California Rule 1.15 and the Lien Resolution Trap
***NEWSLETTER***
Why Plaintiff Attorneys Need a Trust Account Workflow Built for Modern Lien Practice
One of the most significant legal scandals in modern California practice forced the profession to confront a difficult reality: client settlement funds are only protected when lawyers treat trust account duties as core fiduciary obligations, not administrative tasks. The conviction and federal prison sentence of Thomas Girardi for misappropriating client settlement funds placed national attention on the consequences of failed trust account oversight. Against that backdrop, California’s revised Rule of Professional Conduct 1.15 should be understood as more than a technical update. It is part of a broader effort to clarify how attorneys must receive, safeguard, document, and disburse client funds, including settlement proceeds that may be subject to medical liens, statutory reimbursement claims, prior attorney liens, and other competing interests.
California plaintiff attorneys who handle settlement funds already understand that client trust account compliance is serious business. What is less frequently appreciated is how directly those obligations intersect with lien resolution. In personal injury practice, settlement funds rarely arrive into trust without competing interests. The client has a right to prompt disbursement of funds that belong to them. Medical providers, hospitals, government agencies, prior counsel, Medicare Advantage Plans, ERISA plans, FEHBA carriers, and other reimbursement claimants may assert interests in the same recovery. The lawyer is left to navigate the space between protecting the client, honoring valid legal obligations, disputing improper demands, and maintaining strict compliance with Rule 1.15.
That is where lien resolution becomes an ethics issue.
The Revised Rule 1.15 Framework
The revised Rule 1.15 provides more specific guidance regarding how lawyers must handle funds and property held for clients or for other persons to whom the lawyer owes a contractual, statutory, or other legal duty.[N1]
Under Rule 1.15, funds received or held for the benefit of a client or another qualifying person must be deposited into an identifiable client trust account. Absent good cause, the attorney must also notify the client or other person no later than 14 days after receiving funds, securities, or other property in which the lawyer knows, or reasonably should know, that person has an interest.
The revised rule also changed the disbursement analysis. The attorney no longer waits for the client to request undisputed funds before the duty to distribute arises. Rule 1.15 now requires the prompt distribution of undisputed funds or property that the client or other person is entitled to receive.
The rule further creates a significant timing presumption. Unless the lawyer and the client or other person agree in writing that the funds will continue to be held, there is a rebuttable presumption of noncompliance if undisputed funds are not distributed within 45 days after the dispute is resolved, absent good cause.
For settlement focused practices, this is important. For lien intensive plaintiff and personal injury practices, it is essential.
Why Liens Complicate the Trust Account Analysis
The key word is undisputed.
Rule 1.15 does not require counsel to disburse funds when entitlement remains unresolved. In the lien context, that distinction matters. Funds may be subject to a medical lien, statutory lien, hospital lien, Medicare or Medi Cal reimbursement claim, prior attorney lien, ERISA claim, FEHBA claim, Medicare Advantage recovery demand, or another competing claim to settlement proceeds.
When the validity, amount, priority, causation, reduction, or enforceability of a lien remains unresolved, the corresponding funds may remain disputed. That does not allow counsel to ignore the issue or leave money in trust without a plan. It does require a disciplined process, clear client communication, documentation showing why funds remain held and what is being done to resolve the dispute.
A lien file that is not documented can become a trust account problem. A trust account problem can become an ethics problem. And an ethics problem can quickly become more expensive than the lien itself.
The Plaintiff Attorney’s Duty Begins Before Settlement
California disciplinary authority has long recognized that plaintiff attorneys have affirmative duties related to lien handling. Counsel must investigate who paid for the client’s care, determine whether a lien or reimbursement claim may exist, and make reasonable inquiry into the propriety of claimed liens.
Lien handling is not merely administrative, it is part of competent representation.
If the plaintiff is claiming past medical special damages, counsel should know who paid for that care. If a governmental or contractual reimbursement claim exists, counsel should understand whether the lien is valid, whether the charges are related, whether reductions are available, and whether the claimed amount is legally enforceable.
In practice, the strongest trust account workflow starts well before funds are received. The client should be advised during retention that settlement proceeds may be subject to medical liens, reimbursement claims, statutory obligations, and other competing interests. The fee agreement and client communications should explain that certain funds may need to remain in trust until those claims are investigated, disputed, negotiated, resolved, or adjudicated.
