Matter of Settlement Funding of NY LLC v Utica Mut. Ins. Co.
Annotate this CaseDecided on July 20, 2007
Supreme Court, Suffolk County
In the Matter of the Petition of Settlement Funding of New York, LLC for Judicial Approval of Absolute Assignment and UCC Article 9 Security Agreement with William R. Davolio, pursuant to Article 5, Title 17 of the New York General Obligations Law, Petitioner(s),
against
Utica Mutual Insurance Company and Prudential Insurance Company of America, Respondent(s)
12714-2006
Silverman Perlstein & Acampora, LLP
Attorneys for Petitioner
100 Jericho Quadrangle
Suite 300
Jericho, New York 11753
William Davolio 12 Ventura Drive
North Babylon, New York 11703
Utica Mutual Insurance Company
Post Office Box 530
Utica, New York 13503
Prudential Insurance Company of America
Structured Settlements
200 Wood Avenue South
Iselin, New Jersey 08830-2888
Peter H. Mayer, J.
Upon Due Deliberation and Consideration by the Court of the foregoing papers and testimony, the petition 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, William R. Davolio, 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 upon all parties to this proceeding and all "interested parties" as defined in GOL §5-1701(f), or their attorney(s) if represented by counsel, and shall thereafter file the affidavit(s) of service with the Clerk of the Court.
In this special proceeding brought by Order to Show Cause, the petitioner, Settlement Funding of New York, LLC ("petitioner" or Settlement Funding"), seeks court approval pursuant to GOL §5-1706 of a proposed transfer and sale to it of certain structured settlement payment rights of the proposed transferor, William R. Davolio. According to the petition, Mr. Davolio is a 39 year-old father of three children, ages eleven (11), nine (9) and five (5), as well as two step-children, ages eighteen (18) and seventeen (17). The underlying structured settlement agreement resulted from the settlement of a personal injury action previously commenced by Mr. Davolio, the details of which are not disclosed in the petition or supporting papers. The structured settlement payments are presently being made to Mr. Davolio pursuant to a structured settlement agreement with the respondent, Utica Mutual Insurance Company, funded through an annuity issued by the respondent, Prudential Insurance Company of America. The petition fails to include either a copy of the structured settlement agreement or a copy of the annuity contract. The proposed transfer and sale for which the petitioner seeks court approval consists of 133 monthly payments of $249.87 each, for a total of $33,232.71.
Pursuant to this Court's Order, dated November 29, 2006, a hearing was conducted on [*2]January 12, 2007 to permit the Court to determine whether or not the proposed transfer satisfies the requirements of GOL §5-1701, et seq., a showing of which must be made before court approval of such transfer may be granted. 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 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 ).
New York 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. The structured settlement payments to be transferred consist of 133 monthly payments of $249.87 each, for an aggregate total of $33,232.71. The alleged present value of the aggregate payments, discounted at 5.4%, is $24,770.05. The effective annual discount rate for the transaction is stated to be 19.99%, compounded monthly. The petitioner seeks Court approval of the significantly lower gross advance amount of $13,516.23, which the petitioner further reduces for fees in the amount of $2,200.00, leaving a net advance amount of $11,316.23. This constitutes a mere 34.1% of the total aggregate value of the [*3]payments and, if petitioner's own figures are used, only 45.7% 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) (In re Martinez, supra ) (disapproving a proposed settlement payment from a transferee to a payee, which represented 55.70% of the present value).
As for the $2,200.00 in fees charged by the petitioner, such amounts are summarily characterized in the disclosure statement as "Legal Fees" ($2,000.00) and "Processing Fees" ($200.00). 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. The petitioner also failed to produce any evidence or statutorily required itemization of the costs and fees at the hearing of this matter. This lack of evidence to support the fees charged renders the Court unable to make a finding pursuant to GOL §5-1706(b), that "the fees and expenses used to determine the 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." In addition to being unsworn and unsigned, and therefore not evidentiary in nature, the disclosure statement in this matter fails to list a price quote from the original annuity issuer. Instead, the statement simply lists two other amounts, $25,655.55 and $25,801.62, presumably as quotes from other annuity issuers; however, there is no information as to how these numbers were derived, no information as to who may have provided these amounts, and no other explanation at all as to whether or not these figures were, in fact, price quotes from some other annuity issuers. The hearing also failed to result in any information as to what efforts were made to obtain a price quote from the original annuity issuer or any other comparable annuity issuers. Since the petitioner has failed to satisfy the requirements of GOL §5-1703(d), the petition must be denied.
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." Mr. Davolio's affidavit does indicate that he was advised in writing to seek independent professional advice regarding the transfer and that he waived his right to do so. His affidavit also states that he consents to the proposed transfer. According to his affidavit, Mr. Davolio had intended to use approximately $4,000.00 from this proposed sale to pay off credit card debt and approximately $6,000.00 toward the first year of his oldest son's college tuition. At the time of the hearing, Mr. Davolio stated that his credit card debt had already been paid off and that he now intended to use the remaining funds toward his other son's first year of college.
