My New Years resolution is to recommit to a weekly column and thankfully the structured settlement and legal profession provide me with endless sources of news, entertainment and examples of borderline idiotic behavior to discuss and comment on.
Today’s story is a look at a recent case I have been working on, one that is a very large, multi-claimant settlement that took years of effort on the part of the attorney’s involved, complex negotiations, hard fought court room victories and millions of funds expended, with the final result being an outstanding settlement for a group of business people who had suffered economic loss.
As we all know, or one would think we should know by now, that if a case does NOT have elements of personal, physical injury as a basis of the claim, the settlement is not afforded tax free status under IRC section 104 and all of the proceeds are taxable. That was and is the reality in this particular situation. However, as most of us know, just because a case has taxable damages doesn’t mean you can’t structure, in fact, the ability to structure and spread out payments on a taxable case is arguably even more valuable given high marginal rates on federal and state income taxes. Therefore it is vital in my professional opinion to make that option known to the legal community and assist them in providing planning tools to their claimants.
So far so good, right?
Now, in this case, as in many other big multi-claimant cases, it was necessary to create a section 468B qualified settlement fund for the firms to receive the clients payments, communicate the planning options to the clients and then disburse funds to the claimants in a orderly and compliant fashion. We do this so that any liens, disputes, allocation issues and compliance checks can be resolved, as well as to make sure there is no constructive receipt of the money by the claimant in the event they wish to structure or plan their award. It is a time tested standard of practice in matters such as this and one that is becoming routine in multi-claimant litigation.
That said, it does take some specific expertise to draft the documents, select local and administrative trustees, select a custodial financial institution, issue 1099’s, sign off on structured settlements and disburse checks. This is not your standard IOLTA account, “lets just write the client a check”, type of situation and law firms are becoming increasingly aware that they probably should engage a firm with demonstrated experience in administration, compliance and planning to get this all to work according to plan and to make sure the clients are happy with the process.
So, back to my case and my story.
Our firm is working with several law firms to assist them in an orderly fashion to do the administration and to put them in touch with LOCAL structured settlement experts who will be meeting with the claimants to discuss planning options. We do this so that no claimant can come back at a later date and say they were not informed they could structure their claim or that a competent local planner wasn’t available to answer their questions and assist them with this decision. It is a great way to get this done as we handle administration, compliance, back office and communication while the local planner is afforded an opportunity to meet with a claimant in a professional fashion to discuss options and issues face to face.
As part of this process we also offered our services to several other law firms who were part of this litigation who informed us that they had structured settlement experts they prefer to work with. So, we of course offered to work with these settlement experts to handle the administration and to give them the ability to write the structures and handle the processing. The response, boiled down to it’s simple best, was they wanted to handle everything themselves, despite the fact, that to my knowledge, that they had never handled a case of this complexity on a taxable settlement before. Their decision to not divide responsibility but instead keep “control” was driven out of what I can only assume is some fear that my firm would “steal their client” or possibly they didn’t see the value in using an expert but instead learning on the job so they can do it themselves.
Fine with me, we have plenty to handle on our end and lots more cases yet to come and I’m the last person in the world who wants to force or coerce anyone to work with my firm.
You would think this is the end of the story, but it’s not.
The “Do it yourself” firm went out, got someone to “craft” a qualified settlement fund so they could presumably control their client. They filed the QSF with the court and awaited the windfall that obviously was their dream. The only issue is a minor detail that cropped up which my firm discovered by looking at the court filings. Their qualified settlement fund was clearly a “boiler plate” of a personal physical injury settlement they or their “expert” had created which included language and powers that specifically prohibited structuring any claim other than a physical, personal injury.
In other words the governing document on file that was intended to allow for the structuring of taxable damage awards was instead, due to a complete lack of oversight by the settlement firm, prohibiting them from doing any structures.
Obviously I am not going to name the firm or outline the exact case, I have no desire to needlessly embarrass someone when I am sure they are sufficient humiliated by presumably having to relay that egregious error to their client. However, this extreme example does drive home what I have been trying to stress for years now and that is the necessity for each of us to realize what we do well and to stop trying to be all things to every client so as to capture every last possible commission dollar. How in the world anyone ever expects the legal community to take us seriously as problem solvers with this type of careless behavior is beyond me.
In a large case there is a need for quality administration, trust services, communication and client planning and counseling. The client is best served by a team approach where each professional is appropriately and transparently compensated for the value they provide and the client is given timely, objective planning assistance that lets them decide what if any funds they want to structure into the future. To assume any one firm in our industry can provide these services is foolishly prideful and leads to potential disasters that will continue to lower our professional standing with trial lawyers and their clients.
Hubris: “Overbearing pride or presumption; arrogance”. Sum’s it up nicely