Is client consent required to disburse settlement funds?

 In Georgia State Bar Grievances, Legal Malpractice

Client consent is generally required for everything a lawyer does. But consider the following scenario. You settle a personal injury matter for your client. The client has received medical treatment from providers. Some of those providers billed the client’s health insurance company. Others performed services on a lien basis. You go the extra mile and negotiate the providers’ bills down so that your client puts more in his pocket. For the lien holders, the client signed the provider’s lien acknowledgement form.

Now the case has settled and the policy limits have been paid. You prepare a closing statement showing the distribution and send it to the client. But the client refuses to consent to your disbursing to pay the medical providers. The client now complains the providers’ bills are too high. And finally the client demands that you disburse funds to them, not the providers. What do you do?  Must you obey the client and disburse the settlement funds to the client? Can you continue to hold the funds in escrow despite your client’s demands?

Client consent is required to disburse any settlement funds

It’s pretty simple: the client must consent to the distribution. Sometimes, this is a simple opportunity to educate a client. Or, perhaps more likely, remind them why they agreed to the treatment on a lien basis in the first place. Of the many reasons for such arrangements, speed, lack of insurance, or convenience of providers could lead a client to choose treatment on a lien. It is generally true that such treatment may be more expensive than negotiated insurance rates. However, it is generally the case that a provider will bear the risk of a non-recovery, too. [Note: this is not always true. Clients, read your lien documents and select your providers carefully. Remember, medical expenses are ultimately your responsibility!]

If the client is obstinate and refuses to consent, there’s only one thing the lawyer can do.

File an interpleader action and let the court decide

The Georgia Rules of Professional Conduct provide that a lawyer “may not disregard a third person’s interest in funds” when the lawyer’s aware of it and the client or lawyer agreed to pay it. So, the lien acknowledgement forms are binding when signed by client or lawyer, generally speaking. See Ga. R. Prof. Cond. R. 1.15(I)(b).

There is a mechanism under Georgia law to interplead the funds into court for judicial determination. See O.C.G.A. § 23-3-90. This is, in fact, the only thing a lawyer can do, in this situation where there is a dispute as to the amount of the disbursements. Under the statute, though, the court can award fees to the parties who have to state their claims to the court, which the client is disputing payment or the amount. While this is an incentive to clients to resolve disputes prior to the filing of an interpleader, this could result in the client receiving no money from the settlement, and perhaps having to come out of pocket to pay the providers attorney fees. This is certainly more likely where a client has withheld consent without justification.

This is a fact-intensive area of the law. If you have a dispute with a client and a medical provider, or any third party has raised a claim to your client’s settlement funds, feel free to contact us. We’re happy to discuss with you options which may lead to the most cost-efficient resolution of the problem.

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