Opinion #212. Representing a Seller of Structured Settlement Payments: Professional Responsibilities
Issued by the Professional Ethics Commission
Date Issued: September 2, 2015
SUMMARY: Representation of a seller of structured settlement payments is a unique, special incidence of professional service, involving a concurrent conflict of interest. A lawyer representing a seller of future structured settlement payments must comply with the requirements of the Protection of Beneficiaries of Structured Settlements Act (24-A M.R.S. § 2241 et seq.) which mandates that:
- seller’s counsel must be engaged by the seller of payments and not by the purchaser or anyone affiliated with the purchaser;
- seller’s counsel cannot be paid for his services to the seller by the purchaser; and
- counsel’s compensation for services to the seller cannot be affected in any way by whether the sale is or is not consummated.
Counsel must also consider the necessity of complying with the concurrent conflict of interest prescriptions of Rules 1.7 and 1.8(f) of the Maine Rules of Professional Conduct, which, inter alia, may require the client’s written consent to counsel’s concurrent conflict of interest and counsel’s careful consideration of whether the representation is consistent with counsel’s professional competencies and professional judgment.
More than fifteen years ago, the State of Maine recognized the perils which can arise when a holder of structured settlement payments seeks to sell future payments for immediate cash and enacted the Protection of Beneficiaries of Structured Settlements Act (P. L. 1999, c. 268, § 2) codified at 24-A M.R.S. § 2241 et seq.1 (hereinafter called “the Act” or the “statute”). This statute not only requires judicial approval for a sale of future payments, but also mandates that the seller of payments must have received “independent professional advice” from an attorney or other licensed professional. As a result, Maine lawyers are frequently asked to give professional advice to persons who propose to sell future structured settlement payments.
This advisory opinion addresses the professional responsibilities which attend representing a seller of structured settlement payments. The inquiry begins with the attorney’s engagement to represent the seller of payments. The nature and the scope of this engagement is specifically prescribed in the Act.
As applied to attorneys, the Act defines “independent professional advice” to mean “the advice of an attorney…
- Who is engaged by a payee [i.e. the seller of payments]2 to render advice concerning the legal, tax and financial implications of a transfer of structured settlement payment rights;
- Who is not in any manner affiliated with or compensated by the transferee of that transfer [i.e. the purchaser]3>; and
- Whose compensation for rendering advice is not affected by whether a transfer occurs or does not occur.” 24-A M.R.S. §2241 (7). Bracketed language supplied.
These statutory requirements impose specific, non-waivable restrictions on counsel’s service to a seller of structured settlement payments.
First, seller’s counsel must be engaged by the seller, not by the purchaser or anyone acting on behalf of the purchaser. Furthermore, seller’s counsel cannot be in “in any manner affiliated” with the purchaser. The term “affiliated with the purchaser” is not defined in the Act. The Act’s purpose, however, is clear: the “independent professional advice” to be given to a seller of payments must in fact be independent and must not be affected or influenced in any way by a relationship of any kind between the seller’s attorney and the purchaser. As it sometimes happens that a seller is referred to counsel by the purchaser, counsel must clearly weigh whether acceptance of that referral from the purchaser creates a prohibited affiliation. Acceptance of an isolated, single referral may not be problematic, but acceptance of such referrals from a purchaser on a regular or repeated basis could perhaps create an expectation or a relationship which becomes a prohibited affiliation.
Second, seller’s counsel cannot be “in any manner…compensated” by the purchaser. Thus stated, the source of seller counsel’s compensation is unequivocally circumscribed: it cannot be paid in any way or in any measure by the purchaser.
The third requirement, i.e., that counsel’s compensation for service to his client cannot be affected by whether the “transfer” is or is not consummated, is more complicated. The term “transfer” is defined in the Act to mean “any sale, assignment, pledge, hypothecation or other form of alienation or encumbrance made by a payee for consideration.” 24-A M.R.S. § 2241 (18). This definition is sufficiently broad to reach every conceivable form of sale or transfer of future payments. In any form of sale or transfer, counsel’s compensation, including the right to receive it, the certainty of payment, and its amount, cannot be contingent upon or even affected by whether the transaction does or does not occur.
These statutory requirements impose a differing and, in some ways, more onerous burden on seller’s counsel than do the complementary Maine Rules of Professional Conduct. Two Rules of Professional Conduct4 are relevant, both addressing concurrent conflicts-of-interest.
