Matter of American Farms, LLC v John Hancock Assignment Co.

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[*1] Matter of American Farms, LLC v John Hancock Assignment Co. 2018 NY Slip Op 51349(U) Decided on September 24, 2018 Supreme Court, Kings County Silber, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 24, 2018
Supreme Court, Kings County

In the Matter of the Petition of American Farms, LLC For Approval of the Transfer of Structured Settlement Payment Rights In Accordance with New York Gen. Oblig. Law §5-1701, Petitioner,

against

John Hancock Assignment Company, JOHN HANCOCK LIFE INSURANCE COMPANY and DIJUAN MATOS, Respondents.



510886/18
Debra Silber, J.

Recitation, as required by CPLR 2219(a), of the papers considered in the review of petitioner's petition for approval of the transfer of structured settlement payments.



Papers/Numbered

Order to Show Cause, Affirmation and Exhibits Annexed 1-10

Upon the foregoing cited papers, the Decision/Order on this application is as follows:

Petitioner brings this special proceeding pursuant to the Structured Settlement Protection Act (GOL §5-1701 et seq.), seeking an order approving an agreement to transfer certain structured settlement payments to it from respondent Daijuan Motos (Matos). Specifically, Matos signed up with petitioner within two weeks of his eighteenth birthday and proposes to transfer to Petitioner $1,917.48 of his monthly payments of $2,750.00 which started on his eighteenth birthday, along with the annual increases provided for thereon, for almost twenty years (216 months) as well as all of the future lump sum payments which are due to him at specified intervals, which total approximately $693,760, for which petitioner has proposed to pay him $265,898.37. Petitioner calculates the present value of the payments, using the federal standards for calculating annuities, as $482,558.00. The petition is denied, after a hearing, and dismissed.

BACKGROUND

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This proceeding arises out of a structured settlement reached by the parties to a lawsuit begun in the Bronx in 2002 which was settled in 2008. The petitioner has not included any information concerning the underlying matter in the petition. At oral argument, Mr. Matos informed the court that the settlement was for some sort of medical malpractice, but he could not [*2]explain anything further.

Matos is now 18 years of age. He is unmarried and has no children. He has not finished high school. He states that he lives with his mother in Brooklyn. In his affidavit in support of the contemplated transaction, he states that he believes that it would be beneficial to himself and his family if he were permitted to transfer and assign his right to receive the monthly payments in order to "purchase a studio apartment and pay college tuition." However, in court he stated the funds were to purchase a house in Maryland for himself and his mother. There was no indication that Mr. Matos was on track to finish high school or that he was accepted at a college. He had not identified any studio apartment or any house which he had seen or wanted to purchase.

If the court were to approve the petition, Mr. Matos would receive monthly payments of approximately $800 instead of the $2,750.00 which was intended when his mother set up the settlement. That sum would barely pay the taxes, water, sewer and insurance on a house or an apartment and would not be a wise investment for a high school student.

Stating that he has been provided with, and that he has read, the disclosure statement, Matos joins in the application herein, and, further states that the assignment is in his best interests, and requests that the court approve it.



DISCUSSION

Personal injury litigation sometimes concludes with the plaintiff becoming entitled to a stream of future payments known as a structured settlement. The "structure" may be voluntary or required by statute. The payments, which can be spread over many years, are funded by an annuity contract purchased from an insurance company. However, structured settlement payees sometimes find that their financial needs or desires are inconsistent with the protracted pay-out period. Thus, companies known as vectoring companies may offer such payees the opportunity to sell all or part of the payment stream for an immediate but reduced lump sum payment. The discount rate can be substantial, which results in a relatively small payment to the payee. As a consequence, the "Structured Settlement Protection Act" (SSPA), General Obligations Law §§ 5-1701 et seq., was enacted out of concern that structured settlement "payees," such as Matos are especially prone to being victimized, and to prematurely dissipating their awards. See Matter of Cabrera, 196 Misc 2d 329 [2003].

