Beyond Structured Settlements

Structured Settlements 2014 - Settlement Planning

During the late 1970s, and throughout the 1980s, when defendants retained exclusive control of structured settlements, many brokers and their liability insurance company clients referred to unsuccessful sales as "cash outs". Their professional interests and curiosity were narrowly defined and focused upon their own product to the exclusion of other settlement related products and services.

With the advent of plaintiff structured settlement brokers, continuing legislative and regulatory developments, plus an expanding array of settlement planning professionals, products and product providers, structured settlements are now viewed by most stakeholders as a subset of the larger and more complex personal injury settlement planning market.

For future success, a new generation of structured settlement leaders must look beyond structured settlements and learn to re-position their product as a fundamental and catalytic settlement planning component. This strategic adjustment requires a more comprehensive understanding of, and interaction with, other professional associations whose members also provide settlement planning products and services.

During 2014, S2KM attended 13 national educational conferences sponsored by such professional associations. What follows are 2014 summaries, from a settlement planning perspective, of the educational programs offered by these professional associations plus links to related S2KM reporting. Prior S2KM blog posts provide 2014 summaries of the primary and secondary structured settlement markets. A subsequent S2KM blog post will summarize continuing 2014 developments related to ELNY and Reliance.

American Association for Justice (AAJ)

The role of personal injury attorneys historically has encompassed settlement planning and negotiation as well as litigation. As settlement planning has become increasingly complex, however, personal injury attorneys now require the services of other settlement planning professionals including: tax attorneys, special needs attorneys, settlement trustees, financial planners, structured settlement specialists, life care planners, case managers, economists, Medicare set-aside (MSA) specialists and damage allocators.

Regardless of case complexity, plaintiff attorneys continue to perform the following essential settlement planning roles:

• Recognizing settlement planning issues which impact their clients;
• Recommending appropriate settlement planning professional resources to their clients; and
• Retaining ultimate responsibility for effectuating settlements.

As one result, plaintiff attorneys represent the primary marketing target for for companies and professionals offering settlement planning services. Seven primary market brokers, one structured settlement annuity provider and one factoring company were among the 141 sponsors and exhibitors at the AAJ 2014 Annual Conference which also included companies offering lien resolution, MSA compliance, life care planning, legal finance and economic consulting services.

Notable features of the 2014 AAJ conferences:

• AAJ's educational programs focused on litigation issues with no structured settlement, no Affordable Care Act (ACA) and almost no settlement planning presentations.
• Exhibiting structured settlement brokers shared one distinguishing characteristic - their product and service offerings extended far beyond traditional structured settlements.

Related Resources:

• AAJ 2014 Winter Meeting
• AAJ 2014 Annual Meeting

Society of Settlement Planners (SSP)

SSP is a professional association most of whose members are plaintiff structured settlement brokers. SSP's 2014 Annual Conference provided three important contributions to settlement planning.

First, SSP President Neil Johnson's SSP keynote speech, which he repeated at NSSTA's Fall Conference, highlighted continuing polarization among structured settlement professionals and proposed the following solutions: 1) recognizing and accepting product diversity; 2) focusing on client and customer service; 3) identifying and pursuing permanent shared interests without necessarily agreeing on all issues; 4) engaging all perspectives to discuss industry problems and issues; 5) improving relationships among stakeholder groups; 6) promoting and practicing settlement planning not settlement selling.

Second, consistent with Johnson's proposed unification solutions, SSP's Secondary Market Panel featured two leading structured settlement transfer experts whose clients typically oppose each other in secondary market cases: NASP Executive Director Earl Nesbitt and Stephen Harris, former co-Chairman of NSSTA's legal committee.

Third, SSP speaker Michele Fuller identified her list of 2014 settlement planning "game changers" as a baseline for industry discussion:

1. Affordable Care Act.
2. Lien resolution statutory and regulatory developments.
3. Federal recognition of same-sex marriages.
4. Wrongful death caps determined unconstitutional.
5. State and federal tax reform.
6. Potential reductions in social security benefits.
7. MSAs in liability cases.
8. Settlement planning goes cyber.
9. Increasing need for Qualified Settlement Funds.
10. Increasing number of persons with disabilities.

Related Resources - SSP 2014 Annual Conference

• Part 1 - Secondary market panel.
• Part 2 - Conference summary.

National Structured Settlement Trade Association (NSSTA)

By inviting NASP President Patricia LaBorde and SSP President Neil Johnson to speak at its members-only 2014 Fall Educational Conference, NSSTA took a symbolic step toward restoring its original vision as articulated by David Ringler, NSSTA's first president: "a place where everyone and anyone can sit down with each other and discuss the issues and viewpoints regardless of beliefs is the most important reason for NSSTA."

For the past several years, NSSTA's leadership has superimposed a political litmus test for membership, as well as for topics and speakers at its educational conferences. NSSTA's near-sighted strategy has limited the potential growth of structured settlements within the larger and more complex settlement planning market and created multiple challenges for the next generation of structured settlement leaders.

Structured settlements, however, represent a core settlement planning product with emerging product improvements and nontraditional products demonstrating the potential for settlement planning market expansion. In addition, NSSTA's Fall conference underscored, and re-enforced, NSSTA's and NSSTA members' strategic settlement planning relationship knowledge about and with: 1) plaintiff attorneys; 2) insurance associations; 3) insurance claims adjustors; 4) national consumer associations; 5) U.S. Congressional members; and 6) MSA administrators - as well as with SSP and NASP.

