Attorney Sued for Failing To Protect Subrogation Interest; Ordered to Re-Pay Trust Account Pending Outcome of Case

A personal injury attorney may be sued in federal court for the failure to pay a subrogation interest subject to ERISA and required to put money back into his trust account pending the outcome of the subrogation fight.

So holds the United States District Court for the Northern District of Illinois.  In Central States v. Lewis, No. 11 CV 4645 (N.D. Il. May 15, 2012a personal injury attorney settled a case for a client and disbursed funds to himself and the client without paying the subrogation interest claimed by Central States.  Central States sought a preliminary injunction against the attorney and client to restore the money to the attorney’s trust account so that the plan could proceed with an action against the trust account.  The court agreed, and stated that even the attorney’s fee must be restored to the account, even if the attorney has already commingled the monies with other funds.

The Lewis court cited with approval the Longaberger opinion from the Sixth Circuit Court of Appeals, a case familar to all tort practioners.

The amount of the settlement was $500,000 and the claimed subrogation interest is $108,033.46.  Since the plaintiffs, and not the plaintiff’s lawyer, have to re-pay the monies, the lawyer may not have to put any money back into his trust account.   However, if the plaintiffs have spent the money, or refuse to put it into the trust account pending the resolution of the case, the lawyer will have to do so because the order requires both the client and the lawyer, jointly and severally, to pay the funds.

Lesson:  resolve subrogation interests before disbursing funds or at least before disbursing any funds that that would cause the balance held  in trust to be less than the claimed subrogation interest.  This lawyer is spending lots of time and money to defend this matter and, at the end of the day, may be on the hook for this money.