Opinion
2007-1721.
Decided August 28, 2007.
SUGARMAN LAW FIRM, LLP, BY: JAMES E. SPARKES, ESQ., OF COUNSEL, SYRACUSE, NY, COUNSEL FOR PETITIONER.
RAY A. BUTTS, PRO SE.
Petitioner, Settlement Funding of New York, LLC, moves for judicial approval of the transfer of certain future payments due Ray A. Butts under a personal injury settlement in exchange for the present payment of a discounted lump sum (General Obligations Law § 5-1701 et seq.).
Mr. Butts, currently age 55, obtained a structured settlement arising out of a personal injury action that occurred in April 1995. The terms of Mr. Butts' personal injury settlement were as follows:
$600 per month from August 1, 1996 through July 1, 2001
$770 per month from August 2001 through July 1, 2006
$1,000 per month from August 1, 2006 through July 1, 2011
$1,250 per month from August 1, 2011 through July 1, 2016
$1,500 per month from August 1, 2016 through July 1, 2021
Mr. Butts is married with no dependents. He was disabled from the underlying personal injury and has since been unemployed. Mr. Butts avers that he and his wife receive monthly disability payments in addition to his monthly structured settlement payments.
Past Applications
This is not Mr. Butts' first request to sell a portion of the above-referenced personal injury settlement. Before addressing the terms of the proposed current transfer, the court will once again review Mr. Butts' prior applications, although a more detailed review is contained in this court's prior decision.
In 2004, Settlement Funding petitioned the court on behalf of Mr. Butts for permission to sell a portion of the monthly payments due Mr. Butts under his personal injury settlement. The matter was heard by the Hon. Joseph P. Hester, Jr. (Broome Index No. 2004-2035) and the petition was denied, but an order was never submitted. In July 2005, petitioner submitted a revised notice of motion and a new petition (still under Index No. 2004-2035) alleging a new set of facts and circumstances. The revised petition sought to transfer $192,660 in future payments in exchange for a current lump sum payment of $31,185.55 using a 19.99% discount rate. However, in September 2005, Mr. Butts submitted a letter to the court advising that he had received advice that the agreement was not in his best interest. The court deemed the application withdrawn and the matter closed.
In 2006, Settlement Funding and Mr. Butts submitted another petition seeking essentially the same relief as the withdrawn petition (Broome Index No. 2006-2509). This time, however, Settlement Funding and Mr. Butts sought approval of a transfer in which Mr. Butts would transfer to petitioner a total of $130,890 in future payments in exchange for a current lump sum payment of $30,150.28 using a 19.90% discount rate. This court denied the 2006 petition for the reasons stated in a Decision Order ( In the Matter of Settlement Funding [Butts], Sup Ct, Broome County, December 20, 2006, Lebous, J., Index No. 2006-2509).
In early 2007, Settlement Funding and Mr. Butts submitted yet a third petition seeking permission to transfer a total of $100,590 in future payments in exchange for a net payment of $40,142.72 using a 17.42% discount rate. The court granted the petition based upon the improved financial terms and Mr. Butts' plea to the court regarding the need to buy land for his mobile home. The court signed an order granting the petition on March 22, 2007.
Current Petition
Now, only months later, Settlement Funding and Mr. Butts filed this fourth petition seeking permission to sell the portion of Mr. Butts' personal injury settlement entitling him to "60 monthly payments each in the amount of $1,500 commencing on August 1, 2016 through and including July 1, 2021." If this transfer were approved, Mr. Butts would be transferring his right to receive payments totaling $90,000 over a five year period from 2016 through 2021 in return for a net advance amount of $10,845.02 ($11,045.02 less a $200 processing fee).
DISCUSSION
General Obligations Law § 5-1701 et seq., also known as the "Structured Settlement Protection Act" or "SSPA", was enacted in 2002 due to the concern that structured settlement payees, such as Mr. Butts, are particularly prone to being victimized and quickly dissipating their assets and to protect them from the growing number of companies using "`[a]ggressive 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' (Mem. in Support, NY State Assembly, 2002 McKinney's Session Laws of NY, at 2036)" ( Singer Asset Finance Co., LLC v Melvin , 33 AD3d 355). This legislation "[d]iscourages such transfers by requiring would-be transferees to commence special proceedings for the purpose of seeking judicial approval of the transfer [ citations omitted]" ( Settlement Funding of New York, LLC [Cunningham], 195 Misc 2d 721, 722 [Rensselaer County 2003]). "The SSPA clearly reflects the Legislature's dissatisfaction with the structured settlement transfer market rates, and its conclusion that payees cannot protect their best interest and thus require judicial supervision" ( Settlement Funding [Cunningham], 195 Misc 2d at 724). "Clearly, the New York State Legislature in enacting [the] SSPA and in empowering the courts with the discretion to determine whether the terms of a proposed transfer of future payments are fair and reasonable did not intend for the courts to be mere rubber stamps" ( Settlement Capital Corp. [Ballos], 1 Misc 3d 446, 461 [Queens County 2003]).