Related Resources:

• NSSTA 2014 Fall Educational Conference
• Potential "Game Changing" Structured Settlement PLR
• Structured Settlements 2014 - Primary Market

National Association of Settlement Purchasers (NASP)

Assuming settlement planning includes adjustments during an injury victim's lifetime, structured settlement transfer (factoring) companies should be included among settlement planning participants. Like NSSTA, its primary market counterpart, NASP and its members face serious challenges which NASP president Patricia LaBorde acknowledged during NASP's 2014 Annual Conference.

"There are some forces working against us right now" Laborde stated, "and we need to remain diligent so our customers (structured settlement recipients who sell payment rights to NASP member companies) continue to have access to liquidity." These "negative" forces include predicted secondary market "chaos" resulting from the Washington Square v. RSL case as well as market restrictions resulting from anti-assignment lawsuits.

Shared educational dialogue among representatives of NASP, NSSTA and SSP during 2014 appear to support the possibility of increasing primary and secondary market integration as predicted by Peter Arnold during his NASP conference presentation.

Related Resources:

• NASP 2014 Annual Conference
• Structured Settlements 2014 - Secondary Market

Academy of Special Needs Planners (ASNP)

ASNP is one of three national associations of attorneys whose members practice special needs (SN) planning. SN planning encompasses individuals with congenital and developmental defects, as well as personal injury victims, and therefore represents a parallel market which overlaps with personal injury settlement planning.

For the past eight years, ASNP has sponsored some of the best educational programs addressing settlement planning topics including such fundamental issues as: "know your client", "needs analysis", "best practices", "industry standards" and "product suitability", as well as "professional responsibility, qualifications and liability".

Among other topics, the ASNP 2014 Conference expanded previous ASNP educational programs about the Patient Protection and Affordable Care Act (ACA aka "Obamacare") including a multi-professional "ACA Panel" consisting of: David Lillesand (attorney); Ann Koerner (life care planner); and Scott MacDonald (investment adviser).

Other settlement planning topics addressed during ASNP's 2014 Annual Conference:

• Blaine Brockman and Patricia Kefalas Dudek spoke about "Housing, Food Assistance, Employment Benefits" - critical topics for many people with disabilities which are rarely addressed at structured settlement and settlement planning educational conferences.
• Cynthia Barrett discussed "Post-Windsor Issues for LGBT Couples & Children" - another settlement planning subject other settlement planning conferences failed to encompass.

Expanding its settlement planning educational programs, ASNP is currently sponsoring a 12-part settlement planning webinar series which demonstrates both the growing importance of settlement planning for SN attorneys as well as the broad scope of settlement planning topics.

Related Resources:

• ASNP 2014 Annual Conference
• ASNP Settlement Planning Webinar Series
• ACA and Future Medical Expenses

National Alliance of Medicare Set-Aside Professionals (NAMSAP)

NAMSAP is the only national professional association whose singular focus is Medicare Set-Aside (MSA) arrangements. NAMSAP's growth has paralleled the expansion of workers compensation MSAs (WCMSAs) to satisfy the requirements of the Medicare Secondary Payer (MSP) Act. Enacted in 1980, the MSP Act requires certain insurers, including liability, automobile, no-fault and workers compensation insurers, to make payment first for services to Medicare beneficiaries regarding claimed injuries, with Medicare responsible only as a “secondary payer.”

The Center for Medicare & Medicaid Services (CMS) published a WCMSA Reference Guide (WCRG) on March 29, 2013 plus a WCRG Version 2.0 on November 7, 2013. Both address structured settlement issues and provide guidelines for their utilization. WCMSAs represent one of the few submarkets where structured settlements sales have increased since 2008 - in large part because the method CMS requires for calculating WCMSA present values provides an inherent cost advantage for annuities compared with lump sum alternatives.

CMS withdrew its Notice of Proposed Rulemaking (NPRM) related to liability MSAs in October 2014 because it failed to gain approval from the Office of Management and Budget (OMB). Therefore, settlement planners must continue to analyze each liability case individually to determine whether and how to protect Medicare's interests.

During NAMSAP's 2014 Regional Conference, Roy Franco predicted the following settlement planning changes likely to result from the Bipartisan Budget Act of 2013, implementation of the ACA and the still anticipated CMS rules for liability MSAs: "workers' compensation, liability and no-fault insurers will all become primary payers vis a vis Medicare, Medicaid and ACA health providers" as part of integrated settlement planning models similar to WCMSAs." Franco added, however, that different state models are likely to develop as a result of both state-specific collateral source rules and the new Medicaid reimbursement rules promulgated by the Bipartisan Budget Act of 2013.

Related Resources

• NAMSAP 2014 Regional Conference
  • Part 1
  • Part 2
• NAMSAP 2014 Annual Meeting
• Bipartisan Budget Act of 2013

Evolve Qualified Settlement Fund (QSF) Symposium

Organized "to provide a forum for open dialogue that helps shape industry developments", the 2014 Evolve QSF Symposium avoided the single claimant controversy and focused instead on other important QSF and settlement planning issues including:

• How QSFs reconfigure the traditional settlement planning process.
• QSF-related compensation issues for administrators and structured settlement brokers.
• The increasingly important settlement planning roles for life care planners and case managers.
• QSF-related tax issues such as state taxation, foreign structured settlement assignment companies and structured attorney fees.

