Opinion 2007-9
(August 2007)

The inquirer asks about the impact of the requirements of 23 Pa.C.S. § 4308.1, effective September 6, 2006, which provides for the "Collection of overdue support from monetary awards.” Under the statute, attorneys are required to forward proceeds from settlements or verdicts that exceed $5,000 to the appropriate Pennsylvania child support enforcement department in order to satisfy child support arrearages, which constitute a lien “by operation of law" on any such awards. The statute also provides that if a client contests the arrearage amount that the money should nevertheless be forwarded to the department's disbursement unit which will keep it in escrow pending resolution of the dispute. The inquirer has several questions about the ethical impact of this statute.

First, the inquirer asks when there is both a medical assistance lien and a child support lien, which lien takes priority. The inquirer notes that if this is unsettled, and the entitlements are unclear, normally the client's attorney has the obligation to place funds whose ownership is disputed in escrow. However, the statute in question provides otherwise. The inquirer asks ethically whether he should keep the funds in escrow himself or turn them over to the department's disbursement unit.

The Committee advises that whether the medical assistance lien on the child support lien takes priority is a question of statutory interpretation rather than ethics. However, since 23 Pa.C.S. § 4308.1 (i) defines "net proceeds" as, "Moneys in excess of $5,000 payable to a prevailing party or beneficiary…" after deduction of medical assistance payments, inter alia, it seems that medical assistance payments have priority. If this is unsettled, the question is whether the inquirer’s duty to safeguard funds under R.P.C. 1.15 overrides the statutory duty to send the funds to the State support disbursement unit to hold in escrow pending determination of the entitlements thereto. The Committee believes that since the Supreme Court of Pennsylvania governs the conduct of attorneys, that the Supreme Court’s Rules of Professional Conduct takes precedence over the statute in terms of an attorney’s ethical obligation. Thus, disputed funds should be held in escrow by the attorney and not turned over to the deparment. However, until this inconsistency is addressed by the Supreme Court, the Committee is not providing any advice on the consequences of the inquirer’s holding any disputed funds in escrow as regards the immunity provision provided for in 23 Pa.C.S. § 4308.1(e).

Second, the inquirer asks about his obligation as counsel with respect to protecting the child support lien. Specifically, the inquirer advises this it is his interpretation of the statute that he is only obligated to protect the lien if his client's share of the proceeds exceeds $5,000.00 and thus, that the first $5,000.00 due the client from the proceeds of settlement is excluded from the lien.

The Committee advises that again, this is a question of statutory interpretation rather than ethics, but notes that the definition of "net proceeds" (see above) starts with "Moneys in excess of $5,000.00 payable…” and since it is "net proceeds" which must be paid over to the disbursement unit, it would seem that the first $5,000.00 is excludable and is payable to the client.

Third, the inquirer asks if it is ethical to defeat both the child support and medical assistance liens by negotiating settlement amounts and medical provider liens. For example, the inquirer asks if he can advise his client to take a settlement of $8,000 instead of $8500 so that his share stays under $5,000, so that there are no net proceeds over the threshold limits.

The Committee notes that it is always the client's decision as to whether to accept a settlement offer. However, Pennsylvania Rule of Professional Conduct 1.4 requires that a lawyer communicate sufficiently with the client so that the client is informed of all the ramifications attendant to making that decision. Hence, with an appropriate explanation, it would not be unethical to so advise the client. Naturally this implies no collusion with the lawyer or medical providers to enable the client to ultimately receive more than the threshold limits without making the required lien payments.

CAVEAT: The foregoing opinion is advisory only and is based upon the facts set forth above. The opinion is not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. It carries only such weight as an appropriate reviewing authority may choose to give it.

1. 23 Pa.C.S. § 4308.1(h)
2. Pennsylvania Rule of Professional Conduct 1.15(c) provides that: "When in connection with a client-lawyer relationship a lawyer is in possession of property in which two or more persons, one of whom may be the lawyer, claim an interest, 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."

Comment 6 to that Rule provides that: "Paragraph (c) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer's custody such as a 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 unless the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party. 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."

3. Rule 1.4. Communication, provides that,

"(a) A lawyer shall:

(1) promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in Rule 1.0(e), is required by these Rules;
(2) reasonably consult with the client about the means by which the client’s objectives are to be accomplished;
(3) keep the client reasonably informed about the status of the matter;
(4) promptly comply with reasonable requests for information; and
(5) consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.

(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”

Comment 2 to that Rule provides that:
"If these Rules require that a particular decision about the representation be made by the client, paragraph (a)(1) requires that the lawyer promptly consult with and secure the client’s consent prior to taking action unless prior discussions with the client have resolved what action the client wants the lawyer to take. For example, a lawyer who receives from opposing counsel an offer of settlement in a civil controversy or a proffered plea bargain in a criminal case must promptly inform the client of its substance unless the client has previously indicated that the proposal will be acceptable or unacceptable or has authorized the lawyer to accept or to reject the offer. See Rule 1.2(a)."