by John Darer CLU ChFC MSSC CeFT RSP CLTC
Berkshire Hathaway will go to bat for its annuitants in questionable structured settlement factoring deals as court records show [see In Re: Pitchberg Funding Superior Court of the State of California, County of Los Angeles, Case No: ES022381].
Pitchberg Funding Sets Low Ethical Bar
Pitchberg petitioned to buy $505,555.32 in payments for $67,200.00, a deal bearing a very unimpressive 12% discount rate. The Pitchberg transfer petition is notable for
- a grandmother/guardian of a 9 year old stating in her affidavit that she intended to use the money to pay for child support payments.
- a grandmother/ guardian stating in her affidavit that she was the recipient of certain guaranteed payments under a structured settlement when the payments had not even started. They are due to start December 10, 2026 when the minor is due the payments directly.
- a grandmother/guardian stating in her affidavit that she "understand(s) (she) will forego receipt of the Assigned Payments under the Agreement. (She) understands that her beneficiaries/heirs and (she) will no longer receive any of the Assigned Payments, or any portion of the Assigned Payments. None of the payments are to to her , but to her grand daughter, when due after she reaches the age of majority.
- a grandmother/guardian who maintains that she has considered the impact of the proposed transfer on herself, when the payments are not hers, they are her grand daughters and due after her grand daughter reaches the age of majority.
Did the grandmother/guardian write that up herself, or was it prepared by Pitchberg Funding and/or its attorney for her to sign?
Pitchberg Funding obviously sets its ethical bar very low judging on this alone. Furthermore, four months after the Pitchberg petition was filed by its attorney, Julie D. Noe, its attorney, was cited for fraud on the court in a Nevada structured settlement factoring case. In the legal matter of In Re: Seascape Leasing, LLC District Court Clark County Nevada A-18-775027- Nevada District Court Judge Kerry Earley said "Seascape Leasing LLC and lawyers, Patrick M. Etchebehere and Julie D. Noe "committed a fraud on the court by clear and convincing evidence" in a prior successful attempt to transfer the structured settlement payment rights of Brandon Boiclair. See my September 30, 2018 post, which includes a link to the Amended Findings of Fact, Conclusions of Law and Order in that matter, dated September 19, 2018.
The Berkshire Hathaway Response to the Pitchberg Funding petition.
in its response as a Specially Appearing Interested Party, Berkshire Hathaway Life of Nebraska (BHLN) filed June 5, 2018, BHLN also raised an important issue since the subject structured settlement that is the subject of the In Re: Pitchberg Funding transfer petition, had been established for less than five years.
California Insurance Code §10139.5(f)(2)(L) Transfer In Less Than 5 Years Attorney Notification Rule
If the payee entered into the structured settlement at issue within five years prior to the date of the transfer agreement, then the transferee shall provide the following notice to the payee's attorney of record at the time the structured settlement was created, if the attorney is licensed to practice in California, at the attorney's address on file with the State Bar of California. The notice shall be delivered by regular mail and shall contain the following language:
“Your former client, (insert name, address and telephone number of payee), the ‘payee,’ has entered into a contract with (insert name of transferee) to transfer and assign certain future structured settlement payment rights. The transaction is subject to court review and approval under California law. As the payee's former attorney, you are entitled to receive this notice. You are not required to represent, advise, or consult with the payee in connection with the proposed transaction. You are not required to take any action at all in response to this notice. You may, but are not required to, contact the payee regarding the transaction. The payee is not required to consult with you or provide you any information regarding the transaction, but the payee may do so if he or she wishes.”
The notice to the former attorney described in this section is not required to be provided if the payee in the transaction was not a party to the original structured settlement at issue (for example, if the payee is an heir or beneficiary of the person who was a party to the original structured settlement). Also, if the payee cannot recall or identify his or her former attorney and if the identity of the former attorney cannot be ascertained from the available structured settlement documents, then the notice described in this subparagraph is not required to be provided and the transfer may proceed without the notice.
In the Pitchberg Funding case BHLN stated in its response that it was unclear from the petition served whether Pitchberg Funding complied with the mandate as no letter to the minor's former counsel was included. Ultimately the transfer petition was dismissed.
Would lawyers like to know if one of their former clients was selling a structured settlement within the first 5 years? I think they would. And I think it would be an effective deterrent to a money grab for "forbidden fruit".
