Opinion
EF2020-266998
02-19-2021
In the MATTER OF the Petition of RSL FUNDING, LLC, Petitioner, New York Life Insurance and Annuity Corporation, New York Life Insurance, Company and M.G.N. as Interested Persons pursuant to General Obligations Law § 5-1701 (f).
LUIGI BRANDIMARTE, Esq., SACCO & FILLAS, LLP, 31-19 Newtown Avenue Seventh Floor, Astoria, NY 11102, Attorney for Petitioner.
LUIGI BRANDIMARTE, Esq., SACCO & FILLAS, LLP, 31-19 Newtown Avenue Seventh Floor, Astoria, NY 11102, Attorney for Petitioner.
The State's civil court system is most often relied upon as society's forum for the peaceful resolution of non-criminal disagreements. Parties unable to settle their differences turn to the State's civil courts to receive a just and fair determination either by judge or jury. Less frequently, parties in agreement are required by law to seek court approval before their arrangement can be finalized. This approval is often required because of a concern that one of the parties may be particularly vulnerable to unfair dealing. This proceeding involves the latter and confirms why legislation mandating the Courts’ involvement in these proceedings exists.
Facts
Petitioner RSL Funding, LLC seeks approval of a proposed transfer of structured settlement payments due Mr. N. (Payee) pursuant to General Obligations Law § 5-1701 et seq. , known as the Structured Settlement Protection Act (Protection Act). Payee "became entitled to receive monthly payments in the amount of $2,546.55 per month which commenced on [his] eighteen [sic] birthday and were guaranteed for forty (40) years certain and life thereafter," with the payments increasing in value at a rate of 3% per year [Payee's Affidavit ¶ 2]. Payee's settlement resulted from a lawsuit filed on his behalf for injuries sustained when he was a child, however, Payee is "fully recovered ... able bodied and capable of working" [Payee's Affidavit ¶ 3].
Terms of the Transfer Agreement
On August 13, 2020, Payee executed a Transfer Agreement and Addendum to the Transfer Agreement (collectively the Transfer Agreement) [Exhibit A]. If approved, the Transfer Agreement would provide Petitioner with Payee's settlement payments amounting to "forty-eight (48) monthly payments, each in the amount of $11,163.83 (subject to a 3% annual increase every June 29th, ultimately increasing to $12,199.02) due, beginning on June 29, 2054 through to and including May 29, 2058 (collectively the Assigned Payments)" [Petition ¶ 12]. Combined, the Assigned Payments total $560,463.00. In exchange, Payee would receive "a gross advance amount of $182,500.00" [Petition ¶ 19 (a)]. Payee would only receive a small percentage of the total gross advance amount in the near future and would have to wait over three decades to even begin receiving payment on the lion's share of the payment. Pursuant to the Transfer Agreement:
"In exchange for the Assigned Payments, Payee is expected to ultimately receive gross payments totaling $182,500.00, which is comprised of: (i) an initial lump sum payment of $2,500.00 (the "Initial Payment" ...), and; (ii) a total of $180,000.00 payable, pursuant to the terms and conditions as set forth in the Transfer Agreement and Disclosure Statement (subject to Payee then being alive) by Transferee or its assignee consisting of conditional monthly payments of $7,500.00 each over twenty-four (24) months from July 20, 2056 and ending on July 20, 2058" [Petition ¶ 20; exhibits A, B].
The Discount Rate and Present Value of the Payments
Petitioner explains that the total gross advance amount of $182,500 was arrived at using a fourteen percent discount rate which "represents a competitive market discount rate, especially considering market conditions" and "is ... considerably lower than the NYS permitted maximum rate" [Petition ¶ 19; Exhibit B ¶ 5]. Petitioner provides neither an explanation of the present market conditions nor the NYS permitted maximum rate. A New York Disclosure Statement provided by Petitioner to Payee pursuant to the Protection Act, ostensibly to simplify the terms of the transaction, contains the following explanation:
"The discounted present value of the payments to be transferred is Four Hundred Eighty-Five Thousand Five Hundred Twenty ($485,520) Dollars [emphasis added]. The discounted present value is the calculation of the current value of the transferred structured settlement payments under federal standards for valuing annuities, and the amount of the Applicable Federal Rate used in calculating the discounted present value determined by applying the most recently published discount rate, which was .4% as of August 1, 2020. THIS IS NOT THE RATE USED TO CALCULATE YOUR ASSIGNMENT PRICE. It is also not the market rate for transfers of annuity payments or structured settlement payments." [Exhibit B ¶ 3].
