Attorney Appearing With Payee Was Paid By Factoring Company, So No ‘Independent Professional Advice’ Under New York’s Structured Settlement Protection Act

Attorney Appearing With Payee Was Paid By Factoring Company, So No ‘Independent Professional Advice’ Under New York’s Structured Settlement Protection Act

As described here, a New York court recently rejected a request for factoring company approval of a transfer of structured settlement payment rights, where an 18-year-old high school student would have sold future payments with a face value of more than $690,000, in exchange for about $265,000.

One notable aspect of the court’s ruling in the case (captioned In the Matter of the Petition of American Farms, LLC For Approval of the Transfer of Structured Settlement Payment Rights In Accordance with New York Gen. Oblig. Law §5-1701 (Matos), 510886/18, 2018 N.Y. Misc. LEXIS 4111, 2018 NY Slip Op 51349(U), Supreme Court, Kings County, N.Y. (N.Y. Sup. Ct. Sept. 24, 2018), was that the payee had not received independent professional advice, even though an attorney “appeared with him” at the hearing on the proposed transaction.

The reason: the 18-year-old had not retained the attorney, and instead the attorney had been hired by the factoring company that was seeking to buy the payments.

Bear in mind that the New York Structured Settlement Protection Act does not require that a payee receive the advice of a lawyer.  The SSPA – which provides that a transfer of structured settlement payment rights is not effective unless the factoring company obtains court approval of the transfer, based on determinations by the court that, among other things – says that a payee may waive the right to such advice.  In particular, the New York SSPA provides that a payee must be “advised in writing by the factoring company “to seek independent professional advice regarding the transfer” and either receive such advice or knowingly waive the right to receive such advice.  N.Y. Gen. Oblig. Law § 5-1706(c).  The statute also defines “independent professional advice” as the “advice of an attorney, certified public accountant, actuary or other licensed professional adviser . . . who is engaged by the . . . payee to render advice concerning the legal, tax and financial implications” of the transfer, and “who is not in any manner affiliated with or compensated by” the factoring company, and “whose compensation for rendering such advice is not affected by whether . . . the transfer occurs or does not occur.”  N.Y. Gen. Oblig. Law § 5-1701(e).

In the Matos case, the court said the following about “independent professional advice”:

[T]he SSPA also requires that the proposed transferee advise the payee “in writing” “to seek independent professional advice regarding the transfer” and the payee must either seek such advice or sign a written waiver of the opportunity to seek independent advice. (General Obligations Law §5-1706[c]. Thus, a legal consultation by the payee is not a requirement thereunder. In the instant case, Mr. Matos states in his papers that he waived the opportunity to seek independent professional advice. An attorney appeared with him, but upon questioning, it became clear to the court that Mr. Matos had not retained this attorney, and that he had been hired by petitioner.

So, while the payee signed a waiver, “[a]n attorney appeared with him” at the hearing – but the attorney was being paid by the factoring company, and so was not an “independent” advisor.

As described in this earlier post, the court rejected the request for court approval of the transfer because the transfer was not in the payee’s best interest and was not fair and reasonable.  Had the court based the decision on the issue of whether the payee received, or waived, independent professional advice, it would have been interesting to see if the court determined that the waiver had been revoked through the appearance by the attorney with the payee, but that the statutory requirement had not been met because of the lack of independence under the statutory definition.

Comments are closed.