A Practical Workflow When Settlement Funds Arrive
When settlement funds are deposited into trust, the first step is prompt communication. The client should be notified that funds have been received and advised how the funds will be handled. Known lien claimants and recovery agents should also be identified and addressed where appropriate.
In lien intensive cases, counsel should notify potential lien holders or recovery agents that funds have been received into trust, that any asserted claim is disputed unless and until validated, and that the firm is initiating or continuing the resolution process. The client should be informed of those communications and should confirm in writing that disputed funds may remain in trust while lien issues are resolved.
At the same time, counsel should separate the disputed from the undisputed. Funds that are not subject to any unresolved dispute should be disbursed promptly. Funds tied to unresolved lien claims should remain properly accounted for in trust, supported by clear client ledger entries, correspondence, and ongoing resolution activity.
This creates a defensible record. It also protects the client from premature disbursement that may later expose them to collection activity, litigation, or avoidable reimbursement disputes.
Documentation Is the Difference Between Process and Exposure
Trust account compliance depends on records. In lien resolution, those records should tell the story from settlement funding through final disbursement.
A well-documented file should show when the funds were received, when the client was notified, which lien claimants were identified, what amounts were disputed, which funds were undisputed, when undisputed funds were distributed, why disputed funds remained in trust, and what steps were taken to resolve those claims.
Monthly reconciliations, accurate client ledgers, trust account journals, and written communications are are the architecture of compliance.
This matters even more in light of California’s Client Trust Account Protection Program. Early compliance review data suggests that many lawyers who believed they were aligned with trust account requirements were not. Deficiencies in client ledgers, trust account journals, monthly reconciliations, and notice practices create obvious risk for settlement practices that routinely hold funds subject to lien claims.
The Rising Pressure From Lien Claimants
The revised rule may also affect how lien claimants behave. Medical providers, hospitals, statutory lien holders, Medicare Advantage Plans, and recovery agents may increasingly use Rule 1.15 as leverage, arguing that plaintiff counsel must act promptly when settlement funds are in trust.
Clients may also invoke the rule when questioning why funds remain undistributed.
That does not mean every asserted lien must be paid immediately. It means counsel must be able to explain why the funds remain disputed, what is being done to resolve the dispute, and why continued trust retention is appropriate.
If the dispute cannot be resolved, counsel may need to consider interpleader or seek judicial determination. The correct response depends on the type of lien, the amount in dispute, the governing law, the client’s position, and the risk created by continued retention or disbursement.
Silence is not a strategy. Documentation is.
What Not to Do
The lien context also raises fee related concerns. Counsel should be cautious about any arrangement that allows an attorney to personally retain the difference between an asserted lien and a negotiated reduction. California disciplinary authority has treated such arrangements with serious concern, particularly where they create conflicts, business transaction issues, or unconscionable fee questions.
Lien reduction creates value. But that value must be handled through a compliant fee structure, clear client disclosures, reasonable terms, and careful trust account procedures.
The better practice is to treat lien resolution as a legal service governed by transparent engagement terms, documented client authority, and careful accounting.
The Takeaway for Plaintiff Attorneys
Rule 1.15 is not only a trust accounting rule. In personal injury practice, it is also a lien resolution rule.
It governs how settlement funds are received, noticed, held, disputed, documented, and distributed. It requires plaintiff counsel to distinguish between funds that are undisputed and funds that remain subject to unresolved claims. It makes client communication essential. And it rewards firms that build disciplined lien workflows before the money arrives.
The practical lesson is straightforward.
Identify liens early. Advise the client clearly. Notify promptly. Document competing claims. Distribute undisputed funds. Resolve disputed lien claims diligently. And when the lien issues become complex, get help before the trust account becomes the problem.
Built for Plaintiff Attorneys
Lien Project Network was created to help plaintiff attorneys navigate the intersection of lien resolution, reimbursement claims, trust account obligations, and settlement strategy.
Our modules provide practical guidance for handling the issues that arise when medical liens, statutory reimbursement rights, federal benefit claims, and disputed settlement funds collide.
When a lien requires direct legal intervention, The Lien Project, PC stands ready. The practice is devoted exclusively to plaintiff side lien resolution.
Visit www.lienprojectnetwork.com to access the full module and strengthen your lien resolution process.
MANTRAS FOR PERSONAL INJURY LIEN RESOLUTION IN 2026: DO MORE. BE BETTER.
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