Reardon Scanlon’s Partner Pointed Out, and Judge Agreed: No Independent Professional Advice Where Factoring Company Referred – and Was Going To Pay – Adviser

Reardon Scanlon’s Partner Pointed Out, and Judge Agreed: No Independent Professional Advice Where Factoring Company Referred – and Was Going To Pay – Adviser

As discussed in several recent Secondary Insurance Market Blog posts (herehere, here, and here), “independent professional advice” can be an important concept in the statutory scheme established by structured settlement protection acts for regulation of transfers of future structured settlement payments.

While most of the 49 state SSPAs provide that a payee may waive the right to receive such advice, there are some state SSPAs that do not allow for waiver, and instead require that a payee receive such advice if a transfer is to happen.  These are the SSPAs of Alaska, Delaware, Louisiana, Maine, Maryland, Minnesota, Missouri, and North Carolina, as well as, to some extent, Vermont’s SSPA which requires that a payee receive such advice unless it can be proven to the judge that “such advice is unnecessary for good cause shown.”

Until last year, when the Ohio statute was revised, the Ohio SSPA was also on this list of state statutes requiring such independent professional advice.  Some years ago, Reardon Scanlon, LLP’s managing partner Kathy Scanlon represented an annuity issuer and structured settlement obligor in an Ohio case where “independent professional advice”, under the earlier version of the Ohio SSPA, was at issue.  The case In the Matter of J.G. Wentworth, S.S.C. (Zargaugh), No. 484364, 2002 WL 33006575, Probate Court, Franklin County, Ohio (Ohio Prob. Ct. Jan. 14, 2002).  The court rejected the proposed transfer from factoring company (or, “transferee”, in the words of the SSPA) J.G. Wentworth, on the grounds that the issuer and obligor had exercised their rights under the contractual anti-assignment clause in the settlement agreement, and thus the transfer would contravene applicable law, in contravention of the Ohio SSPA, and therefore could not receive judicial approval.  The court also determined that the proposed transfer failed to comply with the SSPA in many other ways, one of which had to do with independent professional advice.

After noting that the Ohio SSPA at the time provided that “independent professional advice” is defined as advice from a “licensed professional adviser . . . not affiliated in any manner with, referred by, or compensated in any manner by the transferee”, the court agreed with the points made by Kathy Scanlon that the transferee’s very own documents showed that the adviser was both referred by the transferee, and would be compensated by the transferee.  Said the court about a letter that was among those documents:

The Court notes that the letter is a pre-printed form to which Wentworth provided to [the attorney]. . . .   At the hearing, counsel for Wentworth explained to the Court that [the attorney’s] . . . name appears on a list of attorneys that Wentworth provided to Mr. Zarbaugh.  Additionally, the Court notes that at the bottom of the letter, [the attorney] . . . advises Wentworth to ‘send a $300.00 check . . . this payment will represent payment in full of my legal fees for services rendered to Mr. Zarbaugh regarding this matter.  Send the balance directly to my client, Mr. Zarbaugh.’  Counsel for Wentworth explained that . . . the money is taken out of Mr. Zarbaugh’s lump sum payment.

The court thus concluded that Mr. Zarbaugh did not receive independent professional advice as required by the Ohio SSPA’s provisions that were in effect at that time.

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