Despite Mr. Davolio's apparent consent to the transfer, the petition fails to include [*4]admissible proof upon which the Court may expressly find that the transfer is in the best interest of Mr. Davolio 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. Davolio's stated purposes for the transfer is to assist with his sons' college tuition, he also stated that the his older son transferred to a less expensive school due to the family's financial situation. Therefore, there has been no showing that the proposed transfer would satisfy the immediate college tuition 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). In fact, the periodic payments of the annuity, which equate to a greater amount than the proposed lump sum sale amount, would afford Mr. Davolio the ability to subsidize a greater amount of his sons' college tuition over a longer period of time. The lack of showing that the transfer would not impair the long-term financial stability of Mr. Davolio and his family provides another basis for this Court's denial of Settlement Funding's petition.
At the hearing, counsel for the petitioner tendered to the Court an affidavit from Antony Mitchell in support of the petition. Mr. Mitchell's affidavit had not been included with the original petition. In his affidavit, Mr. Mitchell identifies himself as the Chief Operating Officer of Peachtree Settlement Funding, LLC ("Peachtree"). Although not disclosed in Mr. Mitchell's affidavit, the hearing confirmed that Peachtree is, in fact, a division of Settlement Funding, the very petitioner/proposed transferee in this case. This Court has previously held that an affidavit from an officer of the petitioner/proposed transferee is insufficient to satisfy the requirements of GOL §5-1703(d) (see, Matter of 321 Henderson Receivables, L.P. v Fontana, 13 Misc 3d 1216A, 824 NYS2d 759 [Sup Ct, Suffolk County 2006]).
Even if Mr. Mitchell were not an officer of the petitioner's subsidiary, the affidavit would, nevertheless, be insufficient to convince the Court that the discount rates used by the petitioner are fair and reasonable. In this regard, the thrust of Mr. Mitchell's affidavit emphasizes the purported costs and risks posed to the petitioner in purchasing structured settlement payments. New York's General Obligations Law, however, as well as the statutory intent of the SSPA, constrain the Court to protect the best interests of the injured transferor, not the profit margin or market position of the petitioner (see, GOL §5-1706[b]; In re Ballos, 1 Misc 3d 446, 769 NYS2d 817 [Sup Ct, Queens County 2003]). In any event, many of Mr. Mitchell's conclusions are based upon information which is not evidentiary in nature. Therefore, the Court cannot conclude from Mr. Mitchell's affidavit that the proposed transfer is in the best interest of Mr. Davolio.
Lastly, despite the petitioner's assertions to the contrary, the evidence also shows that Mr. Davolio is not the only "interested party" as that term is defined by the General Obligations Law. The evidence also shows that the petitioner failed to serve the petition upon all such "interested parties" as required by statute. Such failure is a violation of GOL §5-1701(f), which precludes a court order granting the petition. [*5]
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). With respect to any structured settlement, GOL §5-1701(f) defines "interested parties" as "the payee, any beneficiary irrevocably designated under the annuity contract to receive payments following the payee's death, the annuity issuer, the structured settlement obligor, and any other party that has continuing rights or obligations under such structured settlement."
Settlement Funding's petition acknowledges these statutory requirements and expressly states, albeit incorrectly, that "the [only] interested parties' are Mr. Davolio, Utica Mutual and Prudential Insurance Company." The petition further states that "there are no irrevocable beneficiaries under the annuity contract to receive payments following the payee's death, and no other party that has continuing rights or obligations under the structured settlement agreement." Mr. Davolio's affidavit, which was, no doubt, prepared by the petitioner, is conspicuously silent regarding the issue of beneficiaries or other interested parties.
Contrary to Settlement Funding's assertions in the petition, Mr. Davolio testified at the hearing that at the time he entered into the structured settlement agreement, his wife was the designated beneficiary. After he and his wife divorced, he named his son, William Robert Davolio, Jr. as the designated beneficiary. Counsel for the petitioner conceded at the hearing that although the petitioner is believed to have reviewed the annuity contract, a copy of the petition was never served upon the other statutorily defined "interested party," William Davolio, Jr. Such failure to serve all "interested parties" requires denial of the petition (see, GOL §5-1705[c]; Petition of Settlement Capital Corp [Payment Rights of "Y"],194 Misc 2d 711, 756 NYS2d 728 [Sup Ct, Rensselaer County 2003]).
The ease with which inaccurate information may be tendered to a court by a petitioning transferee causes this Court great concern for unwary injured payees and other interested parties who do not know the protections afforded to them by the statute. As in this case, an injured payee's beneficiaries under an annuity contract are nearly always family members and/or dependents of the payee. The purpose of the SSPA is to give greater protection to proposed payees and provide the long-term financial security of the payee and his or her dependents (In re Ballos, supra ). To ensure such protections, and to properly make express findings pursuant to statute, "that the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents," this Court holds that a petition submitted for court approval under GOL §5-1701 et seq must contain a copy of the injured payee's structured settlement agreement and the annuity contract from which approval of the transfer and sale of payments are sought. This holding is in full conformity with the legislative intent of the Structured Settlement Protection Act, as well as its interpretive case law, which require the courts to employ the paternalistic protections of the statute to injured payees and their dependents (see, Matter of 321 Henderson Receivables, L.P. [Lemanski], 13 Misc 3d 526, 819 NYS2d 826 [Sup Ct, Erie County 2006]).
For the reasons set forth herein, the Court concludes that the procedural and substantive [*6]flaws in the petition and related evidence precludes an express finding by the Court, pursuant to GOL §5-1706, that the proposed transfer is in the best interest of Mr. Davolio and his family, and that the transaction is fair and reasonable. Accordingly, the petition is denied.
This constitutes the Decision and Order of the Court.
Dated:
Peter H. Mayer, J.S.C.
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