by John Darer CLU ChFC MSSC CeFT RSP CLTC
“ERIC YERKES Plaintiff, v. ANAPOL WEISS Defendant” Yerkes v. Weiss, Civil Action 17-2493, (D.N.J. Apr. 26, 2022)
Executive Life of New York (ELNY) structured settlement annuitant Eric Yerkes sought recovery of the shortfall he suffered when
ELNY went into liquidation in 2013, by first going after the released defendant and its insurers. After that effort failed in 2015 in a seminal case that tested and ultimately underscored the security of a qualified assignment to Defendants and Insurers, Yerkes filed a legal malpractice lawsuit against Anapol Weiss, his Philadelphia personal injury lawyers, in an action that remains pending in New Jersey Federal Court. This is an update from my June 15, 2020 commentary in Lessons Learned from Eric Yerkes v Cessna and Yerkes vs Anapol Weiss
Court Denies Anapol Weiss Summary Judgment and Allows Legal Malpractice Case to Continue
Defendant Anapol Weiss moved for summary judgment on all of Plaintiff’s claims, and Plaintiff Eric Yerkes moved for partial summary judgment on the elements of duty and breach for his legal malpractice claim. After a two-year delay, on April 26, 2022, the Court found Plaintiff Eric Yerkes' legal malpractice claim shall not be precluded and there is a genuine dispute of material fact regarding whether Defendant Anapol Weiss, breached its standard of care. Accordingly, the Court ruled that Defendant’s Motion for Summary Judgment shall be denied, and Plaintiff’s Motion for Partial Summary Judgment shall be granted on the element of duty but denied on the element of breach for his legal malpractice claim.
In support of its motion, Defendant Anapol Weiss raised several arguments:
(1) Pennsylvania law should apply, and its statute of limitations should preclude Plaintiff’s claim from proceeding;
(2) New Jersey’s collateral estoppel doctrine prevents Plaintiff from arguing that he did not understand the terms of the Cessna Settlement Agreement;
(3) if New Jersey law applies, its Dead Man Statute should require Plaintiff to establish his legal malpractice claim by clear and convincing evidence; and,
(4) (The late) Paul Anapol met the accepted standards of practice when advising Plaintiff on his 1986 structured settlement with Cessna. (Def.’s Motion for Summary Judgment 16, 18, 30, 33.)
The Posture Taken by Anapol Weiss in its Defense Supports the Concept of Novation That A Qualified Assignment Provides
"The Release and Indemnity Agreement was executed and notarized on April 1, 1986. (SOMF ¶ 54; RSOMF ¶ 54; Def.’s Mot. Summ. J. Ex. G.) Said Release and Indemnity Agreement provides in part: It is also understood and agreed that Cessna and Lloyds will assign their obligation for these periodic payments to First Executive Corporation as set forth in the Assignment Agreement. This assignment is accepted by Eric Yerkes, without right of rejection, in full release of Cessna and Lloyds with respect to these periodic payments. He acknowledges that once this assignment is made Cessna and Lloyds are released from the obligation to make such payments. (SOMF ¶ 55; RSOMF ¶ 55; Def.’s Mot. Summ. J. Ex. G.)
The Release and Indemnity Agreement contains an attorney certification signed by Paul Anapol, which states “I, the undersigned, am the attorney for Eric Yerkes and have advised him regarding the release and have counseled him that by signing it and accepting the considerations set forth, he is releasing any and all claim for unknown losses that may develop in the future.” (SOMF ¶ 56; RSOMF ¶ 56."
The Anapol Weiss Recapitulation/Distribution Statement at the Heart of Plaintiff's Claim
Sol Weiss, current president and member of Anapol firm since 1977, testified that it was the practice of the firm at the conclusion of every case to prepare a Recapitulation / Distribution Statement that broke down the money paid in the settlement, the amounts taken out for attorneys’ fees and expenses, and the amount the client would receive. (SOMF ¶¶ 99-100, 109; RSOMF ¶ 99-100, 109.) The Recapitulation/Distribution Statement had to be signed by the client before the client would receive the proceeds of the settlement. (SOMF ¶ 111; RSOMF ¶ 111.)
