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New York Court Discusses Concept of a Structured Settlement

Before the statute was amended in 2004 to add the proviso that there is no requirement for the court to find that a payee is suffering from a hardship to approve the transfer. The legislative history of the 2004 amendment states: An adult who has not been adjudicated incompetent or incapable of handling his or her own affairs is generally capable of determining what is in their own best interests with regard to their property and affairs, including their structured settlement payment rights, without having to demonstrate or prove hardship, provided the consumer has been afforded the admonitions to consult with counsel, the rights of cancellation, and the disclosures required by the 2002 Act.

Nonetheless, the existence of hardship, such as a looming foreclosure on the family home or the need for life-sustaining medical treatment, weighs heavily in favor of determining that a transfer of structured settlement rights is in the best interest of the payee.

Hardship, or its absence, also affects the interplay between the best interest standard and the fair and reasonable standard. The more pressing the need, the more reasonable it may be for a payee to obtain immediate cash at a steep discount.

The Court notes that venue for a special proceeding for approval of a transfer of structured settlement payment rights is in the supreme court of the county in which the payee resides; or in any court which approved the structured settlement agreement. Justice Victor’s Order provides that neither Mr. AW nor his guardian, nor any payee may sell, assign, pledge, transfer or encumber the annuity benefits or take any other action to defeat or impair the intent of this Court to provide to Mr. AW, the payments pursuant to the annuity, absent a further order of the Court.

In light of the statutory venue provision and the substantive restrictions on judicial approval of transfer of structured settlement payment rights, as will be discussed, this Court does not read the Order as requiring that the proceeding be moved to Bronx County, so that Justice Victor might consider the Petition. It may be that a court rule would be advisable, encouraging the transfer of proceedings to the judge who signed the infant compromise order, if the judge is available, or that, even in the absence of a court rule, a transfer might be made in the exercise of discretion.

Here, in light of the Court’s ultimate disposition of the Petition, a transfer will not be considered. The Court has taken seriously, however, Justice Victor’s stated intent to provide to Mr. AW, the payments specified in the Order. Indeed, as one court has stated, after review of the then-existing case law under the Structured Settlement Protection Act: The payment structure in all of these cases was determined by either judicial process, subject to articles 50-a and 50-b of the CPLR, or by negotiations in which the payee’s interests were represented. As such, it was presumed to be the best compensation for the payee’s injury at the time of the verdict or settlement. To overcome this presumptive validity, the court rules that there must be a showing, by clear and convincing evidence, of an unforeseeable change in circumstances that would justify the sale of rights to future payments. While such a standard cannot be described with absolute precision, it should resemble the one employed by courts in applications to modify child support on the basis of changed circumstances.

Whether or not a presumption or a heightened evidentiary standard should be established for review of all petitions for approval of a transfer of structured settlement payment rights, where the rights have their genesis in an infant compromise order, only the most careful and deliberate application of the statutory best interest standard is appropriate. After all, the judge who approved the compromise and the structure was required to apply a similar best interest standard, informed by the knowledge and judgment of the infant’s guardian, and by the additional information and documentation concerning the status of the infant in light of the injuries claimed.

Surprisingly, and with few exceptions, the many published opinions in proceedings pursuant to the Structured Settlement Protection Act do not state the origin of the structured payments. Few identify the origin as an infant compromise order.

Nor do the opinions describe the reasons that led to the adoption of structured payments in the first place. The one exception found by this Court noted only that a structure was adopted because it was determined to be in the infant’s best interest to structure the award so that he would receive lifetime payments, insuring his financial stability and providing him with money to achieve his desired goal of paying for college and graduate school.

The Court is aware of only two proceedings that addressed structured settlements in lead paint poisoning cases. In one, that circumstance was simply noted. As to the other, the injury court states that the lead poisoning had left the infant with limited abilities, but does not describe how, if at all, that circumstance affected the determination on the petition.

Here, the affidavit of Mr. AW’s mother in support of the infant compromise order stated that he was first diagnosed with lead poisoning when he was 11 years old; he was 17 at the time of the settlement. She stated that lead poisoning requires continuous medical care and monitoring; that the infant has diminution in learning capacity attributable to lead poisoning; that a claim was made that the infant’s earning capacity was diminished as a result of his lead poisoning; and that the infant’s prognosis is guarded because of potential future problems associated with early childhood lead poisoning.

The mother’s affidavit and the affirmation of counsel identify aspects of the mother’s and the infant’s personal histories in explaining the determination to settle the action rather than proceed to trial. The factors will not be repeated here in the interests of Mr. AW’s and his mother’s privacy. Although to some those factors might argue against granting the instant petition, others might conclude that the opportunity to overcome the consequences of one’s personal history and life circumstances is itself a reason to the contrary. As difficult as these assessments might be for experts, they are most daunting to judges without any particular training or experience to make them. For present purposes, those additional factors are deemed neutral.

Except as might be implied from the specifics of her affidavit already described, Mr. AW’s mother did not detail her reasons for recommending a structured settlement, rather than a single payment. She did state that the structure would maximize the amount of money her son would receive, that the monthly payments for his lifetime will insure that his basic needs are met, and that she believed that the settlement was in her son’s best interests. The attorney’s affirmation suggested tax benefits; that the structure would secure the funds should the child desire to go to college or some other school to learn an occupation; and that there is less chance of the money being dissipated in a structured settlement as opposed to an all cash settlement.

On the first return date for the pending Petition, the Court requested that Petitioner’s counsel obtain copies of the documents submitted on the infant compromise order, which was promptly done. The Court also suggested that it would benefit from the current judgment of Mr. AW’s mother, who is apparently available but not in good health. She did not appear with Mr. AW on the adjourned return date, and Mr. AW declined the Court’s offer of a further adjournment so that he might arrange for her appearance or testimony in other form.

Other than Mr. AW himself, whose assessment of his own best interest must be deemed compromised by the very injury that was the basis of the settlement, Mr. AW’s mother appears to be the person in the best position to make that assessment, certainly in a better position than this Court. Three years ago, when Mr. AW was already 17 years old, his mother determined that it was in his best interest to structure the settlement she obtained for him. There is nothing in the record on this Petition that shows that she has had a change of mind or heart, and no change of circumstance has been brought to the Court’s attention.

Whether or not framed in terms of presumption or clear and convincing evidence, and at the risk of a possible charge that the Court is avoiding its own responsibility to assess Mr. AW’s best interest, the Court will defer to the informed judgment of Mr. AW’s mother and the judge who reviewed and approved the compromise, as yet of recent vintage and not shown to be otherwise undermined by any change in circumstance.

Accordingly, the Petition is denied and dismissed.

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