Can a plaintiff's attorney accept a defense settlement offer that is structured so the opposing insurance carrier effectively fixes what the attorney's fee will be?

Currency note

This opinion was issued in 1980, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. A Formal Ethics Opinion 80-F-1-Supplemental, issued in 1981, clarified that this opinion does not condemn structured settlements generally and is limited to its own facts; later opinions (including Formal Ethics Opinions 84-F-77 and 85-F-96) addressed structured-settlement fee questions in more detail. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Plain-English summary

The Board considered the propriety of structured settlement offers made by insurance carriers or their attorneys to plaintiffs' attorneys. The specific question was whether a plaintiff's attorney could consider a settlement offer structured in a format like: $10,000 cash attorney fee, $5,000 cash to the client plus $450 per month for 50 months, for a total of $37,500; or $10,000 cash attorney fee, $10,000 cash to the client plus $325 per month for 50 months, for a total of $36,250; compared with a straight $28,000 cash settlement.

The Board noted that a contingent one-third fee arrangement applied to the $28,000 cash settlement would give the attorney $9,333.33 and the client $18,666.67 (the Board's arithmetic in the original text totals $18,667.64). It found that the conflict of interest arising from the fee-interest potential of these structured offers is inherently conducive to divided loyalties, amounting to a conflict of interest with the client, and that such an arrangement also violates Disciplinary Rule 5-107, which forbids a lawyer from accepting compensation for legal services from someone other than the client.

The Board concluded that any arrangement letting the opposing party participate in setting the fee the attorney charges his own client conflicts with the language and intent of DR 5-107 and EC 5-22 of the Code.

Common questions

Q: Can a plaintiff's attorney accept a settlement package where the defense fixes the attorney's cash fee, regardless of how the client's payments are structured?

A: No, as originally decided. The Board held "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."

Q: Why is a defense-fixed attorney fee a conflict of interest?

A: Because it creates divided loyalties between the attorney's own fee interest and the client's recovery. The opinion 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."

Q: Does this opinion condemn structured settlements in general?

A: No, per the Board's own later clarification. Formal Ethics Opinion 80-F-1-Supplemental explains "it is not the intention of the Opinion to condemn all structural settlements," and restricts the holding to the opposing-party fee-setting issue.

Background and rules framework

The opinion applied Disciplinary Rule 5-107 (compensation for legal services from someone other than the client) and Ethical Consideration 5-22 of the Tennessee Code of Professional Responsibility. The modern correlates are Model Rule 1.5 (fees) and Model Rule 5.4 (professional independence of a lawyer), noted here as navigational cross-references rather than rules the opinion itself applied.

Citations and references

Rules of Professional Conduct:

• DR 5-107 (compensation from one other than the client) and EC 5-22, Tennessee Code of Professional Responsibility
• Model Rule 1.5 (fees) and Model Rule 5.4 (professional independence of a lawyer), modern correlates

See also

• Tenn. Ethics Op. 80-F-1-Supplemental: Clarifying the Structured-Settlement Fee Holding
• Tenn. Ethics Op. 84-F-77: Fees in Structured Settlements
• Tenn. Ethics Op. 85-F-96: Fee Terms in Settlement Talks

Source

• Landing page: https://www.tbpr.org/ethic_opinions/80-f-1

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

80-F-1 - Structured Settlements

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 80-F-1

This Ethics Committee of the Disciplinary Board of the Supreme Court of Tennessee has been requested to consider the propriety of structured settlement offers by insurance carriers or their attorneys to plaintiff's attorneys. The issue for consideration is:

May a plaintiff's attorney consider an offer of settlement from a defendant's insurance carrier which is couched in the following format:

• Settlement of $10,000 cash attorney fee, $5,000 cash to client plus $450 per month for 50 months, for a total of $37,500;

• Settlement of $10,000 cash attorney fee, $10,000 cash to client plus $325 per month for 50 months, for a total of $36,250;

• Settlement of $28,000 cash.

The fee arrangement with the client of a contingent one-third of the recovery in example three would result in the attorney receiving $9,333.33 and the client receiving $18,667.64. 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.

This 5th day of September, 1980.

ETHICS COMMITTEE:

Randall Burcham

W. H. Lassiter

George E. Morrow

APPROVED AND ADOPTED BY THE BOARD