Matter of Settlement Funding of NY LLC v Solivan
Annotate this CaseDecided on June 23, 2005
Supreme Court, Kings County
In the Matter of the Petition of Settlement Funding of New York, LLC, Petitioner(s),
against
Eddie Solivan, High Point Property & Casualty Insurance Co., and Prudential Insurance Company of America, Respondent(s).
2708/05
Lawrence Knipel, J.
Petitioner, Settlement Funding of New York, LLC, brings this special proceeding pursuant to the Structured Settlement Protection Act seeking approval of the transfer of certain structured settlement payment rights created by a structured settlement agreement approved in 1991.
Pursuant to an order of this court (Dowd, J.), date January 16, 1991, a settlement was approved for the then infant, Eddie Solivan, to be paid on a structured basis. Defendants purchased an annuity in a sum sufficient to pay $20,000 in 2000, 2001 2002, 2003; $30,000 in 2007; $35,000 in 2012; $50,000 in 2017; and $100,000 in 2022.
In this proceeding, Solivan seeks to transfer to petitioner certain payments remaining under the structured settlement agreement pursuant to an "Absolute Assignment and UCC Article 9 Security Agreement" dated January 7, 2005. Specifically, Solivan agreed to assign his interest in his right to receive $5,000 on March 20, 2007, $25,000 due March 20, 2017, and $50,000 due on March 20, 2022. In return he would be paid by petitioner the sum of $7,989.42. A document entitled New York Transfer Disclosure states that the discounted present value of the payments to be transferred (i.e. $80,000) is $43,928.18, and that the cost to purchase a comparable annuity is between $62,075.40 and $62,525.00.
In an affidavit signed January 7, 2005, Solivan avers he voluntarily entered into the assignment and UCC Article 9 Security Agreement with petitioner. He acknowledges receipt of a disclosure statement advising him to seek professional advice from an attorney or accountant of his choice, and he has "either received said advice or fully intend[s] to receive independent professional advice." He further avers he is 22 years old, being supported by a friend, and not currently employed [*2]due to "tranportation challenges" which will be alleviated by "the proceeds of this transaction." He wants to use $600 to pay fines and have his driving license reinstated, and the remaining funds will be used for advance rent or a one bedroom apartment. He has no dependents, and his "anticipated employment income" will be sufficient to support him. He concludes that completing the transaction is in his best interest and will improve the quality of his life.
Petitioner asserts that the transfer complies with the requirements and standards of General Obligation Law and does not contravene any applicable federal or state statute or order. The payee was advised to seek independent professional advice and has either received such advice or waived it; the transfer is in the best in interests of "the payee's dependent(s), if applicable" and it is fair and reasonable.
The petition is accompanied by a supporting affidavit of an expert retained by petitioner to provide advice on the fairness and reasonableness of the discount rate applied to this transaction. The expert states that a structured settlement transfer transaction is not a loan and a comparison of discount rates to mortgage rates or similar loans is not a fair comparison. A purchase, like petitioner, has to rely on it own due diligence as well as the representations and covenants of the seller. Recourse for misrepresentations will be limited based on the assets of the seller. The credit worthiness of a seller is a factor used to determine how likely it will be that a seller will be able to make good for any misrepresentation. Typically a seller has poor to fair credit quality, and the risk borne by the purchaser must be factored into the discount rate used. Seller here, Solivan, has very poor credit. The discount rate used is the result of many factors, such as the limited marketplace for owners to find purchasers, the relatively small size of each transaction, and the cost of funds and the credit worthiness of the seller. In addition the petitioner must pay all costs and interest for the duration of the transaction while waiting for years until the lump sum payment is due, which imposes a substantial cash flow cost or negative cash flow for years.
The Structured Settlement Protection Act (General Obligations Law §§ 5-1701 et seq.) was adopted by the Legislature to give greater protection to individuals in entering into a structured settlement agreement or in selling a periodic payment thereunder to a third party (Matter of Settlement Capital Corp. [Ballos], 1 Misc 3d 446). Before approving the transfer of structured settlement payment rights, a court must find, inter alia, that the transfer is in the best interest of the payee 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 (General Obligations Law § 5-1706[b]).
Upon consideration of the relevant factors here, it is apparent that the proposed transfer in this case is not in the best interest of Solivan. He would assign his interest in $80,000 of future payments to occur in 2007, 2017, and 2022 for the sum of $7,989.42. The discounted present value of the payments to be transferred (i.e. $80,000) is alleged by the purchasers to be $43,928.18. The true present value of such payments is probably reflected in the price that a reasonably prudent purchaser would pay for such annuity on the open market. The current cost of purchasing a comparable annuity is revealed in petitioner's New York Transfer Disclosure Statement to be between $62,075.40 and $62,525.00. In other words, respondent Eddie Solivan, because he cannot borrow or pay $600 in fines to have his driver's license reinstated, is being called upon to accept $7,982.42 in exchange for an annuity worth somewhere between $62,075.40 and $62,525.00. This amounts to less than 13% of the annuity's actual value. [*3]
Under Common Law the traditional principal of caveat emptor would prevent a court from interceding between willing parties to a private transaction. Under certain circumstances, however, exceptions to this rule have been recognized when necessary to protect a party with unequal bargaining power or with some other perceived weakness, or for some other public policy reason (see Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685 [Freedom of contract prevails in an arm's length transaction between sophisticated parties, and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain]; Southgate Owners Corp. v Public Mutual Ins. Co., 241 AD2d 397; Matter of State of New York v Avco Fin. Servs., 50 NY2d 383, 389 [As a general matter, unconscionability requires a showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party]; Brower v Gateway 2000, 246 AD2d 246, 253; Gillman v Chase Manhattan Bank, 73 NY2d 1, 11 [Courts will look at the contract formation process to determine if a party lacked any meaningful choice in entering into the contract, taking into consideration the setting of the transaction, the experience and education of the party claiming unconscionability, whether the contract contained "fine print," whether high pressure tactics were used, and any disparity in the parties' bargaining power]).
With the enactment of GOL §5-1706 our legislature has included beneficiaries of structured settlements such as respondent Solivan in this protected class.
Petitioner has failed to meet its burden of establishing that the transaction is in the best interest of Solivan and that the terms of the transaction are fair and reasonable. Accordingly the petition is denied.
This constitutes the decision and judgment of the court.
E N T E R :
LAWRENCE KNIPEL, J.S.C.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
