|"And then the calculator said . . ."|
By Andrew Delaney
When I was younger, I was quite good at math. The thing I never liked was having to show my work. If I got the right answer, what did it matter? Then, when I was headed to law school, I was told something like, “Now, it doesn’t matter if you get the right answer—the right answer is largely irrelevant. The important thing is to show your analysis.” I thought that seemed doubly silly. Now that I teach college classes, I think I know why: answers are boring but analysis can be entertaining. I’m kidding . . . sort of. The bottom line is that in law—like in math class—it’s important to show your work.
Here’s the story. Mr. Larock hired Stevens Law Office to represent him in a case. Stevens Law Office required a $16K nonrefundable retainer. Mr. Larock has a structured settlement, and the way the $16K would get paid is in 2022, the settlement funding company would pay the $16K directly to Stevens Law Office. Mr. Larock agreed to these terms.
Stevens Law Office then asked the trial court to approve the deal as required by this statute. There was a brief hearing, and an inquiry with bar counsel about the propriety of nonrefundable retainers (they’re okay as long as there’s notice of nonrefundability, scope, and the fee is reasonable). The trial court then issued a decision, concluding that because Stevens Law Office’s representation was ongoing, any determination of whether the fee was reasonable would be necessarily speculative.
Stevens Law Office filed for reconsideration. The trial court denied the motion. It reasoned that Stevens Law Office essentially was a creditor, and the Legislature didn’t intend that future payment rights could be used to satisfy creditors.
So Stevens Law Office appeals. It argues that the trial court abused discretion in refusing to do a fair-and-reasonable-fee analysis and that the trial court got the legislative intent wrong.
Here we have a threefold standard of review, which should be paired with this pocket-square fold. First, SCOV defers on the facts. Second, legal conclusions get a de novo review but will be upheld if reasonably supported by the evidence. Third, discretionary rulings get the abuse-of-discretion once-over.
SCOV begins with some history of structured settlements. For the sake of brevity, we’ll just say that structured settlements involve a way to pay judgments or settlements over time with periodic payments. The purposes are varied but they provide a source of income and support for victims of negligence or malpractice and are intended to lessen the burden on the public. Due to these purposes, the Legislature has noted: “It is the policy of this State that such agreements, which have often been approved by a court, should not be set aside lightly or without good reason.”
Rights in a structured settlement can’t be transferred unless a court finds that the transfer is in the payee’s best interests, considering whether: (1) the payee sufficiently understands the deal; (2) the payee will still be able to meet his financial obligations; (3) it’s for an appropriate purpose; and (4) the deal is fair and reasonable. In addition, the payee must’ve been advised to seek independent professional advice and have received that advice (or there needs to be a showing that the advice isn’t necessary), and the transfer has to be lawful.
Basically, there’s a pretty detail-oriented analysis that has to happen. In addition, there’s a 40% federal excise tax if it’s not done on the up-and-up, pursuant to a court order.
SCOV reasons that the takeaway is that the best-interests analysis is required for the trial court to properly exercise its role here. What the trial court did was say that the whole thing was speculative. On the motion for reconsideration, the trial court acknowledged its guardianship-type role, but then classified the assignment as “essentially a collection action” and skipped the best-interests analysis.
But the trial court needs to show its work. SCOV reasons that the trial court does act as a sort-of guardian here, and that role requires performing the best-interests analysis in assessing a transfer of structured settlement rights. Even if the Legislature intended that structured-settlement funds not be used for creditors (and that Stevens Law Office is a creditor), that would only be one factor in the mix. And to make a proper analysis all the statutory factors need to be analyzed. Again, show your work.
The SCOV concludes that “Vermont’s statute requires the trial court to issue express findings of fact based on admissible evidence directed at each factor” in the statute. And so, this one gets booted back to the trial court for further analysis and decidin’.