As such, this court's judicial function under the SSPA requires an evaluation of a variety of factors, but particularly: (1) whether the transaction is fair and reasonable, including the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount; and (2) whether the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents.
In determining whether the transaction is fair and reasonable, the court should examine the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount. Here, Settlement Funding determined the gross advance amount of $11,045.02 by applying an annual discount rate of 19.99%. The net advance amount is $10,845.02 after Settlement Funding — adding insult to injury — deducts another $200 for a so-called processing fee. With respect to the annual discount rate, the court finds that similar rates have been deemed unreasonable ( Cunningham, 195 Misc 2d at 724 [15.46%]; Settlement Capital Corp., [Ballos], 1 Misc 3d 446 [19.82%]; Settlement Capital Corp. ["Y"], 194 Misc 2d 711 [18.621%]). Moreover, the $10,845.02 in net advance funds Mr. Butts stands to receive represents only slightly more than 10% of the future payments that Mr. Butts would transfer to petitioner. Based on the foregoing, the court finds this transaction is not fair and reasonable.
The next consideration is whether the proposed transfer is in Mr. Butts' "best interest." Mr. Butts submits an affidavit explaining his need for this money as follows:
[m]y wife and I recently purchase [ sic] a piece of land for our mobile home to be placed on. It has now been brought to our attention that New York law requires any mobile home to be placed on a concrete foundation as well as it must be anchored to the foundation and failure to do so could result in fines from the state. I would like to get this completed as soon as possible in order to avoid and [ sic] damaging repercussions. I have received an estimate from a general contractor that it will cost approximately $5,000.00 to complete the necessary work to be in compliance with the state requirements. Therefore, I would like to use approximately $5,000.00 to pay for the aforementioned. Additionally, I would like to use the remaining proceeds, approximately $5,000.00 to pay for various upgrades to the interior of our home such as new carpeting throughout, fresh paint and new appliances for our kitchen. By accomplishing these home improvements we will not only increase the value of our home and land but we will also make our house a better place to live for ourselves.
(Butts Affidavit, ¶ 10).
Additionally, Mr. Butts submits a written quote of $6000 for the work to be performed at the mobile home site. The quote does not itemize the cost for pouring the concrete pad versus other work (drainage and grade work, replacing the water line and wires, preparing septic and electric lines, and installing a gravel driveway). Nor does the quote break down the total as between labor and materials. The detail of the work, however, is not the point. Nor does the court doubt Mr. Butts' genuine desire to have this work completed. Rather, it is the poor terms of the proposed financial deal that are of the greatest concern to the court in determining whether this transfer is in Mr. Butts' best interest.
The court wants to make itself perfectly clear in this respect to Settlement Funding, but more importantly Mr. Butts, that this proposal is not in Mr. Butts' best interest. Furthermore, a review of the persistent prior petitions by Settlement Funding on behalf of Mr. Butts' might lead one to the conclusion that petitioner is attempting to systematically erode Mr. Butts' personal injury settlement in an overly aggressive fashion. However, that matter is not now before the court.
For Mr. Butts' benefit, the court states directly that agreeing to giving up the right to $90,000 in future payments in exchange for a payment today of merely $11,000 is not in his best interest. Mr. Butts' is urged to seek alternative financing through a bank or private lender, or taking a loan against the property he now owns. Quite frankly, this fourth petition has done nothing but convince this court that its initial reservations before granting the third petition (that allowed Mr. Butts to purchase this property in the first instance) were well-founded. This court finally acquiesced in early 2007 to granting that third petition because of the improved financial terms and Mr. Butts' representations of his intense desire to purchase the land on which to place his mobile home. Now, the court sees clearly that Mr. Butts may not have understood the various costs associated with owning one's own property. This court will not sacrifice Mr. Butts' future financial security for a temporary stop gap to resolve a situation that he now realizes may be beyond his means. In other words, if Mr. Butts' finds he is unable to afford the property now (needing this money for items such as taxes and ordinary upkeep), throwing a small amount of money at the situation now will not help him in the future when similar financial demands are sure to reappear.
Based on the foregoing, the court finds that petitioner has failed to demonstrate to the court's satisfaction that the transaction is fair and reasonable and that the transfer is in Mr. Butts' best interest (GOL § 5-1706 [b]). Consequently, the petition is denied.