Matter of 321 Henderson Receivables L.P. v Fontana

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[*1] Matter of 321 Henderson Receivables L.P. v Fontana 2006 NY Slip Op 51848(U) [13 Misc 3d 1216(A)] Decided on October 2, 2006 Supreme Court, Suffolk County Mayer, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 2, 2006
Supreme Court, Suffolk County

In the Matter of the Petition of 321 Henderson Receivables, L.P., Petitioner,


Joseph Fontana, Allstate Life Insurance Company of New York and Allstate Settlement Corporation, As Interested Persons Pursuant to GOL § 5-1701(c).


Lum, Danzis, Drasco & Positan, LLC

Attorneys for Petitioner

325 Broadway

New York, New York 10007

Joseph Fontana

18 Maple Drive

Lindenhurst, New York 11757

Allstate Insurance Company of New York

544 Lakeview Parkway, L3F

Vernon Hills, IL 60061 Allstate Settlement Corporation

544 Lakeview Parkway, L3F

Vernon Hills, IL 60061

Peter H. Mayer, J.

Upon the reading and filing of the following papers in this matter: (1) Notice of Motion by the petitioner, dated April 12, 2006 , and supporting papers; and now

Upon due deliberation and consideration by the Court of the foregoing papers, the motion is decided as follows: it is

ORDERED that the application by the petitioner for an order approving transfer and sale of certain structured settlement payment rights of the proposed transferor, Joseph Fontana, is considered under the Structured Settlement Protection Act (SSPA), General Obligations Law (GOL) § 5-1701 et seq., and is hereby denied; and it is further

ORDERED that counsel for the petitioner shall, within 20 days of this Order, serve a copy of this Order with Notice of Entry upon all interested parties, or their attorney(s) if represented by counsel, pursuant to CPLR 2103(b)(l), (2) or (3) and thereafter file the affidavit(s) of service with the Clerk of the Court.

In this special proceeding brought by Notice of Petition, the petitioner, 321 Henderson Receivables, L.P. ("petitioner"), seeks court approval pursuant to GOL §5-1706 of a transfer and sale to it of certain structured settlement payment rights of the proposed transferor, Joseph Fontana. In relevant part, GOL §5-1706, states that:

No direct or indirect transfer of structured settlement payment rights shall be effective ... unless the transfer has been authorized in advance in a final order of a court of competent jurisdiction based upon express findings by such court that ... (b) the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependants; 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..." (emphasis added).

The purpose of New York's SSPA is to give greater protection to proposed transferors who are negotiating to sell or transfer certain structured settlement payments to a third party (In re Petition of Settlement Capital Corp [Ballos], 1 Misc 3d 446, 769 NYS2d 817 [Sup Ct, Queens County 2003]). The "best interest" standard under the SSPA requires a case by case analysis to determine whether or not a proposed transfer of structured settlement payments, which are designed to preserve an injured person's long-term financial security, will provide the needed financial relief without jeopardizing or irreparably impairing the financial security provided to the payee and his or her dependents by the periodic payments (Id).

The market of buying and selling injured payees' structured settlement payments can pose a hazard to those injured payees and to the public assistance programs on which they must often rely when they trade away secure income from structured settlements (Petition of 321 Henderson Receivables, LP [Martinez], 11 Misc 3d 892, 816 NYS2d 298 [Sup Ct, NY County 2006]). The [*2]market also threatens the viability of structured settlements for injury victims who may need them in the future (Id). In enacting the SSPA, the Legislature did not intend for the courts to be mere rubber stamps for proposed structured settlement sales (In re Ballos, supra). Rather, the legislative history of the SSPA makes clear that to avoid the victimization so prevalent in the structured settlement sale industry, the courts are to examine the various statutory criteria and determine whether the proposed sale will truly serve the best interest of the payee (In re Martinez, supra).