The Addendum
An addendum to the Transfer Agreement would provide Petitioner (referred to in the addendum as Assignee) the ability to offset nearly all its risk. By the addendum's terms, Petitioner could require Payee (referred to in the Addendum as Assignor) to take and satisfactorily, in Petitioner's sole discretion, pass a medical examination. Additionally, Petitioner could require Payee to obtain a life insurance policy on his own life in an amount up to the total value of the Assigned Payments (referred to in the addendum as the For Life Payments) for nearly the sole benefit of Petitioner. The addendum provides:
"1. Medical Examination and Medical Underwriting. RSL Funding's obligation to purchase the Assigned Payments (including the For Life Payments) is subject to and contingent upon RSL Funding's evaluation, to its satisfaction, of the results of a medical examination of Assignor and, where so deemed necessary or appropriate by RSL Funding or by Assignee: (i) the successful issuance and irrevocable delivery of a life insurance policy in good form from a well-rated issuer where the Assignor is the measuring life (that is, the insured), with such insurance for the benefit of Assignee and paid for in full by an up-front deposit by Assignor with Assignee of the policy's premiums through the end of the For Life Payment time period with a policy face amount equal to approximately the For Life Payments (not present value discounted), as required by Assignee [emphasis added]; and (ii) an additional mortality adjustment (in addition to the mortality adjustment set forth in the disclosure statement at paragraph 6.i. of the Disclosure Statement) such to be financially borne by Assignor in an amount that RSL Funding, in its sole and absolute discretion (as set out in the Transfer Agreement and Disclosure Statement), may decide in writing to accept as payment in the event the aforementioned policy is not issued. The obligation to deliver the aforementioned life insurance policy shall be performed solely by Assignor, with Assignee agreeing to assist in the process as Assignee may decide from time-to-time [emphasis added].
"In all instances, if a life insurance policy cannot be obtained on the life of the Assignor (or if different, the measuring life under the For Life Payments), for any reason or if such policy cannot be obtained based upon "standard issues" premiums (not rated) as provided for in the Disclosure Statement and the Transfer Agreement, such determined by RSL Funding in its sole judgment, Assignee (at its sole option): (i) may terminate this transaction at any time prior to paying the Initial Payment and no more in full satisfaction of the monies due; or (ii) RSL Funding may pay the Initial Payment and no more, in full satisfaction of the amounts due under the Transfer Agreement and Disclosure Statement " [emphasis added] [Exhibit A ¶ 1].
"2. Life Insurance Proceeds. In the event of the death of the Assignor on or before the payment of the last of the For Life Payments to RSL Funding or its assignee, RSL Funding shall pay Assignor's estate or other beneficiary specified by Assignor, to the extent and only to the extent that life insurance has been maintained and life insurance proceeds are ultimately received by RSL Funding or its assignee on account of the death of the Assignor, up to but no more than $5,000.00 of the life insurance proceeds [emphasis added] actually received by RSL Funding or its assignee specifically on account of the death of Assignor, provided ongoing and full cooperation by Assignor (and the measuring life) and his/her heirs is a condition precedent of this obligation to pay this up to $5,000.00 portion of the life insurance proceeds. The balance of all insurance proceeds whatsoever shall be solely and exclusively the property of RSL Funding or its assignee for all purposes. ASSIGNOR RECOGNIZES AND ACKNOWLEDGES THAT NEITHER ASSIGNOR NOR HIS/HER HEIRS SHALL HAVE ANY RIGHT TO THE PROCEEDS DURING THE USUAL TWO (2) YEAR CONTESTIBILITY PERIOD OF ANY INSURANCE POLICY AND SHALL HAVE NO RIGHT TO INSURANCE PROCEEDS IN THE EVENT OF A OMMSSION, MISSTATEMENT OR FRAUD IN CONNECTION WITH ANY INSURANCE APPLICATION OR THE LACK OF ONGOING COOPERATION BY ALL PERSONS INCLUDING THE HEIRS AND THE MEASURING LIFE, AND THE ASSIGNOR" [Exhibit A ¶ 2] [emphasis in original].
Pursuant to these terms, if Payee passes away before the For Life Payments are fully realized by Petitioner or its assigns, at most, only $5,000 of a potential $560,463.00 life insurance payment would benefit Payee's heirs; the remainder would be payable to Petitioner or its assigns.