Related Resources

• Evolve 2014 QSF Symposium
• Single Claimant QSFs Revisited
• "How the ACA Affects Nurse Life Care Planners"
• Wendie Howland Interview

National Academy of Elder Law Attorneys (NAELA)

NAELA was the first and remains the largest U.S. professional association focused on the needs of elder and special needs law attorneys. Responding to its own strategic challenges, NAELA organized its 2014 Annual Conference to address what it perceives to be its two primary strategic issues: 1) the future needs of persons with disabilities; and 2) the future of elder law.

Compared with ASNP, however, NAELA's educational programs rarely address settlement planning or structured settlements. When NAELA members discuss special needs planning, many tend to think about developmental (as opposed to personal injury) disabilities. Unfortunately, many NAELA members view structured settlements negatively despite familiarity with the concept and a general affinity for annuities.

Related Resources

• NAELA 2014 Annual Conference
• Person-Centered Planning
• Cornell Disability Studies, Research, Statistics

Structured Settlements 2014 - Secondary Market

Is the bloom finally off the rose for structured settlement secondary market leader JGWPT Holdings, Inc. (JGWPT) whose subsidiaries include J.G. Wentworth (JGW) and Peachtree Settlement Funding (Peachtree)?

Despite strong sales since 2010, punctuated by the November 25, 2014 announcement that it had issued $207,501,000 of Fixed Rate Asset Backed Notes collateralized primarily by payment rights rights arising under court ordered structured settlement payment purchase contracts, JGWPT's NYSE per share price closed at $8.65 on December 12, 2014, down drastically from its 2014 high of $19.88 on March 4.

When JGWPT's Holdings IPO occurred November 8, 2013, with an initial offering price of $14.00 per share, one analyst opined the stock was worth at least $20 per share based upon JGW's "dominant franchise", access to securitization markets, low costs relative to competitors and "incalculable returns on capital", among other factors.

After JGW consolidated its 2011 merger with Peachtree, various industry experts estimated the combined combined company's structured settlement secondary market share totaled somewhere between 50% and 75%, and its share of industry profits exceeded 80%.

What happened?

Zacks Investment Research published two reports earlier this month on December 2 ("JG Wentworth - Bear of the Day") and December 9 ("What Falling Estimates & Price Mean for J.G. Wentworth").

Zacks' conclusion: "A key reason for this [downward stock price] move has been the negative trend in earnings estimate revisions. For the full year, we have seen four estimates moving down in the past 30 days, compared with no upward revision. This trend has caused the consensus estimate to trend lower, going from $1.71 a share a month ago to its current level of $1.45."

What has caused JGW's negative trend in earnings estimates?

As summarized in S2KM's 2013 annual report about the structured settlement secondary market, JGWPT faced a multitude of problems and controversies prior to 2014. New and/or expanded problems have occurred during the past 12 months - in particular:

• Brenston case law "progeny"; and
• Washington Square v. RSL.

Brenston Case Law "Progeny"

In the Brenston case, the Illinois Supreme Court in December 2013 denied Peachtree's petition for review of an Illinois Appellate Court decision which found multiple Peachtree-Brenston transfer orders, previously approved in accordance with the Illinois transfer statute, to be void ab initio because:

• Peachtree did not file all settlement documents with the transfer court.
• Peachtree concealed "by omission" the existence of anti-assignment provisions which the Appellate Court found "material".
• The conduct of Peachtree and it's attorney amounted to an "affirmative falsehood and a fraud upon the trial court".

The denial of Peachtree's petition for review has substantially reduced the secondary structured settlement market in Illinois according to industry sources. Some annuity providers reportedly have refused to waive anti-assignment provisions in Illinois cases while others evaluate them on a case-by-case basis. In addition, some annuity providers are citing Brenston to challenge transfers in other states.

The Brenston case was also quickly followed by Sanders v. JGWPT Holdings, a class action lawsuit, accusing JGWPT Holdings, Inc., several affiliate companies including JGW and Peachtree, and Illinois attorney Brian Mack, of violating the Illinois Consumer Fraud and Deceptive Business Practice Act (ICFA). The case has since been removed to the Federal Court in the Southern District of Illinois with that court expected to rule on various motions and petitions in February 2015.

Washington Square v. RSL

In this case, transfer company Washington Square (aka Imperial) sued transfer company RSL Funding in Texas for tortious interference with a transfer agreement that had not yet been approved in a final court order. The Court of Appeals of Texas, Fourteenth District, held:

• RSL was “justified” in interfering with Imperial’s proposed transfer agreement prior to court approval because obtaining a better price was in the seller's "best interest".
• Transfer agreements that have not received court approval are not enforceable on public policy grounds and therefore cannot justify legal actions for tortious interference with existing contracts.

As a result of this case, a strategic marketing shift appears to be occurring within the structured settlement secondary market as rival transfer companies increasingly search court records and seek to outbid other transfer companies who are awaiting court approvals. This marketing shift may provide lower discount rates for some structured settlement recipients when they sell their payment rights. The impact on the secondary market, however, will be "chaos", according to some participants, including extra "informational" demands on the judicial system responsible for administering the state protection acts.

