Unaddressed and Unsatisfied Liens | Best Practices Series

October 5th, 2021

By: Paul K. Isaac, Esq., ChSNC  | Managing Partner, Precision Resolution, LLC and Yeganeh Gibson, Esq., CMSP

Q: What happens if there was a lien and it wasn’t addressed or satisfied?

A: The answer to this question varies greatly depending on the type of lien. Start with the Rules of Professional Conduct, Section 1.15 which state in relevant part:

(c) Notification of Receipt of Property; Safekeeping; Rendering Accounts; Payment or Delivery of Property.
          A lawyer shall:
                    (1) promptly notify a client or third person of the receipt of funds, securities, or other properties in which the client or third person has an interest;
                    (4) promptly pay or deliver to the client or third person as requested by the client or third person the funds, securities, or other properties in the possession of the lawyer that the client or third person is entitled to receive.

Comment 4 clarifies the above with [4] Paragraph (c)(4) 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 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.

Medicare and Medicare Advantage
In US v. Harris the US was granted summary judgment with interest against the attorney for failure to pay the Medicare lien. Worse double damages can be awarded, The federal government has a private right of action for double damage against any primary payor who fails to pay Medicare.
In a number of jurisdictions, those Medicare Advantage plans have used that double damages provision to collect against attorneys, law firms, and defendants/ Insurers who have already paid out the settlement. See: Humana v Paris Blank , Humana v Western Heritage

With regard to ERISA plans an attorney risks losing his/her fee and all of the client’s proceeds. See Trs. of the 1199SEIU Nat’l Ben. Fund for Health & Human Serv. Emples. v. Cotto, 2020 U.S. Dist. LEXIS 178207, *17, 2020 WL 5763942, *6(E.D.N.Y. Sept. 28, 2020).

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