Opinion #127. Disbursements to Client of Funds Assigned

Issued by the Professional Ethics Commission

Date Issued: December 8, 1992

The Commission has received a request that it review the correctness of its Opinion No. 116, issued June 6, 1991, in view of two decisions of the Supreme Judicial Court of Maine, Northeast Bank of Lewiston and Auburn v. Murphy, 512 A.2d 334 (Me. 1986) and Herzog v. Irace, 594 A.2d 1106 (Me. 1991).

In Opinion No. 116, the Commission was faced with the problem of a lawyer who receives, on behalf of a client, the proceeds of a civil lawsuit in a circumstance in which the proceeds were the subject of a settlement divorce agreement directing that they be paid over to the client’s former spouse. The question presented was whether the lawyer violated the Bar Rules by paying the proceeds to the client (who subsequently did not pay it to the spouse) under various alternative scenarios concerning the degree of knowledge of the lawyer of the client’s intentions and the degree of prior authority given by the client to the lawyer. The Commission advised that it would not violate the Bar Rules for the lawyer to turn the proceeds over to the client, regardless of the lawyer’s knowledge of the client’s intentions, unless the client had authorized the lawyer to promise the lawyer for the spouse that the proceeds would be turned over, and the lawyer so promised. In this latter circumstance, the Commission advised that the lawyer’s failure to turn the money over to the spouse’s lawyer would violate Rule 3.6(c), in that such a failure would constitute a fraud upon another person. Absent such an authorized promise, however, the Commission advised that the failure to turn the proceeds over to the spouse’s lawyer would not violate the Bar Rules. Moreover, the Commission also concluded that the failure to turn the proceeds over to the client might violate Bar Rule 3.6(f)(2)(iv), requiring a lawyer to “promptly pay or deliver to the client . . . the [property] in the possession of the lawyer which the client is entitled to receive.”

The question now presented is whether this conclusion is correct in view of the two decisions of the Supreme Judicial Court of Maine cited above.

With regard to Northeast Bank of Lewiston and Auburn v. Murphy, which predates Opinion No. 116, the Commission is of the view that this case has no effect on its Opinion. In Murphy, the Law Court held that the failure of a lawyer to turn over to an entity holding a court‑ordered lien on the proceeds of a civil lawsuit was a tort (conversion) committed by the lawyer against the entity, exposing the lawyer to double damages under 14 M.R.S.A. § 3155. Id. at 348350. The Court’s opinion does not discuss the ethical obligations of the lawyer in the circumstances of that case under the Bar Rules.

In Herzog v. Irace, decided only two months after the issuance of Opinion No. 116, the Law Court addressed the applicability of Bar Rule 3.6(f)(2)(iv) to this situation. There, a lawyer had received the proceeds of a civil lawsuit which were the subject of a preexisting assignment by the client. The Court ruled that since the client had legally assigned his right to the proceeds to someone else, the proceeds in effect were no longer the property of the client for purposes of the Rule, and therefore the lawyer was under no obligation to promptly turn it over to the client. Id. at 110910. The question thus becomes whether this holding is consistent with that of the Commission in Opinion No. 116. The Commission believes that it is. In Opinion No. 116, the Commission assumed that the settlement divorce agreement did not divest the client of the right to initially receive the proceeds of the civil lawsuit. That being the case, it concluded that a failure by the lawyer to turn the proceeds over to the client promptly would violate Bar Rule 3.6(f)(2). If, on the other hand, a court determines, as in Herzog, that the client’s interest in the proceeds has legally been terminated, then it follows that a failure to remit the proceeds to the client does not violate Rule 3.6(f)(2), since the proceeds are no longer the “funds, securities or other properties [of the client] in the possession of the lawyer which the client is entitled to receive.”

In light of Murphy and Herzog, and consonant with Opinion No. 116, the task of the lawyer in each such case is to determine whether the client has been legally divested of his or her right to receive the funds in question.


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