Opinion
7803/2005.
Decided March 3, 2006.
Petitioners have brought the instant proceeding for an order pursuant to the Structured Settlement Protection Act (hereafter SSPA) codified under General Obligations Law, Title 17, approving the transfer to Settlement Funding of New York, LLC. of a portion of periodic payments otherwise payable to Christopher Brown.
Pursuant to this Court's prior short form order dated May 4, 2005, a hearing was scheduled wherein Mr. Brown was directed to provide the Court with documentary proof of his financial circumstances, including monthly rent with a copy of his lease, bills showing household expenses, credit card payments and proof of employment for the preceding five years, among others things.
Allstate Settlement Corporation and Allstate Life Insurance Co. of New York, interested parties to this action, submitted no opposition to the Petition and declined to appear for this noticed hearing. Thus, the Court heard from the only witness, Christopher Brown.
As a backdrop to the proceeding, the subject structured settlement arose as a result of a personal injury action which was settled pursuant to an Infant Compromise Order in the amount of $115,000.00. Rather than pay the balance of $75,000.00 due the infant when he reached the age of majority, it was determined to be in his best interest to structure the award so that he would receive lifetime payments, insuring his financial stability and providing him with money to achieve his desired goal of paying for college and graduate school.
At the hearing, Mr. Brown revealed that he had dropped out of high school in his junior year. Apparently, he not only dropped out of high school but also never obtained a full-time job for which a tax return could be filed. He supported himself with catch-as-catch-can jobs, supplementing his income with the monthly structured payments. He also testified that he lived with his 60-year-old grandmother, who adopted him during the pendency of the prior action, sharing that apartment with the two foster children of Ms. White. It was unclear from the testimonial evidence whether Mr. Brown's girlfriend and their two-year-old son also lived with him in his grandmother's apartment. He does not contribute to the support of his son, although his girlfriend is purportedly gainfully employed and presumably the sole support of their son. He does contribute $200.00 towards his grandmother's monthly financial obligations.
In his annexed affidavit, Mr. Brown explained that he wanted the proceeds from this sale to use as a down payment towards the purchase of a two bedroom, two bath house in the City of White Plains, New York, in Westchester County. However, at the hearing, he instead testified that he was interested in resettling in Falls Church, Virginia, where family members would help him find employment. He further anticipated his grandmother co-signing a mortgage for the purchase of a home. In support of these expectations, he offered listings for homes in the Falls Church area and a "To Whom It May Concern" letter, from his grandmother. The Court notes that these items were not in admissible form. Moreover, the listings were from an internet cite, describing two rental properties rather than sale properties. The letter from Ms. White did not clearly reflect a commitment from her to co-sign a mortgage, nor relocate to Virginia.
The documentary proof of his financial circumstances were not provided, other than a copy of an offer to renew Ms. White's lease which was blank and unsigned and one copy of a Con Edison and Cablevision bill to Ms. White. Also annexed to the Petition and testified to at the hearing was proof that Mr. Brown sought advice from an attorney — Mr. Barry Guberman — concerning the prospective sale of his annuity and, because of the legal, tax and financial implications of said transfer, the attorney encouraged him to consider alternative financial solutions.
Pursuant to the underlying structured settlement, Mr. Brown was scheduled to receive his first monthly payment on April 19, 2002 and the last on March 19, 2032, in 360 installments of $597.00. The purchase and sale agreement executed by petitioner and Mr. Brown on January 29, 2005, proposes a sale of 180 monthly payments in the amount of $300.00 beginning October 19, 2005 and concluding on September 19, 2020, with one final payment of $5.00 due January 19, 2025, in exchange for an advance payment of $16,020.47. The annual discount rate of 19.9% was utilized in these calculations. Once processing fees ($200.00) and legal fees ($2,000.00) were deducted, the net amount payable to Mr. Brown would be $13, 820.47. Thus, the initial aggregate amount of $54,005.00 underwent a final discount rate of 36.50%.
DISCUSSION
In an effort to protect recipients of personal injury structured settlements (which were designed to provide future tax-free funds for medical care, education, housing, etc.) from the abuses of finance companies which purchase the future payments in exchange for sharply discounted advances, the New York State Legislature enacted Title 17 of the General Obligations Law ("GOL"), in 2002. Therefore, notwithstanding that the parties to this agreement have both signed on the proverbial dotted line, this Court must ascertain the propriety of this transfer within the framework of the SSPA
Initially, the Court must consider whether the instant Petition comports with all of the procedural requirements set forth in the SSPA. A perusal of the submissions establishes that the petitioner properly served all interested parties within the statutory period. Also annexed were: copies of the transfer agreements, disclosure statements for both Delaware and New York, the independent professional advice statement, along with the sum and substance of such from the advising attorney, the name and age of Mr. Brown's son and the transfer documentation which is written in plain language. (GOL § 5-1706(A)(C)(D)(E). Accordingly, this petition is procedurally sound.
