Court Questions Rationale, Rejects Settlement Factoring Transaction

Court Questions Rationale, Rejects Settlement Factoring Transaction

In August, 2016, a Tioga County, New York court approved a transfer of structured settlement payment rights from a payee, Gusta Manuel, to a factoring company.  Among the reasons that were offered for that transaction was that the payee wanted to use at least some of the proceeds of the transaction for his newborn son.

Six weeks after that transaction was approved, the court received another application for a proposed transfer from the same payee – and he offered, in part, the same rationale, saying that he needed some of the money for his newborn son.

This did not sit well with the court, which denied the second application, in the case captioned Matter of J.G. Wentworth v. Manuel, Index No. 46993, 2017 N.Y. Misc. LEXIS 443, 2017 NY Slip Op 30245(U) (N.Y. Sup. Ct. Feb. 6, 2017).

The factoring company, J.G. Wentworth, sought approval of a transfer of payments with an aggregate amount of $42,255.51, and in exchange, the payee would have been paid $19,827.00.  The application was filed pursuant to the New York Structured Settlement Protection Act, which provides that a proposed transfer of structured settlement payment rights is not effective without court approval of the transaction.

New York Supreme Court Justice Eugene Faughnan said the latest application does not offer any explanation as to how the proceeds from the prior transfer were spent, and whether they were used for the stated purposes:

The payee had a transfer approved by this Court for a payment of $38,000 approximately six weeks before the instant application was submitted.  Of particular note is the fact that in the prior transfer, Manuel noted that at least some of the money was for his new son’s medical expenses.

Yet the current application notes an additional $5,000 for the newborn.  The current Petition does not explain how the money from the prior approved transfer was spent, and if it went to the intended purposes.  The Court has great concerns that the prior transfer was not utilized in the manner it was intended and that this is the reason for the instant petition so soon after the last.

Justice Faughnan pointed out that if the latest transfer were approved, the payee “will be left with no further payments, unemployed, with three children.”  Such a transaction “ultimately may only provide money now, while taking it away from the future.”  In addition, the judge said that “there is no indication that Payee would not find himself in this very same situation in a few months or a year” – only then, “he would have no future payments at all.”

The judge concluded that the factoring company “failed to demonstrate that the proposed transfer is in the best interest of the payee”, noting again the timing of the prior application:

The timing of this application was only 6 weeks after the prior approval.  Given the fact that Manuel is unemployed and the fact that the prior approved transfer apparently did not improve the Payee’s financial situation, the Court is of the view that there is no reliable expectation that the current proposed transfer will be of ultimate benefit.  The Court cannot say that this transfer is in the payees’s best interest.

The opinion in full is available here.

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