Can a lawyer promise a client's medical provider or other creditor that they will be paid out of the client's settlement, and what are the duties if a dispute arises?

Plain-English summary

The opinion addressed a lawyer's ethical duties when guaranteeing, on a client's behalf, that a creditor such as a healthcare provider will be paid from the proceeds of a lawsuit. Such guarantees, made orally, in writing, or by a letter of protection, often lead the creditor to hold off collection while the suit is pending, and questions arise if the client later demands the proceeds without the creditor being paid.

The committee said a lawyer should not give such a guarantee without the client's consent. Because whether creditors are paid from the proceeds is a decision about the objectives of the representation, RPC 1.2(a) requires the lawyer to abide by the client's decision, and RPC 1.4(b) requires the lawyer to explain the matter enough for the client to make an informed decision (with RPC 1.0(e) defining informed consent). At a minimum, the committee said, the lawyer must advise the client that consent to pay debts from the recovery becomes irrevocable once the lawyer has made a guarantee based on it.

The committee then applied RPC 1.15A, which governs paying the client and third persons the funds each is entitled to receive. Under RPC 1.15A(f), a creditor who, with the client's consent, was guaranteed payment from the proceeds is generally entitled to receive it. If the amount of the debt is disputed, RPC 1.15A(g) requires the lawyer to keep the property in trust until the dispute is resolved and to take reasonable steps to resolve it, including interpleading the disputed funds where appropriate.

Currency note

This opinion was issued in 1990 and amended in 2010. The amended text references the current Washington Rules of Professional Conduct, including RPC 1.15A (safekeeping property), RPC 1.2, RPC 1.4, and the informed-consent definition in RPC 1.0(e). Later rule amendments or opinions may still have changed the analysis. Treat this page as historical context, not current guidance, and verify against the current rules before relying on any specific provision mentioned here.

Common questions

Q: Can a lawyer promise a medical provider it will be paid from the client's settlement?

A: The committee said yes, but only with the client's consent. Whether creditors are paid from the recovery is a decision on the objectives of the representation, so under RPC 1.2(a) and 1.4(b) the lawyer must explain it and abide by the client's informed decision.

Q: Can the client revoke that consent later?

A: The committee said the lawyer must advise the client up front that consent to pay debts from the recovery becomes irrevocable once the lawyer has made a guarantee based on that consent.

Q: If the client later wants the money without paying the creditor, what does the lawyer do?

A: The committee said a creditor guaranteed payment with the client's consent is generally entitled to be paid under RPC 1.15A(f); the lawyer cannot simply disburse everything to the client over that guarantee.

Q: What if the amount of the debt is disputed?

A: The committee said RPC 1.15A(g) requires the lawyer to hold the disputed funds in trust until the dispute is resolved and to take reasonable steps to resolve it, including interpleader where appropriate.

Background and rules framework

The opinion interpreted RPC 1.2 (Model Rule 1.2, scope of representation and allocation of authority), RPC 1.4 (Model Rule 1.4, communication), the informed-consent definition in RPC 1.0(e) (Model Rule 1.0, terminology), and RPC 1.15A (Model Rule 1.15, safekeeping property), in particular RPC 1.15A(f) on paying the client and third persons what they are entitled to receive and RPC 1.15A(g) on disputed funds.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.2 / Washington RPC 1.2(a) (abiding by the client's decisions on objectives)
• Model Rule 1.4 / Washington RPC 1.4(b) and comment [5] (explaining the matter for an informed decision)
• Model Rule 1.0 / Washington RPC 1.0(e) (definition of informed consent)
• Model Rule 1.15 / Washington RPC 1.15A, 1.15A(f), 1.15A(g) (safekeeping property; paying third persons; disputed funds)

See also

• WSBA Ethics Op. 1101: Guaranteeing a Provider's Bill
• WSBA Ethics Op. 181: Attorney's Lien and the Client File
• WSBA Ethics Op. 1032: Lawyer-Fiduciary Trust Funds

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1528

Original opinion text

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

Advisory Opinion: 185
Year Issued: 1990
RPC(s): RPC 1.2(a), 1.4(b), 1.0(e), 1.15A, 1.15A(f), 1.15A(g)
Subject: Ethical Duty of a Lawyer Who Guarantees Payment on Behalf of a Client to a Creditor from Proceeds of Settlement or Judgment

Issue Presented

What are the ethical duties of a lawyer who guarantees payment on behalf of a client to a creditor, such as a healthcare provider, from a judgment or settlement?

Analysis

In the course of representing a client in a lawsuit, a lawyer may be requested to provide some form of guarantee to a creditor that the client’s debt to the creditor will be paid out of the proceeds of the lawsuit. In exchange for such a guarantee, the creditor may agree to forego attempts to collect the debt while the suit is pending. Such guarantees of payment may be made orally, in writing, or by way of a letter of protection. Ethical issues arise in the context of making guarantees to creditors and if the client demands that the lawyer disburse proceeds directly to the client, without paying the creditors.

A lawyer should not provide a guarantee of payment from settlement or judgment funds to a creditor without the consent of the client. RPC 1.2(a) provides that “a lawyer shall abide by a client’s decisions concerning the objectives of representation…” Whether creditors should be paid with proceeds of the suit is within the scope of decisions concerning the objectives of the representation. Pursuant to RPC 1.4(b), the lawyer must explain the matter “to the extent reasonably necessary” to permit the client to make an informed decision. The explanation may, but need not, be in writing or in the fee agreement. As explained in Comment [5] to RPC 1.4, “[t]he guiding principle is that the lawyer should fulfill reasonable client expectations for information consistent with the duty to act in the client’s best interests . . . as to the character of the representation.” See also RPC 1.0(e) (“‘Informed consent’ denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”). At a minimum, the lawyer must advise the client that consent to the payment of debts from the judgment or settlement will be irrevocable once the lawyer has made a guarantee based upon that consent.

RPC 1.15A governs the issue of payment to the client and to third persons of funds each is entitled to receive. RPC 1.15A(f) provides that “[e]xcept as stated in this Rule, a lawyer must promptly pay or deliver to the client or third person the property which the client or third person is entitled to receive.” (Emphasis added.) Pursuant to this Rule, a creditor who has been guaranteed, with the client’s consent, payment from the proceeds of the lawsuit is generally “entitled” to receive payment from the settlement or judgment funds.

In the event of a dispute as to the amount of the debt, RPC 1.15A(g) requires that the lawyer maintain the property in trust until the dispute is resolved and take reasonable steps to resolve the dispute, including, if appropriate, interpleading the disputed funds.

[Amended 2010]