A state department has a disputed lien on my client's personal injury settlement and my client demands the whole recovery. What do I do with the money under Rule 1.15?

Plain-English summary

The inquiring attorney represented a client in a personal injury matter that resulted in a lump-sum settlement. Before the settlement, the attorney received notice of a lien from a state department seeking reimbursement for medical expenses it had paid on the client's behalf for a nervous disorder the attorney described as unrelated to the personal injury matter; the state alleged the medical bills arose out of the accident. The attorney believed the state was owed a fraction of what it sought, while the client demanded the settlement proceeds, which were held in the attorney's client account. The attorney sought guidance on appropriate conduct.

The Panel set out Rule 1.15 ("Safekeeping Property"), quoting Rule 1.15(b) and (c) and the Comment. Rule 1.15(b) requires a lawyer who receives funds in which a client or third person has an interest to promptly notify that person. Rule 1.15(c) provides that where the lawyer and another person both claim interests, the property must be kept separate until an accounting and severance, and that if a dispute arises concerning respective interests, the disputed portion must be kept separate until the dispute is resolved. The Comment notes that third parties such as creditors may have just claims and that a lawyer should not unilaterally arbitrate a dispute between the client and the third party.

The Panel concluded that because there was a dispute between the client and the state agency, the disputed portion should be kept separate by the inquiring attorney pending a resolution, arbitration, or interpleader.

Currency note

This opinion was issued in 1994 (Opinion 94-50, issued July 27, 1994), after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.15 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 Rule 1.15. 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 Treat this page as historical context, not current guidance.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.

Common questions

Q: A state agency claims a lien on my client's settlement but my client wants all of it. Can I just pay the client?

A: On these facts the Panel concluded no. Because the client and the state agency disputed the lien, Rule 1.15(c) required the attorney to keep the disputed portion separate pending resolution.

Q: How long must the disputed funds be held?

A: The Panel stated the disputed portion should be kept separate pending a resolution, arbitration, or interpleader.

Q: Can the lawyer decide the merits of the lien dispute?

A: No. The Panel quoted the Comment that a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.

Background and rules framework

The opinion interprets Rhode Island Rule of Professional Conduct 1.15 (safekeeping property), the analog of Model Rule 1.15. Rule 1.15(b) requires prompt notice to a client or third person with an interest in received funds; Rule 1.15(c) requires that property claimed by both the lawyer or client and another be kept separate, with any disputed portion held until the dispute is resolved. The Panel applied the disputed-portion provision to a state agency's contested lien.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / RI RPC 1.15(b), (c) (safekeeping property; disputed funds held separate pending resolution)

See also

• RI EAP Opinion 94-46: settlement funds owed to a hospital under Rule 1.15
• RI EAP Opinion 94-42: no client list to the firm's bank under Rule 1.6

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%2094-50.pdf

Original opinion text

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

ETHICS ADVISORY PANEL
OPINION #94-50 REQUEST #520
Issued July 27, 1994

The inquiring attorney represented a client in a personal injury matter which resulted in a lump sum settlement for the client. Prior to the settlement the attorney received notice of a lien from a state department requesting reimbursement for medical expenses. The medical expenses were paid by the State Department on behalf of the client for a nervous disorder unrelated to the personal injury matter. The state alleges that the medical bills arose out of said accident. The attorney believes that the state is owed a fraction of what it is seeking. The client demands the settlement proceeds which are currently in the attorney's client's account. The inquiring attorney seeks guidance regarding appropriate conduct under these circumstances.

Whenever there is a dispute regarding the property of a client, Rule 1.15 entitled "Safekeeping Property" is applicable. Particularly Rule 1.15(b) and (c) and the comments thereto state the following:

(b) 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 with the client, 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 persons, shall promptly render a full accounting regarding such property.

(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, 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.

Pursuant to the above cited Rule, a lawyer "shall promptly notify" a client or third person when the attorney receives funds or property in which a client or third person claims an interest. However, if a dispute arises concerning respective interests the portion in dispute shall be kept separate by the attorney.

Because there is a dispute regarding the client and the state agency, the portion in dispute should be kept separate by the inquiring attorney pending a resolution, arbitration or interpleader.