Generally, Rule 1.7, entitled “Conflict-of-Interest: Current Clients,” prohibits representation of a client when “there is a significant risk that representation [of the client] would be materially limited …by a personal interest of the lawyer.” Subsection (f) of Rule 1.8, entitled “Conflict-of-Interest: Current Clients: Specific Rules,” identifies payment of the lawyer by someone other than the client to be a specific incidence of a concurrent conflict of interest. Both rules include exceptions. Taken together, the exceptions to Rules 1.7 and 1.8 (f) permit an attorney’s representation of a seller of structured settlement payments where:
- the client gives informed written consent to the concurrent conflict;
- the lawyer reasonably believes that he or she can give competent and diligent representation to the client;
- there is no interference with the lawyer’s professional judgment or the lawyer-client relationship; and
- the client’s secrets and confidentiality are preserved.
Rule 1.7, however, also provides that a lawyer may not represent a client in circumstances of concurrent conflict “if the representation is prohibited by law.”
The Protection of Beneficiaries of Structured Settlements Act essentially recognizes representation of a seller of structured settlement payments to be a unique, special incidence of professional representation involving a concurrent conflict of interest. Representation of such a seller of structured settlement payments is essentially prohibited unless, without exception, (1) the attorney’s engagement is with the seller alone, (2) the attorney is not affiliated with or compensated by the buyer, and (3) the attorney’s compensation for the representation is unaffected in any way by whether the sale of payments does or does not occur. Representation of a seller of structured settlement payments in the absence of these special restrictions is effectively a representation prohibited by the Act and thus “prohibited by law.” When these specific statutory prescriptions for this special representation are met, the circumstances which implicate counsel’s personal interests and create a concurrent conflict of interest are eliminated. The Act contemplates that seller’s counsel, once these prescriptions obtain, has no professional duty to anyone other than the seller. Counsel is not subject to the conflict of interest which would be created if counsel had an affiliation with or is to be paid by the buyer and can give advice to the client without being influenced by whether or not the lawyer will be paid.
It should be noted, however, that circumstances implicating the lawyer’s personal interest may remain even after the statutory requirements for representation have been satisfied. For example, payment of counsel’s compensation for representing the seller could be unconditionally guaranteed or payable by a third party unaffiliated with the purchaser. If such a third party assumes the duty to pay the lawyer’s compensation, the lawyer will be obliged to recognize yet another potential source of concurrent conflict of interest, to obtain the client’s informed consent in writing, and to observe the other requirements of Rules 1.7 and 1.8(f), mentioned above.
Whatever arrangements are made, counsel must be sure that all requirements of the Act and of the applicable Rules of Professional Conduct are satisfied from the outset of any engagement to represent a seller of payments. As noted above, in some cases, counsel may need to consider whether, in addition to complying with the representation requirements of the Act, the client seller’s informed consent must be obtained in writing to satisfy Rule 1.7 and/or Rule 1.8(f). In addition, seller’s counsel, before accepting such an engagement, must carefully evaluate whether he or she is competent to meet the statutory requirement of rendering advice “concerning the legal, tax and financial implications of a transfer of structured settlement payment rights”. Rule 1.1 requires that:
“A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”
Counsel would do well to consider not only Rule 1.1, but also the accompanying commentary in assessing whether he or she can faithfully represent a seller of structured settlement payments. In doing so, counsel’s ability to provide the required “independent professional advice” including not only legal, but also tax and financial advice should be carefully assessed in light of the specific requirements of the Act, the definition of “independent professional advice,” the statutory standards of review which will be applied under the Act by the reviewing court, and the specific findings the court must make before approving a sale of future payments. Counsel should fully understand the transaction proposed by the client and should be aware that not all sales of future payments are permissible as a matter of law.5 Counsel should also be fully equipped to understand and explain to the client the serious financial consequences which will attend the sale if it should be consummated.
1 Maine is one of forty-eight states which has enacted an SSPA (shorthand for what is known as a structured settlement protection act.)
2 In the Structured Settlements Protection Act, a seller of payments is called “the payee.” More specifically, “[p]ayee means an individual who is receiving tax-free damage payments under a structured settlement and proposes to make a transfer of payment rights under that settlement.” 24-A M.R.S. § 2241 (9).
3 A purchaser of structured settlement payments is called the “transferee.” “Transferee” means a person that becomes entitled to receive structured settlement payment rights as a result of a transfer agreement. 24-A M.R.S. § 2241 (20).
4 As used herein, the term “Rule” refers to the Maine Rules of Professional Conduct, effective August 1, 2009. The Rules of Professional Conduct can be found online at the following URL: http://www.mebaroverseers.org/attorneyregulation/maineconduct_rules.html .
5 As an example, a sale of structured settlement payments resulting from settlement of a Maine workers compensation claim may be prohibited, as it may contravene applicable workers compensation law forbidding assignment of future payments. See, e.g. In re: Donald Richardson, No. Civ. A. CV-05-130, 2005 WL 3804993 (Me. Super., Nov.3, 2005); see also Rapid Settlements, Ltd. v. United States Fidelity and Guaranty Company and Lonnie L. Hamm, 672 F. Supp. 2d 714 (D. Md. 2009).