After a settlement, must a lawyer pay the client's medical providers directly, or follow the client's later instruction to pay the client instead?

Plain-English summary

Attorney A represented Client C in a personal injury action. C directed A to seek the cooperation of various medical providers and to tell them their fees would be paid from any settlement; A obtained the records and statements of charges accordingly. After settlement, C instructed A not to pay the providers but to pay those sums directly to her, claiming a dispute over the amount owed. The inquiry asked whether A could refuse to pay C directly, and whether the answer would change if C had never directed A to assure the providers of payment.

The opinion explained that Rule 10.2(E) requires a lawyer to promptly pay or deliver to the client, or to third persons as the client directs, the funds belonging to the client, so a lawyer is generally obliged to disburse settlement proceeds per the client's instructions. The only exception arises when a medical provider has perfected a valid physician's lien; then the lawyer is relieved of the obligation to pay the client and may pay the physician directly if the claim is liquidated, or retain disputed amounts in trust pending resolution. Where the client had authorized the lawyer to represent to the provider that fees would be paid from the proceeds and then forbids payment, the opinion concluded the lawyer, as the client's agent and trustee of the client's funds, is obligated to comply with the client's instructions; but if the lawyer believes he might thereby be facilitating the client's fraud, it would not be inappropriate to advise the provider of the client's change of heart in time for the provider to pursue any remedies before disbursement, citing Rule 4(c)(4). If the provider takes no action within a short specified time, the lawyer is then obligated to follow the client's instructions. The opinion also cited N.C. Baptist Hospitals v. Mitchell, 323 N.C. 528 (1989).

Currency note

This opinion was issued in 1989, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The provisions it applies (Rule 10.2(E) and Rule 4(c)(4)) have since been renumbered and revised (the corresponding Model Rules are 1.15 and 1.6). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must a lawyer pay settlement funds to the client if the client so instructs?

A: Generally yes. The opinion concluded that a lawyer must disburse settlement proceeds as the client directs, unless a valid physician's lien applies.

Q: When can the lawyer pay the medical provider instead of the client?

A: The opinion concluded that only a perfected valid physician's lien relieves the lawyer of the duty to pay the client; then the lawyer may pay a liquidated claim or hold disputed amounts in trust.

Q: What if the client promised the providers payment and then refuses?

A: The opinion concluded the lawyer must still follow the client's instructions, but may, to avoid facilitating fraud, warn the providers in time to pursue remedies before disbursing, and must comply with the client if they take no action within a short specified time.

Background and rules framework

The opinion applied North Carolina Rule 10.2(E), requiring disbursement of client funds as the client directs (corresponding to Model Rule 1.15), and Rule 4(c)(4), a confidentiality exception permitting disclosure to avoid facilitating client fraud (corresponding to Model Rule 1.6). The physician's-lien exception and the citation to N.C. Baptist Hospitals v. Mitchell anchor the limits on the client's control of the funds.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 10.2(E) (disbursing client funds as the client directs)
• North Carolina Rule 4(c)(4) (disclosure to avoid facilitating client fraud)
• MR 1.15 (safekeeping property); MR 1.6 (confidentiality; fraud exception)

Cases:

• N.C. Baptist Hospitals v. Mitchell, 323 N.C. 528 (1989), physician's lien on settlement proceeds

See also

• NC Ethics Op. RPC 75: disbursement of client funds
• NC Ethics Op. RPC 125: disbursement of settlement proceeds

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-69/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry:

Attorney A represents Client C in a personal injury action. Client C directs Attorney A to seek the cooperation of various medical providers and to inform them that their fees will be paid from the proceeds of any settlement.

Attorney A writes the medical care providers and requests the medical records of Client C. He also requests a statement of charges from the medical providers. Subsequently, the medical providers send copies of Client C's account to Attorney A.

After settlement of the personal injury claim, Client C instructs Attorney A not to pay the medical providers, but to pay those sums directly to her. Client C claims she has a dispute with the medical providers as to the amount owed.

May Attorney A ethically refuse to pay the subject funds directly to Client C?

Would there be a different response to this question if Client C had never directed Attorney A to inform the medical providers that their fees would be paid following Client C's recovery in the personal injury action?

Opinion:

Rule 10.2(E) of the North Carolina Rules of Professional Conduct provides that, "[A] lawyer shall promptly pay or deliver to the client or to third persons as directed by the client the funds, securities, or properties belonging to the client to which the client is entitled in the possession of the lawyer." A lawyer is generally obliged by this rule to disburse settlement proceeds in accordance with his client's instructions. The only exception to this rule arises when the medical provider has managed to perfect a valid physician's lien. In such a situation the lawyer is relieved of any obligation to pay the subject funds to his or her client, and may pay the physician directly if the claim is liquidated, or retain in his or her trust account any amounts in dispute pending resolution of the controversy.

In those cases where the client has authorized the lawyer to represent to the medical provider that the provider's fees will be paid from the proceeds of settlement and thereafter forbids the lawyer to pay the physician, the lawyer is, as the client's agent and trustee of the client's funds, under an obligation to comply with the client's instructions. If the lawyer is of the opinion that he might thereby be facilitating his client's fraud, it would not be inappropriate for the lawyer to advise the medical provider of the client's change of heart in sufficient time for the medical provider to pursue any remedies it might have in anticipation of the disbursement of the settlement proceeds. See Rule 4(c)(4). Should no action be taken by the medical provider within a short specified time, the lawyer would then be obligated to comply with his or her client's instructions. See also N.C. Baptist Hospitals v. Mitchell, 323 N.C. 528 (1989).