The SSPA protects payees from being taken advantage of by businesses seeking to acquire the payees' structured settlement payment rights and discourages such transfers by requiring would-be transferees to commence a special proceeding for the purpose of obtaining judicial approval of the transfer contemplated. General Obligations Law §§ 5-1705 and 5-1706. Prospective transferees (the vectoring company) bear the attendant filing fees and costs and may not recoup them if the application is denied. General Obligations Law § 5-1704[c]. Any purported transfer without court approval is unenforceable. General Obligations Law § 5-1706. Payees may not waive their rights under the SSPA. General Obligations Law § 5-1708[a]. Transferees are barred from incorporating certain provisions in the transfer agreements. General Obligations Law § 5-1704. They are required to fully apprise the payee of the terms of the transfer. General Obligations Law § 5-1703.

"The heart of the SSPA's protection lies in the courts' independent discretionary determination [of] whether . . . 'the transfer is in the best interest of the payee, taking into account [*3]the welfare and support of the payee's dependents, 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.'" (Matter of Settlement Funding of New York, L.L.C. 195 Misc 2d 721 [2003], quoting General Obligations Law § 5-1706[b]). In this regard, the court notes that "the express legislative intent of the enactment was to limit 'transfers of structured settlement payments to true hardship cases.'" (Matter of Settlement Capital Corporation [Ballos], 1 Misc 3d 446, 450, quoting Legislative Mem in Support, 2002 McKinney's Session Laws of NY, at 2036). Although General Obligations Law § 5-1706 was amended in 2004 to provide that "a court need not make a finding that an applicant is suffering from a hardship before the court is able to approve the transfer of structured settlement payments," the requirement under General Obligations Law § 5-1706 that a reviewing court ascertain whether the transfer is in the best interests of the transferor necessitates, in this court's view, an assessment of the transferor's current financial circumstances, his needs and probable future financial situation.

Indeed, although New York courts generally have declined to fashion a "best interests" test predicated solely on a finding of economic hardship or "dire straits," the existence of such hardship weighs heavily in favor of determining that a transfer of structured settlement rights is in the best interests of the payee. (See, e.g., Matter of Ford, NYLJ, April 14, 2004, at 20, col 1; Matter of Settlement Funding of New York [Cunningham], 195 Misc 2d at 721 [2003]; Matter of 321 Henderson Receivables Limited Partnership [DeMallie], 2 Misc 3d 463 [2003]; Matter of the Petition of Settlement Funding of New York LLC [Platt], 2 Misc 3d 872, 876 [2003]. Matter of the Petition of Settlement Capital Corporation [Ballos], 1 Misc 3d at 455).

Conversely, courts generally will not find that such a transfer is in the best interests of the payee where the payee intends to use the proceeds of the transfer for an investment or purchase. (See, Matter of Barr v Hartford Life Ins., 4 Misc 3d 1021(A) [2004]; Matter of Settlement Funding of New York L.L.C. [Cunningham], 195 Misc 2d at 725; Matter of 321 Henderson Receivables Limited Partnership [DeMalllie], 2 Misc 3d at 466). Further, courts generally do not find that such a transfer is in the best interests of the payee where the purpose is to ease financial problems which do not rise to the level of "hardship." (See, Matter of Talierco v Aetna Casualty & Surety Co., NYLJ, February 20, 2004, at 21, col 3; Matter of Petition of Settlement Funding of New York, Inc. [Asproules], 1 Misc 3d 910A [2003]; Matter of Petition of Settlement Capital Corporation [Ballos], 1 Misc 3d at 456).

Accordingly, "the 'best interest' standard under the SSPA requires a case-by- case analysis to determine whether the proposed transfer of structured settlement payments, which were designed to preserve the injured person's long-term financial security, will provide needed financial rescue without jeopardizing or irreparably impairing the financial security afforded to the payee and his or her dependents by the periodic payments." (Matter of Settlement Capital Corporation [Ballos], 1 Misc 3d at 455).

In regard to the "fair and reasonable" element of the required analysis, there has been little agreement as to what constitutes a proper discount rate or what amount of fees and costs are allowable. Courts have also reached different conclusions with regard to the fairness and reasonableness of the fees and costs associated with the transaction. (See, Matter of Settlement Funding of New York, L.L.C. [Cunningham], 195 Misc 2d at 724; Matter of Petition of [*4]Settlement Funding of New York, LLC, 1 Misc 2d at 910). Additionally, the payee's willingness to engage in the transfer may not affect the courts' determination of whether the transaction is "fair and reasonable." (Matter of Settlement Funding of New York, L.L.C. [Cunningham], 195 Misc 2d at 724.)

