The Mraz case, why trial lawyers MUST consider using Qualified Settlement Funds in most cases
In what I believe will be a landmark case, despite the out come correctly exonerating the plaintiff attorney’s from accusations of legal malpractice, the “Mraz case” highlights exactly why trial lawyers MUST consider using a 468B Qualified Settlement Fund, or QSF, on any significant litigation. In this post I want to outline my thoughts on this, as well as include a video tutorial on the highlights of Qualified Settlement Funds.
First the facts on this complicated but important legal malpractice case, which was filed under A.M vs. Lieff Cabraser. It was decided in early 2019 in the California Court of Appeal, Second District, Division 3 and it is important to note that the plaintiff attorneys were completely exonerated on appeal from any charges of legal malpractice. Despite that result the case is a major example of why QSF’s must be considered on most larger cases.
The original lawsuit, filed on behalf of a widow and children in wrongful death case involving a Chrysler vehicle back in 2007, resulted in a $54 million jury award against Chrysler. However it is important to note that of that amount, $50 million was awarded in punitive damages. As you may recall, Chrysler, like many other auto companies was near insolvent and was in bankruptcy, lending urgency to negotiations while in appeal. Eventually Lieff Cabraser mediated a $24 million settlement with Chrysler and its insurer Safeco which the bankruptcy court approved in 2009. You can imagine the pressure and complexity in getting this excellent result under the time pressure and credit duress that situation created. However, that settlement and the supporting documents made no mention of structured settlements and the alleged desire of plaintiffs to utilize them in this case.
After the settlement, Adriana Mraz filed a complaint in late 2011, on behalf of A.M., alleging professional malpractice against Lieff Cabraser for failing to obtain a structured settlement for A.M. The basis of the complaint was that in the trial and settlement, the majority of the damages allocated to A.M. were punitive and thus taxable. As a result of this allocation issue, this caused the California resident to be exposed to both state and federal income taxes on the majority of their allocation. The alleged estimated loss to A.M. due to the failure to structuring her settlement, was calculated by her attorney at roughly $600,000 of present value.
While the resulting trial and appeals court decision came out in favor of plaintiff counsel, this result was largely derived from the court find of fact that the defendant insurance company, Safeco, steadfastly had refused to cooperate with the plaintiffs in putting a structure in place, resulting in the full amount of the punitive award being taxed in the year in which it was received. In fact the California appeals court said in it’s published decision, that “Safeco’s unwillingness to expose itself to even the remote potential of having to make periodic payments in the future was the ultimate obstacle to a structured settlement for A.M. Without Safeco’s cooperation, it was impossible for any lawyer to have obtained a structured settlement for A.M.”
So, while the outcome was favorable to plaintiff counsel, the end result was still unfortunate and expensive for the minor child who was unable to structure due to failures in process through out the case. What lessons should be learned here by trial lawyers in looking at this case?
A Section 468B Qualified Settlement Fund, or QSF, absolutely needed to be put in place BEFORE trial so as to create a vehicle that protected the rights of the plaintiffs and their counsel to do settlement planning AFTER the verdict and with funds held in escrow in the QSF account. Keep in mind that in the Mraz case the failure of the defendant insurer to sign off on a structure was ultimately identified as the primary reason a structure wasn’t done. However, in a properly constructed and administered QSF or 468B Trust, a structured settlement positively could have been written, with a fully compliant qualified assignment and guarantees, as the defendant would have been out of the picture and released upon payment of their $24 million in to the QSF. A careful, consider process could have followed settlement, with out defense pressure, interference or non-cooperation and this entire situation could have been avoided.
While it would be nice to imagine that most insurers today, in 2019, would cooperate on paying claims into a QSF, the reality is that many major casualty companies arbitrarily choose to make it “their policy” to refuse to pay claims into a court supervised, IRS compliant Qualified settlement Fund. The reasoning is solely based upon the fact that when they pay into a QSF, they lose control over the structured settlement process as defense brokers and thus are unable to direct which life insurance companies or preferred defense brokers are awarded the often substantial premium involved in structured settlements. This is a stark reality in litigation and settlements at this time and the sad fact is too many trial lawyers are afraid to challenge this “company policy” of major casualty markets as they are afraid to jeopardize their settlement negotiations. Consequently, it up to trial lawyers to SPECIFICALLY obtain agreements ahead of mediation, settlements and verdicts to fully instruct defendants that a condition of settlement is payment of all funds into a court supervised QSF as allowed under IRC Section 468B and is standard practice on virtually every major mass tort in the US.
That the trial lawyers in this matter, who were and are a highly respected firm with premium legal talent, failed to engage their own plaintiff structured settlement expert or settlement planner to assist in the process, is a too common mistake of even the best firms. Trial lawyers are rightly focused on litigating and then settling/trying cases to the maximum result. Those same skills and laser focus often result in a failure to engage settlement planning consultants at the proper point in the process to insure all of the planning tools and options available are used to insure the long term success of their clients when a settlement amount is paid.
In conclusion, The Mraz Case offers a glimpse into the unintended results of failing to engage a qualified structured settlement expert or settlement planner. A firm such as Wahlstrom & Associates has ALL of the planning tools, case negotiation experience and knowledge necessary to protect the interests of injury victims as well as their attorney’s using these simple, powerful and compliant planning tools, like the QSF.