What happens if a payee receives the advice of a professional advisor about a proposed transaction, and the advisor’s compensation depends on whether the transaction happens?
If the transaction is a proposed transfer of structured settlement payment rights under the Minnesota Structured Settlement Protection Act, then the deal cannot receive court approval and thus will never be a legally effective transaction.
That was the opinion in a 2011 opinion of a Minnesota trial court, Teasley v. Velardi, No. 27-CV-1473, 2011 WL 6149943 (Minn. Dist. Ct. Dec. 2, 2011).
The independent professional advice requirement under the Minnesota SSPA is the subject of this blog post, Under Some State Structured Settlement Protection Acts, A Payee Must Receive Independent Professional Advice, As One Minnesota Appellate Opinion Illustrates, here. The Minnesota SSPA’s requirement that a payee receives independent professional advice contrasts with the standards of most states, whose SSPAs allow a payee to waive the right to receive such advice. (For more about the statute of one such state, New York, see Attorney Appearing With Payee Was Paid By Factoring Company, So No ‘Independent Professional Advice’ Under New York’s Structured Settlement Protection Act, here.)
Teasley v. Velardi involved a proposed transfer by payee, Jeremiah Teasley, to factoring company J.G. Wentworth Originations, L.L.C.
Under the Minnesota Structured Settlement Protection Act, a court cannot approve a transfer of structured settlement payment rights from a payee to a factoring company unless the payee has received “independent professional advice” about the proposed transfer.
Where the adviser’s compensation depends on the court’s approval of the transfer, the advice is not independent, because the Minnesota SSPA defines “independent professional advice” as the advice of an attorney, accountant, or other professional adviser who, among other things, is not affiliated with or compensated by the transferee (or factoring company) and “whose compensation for providing the advice is not affected by whether a transfer occurs or does not occur.” Minn. Stat. § 549.30, subd. 6 (emphasis added).
In Teasley, the court said it could not make the finding that the payee received independent professional advice – and thus could not approve the proposed transfer – because the evidence indicated that the adviser “will be paid from the proceeds of the transfer” and “[h]is compensation is thus affected by whether or not the transfer occurs.”
Said the court:
Specifically, if the transfer occurs, he will be compensated. If the transfer does not occur, he is unlikely to be compensated given Teasley’s limited finances.
Where the compensation of the professional adviser effectively requires the occurrence of the transfer, the adviser has an incentive not to discourage the transfer, thus giving rise to an arguable conflict of interest. Given this concern,the definition of ‘independent professional adviser’ disallows any nexus between the adviser’s compensation and the occurrence of the transfer.
The court added a footnote that, since the definition of “independent professional adviser” in the Minnesota SSPA “uses the phrase ‘not affected by’ rather than ‘not contingent on’, the Court construes the definition to disallow a practical nexus as well as a contractual nexus.”