Court Rejects Transfer, Says Advice Not ‘Independent’ Where Adviser’s Pay Is ‘Affected By Whether Or Not’ Transfer Occurs

Court Rejects Transfer, Says Advice Not ‘Independent’ Where Adviser’s Pay Is ‘Affected By Whether Or Not’ Transfer Occurs

Under the Minnesota Structured Settlement Protection Act, a court cannot approve a transfer of structured settlement payment rights from a payee to a factoring company unless the payee has received "independent professional advice" about the proposed transfer.

Where the adviser's compensation depends on the court's approval of the transfer, the advice is not independent, as described in a recent opinion in a Minnesota SSPA case.Minnesota[1]

Teasley v. Velardi. No. 27-CV-93-1473, 2011 WL 6149943 (Minn. Dist. Ct. Dec. 2, 2011), involved a proposed transfer by payee Jeremiah Teasley to factoring company J.G. Wentworth Originations, L.L.C.

The court denied the request for court approval of the transfer, and said that it could not find that the payee had – as required by the Minnesota SSPA in order for a transfer to become effective – receive "independent professional advice":

The statute defines 'independent professional advice' as follows:

    [A]dvice of an attorney, certified public accountant, actuary, or other professional adviser: (1) who is engaged by a payee to render advice concerning the legal, tax, and financial implications of a transfer of structured settlement payment rights; (2) who is not in any manner affiliated with or compensated by the transferee of the transfer; and (3) whose compensation for providing the advice is not affected by whether a transfer occurs or does not occur.

Minn. Stat. § 549.30, subd. 6 (emphasis added).

J.G. Wentworth seeks a finding that Teasley received 'independent professional advice' from Mr. [Steven P.] Lundeen.  The Court cannot make this finding because the record does not permit a finding that Mr. Lundeen’s 'compensation for providing the advice is not affected by whether a transfer occurs or does not occur.'  Id.

The record does not permit this finding because Teasley’s testimony at the hearing and paragraph 13 of the application both indicate that Mr. Lundeen will be paid from the proceeds of the transfer.  His compensation is thus affected by whether or not the transfer occurs.  Specifically, if the transfer occurs, he will be compensated.  If the transfer does not occur, he is unlikely to be compensated given Teasley’s limited finances.

Where the compensation of the professional adviser effectively requires the occurrence of the transfer, the adviser has an incentive not to discourage the transfer, thus giving rise to an arguable conflict of interest.  Given this concern,the definition of 'independent professional adviser' disallows any nexus between the adviser’s compensation and the occurrence of the transfer.

The court added two footnotes about this issue.  First, it said that its concern was "heightened where, as here, the professional adviser has been accused of the misappropriation of client funds."  Second, the court said that, since the definition of "independent professional adviser" in the Minnesota SSPA "uses the phrase 'not affected by' rather than 'not contingent on', the Court construes the definition to disallow a practical nexus as well as a contractual nexus." 

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