The next and most important consideration is assessing whether the proposed transfer "would be consistent with the letter and spirit of SSPA" (Matter of Settlement Capital Corp. (Ballos), 1 Misc 3d. 446, [2003]). In this regard, before the Court can approve an otherwise procedurally conforming transfer application, the Court must determine that:
". . . 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 amount and the fees and expenses used to determine the net advance amount, are fair and reasonable."
GOL § 5-1706(b).
Turning first to the "fair and reasonable" analysis of this transfer: the discounted present value of $37,866.85, with a net payout of $13,820.47, would result in a final discount rate of 36.50%. On its face, this discount rate is more than double that which banks are currently charging for loans and more than even the steepest credit card rates. Notwithstanding any accompanying expert affidavits annexed herein cautioning against comparisons with bank loan or credit card interest rates, this Court's paramount concern is not the financial viability of factoring companies such as petitioner's, but the intended protection to payees envisioned by the Legislature when it enacted Title 17. Significant in this regard is the submitted letter of Mr. Guberman, who advised Mr. Brown against this sale.
In Settlement Funding of New York L.L.C. (Cunningham), 195 Misc 2d 721 (2003) and Settlement Funding of New York L.L.C. v. Solivan, 8 Misc 3d. 1006 (2005) the discounted interest rates of 15.46% and less than 13% — respectively — were not found to be fair and reasonable, especially where added to those rates were the legal and administrative fees. This Court, likewise, finds that the petitioner's have not supported their burden of showing that these rates are fair and reasonable (see also the seminal case of Ballos, supra).
Approval of a transfer with an unreasonably high interest rate might be forthcoming if it is in the "best interest" of the payee. In this regard, compelling factors for consideration include: the need to obtain cash for life-sustaining medical treatment for a family member, ( Cunningham, supra), preventing foreclosure of a family home, or paying off significant debt (see Matter of Ford [Stone Street Capital, Inc.] NYLJ, April 14, 2004, p. 20, col. 1). Alleged claims of desperate straits or financial hardship must rise to a level consistent with the intent of the statute, which is to provide emergency assistance to those in immediate financial need ( Matter of 321 Henderson Receivables v. D'Amore, 9 Misc 3d 1110(A), [2005]).
However, not all professed claims of desperate financial circumstances result in the approval of transfers. Petitions have been dismissed where there was no unforeseeable need for housing or showing that the payee was incapable of self-support (see Matter of 321 Henderson Receivables, International Partnership (DeMallie), 2 Misc 3d. 463 [2003]). Nor was the Petition of a disabled payee who lived at home with his mother, seeking to sell his structure to pay off debts, buy a used car and get a job, sufficient proof of desperate circumstances justifying approval of the transaction (see Settlement Funding of New York, L.L.C. (Asproules), 1 Misc. 3rd 910(A)(2003)). Similarly, payees who intended to improve their financial circumstances by: selling their structures to take advantage of low mortgage rates, reduce credit card debts or even purchase a truck for professional use, were denied their petitions upon their failure to explore or exhaust other options for resolving their financial constraints (see, Matter of Barr and 321 Henderson Receivables v. Hartford Insurance Company, 4 Misc 3d 1021(A) [2004]; Matter of Rapid Settlements Ltd. (Phillips), 6 Misc 3d 1030(A), Matter of 321 Henderson Receivables v. D'Amore, 9 Misc 3d 1110(A), [2005]). These Courts found that allowing such sales would have promoted future financial hardship, which ultimately was not in the "best interest" of any of the payees.
Mr. Brown's plan of relocating to Virginia for the purpose of gaining employment and renting in that affordable housing market is one which he should pursue. However, it cannot be said that the petitioner has demonstrated any compelling reasons warranting this Court's approval of this proposed transfer. Such approval would not comport with this Court's mandate "to protect recipients of structured settlement awards from aggressive factoring companies who promise instant cash to the detriment of the long-term security that structures often provide," Matter of Taliercio v. Aetna Casualty Surety Co. NYLJ 2/20/04 p. 21 col. 3.
Moreover, as the Court in DeMallie ( supra) noted "(the payment structure) was presumed to be the best compensation for the payee's injuries at the time of the . . . settlement. To overcome this presumptive validity . . . there must be a showing, by clear and convincing evidence, of an unforeseeable change in circumstances that would justify the sale of rights to future payments," Id. at 468.
Accordingly, since the proposed transfer is not in the "best interest" of Mr. Brown and its terms are not "fair and reasonable," the petition is dismissed.
This constitutes the decision and order of the Court.