Beyond Structured Settlements

Brenston Appeal Denied

The Illinois Supreme Court has denied Peachtree Settlement Funding's petition for appeal of the 4th District Illinois Court of Appeals' decision in the Settlement Funding v. Cathy Brenston case.

The earlier Court of Appeals decision held the Illinois state court, which had previously approved transfers requested by Brenston:

• Had a duty to enforce anti-assignment provisions in Brenston's original structured settlement documentation; and
• “[The transfer court] had no authority under the Act to approve” the transfer petitions - even though all of the relevant parties had waived the anti-assignment provisions.

In other words, despite the existence of the Illinois transfer statute, the Appellate decision declared court orders approving assignments to be "void ab initio", as a matter of Illinois law, whenever structured settlement documentation purports to limit assignability.

For additional information about structured settlements and anti-assignment provisions, see S2KM's prior blog post "Anti-Assignment Restrictions".

Case Background

• Cathy Brenston resolved a medical malpractice case against the University of Illinois Board of Trustees in 2003 with a structured settlement.
• Subsequent to her settlement, Brenston completed multiple factoring transactions with Peachtree Settlement Funding (Peachtree) all of which were approved by Illinois Circuit Courts (Sangamon and Peoria Counties) in accordance with the Illinois transfer statute.
• All transactions were closed and funded. Brenston was paid. The structured settlement obligors and annuity issuers acknowledged and implemented the court orders.
• Brenston filed lawsuits in Cook County in 2011 to void the prior transfer orders arguing anti-assignment clauses in the settlement agreement and the qualified assignment agreements prevented the transfer courts from exercising jurisdiction. The defendants included:
  • Peachtree
  • Peachtree's transfer lawyer
  • Brenston's transfer counsel
  • The structured settlement obligors and annuity issuers
  • The defendant in the original lawsuit
• After Peachtree invoked an arbitration clause, Brenston re-filed the lawsuits in Sangamon and Peoria Counties where Peachtree moved to dismiss the petitions on the grounds that:
  • The transfer courts had subject matter jurisdiction to enter the orders;
  • Brenston has already received the financial benefits of the orders;
  • Brenston provided no reason to vacate said orders; and
  • The statute of limitations had expired.
• The trial court granted Peachtree's motions to dismiss and denied Brenston's motions to reconsider and motions for leave to file an amended petition.
• Brenston appealed arguing the Sangamon and Peoria County courts erred in dismissing her petitions where the pleadings sufficiently showed that the orders approving the transfers were obtained by fraud, and therefore void ab initio and subject to challenge at any time.
• An Illinois 5th District panel, sitting for the 4th District Illinois Court of Appeals, agreed with Brenston's argument and issued its decision - even though Peachtree and Brenston had:
  • Settled the case prior to the Appellate Court's decision; and
  • Filed motions to stay the Appeal.

Appellate Court Holdings

• Brenston's underlying settlement agreement contained an unambiguous, enforceable anti-assignment restriction.
• The transfer court had a duty to enforce that provision and "had no authority" under the Illinois transfer statute to approve the proposed transfers.
• The proposed transfers were improperly filed in Sangamon and Peoria Counties instead of Cook County where Brenston resided.
• Brenston's transfer orders are "void ab initio" because:
  • Peachtree did not file all settlement documents with the transfer court.
  • Peachtree concealed "by omission" the existence of the anti-assignment provision which "omission was material".
  • The conduct of Peachtree and it's attorney amounted to an "affirmative falsehood and a fraud upon the trial court".

Impact of Brenston

• An Amicus curiae brief filed by the National Association of Settlement Purchasers (NASP) states that the Appellate Court decision will render the Illinois transfer statute "a practical nullity".
• "Without the certainty and finality of a court order, there is no viable secondary market," the NASP brief states. "Because every structured settlement contains boilerplate language that purports to limit or restrict assignability, every Illinois court approved transfer could be subject to challenge at any time."

S2KM thanks NASP Executive Director Earl Nesbitt and NASP President Patricia LaBorde for their insights concerning the Brenston case and for granting S2KM permission to utilize materials from Nesbitt's 2013 NASP Annual Conference Litigation Update.

S2KM will continue reporting Brenston case developments including whether and how NASP and the National Structured Settlement Trade Association (NSSTA) will respond.