The Recapitulation/Distribution document for Eric Yerkes’ settlement in 1986 was prepared by Defendant’s assistant, Marci Strick. (SOMF ¶ 117; RSOMF ¶ 117.) The Recapitulation/Distribution form stated, “All Periodic Payments Guaranteed To [Plaintiff] By The Cessna Aircraft Company Pursuant To The Release and Indemnity Agreement.” (SUF ¶ 47; RSUF ¶ 47; Pl’s Resp. Ex. I.) The Statement also noted “The Total Payout, Assuming a 59 Year Life-Expectancy is $6,668,000.00 of Which All but the Sum of $468,000 is Guaranteed by Cessna, its Insurers, and Assignees.” (SUF ¶ 48; RSUF ¶ 48; Pl’s Resp. Ex. I.) Although Plaintiff’s signature is not on the Recapitulation/Distribution sheet, he was required to sign it to receive the lump sum cash portion of the settlement. (SOMF ¶ 112; RSOMF ¶ 112; SUF ¶ 49; RSUF ¶ 49.)
Plaintiff testified he informed Defendant during that meeting he would not sign a settlement agreement spanning multiple decades because he “could not trust that an insurance company would be in business for the rest of [his] life.” (SUF ¶ 24; RSUF ¶ 24.) Plaintiff further testified that Defendant assured him the structured settlement was guaranteed by Cessna and guaranteed and backed by the state of New York. (SUF ¶ 25; RSUF ¶ 25; SOMF ¶ 72; RSOMF ¶ 72.) Plaintiff asserted Defendant also said “those payments would be made no matter what. If the insurance company didn’t pay it, Cessna would pay it . . . [e]ither Cessna would pay it or their re-insurers would pay it.” (SUF )
Joel D.Feldman, a current shareholder at Anapol Weiss, stated that it was Paul Anapol’s practice to rely on the expert, as opposed to independently investigating the proposed insurance company issuing the annuity. (SOMF ¶ 95; RSOMF ¶ 95.) He claimed Paul Anapol taught him that the term “guarantee”—as it is used in the context of structured settlements—referred to a mortality guarantee, which addressed whether payments would continue to be made after the payee’s death. (SOMF ¶ 96; RSOMF ¶ 96.) Joel Feldman also testified that part of the expert’s consultation would be confirming the life insurance carrier from which Paul Anapol was purchasing the annuity was highly rated by national rating agencies. (SOMF ¶ 148; RSOMF ¶ 148.) In and around 1986, Executive Life Insurance Company of New York and its parent, First Executive Corporation, had the highest possible ratings from rating agency, A.M. Best. (SOMF ¶ 149; RSOMF ¶ 149.) In Plaintiff’s case, the Recapitulation / Distribution Statement showed a $460 expense for “Legal Economic Evaluations.” (SOMF ¶ 147; RSOMF ¶ 147.)
Under no circumstances would "Paul Anapol be purchasing the annuity" to fund a future periodic payment obligation of a Defendant or Defendant's insurer to any of his or his firm's clients. Joel Feldman's assertion in this regard is without merit. If arguendo, Feldman's statement in support of Defendant's case were true, and such a purchase were even possible (it isn't), there would have been an actual receipt issue. Dead on arrival as to a structured settlement.
See Rev. Rul. 79-220 which declared that if a personal injury victim agreed to accept monthly payments over a lifetime or specific number of years (whichever was more), and if the recipient did not have either actual or constructive receipt of the present value of the damages the settlement represented or its current economic benefit, all the periodic payments would be tax-exempt as received.
However, it should be noted by observers that if Yerkes prevails on his claims and is awarded damages (or the parties settle), Anapol Weiss, as Defendant, or its legal malpractice insurer, can fund a periodic payment solution to pay Eric Yerkes and his attorneys (if Yerkes' attorneys are paid on contingency and choose to structure their fees).
According to the Memorandum Decision, Sol Weiss is the current president and managing shareholder of the Anapol firm. (SOMF ¶ 99; RSOMF ¶ 99.) He has been a member of the firm since 1977 and a manager of the firm since the mid-1980s. (SOMF ¶ 100; RSOMF ¶ 100.) Weiss testified as a corporate designee that it was the practice of the firm to rely on an economic expert consultant to “validate, verify, and offer some advice” regarding the structured settlements offered by a defendant to their clients. (SOMF ¶ 103; RSOMF ¶ 103.)