For JGW and Peachtree, who have invested millions of dollars to build their TV and Internet brands, this strategic marketing shift promises new, much less-well financed competitors. Like pilot fish, these competitors can be expected to offer competitive bids based upon public court filings of not-yet-approved transfers proposed by JGW and Peachtree (as well as other established transfer companies) rather than based upon their own independent marketing. Assuming this occurs, the likely per case results for JGW and Peachtree will be lower success ratios and higher costs.

ADDENDUM (added December 15, 2014) - JGWPT's September 10, 2014 Form S-1/A filing with the SEC identifies multiple "Risk Factors" at least two of which could impact other structured settlement stakeholders:

• "[T]he insolvency or downgrade of a material number of structured settlement issuers." S2KM will discuss these rating downgrades, which include Genworth, Hartford and Aviva, in a subsequent 2014 annual report about ELNY and Reliance.

• "[T]he impact of the March 2014 Consumer Financial Protection Bureau inquiry and any findings or regulations it issues as related to us, our industries, our products or in general." (emphasis added)

Change of Directions for JGWPT?

One apparent result of JGWPT's continuing problems and controversies has been a change of CEOs with Stewart Stockdale replacing David Miller in July 2014. Another result appears to be a more diversified strategy away from structured settlements.

In a November 13, 2014 press release, Stockdale stated: "We are in the early stages of transforming J.G. Wentworth and are excited about the groundwork we have laid to achieve the three key strategic pillars -- Grow the Core, Become an Information-Based Company, and Diversify." To date, this proposed transformation does not appear to have impressed investment analysts or positively impacted JGWPT's common stock.

Other 2014 Secondary Market Developments

• Educational Dialogue - For the first time, educational programs sponsored by the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) featured representatives of the National Association of Settlement Planners (NASP) as participants in secondary market panel discussions. For the ninth consecutive year, NASP featured primary market representatives speaking about primary market issues at their annual educational conference. For summaries of these conferences, see the structured settlement wiki.
• Case Law - In addition to the Washington Square and Brenston-related cases summarized above, noteworthy 2014 case law developments occurred in Texas and New York related to split payments and servicing arrangements. Two Texas cases required JGW to continue servicing arrangements under prior court approved orders and also to service subsequent assignments by the same payees to another transfer company. Multiple New York judges expressed their concerns about servicing arrangements while approving structured settlement transfers. At least 27 state structured settlement protection acts prohibit partial transfers. During 2013, MetLife began actively opposing transfers that involve split payments as well as court-approved servicing arrangements. Under such servicing arrangements, structured settlement annuity providers remit the entirety of specific periodic payments to transfer companies to administer even when the original recipient/transferor only assigns a portion of the payments.
• State Legislation - Although structured settlement protection act (SSPA) activities occurred in Florida, Wisconsin, Minnesota, Louisiana, and Mississippi during 2014, only Minnesota enacted a legislative amendment. Minnesota amended its SSPA to require notice of the date and judicial district of any prior application for transfer filed by the transferee relating to a prior proposed transfer with the payee including whether the proposed transfer was approved or denied. If granted, such notice must provide the amount and due dates of transferred structured settlement payments, the aggregate amount, the discounted present value and the gross amount payable to the payee.
• PLR-143928-13 - Issued by the Internal Revenue Service in August, this two-part private letter ruling approves favorable tax treatment for a structured settlement annuity which includes the possibility of a commutation by the recipient pursuant to a Notice of Hardship Conversion. In a prior blog post, S2KM described this PLR as potentially "game changing" because it overcomes an industry concern (enunciated in a 2006 Robert Wood article) that commutations do not qualify for favorable tax treatment afforded third party factoring transactions under IRC 5891.
• Re-cycled payment rights - Representing a small fraction of secondary market sales, the resale to personal injury victims and their attorneys of payment rights previously acquired in a structured settlement factoring transaction (sometimes misleadingly referred to as "recycled structured settlements") continues to cause serious concern among most primary market participants. NSSTA considers engaging in or promoting the marketing or distribution of re-cycled payment rights to be risky, confusing and unregulated investment activity and inconsistent with its Mission.
• Discount rates - Discount rates for structured settlement transfers vary widely depending upon multiple factors including: single vs. multiple bids; fixed vs. life contingent payments; size of payments purchased; length of payment deferral; perceived financial strength of the annuity provider; and/or state law (eg. North Carolina rate cap). The NCOIL State Structured Settlement Protection Model Act, which NSSTA and NASP have agreed to support, contains a definition for "discounted present value" which is generally higher than, and unrelated to, the discount rate actually incorporated into most structured settlement transfers. Regardless of discount rates, judges continue to deny proposed transfers that do not otherwise satisfy the "best interest" test. Reasons include: funds from prior transfer(s) were not used for stated purposes; stated purposes do not justify approval.
• Secondary market sales
  • Based on interviews with industry experts in 2012, S2KM estimated 2012 structured settlement activity to be:
    • 12,000 secondary market transfers - with less than 120 contested by annuity owners and/or providers.
    • $360 million of total secondary market purchases (money paid to transferors).
    • $30,000 average individual transfer.
  • Opinions differ as to secondary market sales growth during 2013 and 2014 ranging from no growth to 7% growth per year.

