These summaries were prepared by McGuireWoods LLP lawyer Thomas E. Spahn. They are based on the letter opinions issued by the Virginia State Bar. Any editorial comments reflect Mr. Spahn's current personal views, and not the opinions of the Virginia State Bar, McGuireWoods or its clients. 
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40-Trust Accounts

Virginia's unique Comment 4 to Rule 1.15 describes a lawyers' duties in dealing with trust account funds to which a third party might claim some entitlement. In the case of such formal indicia of entitlement as "a statutory lien, a judgment lien and a court order or judgment," lawyers have the same duty to such third parties as they do to clients -- even though the lawyer is not a party to such agreement and has not signed any document. Lawyers need not determine if the client or such a third party is entitled to the trust account funds, but instead "should hold the disputed funds in trust for a reasonable period of time or interplead the funds into court." Lawyers should indicate in retainer letters that "medical liens will be protected and paid out of the settlement proceeds or recovery." Although in most situations lawyers' duties arise only if they have "actual knowledge" of a third party's lawful claim to trust account funds, "in some situations under federal or state law the lawyer need only be aware that the client received medical treatment from a particular provider or pursuant to a health care Plan." If a third party "has not taken the steps necessary in order to perfect its lien or claim" to trust account funds, and cannot point to a "contract, order or statute establishing entitlement to the funds," lawyers may safely distribute the trust account funds to the client -- but should warn the client of the risks the client faces in disregarding a third party's claim. Addressing three hypotheticals, concluding that: (1) a lawyer who knows that a client had medical bills paid by a health plan, but who has insufficient information to know whether a valid lien for that claim even exists, may not investigate the plan's claim against the settlement amount without the client's informed consent -- because the lawyer's inquiries might "remind or encourage the plan to perfect a lien."; the lawyer may thus disburse the settlement funds to the client without violating the ethics rules, but should warn the client in writing of the risk of the client then disbursing the funds; the lawyer and the client may "also suffer civil liability under federal law."; (2) a lawyer who receives a letter from a health plan asserting subrogation rights, and who has twice requested documentation from the plan supporting its claims without receiving a response, may safely disburse the trust account funds to the client, because the lawyers has "exercised reasonable diligence" to determine the plan's subrogation claims or a lien; (3) a lawyer representing a client who has settled a claim against a hospital, and who has received a health plan's response asserting subrogation rights and citing federal regulations, but who has not heard back from the plan after three emails and a voice mail message seeking more information about the plan's subrogation rights, may safely disburse funds to the client without violating any ethics rules. A third party's "mere assertion" of a claim to trust account funds does not entitle the third party to the funds. Lawyers must exercise "competence and reasonable diligence" to determine whether a "substantial basis exists for a claim asserted by a third party," but in the absence of such a basis and the absence of the third party's steps perfecting its entitlement to funds, a lawyer may disburse funds to the client after warning the client about "the consequences of disregarding the third party's claim." If a lawyer "reasonably believes" that a third party has an interest in trust account funds (or the client "has a non frivolous dispute" over a third party's entitlement to funds), the lawyer cannot disburse the funds -- but must hold them in trust until the dispute is resolved, or interplead the funds into court.

Copyright 2000, Thomas E. Spahn