Interest and Fairness of the Transaction
Despite what appears to be an entirely one-sided arrangement, the Petition stresses the Transfer Agreement is in Payee's best interested because:
"Payee is selling his payments to pay off fines to reinstate his license. Further with the current crisis associated with the COVID-19 virus pandemic, Payee is in immediate [emphasis in original] need of funds. Payee's employment has been affected by the COVID-19 outbreak and therefor the funds from this transfer will also help to supplement Payee's income during this critical time" [Petition ¶ 16].
Notwithstanding these claims, Payee's own affidavit explains that he "does not depend upon the ... future payments that [he is] selling to pay for the necessities of life (food, clothing shelter, etc.), as the income [he] will make from [his] roofing business is enough to support [himself]" [Payee's Affidavit ¶ 5]. Payee indicates no hardship resulting from the COVID-19 virus pandemic.
In addition to emphasizing the time sensitivity of Payee's financial need, Petitioner repeats, and emphasizes as follows, that in exchange for providing immediate funds to Payee, Petitioner will run a risk of not being paid in the future:
" To be clear, the first payment isn't due until June 2054 " [Petition ¶ 12] [emphasis in original];
" The court is also asked to take notice of the extremely long period until the payments are due " [Petition ¶ 17] [emphasis in original];
" The payments being assigned under this transfer are life-contingent, meaning that they are only payable if the Payee is alive on the date the payments are made " [Petition ¶ 21] [emphasis in original]; and
" Moreover, the medical history and/or health-related issues directly and materially affect the likelihood of anyone realizing the full benefits of this proposed transfer for which the first of the Assigned Payments is not due until June 29, 2054 more than 34 years off " [Petition ¶ 22] [emphasis in original].
Prior to signing the Transfer Agreement, and in accordance with the Protection Act, Petitioner advised Payee, in writing, to seek independent professional advice [Petition ¶ 15]. Payee elected to not seek that advice [Petition ¶ 15; Exhibit C]. Payee does confirm that "[b]efore contracting to sell these payments, [he] extensively shopped this proposed transfer to other companies to ensure that [he was] getting a fair offer. [He] concluded RSL Funding offers [him] the best value" [Payee's Affidavit ¶ 7].
Hearing on the Petition
An informal hearing was held on October 30, 2020; Petitioner appeared by counsel and Payee appeared pro se. During the hearing, Payee appeared disoriented, neither able to explain the most basic terms of the Transfer Agreement nor the settlement agreement upon which he should have been receiving monthly payments for decades. At one point, Payee informed the court that he was unemployed, and then only moments later informed the Court that someone at his job assisted with the drafting of Payee's affidavit. When asked about his understanding of the Transfer Agreement's terms and his childhood settlement, Payee appeared frustrated and responded that he did not believe this proceeding would be a big deal because, essentially, it is for only $2,500. Payee confirmed he needs money to pay off motor vehicle fines necessary to reinstate his driver's license; he has a twelve-year-old daughter that he does not live with and for whom he pays minimal support; he lives in his parent's home; and he receives six hundred dollars per month from Social Security. Based upon Payee's confused state, the hearing was adjourned until December 4, 2020 and the Court suggested Payee seek the advice of an independent financial advisor.
When the hearing resumed on December 4, 2020, Petitioner again appeared by counsel and Payee again appeared pro se , this time from a landscaping job site as the Court held the hearing virtually via Microsoft Teams software in light of the ongoing COVID-19 pandemic. Payee appeared to be less confused and again confirmed his interest in pursuing the proposed agreement to pay off unpaid fines required to reinstate his driver's license and additionally to repay his parents for an outstanding loan debt. Payee was unaware how much money he owed in fines but indicated he knew the $2,500 dollars would be sufficient because he has a lawyer. Payee explained that his structured settlement resulted from a personal injury lawsuit resulting from a fall as a child. Payee stopped attending school following the ninth grade but can care for himself.
When asked if he was able to speak with a financial advisor, Payee responded that Petitioner connected him by telephone with an unknown person who advised that, in sum and substance, if he needs the money and has no other way of getting it, then the proposed agreement seems like his only option. Petitioner's attorney confirmed his client had made the connection by telephone.
Noting the Petition and its supporting documentation failed to include everything required by the Protection Act, the Court provided the parties additional time to supplement the record with the following information: (i) a listing of each of Payee's dependents, together with each dependent's age; (ii) any previous transfers or applications for transfer of Payee's structured settlement payment rights with details of all such transfers or applications thereof; (iii) comparable price quotes; and (iv) an explanation regarding the retention and provision of the independent financial advisor that spoke with Payee.
