Today the Arizona Supreme Court granted a Petition by Geoffrey Trachtenberg, on behalf of the Arizona Association for Justice, to completely revamp Ethical Rule 1.15 as of January 1, 2014.
The existing rule imposes harsh consequences on clients when third-parties claim interests to funds received by the lawyer. As a practical matter, when a client receives an award or settlement, the existing rule freezes that money when a third-party does nothing more than “make a claim” to the funds. The third-party claim need not be legitimate, and can simply be a phone call, email or letter saying that they claim rights to the funds.
Imagine that, your settlement funds frozen by a letter from a hospital making an illegitimate claim to proceeds from your case? The fact is, it happens every day and Levenbaum Trachtenberg, PLC is currently prosecuting a class action, known as the Winters class action, against Arizona hospitals to end a 25 year practice of asserting liens against client funds after the hospitals have billed or accepted Medicaid a/k/a AHCCCS.
The Arizona Supreme Court’s new ethical rule will change the dynamic. Moving forward, when a third-party makes an illegitimate claim to proceeds, the lawyer may now employ a mechanism to send the third-party notice which forces them to either file a lawsuit to assert their alleged rights and, if they fail to do so, permits the lawyer to disburse the funds to the client. In other words, the Supreme Court has shifted the burden to file lawsuits over these disputes from the clients to the third-parties claiming rights to money.
This is where it has always belonged and this will prevent decades-long abuses such as the one in the Winters class action.