Facts: Gary Jones (Jones) was injured in a motorcycle accident and retained the Defendant, Irace (Defendant), to represent him. Jones then injured his shoulder and went to see the Plaintiff, Dr. Herzog (Plaintiff), who determined that Jones needed surgery on his shoulder. Jones wrote a letter stating that he “request[ed] payment to be made directly from settlement of a claim currently pending for an unrelated incident to John, Herzog, D.O.” Plaintiff informed Defendant about this assignment and performed the surgery. Thereafter, Jones instructed Defendant not to disburse the proceeds to Plaintiff. Jones sent a check to Plaintiff, but the check was returned for insufficient funds and the Plaintiff was never paid. Plaintiff sued to enforce the assignment, and his lawsuit against the attorneys for the assignment's enforcement resulted in a judgment in his favor. Irace and Lowry appealed, contending the assignment was invalid and its enforcement would interfere with their ethical obligations.
Issue: Was the assignment of settlement proceeds from Gary Jones to Dr. John Herzog valid and enforceable against Jones’s attorneys, Anthony Irace and Donald Lowry, despite Jones’s later instruction to disregard the assignment?
Rule: For an assignment to be valid and enforceable, the assignor must clearly indicate the intent to transfer the right to the assignee and must not retain control or the power to revoke the assignment. Once notice of the assignment is given to the obligor, the obligor is bound to honor it and cannot lawfully pay the assigned funds to anyone else. Assignments of future rights, including litigation proceeds, are generally valid unless they materially change the obligor's duties or risks.
Application:
Validity of Assignment:
Intent to Assign: Jones’s letter clearly indicated his intent to assign the settlement proceeds to Dr. Herzog in exchange for the surgery. The use of "request" in the letter contextually indicated an assignment, not a mere suggestion or temporary arrangement.
No Retained Control: The letter and circumstances provided no indication that Jones intended to retain control over the assigned funds. The assignment was understood as transferring Jones’s right to the settlement proceeds to Dr. Herzog permanently.
Notice: Irace and Lowry were notified of the assignment and initially acknowledged its validity, indicating their understanding and acceptance of the assignment’s terms.
Ethical Obligations:
Client’s Assignment Power: The court found that a client can assign rights to lawsuit proceeds, and such assignments must be honored by the attorney handling the funds.
Bar Rules Interpretation: The Maine Bar Rules require attorneys to deliver funds to clients as requested, but this does not apply once the client has assigned the rights to those funds. The attorneys’ ethical obligation was to respect the valid assignment rather than follow the client’s subsequent contradictory instructions.
No Conflict: Enforcing the assignment did not create an ethical conflict because the funds, once assigned, were no longer the client’s property to direct.
Conclusion: The assignment of settlement proceeds from Gary Jones to Dr. John Herzog was valid and enforceable. The court found no error in the District Court's judgment in favor of Dr. Herzog. The attorneys' ethical obligations did not override their duty to honor the valid assignment. The judgment was affirmed.
Feedback:
The lawyer is the third party (obligor) – third party supposed to perform his obligations (different from third-party beneficiary)
Conditions for an assignment to be valid and enforceable against the assignor’s creditor (the obligor)
1)The assignor must express a clear intent to give up his right by transferring his right to the assignee
2)The assignor may not retain any control over the right
3)The assigner has no power of revocation
Conditions for the obligor
The obligor need not accept the assignment to make it valid.
Rather, the assignment takes effect through the actions of the assignor and assignee.
Notice is required.
Once the obligor has notice of the assignment, the fund is "from that time forward impressed with a trust; it is ... impounded in the [obligor's] hands, and must be held by him not for the assignor but for the assignee."
After receiving notice of the assignment, the obligor cannot lawfully pay the amount assigned either to the assignor or to his other creditors and if the obligor does make such a payment, he does so at his peril because the assignee may enforce his rights against the obligor directly.
Ordinary rights, including future rights, are freely assignable unless the assignment would
1)materially change the duty of the obligor,
2)materially increase the burden or risk imposed upon the obligor by his contract,
3)impair the obligor's chance of obtaining return performance, or materially reduce the value of the return performance to the obligor,
4)and unless the law restricts the assignability of the specific right involved. See Restatement (Second) Contracts § 317(2)(a) (1982).
In Maine, the transfer of a future right to proceeds from pending litigation has been recognized as a valid and enforceable equitable assignment. McLellan v. Walker, 26 Me. 114, 117-18 (1896).