Supplemental Filing
On December 10, 2020, Petitioner filed a Further Affirmation in Support of Petition (Supplemental Affirmation) responding to each of the topics raised by the Court and arguing in further support of the Transfer Agreement. The Supplemental Affirmation indicates: (i) Payee has a twelve-year-old daughter; (ii) from 2005 to 2018, Payee obtained court approval in five of six proceedings brought in New York and Florida, resulting in his sale of all, or a portion of, his monthly settlement payments for the years 2005 through 2054; (iii) Prudential Insurance and Metropolitan, respectively, estimated that the net present value of the Assigned Payments is $188,943.04 and $159,751.63; and Petitioner's Chief Operating Officer found a financial advisor in Payee's geographic area and then connected the two by telephone [Supplemental Affirmation].
The Supplemental Briefing also asserts that "[t]he Proposed Transfer does not [emphasis in original] include a life insurance policy and, therefore, there is no cost and/or premium expense" because, "[i]n the case of [Payee], and based on the structure of the payments, Petitioner is of the opinion that a life insurance policy is not needed" [Supplemental Affirmation ¶ f]. It goes on, however, to confirm that "[i]f, in the future, the Petitioner decides that a life insurance policy is needed, Mr. [Payee]’s cooperation with the underwriting process is required and the Petitioner or its assignee will bear the cost and expense associated therewith" [Supplemental Affirmation ¶ f].
Discussion
The Protection Act became law in 2002 in order to "protect recipients of structured settlements and to maintain the integrity of structured settlements for use in settling personal injury lawsuits and workers’ compensation law claims and to defend the public policies that favor structured settlements" (Sponsor's Mem, Bill Jacket, L 2002, ch 537; see generally James Gordon, Note, Enforcing and Reforming Structured Settlement Protection Acts: How the Law Should Protect Tort Victims , 120 Colum L Rev 1549, 1556-1558 [2020] ; Alexander L. Ash, Comment, It's Your Money and We Want It Now: Regulation of the Structured Settlement Factoring Industry in the Era of Dodd-Frank and the Consumer Financial Protection Bureau , 86 Miss LJ 151, 162-167 [2017] ; Laura J. Koenig, Note, Lies, Damned Lies, and Statistics? Structured Settlements, Factoring, and the Federal Government , 82 Ind LJ 809, 813-814 [2007] ). Justifying the need for this legislation, the bill sponsors explained:
"Recently a growing number of factoring companies have used 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 of their structured settlement payments were designed to provide ... This market in the buying and selling of injured individuals’ payment streams can pose a hazard to existing recipients of structured settlements and to the public assistance programs on which recipients must often rely, once they have traded away secure income from structured settlements" (Sponsor's Mem, Bill Jacket, L 2002, ch 537).
To safeguard both recipients of structured settlements and structured settlements writ large , the Protection Act established minimum disclosure requirements, including the costs of a proposed transaction, and the need to obtain court approval of any agreement to transfer structured settlement payments. "Accordingly, it is recognized that the [Protection Act] is a paternalistic statute requiring the courts to engage in a fact-based inquiry and not merely serve as a rubber stamp" (Matter of Settlement Funding of New York LLC , Sup Ct, Rensselaer County, May 15, 2007, Lynch, J., index No. 22076 [denying Payee's application pursuant to the Protection Act] [internal quotations and citations omitted]). Indeed, "such assignments now are heavily scrutinized under the [Protection Act]" ( Singer Asset Fin. Co., LLC v Scott , 38 AD3d 1120, 1120, n 1 [3d Dept 2007] ).
In furtherance of the Protection Act's admirable objective, the law requires that:
No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been authorized in advance in a final order of a court of competent jurisdiction based upon express findings by such court that:
(a) the transfer complies with the requirements of this title;
(b) the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents; and whether the transaction, including 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;
(c) the payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received such advice or knowingly waived such advice in writing;
(d) the transfer does not contravene any applicable statute or the order of any court or other government authority; and
(e) is written in plain language and in compliance with section 5—702 of this article
( General Obligations Law § 5—1706 ).
