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Herzog v. Irace

Supreme Judicial Court of Maine
594 A.2d 1106 (1991)
ELI5:

Rule of Law:

A client's written instrument indicating intent to pay a creditor from the proceeds of a pending legal action constitutes a valid and enforceable assignment, which the client's attorney, once notified, must honor despite any subsequent, contrary instructions from the client.


Facts:

  • Gary Jones was injured in a motorcycle accident and retained attorneys Anthony Irace and Donald Lowry to represent him in a personal injury action.
  • Separately, Jones dislocated his shoulder and required surgery from Dr. John P. Herzog.
  • Unable to pay for the surgery, on June 14, 1988, Jones signed a letter stating he requested payment be made directly to Dr. Herzog from the settlement of his pending personal injury claim.
  • Dr. Herzog performed the surgery after notifying Irace and Lowry of the arrangement, and an employee of their firm confirmed it was sufficient for them to pay Dr. Herzog's bill from the settlement funds.
  • In May 1989, Jones received a $20,000 settlement in the personal injury action.
  • Jones instructed Irace and Lowry not to pay Dr. Herzog from the settlement, stating he would pay the doctor himself.
  • Following their client's instructions, Irace and Lowry disbursed the settlement funds to Jones and his other creditors, but not to Dr. Herzog.
  • Jones sent a check to Dr. Herzog that was returned for insufficient funds, and Dr. Herzog was never paid for the surgery.

Procedural Posture:

  • Dr. John P. Herzog sued attorneys Anthony Irace and Donald Lowry in the District Court (Portland), a trial court.
  • The case was tried before the court based on a joint stipulation of facts.
  • The District Court entered a judgment in favor of Dr. Herzog, finding the assignment was valid and enforceable against the attorneys.
  • Irace and Lowry, as appellants, appealed the decision to the Superior Court (Cumberland County).
  • The Superior Court, acting as an intermediate appellate court, affirmed the District Court's judgment.
  • Irace and Lowry then appealed to the Supreme Judicial Court of Maine, the state's highest court.

Locked

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Issue:

Does a client's letter requesting that payment be made directly to a creditor from the proceeds of a pending personal injury settlement constitute a valid and irrevocable assignment that is enforceable against the client's attorneys, even if the client later instructs them not to pay?


Opinions:

Majority - Brody, Justice.

Yes, the letter constituted a valid and irrevocable assignment enforceable against the attorneys. An assignment is a manifestation of the assignor's intent to transfer a right, relinquishing all control and power of revocation. Once the obligor (here, the attorneys) has notice of the assignment, they hold the specified funds in trust for the assignee (Dr. Herzog) and cannot lawfully pay them to the assignor (Jones). The court found that Jones's letter, despite using the word "request," clearly manifested his intent to transfer his right to a portion of the settlement proceeds. Because the assignment was valid, Jones was no longer entitled to receive those funds, and the attorneys' ethical obligation to follow their client's instructions did not apply to funds their client had already legally transferred to a third party.



Analysis:

This decision solidifies the legal power of an assignment of future proceeds from litigation. It clarifies that attorneys act as obligors once notified of such an assignment and are legally bound to honor it, essentially making them gatekeepers of the funds for the assignee. The ruling establishes that a client's subsequent change of mind is irrelevant because the assignment divests the client of their legal right to that portion of the proceeds. This precedent provides significant protection for creditors, such as medical providers, who render services in reliance on a future legal recovery, and it subordinates an attorney's duty to follow client disbursement instructions to the superior legal rights created by a valid assignment.

G

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