The Temptation of the Forbidden Fruit
Over the past decade settlement planners have been expanding their practices beyond structured settlements into areas such as:
- Lien resolution
- Medicare Set Asides
- Wealth management
- Acting as Trustees of Trusts
- Acting as Trustees of Qualified Settlement Funds
- Establishing their own qualified assignment companies
- Establishing their own non qualified assignment companies
- Acting as fiduciary advisers
- Engaging in the factoring of structured settlements as a buyer
- Selling factored structured settlements as an investor
- "Making a market" in factored structured settlements
- Non-recourse loans to plaintiffs and lawyers
Notwithstanding a plaintiff's own urges (or that of a guardian), fostered by their own or outside influences, what if a settlement planner brokered or co-brokered a multi-million dollar structured settlement (and made a six figure commission for the placement of the structured settlement annuity) and THEN solicited the former plaintiff for the forbidden low hanging fruit. Conceivably an unethical settlement planner could solicit the sale of structured settlement payment rights for pennies on the dollar and make a large fee in the origination, or a kick back from the originator. In the worst case scenario a settlement planner could solicit the sale of structured settlement payments,for pennies on the dollar, re-sell the payment rights to an investor for a large spread and have the proceeds go to a fiduciary advisor related to the settlement planner and make substantial ongoing fees.
Would this be seen as consumption of "forbidden fruit"?
One could look at it as churning.
Think there is no way this could possibly happen?
I'm sure those that trusted Joe Gargan, James Gibson and Michael Woodyard thought that too at one time. But the possibility of a plaintiff settlement planner having a "tryst" with factoring of their client's structured settlement was not lost on retired Bronx New York Supreme Court judge Paul A Victor, whose local rules for settlement of claims by infants and impaired persons, required a sworn affidavit that that the structure broker would not do the following, at #11:
Neither I nor (Insert name of company) will, without the express consent of the plaintiff and the prior written approval of this court:
a) provide any information about this settlement to any factoring company for any purpose; or
(b) solicit the plaintiff or plaintiff’s family on behalf of any factoring company for any purpose, including, but not limited to, the proposed sale of plaintiff’s future periodic payments, nor will I or (Insert name of company) participate, assist, promote, or aid in such solicitation by any person, firm, corporation or entity; or
(c) seek or accept any consideration, financial or otherwise, directly or indirectly from a factoring company.
The Bronx judicial commentary concerning this aspect of the structure broker's affidavit is crystal clear:
"However, these services, should be provided at the request of the annuitant. In contrast, it would not seem appropriate for a structured settlement broker to provide the names of its client annuitants to such factoring companies for solicitation purposes; and it would certainly seem unethical, if not illegal, for a structured settlement broker to receive a referral fee or any form of compensation from such a company. It must be noted that the “structure broker’s affidavit” which is required by this court’s rules must contain a representation that said broker does not have any such relationship with a factoring company"
Structured settlement annuities are only available through licensed agents and agencies appointed by the structured annuity issuer. The settlement planner is acting as structured settlement agent or structured settlement broker whenever placing (or co-brokering) a structured settlement annuity. The party or payee the settlement planner represents does not change this.
Upon information and belief, as it stands in July 2020, there are more than just a few settlement planners actively participating in the structured settlement secondary and tertiary markets, including one who is a appointed agent of multiple structured settlement annuity issuers, well known to trial lawyers, who is a founder, director and primary blogger for a structured settlement factoring origination firm. I wonder what Judge Victor would have said about that? On April 20, 2020, a solicitation email went out to trial lawyers across the country from the settlement planner (who has publicly trashed structured settlement annuities as irrelevant) with the message "eliminate annuities from your client portfolios and settlement plans". Begged (and still begs) the obvious question, in my opinion.
With a sale with 5 years attorney notification rule in place, an important check and balance is put in place. The Notification of Attorney Within 5 Years Rule should be part of each state's structured settlement protection act. What would the lawyer that referred that client to the settlement planner think about the raiding of the annuity payments? The deterrent value of such a rule is enormous.
Imagine a different outcome for James McMillan. Evan Torgan's excellent legal work for 2003 Staten Island Ferry victim is undone in a series of improvident structured settlement factoring transactions. The first factoring vulture appeared 4 years after the 2009 settlement, so if a 5 year attorney notification was in place, attorney Torgan would have been notified and might have been able to intervene. McMillan had a 2012 attempt dismissed by a New York judge and then was financially raped through 9 transactions in 2013 alone in the Sumter County Florida "kill zone".