For S2KM's complete reporting about the structured settlement secondary market, see the structured settlement wiki.

Anti-Assignment Restrictions

Structured settlement transfers require that payment rights be assignable. Otherwise, transfer (factoring) companies have no direct right against the structured settlement obligor or annuity issuer.

Prior to enactment of IRC 5891 and the state protection acts, the validity and enforceability of structured settlement transfers typically depended upon three basic issues:

• Did the structured settlement documentation clearly forbid assignments?
• If yes did state law override the anti-assignment provision?
• Or, did the parties to the structured settlement waive the anti-assignment provision?

Although IRC 5891 and state structured settlement protection acts set forth procedures and conditions allowing transfers of structured settlement payment rights, courts continue to enforce anti-assignment restrictions when parties to the original structured settlement object.

Most transfer courts, however, have held that the anti-assignment restrictions are not self-executing and have granted transfers when no one objects. Objections to transfers by obligors and annuity issuers have become increasingly rare since the enactment of IRC 5891 and the state protection acts.

The Brenston Case

Settlement Funding v. Cathy Brenston represents a high profile and controversial case where an Illinois Appellate Court overruled prior state court approval of structured settlement transfers based upon anti-assignment restrictions - even though the parties to the original structured settlement waived the anti-assignment provisions. The case currently is subject to a petition for review by the Illinois Supreme Court.

In the Brenston case, an Illinois 5th District panel, sitting for the 4th District Illinois Court of Appeals, determined Brenston’s settlement agreement contained an enforceable anti-assignment provision. As a result, the panel decided the state court, which had previously approved requested transfers, had a duty to enforce the anti-assignment provision and “it had no authority under the Act to approve” the transfer petitions.

In other words, despite the existence of the Illinois transfer statute, the Appellate panel declared court orders approving assignments to be "void ab initio", as a matter of Illinois law, whenever structured settlement documentation purports to limit assignability.

If the Illinois Supreme Court upholds the Brenston appellate decision, or decides not to review it, the case would render the Illinois transfer statute "a practical nullity", according to an Amicus curiae brief filed by the National Association of Settlement Purchasers (NASP).

"Without the certainty and finality of a court order, there is no viable secondary market," the NASP brief states. "Because every structured settlement contains boilerplate language that purports to limit or restrict assignability, every Illinois court approved transfer could be subject to challenge at any time."

Public Policy

The validity of assignments, including structured settlement transfers, depends in part on public policy issues. Transfers arguably undermine the fundamental purpose of structured settlements - to provide spendthrift protection for injury victims and their dependents.

This public policy perspective is captured in the statutory history of the structured settlement tax exclusion. To qualify, IRC 130 provides in part "periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments"

Over time, many structured settlement documents have expanded this IRC 130 prohibition to include "transferred, assigned, mortgaged or encumbered" or words to that effect. (emphasis added). Although anti-assignment provisions are incorporated into many state workers compensation statutes, they are not specifically required by IRC 130, I04(a)(1) or 104(a)(2).

Factoring advocates offer competing public policy arguments to support structured settlement transfers. Unanticipated needs or poorly constructed settlement plans may necessitate immediate cash and outweigh other public policy considerations. Factoring advocates also criticize the "paternalistic" viewpoint of factoring opponents. They argue the structured settlement recipient, as owner of payment rights, should have the right to decide whether to transfer or assign those rights.

Many other statutes either permit or favor assignment of payments rights. These statutes include the 48 state structured settlement protection acts, IRC 5891, and recent revisions to UCC Article 9 as well as the Restatement (Second) of Contracts. Unfortunately, the authors of revised UCC Article 9 did not carefully consider the impact of their revisions on structured settlement transfers which has resulted in conflicting statutory language and interpretations among various states.

Best Practices

The National Structured Settlement Trade Association (NSSTA) amended its Model Qualified Assignment and Release Agreement following the enactment of IRC 5891 and the Model State Structured Settlement Protection Act. Paragraph 7, titled "Acceleration, Transfer of Payment Rights", now provides:

"None of the Periodic Payments and no rights to or interest in any of the Periodic Payments (all of the foregoing being hereinafter collectively referred to as “Payment Rights”) can be

i. Accelerated, deferred, increased or decreased by any recipient of any of the Periodic Payments; or

ii. Sold, assigned, pledged, hypothecated or otherwise transferred or encumbered, either directly or indirectly, unless such sale, assignment, pledge, hypothecation or other transfer or encumbrance (any such transaction being hereinafter referred to as a “Transfer”) has been approved in advance in a “Qualified Order” as defined in Section 5891(b)(2) of the Code (a “Qualified Order”) and otherwise complies with applicable state law, including without limitation any applicable state structured settlement protection statute.

