Opinion
1573/2011.
Decided May 10, 2011.
John S. Pokalsky, Esq., New York, NY, for Petitioner.
The following papers numbered 1 to 6 read in this special proceeding brought by Settlement Funding of New York, LLC ("SFNY") for, inter alia, an order finding that the transfer of structured settlement rights pursuant to a transfer agreement entered into by SFNY and Allia Y. Rahman complies with Title 17 of the General Obligations Law.
Papers Numbered
Order to Show Cause — Petition — Exhibits .................................... 1-6This is a petition brought by Settlement Funding of New York, Inc. ("SFNY") for, inter alia, an order finding that the transfer of structured settlement rights, pursuant to a transfer agreement entered into by SFNY and Allia Y. Rahman, complies with Title 17 of the General Obligations Law.
Petitioner SFNY is a limited liability company organized under the laws of the State of New York with its principal place of business located at 3301 Quantum Blvd., Boynton Beach, Florida.
Allia Y. Rahman, is an adult 18 years of age, not married and with no children, residing at 150-05 Coolidge Avenue, Jamaica, New York. Rahman works at Old Navy earning an income of $700 per month. Rahman settled a personal injury claim and became entitled to structured settlement payments due under a settlement agreement which provided for a series of deferred cash payments. She became entitled to 360 monthly payments each in the amount of $135 beginning on November 20, 2010 and increasing 4% every 12 payments through and including October 20, 2040 and continuing for life thereafter.
The Metropolitan Property Casualty Insurance Company obligated itself to make the payments due under the settlement agreement, and the carrier funded its obligation to make the payments through the purchase of an annuity contract from Metropolitan Life Insurance Company.
Rahman entered into a transfer agreement with SFNY, dated January 7, 2011, pursuant to which the former assigned to the latter certain payments remaining under the structured settlement agreement. As gleaned from the disclosure statement provided by SFNY to Rahman, in accordance with GOL section 5-1703, the aggregate amount of the transferred payments amounts to $64,023 and the discounted present value of the payments to be transferred amounts to $50,001.46. The transfer agreement requires SFNY to pay a gross amount of $13,850 to Rahman, in accordance with a stated annual discount rate of 14.99%. According to SFNY, the discount rate is "well within the industry norm for such transfers." The transfer agreement reads, in relevant part: "In return [or compensation] for selling and assigning to you my rights to receive these payments, you shall pay me the sum of $13,850.00 (the Assignment Price')." After deducting attorney's fees in the amount of $2,000 and other expenses, Rahman would receive $11,650 in return for surrendering her rights under the settlement agreement.
John S. Pokalsky, the attorney for SFNY, has submitted an affidavit swearing that he made service of the order to show cause upon the Metropolitan companies. They do not oppose the instant application. Rahman has submitted an affidavit dated February 8, 2011, admitting service of the instant order to show cause and swearing: "I fully support the request for the transfer sought herein and I do not oppose the application ***."
On March 17, 2011, Rahman and Pokalsky appeared before this Court, and the former stated that she intends to use the proceeds from the transfer agreement to further her education at Hunter College. Rahman swears in an affidavit executed February 8, 2011: "I intend to utilize the full proceeds from this transaction, approximately $11,650 for my tuition at Hunter College. I previously applied for financial aide [sic] and was denied. I do not have any the [sic] financial resources for the aforementioned expense."
New York State enacted The Structural Settlement Protection Act (General Obligations Law § 5-1701 et seq.), in 2002, because factoring companies were using " . . . aggressive advertising, plus the allure of quick and easy cash, to induce settlement recipients to cash out future payments, often at substantial discounts, depriving victims and their families of the long-term financial security their structured settlements were designed to provide." (NYS. Legis. Memo. Ch. 537, 2002; McKinney's 2002 Session Laws of NY, at 2036). The Structural Settlement Protection Act prohibits the transfer of structured settlement payments unless approved by a court after express findings required by General Obligations Law § 5-1706 (a)-(e). ( See, In re 321 Henderson Receivables Origination, LLC, 19 Misc 3d 504 [Sup Ct Queens County 2008] [decision by the undersigned]).
The parties to the transfer of structured settlement payments must follow specified statutory procedures to obtain court approval, including, inter alia, disclosures, advice to the transferor concerning independent professional advice, and notice to concerned parties. ( See, GOL §§ 5-1703, 5-1705, 5-1706; In re Settlement Funding of New York, L.L.C., 29 Misc 3d 1230 [A] [Table], 2010 WL 4942828 [Text] [Sup Ct Queens County 2010] [decision by the undersigned]; In re 321 Henderson Receivables Ltd. Partnership, 2 Misc 3d 463 [Sup ct Monroe County 2003]).
The Court must find, inter alia, that "the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount are fair and reasonable." (GOL § 5-1706[b]; see, In re Settlement Funding of New York, LLC, 29 Misc 3d 1230 [A], 2010 WL 4942828, supra; In re 321 Henderson Receivables Origination, LLC, 19 Misc 3d 504, supra.) The Court must also make ultimate findings concerning whether "the transfer is in the best interest of the payee***" and whether the transaction is "fair and reasonable." (GOL § 5-1706[b]; see, In re 321 Henderson Receivables Ltd. Partnership, 2 Misc 3d 463 , supra.)
Although the statute does not specify the factors which must be taken into account in determining whether the transaction is in the best interests of the transferor, developing case law identifies such relevant factors as, e.g., "the Payee's age, mental capacity, physical capacity, maturity level, independent income, and ability to support dependents; (2) purpose of the intended use of the funds; (3) potential need for future medical treatment; (4) the financial acumen of the Payee; (5) whether Payee is in a hardship situation to the extent that he or she is in dire straits'; (6) the ability of the Payee to appreciate financial consequences based on independent legal and financial advice; (7) the timing of the application ***." ( In re Settlement Funding of New York, LLC, 2 Misc 3d 872, 876 [Sup Ct Lewis County 2003]).
While the Court is mindful of Rahman's present need for funds to further her education, the papers submitted by the parties do not adequately provide a basis for the court to make the findings required by GOL section 5-1706. First, SFNY did not submit an affidavit from a party with knowledge substantiating the allegation that the 14.99 % discount rate applied by SFNY is fair and usual. ( See, In re Settlement Funding of New York, LLC, 29 Misc 3d 1230 [A], 2010 WL 4942828, supra; In re Settlement Funding of New York, LLC, 2 Misc 3d 872, supra).
Second, SFNY did not cite any comparative cases approving or disapproving a settlement agreement where the transferee applied a similar discount rate. Third, SFNY did not show that the attorney's fee in this case ($2,000) was fair and reasonable. ( See, In re Settlement Funding of New York, LLC v Structured Settlement Trust, 2009 WL 3713136, 2009 NY Slip Op 32553[U] [Sup Ct Nassau County 2009]).
Fourth, SFNY has submitted what purports to be a letter from Alexander Kanen, Esq., stating, inter alia, that he provided Rahman with "independent professional advice regarding said agreement." The letter is hearsay and does not provide adequate detail about the "legal and financial implications" of the transfer agreement allegedly discussed with his client. The letter merely mentions "other methods to obtain the funds desired," a matter of importance in this case. SFNY failed to submit an affirmation from Kanen adequately addressing these matters and also establishing his alleged "independence."
Accordingly, the petition is denied without prejudice to renewal upon proper papers remedying the defects noted herein.