Can a defendant's attorney offer a structured settlement without improperly participating in setting the plaintiff's attorney's contingency fee, and how should the plaintiff's attorney handle the fee when the settlement itself is structured?

Currency note

This opinion was issued in 1983, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance.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 opinion revisited Tennessee Formal Ethics Opinion 80-F-1, which had held that "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," violating DR 5-107's bar on a lawyer accepting compensation from anyone other than the client, and 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." Opinion 80-F-1 Supp. had since clarified that 80-F-1 was not intended to condemn structured settlements generally, and the Board found "further guidance is necessary and appropriate."

The opinion clarified that "[t]here is no ethical impropriety in the defendant's attorney offering various structured settlements of client's funds and/or attorney's fees," because doing so "does not constitute participating in the setting of the fee charged by the plaintiff's attorney to the client" since that fee "is predetermined and set by the contingency fee agreement between the attorney and client." It recognized that the attorney's and client's interests can still diverge over the timing of payments, creating "an ethical dilemma as to the various methods available for structuring the receipt of the funds." The opinion resolved that dilemma by letting the attorney either receive the entire fee immediately, provided "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," or structure the fee's receipt separately, with the fee "computed on the present-day value of the entire settlement and set aside from the funds immediately received by the client," and "the structured funds of the attorney must always remain separate and never commingled with the funds of the client."

Common questions

Q: Does a defendant's attorney improperly interfere with the plaintiff's attorney's fee by offering a structured settlement?

A: No. The opinion holds there is "no ethical impropriety in the defendant's attorney offering various structured settlements of client's funds and/or attorney's fees," because the plaintiff's attorney's fee "is predetermined and set by the contingency fee agreement."

Q: Can the plaintiff's attorney take the entire contingency fee immediately from a structured settlement?

A: Yes, but the fee "shall not be enhanced beyond the original contingency fee agreement computed on the present-day value of the entire settlement."

Q: Can the attorney instead structure the receipt of the fee itself?

A: Yes. The fee must be "computed on the present-day value of the entire settlement and set aside from the funds immediately received by the client," and the structured fee funds "must always remain separate and never commingled with the funds of the client."

Background and rules framework

The opinion applied and refined Tennessee Formal Ethics Opinion 80-F-1's and 80-F-1 Supp.'s treatment of DR 5-107 (no compensation from a non-client) and EC 5-22 in the structured-settlement context. The modern correlates are Model Rule 1.5 (fees) and Model Rule 1.7 (conflicts of interest), cited here as navigational cross-references rather than rules the opinion itself applied.

Citations and references

Other opinions cited:

• Tennessee Formal Ethics Opinion 80-F-1, structured settlements and the fee-setting conflict of interest
• Tennessee Formal Ethics Opinion 80-F-1 Supp., clarifying that 80-F-1 does not condemn structured settlements generally

See also

• Tennessee Op. 84-F-77: Attorney Fees in Structured Settlements
• Tennessee Op. 85-F-96: Settlement Negotiations Including Attorney's Fees
• Tennessee Op. 85-F-96(a): Settlement Negotiations Including Attorney's Fees (Supplement)

Source

• Landing page: https://www.tbpr.org/ethic_opinions/84-f-61

Original opinion text

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

84-F-61 - Contingent fees in structured settlements

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 84-F-61

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.

ETHICS COMMITTEE:

O. B. Hofstetter, Jr.

F. Evans Harvill

William R. Willis

APPROVED AND ADOPTED BY THE BOARD