No Claimant or Successor Payee shall have the power to effect any Transfer of Payment Rights except as provided in sub-paragraph (ii) above, and any other purported Transfer of Payment Rights shall be wholly void. If Payment Rights under this Agreement become the subject of a Transfer approved in accordance with sub-paragraph (ii) above the rights of any direct or indirect transferee of such Transfer shall be subject to the terms of this Agreement and any defense or claim in recoupment arising hereunder." (NSSTA's emphasis).

Brenston Status

Peachtree Settlement Funding, the transfer company involved in the Brenston case, has filed a petition for review with the Illinois Supreme Court. The Illinois Supreme Court will likely act on Peachtree's petition by December, although a decision whether to review could be delayed until February, according to NASP Executive Director Earl Nesbitt who reported on the case during the NASP 2013 Annual Conference. Assuming the petition for review is granted, Nesbitt stated a final decision is not expected for nine to 12 months.

Brenston Issues

NASP President Patricia LaBorde characterized the Brenston case as "troubling" for several reasons during a recent S2KM interview:

• The Appellate Court decision challenges the finality of transfer orders. "No one wants litigation over closed cases."

• The only issue on appeal was timeliness. The Appellate Court expanded the issues to discuss anti-assignment restrictions.

• The case had settled before the appeal. Both Brenston and Settlement Funding filed motions to stay the appeal which the Appellate Court ignored.
• The trial judges who approved the transfers were experienced with structured settlement transfers and aware of existing anti-assignment clauses. They never mentioned or suggested they were defrauded.
• The Appellate Court ignored waiver language and references to IRC 5891 which appeared in some of the original structured settlement documents.
• All of the relevant parties had waived the anti-assignment provisions.
• Unlike Brenston, all of the cases cited by the Appellate Court supporting enforcement of anti-assignment restrictions involved objections by structured settlement obligors or annuity providers.
• Brenston had other potential remedies against Settlement Funding including a separate cause of action for fraud.
• The Brenston Appellate Court decision probably puts a hold on transfers in Illinois until the case is appealed or the Illinois transfer statute is amended.

Additional Resources

• For more detailed analysis concerning anti-assignment restrictions, see Chapter 16 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).
• For the results of prior California transfer cases involving anti-assignment and finality of judgment issues, see - Fresno County Factoring Cases:
  • Report 1
  • Report 2
  • Report 3

GABC Publishes Final ELNY Schedule 1.15

The Guaranty Association Benefits Company (GABC), successor to liquidated Executive Life Insurance Company of New York (ELNY), has published two versions of a final liquidation date Schedule 1.15 on its website.

Among the significant details:

• Thirty-seven (37%) percent of all remaining ELNY (now GABC) structured settlement annuities (SSAs) will experience shortfalls; and
• SSAs represent ninety-eight (98%) percent of total ELNY shortfall annuities.

Prior to ELNY's liquidation, the New York Superintendent of Financial Services filed a preliminary Schedule 1.15 for the proposed ELNY Restructuring Agreement with the Supreme Court of Nassau County New York on November 7, 2011.

Judge John M. Galasso issued a Memorandum Decision April 16, 2012 declaring ELNY to be insolvent and signed a separate order: 1) approving the ELNY restructuring plan as proposed by the Superintendent and the National Organization of Life & Health Guaranty Associations (NOLHGA); 2) converting the ELNY proceeding from rehabilitation to liquidation; and 3) appointing the Superintendent as ELNY's liquidator.

Under the ELNY restructuring plan, participating state life and health guaranty associations (PGAs) and certain life insurance companies formed GABC, a new special purpose not-for-profit captive insurance company under the laws of the District of Columbia to replace ELNY once it was liquidated on August 8, 2013. The PGAs agreed to supplement the ELNY benefit payments for annuity contracts eligible for state guaranty association coverage up to the maximum allowable by their state guaranty association laws. The various participating life companies agreed to provide additional enhancements and have set up an ELNY Hardship Fund.