S2KM will address 2014 developments related to personal injury settlement planning and the ELNY liquidation in subsequent blog posts,

For additional related S2KM reporting, see:

• NASP 2014 Annual Conference.
• Primary Market 2014 Report
• Prior Year Annual Reports

SSP 2014 Secondary Market Panel

In addition to its other accomplishments (most notably publication of "Standards of Professional Conduct for Settlement Planners"), the Society of Settlement Planners (SSP) has distinguished itself by sponsoring educational programs addressing issues, featuring speakers and permitting perspectives the more defense-oriented National Structured Settlement Trade Association (NSSTA) traditionally has been reluctant or unwilling to offer.

SSP's 2014 Annual Conference, to be held April 27-29 in New Orleans, promises to continue this more open-minded educational tradition.

As one example,  SSP's Secondary Market Panel discussion will feature two leading structured settlement transfer legal experts whose clients typically oppose each other in significant secondary market cases:

• Stephen R. Harris - among other roles and accomplishments, Stephen (a partner at Drinker Biddle whose clients include annuity providers) recently served as co-Chairman of NSSTA's Legal Committee.
• Earl S. Nesbitt - in addition to representing factoring companies, Earl (a founding partner of Nesbitt, Vasser & McCown) serves as Legal Counsel and Executive Director for the National Association of Settlement Purchasers (NASP).

SSP's Secondary Market Panel, which will be moderated by Patrick Hindert (S2KM's Managing Director and blog author), should be educational and entertaining - and hopefully somewhat controversial. Here are some of the questions the featured panelists will address.

Overview

• Is the secondary market good or bad for the primary structured settlement market?
• Among other objectives, IRC 5891 and the Model State Structured Settlement Protection Act (Model Act) were enacted to protect claimants from predatory secondary market business practices. Both NSSTA and NASP supported these statutes. How successfully have these statutes accomplished their objective to protect structured settlement recipients?
• Based upon your experience, what changes or amendments, if any, would improve the Model Act?
• Would adding a multiple bid requirement as part of the "best interest" test improve the secondary market?

Troubling Developments

• During NASP's 2013 annual conference, former NASP President Robin Shapiro expressed personal outrage about "troubling reports concerning the structured settlement factoring business" including:
  • Falsified transfer orders.
  • Inter-state forum shopping.
  • Short-cutting waiting periods and disclosure requirements.
  • Expediting hearing dates before preferred judges.
  • "Competing bids" from the same company.
• How prevalent are these business practices?
• What have NASP, NSSTA and/or other primary market participants done to address these issues? What should they do?

Falsified Orders

• Reports indicate a former paralegal at the New York law firm Paris & Chaikin falsified as many as 100 transfer orders?
• What happened? What is the status?
• How will these events impact the secondary market and its various participants including: the law firm, its secondary market clients, the annuity providers and the structured settlement recipient/transferors?

Anti-Assignment Restrictions

• Recent (Brenston) and current class action (Sanders) cases in Illinois address the impact of "anti-assignment" restrictions on transfers of structured settlement payment rights.
• What is the status of these cases and related litigation? What are the issues?
• Does the recommended assignment language in NSSTA's Model Qualified Assignment and Release Agreement solve this problem - or is some other solution necessary?
• What case-specific responsibilities do structured settlement brokers, settlement planners and other plaintiff advisers have related to anti-assignment restrictions?

Primary Market Responses

• MetLife recently adopted controversial new business practices whereby it opposes transfers that involve split payments as well as court-approved servicing arrangements.
• What is MetLife's rationale and objective?
• How are these business practices impacting the secondary market?
• The Florida state legislature is considering a bill that would add a maximum discount rate (similar to North Carolina) to its existing protection act..
• Is this a good idea?
• How has the North Carolina provision impacted the secondary market in that state?
• Why haven't more annuity providers offered commutation-like alternatives to third party factoring transactions? What impact would such alternatives have on the existing primary and secondary markets?

RLS Arbitrations

• RLS (formerly Rapid Settlements) has attempted to use the Federal Arbitration Act to side step state structured settlement protection statute requirements.
• What is the status of the related RLS litigation?

Conclusion

• What other secondary market issues do you see as important for the future of structured settlements?
• What opportunities exist for primary and secondary structured settlement market cooperation? What is preventing this cooperation?

For background about these secondary market issues, see the structured settlement wiki and more specifically these prior S2KM blog posts:

• Structured Settlements 2013 - Secondary Market
• Secondary Market Update - February 3, 2014
• Sanders v. JGWPT Holdings

For more detailed analysis of secondary market issues, see Chapter 16 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

S2P2J Release 55

Publisher Law Journal Press anticipates a Spring 2014 distribution date for hard copy supplements for Release 55 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) with online S2P2J subscribers receiving their update automatically and simultaneously. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes.

First published in 1986 and updated semi-annually, S2P2J is co-authored by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert (S2KM's Managing Director). Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.

Release 55 Highlights - Release 55 will feature new, updated and/or expanded sections for the following topics:

• Risks of using off-shore companies and re-cycled structured settlements to fund qualified assignments.
• Meeting professional responsibilities for product disclosures.
• Subrogation rights impacting structured settlements.
• Choice of law provisions for attorney compensation.
• Medicaid liens and the 2013 Bipartisan Budget Act.
• How the Brenston case impacts transfer applications.
• Document drafting and anti-assignment restrictions.
• Vermont's structured settlement protection act amendments.

