Matter of Settlement Funding of NY LLC v Sun Life Assur. Co. of Can.

[*1] Matter of Settlement Funding of NY LLC v Sun Life Assur. Co. of Can. 2007 NY Slip Op 52548(U) [19 Misc 3d 1115(A)] Decided on October 29, 2007 Supreme Court, Bronx County Billings, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 29, 2007
Supreme Court, Bronx 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 Calloway Johnson pursuant to Article 5, Title 17 of the New York General Obligations Law, Petitioner

against

Sun Life Assurance Company of Canada and Liberty Life Assurance Company of Boston, Respondents



7082/2007



APPEARANCES:

For Petitioner

John S. Carro Esq.

Carro, Carro & Mitchell

475 Park Avenue South, New York, NY 10016

Calloway Johnson, Pro Se

Lucy Billings, J.

After a hearing on the record, the court dismisses the petition for the following reasons.

I.THE PURPOSE OF THE PROPOSED TRANSFER

The purpose of Calloway Johnson's structured settlement is to provide tax free funds for future subsistence needs and financial security. E.g., Settlement Funding of NY, LLC v. Brown, 11 Misc 3d 1059, 2006 WL 531131 at *2 (Sup. Ct. Bronx Co. 2006); In re Settlement Capital Corp., 1 Misc 3d 446, 448 n.1, 455 (Sup. Ct. Queens Co. 2003). Transfers of structured settlement payments therefore are to be limited to circumstances demonstrating current or impending hardship. Settlement Funding of NY, LLC v. Brown, 11 Misc 3d 1059, 2006 WL 531131 at *3; 321 Henderson Receivables, L.P. v. D'Amore, 9 Misc 3d 1110, 2005 WL 2276027 at *3 (Sup. Ct. Kings Co. 2005); In re 321 Henderson Receivables Ltd. Partnership, 2 Misc 3d 463, 467-68 (Sup. Ct. Monroe Co. 2003); In re Settlement Capital Corp., 1 Misc 3d at 448 n.1, 455.

The petition and Mr. Johnson's affidavit allege that his current needs include funding half of his minor daughter's travel expenses to visit her mother in Africa, purchasing clothing for his daughter, and covering initial expenses such as insurance and repairs for a home Mr. Johnson hopes to purchase. He also seeks to repay outstanding debts: approximately $1,500 in fines for parking violations and $1,500 for 1-2 months in rent arrears. Yet he already supports his minor [*2]daughter and intends to finance any home he might purchase, which he has not located, entirely with loans from the United States Department of Veterans Affairs, which will cover any downpayment and perhaps other initial expenses as well. Nor has he been threatened with any impending eviction due to nonpayment of rent, encountered resistance from his landlord to a modest repayment arrangement, or investigated any alternative resources, government benefits or otherwise, to meet those needs. Since his monthly income consists mostly of $2,100 per month in federal Social Security Administration and Department of Veterans Affairs benefits, the parking fines well may be uncollectible, if not susceptible to compromise.

The parties have not shown any further emergency financial need. Nonetheless, the petition seeks to transfer Mr. Johnson's rights to $3,633 in 21 monthly payments, $13,111 in seven ensuing monthly payments, and $206,136 in 72 final monthly payments, a total of $222,880, in exchange for $14,000 immediately. None of Mr. Johnson's current expressed needs is extraordinary, except possibly his daughter's travel expenses, which constitute a small fraction of the $14,000 in proceeds. None of those needs rises to an emergency level. The other proposed uses involve insignificant amounts for objectives that could be achieved by saving a few hundred dollars per month, amounts Mr. Johnson will receive in the next 1-2 years of monthly payments he seeks to relinquish.

Consequently, the reasons for transferring $222,880 over the next eight years and four months of the daughter's dependency and Mr. Johnson's nearly 20 years of life expectancy, at age 60, do not comport with the statutory purpose. Settlement Funding of NY, LLC v. Brown, 11 Misc 3d 1059, 2006 WL 531131 at *3; In re 321 Henderson Receivables Ltd. Partnership, 2 Misc 3d at 467-68; In re Settlement Capital Corp., 1 Misc 3d at 449, 451. Instead, the transfer will deprive his dependent child and Mr. Johnson, in his senior years, of the long term security the structured settlement payments were to provide. Settlement Funding of NY, LLC v. Brown, 11 Misc 3d 1059, 2006 WL 531131 at *4; In re Settlement Capital Corp., 1 Misc 3d at 451, 455.

