Can a Tennessee lawyer take a one-third contingency fee out of each periodic payment in a structured settlement, rather than all at once from the up-front cash?

Currency note

This opinion was issued in 1984, 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 Treat this page as historical context, not current guidance.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 Board received a request to further clarify Formal Ethics Opinion 84-F-61's treatment of attorney fees in structured settlements, illustrated by a settlement of $10,000 paid immediately plus a $300 monthly annuity for five and a half years (a total of $19,800 in annuity payments and $29,800 overall). The inquiring attorney, working under a one-third contingency contract, questioned the fairness of an approach that required him to take his entire fee from the "front-end money" or to structure his fee's receipt based on the present-day value of the whole settlement, and suggested instead taking one-third of the $10,000 up front plus one-third of each $300 monthly payment as received.

The opinion recognized "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," because attorney and client preferences over immediate cash versus periodic payment often diverge based on age, economic situation, or tax consequences. To remove that conflict, it set three guidelines, conditioned on the client being "fully informed and advised as to all settlement options available to him" and choosing freely, with the attorney exercising "no influence" over that choice: the attorney may (i) take his contingency percentage from the settlement proceeds as they are received by the client, matching the approach the inquiring attorney proposed; (ii) take the entire fee immediately from the funds the client receives up front, provided the fee is not "enhanced beyond the original contingency fee agreement computed on the actual cost of the entire settlement"; or (iii) structure the receipt of his own fee separately from the client's funds, provided the fee is computed on the settlement's actual total cost, set aside from the client's immediate funds, and never commingled with the client's money.

Common questions

Q: Can a lawyer take a one-third contingency fee out of each monthly structured-settlement payment as it is received, rather than all at once?

A: Yes. The opinion's first guideline lets the attorney "receive the percentage provided for in his contingency fee agreement from the settlement proceeds as they are received by the client," the approach the inquiring attorney proposed.

Q: Can the attorney instead take the whole fee immediately from the lump-sum portion of a structured settlement?

A: Yes, but the fee "shall not be enhanced beyond the original contingency fee agreement computed on the actual cost of the entire settlement," meaning it cannot be inflated by being taken up front.

Q: Does the client have to agree to how the attorney's fee will be paid?

A: The opinion requires that "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," with the attorney exercising "no influence" over that choice.

Q: Can the attorney structure his own fee separately from the client's settlement funds?

A: Yes. The third guideline allows the attorney to structure his fee separately, provided it is computed on the settlement's actual total cost, set aside from the client's immediately received funds, and the structured funds "must always remain separate and never commingled with the funds of the client."

Background and rules framework

This opinion is a clarification of Formal Ethics Opinion 84-F-61 (Tennessee, 1984), which first addressed attorney fees in structured settlements. No specific Disciplinary Rule is cited; the opinion instead announces guidelines directly, framed around the conflict of interest a structured settlement can create between attorney and client. The conflict-of-interest concern maps to Model Rule 1.7, and the fee-computation guidelines map to Model Rule 1.5, cited here as navigational modern correlates rather than rules the opinion itself applied.

Citations and references

Other opinions cited:

• Tennessee Formal Ethics Opinion 84-F-61, attorney fees in structured settlements (clarified by this opinion)

See also

• Tennessee Op. 80-F-1: Defense-Conditioned Structured Settlement Fee
• Tennessee Op. 84-F-61: Contingent 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-77

Original opinion text

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

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