Meta Structured Settlement Themes

Reviewing S2P2J Release 55 and other recent S2P2J highlights, S2KM notes two related structured settlement meta themes:

• Transformational market developments.
• Changing roles, responsibilities and work product.

Transformational Market Developments

A growing dichotomy exists between stagnant primary market sales and multiple, ongoing transformational developments impacting the structured settlement market - the most significant of which are addressed in S2P2J Chapter 15 ("Government Benefits and Structured Settlements") and Chapter 16 ("Transfers of Structured Settlement Payment Rights").

Supplemental resources - structured settlement market developments:

• Recent and upcoming structured settlement, settlement planning and special needs educational conferences.
• S2KM's 2013 structured settlement industry reports:
  • Part 1 - Primary market
  • Part 2 - Settlement planning
  • Part 3 - Secondary market
  • Part 4 - ELNY and Reliance
• S2KM's 2014 structured settlement market updates:
  • Primary market
  • Secondary market

Changing Roles, Responsibilities and Work Product

The transformational market developments outlined above are causing and requiring significant changes to structured settlement roles, responsibilities and work product.

These changes feature more prominent roles for new professional stakeholders (settlement planners, special needs planners, settlement trustees, lien resolution specialists, damage allocators, factoring companies, secondary market brokers and attorneys) as well as adjustments for traditional professional stakeholders (defense and plaintiff attorneys, defendants and liability insurers, structured settlement consultants and annuity providers, judges, mediators, and guardians).

Defense and Plaintiff Attorneys

The original S2P2J publication (1986) included comprehensive chapters detailing respectively the roles and responsibilities of defense attorneys (Chapter 4) and plaintiff attorneys (Chapter 5) in structured settlements. These chapters continue to be updated reflecting new legislative and regulatory developments as well as changing business models and practices.

Release 54, for example, substantially expanded and re-organized S2P2J's coverage of defendant structured settlement disclosure issues. Release 55 enumerates a list of "best practices" for defense attorneys and includes a new structured settlement Appendix document to disclose material information about the costs, commissions and other elements of case specific funding. Release 55 also identifies and summarizes new structured settlement case law related to plaintiff attorney settlement planning, compensation and document drafting responsibilities.

Structured Settlement Consultants

Release 54 expanded and updated S2P2J's existing coverage (Section 6.02) of structured settlement consultants to address: consultant selection criteria; structured settlement product suitability; and consultant business practice issues including laws and regulations, industry standards, commission disputes, privacy rules, and disclosure and representation requirements.

Release 55 adds, as a new Appendix document, the SSP "Standards of Professional Conduct for Settlement Planners" which SSP describes as "rules of reason ... intended to impose high standards on professional settlement planners" including structured settlement consultants.

S2KM's recent summary of the AAJ 2014 Winter Meeting highlighted continuing concerns about structured settlement business standards and practices including:

• Questions about product suitability, disclosure standards and informed consent in the context of expanding structured settlement product and service offerings.
• Misrepresentations in structured settlement sales materials plus a general failure of these same sales materials to provide any information about the transfer issues.

Judges Reviewing Transfer Applications

The recent Settlement Planning v. Brenston and Sanders v. JGWPT Holdings cases highlight changing standards for judicial review of anti-assignment restrictions. S2P2J Chapter 16 ("Transfers of Structured Settlement Payment Rights") already includes an entire section discussing "Judicial Review of Transfer Applications" plus detailed analysis of structured settlement anti-assignment restrictions (Sections 16.02[2][c] and [d] and 16.05[4][c]).

Release 55 expands S2P2J's anti-assignment analysis concluding that recent court decisions "should cause judges reviewing transfer petitions to require the full text of structured settlement documentation to see if an anti-assignment provision is present. Without such information, transfer approvals are subject to being found to be void ab initio and thus open to invalidation at any time."

S2P2J also features, as an Appendix document, NSSTA's Annotated and Non-annotated Model Qualified Assignment and Release Agreement. NSSTA's Model Agreement includes recommended language (Paragraph 7 - "Acceleration, Transfer of Payment Rights") for addressing anti-assignment issues in the context of IRC Section 5891 and the state structured settlement protection acts.

Sanders v. JGWPT Holdings

A new Class Action lawsuit has escalated the legal battle in Illinois concerning the impact of "anti-assignment" restrictions on transfers of structured settlement payment rights.

In the lawsuit, Plaintiff Valerio Sanders seeks to represent the following class: "Those individuals who sold part or all of their structured settlement annuities under the provisions of the Illinois [Structured] Settlement Protection Act, where the original structured settlement contract contained a valid and enforceable anti-assignment clause."

Filed February 11, 2014 in the Twentieth Judicial Circuit Court St. Clair County, Illinois, the Class Action Complaint accuses Defendants JGWPT Holdings, Inc., several affiliate companies including J.G. Wentworth and Peachtree Settlement Funding (JGWPT entities), and Illinois attorney Brian P. Mack of violating the Illinois Consumer Fraud and Deceptive Business Practice Act (ICFA).

The Class Action Complaint alleges "the JGWPT entities ... intentionally failed to inform potential sellers that a valid and enforceable anti-assignment clause prohibited the sale of deferred payment annuities because the JGWPT entity intended to defraud the seller and the Illinois courts by filing false pleadings under the Illinois [Structured] Settlement Protection Act in order to obtain large amounts of deferred cash payments for discounted present lump sum amounts and reap the tax benefits of the same in violation of federal law."