II.APPRECIATION OF THE TRANSFER'S TERMS AND CONSEQUENCES

In addition, the court must consider the payee's demonstrated ability to appreciate the proposed transfer's financial terms and consequences based on independent legal and financial advice. Structured Asset Funding, LLC v. Taylor, 14 Misc 3d 1230, 2007 WL 446603 at *4 (Sup. Ct. Bronx Co. 2007); In re Settlement Capital Corp., 1 Misc 3d at 455. The petition and supporting affidavits fail to set forth the extensive history of Mr. Johnson's transfer of monthly settlement payments, those transfers' purposes, or the proceeds' actual use, which the court elicited, at least in part, at the hearing. In fact, the petition misrepresents that Mr. Johnson still is entitled to receive the payments he previously transferred. Specifically, he transferred his rights to $584,052 in 204 monthly payments from November 2000 to June 2018, $56,490 in 21 ensuing monthly payments, $6,930 in seven final monthly payments, a $30,000 payment in November 2004, and a $60,000 payment in November 2009: a total of $747,472, $251,991 of which he would have received by the time of the hearing. These payments surely would have enabled Mr. Johnson to pay all his alleged debts, anticipated expenses, and more.

Instead, Mr. Johnson invested and lost the immediate, far lesser proceeds from these previous transactions in a failed business venture. While he may have intended this investment for his and his family's benefit, in this light it is no different than his current, vague and ill-defined proposal that may never bear fruit, exchanging $222,880 in payments over the remaining years of his daughter's dependency and the remaining best years of his life, for $14,000. His history certainly does not demonstrate his ability to appreciate the proposed transfer's financial terms and consequences.

Nor have the parties demonstrated the payee's ability to appreciate the proposed transfer's terms and consequences based on independent advice. Structured Asset Funding, LLC v. Taylor, 14 Misc 3d 1230, 2007 WL 446603 at *4; In re Settlement Capital Corp., 1 Misc 3d at 455. The petition and affidavits instead demonstrate, albeit not in admissible form, C.P.L.R. § 409, that the financial advisor to whom petitioner referred Mr. Johnson discouraged the proposed transaction. His testimony at the hearing further elicited that he had never consulted any of his six adult [*3]children for their advice concerning this transaction.

III.CONCLUSION

Ordinarily the law recognizes the right of an adult, especially a person with 60 years of experience in life as well as experience with the precise type of transaction in question, to make his own financial decisions. New York General Obligations Law § 5-1706(b)'s statutory purpose, however, supplants total deference to an individual's decisionmaking rights with a best interests standard. Based on the petition and supporting affidavits, in conjunction the other relevant circumstances revealed at the hearing, it is impossible to determine that the transfer as proposed is in the best interests of Mr. Johnson and his dependent, as specifically required. NY Gen. Oblig. Law § 5-1706(b). E.g., In re 321 Henderson Receivables Ltd. Partnership, 2 Misc 3d at 464; In re Settlement Capital Corp., 1 Misc 3d at 455-56; In re Settlement Funding of NY, 195 Misc 2d 721, 725 (Sup. Ct. Rensselaer Co. 2003). Under all the circumstances here, including Mr. Johnson's prior financial decisionmaking, the absence of independent advice approving the transaction, and its very terms and consequences, the court is constrained to disapprove the transfer sought by the petition and therefore denies it and dismisses this proceeding.

This dismissal is without prejudice to a new proceeding based on current, consistent, complete, and more compelling information, as well as a showing that the discount rate, fees, and expenses are fair and reasonable, before any assigned justice. NY Gen. Oblig. Law § 5-1706(b). E.g., Settlement Funding of NY, LLC v. Brown, 11 Misc 3d 1059, 2006 WL 531131 at *3; Settlement Funding of NY, LLC v. Solivan, 8 Misc 3d 1006, 2005 WL 1498217 at *2 (Sup. Ct. Kings Co.); In re 321 Henderson Receivables Ltd. Partnership, 2 Misc 3d at 464-65; In re Settlement Capital Corp., 1 Misc 3d at 447. Petitioner shall attach this decision, however, to any future petition to transfer Calloway Johnson's structured settlement payments. Structured Asset Funding, LLC v. Taylor, 14 Misc 3d 1230, 2007 WL 446603 at *4. This decision constitutes the court's order and judgment of dismissal.

DATED: October 29, 2007_____________________________

LUCY BILLINGS, J.S.C.