.

The panel concluded that the lawyer may refuse to surrender the property to the client without breaching an ethical obligation under Rule 1.15(c). Disbursing the funds to the client would not be a violation of the Rules as long as the attorney properly informs the client regarding the possible problems that may arise as a consequence of the unresolved collection-agency claim, citing Rule 1.4 ("Communication").

In practice

Under this opinion, a lawyer holding settlement funds against which a collection agency has asserted a written claim for a possibly unpaid hospital bill has two permissible courses. The opinion frames them as: holding the disputed portion separate under Rule 1.15(c) (the lawyer may refuse to surrender it to the client without breaching an ethical duty), or disbursing to the client after informing the client, under Rule 1.4, of the possible problems from the unresolved claim. The opinion adds that the lawyer should not unilaterally assume to arbitrate the dispute between the client and the third party.

Common questions

Q: Must I hold settlement funds that a collection agency claims for a hospital bill?

A: Per the opinion, under Rule 1.15(c) the disputed portion shall be kept separate until the dispute is resolved, and the lawyer may refuse to surrender the property to the client without breaching an ethical obligation.

Q: Can I instead pay the funds to my client?

A: Per the opinion, disbursing the funds to the client would not be a violation as long as the attorney properly informs the client, under Rule 1.4, of the possible problems that may arise from the unresolved collection-agency claim.

Q: May I decide who is entitled to the disputed funds?

A: Per the opinion, no; the comments to Rule 1.15 state that a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.

Background and rules framework

The opinion applies Rhode Island Rule 1.15 (safekeeping of property), corresponding to Model Rule 1.15, and Rule 1.4 (communication), corresponding to Model Rule 1.4. The panel read Rule 1.15(c) as requiring disputed property to be kept separate until the dispute is resolved and as permitting the lawyer to refuse to surrender it to the client, while treating disbursal to the client as permissible only with the client communication Rule 1.4 requires.

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping of property), MR 1.4 (communication)
• RI RPC 1.15(c); RI RPC 1.4

Statutes:

• None cited.

Cases:

• None cited.

Other opinions cited:

• None cited.

See also

• RI EAP Op. 92-45: Advancing Client Funds for Future Costs
• RI EAP Op. 92-34: Disputed Contingent Fee Held and Arbitrated Under Rule 1.15

Currency note

This opinion was issued in 1992 (Opinion 92-47), after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rules 1.15 and 1.4 as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process, which amended and relettered Rule 1.15 (safekeeping of property) and amended Rule 1.4 (communication). 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 mentioned here.

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2092-47.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

ETHICS ADVISORY PANEL
Opinion #92-47, Request #271
Issued July 23, 1992

An attorney seeks Panel advice based upon the following circumstances. The attorney represented a client who was hospitalized. A lien was recorded by the hospital and some of the hospital claims were turned over to a collection agency, prior to a settlement. Eventually a discharge of the liens was obtained by the hospital and an arrangement to pay the medical insurance was made. Before remittance to the client was made, written claims by the collection agency were received by the attorney. The attorney is unsure as to whether the hospital has been paid in full. The attorney's concern is with the further distribution of funds held by the attorney to the client if in fact the hospital was not paid in full at this time.

The Panel believes that Rule 1.15(c) and the comments thereto apply to this situation. The Rule states that:

When in the course of representation a lawyer is in the possession of property in which both the lawyer and another person claims interest, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.

In addition, the Comments to Rule 1.15 states that:

Third parties, such as a client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party. (emphasis added).

The Panel believes that the lawyer may refuse to surrender the property to the client without breaching an ethical obligation pursuant to Rule 1.15(c). Disbursing the funds to the client would not be a violation of the Rules as long as the attorney properly informs the client regarding the possible problems which may arise as a consequence of an unresolved issue with the collection agency's claim for payment. See Rule 1.4 entitled "Communication."