Section 2 of the ICFA provides in part: "[U]nfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression of omission of any material fact .... in the conduct of any trade or commerce are hereby declared unlawful ..."

The Class Action Complaint alleges Defendants used their advertising and solicitations to cause Plaintiff Valerio Sanders and other sellers to believe they could obtain cash for their structured settlement payment rights, "but intentionally failed to inform the potential sellers that if there was a valid and enforceable anti-assignment clause in the settlement contract, no lump sum payment could be received in exchange for the seller assignment the deferred payments because any such "order" issued by an Illinois court approving such a transfer would be void. Moreover, the legal proceeding would violate federal law."

The Class Action Complaint further alleges:

• When a potential seller had a valid and enforceable anti-assignment clause, the JGWPT entities would routinely hire Brian P. Mack to obtain a "Qualified Order" pursuant to the Illinois Structured Settlement Protection Act so that the deferred payments could be purchased at a deeply discounted rate, and without any tax consequences.
• Attorney Mack "would personally counsel the seller ... on how to create Illinois jurisdiction and venue, how to find a 'friendly court', how to avoid appearing in court, how to obtain the services of 'independent counsel', ..... or inform them they could waive the right, and how to finalize the details to obtain the lump sum payment."
• Valerio Sanders' "Settlement Agreement and Release" included an anti-assignment clause which provided: "The periodic payments to be received by the Payee(s) pursuant to paragraphs 2B are not subject in any manner to anticipation, alienation, sale or transfer, assignment, pledge or encumbrance by Payee(s)."
• The Petition filed by Mack claimed: "That the assignment does not contravene any federal or state statutes or the order of any court or responsible administrative authority."
• "Mack knew that this allegation was false and misleading as Plaintiff's settlement contract had a valid and enforceable anti-assignment clause."
• "....[F]ailure to inform Plaintiff that the order obtained from the court was in violation of Illinois and federal law was fraudulent and a material omission under the ICFA and a violation of the ICFA."
• In a subsequent transfer involving Plaintiff Sanders and the Defendants, Mack's representation that jurisdiction and venue were proper was also a fraudulent misrepresentation because the action was filed in Madison County and the Plaintiff never lived in Madison County and the underlying action did not accrue there.
• Plaintiff and putative class members relied on materials misrepresentations made by JGWPT entities and attorney Mack and sold payment rights under circumstances where the sale was contrary to Illinois law as well as the laws of various other states, "thus rendering the alleged transfers void, and were a fraud on the Internal Revenue Service of the United States government under 26 U.S. Code section 130."

The Complaint requests the court for an Order awarding both Plaintiff Sanders and the Class compensatory and punitive damages plus injunctive relief against Defendants to prohibit them from continuing to defraud the Class and the courts of Illinois plus attorney fees and costs.

Brenston Case

To support their legal arguments in the Sanders Class Action, Plaintiff attorneys: Cates Mahoney, LLC and Brad L. Badgley, P.C. cite six Illinois Appellate Court decisions (including Settlement Funding v. Cathy Brenston) upholding the enforceability of an anti-assignment clause in a structured settlement contract. The Complaint alleges Mack was attorney of record in Brenston plus three of the additional cited cases.

In Brenston, an Illinois 5th District panel, sitting for the 4th District Illinois Court of Appeals, held that an 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
• Had no authority under the Illinois protection act to approve the transfer petitions - even though all of the relevant parties had waived the anti-assignment provisions.

The Illinois Supreme Court subsequently denied Peachtree's petition for appeal of this decision leaving both primary and secondary structured settlement market participants uncertain about the case's precedential meaning and scope. In an Amicus curiae brief, NASP asserted the Appellate Court decision could render the Illinois transfer statute "a practical nullity"

A companion case involving Peachtree and Brenston remains on appeal in the 3rd District Illinois Court of Appeals and will be argued February 27, 2014. The parties had previously stayed their appeal waiting for the Illinois Supreme Court to rule on the 4th District case.

In a recent Florida case, summarized in this Drinker Biddle Structured Settlement Alert, a Sumter County Circuit Court Judge cited the Brenston case as authority in ruling that an April 2011 transfer order was void ab initio, and that resulting arbitration awards were “impotent and without substance.”

For additional recent developments impacting the structured settlement secondary market, see:

• Structured Settlements 2013 - Secondary Market
• Secondary Market Update

Secondary Market Update

This structured settlement secondary market report updates S2KM's most recent secondary market reporting:

• Structured Settlements 2013 - Secondary Market
• Asta Funding Acquires CBC Settlement Funding

Falsified New York Transfer Orders

S2KM previously reported that a New York law firm had falsified court orders approving structured settlement transfers in as many as 100 cases - and possibly more. Industry sources have identified the responsible law firm as Paris & Chaikin where a former non-lawyer employee, apparently created the fraudulent, court-related documents. The primary transfer companies represented by Paris & Chaikin in these transactions were J.G. Wentworth, and its affiliate Peachtree Financial Solutions, as well as Stone Street Capital.

