If a lawyer agreed to pay a personal-injury client's medical providers out of a settlement, and the client then discharges those debts in bankruptcy, must the lawyer pay the providers personally?

Plain-English summary

Opinion 96-03 addressed a lawyer who, on behalf of a personal-injury client, negotiated agreements with medical providers to pay for the client's care out of a settlement or judgment. The agreements contractually obligated the client, but not the lawyer. Before any settlement or judgment, the client filed for bankruptcy and discharged some of those medical-cost obligations. The question was whether the lawyer had an ethical obligation to honor the agreements personally.

The Committee concluded that, absent dishonesty, fraud, deceit, or misrepresentation, the lawyer had no such ethical obligation. It treated the matter as analytically similar to Utah Ethics Advisory Opinion No. 98, which had determined that imputing an ethical obligation for a lawyer's failure to pay a third party for services could expose lawyers to discipline for the mere failure to pay creditors, a result beyond the Bar's role in maintaining ethical standards. The Committee found that conclusion particularly apt where the debts themselves could be legally discharged in bankruptcy and where the discharge might have been avoided by proper documentation on the medical provider's part. Disputes of this kind, the opinion held, are questions of substantive law (contract, agency, and bankruptcy doctrines) rather than questions of ethical propriety.

The Committee qualified this with Rules 4.1 and 4.3(b). Under Rule 4.1, a lawyer may not knowingly make a false statement of material fact to a third person or fail to disclose a material fact when disclosure is necessary to avoid assisting a client's criminal or fraudulent act (unless disclosure is barred by Rule 1.6). Under Rule 4.3(b), a lawyer dealing with an unrepresented person may not state or imply that the lawyer is disinterested and must correct a misunderstanding of the lawyer's role. The opinion gave the example of a lawyer who knows the client intends to discharge the medical debts in bankruptcy, uses documentation the lawyer knows will not withstand bankruptcy, and affirmatively states the provider will be paid at settlement; such conduct would be an ethical violation. Outside those independent considerations, the lawyer's obligations for client-related medical expenses are substantive-law issues, not ethical ones.

Currency note

This opinion was issued in 1996, before the Utah State Bar's adoption of the 2005 revisions to the Rules of Professional Conduct (the Ethics 2000-based amendments approved by the Utah Supreme Court on September 29, 2005). 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: Is a lawyer personally on the hook for a client's medical liens if the client doesn't pay?

A: No, as a matter of professional conduct. The opinion concluded that, absent dishonesty, fraud, deceit, or misrepresentation, a lawyer has no ethical obligation to personally honor the client's agreements to pay medical providers from a settlement or judgment.

Q: Does it become an ethics problem if the client discharges the medical debts in bankruptcy?

A: No. The opinion treated post-discharge disputes as substantive law questions (contract, agency, and bankruptcy), not ethical ones, especially because the debts could be legally discharged in bankruptcy.

Q: When can the lawyer still face discipline over a provider agreement?

A: When the lawyer is dishonest. The opinion stated that under Rules 4.1 and 4.3(b) a lawyer who, for example, uses documentation he knows will not survive bankruptcy while affirmatively representing the provider will be paid at settlement would commit an ethical violation.

Background and rules framework

The opinion interpreted the Utah Rules of Professional Conduct governing truthfulness toward third persons and dealings with the unrepresented: Rule 4.1 (truthfulness in statements to others, Model Rule 4.1) and Rule 4.3 (dealing with an unrepresented person, Model Rule 4.3), with reference to Rule 1.6 (confidentiality, Model Rule 1.6) as a limit on the duty to disclose. The analysis turned on the line between substantive-law obligations to third-party creditors, which the Bar does not police through discipline, and affirmative dishonesty toward a provider, which the conduct rules do reach.

