State Bar of Arizona Ethics Opinions
88-02: Scope of Representation; Truthfulness in Statements to Others
If an attorney is satisfied that a third party has a valid lien against the settlement of the attorney's client, the attorney should pay the funds accordingly.
The inquiring attorney states that health care providers often request, where a patient is pursuing a personal injury claim against a third party, that the patient sign a form agreeing to pay the provider out of the proceeds of the personal injury claim and giving the provider a lien against those proceeds. Some providers also request that the attorney handling the personal injury claim also sign the form agreeing to honor the client's lien. The inquiring attorney believes that such liens may be legally unenforceable insofar as they constitute an assignment of a tort claim or the proceeds thereof. Nevertheless, the attorney indicates that providers commonly rely on these forms in refraining from seeking payment from the patient prior to resolution of the personal injury claim and/or continuing to treat the patient.
1. What is the attorney's ethical duty to the client if the attorney is called upon to advise the client at the time a health care provider's lien form is presented to the client for signature?
2. What is the attorney's ethical duty to the health care provider at the time a health care provider's lien form is presented to the attorney for signature?
3. What is the attorney's ethical duty to the client at the time a health care provider's lien form is presented to the attorney for signature?
4. What is the attorney’s ethical duty where, after both the attorney and the client have signed a health care provider's lien form, the client subsequently informs the attorney that, for whatever reason, the client does not want the attorney to pay the provider out of the proceeds of the personal injury claim?
1. As indicated in the discussion below, this committee's jurisdiction does not extend to questions solely of law. Accordingly, the inquiring attorney's belief regarding the potential unenforceability of such liens is presented solely as a "fact" necessary to place the inquiry in proper context --that is, it is a fact that the attorney believes that, at least in some situations, such liens are unenforceable.
ETHICAL RULES INVOLVED
ER 1.2. Scope of Representation
(a) A lawyer shall abide by a client's decisions concerning the objectives of representation, subject to paragraphs (c), (d) and (e), and shall consult with the client as to the means by which they are to be pursued. . . .
(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.
ER 1.4. Communication
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
ER 1.7. Conflict of Interest; General Rule
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation....
ER 1.15. Safekeeping Property
(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 person, 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. (Incomplete scan) …arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.
ER 4.1. Truthfulness in Statements to Others
In the course of representing a client a lawyer shall not knowingly:
(a) make a false statement of material fact or law to a third person: or
Questions solely of law are beyond the scope of this committee's jurisdiction. Therefore, this opinion will not attempt to resolve any legal issues relating to such matters as the interpretation of contracts (i.e., specific lien forms) or the extent to which liens against the proceeds of personal injury claims are or are not enforceable. As indicated in the discussion below, however, in some situations the attorney's ethical duty may depend in part upon the attorney's assessment of the law applicable to the situation.
As to the first question, if the attorney is called upon to advise the client with respect to the client's signing of a lien form, ER's 1.2(a) and 1.4(b) generally indicate that the ultimate decision whether to sign the form should be made by the client, and that, before the client makes this decision, the attorney should explain the nature and potential consequences of any significant limitations on the enforceability of the requested lien, and the extent to which the client's signing of the form may affect the client's subsequent rights against the provider.
As to the second question, the attorney's ethical duty to the health care provider at the time a lien form is presented to the attorney for signature is governed by ER 4.1(a).2 Depending on the circumstances, the attorney's signing of the form may mislead the health care provider by creating or reinforcing beliefs on the part of the provider that the attorney knows or has reason to know are erroneous -- e.g., that the lien is legally enforceable against the client, that there is a legally enforceable obligation by the attorney to honor the lien agreement, and/or that the lien agreement will be honored. As a consequence, in some circumstances the attorney's signing of the form may have the effect of inducing the provider, based on such erroneous beliefs, to take action that the provider might not otherwise take, such as providing further services to the patient or refraining from seeking prompt payment from the patient. In such circumstances, the attorney's signing of the form without more, may constitute a violation of ER 4.1(a).2 Accordingly, again depending upon the circumstances (including the precise language of the lien form), the attorney may be ethically prohibited from signing the form without taking some further action, such as modifying the form or making an appropriate disclosure, disclaimer or the like to the provider.
As to the third question, the attorney's ethical duty to the client at the time a lien form is presented to the attorney for signature has two potential aspects. First, if (based on the language of the form and any other pertinent circumstances) the attorney's signing of the form will create any obligation by the attorney to the provider, ER's 1.2(a) and 1.4(b) require that, before signing, the attorney should obtain the client's consent to the creation of the obligation after giving the client appropriate explanations regarding that obligation and its potential effect upon the client. Second, to the extent the attorney concludes that the attorney's signing of the form will create an obligation by the attorney to the provider that might conflict with the client's interests, ER 1.7(b) requires that, before signing the form, the attorney reasonably believe that the representation will not be adversely affected by this potential conflict, and that after consultation the client consents to the continued representation.4
2. After noting that “[a] lawyer ... generally has no duty to inform an opposing party of relevant facts," the Comment to ER 4.1 further states: "A misrepresentation can occur if the lawyer incorporates or affirms a statement of another person that the lawyer knows is false. Misrepresentations can also occur by failure to act."
3. If, as suggested in the discussion of the second question, the attorney has concluded in the circumstances that some further action ( such as a modification to the form or a disclaimer ) is necessary if the attorney signs the form, the explanation to and consent of the client should include a discussion of this further action and its implications. It should also be noted that, although ER 1.2(a) states the general rule that the attorney should abide by the client's decisions regarding the objectives of the representation, this general rule is subject to several exceptions, including (as set forth in ER 1.2(d)) that an attorney should not counsel a client to engage in fraudulent conduct or assist a client in such conduct.
