Who is Entitled to the Money?, 0917 SCBJ, SC Lawyer, September 2017, #19

Author:Michael Sartip, J.
 
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Who is Entitled to the Money?

Vol. 29 Issue 2 Pg. 19

South Carolina Bar Journal

September, 2017

         Handling Disbursements in Personal Injury Cases

          Michael Sartip, J.

         George Burns said when you get older, you lose two things. The first is your memory. After a pause, he was asked about the second. He said, "I don't remember." Most of us have read the Rules of Professional Conduct and the cases applying the rules, but many of us do not recall them.

         The purpose of this article is to refresh your memory and provide some guidance for risks that may arise when disbursing settlement proceeds from an accident claim. The risks are two-fold. First, lawyers have potential civil liability. The South Carolina courts have held that a lawyer has personal liability for disbursing funds to his client when he has knowledge of his client's assignment of proceeds o to a third party[1] This case involved d an assignment of proceeds to a w third-party lender, but the holdering appears to apply to all third parties. The courts indicated that a lawyer has a fiduciary duty to a g third party as an escrow agent. The courts based their decisions to hold an attorney personally liable on contract law principles applicable to assignments and the Rules of Professional Conduct.

         Second, lawyers have potential exposure to discipline under the Rules of Professional Conduct. This article will focus on providing guidance to avoid the second risk.

         Who is entitled to the money?

         The most common fact scenario involves an individual who suffers personal injuries in an accident, is treated at a hospital, and incurs substantial medical expenses. Thereafter, the individual retains a lawyer to represent his/ her interests against the responsible party. The lawyer then uses the medical bills as an element of damages to secure a settlement from the responsible party's insurance carrier. Often, there is insufficient insurance coverage, or the settlement may not meet the client's expectations of recovery. To no one's surprise, the client wants as much money as possible. The lawyer seeks to maximize the amount of the disbursement to the client, but medical bills, subrogation liens, litigation costs and fees also must be resolved.

         As a result, a question uppermost in the mind of many lawyers during the disbursement process is: "How do I maximize the payment to my client while still complying with my legal and ethical responsibilities?" This tends to raise a related question: "Who can I avoid paying or at least reduce the amount?" In handling disbursements, lawyers must realize that the duty of loyalty to the client is only one of the duties that needs to be considered and discharged. The disbursement of settlement proceeds necessarily implicates the duty of safekeeping property. This, in turn, implicates a duty owed to a third party who asserts a claim and whose interests may be adverse to the client's interests. Resolving this conflict necessitates that the disbursing lawyer carefully answer this key question: "Who is entitled to the money?"

         Rule 1.15 of the South Carolina Rules of Professional Conduct

         Our Rules of Professional Conduct address the duties that a lawyer has to third parties in connection with the disbursement of settlement proceeds. Rule 1.15(d) and (e) and the accompanying comments note the various ownership interests in the funds held by the lawyer. Rule 1.15(d) provides that when a lawyer receives property belonging to others, two duties arise: (1) the duty to notify promptly those who have an interest in the proceeds held in trust by the lawyer; and (2) the duty to deliver promptly the proceeds and provide an accounting upon request.[2]

         Rule 1.15(e) focuses on a lawyer's duties when a lawyer receives notice before or during the disbursement process that...

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