October 5, 1990
A lawyer who has possession of funds or property in which several parties claim an interest must hold the funds or property until the dispute is resolved. After waiting a reasonable period of time, if no party has taken steps to resolve the dispute the lawyer must initiate proceedings to resolve the dispute.
References: MRPC 1.2(c), 1.2(d), 1.15(c), 3.4, 8.4(c); R-7.
Counsel for plaintiff was notified of a lien held by the county Friend of the Court against the proceeds of plaintiff's personal injury case. In settling the personal injury case counsel made sure that plaintiff knew the settlement amount was less than the lien amount, and that counsel had a duty to disburse the settlement proceeds to the Friend of the Court before disbursing to plaintiff.
When the settlement check was received, plaintiff failed to respond to calls and letters asking plaintiff to sign releases and execute the check. Consequently the settlement was never put on the record. After a considerable delay plaintiff finally contacted Counsel asking for disbursement of the proceeds directly to plaintiff or in the alternative that Counsel forward the settlement proceeds to a new lawyer (who was unaware of the lien) for disbursement. Counsel declined. Although the Friend of Court offered to escrow the monies pending plaintiff's resolution of the support dispute, plaintiff declined.
Counsel is entitled to recover costs and fees, but fears the plaintiff will deny the settlement was authorized if counsel attempts to seek a ruling from the judge in the personal injury case. Counsel asks for ethical guidance.
MRPC 1.15(c) states:
"(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."
Counsel was aware when the settlement proceeds were received that the amount was insufficient to discharge all claims, which included the Friend of Court lien and counsel's costs and fees. Counsel also knew that the client's instructions regarding disbursement conflicted with the lawyer's ethical duties, but counseling of the client under MRPC 1.2(c) and (d) was not successful. Under MRPC 1.6(c) a lawyer has discretion to disclose confidences and secrets to the extent necessary to rectify the consequences of the client's fraud, or to prevent the client's crime. Counsel may simply disclose that the lawyer's client will not permit the lawyer to honor the lien, and then let the client make whatever representation to the court on the subject the client deems advisable.
MRPC 8.4(c) prohibits a lawyer from engaging in conduct prejudicial to the administration of justice. In order to facilitate prompt resolution of the matter, close the personal injury file, and fulfill the lawyer's MRPC 3.4 duty of fairness to the personal injury defendants, counsel must promptly initiate proceedings to resolve the claims to the settlement proceeds. The Comment of MRPC 1.15 states:
"A lawyer may have a duty under applicable law to protect such a third-party claim 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 person." Emphasis added.
The court should be asked to resolve whether and how much of the settlement proceeds goes to counsel, the lienholder and the client. See R-7.