The final Schedule 1.15 lists all of ELNY's current annuities, with the names of the annuity owners and payees redacted. Schedule 1.15 includes additional information such as individual contract identification numbers, the proposed "uncovered amount" (shortfall) and "total percentage of contract protected" assuming contributions from state life and health insurance guaranty associations and certain supplemental enhancements.

All PGA coverage is applied on a present value basis, according to the Schedule 1.15 footnotes, which also indicate that present values were calculated as of August 8, 2013 by Towers Watson using a 4.25% discount rate. The final Schedule 1.15 provides separate annuitant IDs, beginning with an "F", when evidence exists that some or all of the payment rights under an annuity have been transferred to a factoring company.

Final Schedule 1.15 Highlights

• Schedule 1.15 lists extensive information for 9241 ELNY annuities of which:
  • 4057 (44%) are structured settlement annuities (SSAs).
  • 466 (5%) are single premium immediate annuities (SPIAs).
  • 4718 (51%) are pension annuities.
• Schedule1.15 indicates shortfalls ("uncovered amounts") will occur for 1541 current ELNY annuities - even assuming state guaranty association contributions and enhancements:
  • 1504 SSAs - Note: this number represents 98% of 1504 ELNY shortfall annuities and indicates 37% of all 4057 ELNY SSAs will experience shortfalls.
  • 29 SPIAs.
  • 8 pension annuities.
• For the 1504 Schedule 1.15 SSAs with shortfalls:
  • Factoring transactions - Part or all of 407 SSA payment rights (27% of 1504) are estimated to have been transferred in factoring transactions. Note: reliable industry sources have informed S2KM the actual number of current ELNY SSAs previously factored is considerably higher.
  • $100,000 + - 1090 SSAs (72% of 1504) have "uncovered amounts" in excess of $100,000 each on a present value (PV) basis including
  • $1,000,000 + - 249 SSAs (17% of 1504) which have "uncovered amounts" in excess of $1,000,000 PV each including
  • $5,000,000 + - 21 SSAs which have "uncovered amounts" in excess of $5,000,000 PV each.
  • The largest ELNY SSA has an "uncovered amount" of $27,463,417 PV.
• The total percentage of each ELNY SSA contract value "protected" by ELNY's remaining assets, state guaranty fund payments plus additional enhancements varies from 31% to 100% depending upon the individual contract.

These final Schedule 1.15 numbers differ from the previously published Schedule 1.15 as reported by S2KM. Possible explanations:

• More factoring transactions (407 vs.156) are included as separate line items in the final Schedule 1.15.
• Some ELNY annuity payees may have died since ELNY's August 8, 2013 liquidation date.

• Present value categories may have shifted from covered to uncovered and vice versa based on interim payouts.

• GABC's actual and/or projected investment returns and expenses (which have been reported) may be different than previously projected.

For S2KM's complete and continuing coverage of the ELNY liquidation, see the structured settlement wiki.

Outrage or Solutions?

Responding to S2KM's prior blog post titled "New York Transfer Orders Falsified", one primary market structured settlement leader has written to S2KM asking "where is the outrage?"

The initial answer is likely "almost everywhere" within both the primary and secondary structured settlement markets - recognizing, of course, that this story has just recently been made public most significantly in JGWPT Holdings Inc.'s Amended S-1 Statement, filed October 28, 2013 prior to its November 8, 2013 public offering of common stock.

Until the facts of this apparent fraud become public (possibly through subsequent lawsuits), many key questions remain unanswered for most industry participants. Among those questions:

• Who was responsible?
• Why did they falsify the orders?
• How many cases are involved?
• Among collateral case participants, who knew, or should have known, what and when?
• What will be the consequences?
• Will the Internal Revenue Service impose IRC 5891 excise taxes?

Although outrage may seem justifiable as an appropriate industry response:

• Who should be the target of the outrage?
• What possible and realistic solutions exist?

