Court Opinion

ID: 9615493
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:37:36.116885+00
Date Added: 2024-06-11T09:00:01.387385
License: Public Domain

*751CAMPBELL, Judge,
dissenting.
Since I disagree with the majority’s conclusion that defendant was not obligated to distribute the settlement funds pro rata to the medical provider lien holders, I respectfully dissent.
Defendant’s client, Reid, owed money to three creditors with valid medical provider liens: North Carolina Baptist Hospitals, Inc., Wake Forest University Physicians and the Forsyth County Ambulance Service. Upon receipt of the settlement proceeds, defendant at the direction of his client, paid the Forsyth County Ambulance Service its balance in full, paid Wake Forest University Physicians the majority of its balance and paid no money to plaintiff. The majority concludes that since the legislature did not delineate how the attorney must disburse the funds in N.C. Gen. Stat. § 44-50, defendant’s decision to follow his client’s directive and not preserve any of the settlement funds for plaintiff, violated no duty. Plaintiff asserts that in dispersing the funds without retaining “a sufficient amount to pay the just and bona fide claims” of the lien holders, as required by N.C. Gen. Stat. § 44-50, defendant breached his duty to plaintiff. I agree.
First, defendant asserts he was correct in following his client’s request for disbursement because, in so doing, he complied with the North Carolina Revised Rules of Professional Conduct (“Revised Rules”)2 by following his client’s directives. Rule 1.15-2(m)3 requires a lawyer to “promptly pay or deliver to the client, or to third persons as directed by the client, any entrusted property belonging to the client and to which the client is currently entitled.” N.C. Admin. Code tit. 27, Chapter 2, Rule 1.15-2(m) (2002). However, this rule is not applicable because these are not funds “to which the client is cur*752rently entitled.” Id. North Carolina General Statutes §§ 44-49 and -50 create a lien in fifty percent of the client’s settlement proceeds. This lien attaches immediately upon settlement of the client’s claim. Charlotte-Mecklenburg Hospital Auth. v. First of GA. Ins. Co., 340 N.C. 88, 90-91, 455 S.E.2d 655, 656-57 (1995). Thus, as to admittedly valid medical provider liens (as in the case here), the client cannot sustain an assertion of being “currently entitled” to the funds. Rather than this fifty percent of the settlement being disbursed pursuant to client directives, the funds were entrusted to the attorney, who was under a duty to the lien holders. See N.C. Gen. Stat. § 44-50 (2000).4 North Carolina State Bar Ethics Opinions, RPCs 69 and 1255, would have provided ethical guidance for defendant if he could not determine from the statute that, as to this part of the settlement proceeds, his duty was to the lien holders and not his client. RPC 69 (1989) and RPC 125 (1992) both state that while an attorney is generally required to obey a client’s instructions regarding payment of medical providers from settlement proceeds, this general rule does not apply if the funds are subject to a valid lien. 2002 North Carolina State Bar Lawyer’s Handbook, RPC 69 (1989). Defendant, therefore, should not have disbursed the funds “as directed by the client” pursuant to Rule 1.15-2(m).
Once it is established that the funds subject to valid medical provider liens are not subject to the client’s directives, the question remains: what are an attorney’s obligations under N.C. Gen. Stat. § 44-50 when the fifty percent of the settlement proceeds subject to *753valid medical provider liens is insufficient to satisfy the liens? North Carolina General Statute § 44-50 (2000), which was the statute in effect when defendant disbursed the funds, states:
[I]t shall be the duty of any person receiving the same before disbursement thereof to retain out of any recovery or any compensation so received a sufficient amount to pay the just and bona fide claims for such drugs, medical supplies, ambulance service and medical attention and/or hospital service, after having received and accepted notice thereof[.]
N.C. Gen. Stat. § 44-50 (2000) (emphasis added). This section does not state how the holder of the disbursement should distribute the funds, and therefore the majority concludes that any distribution is permitted. I disagree. Even though the formula is not prescribed in the statute, the statutory duty is owed equally to every valid lien holder. I do not believe an attorney can equitably fulfill this duty to each lien holder unless he distributes the funds pro rata. Case law on the issue of disbursement of insufficient funds subject to numerous liens amply supports the conclusion that pro rata distribution would be the only equitable approach to satisfy the creditors. In numerous cases involving medical provider liens, although not the holding in the case, it is clear that pro rata distribution of insufficient settlement proceeds has been consistently approved. See North Carolina Baptist Hospitals, Inc. v. Mitchell, 323 N.C. 528, 374 S.E.2d 844 (1988); see also North Carolina Baptist Hospitals, Inc. v. Franklin, 103 N.C. App. 446, 405 S.E.2d 814 (1991); In re: Peacock, 261 N.C. 749, 136 S.E.2d 91 (1964). Furthermore, I found no lien statute, besides those which specifically provide for payment of liens on a priority basis, in which distribution is not done on a pro rata basis. For example, see N.C. Gen. Stat. §§ 1-440.33(f) (2001) and 44A-21 (2001). Therefore, I would hold that for an attorney to effectuate his duty to medical lien holders, when the funds received in a personal injury settlement or judgment are insufficient to satisfy all valid liens, the attorney may not follow his client’s instructions, but must distribute the funds pro rata to the undisputedly valid medical lien holders. Whenever an attorney has a question as to distribution of funds held for the benefit of others, he may simply continue to hold the funds pending prompt resolution of the matter or file an interpleader action with the court pursuant to N.C. Gen. Stat. § 1A-1, Rule 22(b) (2001). Contrary to the majority, I would hold that defendant made the distribution at his own peril and must now reimburse plaintiff for its pro rata share.

