If a client signed a doctor's lien on settlement proceeds but the lawyer never agreed to honor it, can the lawyer disburse the funds to the client?

Plain-English summary

Opinion E-09-01 (originally issued 2009; amended July 27, 2017 to reflect changes in Wisconsin's Rules of Professional Conduct) addresses what a lawyer must do when a client has signed a "doctor's lien," typically promising a medical provider payment out of an anticipated settlement, but the lawyer never signed the document or agreed to protect the provider's interest, and the client later tells the lawyer to disregard it. The committee separates two questions the Wisconsin courts had treated differently: when a lawyer can be sued civilly by a client's creditor, and when a lawyer can be disciplined under the Rules. Reading Riegelman, Yorgan, and the disciplinary decision Barrock together, the committee explains that a lawyer's civil liability and ethical responsibility are not the same: a lawyer who never promised to pay a creditor may avoid civil liability yet still have a duty under the Rules.

The ethical duty comes from SCR 20:1.15(e). Under (e)(1), once the lawyer has notice that a third party asserts an interest in trust property identified by a lien, court order, judgment, or contract, the lawyer must promptly notify and account. Under (e)(3), if the client and the third party both claim the funds, the lawyer must hold the disputed portion in trust until the dispute is resolved. Treating doctor's liens as contractual assignments (following Riegelman and Yorgan), the committee concludes a lawyer may not follow a client's instruction to disburse disputed funds, and may not avoid the duty by telling the third party the lawyer does not intend to honor the lien. The duty does not require any connection between the asserted interest and the matter the lawyer is handling, but the interest must identify the specific funds with particularity; a general claim of client indebtedness, even one based on a contract, does not trigger the rule.

The committee answers several related questions. A lawyer is not obligated to seek out unknown third-party claimants, because (e)(1)'s duties run from notice the third party provides, though the committee cautions against intentionally avoiding such information. A lawyer who must hold funds is not required to represent the client in resolving the dispute, but where the parties reach an impasse, the lawyer may, following Riegelman, file a declaratory-judgment action and deposit the funds with the court; the lawyer ordinarily bears the filing costs out of the lawyer's own funds rather than the disputed trust money. On confidentiality, the committee concludes that SCR 20:1.15(e)(1)'s notice requirement is "law" within SCR 20:1.6(c)(5), so a lawyer may notify the third party despite a client's instruction not to, and reminds lawyers that concealing receipt of the funds may implicate the prohibitions on assisting fraud and on misrepresentation. Finally, reading in an implicit good-faith requirement, the committee concludes that only a non-frivolous, colorable dispute triggers the duty to hold funds, while cautioning lawyers not to decide the legal merits of a colorable claim themselves.

In practice

Under this opinion, and under the Wisconsin trust-account rule as it stood when the opinion was issued and amended, conduct matching its fact pattern is treated as follows. The committee concludes that a Wisconsin lawyer who receives notice that a third party asserts an interest, identified by lien, court order, judgment, or contract, in specific funds the lawyer holds in trust must hold the disputed portion in trust until the dispute is resolved, regardless of whether the lawyer agreed to protect the interest and regardless of the client's contrary instruction. Per the opinion, undisputed portions should be promptly disbursed; the asserted interest must be particular to the specific funds; the lawyer may file a declaratory action when the dispute stalls; and the lawyer may give the third party notice required by SCR 20:1.15(e) even over a client's objection, because that notice requirement qualifies as "law" under SCR 20:1.6(c)(5).

Common questions

Q: A client signed a doctor's lien but I never agreed to it. Can I pay the client the full settlement?

A: Not while the provider's claim to the specific funds is disputed. The committee concludes SCR 20:1.15(e)(3) requires the lawyer to hold the disputed portion in trust until the dispute is resolved, treating the lien as a contractual assignment.

Q: Does it matter that the third party's claim has nothing to do with the matter I handled?

A: No. The committee concludes the rule requires no connection between the asserted interest and the underlying representation, so long as the interest identifies the specific trust funds with particularity; a general client debt does not trigger the duty.

Q: Do I have to hunt for unknown creditors before disbursing?

A: No. The committee concludes the rule imposes no duty to seek out third parties; the duties arise from notice the third party gives, although the lawyer should not intentionally avoid learning of such claims.

Q: The client and the third party will not resolve their dispute. Must I hold the money forever?

A: The committee concludes the lawyer may file a declaratory-judgment action under Wis. Stat. § 806.04 and deposit the funds with the court, following Riegelman, and ordinarily must pay the filing costs from the lawyer's own funds rather than the disputed trust money.

Q: The client tells me not to notify the third party. Does confidentiality bar me from doing so?

A: No. The committee concludes the SCR 20:1.15(e)(1) notice requirement is "law" within the SCR 20:1.6(c)(5) exception, so the lawyer may give the required notice despite the client's instruction, and warns that concealment may implicate the rules against assisting fraud.

Background and rules framework

The opinion centers on SCR 20:1.15(e) / Model Rule 1.15 (safekeeping property; third-party claims to trust funds), including the notice and disbursement duty in (e)(1) and the duty to hold disputed funds in (e)(3). It reconciles that rule with three Wisconsin decisions, Riegelman v. Krieg, Yorgan v. Durkin, and Disciplinary Proceedings Against Barrock, and with SCR 20:1.6 / Model Rule 1.6 (confidentiality, and the (c)(5) "to comply with other law" exception), SCR 20:1.2(d) (assisting crime or fraud), SCR 20:1.4(a)(5) (consulting the client about limits on the lawyer's conduct), SCR 20:4.1 (truthfulness to third persons), and SCR 20:8.4(c) (dishonesty and misrepresentation).

Citations and references

Rules of Professional Conduct:

• Wis. SCR 20:1.15(e), (e)(1), (e)(3) / Model Rule 1.15 (safekeeping property; third-party claims)
• Wis. SCR 20:1.6, 20:1.6(c)(5) / Model Rule 1.6 (confidentiality; "comply with other law")
• Wis. SCR 20:1.2(d) / Model Rule 1.2(d) (assisting crime or fraud)
• Wis. SCR 20:4.1, 20:8.4(c) / Model Rules 4.1, 8.4(c) (truthfulness; misrepresentation)

Statutes:

• Wis. Stat. § 757.36 (attorney's lien for fees)
• Wis. Stat. § 806.04 (declaratory judgments)

Cases:

• Riegelman v. Krieg, 2004 WI App 85, 271 Wis. 2d 798, 679 N.W.2d 857 (doctor's lien as contractual assignment; declaratory-action guidance)
• Yorgan v. Durkin, 2006 WI 60, 290 Wis. 2d 671, 715 N.W.2d 160 (no civil liability where only the client promised payment)
• Disciplinary Proceedings Against Barrock, 2007 WI 24, 299 Wis. 2d 207, 727 N.W.2d 833 (ethical duty to protect a known statutory lien)

Other opinions cited:

• Alaska Ethics Op. 92-3; Alabama Ethics Op. 90-48; California Ethics Op. 1988-101; Ohio Ethics Op. 95-12; Colorado Ethics Op. 94; Utah Ethics Op. 00-04; Connecticut Informal Op. 01-11

See also

• AL Bar Ethics Op. 1990-48: Interpleading Disputed Trust Funds
• CA Bar Op. 2002-160: Missing Client, Settlement Authority and Fees
• AL Bar Ethics Op. 2008-03: Trust Account Obligations for Retainers

Source

• Landing page: https://www.wisbar.org/formembers/ethics/pages/formal-opinions.aspx
• Original PDF: https://www.wisbar.org/formembers/ethics/Ethics%20Opinions/E-09-01.pdf