by Structured Settlement Watchdog®
This is the third and FINAL installment of the Structured Settlement Watchdog''s critique of a published paper attributed to Laura J. Koenig, then a JD candidate from Indiana School of Law, now of the United States District Court Southern District of Indiana. The Summer 2007 paper entitled "Lies, Damned Lies, and Statistics? Structured Settlements, Factoring, and the Federal Government (82 Ind. L.J. 809) attacks the government's rationale in offering a tax subsidy to structured settlements, and structured settlement factoring transactions. In Parts One and Two of the series "Indiana University Gives Law Degrees For This Crap?" For someone who a year earlier was cited by the Indiana Law School Dean as a GOOD researcher, the Structured Settlement Watchdog found that Ms. Koenig's research was incredibly wanting, often errant in fact, undermined by her excessive reliance on too few sources of information, much of which was outdated.
In her paper Koenig goes "back to Square One" in attacking structured settlements used to resolve claims under the Federal Tort Claims Act (FTCA). Why she would consider the use of last century's GAO statistics (1997-1999) to calculate an average that the federal government spent on structured settlements, and THEN use that outdated statistic (to determine the percentage of FTCA claims that are resolved, in 2007, via structured settlements), is anyone's guess.
Koenig questions why the federal government uses structured settlements at all. She suggest the most popular reasons to justify the legislative justification for promoting the growth of structured settlements are providing long-term financial security to tort victim's and protecting "the public fisc." (i.e. tax payers' dollars). Koenig continually mocks the "squandering plaintiff" idea for what she and Adam Scales call the anecdotal stories. She admits that the image of "heedless dissipation" may be correct, but states that no reliable information justifies this. Instead of overly relying on "on hit wonder' Adam Scales, one wonders (as an example) why Ms. Koenig missed, with all her Dean of Indiana law School endorsed "research skills", a consumer behavior study cited by Kate Goggin in her article Developing Financial Sense.
According to Kate Goggin, "Texas Tech researchers did another fascinating study about college students' behaviors and attitudes toward credit cards. The participating student's average age was 21, with 57 per cent female and 43 per cent male, and 86.85 per cent were Caucasian. The key findings of the study were: 71.5 per cent of the students owned credit cards, the average number of credit cards owned was three (with a range from one to 13), and the average balance on credit cards was over $1700. The bad news: less than 50 per cent of the student credit users paid credit card bills in full, 35.4 per cent of the student credit users said that they had reached their spending limit on one or more credit cards, and more than 30 per cent of the student credit users said that they used their credit cards to make impulsive purchases. The only shred of hope was that 93 per cent of the students agreed that it was too easy to overspend with a credit card and about 75 per cent of the students agreed that they feared the consequences of overspending with a credit card." (underlines for emphasis).
Internet research performed by this author easily found a September 2003 article authored by So-Hyun Joo and Dorothy C. Bagwell and Kansas State's John E. Grable** entitled " Credit Card Attitudes and behaviors of college students". It appears that Texas Tech University Division of Student Affairs & Student Life Research Office, in cooperation with UCLA's Higher Education Research Institute, has been conducting national surveys on college students since 1966!
While the above cited "credit card attitude" study does not deal specifically with injured plaintiffs, many structured settlement recipients are college students whose plans were set up for them while they were minors, just like Orlen Olsen***. The 2004 Texas Tech College Student Survey (at p3) showed that 80.6% of those surveyed cited parents, family & friends as the primary source of financial information. More than 60% of respondents parents or guardians used credit while respondents were living at home. Further 43.4% of the respondents had parents or guardians that occasionally, sometimes, often or very often experienced credit related problems. And college students are just one segment of the current and former tort victim universe. What of those current or past tort victims who come from a less educated segment of the population?
Back to Koenig. In her paper at p 7, Section C Koenig incorrectly states "with the enactment of IRC 130 claimant's annuity earnings are entirely tax free". IRC 130 deals solely with the tax treatment of the qualified assignee. The tax exclusion to the plaintiff is under IRC 104 and that exclusion only applies to income taxes on damages. Ms. Koenig and her apparently careless "advocati diaboli" failed to comprehend and Koenig failed to express that the tax exclusion applies to certain types of damages NOT annuity earnings. Prior to the enactment of IRC 130 the tort victim could receive the same income tax consequences. See Revenue Ruling 79-220.
IRC 130 does however come into play with IRC 5891 which has to do with a tax exclusion pertaining to structured settlement factoring transactions. A "structured settlement transaction" is NOT the same as a "structured settlement factoring transaction".
Laura J. Koenig's rant on IRC 130 fails in relation to FTCA claims as she clearly doesn't understand how structured settlements work under the FTCA . Incredibly she lists Terry Cushing, Assistant US Atty in Louisville, KY as one of her advocati diaboli. One wonders why Koenig did not consult someone closer to the management of the FTCA program like Roger D. Einerson. Assistant Director of the United States Department of Justice Torts Branch? Has she done so Koenig would have discovered that IRC 130 does not come into play with FTCA structured settlements, which are generally owned by the United States. Had Ms. Koenig paid closer attention to even her own sources, like Richard B. Risk, Jr., she would have discovered this.
Ms. Koenig concludes that tort victims are burdened with what she calls "waivers of investment freedoms". That is such "rock head" thinking! Ms. Koenig's fails to recognize that in order for a structured settlement to be created, the tort victim must agree to the structured settlement. Utimately, a plaintiff is represented by counsel. If they agree to a structured settlement THEN they, on the advice of counsel, must sign a release in exchange for a promise to pay some or all of their settlement in the form of future periodic payments. If they don't want a structured settlement they can sign a release for a cash lump sum. Structured settlements used in conjunction with settlement preservation trusts/ settlement conservation trusts can provide further spendthrift protection if it is needed.
At the end of her shoddy research, presented with the excruciating tedium of a bad sermon on a sunny day, Laura J. Koenig "Disraeli" somehow concludes that "simply put Congress can no longer rely on "lies,damn lies and statistics" to quietly place tort victims at the mercy of the structured settlement and factoring industries.
DIS NOT RAELI! Nobody has concluded that structured settlements are appropriate for every tort victim. Structured settlements work however, for many tort victims, including those injured who are of the indigence that Koenig (in her Indiana law bio) stated she plans to represent. There has been a longstanding recognition of structured settlements by current and former members of the Congress and Senate AND prestigious members of the trial bar, some of whom are quoted on the website of the National Structured Settlement Trade Association (NSSTA) and those who have addressed NSSTA meetings. Structured settlement factoring transactions are not for every structured settlement recipient. Structured settlement factoring transactions are however, appropriate for some structured settlement recipients.
In my conclusion it's only fitting to quote another British prime minister, from the more recent 20th Century:
** since Koenig failed to find it, readers may find it compare the 60 "refereed" papers on financial planning and consumer related issues written by Dr. John E. Grable to the single overly cited work (by Koenig) of Adam Scales. For Dr. Grable's CV click here. Unlike Scales' publications, you won't see any references to "How Much Is That Doggie In The Window?"
*** Orlen Olsen is the ersatz tort victim who blew through his money through a series of fatal financial decisions and one "anecdotal reference",who Koenig uses as "a tool" to support her case against the structured settlement tax subsidy.