A Factoring Transaction Might Need Approval From More Than One Court – But The Factoring Company May Need To Provide an Explanation

A Factoring Transaction Might Need Approval From More Than One Court – But The Factoring Company May Need To Provide an Explanation

Under the laws of forty-eight states, structured settlement factoring transactions are generally effective unless and until they receive court approval, by way of a court order issued pursuant to applicable structured settlement protection act (SSPA) requirements.

Sometimes, those requirements can mean that the transfer needs approval from more than one court.  A commentary on the subject describes an example this way:

For example, if a factoring company proposes to acquire a structured settlement payment rights from a payee who is domiciled in New Jersey, the transfer will be subject to the New Jersey SSPA, and the application for approval of the transfer will be filed in a New Jersey court.  If, however, the underlying structured settlement was approved by a court in Delaware, the transfer will also be subject to the Delaware SSPA.  The substantive requirements of the Delaware and New Jersey SSPAs coincide in most respects.  If, however, the transfer would conflict with the terms of the structured settlement, the Delaware statute, unlike the New Jersey statute, will require that the court find that the transfer has been ‘expressly approved in writing’ by certain interested parties and by the court that approved the structured settlement.’  Thus, in ruling on the transfer application, the court in New Jersey should, in additional to considering the issues that are common to the two statutes, determine whether the proposed transfer has received the approvals required under the Delaware statute.

Daniel W. Hindert & Craig H. Ulman, Transfers of Structured Settlement Payment Rights: What Judges Should Know About Structured Settlement Protection Acts, Judges’ Journal, 19, 27 (Vol. 44 No. 2, Spring 2005).

Last month, in Matter of J.G. Wentworth Originations, LLC v. Ruiz, No. 1575/14 (N.Y. Sup. Ct. July 17, 2014), Brooklyn, New York, Supreme Court Justice Francois Rivera had before him what appears to be a situation like that described in the Judges’ Journal article – only the judge apparently was not given a complete explanation for what was being asked of the court, and denied the request.

In particular, petitioner J.G. Wentworth Originations, LLC filed a petition seeking an order determining that a Pennsylvania could proceed with a proposed transfer based on the Pennsylvania SSPA.

What was clear was that J.G. Wentworth was not asking for court approval of the transfer under the New York SSPA.

What was unclear to the court was just how the New York court fit into the situation:

Purden’s Pennsylvania Statute 40 P.S. § 4003 et seq., is Pennsylvania’s statute pertaining to petitions to purchase structured settlement payments.  It is similar to [New York] SSPA.  Wentworth stated that Purden’s Pennsylvania Statute 40 P.S. § 4003 (a) (5) (i) (B) provides authority for the instant petition.  That statutory provision, however, is only applicable to a pending transfer petition that the presiding Pennsylvania court finds is in contravention to the terms of the structured settlement.  Under those circumstances the petitioner must obtain the written approval by the payee and any court or responsible administrative authority that previously approved the structured settlement, among other requirements.  That provision requires that the petitioner obtain the written approval of the court that approved the structured settlement agreement.  By it express terms, the court that approved the structured settlement agreement must approve in writing the proposed transfer.  Wentworth has not claimed or shown that the Pennsylvania court have ordered it to obtain this court’s approval pursuant to Purden’s Pennsylvania Statute 40 P.S. § 4003 (a) (5) (i) (B).  Assuming, for the sake of argument that it made such a showing, Wentworth’s application has expressly stated that it does not seek this Court’s approval of the proposed transfer but solely permission to have the Pennsylvania court decide the application.  Therefore, the only law Wentworth has cited is not applicable to the relief it seeks.  Consequently, Wentworth . . . has not set forth and established the facts or law which support the relief requested.  Accordingly, the application is denied and the petition is dismissed without prejudice.

Matter of J.G. Wentworth Originations, LLC v. Ruiz, No. 1575/14 (N.Y. Sup. Ct. July 17, 2014).

It looks like J.G. Wentworth was seeking to comply with the Pennsylvania SSPA, but did not provide the New York court with sufficient explanation, and perhaps sufficient grounds, to grant the relief it was requesting.

And Justice Rivera addressed this, adding, at the end of his opinion, that, “[s]hould Wentworth file another petition seeking the same relief”, then Wentworth should attach to its petition papers copies of documents that include, among other things, “the law and facts that it relies upon . . . .”

So, for a moment, put aside the possibility that the Pennsylvania court – as Justice Rivera described – might order J.G. Wentworth to obtain court approval from the New York court, as well as any questions about other requirements of applicable law (such as, for example, whether J.G. Wentworth would have standing to file what it filed as sole petitioner, rather than jointly with the payee), besides the Pennsylvania SSPA provision referred to by Justice Rivera.

If J.G. Wentworth had filed with the court a copy of the settlement agreement, or other governing document, showing that the proposed transfer would be in contravention of the document’s terms, that document might have provided the court with the requisite information necessary to show the rationale for the relief under that Pennsylvania SSPA provision.

And the end result would be that the proposed transfer would need to be approved by a New York court, as well as by a Pennsylvania court – along the same lines as the situation described in the Judges’ Journal article.

The full opinion in Ruiz is available here.

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