Robin Shapiro's NASP Presentation

S2KM first learned about the falsified transfer orders at last week's NASP conference . During a luncheon presentation, former NASP President Robin Shapiro expressed his personal outrage about "troubling reports concerning the structured settlement factoring business." In addition to falsified transfer orders, Shapiro also highlighted and criticized other secondary market business practices:

• Inter-state Forum Shopping - "It has been reported that some factoring companies are signing up out-of state sellers to do deals in jurisdictions where judicial scrutiny is known to be limited -- listing what turns out to be a PO Box as their residence address."
• Short-cutting Waiting Periods and Disclosure Requirements - Some factoring companies require sellers to "sign contracts and backdate [Shapiro's emphasis] disclosures so as to make it appear, at least in a paper file, that the seller was afforded the statutory 10 day wait between disclosure and signing."
• Expediting Hearing Dates Before Preferred Judges - "Counsel for originators file multiple 'John Doe' court petitions as place-holders in a busy court, amending later with specific names and amounts, to secure an expedited hearing date and perhaps a hearing before a preferred judge."
• "Competing Bids" from the Same Company - Consumers "get what appear to be 'competing bids' from two brands that are really one and the same company. The consumer thinks they've shopped around. Later, when the consumer discovers the truth, they feel tricked. And they complain - online and elsewhere."

"Perhaps most disturbing", Shapiro stated, is the public disclosure in JGWPT Holdings Inc.'s Amended S-1 Statement. "Think about that", Shapiro stated. "There may have been and may be "an unknown number of court orders that are "INVALID."' (Shapiro's emphasis).

Settlement Funding v. Cathy Brenston

Shapiro did not address Settlement Funding v. Cathy Brenston during his NASP presentation. NASP Executive Director Earl Nesbitt, however, provided conference attendees with a detailed report about this high profile and controversial case during his NASP conference case law update. Currently subject to a petition for review by the Illinois Supreme Court, this case (which also involves a J.G. Wentworth affiliate) concerns "invalid transfers" but not "falsified transfers"

In the Brenston case, a 5th District panel, sitting for the 4th District Illinois Court of Appeals, previously held that because Brenston’s settlement agreement contained an enforceable anti-assignment provision, the transfer court had a duty to enforce that provision and “it had no authority under the Act to approve” the transfer petitions. If upheld, the Brenston decision could prove more damaging to the structured settlement industry than the New York falsified transfers.

Shapiro's Proposed Solution

"If not addressed," Shapiro stated, "this kind of stuff is going to provoke a regulator and investor reaction that none of us is going to like. The answer is not simply making speeches here or making 'representations' that the rules are being followed. We're past that."

At his own factoring company, Shapiro has retained independent third party due diligence firms to sample and audit its receivable files and to provide independent third party verification of its compliance - "going forward AND back."

"As independent reviewers," Shapiro stated, "these auditors will be able to look where they want and test whatever they want. We don't have anything to hide. But we intend to let them know where to look and what to look for to expose corner-cutting."

Business Practices and Models

Bad business practices can destroy the structured settlement industry - whether they occur in the primary or secondary market.

Although outrage may seem appropriate, solutions are needed.

As industry leaders inevitably renew their advocacy for improved business practices and business models, they might benefit by reading (or re-reading) "Getting to Yes" which at one time represented a guidebook of sorts for the primary structured settlement market.

Perhaps the "Getting to Yes" method can be useful to help a divided structured settlement industry address problems that impact all industry stakeholders:

• Separate the people from the problem.
• Focus on interests not positions.
• Invent options for mutual gain.
• Insist on using objective criteria.

For additional information about secondary market business practices, see section 16.02[2] of "Structured Settlements and Periodic Payment Judgments" (S2P2J) and the structured settlement wiki.

New York Transfer Orders Falsified

Industry sources have informed S2KM that a New York law firm has falsified court orders approving structured settlement transfers in as many as 100 cases - and possibly more.

Some, if not most, of these cases apparently involve J.G. Wentworth (JGW) whose parent company JGWPT Holdings Inc. (JGWPT) completed its initial public offering of common stock November 8, 2013 with a decreased number of shares and a lower price range than originally expected.

As a result of its public offering, JGWPT raised $136.5 million, selling 9.75 million Class A shares for $14 each, according to a company statement. JGWPT is now listed on the New York Stock Exchange under the symbol JGW.

JGWPT's amended S-1 statement, filed October 28, 2013 in anticipation of its public offering, includes the following statements under a section titled "RISKS RELATED TO OUR BUSINESS OPERATIONS":

"We depend on a number of third parties for the successful and timely implementation of our business strategy and the failure of any of those parties to meet certain deadlines could adversely impact our ability to generate revenue.

