Lamson, Dugan and Murray, LLP, Attorneys at Law

Ethical Duty Owed Third Party Lienholder or Subrogation Interest

Posted in Ethics

We know attorneys have an ethical obligation to their own clients for the safekeeping of property under Nebraska’s Rules of Profession Conduct.  Neb.Rev.Stat. § 3-501.15.  This often arises in the area of personal injury litigation.  In fact, improper handling or usage of client monies often results in disbarment in the state of Nebraska. 

It also appears Nebraska attorneys have an ethical obligation to protect the property of third parties whose interest may be contradictory to that of their client.  Neb.Rev.Stat. § 3-501.15(d) and (e) provides some interesting language about an ethical duty owed by counsel to a party they do not represent.  The language is as follows:

(d)  Upon receiving funds or other property in which a client or a third person has an interest, a lawyer shall promptly notify the client or third person.  Except as stated in this rule or otherwise permitted by law or agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property. 

(e) When in the course of representation a lawyer is in possession of property in which two or more persons (one of who may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved.  The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute. 

The comments to § 3-501.15 go on to provide:

[4]  Paragraph (e) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer’s custody, such as client ‘s creditor who has a lien on funds recovered in a personal injury action.  A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client.  In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved.  A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute. 

As noted above, Nebraska attorneys have an ethical obligation to protect the property of their clients.  In my mind, the language of § 3-501.15 and the comment clearly establishes an ethical duty on the part of an attorney to determine the lawfulness of claims of third parties and then protects those interests.  As an attorney who handles a fair amount of personal injury litigation from a defense perspective, I find this obligation comforting when it comes to issue of lien and subrogation interest resolution.  As an attorney, I find obligation perplexing and confounding.  Depending on how a contingent fee agreement is worded, personal injury attorneys are often compensated by how much money they secure for the client.  This can be effected by the resolution of interests of third parties.  As such, Nebraska personal injury attorneys just may have conflicting ethical obligations when it comes to client and third party funds.  An ethical “Catch 22” to say the least.

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