. Ethics codes for North Carolina lawyers are promulgated by the North Carolina State Bar, certified to the Chief Justice of the North Carolina Supreme Court, and entered upon the minutes of the Court. See N.C. Gen. Stat. § 84-23 and 84-21. The North Carolina Code of Professional Responsibility (1973) governed until 1985, when the North Carolina Rules of Professional Conduct (1985) took effect. The North Carolina Revised Rules of Professional Conduct (1997) have been in effect since July 24, 1997 and are the most current rules governing ethics of North Carolina attorneys. Since the events leading up to the case sub judice began in September 1997 and the dispute between plaintiff and defendant arose in 1998, the Revised Rules of Professional Conduct govern the issues herein. Although the rules have been reviewed and revised, the general policies of the North Carolina State Bar regarding the ethical obligations of North Carolina lawyers in this area have remained consistent.

. Plaintiff-appellant cites Rule 1.15-2(h) in its brief. Rule 1.15-2(m), from the Annotated Rules of North Carolina 2002 edition, is cited herein. By amendment of May 4, 2000, the subsection designation changed from 1.15(h) to 1.15-2(m), but the provisions of the subsection remain the same.

. Although a “duty” may still exist, the revised statute no longer includes this specific word, but reads as follows: “Before their disbursement, any person that receives those funds shall retain out of any recovery or any compensation so received a sufficient amount to pay the just and bona fide claims ... after having received notice of those claims.. . .” N.C. Gen. Stat. § 44-50 (2001).

. RPCs are formal ethics opinions of the North Carolina State Bar adopted under the superseded 1985 North Carolina Rules of Professional Conduct. While not prece-dential authority for this Court, formal ethics opinions, as defined in the Procedures for Ruling on Questions of Legal Ethics of the North Carolina State Bar, “provide ethical guidance for attorneys and to establish a principle of ethical conduct.” N.C. Admin. Code tit. 27, Chapter ID, Rule .0101(10) (2001). Several RPCs address the issue of whether an attorney is ethically obligated to follow his client’s instructions as to disbursement of settlement proceeds. Under the North Carolina Revised Rules of Professional Conduct, ethics opinions are called “Formal Ethics Opinions." The North Carolina State Bar has remained consistent in its opinions regarding an attorney’s obligation with respect to disbursement of a client’s settlement proceeds to lien holders. For example, Formal Ethics Opinion 2001-11 addresses the issue of disbursement of settlement proceeds and is consistent with the State Bar’s analysis in the RPCs that address this issue.