"Our ability to purchase structured settlement payments and lottery receivables depends on the entry of related court orders. Our ability to complete a securitization and operate our business depends on a number of third parties, including rating agencies, notaries, outside counsel, insurance companies, investment banks, the court system, servicers, sub-servicers, collateral custodians and entities that participate in the capital markets to buy the related debt. We do not control these third parties and a failure to perform according to our requirements or acts of fraud by such parties could materially impact our business. For example, there have in the past and may be in the future deficiencies in court orders obtained on our behalf by third parties that result in those court orders being invalid, including as a result of failures to perform according to our requirements and acts of fraud, in which case we would need to take additional steps to attempt to cure the deficiencies. We may or may not be successful in curing these deficiencies and, if successful, there may nonetheless be a delay in our receipt of payment streams pursuant to the court orders and if unsuccessful, we may have to repurchase such payment streams from our securitization facilities. Any delay in the receipt of, or the invalidation of, a significant number of court orders or any delay in the closing of a securitization would significantly and adversely affect our earnings." (Emphasis added).

This falsification of New York transfer orders raises a number of questions:

• Who was responsible?
• Why did they falsify the orders?
• How many cases are involved?
• What will be the consequences?
• Will the Internal Revenue Service impose IRC 5891 excise taxes?

For additional S2KM reporting about the structured settlement secondary market, see the structured settlement wiki.

NASP 2013 Annual Conference - 2

Primary market representatives attending their first National Association of Settlement Purchasers (NASP) Annual Conference are typically surprised - both by the exceptional quality of the educational experience and NASP's encouragement of diverse perspectives on controversial issues which have historically divided the primary and secondary structured settlement markets.

NASP President Patricia LaBorde's keynote remarks at NASP's 2013 Annual Conference last week in Las Vegas re-inforced NASP's policy of politically unobstructed learning. "We want to hear from all structured settlement stakeholders - even if they disagree with us or don't like who we are," LaBorde stated. "We are here to listen. We are here to improve."

Consistent with these educational objectives, previous NASP speakers have included critics from the primary market such as John Darer and Jack Meligan as well as attorneys who represent annuity providers in transfer hearings such as Stephen Harris and Peter Vodola. Regular NASP educational program features also include both a Primary Market Panel and a Judicial Panel.

In addition to other speakers who highlighted and criticized specific secondary market business practices during this year's NASP conference, former NASP President Robin Shapiro provided the most comprehensive and unanticipated assessment. Shapiro's unannounced critique, which preceded, but was unrelated to, his introduction of NASP's 2013 Hamilton Award recipient Jack Kelly, will be summarized and discussed in subsequent S2KM blog posts.

NASP 2013 Speakers and Topics

• Jack Kelly - State and Federal Legislative and Regulatory Developments.
• Earl Nesbitt - Litigation Update and the Impacts of Unethical Conduct.
• Rajiv Goel - Capacity Issues in Structured Settlement Transactions.
• Boris Ziser - Financing Structured Settlement Transactions.
• Break Out Sessions
  • Avoiding Pitfalls with the Problem Payees.
  • Non-Traditional Financing of Secondary Market Transactions.
  • Maximizing Results in Front of a Tough Judge.
  • Marketing: Reaching Your Audience Without Breaking Ethical or Legal Standards.
• Edward Stone - The ELNY Saga.
• Brian Robinson and Erik Friedman - Issues in Life Contingent Transactions.
• Patrick Hindert (Moderator) and Daniel Hindert, Anthony Prieto, Jr., William Schemmel - Primary Market Panel.
• Matthew Bracy (Moderator) and Judges Nancy Allf, Carter Bise, James McCarthy - Judicial Panel.