Plaintiff's expert cited to the deposition testimony of Mr. Paul Lesti, a former employee of Legal Economic Evaluations (“LEE”)-the company Defendant used to assess Plaintiff's structured settlement. Mr. Lesti testified that LEE would conduct a document review of a case to confirm the proposed settlement included sufficient damages for the injuries sustained. Notably, “LEE did not evaluate the viability of insurers in connection with evaluating structured settlements, nor, in Lesti's recollection, did it compare alternative values offered by different insurers.” (Pl's Resp. Ex. K 13, ECF No. 105-15 at 24.)
Plaintiff's expert, Bennett J. Wasserman, opined that the standard of care in 1986 for structured settlements required attorneys to provide a measure of security for their client because of its horizontal structure and decades-long payments. (Pl's Resp. Ex. K 20, n.94.) Such protections could be secured through several mechanisms, including other life insurance companies guaranteeing these transaction. (Pl's Resp. Ex. K 21, n.96.) Wasserman stated in his report that the fact Defendant hired an economic consultant was not sufficient to meet the standard of care because it was reasonable to conclude that said consultant limited its review to the value of the annuity and did not review ELNY's financial strength. (Pl's Resp. Ex. K 21.) Plaintiff's expert also relied on Sol Weiss's deposition where he failed to articulate any disadvantages of structured settlements and concluded that clients were generally not counseled on the disadvantages and risks of such settlements based on this testimony. (Pl's Resp. Ex. K 8.) Ultimately, Plaintiff's expert concluded that Defendant had a heightened duty to provide protection for a client's lifetime benefits in a structured settlement because of the client's insistence on another entity guaranteeing these benefits. (Pl's Resp. Ex. K 20.) Thus, Plaintiff's expert concluded that Defendant fell below the appropriate standard of care by failing to provide such protection.
Defense expert Scott Piekarsky noted that Defendant’s conduct complied with ABA standards for handling structured settlement, although these standards were “non-existent when the settlement was signed in 1986.”
Mr. Piekarsky noted how the model standards primarily required attorneys to ensure the annuity accepted by their client was from an insurance company with the highest rating from independent agencies. (Def’s Mot. Summ. J. Ex. L. 10-11.) It is undisputed that around 1986, Executive Life Insurance Company of New York and its parent, First Executive Corporation, had the highest possible ratings from rating agency A.M. Best.9 (SOMF ¶ 149; RSOMF ¶ 149.) Furthermore, there is evidence that Paul Anapol retained an independent economic expert to evaluate the structured settlement based on testimony regarding his pattern of practice and the $460 expense for “legal economic evaluations” in the Recapitulation/Distribution statement. (SOMF ¶¶ 95, 147; RSOMF ¶¶ 95, 147.)
My Two Cents (Reiterated)
While Anapol Weiss is a very successful plaintiff personal injury firm, it seems to me, after reading the references in the public court record of Feldman's and Scott Piekarsky's testimony (which underscores my opinion from my June 15, 2020 commentary Lessons Learned from Eric Yerkes v Cessna and Yerkes vs Anapol Weiss), that there appears to have been little substantive due diligence and standard of care beyond looking at the A.M. Best rating for Executive Life of New York in 1986 and ELNY having the best price. Like I said and have written in previous blogs before about ELNY, red flags were out there, in nationally syndicated newspapers, including but not limited to the Philadelphia Inquirer, on prime-time news, way before this (in my opinion) ill-advised transaction for Yerkes took place. There was no way to avoid them. They were relevant in my opinion and should not be ignored.
- The assignment company, First Executive Corporation, was on the verge of folding in 1974, 12 years before Anapol let his then 24 year old client get into the fateful deal.
- By the end of 1982, 4 years before Anapol let his then 24 year old client get into the fateful deal, more than 15% of First Executive's portfolio was invested in the B- and BB-rated bonds known as junk bonds (By 1987 it had increased to 40%). Most of these bonds were issued by little-known companies. This investment allowed First Executive to offer higher yields on policies, soon to become a costly controversy. FE was one of Drexel Burnham Lambert’s largest customers. FE exec Fred Carr had close ties to the Drexel Burnham's high-yield-bond department head, Michael Milken, and Drexel subleased office space from FE. Both Drexel and Milken later would be involved in an extensive criminal investigation.