Paris & Chaikin has retained Pery D. Krinsky , according to industry sources, as outside ethics counsel for assistance with these cases. An online 2013 Speaker Biography states in part: "Pery’s ethics-based defense litigation practice focuses on: attorney ethics matters, representing judges before the Commission on Judicial Conduct, criminal defense matters, art law ethics & litigation matters, and representing law school students before the Committees on Character & Fitness. Pery serves as the Chair of the Ethics Committee of the Entertainment, Arts & Sports Law Section of the N.Y. State Bar Association. Pery also serves as Chair of the Committee on Professional Discipline of the N.Y. County Lawyers’ Association."

Ongoing investigations of these fraudulent transfers are being conducted by the New York State Courts and the New York County District Attorney's Office. Primary and secondary market representatives with whom S2KM has discussed these fraudulent transfers disagree on how they are impacting judicial attitudes toward structured settlement factoring transactions and factoring companies in New York.

Proposed Amendment to IRC 5891

Representative Matthew Cartwright (D-Pa) has introduced H.R. 3897, a bill which, if enacted into law, would amend IRC 5891 and impose standards and procedures which are substantially different than currently provided by the Model State Structured Settlement Protection Act (Model Act) and almost all of the 48 related state statutes.

The most controversial provision of H.R. 3897 appears to be proposed new paragraph (5) under current subsection (b) titled "Transaction Requirements" which would provide in part: "(A)" In General - A transfer of structured settlement payment rights shall be treated as satisfying the requirements of this paragraph only if the transfer meets the following requirements:

• "(1) The annual discount rate of the consideration for the transfer, determined by taking into account charges, fees and other expenses, does not exceed the prime rate plus 5 percentage points.
• "(2) The aggregate amount of the charges, fees and other expenses payable by the payee do not exceed 2 percent of the value of the consideration to the payee (net of such charges, fees and other expenses)."

This H.R. 3897 language is similar to provisions in the North Carolina structured settlement protection act. North Carolina is one of only three states which currently impose statutory ceilings on discount rates. A recent bill to amend the Florida structured settlement protection act likewise proposes a discount ceiling similar to North Carolina.

Note: following years of conflict, the primary market National Structured Settlement Trade Association (NSSTA) and secondary market National Association of Settlement Purchasers (NASP) reached an agreement in 2000 to support a combined federal and state legislative solution for structured settlement transfers which resulted in IRC 5891 and the Model Act. It is S2KM's understanding this agreement remains in effect.

Peachtree Settlement Funding v. Cathy Brenston

In 2013, an Illinois 5th District panel, sitting for the 4th District Illinois Court of Appeals, held that an 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
• Had no authority under the Illinois protection act to approve the transfer petitions - even though all of the relevant parties had waived the anti-assignment provisions.

The Illinois Supreme Court subsequently denied Peachtree's petition for appeal of this decision leaving both primary and secondary structured settlement market participants uncertain about the case's precedential meaning and scope. In an Amicus curiae brief, NASP asserted the Appellate Court decision could render the Illinois transfer statute "a practical nullity"

S2KM has learned that a companion case involving Peachtree and Brenston remains on appeal in the 3rd District Illinois Court of Appeals and will be argued February 27, 2014. The parties had previously stayed their appeal waiting for the Illinois Supreme Court to rule on the 4th District case.

In a recent Florida case, summarized in this Drinker Biddle Structured Settlement Alert, a Sumter County Circuit Court Judge cited the Brenston case as authority in ruling that an April 2011 transfer order was void ab initio, and that resulting arbitration awards were “impotent and without substance.”

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

METLife Split Payment Policy

During NASP's 2013 Annual Conference, NASP Executive Director Earl Nesbitt reported that MetLife has begun actively opposing transfers that involve split payments as well as court-approved servicing arrangements. Under such servicing arrangements, structured settlement annuity providers typically remit the entirety of specific periodic payments to transfer companies to administer even when the original recipient/transferor only assigns a portion of the payments.

Primary market proponents of MetLife's new policy argue that at least 27 state structured settlement protection acts prohibit partial transfers. In addition, they maintain that servicing contracts represents an annuity provider obligation and that post-transfer problems can occur from subsequent, multiple transfers resulting from such occurrences as divorces, child support obligations and improper transfers by trust beneficiaries.

In response, Nesbitt believes this "Hobson's choice", forcing injury victims to sell all or nothing, will cause "deep trouble" for MetLife and other annuity providers who may adopt MetLife's split payment policy. Nesbitt argues that annuity providers are protected by stipulation agreements and administrative fees. He predicts litigation, legislation and attorney general investigations could result.

Stock Market Prices

• JGWPT Holdings, Inc. - JGWPT Holdings IPO, which occurred November 8, 2013, was poorly received with JGWPT Inc. reducing the initial offering price of its common stock from $19-$22 per share to $14.00 which then traded down to the high $12s. Since then, the common stock, which now trades on the New York Stock Exchange (symbol: JGW), reached a high of $18.00 per share and closed Friday January 31 at $16.992 per share.
• Asta Funding Inc. - Asta, a publicly traded company (Nasdaq: ASFI), acquired an 80% ownership interest in CBC Settlement Funding, LLC ("CBC"), a structured settlement factoring company on December 31, 2013. Following announcement of the purchase on January 7, 2014, Asta's stock price closed during regular trading hours at $8.28 per share. The stock closed Friday January 31 at $8.20 per share.

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

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