In reviewing a request to approve a proposed transfer of structured settlement payments, the Court must first determine if the proposed application complies with the procedural requirements of General Obligations Law § 1701 et seq. Upon review of the Petition, the documents submitted in support thereof at the time of filing and all other supplemental documents submitted at the Court's request, the procedural requirements of the Protection Act have been satisfied. Having dispensed with the threshold procedural inquiry, the Court must next move to the substantive analysis provided under the Protection Act. The procedural requirements represent little more than a first level attempt to ensure people receive full and easily understood disclosure regarding the terms of his or her proposed transaction. They cannot be expected to raise red flags for the type of vulnerable population the Protection Act was created to safeguard. No, "[t]he heart of the [Protection Act] ... lies in the courts’ independent discretionary determination whether or not the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents; and whether the transaction, including 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" ( Matter of Settlement Funding of NY, 195 Misc 2d 721, 723 [Sup Ct, Rensselaer County 2003, Canfield, J.] [internal quotation marks and citation omitted]; accord Matter of Settlement Capital Corp. v Yates , 12 Misc 3d 1198 [A], *3 [Sup Ct, Kings County 2006, Rivera, J.]).
The Protection Act provides little guidance regarding the "best interest" and "fair and reasonable" standards and few appellate decisions in this area have been rendered since the law's passage nearly twenty years ago (see generally Matter of Settlement Capital Corp. [Ballos] , 1 Misc 3d 446, 450-460 [Sup Ct, Queens County 2003, Satterfield, J.] [Discussing the various standards used both with regard to the New York statute and in other states with similar legislation]). Trial courts have found the existence of hardship, such as a looming foreclosure on the family home or the need for life-sustaining medical treatment, "weighs heavily in favor of determining that a transfer of structured settlement rights is in the best interest of the payee" (Matter of Settlement Capital Corp. [Yates] , 12 Misc 3d at 1198 ; see also Settlement Funding of New York, LLC [Brown] , 11 Misc 3d 1059 [A], *4 [Sup Ct, Bronx County, Ruiz, J.]). On the other hand, courts generally have found transfers not in the best interest of the payee where the payee intends to use the proceeds of the transfer to ease relatively minor financial burdens such as paying back loans (see Matter of Barr v Hartford Life Ins. Co. , 4 Misc 3d 1021 [A], *4 [Sup Co, Nassau County 2004, Phelan, J.]; Matter of Settlement Funding of New York L.L.C. [Cunningham] , 195 Misc 2d at 725 ; Matter of 321 Henderson Receivables Ltd. Partnership , 2 Misc 3d 463, 463 [Sup Ct, Monroe County 2003, Siracuse, J.]).
It seems apparent this dearth of appellate law derives from the fact that nothing in the law prevents parties to an unsuccessful application from simply seeking approval in another court (see Michelle M. Marcellus, Note, Resolving the Modern Day Esau Problem Amongst Structured Settlement Recipients , 40 Hofstra L Rev 517, 549 [2011] [Under the Protection Act, "a claimant can try to sell the same payment without any limits as to the number of times he or she can appear before the court. Further, there are no limits to the number of times a plaintiff can be denied the sale of a future payment. Since nothing in the (Protection Act) stops recipients from renewing a petition for transfer until the payment is actually paid out, a petitioner initially denied benefits could return days later to seek approval"]). Fortunately, the law provides a reviewing court with wide discretion and there exists many well-reasoned trial level orders available for guidance. None may be better than one rendered within the same county that this Court sits, by a judge who now sits in the Appellate Division's Third Department, in a matter involving a prior application pursuant to the Protection Act by this proceeding's Payee. Just such a decision exists.
Despite Payee's affidavit informing the Court that all six of his prior applications pursuant to the Protection Act were approved [Payee's Affidavit ¶ 12], in fact, his 2007 application also filed in Rensselaer County Supreme Court was denied. In that case, the court aptly explained that the proposed transaction was neither in Payee's best interest nor fair and reasonable. As proposed:
Noteworthy to this case is the 2010 legislative amendment to the Protection Act that added subdivision (iv) requiring all petitions to include "[a] statement setting forth whether there have been any previous transfers or applications for transfer of the structured settlement payment rights and giving details of all such transfers or applications for transfer" (L 2010, ch 511). This addition was added, in part, to "[h]ave the effect of deterring the practice of filing a petition seeking a transfer in one venue after it has already been denied in a different venue" (Report of the Advisory Committee on Civil Practice to the Chief Administrative Judge of the Courts of the State of New York, January 2010, pp 58-59, available at https://www.nycourts.gov/LegacyPDFS/IP/judiciaryslegislative/pdfs/2010-CivilPractice-ADV-Report.pdf).
