New Tool
Addresses
Third-Party
Claims to
Client
Funds
t’s a story that many lawyers
know. Your personal injury case
has finally settled, and the money
is in your trust account to be disbursed. The client, who has been
anxiously awaiting the settlement,
needs their portion of the proceeds—yesterday. They have bills
to pay, mouths to feed, and they
want to move on with their lives.
But before disbursement takes
place, a putative creditor chimes in and
claims an interest in the money. To make
matters more complicated, this creditor’s
claim is, in whole or in part, illegitimate or
unenforceable for some reason.
Personal injury lawyers know that this is
a common problem.
Meanwhile, the client is calling—
repeatedly—to tell you to ignore the putative creditor and hand over the money.
After all, they remind you, it is their
money.
But you cannot get the putative credi-
tor to acknowledge that their claim is ille-
gitimate or unenforceable. Or, as is unfor-
tunately the case, perhaps they are simply
making the illegitimate or unenforceable
claim knowingly in order to demand a nui-
sance payment to “go away.”
To comply with your client’s direction,
however, you would have to conclude
that the putative creditor doesn’t have a
“matured legal or equitable claim.” This is
frequently not possible and exposes the
lawyer to being second-guessed at a later
ethical inquiry if the decision is incorrect.
So there you are, stuck in the middle
between your client, to whom you owe all
attorney–client duties, and the putative
creditor, for whom you are required to
safeguard the funds—if you are unwilling
to decide that the putative creditor does
not have a “matured legal or equitable
claim” to the settlement funds.
The proverbial rock and a hard place.
What are your traditional options?
• Assess the putative creditor’s claim and
make the determination as to whether
the creditor has a matured legal or
equitable claim. If you call it wrong,
you have an angry client or angry
putative creditor, either of whom may
file a bar complaint.
• File an interpleader or declaratory relief
action, which requires you to file a
claim against your client and/or
against your client’s interests.
• Agree, with the client’s consent, to pay
the putative creditor to “go away.”
Effective January 1, 2014, you have anoth-
er tool.
The Arizona Supreme Court has given
lawyers a whole new mechanism—unique
among jurisdictions—for dealing with
third-party claims to client property.
ER 1. 15 now directs a lawyer to hold
disputed property until the parties reach an
agreement on the distribution of that property; a court order resolves the competing
claims; or—this is the new part—
distribution is allowed under the new mechanism.
That new mechanism is outlined in ER
1. 15(f), which allows a lawyer to serve a
written notice upon the third party
that the lawyer will distribute the
property to the client “unless the
third party initiates legal action
and provides the lawyer with
written notice of such action
within 90 calendar days.”
If the third party does not
provide timely written
notice of a legal
action and, assuming disbursement
BY GEOFF TRACHTENBERG
& PATRICIA SALLEN
I
GEOFF TRACHTENBERG is managing
partner of the California and Utah offices of
Levenbaum Trachtenberg and a member of
the State Bar Board of Governors.
PATRICIA SALLEN is the State Bar’s
Director of Ethics and Special Services and
Deputy General Counsel.
