Inquiry is made concerning the ethical responsibilities of the attorney regarding contingent attorney fees in cases involving structured settlements.
Tennessee Formal Ethics Opinion 80-F-1 states:
... the conflict of interest that arises from the fee interest potential of structured settlements is so inherently conducive to divided loyalties as to amount to a conflict of interest with the client. Such an arrangement is also in violation of DR 5-107 of the Code of Professional Responsibility which forbids acceptance by a lawyer of compensation for his legal services from one other than his client.
It is the opinion of the Committee that any arrangement by which the opposing party participates in the setting of the fee charged by the attorney to his client conflicts with the language and intent of DR 5-107 and EC 5-22 of the Code.
Tennessee Formal Ethics Opinion 80-F-1 Supp. attempted to clarify the opinion by stating that the opinion was not intended to condemn structured settlements.
It appears that further guidance is necessary and appropriate.
There is no ethical impropriety in the defendant's attorney offering various structured settlements of client's funds and/or attorney's fees. This does not constitute participating in the setting of the fee charged by the plaintiff's attorney to the client because the attorney fee is predetermined and set by the contingency fee agreement between the attorney and client.
The interests of the attorney and the interests of the client often differ in the amounts of funds received at various times and intervals. The attorney is placed in an ethical dilemma as to the various methods available for structuring the receipt of the funds. In other words, there may be a conflict of interest between the attorney and client as to whether the funds should be received pursuant to Plan A, Plan B, or whether the funds should be received immediately.
The dilemma is resolved by allowing the attorney to receive the entire fee immediately or electing to structure the receipt of the fee, providing the following conditions are met:
i. In the event the attorney elects to receive the entire fee immediately, the amount of the fee shall not be enhanced beyond the original contingency fee agreement computed on the present-day value of the entire settlement. In such instances, the entire fee may be paid from the funds immediately received by the client.
ii. In the event the attorney elects to structure the receipt of the fee, then the amount of the fee shall be computed on the presentday value 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 18th day of November, 1983.
O. B. Hofstetter, Jr.
F. Evans Harvill
William R. Willis
APPROVED AND ADOPTED BY THE BOARD