"Petitioner [would have] purchase[d] from [Payee] a portion of the monthly payments that he [was] due to receive beginning in June 2008 through the end of May 2020. The aggregate value of the expected monthly payments [was] $265,416.96, the discounted present value of same [was] $173,938.25, based on a 5.6% discount rate. The proposed purchase for the transfer of these payments [was] $74,330.14, less legal fees in the amount of $2,000.00 and a "processing fee" of $200.00. The proposed net advance amount, therefore, [was] $72,130.14, only 41.46% of the present value."
(Matter of Settlement Funding of New York LLC , Sup Ct, Rensselaer County, May 15, 2007, Lynch, J., index No. 22076). Supporting the proposed transaction's 19.99% discount rate, the court was provided a detailed affidavit explaining the structured settlement funding marketplace in general and an assertion that the "market reflects discount rates ranging from 15.5% to 25%" (id. ). Analyzing whether the applied discount rate was "fair and reasonable," the court explained that it could consider "what is prevailing in the marketplace" but noted "that any such sale is always at a punishingly high discount and because, all of these transactions are economically unwise, it would make no sense for any court to undertake subjective analysis for determining what is fair and reasonable" (id. at 2). The court went on to explain that [t]his approach has been characterized as dubious ... because it results in a finding based upon the representations made by the very factoring companies whose interests are to employ the highest discount rate based upon their setting of the prevailing market" (id. at 3). Even with the detailed explanation of the rate submitted by someone in the financial industry in that case, the court explained the affidavit "provide[d] no specific information as to the market locally, or, significantly, why a 19.99% discount rate was applied to the proposed transfer of payments due to [Payee]," and accordingly, it could not determine the proposed transaction to be "fair and reasonable."
Moving to the "best interest" analysis, the court explained that Payee wished to "establish an independent living situation for [himself], and thus would like to use the proceeds from the transfer to purchase a home and furniture for the home" (Matter of Settlement Funding of New York LLC , Sup Ct, Rensselaer County, May 15, 2007, Lynch, J., index No. 22076 at 4). In support of his application, the court was informed of Payee's monthly settlement payments but little about the settlement which resulted in those payments, that Payee was a roofer who earned approximately $3,000.00 a month, and that Payee lived rent free with his relatives (see id. at 3). Payee failed to provide any specific information regarding the future home and "[i]n an apparent effort to comply with the independent professional advice requirement ... an attorney letter [was] included that represent[ed] counsel discussed the transaction with [Payee] and encouraged him to explore alternative financial arrangements" (id. at 4). Unable to find the proposed transaction was in Payee's best interest, the court explained that "[Payee]’s generic explanation [was] inadequate to permit a finding that the transfer [was] in his best interests," and "that the independent professional advice was lacking" (id. ). The shaky record before this Court yields the same result.
First, the only evidence supporting the proposed discount rate comes from Petitioner's own attorney explaining that the discount rate is 14% and that the "[c]ustomary life contingent rates range from 12% - 18%" [Supplemental Affirmation ¶ g]. Receipt of this unsupported information from Petitioner's attorney is unconvincing. As was the case with Payee's 2007 proposed transaction, even if the Court were to accept the asserted range of customary life contingent rates submitted by Petitioner, which it will not, the record lacks any information regarding why that range is "fair and reasonable" and what the range of customary rates is in this local geographic area. As was the case with Payee's 2007 application, this Court — considering its vital role contemplated by the Protection Act to oversee this transaction on Payee's behalf — cannot accept such a conclusory statement on a critical matter from an interested party. Notably, terms within the range suggested by Petitioner as being customary have repeatedly been held not to be "fair and reasonable" (see Matter of Continental Assur. Co. [Mower] , 39 Misc 3d 1231 [A], *3 [Sup Ct Broome County 2013, Lebous, J.] [15.03% is not fair and reasonable]; Matter of Genworth Life Ins. Co. of NY , 39 Misc 3d 1231 [U], *2 [Sup Ct Broome County 2013, Lebous, J.] [15.63% not fair and reasonable]; Matter of Washington Sq. Fin. LLC [Mejia] , 38 Misc 3d 1204 [A], * 3 [Sup Ct., Queens County 2012, Markey, J.] [16.66% not fair and reasonable]; Matter of Settlement Funding of NY , 195 Misc 2d at 725 ] [15.46% not fair and reasonable]; Settlement Funding of NY, LLC v Hartford-Comprehensive Empl. Ben. Svc. Co. , 25 Misc 3d 1220 [A], [Sup Ct, Queens County 2009, Markey, J.] [14.99% discount rate not accepted as fair and reasonable]).
