California RPC and Pharmacy Liens: Your Complete Fiduciary Obligations

James Wong — Founder & Pharmacist, LienScripts | September 2, 2024 | 8 min read

The most common reason PI attorneys haven't enrolled clients in pharmacy liens: 'I'm not sure if it's ethical.' The answer is clear. Pharmacy liens are third-party liens like any other — and the California Rules of Professional Conduct tell you exactly what you must do.

The Ethics Uncertainty Is Costing Your Clients

The most common reason experienced PI attorneys give for not using a pharmacy lien program has nothing to do with the quality of the service, the breadth of the medication formulary, or the lien negotiation terms. It is this: "I'm not sure if it's ethical."

That uncertainty is understandable. Pharmacy liens are a relatively newer fixture in PI practice, and the California State Bar has not issued a formal ethics opinion specifically addressing them. Without an explicit opinion, some attorneys default to avoidance.

The problem is that the avoidance itself has real costs. Clients who cannot access medications during their case suffer treatment gaps. Treatment gaps produce weaker records, smaller settlements, and worse clinical outcomes. The ethical caution that was meant to protect clients ends up harming them.

The good news is that the rules governing pharmacy liens are not unclear — they are the same rules that govern every other third-party lien in a PI case. Here is what they actually require.

[!KEY] California pharmacy liens are governed by the same RPC 1.15 trust account rules and RPC 1.4 informed consent obligations that apply to every other medical lien — there is no ambiguity, only familiar professional responsibility mechanics applied to a newer type of lien.

RPC 1.15 — The Trust Account Rule

California Rules of Professional Conduct Rule 1.15 governs how attorneys handle client funds and property, including third-party claims on settlement proceeds. This is the central rule for pharmacy liens at settlement.

When a PI case settles and the settlement check arrives, the attorney holds those funds in trust. Multiple parties have claims on the proceeds: the client, the attorney (for fees and costs), medical lienholders, and — if a pharmacy lien is in place — the pharmacy lien provider.

RPC 1.15(d)(1) is the specific provision that applies when there is a dispute or competing claim: "If a third party makes a claim against funds in the lawyer's possession, the lawyer shall promptly notify any third party of that fact and shall not pay funds to the client or the third party until the dispute is resolved."

[!KEY] RPC 1.15 requires holding the disputed portion of a pharmacy lien in trust — not distributing it to the client while negotiations are pending — just as you would for any disputed hospital or physician lien; early notification of the lien provider before settlement finalizes gives you the most room to resolve the dispute without a trust-hold.

In practice, this means: do not distribute settlement funds until the pharmacy lien is resolved. If the amount is undisputed, pay it from trust alongside the other lienholders. If the amount is disputed — the client contests a portion, or causation is at issue for certain medications — hold the disputed amount in trust while you work toward resolution. Do not pay the disputed portion to either the client or the lien provider until the dispute is settled.

This is identical to how you handle any other medical lien. Hospital liens, physician liens, Medi-Cal reimbursement obligations — all are governed by the same framework. A pharmacy lien is not categorically different. It is a third-party claim on settlement proceeds, handled through the same trust accounting mechanics you already use.

RPC 1.4 — Informed Consent at Intake

Before a client signs a pharmacy lien agreement, they must understand what they are signing. California RPC 1.4 requires attorneys to keep clients reasonably informed about the status of their representation and to explain matters to the extent necessary for clients to make informed decisions.

For pharmacy liens, this means the following disclosures at intake:

What the lien is: An agreement that the pharmacy will be repaid from the client's settlement proceeds for injury-related medications provided during the case.

How it affects their net proceeds: The lien amount will be deducted before the client receives their share. Clients should understand, at a general level, that the more medications they receive, the larger the lien — and that the lien amount will be resolved at settlement.

The non-recourse structure: If the case does not settle, the lien is waived. The client owes nothing. This is important for clients to understand upfront because it removes a significant source of anxiety — the fear that signing the lien creates a personal debt regardless of case outcome.