S2KM Comments and Observations

• Sponsors - NASP conferences invariably attract more sponsors than any other conferences S2KM attends. NASP sponsors this year included Google and NBC.
• Legislation and Regulation - Secondary market legislative and regulatory developments have decreased considerably during the past couple of years. 48 states have now enacted protection acts with Oregon amending its statute during 2013.
• Case Law - Several cases decided in 2013 have the potential to significantly impact secondary market business standards and practices. "Structured Settlements and Periodic Payment Judgments" (S2P2J) will report on the following cases discussed during the NASP conference in upcoming Release 55:
  • Settlement Funding v. Cathy Brenston
  • Symetra v. Rapid Settlements
  • Hartford Life v. Estate of Solomon
  • In re: Porter
  • J.G. Wentworth Originations v. Mobley
• Brenston Case - S2KM will discuss the Brenston case, which is currently subject to a petition for review by the Illinois Supreme Court, in subsequent blog posts. A 5th District panel, sitting for the 4th District Illinois Court of Appeals, previously held that because Brenston’s settlement agreement contained an enforceable anti-assignment provision, the transfer court had a duty to enforce that provision and “it had no authority under the Act to approve” the transfer petitions.
• Special Needs Attorneys - Rajiv Goel, addressing capacity issues, was the first special needs attorney to speak at a NASP conference. At prior special needs conferences S2KM has attended, attorneys frequently criticize primary market consultants for "over structuring" and for opposing single claimant qualified settlement funds. In addition, several state Medicaid agencies are attempting to disqualify structured settlement funded special needs trusts because of the potential liquidity (resources) available via the secondary market. Primary and secondary structured settlement market participants appear to have shared interests in improving their special needs public relations and lobbying strategy.
• Marketing Restrictions - In addition to promoting the Better Business Bureau Code of Advertising, NASP's Marketing Break Out discussions highlighted compliance requirements for:
  • New Telephone Consumer Protection Act.
  • The CAN-SPAM Act.
  • Truth in Caller ID Act.
  • Section 43(A) of the Lanham Act.
• Financing Transactions - Boris Ziser's overview of secondary market financing transactions explained: 1) the changing landscape of capital markets; 2) why lenders and investors like structured settlements; 3) what is needed for a successful transaction; 4) current lender challenges; and 5) various types of lending facilities - among other topics.
• Expanding Market Segments - Separate presentations about 1) life contingent transfers and 2) the sale of structured settlement payment rights to individual investors including personal injury victims indicate both market segments are growing.
• ELNY Saga - Among ongoing ELNY developments reported by Edward Stone:
  • Although a final Schedule 1.15 has not yet been published, benefit reductions for ELNY structured settlement recipients may be 3-4% greater than originally predicted.
  • Guarantee Association Benefit Company (GABC), ELNY's D.C.- based successor insurer under NOLHGA's control, has not yet disclosed any information about the expenses association with ELNY's liquidation or the investment performance of ELNY's assets during and/or following ELNY's liquidation.
  • Despite shortfalls experienced by more than 1400 ELNY structured settlement recipients, none of the participating state Guarantee Associations paid out their full coverage amounts.
  • GABC is flagging factoring transactions which are not receiving supplemental benefits.
  • The ELNY class action lawsuit remains on hold while the appeal of Judge Galasso's contempt order is pending.
• Judicial Panel - NASP's Judicial Panel provided opportunities for both the judges and conference attendees to ask each other questions and to communicate problems they have experienced during transfer proceedings. Speaking for the panelists, Judge Bise, who attended the entire conference, stated "I have learned a lot. We would appreciate NASP continuing to educate us on transfer issues."
• Primary Market Panel - Panelist William Schemmel, legal counsel for the Western & Southern Financial Group, which owns Integrity Life among other affiliates, was one of two representatives of former primary market annuity providers attending the NASP conference. Similar to the judicial panel, Schemmel's discussion of transfer issues and problems was practical and productive without the political invective which frequently and unfortunately characterizes transfer discussions at primary market conferences.
• METLife's New Transfer Policies - Despite IRC 5891 and state protections acts, structured settlement annuity providers retain the ability to prevent payment right transfers by enforcing anti-assignment clauses in applicable settlement documents. Generally, however, for the cost of an administrative fee, structured settlement annuity providers have cooperated with factoring companies and payee/transferors since 2002 to enable court-approved transfers. During his case law update, NASP Executive Director Earl Nesbitt reported METLife has now reversed course and has begun challenging this cooperative spirit with new transfer policies prohibiting two previously existing industry standards: 1) transfers of partial payments; and 2) factoring companies assuming administrative responsibility for post-transfer payments.

Congratulations to NASP - especially NASP President Patricia LaBorde, conference chairman Ken Barnett, conference administrators Susan Barnes and Leslie Wren, and conference speakers - for continuing and upgrading the quality of NASP's annual educational conference.

For S2KM reporting about prior NASP conferences, see the structured settlement wiki.