Opinion
No. 10–180.
2010-06-3
In the Matter of Nicholas LOBELLO, Allstate Settlement Corporation and Allstate Life Insurance Company of New York, Interested Parties, Regarding the Transfer of Structured Settlement Proceeds to Stone Street Capital, LLC, Petitioner.
Osborn, Reed & Burke, LLP, by Bernadette Weaver–Catalana, Esq., Rochester, Attorneys for Stone Street Capital, LLC. Nicholas Lobello, Interested Party.
Osborn, Reed & Burke, LLP, by Bernadette Weaver–Catalana, Esq., Rochester, Attorneys for Stone Street Capital, LLC. Nicholas Lobello, Interested Party.
PHILLIP R. RUMSEY, J.
Petitioner seeks judicial approval, pursuant to general Obligations Law § 5–1706, of a sale of structured settlement payments that it wants to purchase from Nicholas Lobello. Having interviewed Lobello and heard argument from petitioner's counsel as to the relevant facts and legal standards, the court has reached the following conclusions.
Presently 22 years old, Lobello is the payee of a structured settlement stemming from a lawsuit filed on his behalf when he was 14. Pursuant to the agreement and the Infant's Compromise order, dated December 6, 2001, he received a $7,500 payment at age 18, and less than two years ago received a payment of $10,000. Two payments remain scheduled: $15,000 on August 21, 2012, and $75,250 in 2017. He proposes to sell to petitioner both the payment of $15,000 due in 2012, and a partial payment of $15,250 from the amount due him in 2017. Under petitioner's plan, he would receive one payment in the amount of $14,396.
Having heard the court express concern over Lobello's best financial interests and the fairness of the terms of the proposed sale, petitioner's counsel stated in a letter to the court dated May 13, 2010 that petitioner would waive Lobello's responsibility to pay “processing fees” of $1,900, thereby establishing his net payment as, truly, $14,396.
Although not stated in his affidavit in support of the petition, Lobello told the court that he had used one of the past payments to purchase a motor vehicle, and upon receipt of the payment proposed herein, he would pay the balance owed to Tompkins Cortland Community College, where he is a sophomore, in the amount of $565, pay his arrears in rent, $5,500, and pay the balance of his credit card with Bank of America, $2,000. He has no dependents, and plans to return home to Long Island this summer, where he will work for $10 per hour. He was advised by petitioner, as required by law, to seek independent professional advice regarding the proposed sale of his payments, but refused the advice because he believes that he fully understands the implications of the transfer.
Lobello's original settlement agreement, entered into in 2001, provides that he shall not “have the power to sell, mortgage, encumber, or anticipate the Periodic Payments [to be made in settlement of his claim], or any part thereof, by assignment or otherwise.” (Petition, Exhibit A). Such language explicitly denies the payee (here, Lobello), the power to sell or assign the payments, rendering any purported sale illegal ( see, Singer Asset Fin. Co. v.. Bachus, 294 A.D.2d 818 [2002],lv denied98 N.Y.2d 615 [2002];C.U. Annuity Serv. Corp. v. Young, 281 A.D.2d 292 [2001] ). The passage of the Structured Settlement Protection Act (General Obligations Law § 5–1701, et seq. ; herein SSPA)(including the provision for judicial approval that brings this case before the court) in 2002 did not alter this general law with regard to the enforceability of such restrictions on sale or transfer ( see, Matter of Settlement Capital Corp. [Illescas], NYLJ, Jan. 8, 2004 at 18, col. 3 [Sup Ct, New York County]; Matter of 321 Henderson Receivables Origination, LLC, 19 Misc.3d 504 [2008] ).
Nevertheless, the Illescas court approved the proposed transfer, despite the existence of a similar limitation in the underlying settlement agreement, on the ground that the cited language constituted an unreasonable restraint on alienation ( id.). That conclusion was, however, premised in large part upon the particular circumstances facing Ms. Illescas, which the court found rose to the level of a “true hardship,” and an “extreme need” ( id.).
