by John Darer CLU ChFC CSSC RSP CLTC
Can someone who has sold structured settlement payment rights get their structure back if they later regret their decisions? If a recent decision in the Appellate Court of Illinois, 4th District holds, the answer is changed from a "no" to a "maybe".
Do structured settlement purchasers "forum shop" in order to have petitions approved? The answer appears to be yes and it may have potential wide ranging implications for the structured settlement secondary market, as the Illinois Court has effectively questioned the practice and its impact on the legality of the transfer in the recent decision.
The decision filed August 26, 2013 in Settlement Funding, LLC (Peachtree Settlement Funding) v Cathy Brenston, 2013 IL App (4th) 120869, the subject matter of which involved THREE prior transfer orders (June 28,2007; March 31,2008 and April 10, 2008) approved by the Circuit Court of Sangamon County and a petition by the seller, MORE THAN TWO YEARS AFTER these the transfer orders to vacate the Orders on the basis of fraud by the purchaser and the assertion of a legal disability of incompetence, the Illinois Appellate Court reversed a lower court decision denying the petition to vacate and ordered:
- that the lower court enter orders declaring the underlying transfers void ab initio ("from the beginning"), overcoming opposition that Brenston's petiton was time-barred;
- that the trial court, pursuant to its inherent equitable power, conduct a hearing to restore Brenston to the economic position she held prior to the legally ineffective transfer of her annuity payments, less any funds advanced to her to avoid a windfall.
- it found "the actions and omissions of Settlement Funding (Peachtree) to be beyond troubling".
- "its suppression of the true facts of the underlying settlement suppressing "procured a fraud upon the trial court in order to deceive the court into finding that it had the authority to consider and rule on the transfer petitions under the (Illinois Structured Settlement Protection) Act"
- The Settlement Funding (Peachtree) fraud "entirely frustrated the purposes of the bargained-for anti-assignment provisions in the underlying structured settlement annuity,interfered with parties contractual intentions and contavened the clear legislative intent of the Act, to protect structured settlement recipients from unscrupulous practices by factoring companies
- "The fraud perpetrated in this case (by Settlement Funding LLC/Peachhtree) seriously affected the integrity of the normal process of adjudication so that the judicial system could not perform the impartial task of adjudicating cases.
Read the entire Illinois Appellate decision in Settlement Funding LLC v Cathy Brenston 2013 IL App (4th) 120869
What does this mean to structured settlement factoring companies?
- Will this decision spook individual investors in structured settlement payments rights in Illinois cases(and elsewhere)?
- Should investors in structured settlement payment rights exercise more scrutiny and be inquiring about what law of the case applies?
- Will the Brenston case lead to a flood of petitions in Illinois (and elsewhere) to undo structured settlement factoring transactions by disgruntled sellers? In the Brenston case the transfers occurred prior to the Peachtree combination with JG Wentworth when Peachtree was known for having some of the highest discount rates around. If so, will the transfer orders be undone?
- If transfer orders are undone, will the funders have enough money to be able to make the seller's whole?
- Will reserves need to be maintained to cover the contingency? How will this impact securitizations and investors in securitizations of such cash flows?
- Will annuity issuers invoke indemnification and hold harmless provisions against the settlement purchasers that are typically stipulated to when payment rights are assigned if they begin to incur added legal costs?
What about Forum Shopping?
At Paragraph 37 of the Brenston decision the court found that "Settlement Funding (Peachtree) filed its petitions for approval of the transfer of Brenston's structured settlement payment rights in the circuit court of Sagamon County invoking the provisions of the Illinois SSPA, even though section 25 of the Act clearly states that the transferee is required to file its petition in the circuit court of the county where the action was or could have been maintained. The underlying malpractice case which gave rise to the structures in the first place, was filed in Cook County, Brenston resides in Cook County and that Settlement Funding (Peachtree) counsel maintains his law office in Cook County".
The issue of forum shopping for favorable judges to approve structured settlement transfer petitions is not a new problem. For example:
● In re Joseph Surmanek, No. CL11-237 (Va. Cir. Ct. May 18, 2011) – Court ruled that it would violate public policy to allow a factoring company to engage in forum shopping by initially filing a petition for transfer of structured settlement payment rights in North Carolina state court, and
then withdrawing that petition and filing in Virginia state court.
● In re Keshon Moore, No. CL11-1670 (Va. Cir. Ct. July 18, 2011) – “A prior application for the approval of a similar transfer of payment rights was sought in the State of New York. Said application was deemed against the transferor’s best interests and denied by the New York State Supreme Court
of Bronx County on April 12, 2011. It would be against the public policy of the Commonwealth of Virginia to allow the forum shopping that may have occurred here.
We understand that 'forum shopping" is rampant in Illinois and Florida, with Sagamon County, Illinois, being a particularly sought out jurisdiction.
Structured Settlement Annuity and Ownership Remain Intact Through Structured Settlement Transfer
- The result of a structured settlement transfer simply means that the structured settlement payment rights (rights to receive structured settlement payments conferred in the settlement of the underlying legal case) are transferred from seller to purchaser in exchange for a lump sum of cash to be paid by the purchaser to the seller.
- The structured settlement annuity itself is not sold.
- The ownership of the structured settlement annuity stays the same. Most cases today involve qualified assignments, so this means that the ownership of the structured settlement annuity is STILL the qualified assignment company after the transfer of structured settlement payment rights.