Matter of R&P Capital Resources, Inc. v Metropolitan Life Ins. Co.

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Matter of R&P Capital Resources, Inc. v Metropolitan Life Ins. Co. 2003 NY Slip Op 30243(U) October 28, 2003 Sup Ct, NY County Docket Number: 101309/03 Judge: Jane S. Solomon Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY PRESENT: Hon. PART JANE S. SOLOMON 55 Justice \ I N D M NO. g 3 05/93 MOTION DATE MOTION SEQ. NO. MOTION CAL. NO. The following papers, numbered 1 to k 0 2- 5- were read on thi PAPERS NUMBERED Notice of Motion/ Order to Show Cause - Affidavits Answering Affidavits - Exhibits ... - I --Y . . - Exhibits 2003 1- Replying Affidavits 0 I - ggri JANE S. SMOWlo~ $ E Dated: J.s. c. p7a 0 ~~~N-FINAL DISPOSITION W [* 2] SUPREME COURT OF THE STATE OF NEW YORK I.A.S. PART 55 --X COUNTY O F NEW YORK: _ _ _ _ _ _ _ - l _ l _ _ _ _ _ _ _ _ _ - - - - - - - _ _ - - _ _ _ - - In the Matter of the Petition of R&P CAPITAL RESOURCES, INC. and J E R R Y L. HILDRETH, S R . , Index No. 101309/03 Petitioners, DECISION, ORDER and JUDGMENT -againstMETROPOLITAN LIFE INSURANCE COMPANY and METROPOLITAN INSURANCE AND ANNUITY COMPANY, Respondents. This decision on the petition by R&P Capital Resources, Tnc. and Jerry L. Hildreth, Sr. for approval of a transfer of structured settlement payments addresses a significant issue of first impression regarding the extent of this court s jurisdiction under the New York Structured Settlement Protection Act (General Obligations Law 5 5-1701, et seq.) ( SSPA ). Notwithstanding the fact that petitioners failed to respond to an order to show cause why the petition should not be denied, this decision is issued. Backqround Earlier this year, the Chief Administrative Judge of this C o u r t directed that SSPA proceedings commenced in New York C o u n t y be assigned t o the author. The SSPA was enacted last y e a r , with an effective date of July 1, 2002. A steady stream of petitions are presented, and it is fair to say that both counsel. [* 3] and the court are learning how best to a p p l y the statute. This decision is offered to advance that process. Structured Settlement Sales Personal injury litigation sometimes concludes with the plaintiff becoming entitled to a stream of future payments. resolution is known as a structured settlement. This The payment period can be over many years; ten to twenty-five years is not uncommon, and the payments may be a regular monthly amount, lump sum payments every fixed number of years, or another agreed The payments usually are funded through an annuity program. contract with an insurance company. In addition to providing the payee with a secure source of income, structured settlements provide insurance carriers with a less expensive means of settling a personal injury claim because it allows them to pay the obligation over many years, and they may qualify for favorable t a x treatment. § 130. See, Internal Revenue Code, 26 U.S.C. The annuity contract typically contains a provision prohibiting a payee from assigning or otherwise transferring the payments. Structured settlement payees sometimes find that their financial needs or desires are inconsistent with the long pay-out period. Finance companies exploit the opportunity presented by impatient payees with offers to purchase the payment streams. These purchases, in essence, are factoring transactions, with the 2 [* 4] future payments being "sold" to the finance companies for discounted lump sums. The discount rate can be quite steep, usually between eighteen and twenty-five percent, which results in a relatively small payment to the payee and a large profit for the finance company. Understandably, such transactions are sensible for some payees in some circumstances. However, perhaps because the payees frequently are unsophisticated and there is concern that finance companies take advantage of this lack of sophistication with offers of immediate cash, these purchases have not been looked upon favorably by courts or legislatures. In particular, courts have refused to approve factoring transactions where the annuity contract contains a non-assignment c1ause.l The SSPA and Federal Law Acknowledging that these transactions have been entered into historically, whether or not the transactions were lawful, or permitted under the annuity contracts, the New York State legislature passed the SSPA. It is intended to protect recipients of structured Settlements, and to maintain the integrity of structured settlements for use in settling personal Examples of decisions enforcing the anti-assignment clauses in annuity contracts include: C.U. Annuitv Service CorD. v. Scott Younq, 281 A.D.2d 292 ( l S t Dept. 2 0 0 1 ) , Green v. SAFECO Life Ins., 727 N.E.2d 393 ( I l l . App. Ct. 2 0 0 0 ) , Libertv Life Ins. Co. Of Boston v. Stone Street CaDital, Inc., 93 F.Supp.2d 630 (D. Md. 2 0 0 0 ) , and Sinaer Asset Finance Co. v. Bachus, 294 A.D.2d 818 (4'h Dept. 2002). 