- In 1982 Charter Corporation, 4 years before Anapol let his then 24 year old client get into the fateful deal, the largest seller of SPDAs, abandoned the annuities after a rush by worried policyholders;
- In 1983, 3 years before Anapol let his then 24 year old client Eric Yerkes get into the fateful deal, the second-largest seller, Baldwin-United, also went bankrupt, leaving First Executive the lead in sales. The company was a Wall Street darling, but in 1982 financial analyst Jim Chanos called it a total sham. Baldwin-United collapsed a year later in a stunning $9 billion. It was the biggest bankruptcy of all time at that point. The day Baldwin-United declared bankruptcy, the biggest one ever in the United States at the time, CBS Evening News in with Dan Rather carried the Baldwin-United bankruptcy as its lead story onto the TV screens of millions. That was September 27, 1983 from 530pm to 5:50pm, according to the Vanderbilt University News Archive. This was mainstream news!
- In 1984, 2 years before Anapol let his then 24-year old client get into the fateful deal, the Wall Street Journal reported that First Executive Corporation entity that two years earlier lost a customer representing 20% of the previous year's sales. In my January 2013 post ELNY Qualified Assignment Co | Writing Was on the Wall (Street Journal), in 1984!, I asked, "if you were running a business and a customer, which represented 20% of last year's sales, decided to no longer do business with you, do you think there would be any impact?"
- Interest rates were already past their peak in 1986. Follow this link to the 30 Year Treasury Yield Chart. I started working for Northwestern Mutual in 1983. We competed with "New Money" for breakfast. Concerns about using new money projections in long term projections were an important part of my training and in the insurance industry discourse. In this example I'm using for illustrative purposes, the 30 Year Treasury yield on May 1, 1986 was 7.35% but it was 2.63% on May 2, 2016. If you're going out 50, 60 or more years for a 24 year old where are you going to make up the yield when you reinvest?
- We shouldn't forget the sham reinsurance. The New York Insurance Department said that from 1983 through 1985, Executive Life of New York had engaged in reinsurance transactions that did not meet regulatory standards for financial prudence. The insurance department said the company had improperly accounted for those transactions, known as reinsurance treaties.
- Despite all that information and the obviously frothy atmosphere, did basic common sense go out the window? Despite knowing that the payments were supposed to be paid for Yerkes' life, Anapol let his then 24-year-old client have all of his eggs in a one very shaky basket.
…] ’is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket". Don Quixote by Miguel Cervantes 1615, 371 years before Anapol let his then 24 year old client get into the fateful deal. Most children read Don Quixote between the ages of 10-14.
On the other hand, in 1891, 95 years before Anapol let his then 24 year old client get into the fateful deal. Scottish-American industrialist and philanthropist Andrew Carnegie said "Put all your eggs in one basket and then watch that basket. Do not scatter your shot. The man who is director in half a dozen banks, half a dozen railroads and three or four manufacturing companies rarely amounts to much. He may be director of many, but these should all be of the one kind which he understands. The great successes in life are made by concentration". 1893, Annual Graduating Exercises: 1882-1892, Pierce School of Business and Shorthand, Annual Address (December 17, 1891) by Andrew Carnegie, Start Page 423, Quote Page 437, Published by Thomas May Pierce, Philadelphia, Pennsylvania. (Google Books Full View)
One naturally wonders if Anapol handled his own investments with the same standard of care.
What Can Personal Injury Lawyers Learn from Yerkes v Anapol Weiss Applying to Today's World?
- Diversification is prudent, especially when the duration is long, like the with then 24 year old Eric Yerkes.
- Insurance agent and structured settlement broker's errors and omissions may have an exclusion for insolvencies. in 2022, one often sees minimum carrier ratings or there is no coverage.
- Lawyers should pay attention to settlement planners trying to sell them, their or their firm's pension plans, or their clients, factored structured settlement payments that are presented as secondary market annuities, SMAs or SMIAs. These are not annuities and in 34 states there is no statutory protection in the event of insolvency. 2 additional states are considering 2017 Revisions to the Model State Life and Health Guaranty Act (#520) and the NAIC is encouraging all its members to adopt the revisions. The Model Act does not carve out those with such investments in place prior to their state's adoption of the revisions.