Matter of Rapid Settlements Ltd.
Annotate this CaseDecided on October 26, 2004
Supreme Court, Cortland County
In the Matter of the application of Rapid Settlements, Ltd., Petitioner, For Approval of a Transfer of a Structured Settlement Payment Right of CRYSTAL PHILLIPS to RAPID SETTLEMENTS, LTD.
38682
LAWRENCE M. SIMON, ESQ.
Attorney for Petitioner
386 Park Avenue South, Suite 900
New York, New York 10016
CRYSTAL PHILLIPS
Respondent
95 Homer Avenue
Cortland, New York 13045
P. L. ASSIGNED SERVICES, INC.
Respondent
69 Lydecker Street
Nyack, New York 10960
PRESIDENTIAL LIFE INSURANCE COMPANY
Respondent
69 Lydecker Street Nyack, New York 10960
Phillip R. Rumsey, J.
Crystal Phillips, presently 20 years old, is the payee of a structured settlement stemming from a lawsuit filed on her behalf when she was a child. She is due to receive one more payment from the settlement, in the sum of $60,000, on her thirtieth birthday (April 13, 2014). She received a $20,000 payment on her eighteenth birthday, and sold two other payments - $25,750 she would have received upon turning 21, and $37,500 she was to receive on her 25th birthday - for a total price of $28,245.55, on or about May 29, 2003. Phillips now seeks court permission to sell the final, $60,000 payment to petitioner, for $14,500.
Phillips avers that she will not need the money to support herself in the future (although she does not explain how she intends to do so after the settlement is expended), but that she does need it now, to put a down payment on a home for herself and her three-year-old child. She also asserts that she has explored other possible means of obtaining money, including loans and credit cards, but does not qualify for some of those options, and feels that this is a better choice. She contends that she "shopped around" among companies to obtain the best terms for selling her remaining future payment.
Counsel for petitioner asserts that the exchange of $14,500 today for a lump sum of $60,000 in ten years is "fair and reasonable" in the market for structured settlement transfers. The equivalent discount rate - 14.5% - is claimed to be "comparable to or lower than" interest rates available to Phillips on credit cards, and the result of an arm's length transaction in a competitive market.
Aside from the specific, objective requirements imposed by law, relating to required disclosures and prohibited provisions (see, General Obligations Law §§ 5-1703, 5-1704, 5-1706 [c], [d], [e]), which appear to have been satisfied, the court must determine whether the proposed transfer is "in the best interest of the payee, taking into account the welfare and support of the payee's dependents," as well as whether it is "fair and reasonable," considering, inter alia, the discount rate used to calculate the amount to be received by the payee, and any fees or charges (Gen. Oblig. L. § 5-1706 [b]). These are two separate analyses (In re Petition of Settlement Funding of New York, L.L.C., 195 Misc 2d 721, 725).
"Best Interests" Analysis
Courts have considered numerous factors as relevant to assessing whether a transfer is in the "best interest" of the payee, including the payee's age, maturity level, and financial acumen; the purpose to which the funds are to be put; whether there is demonstrated hardship; the existence of dependents and the effect of the transfer on their interests; the payee's ability to appreciate the consequences of the transfer; and the timing of the application (see, In re Settlement Funding of New York, L.L.C. [Platt], 2 Misc 3d 872, 876).
Phillips received the first payment from the settlement, $20,000, when she was 18, about two years before making the present application. She received $25,745.55 about one year later, as a result of selling the second and third payments. When that sale was brought before this [*2]court for approval, Phillips claimed that she was going to use the money to put a down payment on a home, purchase a used car to enable her to work at Wal-Mart, purchase clothes for her son and furniture for the house, and put the remainder into a savings account. Supposedly she had not had the desire or maturity to do these things when she received the first payment at age 18, but then (in 2003) had a plan and was ready to pursue it. That clearly did not happen, however, because she is once again before the court looking to sell her final payment, for even less cash, again to put a down payment on a home.
Having interviewed Phillips, and discussed at some length her financial circumstances and use of the money she had previously received from the settlement, the court is not persuaded that she has the maturity to enact the plans she has proposed. She is only 20 years old and her maturity level may increase as she gets older, such that she may actually be able to follow through with her plans when she receives her final payment in 2014. Moreover, she will need to support her son for the next 18 years, and the final payment of $60,000 may help her to do so, at a time when the expenses for her child's needs will most likely far exceed their present level.
For all of these reasons, the court finds that approval of the present application would not serve Phillips' interests, or those of her son.
"Fair and Reasonable" Analysis
Turning to the required analysis of whether the transaction is "fair and reasonable," it bears noting that although the actual present value of the $60,000 payment, given the applicable federal rate (see, General Obligations Law § 5-1703 [c]) of 3.8%, is $41,316.76 (Petition, dated June 24, 2004, Exhibit C [Disclosure Statement], ¶ 3), Phillips would be receiving only 35% of that amount if the proposed transfer were consummated. Petitioner attempts to show the reasonableness of the offered terms by comparing the annual discount rate (14.5%) used to calculate the gross advance amount (see, General Obligations Law § 5-1703 [e]) to the rates typically available for credit card borrowing. That comparison misses the mark, however, because it is not Phillips herself who will be "repaying" petitioner for the money it intends to advance to her, but rather the Presidential Life Insurance Company, which has the obligation to make the final payment due under Phillips' structured settlement. Petitioner has not shown that the risk associated with this transaction is in any way comparable to the risk borne by the typical credit card issuer or other provider of unsecured consumer credit. [FN1]
While risk is just one factor that must be considered when assessing the fairness of a transfer, the relatively low risk inherent in transactions of this type does tend to suggest that a purchase price calculated using a lower discount rate would be more reasonable under the circumstances (cf., Settlement Funding, 195 Misc 2d at 725).
In addition, while petitioner asserts that the structured settlement market is "competitive," with price quotes being given freely to interested sellers by different funding companies (Verified Petition dated June 24, 2004, ¶ 34), the Legislature's imposition of a requirement for court [*3]approval provides a strong indication of its conviction that market factors alone are not sufficient to ensure the fairness of such transactions, or to prevent abusive or predatory practices which may pervade the industry. This may be a consequence of the fact that individuals desiring to sell their payments often have no other means of obtaining cash, and are therefore, to a certain extent, "at the mercy" of firms that are in the business of purchasing such payments, creating an inherent inequality in bargaining power. Under these circumstances, the mere fact that a payee is free to "shop around" among firms to obtain the best price offered does not necessarily mean that the terms of the resulting contract will be "fair" or "reasonable" (see, Settlement Funding, 195 Misc 2d at 724).
Accordingly, the court is without any basis for concluding that the proposed transfer is fair and reasonable and, as noted above, it cannot be said to be in the payee's best interests. The petition is therefore dismissed.
This decision shall constitute the order and judgment of the court.
Dated: October 26, 2004
Cortland, New York
____________________________
HON. PHILLIP R. RUMSEY
Supreme Court Justice
Footnotes
Footnote 1: While the cost to Phillips of other types of credit may be relevant to show that her options are limited, and hence her need to obtain money by selling her future payment greater, this does not affect the inherent "reasonableness" of the transaction, but merely goes to whether it may - despite its apparent "unfairness" - nevertheless be in her best interests.
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