Notably, it was thought that allowing a market for structured settlement transfers would create competition and drive down discount rates. Approximately, twenty years ago, industry insiders predicted "a discount rate of approximately 5%" would soon exist (Adam F. Scales, Against Settlement Factoring? The Market in Tort Claims Has Arrived , 2002 Wis L Rev 859, 931 [2002] ).
Second, the Court must note its concern over the financial advice provided to Payee. While a payee may waive their right to independent financial advise, the lack of "the benefits of wise and unbiased counsel in the management of [his or] her financial affairs" combined with repeated waiver of one's "right to consult with an independent professional [can] only confirm[ ] [the court's] impression that [payee] does not fully appreciate the consequences of such transfer" ( Whitney v LM Prop. and Cas. Ins. Co. , 32 Misc 3d 1212 [A], *4 [Sup Ct, Westchester County 2011, Walker, J.]). Here, while the Protection Act only requires Payee be advised, in writing, that he should seek the advice of an independent financial advisor, the facts surrounding Payee's initial waiver and ultimate receipt of advice raise serious questions about whether Petitioner's facilitation of advice effectively undermined the intent of this provision by providing advise that was not actually independent. Indeed, while the Court has no evidence that Petitioner paid the financial advisor, the facts before it raise serious questions. No information was submitted regarding the advisor's payment. Payee appears very eager to sell a large sum of money for a small amount up front, and the advice ultimately provided by this advisor amounted to a simple confirmation that if this is Payee's only offer, then it is worth taking. However, "the payee's willingness to transfer the settlement has no bearing on the court's determination of whether the interest rate paid by the transferee is ‘fair and reasonable’ within the meaning of the [Protection Act]" and likewise should not be the motivating factor in independent financial advice (Matter of Aspire Fund, Inc. v GE Capital Assignment Corp. , 2020 NY Slip Op 30379 [U], *4 [Sup Ct, Kings County 2020, Silber, J.] [internal quotation marks and citation omitted]). Based upon this, the Court is of the opinion that the advice provided to him was not independent.
Third, and unlike the 2007 application, there is heavy reliance here upon the delayed nature of Payee's settlement payments to justify why the Proposed Transaction is "fair and reasonable." The Court finds this argument to be disingenuous. Petitioner would have the Court look beyond the fact that Payee would only receive $2,500 today with the remaining $180,000 to occur over the course of twenty-four months beginning in over thirty years because Payee may, for some unexplained reason, not live long enough to make those future payments receivable by Petitioner. This assertion is based upon Petitioner's review of Payee's medical records; however, no proof has been submitted that Payee suffers from any medical condition which may impact his receipt of these payments in the future. The parties were afforded two hearing days and additional time to supplement the record, and yet no life-threatening medical condition was disclosed. This is all the more puzzling in light of the following ominously emphasized language in the Petition: "Moreover, the medical history and/or health-related issues directly and materially affect the likelihood of anyone realizing the full benefits of this proposed transfer for which the first of the Assigned Payments is not due until June 29, 2054 more than 34 years off" [Petition ¶ 22] [emphasis in original].
Even if the Court were to accept the unsupported allegation that Payee is not expected to live long enough for Petitioner to receive all the Assigned Payments, the addendum removes all of Petitioner's asserted risk. The addendum would enable Petitioner to require a life insurance policy payable to it in the full amount of the future payments. Despite the Supplemental Affirmation's insistence that Petitioner has reviewed this case and currently does not believe a life insurance policy is necessary — which, of course, also undercuts Petitioner's alleged risk of not receiving all of the payments because of an undisclosed medical condition — the addendum remains an operable part of the agreement. Accordingly, the Supplemental Affirmation's confirmation amounts to little more than Petitioner's current position, which the Court notes could immediately change upon the Proposed Transaction's approval.