One consideration that has emerged, however, as a factor in determining the fairness and reasonableness of the transaction is, once again, the level of financial or other hardship affecting the prospective assignor. (See, Matter of Barr, 4 Misc 3d 1021(A) [Sup Ct Nassau Co 2004]). Accordingly, "the more pressing the need, the more reasonable it may be for a payee to obtain immediate cash at a steep discount rate." (Matter of 321 Henderson Receivables L.P. [DeMallie], 2 Misc 3d at 465).

Finally, the SSPA also requires that the proposed transferee advise the payee "in writing" "to seek independent professional advice regarding the transfer" and the payee must either seek such advice or sign a written waiver of the opportunity to seek independent advice. (General Obligations Law §5-1706[c]. Thus, a legal consultation by the payee is not a requirement thereunder. In the instant case, Mr. Matos states in his papers that he waived the opportunity to seek independent professional advice. An attorney appeared with him, but upon questioning, it became clear to the court that Mr. Matos had not retained this attorney, and that he had been hired by petitioner.

Thus, the "best interest" standard under the SSPA requires a case-by-case analysis to determine whether the proposed transfer of structured settlement payments, which were designed to preserve the injured person's long-term financial security, will provide needed financial rescue without jeopardizing or irreparably impairing the financial security afforded to the payee and his or her dependents by the periodic payments. Specific consideration should be given to the payee's age; the payee's ability to show sufficient income that is independent of the payments sought for transfer; the payee's capacity to provide for the welfare and support of his dependents; and the demonstrated ability of the payee to appreciate the financial terms and consequences of the proposed transfer based upon truly independent legal and financial advice. (See, In re Settlement Capital Corp. [Ballos], 1 Misc 3d 446 [2003]; Matter of Settlement Funding of New York L.L.C. [Platt], 2 Misc 3d 872, 876).

At a hearing conducted on July 26, 2018, Mr. Matos testified that he intended to use the proceeds to buy a home for himself and his mother, in Maryland. He is unemancipated, and lives with his mother. He claims he is still enrolled in high school. His father is still obligated to pay his mother child support until he is twenty-one under New York law, and pursuant to a NY County Family Court order in F-09537-15.

Based upon the petition and exhibits, after a hearing, and after consideration of all of the foregoing factors, the court is unable to find that the contemplated transaction, whereby Matos would surrender most of his monthly income of $2,750 and all of his future lump sum payments for one heavily discounted lump sum payment, serves his best interests. His proposed use for the immediate lump sum payment is not compelling. Of concern is that the record provides only the most minimal evidence of Matos' circumstances. Not only is there no information about the seriousness of the injuries he sustained and whether the injuries affect his ability to exercise appropriate judgment with regard to his settlement funds, there is no information about his background, employment history, ability to work, or indeed anything to assist the court in [*5]evaluating the petition's merits. As such, petitioner fails to adequately demonstrate that approving this application would be in respondent's best interests. See, Matter of Taliercio, NYLJ February 20, 2004 at 21, col 3. Further, Matos failed to adequately demonstrate any level of understanding of the financial ramifications that an immediate transfer of the future payments, in exchange for a short-term windfall, would pose to his future. Clearly, his best interests are more appropriately served by denying his request to transfer the structured settlement payments. He should finish high school, be accepted by the college of his choice, and apply for student loans to pay for his tuition.

As part of its review, the court is also required to make a finding that the proposed discount rate used in calculating the gross advance amount is fair and reasonable. See, General Obligations Law § 5-1706[b]. The court notes that there is no statutory guidance, and very little consistent case law concerning the fairness and reasonableness of the proposed discount rate and related costs and fees. Many courts have rejected proposed transactions with discount rates similar to that proposed herein.

In conclusion, petitioner has failed to meet its burden of establishing that the proposed transaction in is the best interests of respondent and that the terms of the proposed transaction are fair and reasonable. Accordingly, the petition is denied.

Any future application by any company seeking to purchase the structured settlement payments due to Daijuan Matos must be made returnable to the undersigned and not to any other court or justice.

The foregoing constitutes the Decision, Order and Judgment of this court.



Dated: September 24, 2018

E N T E R:

Hon. Debra Silber J.S.C.