The Mraz Case

Author Patrick Hindert recently spoke with Mark Wahlstrom on the Speaking of Justice podcast regarding this case, listen to the audio here

For many attorneys who represent personal injury plaintiffs, their primary desire is to use their expertise to obtain the largest possible amount of compensation for their client. The best personal injury plaintiff’s attorneys are outstanding litigators who can prove liability and demonstrate why a large award is needed to redress the wrong done to that client. That being said, personal injury settlement planning and negotiation require a different subject matter expertise than personal injury litigation.

The format of a lump sum settlement or judgment is generally uncomplicated, although this may require special expertise to address, beyond the issues of subrogation rights, liens, taxes, allocations among multiple plaintiffs and other factors that exist regardless of the form of settlement.

Structured settlements, however, can be seen as a complication for the client’s decision making. If the plaintiff decides to pursue a structured settlement, their attorney will be responsible for negotiating an agreement and reducing it to an enforceable set of rights that will embody the client’s financial expectations.

ABA Mode Rules

Supporting the plaintiff by facilitating a meeting with the experts needed to address structured settlement issues is inexorably part of the plaintiff’s attorney’s role. The ABA Model Rules of Professional Conduct address this in several ways.

  • Rule 1.2: Attorneys are to “abide by the client’s decisions concerning the objectives of the representation” and to “consult with the client as to the means by which they are to be pursued.”
  • Rule 1.4: Attorneys must communicate with clients reasonably to explain matters so that the clients can make informed decisions.
  • Rule 1.3: Attorneys must be diligent regarding matters that can be adversely affected by the passage of time, a subject inevitably present in any structured settlement.
  • Comment to Rule 1.16: Ordinarily, a representation in a matter is completed when the agreed-upon assistance has been concluded.

Plaintiff’s attorneys cannot avoid these issues by simply refusing to get involved in structured settlements. The potential legal liability for plaintiff attorneys who do not advise their clients about structured settlements is demonstrated by the well-known 2001 Texas Grillo case.

The Mraz Case

Additional lessons for plaintiff attorneys about structured settlements, however, can be learned from a 2019 unpublished decision of the California Court of Appeal, Second District, Division 3, of a complicated professional malpractice case (A.M. v. Lieff Cabraser) which, on appeal, completely exonerated the plaintiff attorneys in the original lawsuit.

The original lawsuit (the Mraz Case) was brought by Adriana Mraz and her three children for the wrongful death of her husband, Richard Mraz, from an accident caused by an allegedly defective Dodge pickup (the Chrysler case). A.M. is the natural child of Richard; the other minor children were her two step-brothers, Roy and Joe Lopez.

The original lawsuit resulted in a $54 million jury award against Chrysler, including $50 million in punitive damages, in 2007. Subsequent to Chrysler’s bankruptcy, Lieff Cabraser mediated a $24 million settlement term sheet with Chrysler and its insurer Safeco (which the bankruptcy court approved in 2009) that made no mention of structured settlements.

Subsequent to the settlement, Adriana Mraz filed a complaint December 2011, on behalf of A.M., alleging  professional malpractice against Lieff Cabraser for failing to obtain a structured settlement for A.M. Most of damages allocated to A.M. in the settlement were punitive and the loss to A.M. alleged by her attorney as a result of not structuring her settlement was estimated to approximate $600,000 present value.

The result of the jury trial and the appeal, however, was to exonerate Lieff Cabraser. As to the structured settlements, the California Court of Appeal concluded: “there was substantial evidence that the real impediment to a structured settlement for A.M. was Safeco, not Lieff Cabraser. 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.

Important Lessons

Despite its result, including the substantial cash settlement and the appellate decision, the Mraz case should have included a structured settlement and offers some important lessons for plaintiff attorneys.

  • Qualified Settlement Funds – In large, complex settlements, plaintiff attorneys should always consider the use of IRC 468B Qualified Settlement Funds. Among other objectives, they can extend and preserve plaintiffs’ decision-making options as to whether or not to structure their settlements, how much of their settlements to structure and which companies should fund their periodic payments. Significant expert discussion in the Mraz professional malpractice trial related to the potential application of a Qualified Settlement Fund which, if utilized, arguably could have: 1) provided Safeco with a full and final release; and allowed time for the plaintiffs to 2) allocate settlement funds; 3) determine whether or not to structure. Two of the three Mraz children were step-children and therefore appeared to have adverse interests.
  • Term Sheet Language – In large, complex cases, plaintiff attorneys should preserve their clients’ structured settlement options by proposing language similar to the following to a binding and admissible mediation term sheet – or, as in the Mraz case, a bankruptcy stipulation: “The parties agree to settle this case for $_____ a portion of which may be placed in one or more structured settlements funded with either a qualified or non-qualified assignment. Plaintiff’s attorney will communicate to Defendant on or before _____ payment instructions including: the payee (the name of the QSF or the assignee), the structured settlement periodic payments, structured settlement annuity provider(s), structured settlement cost, purchase date and whether the structured settlement(s) is/are to be excluded from income tax under IRC 104(a)(2). Plaintiff’s attorney will also provide Defendant’s attorney with sample structured settlement closing documentation. Defendant agrees to cooperate in arranging the Plaintiff’s structured settlement(s).
  • Consultant Participation – From the evidence at trial, it appears the plaintiff attorneys may not have engaged (or at least followed the advice of) a structured settlement expert until after September 24, 2009 – the date the bankruptcy court approved the settlement. If the Mraz case offers a singularly important lesson for plaintiff attorneys, that lesson is to retain qualified structured settlement expertise early in the case process. At the time of the Mraz case, Lieff Cabraser was arguably one of the most successful litigation firms in the United States. As this article suggests, and as the Mraz case demonstrates, however, settlement planning and structured settlements involve and require their own expertise.

For more detailed analysis of the Mraz case, see “Structured Settlements and Periodic Payment Judgments” published by Law Journal Press.

Share