3 [* 5] injury lawsuits. See, NYLS Bill Jacket, L. 2002, C. 5 3 7 , New York State Assembly Memorandum in Support of Legislation. permits a It to transfer his or her payments, subject to certain restrictions, even if the transfer is not permitted under the annuity contract. State court approval of these transactions is encouraged under Internal Revenue Code, 26 U.S.C. 5891"). § 5891 ("IRC 5 That statute, enacted also in 2002, imposes a f o r t y percent tax on the factoring discount derived from structured settlement transactions, unless the transaction is made pursuant to a qualified order. I R C §§ 5891(a), 5891(b) (1). A qualified order means a final order, judgment or decree issued by a State court that finds that the transaction does not contravene any State or federal statute or order of a c o u r t or administrative agency; is in the best interest of the payee, taking into account the welfare and support of the payee's dependents (IRC § 5891 [b][ 2 ] [A]) ; and is issued under the authority of an applicable state statute by an applicable State court ( I R C [b][Z][B]). § 5891 Applicable State statute is defined in IRC 5 5891 as follows: (3) Applicable State Statute.-For purposes of this section, the term "applicable State statute'' means a statute providing for the entry of an order, judgment or decree described in paragraph (2)(A) which is enacted by- (A) the State in which the payee of the 4 [* 6] structured settlement is domiciled, or (B) if there is no statute described in paragraph (A), the State in which either the party to the structured settlement (including an assignee under a qualified assignment under section 130) or the person issuing the funding a s s e t for the structured settlement is domiciled or has its principal place of business. New York s SSPA is an applicable State statute under § 5891. It provides that ( a ) An action for approval of a transfer of a structured settlement shall be by a special proceeding. (b) Such proceeding s h a l l be commenced to obtain approval of a transfer of structured settlement payment rights. Such proceeding shall be commenced: (i) in the supreme court of the county in which the payee resides; 01: (ii) in any court which approved the structured settlement agreement. G.O.L. 5 5- 1705. Notably, there is no provision for entertaining applications based upon the domicile in New York of either a party to the structured settlement or the person issuing the annuity, if the transferor-payee is neither a New York resident nor settled his or her claim in a New Y o r k court. In the present proceeding, petitioner Jerry L. 5 [* 7] Hildreth, Sr. lives in Alabama. He settled a personal i n j u r y action with a structured settlement in an Alabama State court. The annuity issuer for the structured settlement is Metropolitan L i f e Insurance Company ( MetLife ), which is said to have its principal place of business in New York. The structured settlement obligor (see, SSPA 5 5-1701Cnl) and issuer of the funding asset for the structured settlement (see, I R C § 5891 [b][ 3 ] [ B ] ) is Metropolitan lnsurance and Annuity Company ( MIAC ), which also is said to have its principal place of business in New York. Petitioner R & P Capital Resourcesl Inc. is a finance company with a White Plains, New York address that has offered to purchase Mr. Hildreth s periodic payments. Petitioners claim that they have come to this court because Alabama does not have an applicable State statute under IRC § 5891, so they are seeking approval in New York pursuant to IRC § 5891(b) ( 3 ) ( B ) because MetLife and MIAC have their principal places of business here. Although I R C § 5891(b) (3) contemplates that approval may be sought in the State where the parties to the annuity This is not petitioners first application. Without addressing the instant i s s u e , I signed an earlier order to show cause to approve the transfer but later denied it when petitioners willfully dishonored the service provision, granting leave to renew. When the instant application was presented, I edited the proposed text so as to direct petitioners to show cause why the petition should not be denied f o r want of jurisdiction. No response, and no evidence of service, was submitted. 6 [* 8] contract are domiciled or have their principal place of business, such approval must be pursuant to the State statute. New York's statute does not extend t h i s court's jurisdiction to those circumstances. Under the maxim of legislative interpretation that when a broader grant of authority is available but only a limited one is articulated, the limited must be applied, the legislature did not grant jurisdiction to t h i s court to entertain Mr. Hildreth's petition. New York's legislature enacted the SSPA after the federal statute. I t s members may have been aware of the broader application suggested under IRC 5 5891(b)(3), and that many insurance and financial institutions are located here. However, t h e legislature did not elect to open New York courts to every p e r s o n in a state that has yet to enact an applicable statute under I R C 5 5891, but whose annuity is issued by a New Y o r k institution. The refusal to do so is sensible. In order to satisfy the court's obligation under both statutes to make inquiry of the propriety of the transaction for the individual consumer petitioner, a personal appearance necessarily is required. 1706(b). a, IRC § 5891 (b)(2)(A)(i) and (ii); and GOL 5- The court must make a sober determination with respect to the payee's best interests (see, In re Settlement Fundina of NY, LLC, 195 Misc.2d 271 [Sup. Ct. Rensselaer County 2003]), a task that does not lend itself to long distance litigation. 7 And [* 9] 5 to make New York court,a nationwide clearinghouse for the protection of payee-consumers is an unwarranted burden on c o u r t and consumer a l i k e . Under the circumstances, it hereby is ORDERED and ADJUDGED that the petition is denied, and the proceeding is dismissed. ENTER: Dated: O c t o b e r z 2003 J.S.C. JANE SI SOLOMON a

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