The proposed discount rate is not the only puzzling and concerning measurement of the Proposed Transaction this Court endeavored to review in determining whether the terms are "fair and reasonable." Attempts to discern the comparable net present values contained within the Proposed Transaction provides the Court additional reason to reject the Proposed Transaction. The two quotes supplied by Petitioner reveal that the net present value of the Assigned Payments is, at worst, worth $159,751.63. Tellingly, nothing in the record informs the Court of the net present value of the proposed $180,000 spread out over twenty-four months beginning in thirty-four years. The record does reflect that the net present value of these future payments amounts to far less today than $180,000. Petitioner confusingly insists that the proposed payment of $2,500 today and $180,000 in more than three decades was crafted to benefit Payee because he will "retain[ ] 61% of his payments in the future, when the value of these payments is worth more than it is worth today" [Supplement Affirmation ¶ i]. This, despite Petitioner also arguing the Proposed Transaction is risky because Payee may not live long enough to obtain all the Assigned Payments. The Court would be more receptive toward Petitioner's assertion of concern for Payee had it also included a $180,000 life insurance benefit payable to Payee's heirs, not the $5,000 provided for in the Addendum. Either way, the Court cannot conclude based upon this record whether the Proposed Transaction offers Payee a "fair and reasonable" percentage of the net present value of Assigned Payments.
The Court need not determine whether the Proposed Transaction is also in Payee's "best interest" since the Protection Act requires that it be both "fair and reasonable" — which it is not — and also in Payee's "best interest" ( General Obligations Law § 5—1706 [b] ). Still, having devoted much attention to the Proposed Transaction, the Court will conclude its analysis by also explaining why it believes the Proposed Transaction is also not in Payee's best interest (see Matter of Settlement Capital Corp. [Ballos], 1 Misc 3d at 456 [The court applied the two-prong analysis "in the interest of a full inquiry as to whether the petition comports with each of the statutory requirements"]).
The record is, at best, questionable regarding Payee's interest in pursuing the Proposed Transaction. For example, the Petition indicates Payee is in " immediate " need of funds because his "employment has been affected by the COVID-19 outbreak," and yet Payee's affidavit indicates he will not need the Assigned Payments because he can support himself with his roofing business [compare Petition ¶ 16 with Payee's Affidavit ¶ 5]. Notably, Payee indicates nothing about being impacted by COVID-19. In addition, Payee informed the Court during the first day of testimony that he is unemployed only to later in the same hearing inform the Court that someone at his job helped him draft his affidavit. Then, during the second day of the hearing, Payee appeared from his landscaping boss's automobile. Based upon the contradictory record before it, the Court cannot determine Payee's employment status. The Court is confident based upon the record that Payee's interest here lies solely in his desire to regain his driver's license. Unfortunately, the Court is far less confident that Payee is aware of what is necessary for him to do so. Indeed, Payee's indication that he knows $2,500 is enough to get back his license because he has a lawyer, is far from persuasive considering the record before the Court. Accordingly, even if the license was a sufficiently necessary reason to overcome the terms the Court has already found to be not "fair and reasonable", the Court cannot determine that the Proposed Transaction is in Payee's "best interest."
The Court is cognizant that by this decision it steps between the desires of two private parties and, more importantly, prevents Payee from quickly obtaining funds. It does so, however, pursuant to a statutory duty and not because it desires to interfere with an agreement or Payee's receipt of immediate funds. It does so because the Proposed Transaction is not "fair and reasonable" and is not in Payee's "best interest." Had Payee not pursued a similar arrangement in 2008, he would still be receiving monthly settlement payments in amounts greater than the $2,500 he now seeks by this proceeding. The Protection Act was put in place to ensure vulnerable individuals are not taken advantage of and this Court refuses to permit Payee to again trade away a secure financial future for fast money.
Therefore, it is
ORDERED that the application is in all respects DENIED , with prejudice. A copy of this Decision & Order shall be annexed to any future petitions brought by or on behalf of petitioner in this or any other County.
The Court has uploaded the original Decision/Order to the case record in this matter as maintained on the NYSCEF website whereupon it is to be filed and entered by the Office of the Rensselaer County Clerk.
Counsel for the Petitioner is not relieved from the applicable provisions of CPLR 2220 and 202.5b (h) (2) of the Uniform Rules of Supreme and County Courts insofar as it relates to service and notice of entry of the filed document upon all other parties to the action/proceeding, whether accomplished by mailing or electronic means, whichever may be appropriate dependent upon the filing status of the party.
SO ORDERED AND ADJUDGED
Papers Considered:
The following e-filed documents, listed by NYSCEF document number 1-18, including:
Verified Petition sworn September 10, 2020; Annexed Exhibits A-D.
Order to Show Cause(Silverman, J.) dated September 8, 2020.
Attorney Affirmation in Support dated December 10, 2020; Annexed Exhibits 1 - 7