The claim involved an eleven year-old plaintiff named Audrey Serravalle. She was struck by the defendant, Thomas Duggan (“Mr. Duggan”), when she was a crossing a residential road on May 17, 2018. Mr. Duggan was travelling eastbound and crossed the yellow line to pass a garbage truck that had stopped in the eastbound lane. Audrey ran out from in front of the garbage truck and was struck by Mr. Duggan’s vehicle. Audrey suffered multiple fractures to her skull, clavicle, and pelvis, a tear to her right meniscus, and a serious degloving injury to the left foot.
Audrey commenced an action through her father who acted as her litigation guardian. The matter proceeded to mediation on February 9, 2022 and settled for $400,000, plus costs and disbursements. On March 21, 2022, the plaintiff’s law firm placed $150,000 of the settlement into a structured settlement.
The plaintiffs brought a written motion seeking court approval of the portion of the settlement pertaining to the minor plaintiff Audrey (the “Settlement”) pursuant to Rule 7.08 of the Rules of Civil Procedure.
Have the plaintiffs satisfied the court that the proposed settlement is fair and reasonable?
The court ultimately approved the Settlement after performing a thorough analysis of Mr. Duggan’s liability, Audrey’s contributory negligence, her injuries, and her projected future impairments and loss of competitive advantage.
However, the court did not approve of the plaintiff law firm’s decision to place $150,000 of the Settlement into a structured settlement prior to receiving court approval. By doing so, the court stated that the plaintiff law firm had violated Rule 7.09(1) of the Rules of Civil Procedure. Citing Rule 7.08 and Wu (Estate) v. Zurich Insurance Company (2006), the court stated that the operation of a settlement involving a minor plaintiff was suspended until it had been approved by the court. The court held that payment of settlement funds into the court was required unless leave had been granted.
The court also ruled that the plaintiff law firm’s Contingency Fee Agreement was unenforceable. The agreement appeared to have been signed by the parties on June 27, 2018, while the plaintiff law firm’s dockets indicated that its first meeting with the plaintiffs was on June 28, 2018. The court also found that Audrey’s father, the litigation guardian for the action, had not understood the implications of the agreement as he appeared to have mistakenly believed that the plaintiffs would not be responsible for any fees or disbursements if they lost at trial. The plaintiff law firm’s contingency rate was reduced from 30% to 25% due to vague dockets, services that were properly overhead, and the lack of analysis regarding liability, contributory negligence, and damages provided in the law firm’s affidavit for the motion.
The court further found that the plaintiff law firm’s Referral Agreement was unenforceable as it had been signed after the matter settled at mediation and nearly four years after the plaintiffs had been referred to the plaintiff law firm. The court reasoned that it was unclear whether the plaintiffs’ lawyers had explained the nature of the Referral Agreement at the time of the referral, given that the agreement had been signed nearly four years after the referral occurred. The court ruled that to permit an agreement entered into under such circumstances would undermine the Law Society’s objectives of transparency and disclosure, and ruled that the agreement and referral fee of $11,524.77 were not enforceable.
Parties should exercise caution if they place settlement funds into structured settlements prior to receiving court approval, regardless of whether the structure is funded in escrow and on the condition that it may be collapsed if the court does not approve of the settlement. Courts may no longer be agreeable to these arrangements pursuant to Rule 7.09 of the Rules of Civil Procedure.
The plaintiff law firm in this matter is currently in the process of appealing the decision and is seeking clarification regarding the court’s position on whether structured settlements can be arranged in escrow prior to receiving court approval. It remains to be seen whether the practice of placing settlement funds into structured settlements prior to being granted court approval will be upheld or denied by the courts.