That the amount may be negotiated: Reputable pharmacy lien providers negotiate lien amounts at settlement. Clients should know that the amount shown on the lien agreement is not necessarily what will ultimately be paid.

This is not a complex disclosure. Many attorneys handle it in a single paragraph during the intake conversation. The key is that it happens before the client signs — not as an afterthought at disbursement.

[!TIP] Before recommending any pharmacy lien program to clients, confirm it is non-recourse — if the lien survives a failed case, clients may feel pressure to accept inadequate settlements just to avoid a personal debt, which compromises your independent advice.

RPC 1.4 — Ongoing Communication Throughout the Case

The informed consent obligation does not end at intake. RPC 1.4 requires ongoing communication as material facts change.

For cases that extend over months or years, the pharmacy lien amount accrues with each prescription fill. A client who enrolled expecting a modest lien and who has been receiving prescriptions for 18 months deserves periodic updates. An annual notice — or, for active prescription users, a semi-annual notice — that summarizes the current lien balance keeps the client informed and eliminates the settlement-day shock of seeing a larger lien than they expected.

At the pre-settlement stage, provide a written breakdown before the client signs the release. This should include the current lien balance, the anticipated negotiated reduction if known, and the projected impact on net proceeds. Clients who receive this information before they approve a settlement make more informed decisions and have fewer post-settlement grievances.

[!KEY] Periodic lien balance updates during a long case — at minimum before any settlement discussion — satisfy your RPC 1.4 ongoing communication duty and prevent the settlement-day shock that produces post-disbursement grievances and State Bar complaints from otherwise satisfied clients.

The Non-Recourse Structure and Conflict of Interest

A question worth addressing directly: does the existence of a pharmacy lien create a conflict of interest that could compromise the attorney's advice about whether to settle?

With a properly structured non-recourse lien, the answer is no. A non-recourse lien is waived entirely if the case does not settle. This means the pharmacy lien provider bears the risk of a bad case outcome alongside the client. There is no financial pressure on the client — or on the attorney — to accept a settlement that does not make the client whole, just to satisfy the pharmacy lien obligation.

This is meaningfully different from a lien that survives a failed case or a bad verdict. If the lien were recourse — surviving regardless of outcome — then a client facing a marginal settlement might feel pressure to accept it partly to avoid a personal debt to the pharmacy. That pressure could compromise the attorney's ability to give independent advice. The non-recourse structure eliminates this entirely.

Before recommending any pharmacy lien provider to clients, confirm that the program is non-recourse. If a provider does not offer non-recourse terms, that is a significant red flag. Also confirm that the program preserves your client's freedom to use any pharmacy — including their existing pharmacist. For the full Model Rule 1.2 analysis on what client autonomy requires from a pharmacy lien provider, see pharmacy lien free choice and client autonomy.

What the Bar Has Not Said — and What That Means

The California State Bar has not issued a formal ethics opinion on pharmacy liens. Some attorneys interpret this silence as ambiguity. It is more accurately interpreted as confirmation that the existing rules are sufficient.

Pharmacy liens are addressed by the same rules that govern hospital liens, specialist liens, and any other third-party claim on settlement proceeds. The bar does not need to issue new guidance for each new type of lien because the framework is already in place.

If you are still uncertain, the appropriate step is not to avoid pharmacy liens — it is to consult your own ethics counsel. But the framework above represents the consensus understanding of how California RPC applies to this practice.

This post is for informational purposes and does not constitute legal advice. Consult your own ethics counsel for guidance on your specific situation.

Related Resources

• What You Must Disclose to Clients About Pharmacy Liens
• What Happens to the Pharmacy Lien When a PI Case Doesn't Settle?
• When Your Client Disputes the Pharmacy Lien Amount
• Can You Recommend a Pharmacy Lien Provider Without Creating Liability?