Mr. Fontana is an unemployed 43 year-old father of three children, ages fourteen (14), twelve (12) and five (5), who is currently collecting $4,200.00 per month in social security disability benefits. The underlying settlement resulted from Mr. Fontana's 1991 personal injury action in which he alleged back injuries. The structured settlement payments are being made to Mr. Fontana pursuant to a September 30, 1994 Structured Settlement Agreement with Allstate Insurance Company, funded by an annuity from the respondent, Allstate Life Insurance Company of New York, and administered by the respondent, Allstate Settlement Corporation. Prior to this application, Mr. Fontana had previously sold other structured settlement payments to J.G Wentworth, although the details of such transfer is not set forth in the petition or supporting papers.

GOL §5-1703 requires a petitioning transferee to provide the proposed transferor with a disclosure statement setting forth various disclosures mandated under the subparagraphs of that section. In an effort to show compliance with the statutorily required disclosures, the petitioner submits a purported disclosure statement that is unsworn and, in fact, is not even signed by its preparer. In the purported disclosure, the alleged present value of the aggregate payments, discounted at 5.4%, is $54,580.10. The effective annual discount rate for the transaction is stated to be 12.03%; however, there is no indication as to the specific date used to calculate the "present value." Nevertheless, the petitioner seeks Court approval of the significantly lower gross purchase price of $25,500.00, which the petitioner further reduces for fees in the amount of $1,500.00, leaving a net payable amount of $24,000.00. This constitutes a mere 21.2% of the total aggregate value of the payments and, if petitioner's own figures are used, only 43.9% of the present value. Terms even more favorable to a transferor have nevertheless been held not to be "fair and reasonable" or in the "best interest" of a transferor as required in GOL §5-1703(b) (see, In re Martinez, 11 Misc 3d 892, 816 NYS2d 298) (disapproving a proposed settlement payment from 321 Henderson Receivables to a payee, which represented 55.70% of the present value).

As for the $1,500.00 in fees charged by the petitioner, such amounts are summarily characterized in the disclosure statement as a "Compliance and Administrative Fee" ($500.00) and a "Filing and Related Expenses Fee" ($1,000.00). New York GOL §5-1703(f) requires a disclosure statement to set forth "an itemized listing of all commissions, fees, costs, expenses and charges payable by the payee or deductible from the gross amount otherwise payable to the payee and the total amount of such fees." The disclosure statement in this case fails to include any itemized list or other evidence to support how the petitioner's fees were calculated or what they are comprised of. In any event, paragraph 13 of the March 21, 2006 Purchase Agreement requires each party to pay their own costs and expenses in connection with the carrying out of the Agreement. Based on this express language, as well as the lack of evidence to support the fees charged, the Court is unable to make a finding pursuant to GOL §5-1706(b), that "the fees and expenses used to determine the [*3]net advance amount, are fair and reasonable."

With regard to the value of the transfer amount, GOL §5-1703(d) requires the disclosure statement to set forth a "price quote from the original annuity issuer or, if such price quote is not readily available from the original annuity issuer, then a price quote from two other annuity issuers that reflects the current cost of purchasing a comparable annuity for the aggregate amount of payments to be transferred." The petition in this matter does not include a price quote from the original annuity issuer, nor has there been a showing that such quote was not readily available. Furthermore, the alternative "price quotes" submitted by the petitioner in lieu of the original issuer's price quote, are not sufficiently reliable for the Court to make the express findings necessary to approve the transfer.

The first quote submitted by the petitioner in this regard is a purported affidavit of Judson Caddy, Jr., dated March 6, 2006; however, this "affidavit" is merely a photocopy of a facsimile, it is not properly sworn, and it fails to include the curriculum vitae referred to in the document. The second quote is an affidavit by David J. Reape, dated March 28, 2006. Mr. Reape, however, is the Senior Vice President of the petitioner, 321 Henderson Receivables. At least one other court has found a virtually identical affidavit from Mr. Reape to be inadequate in support of a proposed transfer in that case (see, e.g., In re Application of 321 Henderson Receivables, LP [DeMallie], 2 Misc 3d 463, 769 NYS2d 859 [Sup Ct, Monroe County 2003]). Furthermore, this Court finds that an affidavit from an officer of the petitioner/proposed transferee is insufficient to satisfy the requirements of GOL §5-1703(d).

