DEBRA SILBER

Adam Zoldessy P.C. New York City, for the petitioner. Respondent is Pro Se.
DEBRA SILBER, J.

Petitioner Novation Funding, LLC (Novation), 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 rights to it from respondent Joseph Griffin (Griffin). Specifically, Griffin proposes to transfer to Petitioner portions of two payments due under the Settlement Agreement and Annuity; to wit, $30,000 out of $50,000 due to Griffin in 2014, and $25,000 of the $85,682 due to Griffin in 2020. For the assignment of the right to these payments, petitioner has proposed to pay Griffin $29,250.00.

This proceeding arises out of a structured settlement reached by the parties to a lawsuit in 2001. The petitioner has not included any information concerning the underlying matter in the petition. Pursuant to the terms of the Individual Single Premium Annuity Contract for Structured Settlement, annexed in petitioner's Exhibit B, the defendants therein offered a settlement with a then-present value of approximately $255,682 in favor of the plaintiff in the action. In accordance with the settlement agreement, an annuity was purchased from respondent Genworth Life Assurance Company of New York, F/K/A American Mayflower Life Insurance Company of New York, F/K/A GE Capital Life Assurance Company of New York. GE Capital Assignment Corporation is responsible for making all payments due. Of the settlement proceeds, the approximate then-present value of $255,682 was to be paid to Griffin over time, with payments of $30,000.00 annually for four years beginning on August 23, 2007, (which stopped with the payment on August 23, 2011) then a lump sum payment of $50,000.00 on August 23, 2014 and another lump sum payment of $85.682.00 on June 30, 2020.

It is noted that the assignment requested in the instant petition only involves $30,000.00 of the $50,000 lump sum payment due on August 23, 2014 and $25,000 of the $85,682 lump sum due in 2020. According to petitioner's contract with Griffin, the discount rate is 16.66%. (Exhibit D). However, petitioner included in Griffin's affidavit (¶ 12) that he agreed to a discount rate of 18.54%. There is no explanation for this discrepancy. The court declines to do the calculations to determine which is correct.

Griffin is 23 years of age. He is unmarried and has one child. 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 subject payments to petitioner in order to enable him to purchase a laundry business. While the affidavit states he has thoroughly researched the matter, his answers to the court's questions on the hearing date, March 7, 2013, did not support this claim.

The affidavit also states that assignment of the payments would yield Mr. Griffin sufficient income to keep up his day to day needs and those of his child. He also testified to this in court. However, the cost he described for starting such a business would utilize the full purchase price of the payments, and would leave Griffin with only speculative profits until he receives $20,000 on August 23, 2014. That sum, and his business earnings would need to support him until June 30, 2020, seven years from now. However, if he waits until August 23, 2014 to start the business, he will have the full $50,000, which will leave him with money for expenses until the business starts to turn a profit. He also could get a job with health insurance and support his family, if he does not have one now. He did not indicate that he is disabled or otherwise unable to work.

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

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 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, finance 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, perhaps between eighteen and twenty-five percent, 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 Griffin 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 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 entered into after July 1, 2002 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 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. [ Cunningham ], 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 deficiencies and needs and his or her 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. Courts also 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. As noted in Matter of Settlement Funding of New York, LLC [ Platt ], 2 Misc.3d at 877:

The proper discount rate is ... elusive. There have been reported cases in which it was held some rates used were not fair and reasonable with rates of 18.621% (In re Settlement Capitol Corp. for Approval of Transfer of Structured Settlement Payment Rights of “ Y,” 194 Misc.2d 711); 15.591% (Matter of Settlement Capitol Corp. [ Ballos ], 1 Misc.3d 446 [2003] ); and 15.46% (Matter of Settlement Funding of NY ( Cunningham ), 195 Misc.2d 721 [2003] ) being rejected. Approval by a sister state has been given for 17.964% for a knowledgeable borrower with a strong present cash need, and a preserved future payment (In re Spinelli, 353 NJ Super 459, 803 A.2d 172 [2002] ). Case law has referenced academic discussion of the concept (Scales, Against Settlement Factoring? The Market in Tort Claims Has Arrived, 2002 Wis. L.Rev. 859), but no concrete guideposts.
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 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 consultation by the payee is not a requirement thereunder. In the instant case, Mr. Griffin states in his affidavit that he consulted an advisor.

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; payee's ability to show sufficient income that is independent of the payments sought for transfer; 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 March 7, 2013, Griffin testified that he intended to use the proceeds of this proposed transaction to buy a laundromat and support his child. Upon questioning by the court, he became utterly confused and could not coherently explain his understanding of what was involved in the proposed business venture.

Based upon the petition and exhibits, after a brief hearing, and after consideration of all of the foregoing factors, the court is unable to find that the contemplated transaction, whereby Griffin would surrender a large percentage of two guaranteed lump sum payments, one to be paid only a little more than a year from now, and another in the future, for one heavily discounted lump sum payment, serves him or his family's best interests. His proposed use for the immediate lump sum payment is not compelling. Of great concern is that the record provides only most minimal evidence of Griffin's circumstances. Not only is there no information about the nature of the injuries Griffin sustained which resulted in the underlying action, there is no information about his background, employment history, ability to work, or indeed anything to assist the court in evaluating the petition's merits. As such, Griffin fails to adequately demonstrate pressing hardship. See, Matter of Taliercio, NYLJ February 20, 2004 at 21, col 3. Further, he 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 and that of his family. Clearly, the best interests of Griffin and his family are more appropriately served by denying the sought-after transfer of the requested portions of the structured settlement.

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 while 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 utilized in transfers of structured settlement payments, courts have rejected proposed transactions as unreasonable with discount rates similar to that proposed herein. See, Matter of 321 Henderson Receivables v. Martinez, 11 Misc.3d 892 [2006] [16.39%]; Matter of Settlement Capitol Corp. [ Ballos ], 1 Misc.3d 446 [2003] [15.591%]; In re Settlement Capitol Corp. for Approval of Transfer of Structured Settlement Payment Rights of “ Y, ” 194 Misc.2d 711 [2003] [18.621%]; Matter of Settlement Funding of NY [ Cunningham ], 195 Misc.2d at 724 [2003] [15.46%]. The court finds that the discount rate proposed by petitioner, whether 16.66% or 18.54%, fails to pass muster as fair and reasonable.

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

The Court must note that this is not the first petition filed by this petitioner seeking to purchase Mr. Griffin's settlement assets. The prior application sought more of his 2020 payment, and was denied by Justice Rivera on November 29, 2012 (Exhibit G), a month before this petition was filed. Any future application must be made returnable to the undersigned.