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Roberts v. Total Health Care Inc.5/14/1998
or funds distributed to a client if they were received by the attorney with the knowledge that they had previously been assigned to a third party, as they were in the instant case. See, e.g., Kaiser Foundation Health Plan, Inc. v. Aguiluz, 47 Cal.App.4th 302, 305, 54 Cal.Rptr.2d 665, 666 (1996) ("an attorney on notice of a third party's contractual right to funds received on behalf of his client disburses those funds to his client at his own risk"); Bonanza Motors, Inc. v. Webb, 104 Idaho 234, 237, 657 P.2d 1102, 1105 (1983) (holding a law firm "liable to the creditor for funds relinquished to the client in violation of the assignment"); Frontier Enterprises, Inc. v. Anchor Co. of Marblehead, 404 Mass. 506, 511, 536 N.E.2d 352, 355 (1989) (stating that " n attorney may be liable for paying funds to his or her client which are `earmarked' for a third party and which `belong' to the third party"); General Exchange Ins. Corp. v. Driscoll, 315 Mass. 360, 364-365, 52 N.E.2d 970, 973 (1944) (insurance company was subrogated to an insured's cause of action for property damage to the insured's car, and therefore had the "right to receive the proceeds" of any cause of action for that property damage; insured's attorney held liable to insurer for distributing settlement proceeds to the insured which were specifically marked as being for property damage).
Also, 15-120 is consistent with a lawyer's ethical duties regarding the safekeeping of property belonging to the client and third parties. See Maryland Rules of Professional Conduct, Rule 1.15(b). The official comment to Rule 1.15 states as follows:
"Third parties, such as client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third- party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client."
Thus, 15-120 does no more than to restate an already recognized principle of law that attorneys, with notice of an assignment of settlement proceeds by their client to a third party, are obligated to protect the interests of that third party and may be held liable for failure to do so.
Moreover, any intrusion into the property interests of Roberts in the settlement proceeds is counterbalanced by strong governmental interests. The government has a strong interest in keeping its Medicaid program as efficient as possible and limited to its function of being the payor of last resort. The State's right of subrogation to claims against responsible third parties is an important mechanism in ensuring that the State will only pay for medical care as a last resort. See Arkansas Dept. of Human Services v. Wilson, 913 S.W.2d 783, 786 (Ark. 1996), quoting Arkansas Department of Human Services v. Walters, 315 Ark. 204, 206, 866 SW.2d 823, 823 (1993) ("`Medicaid is to be the payor of last resort'"); Shweiri v. Commonwealth, 416 Mass. 385, 391, 622 N.E.2d 612, 616 (1993) (recognizing the "goal that Medicaid be the payor of last resort"); Cricchio v. Pennisi, supra, 90 N.Y.2d at 305, 683 N.E.2d at 303, (noting that " ecoupment from responsible third parties is necessary to ensure that the Medicaid program remain the payor of last resort") (internal quotation marks omitted); Wahl v. Morton County Social Services, 574 N.W.2d 859, 864-865 (N.D. 1998) ("The Medicaid program is intended to be the payor of last resort, with other available resources being used before medicaid pays for an individual's care"); Matter of Estate of Higley, 810 P.2d 436, 437 n.2 (Utah 1991). The obligation to withhold funds from any settlement or judgment proceeds, in turn, helps to ensure that the State's right of subro
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