Under GOL §5-1706(c), the Court is also required to make an express finding that "the payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received such advice or knowingly waived such advice in writing." As purported evidence of independent professional advice regarding this transfer, the petitioner submits an unsworn letter from Robert A. Brady, Esq. Mr. Brady is the attorney who represented Mr. Fontana in his underlying personal injury action. With all deference given to Mr. Brady as an attorney, even if his letter was in admissible form, there is no foundational showing that he is qualified to opine as to whether or not "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." In fact, unless a proposed transferor's advisor submits an affidavit expressly stating that he or she endorses the transfer and gives specific reasons for doing so, a proposed transfer should be treated as if it had no independent advisor's endorsement at all (Petition of Settlement Funding of New York LLC [Cunningham], 195 Misc 2d 721, 761 NYS2d 816 [Sup Ct, Rensselaer County 2003]).

In support of the petition, the petitioner submits a March 21, 2006 affidavit from Mr. Fontana, which indicates that he consents to the transfer and that he was provided with the statutorily required disclosure statement. As purported evidence of his receipt of the disclosure statement, Mr. Fontana's affidavit indicates that he initialed the bottom of each page of the disclosure and placed his signature at the end. Although a signature with his name appears at the end of the disclosure, there are no initials on any of the disclosure pages. Therefore, even if the [*4]disclosure statement was admissible, it is apparently not the same one signed by Mr. Fontana.

An inconsistency in the evidence also exists with regard to the very amount of the proposed transfer payments. According to the petition, the proposed transfer and sale is for 110 monthly payments of $1,029.00 each, commencing September 10, 2015 and ending October 10, 2024, for an aggregate total of $113,190.00. Paragraph 3 of Mr. Fontana's March 21, 2006 sworn affidavit, however, specifically states, "I desire to sell 110 monthly payments of $750.00 each..." Given this discrepancy, the Court is unable to ascertain the amount Mr. Fontana actually intends to transfer.

According to his affidavit, Mr. Fontana intends to use the cash from this proposed sale as follows: $15,000.00 for a down payment on a house; $8,000.00 for various utility bills; $5,000.00 for a college fund for his children; and $2,000.00 for every day expenses. Despite Mr. Fontana's apparent consent to at least some amount of transfer, the petition fails to include admissible proof upon which the Court may expressly find that the transfer is in the best interest of Mr. Fontana and his family, or that the transaction, including the discount rate and the advance amount, is fair and reasonable (In re Ballos, supra). Indeed, a proposed transferor's willingness to transfer settlement payments has no bearing on the Court's determination of whether the transaction is "fair and reasonable" within the meaning of the SSPA (see, In re Cunningham, supra).

Although one of Mr. Fontana's stated purposes for the transfer is to use $15,000.00 for a down payment toward the purchase of a house, despite his social security disability income, he is obviously unable to remain current on either the most basic utility expenses or his other every day expenses. Consequently, there has been no showing that the proposed transfer would satisfy Mr. Fontana's immediate financial need without jeopardizing or irreparably impairing the long-term financial security afforded to him and his family by the periodic payments (In re Ballos, 1 Misc 3d 446, 769 NYS2d 817). Absent such showing, this Court will not approve a sale or transfer of structured settlement payments.

Finally, although this petition is not opposed, the petitioner fails to include proof of service of the petition upon the captioned corporate interested parties. In pertinent part, GOL §5-1705(c) requires that "[a] copy of the notice of petition and petition or order to show cause and petition shall be served upon all interested parties at least twenty days before the time at which the petition is noticed to be heard" (emphasis added). Since there is no evidence that interested parties, Allstate Life Insurance Company of New York and Allstate Settlement Corporation, have been noticed on the application as required under GOL §5-1705(c), the Court finds that the petitioner has failed to acquire jurisdiction over those necessary parties (Petition of Settlement Capital Corp (Payment Rights of "Y"),194 Misc 2d 711, 756 NYS2d 728 [Sup Ct, Rensselaer County 2003]).

For the reasons set forth herein, the Court concludes that the procedural, substantive and evidentiary flaws in the petition and supporting exhibits are fatal to an express finding by the Court pursuant to GOL §5-1706, that the proposed transfer is in the best interest of Mr. Fontana and his family, and that the transaction is fair and reasonable. Accordingly, the petition is denied. [*5]

This constitutes the Decision and Order of the Court.



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