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MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 1988-64
Trust Funds: Payment for Expert Witness from Funds Held in Escrow When Client Withdraws Authorization to Make the Payment
Your inquiry poses a problem of disbursement of funds from your escrow account. Specifically, you note that you represented a client in an personal injury action scheduled for trial at 1:30 p.m. The treating physician was summonsed to appear at the trial. A settlement was reached on the day of trial and although you immediately called the doctor's office to inform him of the settlement, the doctor was not in nor did he receive the message that this testimony would not be needed. Consequently, he has submitted his bill for travel time and expenses relating to his time involved in proceeding to Court on the day of the trial.
Your client had authorized you to negotiate a settlement with the doctor and you did so by verbal agreement. You held the money to pay the doctor's costs in your escrow account, but prior to disbursing to the doctor, your client called and indicated a change of mind and instructed you not to pay the physician because ""he should have called his office before going to the court."" Both your client and the physician feel they are entitled to the sums of money held in your escrow account.
You have supplied additional information indicating that you had a fee agreement with your client indicating that you were to receive a 40 percent contingency fee if the action proceeded to Court and that you were entitled to receive all costs for disbursements from any recovery on your client's behalf. You also note that your client has authorized payment to the doctor of any surgical and/or medical benefits otherwise payable to her for his professional services and has acknowledged financial responsibility for the charges not covered by the authorization. She has not, however, signed an agreement authorizing you to withhold from any future recovery, funds necessary to pay the bills of the physician.
Rule 1.5 of the Maryland Rules of Professional Conduct provides some guidance with respect to fees. Specifically, Rule 1.5(c) states that ""a fee maybe contingent on the outcome on the matter for which the service is rendered . . .. The terms of a contingency agreement shall be communicated to the client in writing. The communication shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter, and if there is a recovery, showing the remittance to the client and the method of its determination.""
According to the facts presented by you in your letter, as well as additional information supplied, your fee agreement appears to set forth the basic terms required by Rule 1.5(c) including that the expenses, both litigation and otherwise, are to be deducted from recovery. Although your fee agreement does not specify what the ""litigation and other expenses"" are, you have explained that you discussed these various expenses with your client at the time the written arrangement is entered into so that there is full and complete understanding of the nature of the expenses that may be incurred and what may be deducted from the recovery.
Rule 1.15 discusses the safekeeping of property and pertains to your concern with respect to holding these disputed sums in your escrow account. Rule 1.15(b) notes ""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."" Rule 1.15(c) states, ""When in the course of representation a lawyer is in possession of property in which both lawyer and another person claim interest, the property shall be kept separate by the lawyer until there is an accounting and severance of their interest. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.""
Clearly, you have abided by the terms of Rule 1.15 in that you have deposited these disputed funds in your escrow account for safekeeping, and have continued to retain these funds in the separate account during the pendancy of this dispute. The Rule, however, is not particularly helpful in and by itself, with respect to the exact problem confronted by you.
The Annotated Model Rules of Professional Conduct, promulgated by the American Bar Association on August 2, 1983, provided some assistance with respect to your concerns. Various ABA model code States have interpreted the obligation to third party creditors of a client regarding client's funds. For instance, Alaska Opinion 80-1 (1980) held that a lawyer did not violate any ethical obligation by forwarding funds received to the client knowing that the client had outstanding medical bills. In Delaware Opinion 1981-3 (April 21, 1981), a position was taken holding that a lawyer should try to persuade a client to pay medical expenses, without forcing client to do so. In South Carolina Opinion 81-14 (1981), yet another position was adopted, holding that the client must be given permission to the lawyer in order to pay outstanding medical expenses. Further, if the client refused permission, the lawyer must notify the client and the hospital of receipt of the funds and that the funds would be held by the lawyer for a short designated period of time without dispersal.
The opinion, however, does not answer the question of what to do after this ""short designated period of time."" Several opinions decided throughout model code States note that if the client's debt to the third person has arisen as a result of services requested by the lawyer, the lawyer may owe a greater duty to that third person and that the lawyer may not deny responsibility for services rendered at his or her request unless he or she has made it clear, upon requesting the services, that he or she would not be responsible for the fees. See Delaware Opinion 81-2 (April 21, 1981); Minnesota Opinion 7 (as amended October 26, 1979). When, however, a client has signed an agreement with the physician directing the lawyer to withhold from the future recovery of funds all sums necessary to pay the accrued bills of the physician, the ABA Standing Committee on Ethics and Professional Responsibility has held that this is not improper. See ABA Informal Opinion 1295 (August 18, 1974).
In conclusion, it is the Opinion of the Committee on Ethics that there would be no violation of the Rules of professional conduct for you to disperse these escrow funds to the client.
If you determine that there was a contract between the you and the physician you may have a lien against the funds that may entitle you to disburse to the physician this, however, is not presented as your situation.
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