It is now clear that “true hardship” need not be shown before a transfer can be approved ( see,General Obligations Law § 5–1706[b] [as amended] ). This amendment to the SSPA has, as the Illescas court noted, once again “change [d] the context in which such provisions [prohibiting sale or assignment] should be considered” ( Illescas ). It is no longer true (as it was, according to some courts, when Illescas was decided) that “the only instances in which such [an anti-assignment] provision will be relevant are * * * true hardship cases' “ ( id.). Accordingly, while there may still be cases, involving dire need or financial hardship, in which an anti-assignment clause will be deemed an unreasonable restraint, that cannot be said to be true of every case in which a transfer might otherwise be approved ( see, Matter of Settlement Funding of NY, LLC [Burns], Sup Ct, Cortland County, Sept. 26, 2005, Rumsey, J., Index No. 39211]; Matter of 321 Henderson Receivables, LP [LaBarr], Sup Ct, Broome County, Jan. 3, 2006, Rumsey, J., Index No.2005–1756] ).
Here, the record fails to show that LoBello is in the kind of dire financial situation that was present in Illescas. There is no indication whether he has income, other than from his summer work, nor what the nature of any support he may have from others in his home in Long Island, or whether he has assets (his motor vehicle was made known in a response to a question from the court), or liabilities other than those he wants to pay. In fact, he does not specify what use he intends for the remainder of the proposed payment (after paying the college, landlord, and current credit card balance)—$6,331. The court is left to speculate that he would pay further tuition, and similarly speculate why he could not obtain a student loan (very likely at an annual interest rate more favorable to him than the discount rate available from petitioner), or other borrowed funds, to be repaid with the full payment of $15,000 to which he is entitled, without discount, in 2012, and without foregoing a portion of his payment scheduled in 2017. In sum, there is no compelling reason in the record why Lobello must have an immediate influx of cash, at the expense of maintaining the full value of his remaining payments.
Under these circumstances, which are drastically different from those present in Illescas, there is no reason not to enforce the restraint on Lobello's right to sell or transfer his payments. Consequently, the proposed transfer, which is illegal and barred by the settlement agreement that created Lobello's right to the payments he would sell, shall not be approved.
Even were the court to disregard the anti-assignment provision, the court is not persuaded, given all of the relevant factors (including, inter alia, Lobello's age of 22; the details of his proposed use of the funds; his current living situation between home and college apartment; and the relatively short time before the next payment would otherwise be made) that the transfer serves Lobello's best interests ( see, Matter of Settlement Capital Corp., 194 Misc.2d 711, 713 [2003] ). Nor can it be said that the terms of the transaction-including the relatively high annual discount rate of 19 .06%, even with a waiver of the processing fees of $1,900–are “fair and reasonable” under the circumstances ( see, Matter of 321 Henderson Receivables Origination, LLC, 19 Misc.3d at 507;Matter of Settlement Capital Corp. [Ballos], 1 Misc.3d 446, 462 [2003];Matter of Settlement Funding of NY, 195 Misc.2d 721, 723–725 [2003] ). In her letter dated May 13, 2010, petitioner's counsel submits that a reduction in the discount rate is simply not financially feasible, as “the contract is already quite lean.” Nevertheless, given the record herein, such a finding by the court would be unsupported and conclusory.
By their nature, structured settlements are designed to provide some degree of financial security for a period of time, rather than offer immediate funds, which can be alluring to individuals of any age. The SSPA requires a special proceeding for judicial approval of transferring future payments in return for one current payment. It “clearly reflects the Legislature's dissatisfaction with the structured settlement transfer market rates, and its conclusion that payees cannot protect their best interest ...” (Matter of Settlement Funding of NY, LLC, 24 Misc.3d 1201(A), 2009 N.Y. Slip Op 51212(U)(2009), *2, quoting Settlement Funding of NY, 195 Misc.2d 721, 724 [2003] ). “Clearly, the New York State legislature in enacting [the] SSPA and in empowering the courts with the discretion to determine whether the terms of a proposed transfer of future payments are fair and reasonable did not intend for the courts to be mere rubber stamps” ( Settlement Funding of NY, LLC at *2, quoting Settlement Capital Corp. [Ballos], 1 Misc.3d 446, 461 [2003] ).
Accordingly, the petition is denied. This decision shall constitute the order and judgment of the court.