You have requested a formal opinion on the following situation: You represented a client in a personal injury matter. A statutory lien against your client and in favor of the Department of Public Welfare was compromised by you and reduced to an amount that is approximately 55% of the original lien. Subsequent to this, but prior to distribution of the funds to DPW, you were advised that your client had hired another lawyer with regard to the DPW lien. New counsel requested that you release the DPW funds to the client directly, and you have asked for guidance in this situation.
Rule of Professional Conduct 1.15(b) provides that:
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.
The Comment to Rule 1.15 provides in part that:
Third parties, such as client 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 third party.
Your original inquiry was first discussed at the Committee's meeting on December 12, 1991. In addition, this formal opinion was approved at the Committee's meeting on February 11, 1991.
The Committee is of the opinion that as DPW has a statutory lien on the proceeds of the settlement, and as the client is attempting to argue via new counsel the validity of that lien, that you should hold the disputed funds (the amount of the agreed to compromise) in escrow pending resolution of the dispute between your former client and DPW. Although the Comments to the Rules have not been adopted as law in Pennsylvania, they do provide direction in this matter. Clearly, as required by Rule 1.15(b), undisputed funds should promptly be distributed to the client. As entitlement to the balance of the funds is in dispute, the Committee advises that you follow the suggestion in the Comment to Rule 1.15(b), notify all parties that you are holding the money, and proceed to place it in an escrow account pending resolution of the dispute.
Finally, as the funds are in excess of $6,000 and as this dispute may last several months, the Committee is of the opinion that the funds should be placed in a separate interest bearing escrow account.