While Pennsylvania Law Requires That Court Be Given Accurate Details About Settlement Factoring, Vigilant Judge May Be The Best Protection Against ‘Unreliable’ Information

While Pennsylvania Law Requires That Court Be Given Accurate Details About Settlement Factoring, Vigilant Judge May Be The Best Protection Against ‘Unreliable’ Information

The Pennsylvania Structured Settlement Protection Act is the statute that led to a request for judicial approval of a proposed transaction involving a Penn State University sexual abuse settlement.

That matter, described in more detail here, led a Pennsylvania judge this month to reject to purchasing company’s “abysmal” deal.

The Pennsylvania Structured Settlement Protection Act, like all forty-nine state SSPAs, provides that a structured settlement payee (like the victim in the Penn State case) can sell the rights to future structured settlement payments only if a judge reviews the sale and decides that it meets the statute’s requirements.

Those requirements include that the transaction must be in the best interest of the payee.  But there are other requirements.  In fact, here is a portion of the key provision of the Pennsylvania SSPA:

No transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment to any transferee of structured settlement payment rights unless . . . the petition has been granted by final order . . . of a court of competent jurisdiction based on such court’s express written findings that:

(1) The transfer complies with the requirements of this act and will not contravene other applicable Federal or State statutes or regulations or any applicable law limiting the transfer of workers’ compensation claims.

(2) Not less than ten days prior to the date on which the payee first incurred any obligation with respect to the transfer, the transferee has provided to the payee a disclosure statement setting forth . . . (i) The amounts and due dates of the structured settlement payments to be transferred . . .  (ii) The aggregate amount of such payments . . . (iii) The discounted present value of such payments, together with the discount rate or rates used in determining such discounted present value . . . (iv) The gross amount payable to the payee in exchange for such payments . . . (v) An itemized listing of all brokers’ commissions, service charges, application or processing fees, closing costs, filing or administrative charges, legal fees, notary fees and other commissions, fees, costs, expenses and charges payable by the payee or deductible from the gross amount otherwise payable to the payee . . . (vi) The net amount payable to the payee after deduction of all commissions, fees, costs, expenses and charges described in subparagraph (v) . . . (vii) The quotient, expressed as a percentage, obtained by dividing the net payment amount by the discounted present value of the payments . . . (viii) The amount of any penalty and the aggregate amount of any liquidated damages, inclusive of penalties, payable by the payee in the event of any breach of the transfer agreement by the payee . . . 

(3) The payee has established that the transfer is in the best interests of the payee or his dependents.

(4) The payee has received or expressly waived in a separate written acknowledgment signed by the payee, independent legal advice regarding the implications of the transfer, including consideration of the tax ramifications of the transfer.

But the Pennsylvania SSPA is not the only authority that is relevant.  A petition in a Pennsylvania SSPA proceeding also is to meet the requirements of the Pennsylvania judicial rule applicable to such proceedings.  That rule says that the petition that requests judicial approval of the transaction (often jointly filed in Pennsylvania by both the payee and the purchasing company) is to include the following:

(1) a statement setting forth the payment provisions of the structured settlement agreement and the payment rights that the payee seeks to transfer,

(2) separate paragraphs which in bold type set forth (i) the net amount payable to the payee after deduction of all commissions, fees, costs, expenses, and charges, and (ii) the following statement setting forth the interest rate: “Based on the net amount that the payee will receive from this transaction ($    ) and the amounts and timing of the structured settlement payments that would be assigned, the payee is, in effect, paying interest at a rate of     % per year.”

(3) four attachments: (i) a Payee’s Affidavit in Support of Petition, . . . (ii) an initial order of court scheduling the hearing . . . , (iii) a certification by an attorney for the transferee representing to the best of his or her knowledge, information and belief, formed after reasonable inquiry, that the transfer will comply with the requirements of the Act and will not contravene any other applicable federal or state statute or regulation or the order of any court or administrative authority, and (iv) a [proposed] final order . . . .

The rule also says that, if the court – after deciding that the papers comply with the SSPA and rule – sets a hearing, then the factoring company (the “transferee”) is to give notice of the hearing “to the payee, the structured settlement obligor, the annuity issuer, the payee’s spouse and any person who receives child support, alimony or alimony pendente lite from the payee.”

The rule also requires that the payee’s affidavit provide information about the payee’s marital status, the income of any spouse, any child support or alimony obligations (and arrearages) of the payee, any prior transfers of other structured settlement payment rights by the payee, the reasons for the proposed transfer (“including an explanation as to why a sale of a lesser amount of the structured settlement amount will not better serve” the payee’s interests), and debts of the payee (if the reason for the transfer is to pay them off) – including the names of the creditors and amounts of the debts.

In the PSU victim’s case, Chester County, Pennsylvania, Court of Common Pleas Judge William P. Mahon expressed frustration about the accuracy of the papers file with the court.  The news report about the hearing included the following detail:

“I am beginning to wonder what the heck is going on,” Mahon said at one point in the 90-minute hearing at the Chester County Justice Center. “These petitions are completely unreliable.”

Among those who carefully examine the papers filed in SSPA proceedings, this is not the first time that courtrooms have been filed with such sentiments.  So, while the requirements in the statute and court rule are designed to provide the reviewing court with considerable and accurate details, they are no guarantee against “unreliable” information.  In fact, the best guard against questionable court filings may be a vigilant judge, as appeared to be the case in Chester County Court of Common Pleas this month.

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