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From Roger Baron: PI attorney is proper defendant in federal action, attorney fee payment must be “restored” to trust account

Reprinted with permission from Roger Baron

The Central States decision (summarized below) by an Illinois federal court is important and adverse.  This decision, handed down on May 15th, sends yet another warning to personal injury attorneys — namely that funds disbursed to the attorney himself/herself is subject to the reach of a federal court and the attorney is a proper defendant in the federal law suit.  ERISA plans have been aggressively seeking to extend the application of the adverse 6th circuit Longaberger decision into the other circuits.  And, please note that my consistent advice has always been to deal with the lien BEFORE settling the case and releasing the tortfeasor.  Once the tortfeasor is released, the client is put into a “breach” of the terms of the plan and this sets up both the client and the attorney as target defendants for an ERISA § 502(a)(3) action.  The ability to deal with a lien assertion is much greater BEFORE the tortfeasor has been released.

In Central States v. Lewis, (Dis.N.Ill. 5/15/12), the attorney disbursed funds from his trust account, paying himself and turning the remainder over to the client.  Central States plan filed suit in federal court seeking a preliminary injunction which would order the attorney and the client “to restore” $180,033.46 to the attorney’s trust account so that the plan may proceed with a 502(a)(3) action against the trust account. This court agreed with the plan and ordered both attorney and client to restore the funds. As to the attorney, the court holds that the “attorney fee” itself must be restored to the trust account and made available to satisfy the ERISA plan’s lien — even if the attorney has already commingled the funds.  The Court states,

Indeed, [the attorney] had control of Lewis’s money and chose to pay himself and not to pay Central States. Although payments he may have made to others (such as for costs and expenses related to preparing the case) are beyond the reach of equity under Knudson, the portion of the settlement fund that he, acting on behalf of Lewis, paid himself is not, even if one assumes that the amount [the attorney] received has been commingled…

To view the opinion, click HERE

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