Matter of Settlement Funding of NY LLC v LM Prop. & Cas. Ins. Co.

[*1] Matter of Settlement Funding of NY LLC v LM Prop. & Cas. Ins. Co. 2008 NY Slip Op 50491(U) [19 Misc 3d 1103(A)] Decided on March 13, 2008 Supreme Court, Broome County Lebous, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 March 13, 2008
Supreme Court, Broome 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 Eric R. Lindsey a/k/a Eric Lindsey pursuant to Article 5, Title 17 of the New York General Obligations Law, Petitioner,

against

LM Property and Casualty Insurance Company and Prudential Insurance Company of America, Respondents.



2008-0234



APPEARANCES:

COUNSEL FOR PETITIONER:

SALLAWAY LAW FIRM, PLLC

BY:GEORGE SALLAWAY, ESQ., OF COUNSEL

OFFICE & POST OFFICE ADDRESS:

7030 EAST GENESEE STREET

FAYETTEVILLE, NY 13066 ERIC R. LINDSEY

1734 STATE ROUTE 12, L0T 26

BINGHAMTON, NY 13901-5598

Ferris D. Lebous, J.

Petitioner, Settlement Funding of New York, LLC, moves for judicial approval of the proposed transfer of certain future payment rights of Eric R. Lindsey a/k/a Eric Lindsey under a structured settlement agreement in exchange for the present payment of a discounted lump sum (General Obligations Law § 5-1701 et seq.).

Mr. Lindsey, currently age 27, obtained a structured settlement arising out of a personal injury action with payments as follows:

$8,000 annual payment, with 5 payments certain, starting November 28, 1998;

$15,000 due on November 28, 2005;

$20,000 due on November 28, 2010;

$30,000 on November 28, 2015; and

$35,000 on November 28, 2020.

Mr. Lindsey is single with no dependents. Mr. Lindsey avers that he is currently employed on a full-time basis with the CanMan Redemption Center earning approximately $1,000 net per month.

By way of this petition, petitioner and Mr. Lindsey seek approval of an Agreement in which Mr. Lindsey would transfer his right to the $20,000 lump sum payment due on November 28, 2010 in exchange for a net amount of $9,517.07.

DISCUSSION

General Obligations Law § 5-1701 et seq., also known as the "Structured Settlement Protection Act" or "SSPA", was enacted in 2002 due to the concern that structured settlement payees, such as Mr. Lindsey, are particularly prone to being victimized and quickly dissipating their assets and to protect them from the growing number of companies using "'[a]ggressive advertising, plus the allure of quick and easy cash, to induce settlement recipients to cash out future payments, often at substantial discounts, depriving victims and their families of the long-term financial security their structured settlements were designed to provide' (Mem. in Support, NY State Assembly, 2002 McKinney's Session Laws of NY, at 2036)" (Singer Asset Finance Co., LLC v Melvin, 33 AD3d 355 [2006]). This legislation "[d]iscourages such transfers by requiring would-be transferees to commence special proceedings for the purpose of seeking judicial approval of the transfer [citations omitted]" (Settlement Funding of New York, LLC [Cunningham], 195 Misc 2d 721, 722 [Rensselaer County 2003]). "The SSPA clearly reflects the Legislature's dissatisfaction with the structured settlement transfer market rates, and its conclusion that payees cannot protect their best interest and thus require judicial supervision" (Settlement Funding [Cunningham], 195 Misc 2d at 724). "Clearly, the New York State Legislature in enacting [the] SSPA and in empowering the courts with the discretion to determine whether the terms of a proposed transfer of future payments are fair and reasonable did not intend [*2]for the courts to be mere rubber stamps" (Settlement Capital Corp. [Ballos], 1 Misc 3d 446, 461 [Queens County 2003]).

As such, this court's judicial function under the SSPA requires an evaluation of a variety of factors, but particularly: (1) whether the transaction is fair and reasonable, including the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount; and (2) whether the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents, if any.

In determining whether the transaction is fair and reasonable, the court should examine the discount rate used to determine the gross advance amount and the fees and expenses used to determine the net advance amount. Here, petitioner determined the gross advance amount of $11,717.07 by applying an annual discount rate of 19.99%. The court notes that similar rates have been deemed unreasonable (Cunningham, 195 Misc 2d at 724 [15.46%]; Settlement Capital Corp., [Ballos], 1 Misc 3d 446 [19.82%]; and Settlement Capital Corp. ["Y"], 194 Misc 2d 711 [18.621%]). Adding further insult to injury, petitioner proposes to deduct from said gross advance amount the cost of legal fees of $2,000, as well as $200 for costs and disbursements, leaving a net advance amount of $9,517.07. This net advance amount Mr. Lindsey stands to receive represents only 47% of the future payment that Mr. Lindsey would transfer to petitioner. Based on the foregoing, the court finds said transaction is not fair and reasonable.

The next consideration is whether the proposed transfer is in Mr. Lindsey's "best interest." Mr. Lindsey avers that he currently has no means of transportation and seeks to purchase a used car for approximately $9,500. There is no information provided as to whether Mr. Lindsey has investigated and located a used vehicle for this sum or whether this is an estimate on his part.

More importantly, however, neither petitioner nor Mr. Lindsey make any mention of the $40,000 ($8,000 per year for five years) or the $15,000 he received in 2005 under the terms of his personal injury settlement. The court is left to speculate whether Mr. Lindsey received these funds and, if so, to what purpose, or whether he transferred those rights as well. In any event, according to the terms of the underlying personal injury settlement Mr. Lindsey has received approximately $55,000 in payments in the past ten years for which he does not account. Based on this record, the court finds that there has been no showing that there would be a real advantage or gain to Mr. Lindsey in receiving $9,517.07 in exchange for a $20,000 of future payment. Finally, the court notes that this $20,000 payment which Mr. Lindsey seeks to transfer is due to be paid in only two years. Quite simply, this court finds the proposed transaction is not in Mr. Lindsey's best interest.

Based on the foregoing, the court finds that petitioner has failed to demonstrate to the court's satisfaction that the transaction is fair and reasonable and that the transfer is in Mr. Lindsey's best interest (GOL § 5-1706 [b]). Consequently, the Petition is denied.

Dated:March 13, 2008

Binghamton, New Yorks/ Ferris D. Lebous [*3]

Hon. Ferris D. Lebous

Justice, Supreme Court