Citations and references

Rules of Professional Conduct:

• Model Rule 4.1 / Utah Rule 4.1 (truthfulness in statements to others)
• Model Rule 4.3 / Utah Rule 4.3 (dealing with an unrepresented person)
• Model Rule 1.6 / Utah Rule 1.6 (confidentiality of information)

Other opinions cited:

• Utah Ethics Advisory Opinion No. 98, 1989 WL 509364 (Utah St. Bar 1989): no ethical obligation imputed for a lawyer's failure to pay a third party for services

See also

• Utah Ethics Op. 00-04: Third-Party Claims to Settlement Proceeds
• Utah Ethics Op. 11-01: Settlement Indemnification and Third-Party Liens
• Utah Ethics Op. 14-01: Outsourcing Lien Resolution
• NY State Bar Op.: Paying Medical Liens From Settlement Funds

Source

• Landing page: https://www.utahbar.org/ethics-opinions/1996-03/
• Original PDF: https://www.utahbar.org/wp-content/uploads/2022/12/1996-03.pdf

Original opinion text

Reproduced from the official source for research purposes. The two-column PDF has been reassembled into reading order by paragraph; the linked source is authoritative.

Utah Ethics Opinions 1996. 96-03. USB EAOC Opinion No. 96-03

Utah State Bar Ethics Advisory Opinion Committee

Opinion No. 96-03 Approved April 26, 1996

Issue: What are the ethical obligations of an attorney who has negotiated an agreement with medical providers on behalf of a personal-injury client whose debts are subsequently discharged in bankruptcy?

Opinion: Absent dishonesty, fraud, deceit or misrepresentation, the attorney has no ethical obligation to honor personally the client's agreements to pay medical providers out of a settlement or judgment. Disputes resulting from the failure of an attorney to make payment for services rendered by the medical providers should be treated as questions of substantive law, including state and bankruptcy law, and should be examined under traditional contract, agency, and bankruptcy doctrines rather than as questions of the ethical propriety of the attorney's actions. (fn1)

Analysis: In a personal injury action, attorneys on behalf of their clients often negotiate agreements with medical providers for the care the client receives or has received in conjunction with the injury. Such agreements contractually obligate the client, but not the attorney, to pay medical providers for those services out of, or at the time of, any settlement or judgment. Prior to the settlement or judgment, the client may file a bankruptcy and may be discharged of certain of these medical-cost obligations.

The factual background of the present issue is not substantially different from that addressed by Utah Ethics Advisory Opinion No. 98. (fn2) In that opinion it was determined that imputation of an ethical obligation for an attorney's failure to pay a third party for services could create the possibility that the Bar could initiate disciplinary actions against a lawyer for the mere failure to pay creditors. Such a possibility was determined to be beyond the scope of the Bar's role in maintaining ethical standards among its members. This conclusion seems particularly valid when, as postulated in the present factual variation, the debts themselves may be legally discharged through a bankruptcy proceeding and when such a discharge may have been avoided through proper documentation by the medical provider.

Notwithstanding the foregoing, however, Rule of Professional Conduct 4.1 provides:

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 (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

Rule 4.3(b) provides:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

Based on the foregoing rules, an attorney's dishonesty, fraud, deceit or misrepresentation in conjunction with obtaining the medical services could subject the attorney to disciplinary action. For example, an attorney who (1) knows that his client intends subsequently to discharge medical debts in a bankruptcy proceeding, or intends to have his client seek a discharge of such debts in bankruptcy, (2) uses a form of documentation that the attorney knows will not withstand a bankruptcy, and (3) affirmatively states that the medical provider will be paid at settlement or judgment, will have committed an ethical violation.

However, in the absence of these independent ethical considerations, an attorney's obligations for client-related medical expenses are to be considered as contract, agency, bankruptcy or other substantive issues rather than ethical issues.

Footnotes

1. This Opinion does not deal with agreements that expressly impose an obligation on the attorney or create a lien on the funds that are handled by the attorney. In those cases, the specific language of the agreement would control and might impose obligations on the attorney directly or as a trustee of the funds.

2. Ethics Adv. Op. 98, 1989 WL 509364 (Utah St. Bar 1989).

Rules Cited: 4.1, 4.3