The Board of Professional Responsibility will be closed on Friday, March 29, 2024, in observance of Good Friday. 

 

84-F-77 - Fees in Structured Settlements

 

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 84-F-77

 

Request for a further clarification of Formal Ethics Opinion 84-F-61 concerning structured settlements is made.

The request for clarifications concerns the following illustration. The settlement is based upon payment of $10,000 immediately to the client and an annuity of $300 per month for a period of five and one-half years. This represents payment of $19,800 over the term of the annuity and a total payment of $29,800.

The attorney has a contract which provides for a one-third contingency fee and questions the equity and fairness of compliance with 84-F-61 which requires him to take his entire fee out of the "front-end money"; or, to structure the receipt of his fee computed on the present day value of the entire settlement.

The attorney suggests that the fairest approach for both the client and the attorney is for the attorney to take one-third of the $10,000 front-end money and one-third of the $300 monthly payment as it is received.

There is a potential, if not an actual, conflict of interest between the attorney and client in every instance where structured settlements are discussed or considered as a settlement option. It is recognized that in some instances an immediate cash settlement would be more beneficial to the client, whereas the attorney may prefer to receive the payment of his attorney fee periodically; or vice versa. The preferences of the attorney or client are often dependent or based upon their respective ages, economic station or tax consequences. These factors will seldom, if ever, be viewed from the same perspective by the attorney and the client.

It is desirable to establish guidelines for the handling of such matters so as to remove the potential and/or actual conflicts between the attorney and client. The following guidelines are, therefore, established:

The client shall be fully informed and advised as to all settlement options available to him and the client allowed to choose which option will be accepted. The attorney shall exercise no influence over the client in exercising his choice of available options. In such event, there is no impropriety in the attorney receiving the entire attorney fee immediately or structuring the receipt of the attorney fee, providing the following conditions are met:

i. The attorney may receive the percentage provided for in his contingency fee agreement from the settlement proceeds as they are received by the client as suggested by the inquiring attorney.

ii. The attorney may receive the entire fee from the funds immediately received by the client provided that the amount of the fee shall not be enhanced beyond the original contingency fee agreement computed on the actual cost of the entire settlement.

iii. The attorney may structure the receipt of his attorney fee separate and apart from the client's receipt of funds provided that the fee shall be computed on the actual cost of the entire settlement and set aside from the funds immediately received by the client. The receipt of the fee may then be structured at the election of the attorney. The structured funds of the attorney must always remain separate and never commingled with the funds of the client.

This 17th day of October, 1984.

ETHICS COMMITTEE:

Oscar B. Hofstetter, Jr.

Jerry Colley

William R. Willis

APPROVED AND ADOPTED BY THE BOARD

2024-02