Current laws regarding the sale of structured settlement payment rights are inadequate to protect lead-poisoning victims.
So says law school Professor Karen Syma Czapanskiy in her recent article, “Structured Settlement Sales and Lead-Poisoned Sellers: Just Say No”, in the Virginia Environmental Law Journal (36 Va. Envtl. L. J. 1).
The University of Maryland School of Law professor argues that sales of structured settlement payment rights by lead poisoning victims should be banned.
Professor Czapanskiy offered a number of criticisms of the Maryland Structured Settlement Protection Act, which was revised in 2016 to add, among other things, provisions relating to structured settlement payees with cognitive impairment. She says that the Maryland SSPA lacks notice to key family members, and creates a system where judges do not see their role as “protective” and where factoring company representations are often insufficient and yet rarely are questioned. Further, she wrote, the Maryland SSPA provides a “vague” standard for determining whether to approve a transfer, has created opportunities for misleading representations made to courts about dependents, and – until recently – did not prevent factoring companies from forum shopping.
Professor Czapanskiy’s criticisms about what she sees as defects in the current SSPA system of court review of proposed transfers – which she says is the “only source of protection “ for lead poisoning victims – are summarized in additional detail below.
- No Requirement for Notice to Family Members: Professor Czapanskiy wrote that, “[l]ike other states, the Maryland statute does not include the seller’s parent, dependent or other people knowledgeable about the seller’s circumstances within the term ‘interested party,’ so they do not receive notice of the hearing or an opportunity to participate.” (Professor Czapanskiy’s description is accurate as to 48 of the 29 state SSPA, but there is one exception: the Indiana SSPA includes within the “interested party” definition any “family member or relative who is acting as a caregiver for the payee.” Code Ann. § 34-50-2-1(6).)
- Judiciary’s View of its Role in SSPA Matters: Wrote Professor Czapanskiy: “It seems clear from an examination of petitions in Maryland over a three-year period . . . that judges do not see their role as protective.” Instead, she said, most judges appear to be “convinced that respect for freedom of contract is the correct answer when lead-poisoned recipients of a structured settlement seek to sell their benefits, leading to only pro forma examination before a court approves a sale.”
- Factoring Company Success Rate Shows How SSPAs Are Inadequate: Professor Czapanskiy noted that, in a still-pending lawsuit, the Maryland Attorney General’s office identified a total of 132 petitions filed by one factoring company from 2013 through 2015, and in those matters, Maryland courts approved 119 transfers, while the factoring company voluntarily dismissed its own petitions 11 times, and in only two cases did judges deny factoring company requests for approval of the transfers. “The success rate might be explained by the persuasiveness of the sellers’ statements about their plans for spending the lump sum to resolve debts, buy a house, get an education or open a business. Given the known cognitive, emotional, and behavioral limitations of the sellers, however, those explanations are more likely to be the product of the imagination of the factoring company’s representative than the seller’s reality.” Instead, Professor Czapanskiy offers that the factoring company success rate more likely was that a hands-off approach by the courts.
- Vague standard: Under most state SSPAs, the standard for approval of a transfer “is notoriously vague.” Professor Czapanskiy also said that “[c] ourts applying these standards can focus on many things, including economic security, but economic security is not necessarily determinative.”
- Possibly Misleading Information About Dependents: While “[i]t is not impossible, of course, for a court to conclude that the sale is not in the best interests of the seller without hearing from the seller’s dependents”, Professor Czapanskiy argues that “[u]nless the dependent and/or the dependent’s guardian is notified about the petition and permitted to testify at the hearing”, then a court might have limited “information about the existence and needs of the dependent and the history of the seller’s level of responsibility toward the dependent” – and the source of such information would be the seller. Without “first-hand information” from dependents or their guardians, “a court can be misled by simple mistakes, as well as efforts to mislead the court.”
- Hearings and Forum Shopping. Before changes to the Maryland judiciary’s rules and to the Maryland SSPA, “the statute allowed forum shopping” within the state. Factoring companies could file petitions in any circuit court in the state, and “were typically filed in a jurisdiction far from the petitioner’s home.” The result was that judges “rarely” saw payees and often “had no first-hand basis to determine whether they were capable of exercising an acceptable level of self-management and financial judgment.” Under the revised SSPA and new judiciary rules, factoring companies must file the petitions in the county where the payee lives, and the general rule now is that the payee is to attend the hearing.
Professor Czapanskiy sees the above criticisms as pointing out defects that make the current laws – in Maryland and elsewhere – inadequate to protect lead poisoning victims who are entitled to receive structured settlement payments. As described in earlier Secondary Insurance Market Blog posts here and here, she says transactions are “unjustifiable” and ought to be banned. Her article is available in full here.