4. ER 1.7(b) would also apply if the attorney's signing of the form would put the attorney's interest in having the provider paid (e.g., to maintain good relations with a doctor with whom the attorney frequently works) in potential conflict with the client's interest.
As to the fourth question, ER 1.15(b) provides that, subject to certain exceptions, an attorney must promptly deliver to a client or a third person any funds the client or third person "is entitled to receive." ER 1.15(c) provides that, if a dispute arises between the client and the third person, the attorney should keep the disputed portion of the funds separate until the dispute is resolved. In our Opinion No. 71-6, this committee considered a situation in which an attorney was in possession of settlement proceeds that the attorney believed were subject to a valid lien by the State Compensation Fund, but as to which proceeds the client desired that the attorney not honor the lien. Applying DR 9-102(B)(4) of the former Code of Professional Responsibility, which is substantially similar to a portion of the second sentence of ER 1.15(b), the committee concluded that, if the attorney was "satisfied" that a valid lien existed, the attorney should pay the funds to the State; and that, if the attorney had “any doubt” about the validity of the lien, the attorney should hold the funds pending a final determination of the validity of the lien (which the committee suggested might be accomplished by an interpleader action).
Although, based on the facts recited therein, Opinion No. 71-6·did not involve a situation in which the attorney had signed a lien form or otherwise had expressly assumed any obligation regarding the lien, that opinion is instructive insofar as it provides some guidance as to how an attorney should dispose of funds that are the subject of conflicting claims. Based on that opinion and on ER's 1.15(b) and 1.15(c), it is the opinion of the committee that if, in the circumstances (including the factual background and the attorney's assessment of the applicable law), the attorney is satisfied that either the client or the health care provider is entitled to receive the funds, the attorney should pay the funds accordingly. But, if the attorney has any good faith doubt as to who is entitled to receive the funds, the attorney should hold the disputed funds in trust pending resolution of the dispute or, if necessary, formally interplead the funds.5
5. In considering the circumstances of each situation, the attorney must give due consideration to any obligation by the attorney to the provider that has been created with the client's informed consent, and [Footnote continued the attorney is not ethically free to blindly follow the client's instruction and therefore to ignore such an obligation to the provider (or any obligation the attorney may otherwise have to the provider, such as -- as is suggested in the Comment to ER 1.15 -- the obligation to avoid wrongful interference with the provider's claim) simply because the client wishes the attorney to do so. Conversely, if an obligation (or purported obligation) by the attorney to the provider has been created without the client's informed consent, the attorney is not ethically free to refuse to pay funds to the client that the client is otherwise entitled to receive merely because the attorney is concerned that the attorney's prior unauthorized conduct may expose the attorney to a claim by the provider. Moreover, if in the circumstances there is a conflict between the interests of the attorney and the client -- e.g., if it is in the attorney's interest to have the provider paid out of proceeds to avoid a potential claim by the provider against the attorney -- the attorney must comply with ER 1.7(b). (See footnote 4 above.)
1. One member of the committee, joined by another, expressed the following partially dissenting view:
“I respectfully dissent from the proposed opinion with regard to Question Two. This opinion would in essence place a plaintiff's personal injury lawyer in the position of acting as the attorney for a medical provider, and weighing the interests of said medical provider equally against that of the personal injury client. Medical providers presumably have attorneys of their own who draft any lien forms tendered. Requiring an attorney to choose between modifying a lien form or not signing a lien form is tantamount to precluding a client from obtaining needed medical services.”
2. Another member of the committee, concurring in the proposed opinion and responding to the above dissent, took the following position:
"The recent disciplinary proceeding of Matter of Burns, 139 Ariz. 487, 679 P.2d 510 (1984), involved facts similar to those of the proposed opinion. In Burns, the U.S. Air Force claimed a statutory lien (under the Medical Care Recovery Act, 42 USC §§ 2651-2653) in recovery proceeds of a tort suit, for payment of the client's medical care. The Air Force notified the attorney of the lien, offered assistance in the suit, and requested the attorney's cooperation in honoring the lien. The attorney ignored the Air Force and, after settlement of the suit, failed to tender payment for the lien, making payment instead to his client. Although the proceeding contains more claims of wrongdoing, the Arizona Supreme Court ruled that the attorney had violated his ethical duty by failing to recognize the lien and thereby assisting in an illegal or fraudulent act by his client. The violation was found under former DR 7-102(A) (7), but would also fall under ER 4.1.
“The contractual lien in the proposed opinion should raise no significantly different ethical claims than the statutory lien in Burns. A health care provider should not be expected to give free medical care to an injured client able to pay for treatment. The health care provider is accommodating the client by awaiting payment from potential recovery proceeds. If the health care provider requires as a condition of treatment that the attorney sign a form acknowledging a lien, there should be no ethical prohibition, provided the client is made fully aware of the circumstances and effect of the lien, consents to the attorney signing the form, and has also agreed to the lien. In disagreement with the Dissenting Opinions, I do not view the lawyer as having a conflict between representing his client and representing the health care provider. I believe any potential conflict would be overcome by a client consent after full disclosure. See ER 1.7(b). On the contrary, the attorney by recognizing the lien adheres to the wishes of the client.
“Written acknowledgement of the lien by the attorney directs the attorney's attention to the lien in settlement negotiations and agreements, and disbursement of proceeds, but should not impair the attorney's loyalty to his client in handling the case.”
Formal opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceeding. This opinion is based on the Ethical Rules in effect on the date the opinion was published. If the rules change, a different conclusion may be appropriate.
© State Bar of Arizona 1988