In the Matter of Respondent P (1993)

Overview

This case addresses an attorney’s fiduciary obligations when settling a personal injury matter on behalf of a Medi-Cal beneficiary, particularly where a known Medi-Cal lien exists. The Review Department clarified that even where an attorney acts in good faith and at a client’s direction, entrusted settlement funds may not be disbursed without first protecting the statutory lienholder.

Facts

Respondent represented a Medi-Cal beneficiary who was injured in an automobile accident involving an uninsured driver. The California Department of Health Services (“DHS”) notified respondent that Medi-Cal had paid for the client’s medical treatment and asserted a statutory lien against any recovery. DHS provided respondent with a formal Notice of Lien and later itemized the lien amount at $2,197.84.

Respondent informed DHS that the client was covered by medical payments insurance under the driver’s policy. Without filing suit, respondent later negotiated a $10,000 settlement payable under uninsured motorist coverage. Respondent did not confirm whether DHS had been reimbursed through medical payments coverage, did not notify DHS of the impending settlement, and did not ensure satisfaction of the Medi-Cal lien before disbursing funds.

At the client’s request, respondent deducted his fees and costs from the settlement and distributed the remaining proceeds directly to the client, despite knowing that DHS claimed a lien. DHS later demanded payment from respondent, and upon refusal, filed a complaint with the State Bar.

Charges

Defenses

Respondent argued that he acted in good faith and reasonably believed that Medi-Cal would recover its lien from medical payments coverage. He further asserted that his statutory obligation was satisfied by informing DHS of the existence of such coverage and that the client was entitled to the remaining settlement funds.

Mitigating and Aggravating Factors

• Mitigation: Good-faith mistake of law; lack of clear precedent at the time defining an attorney’s duty to notify DHS when no lawsuit is filed.
• Aggravation: Knowledge of an existing Medi-Cal lien and intentional disbursement of settlement funds without protecting the lien.

Outcome

The Review Department affirmed dismissal of the statutory and incompetence charges, finding no willful or reckless misconduct. However, it held that respondent willfully violated former Rule 8-101(B)(4) by disbursing settlement funds without ensuring payment of the Medi-Cal lien.

The matter was remanded for a sanctions hearing to allow evidence in aggravation and mitigation, as no sanction phase had occurred at the hearing level.

Sanctions Table