Judge Nelson Johnson from Atlantic County ()
A newly approved opinion directs judges evaluating structured settlement sales in exchange for lump-sum payments to push their inquiries beyond the litigant’s basic understanding of the deal—and in the process hammers down some much-needed guideposts.
“Absent criteria from the Legislature, and with only one published judicial decision on this issue by a New Jersey trial court, this court has developed a list of questions with an eye toward creating a coherent factual record upon which an informed decision may be made,” Atlantic County Superior Court Judge Nelson Johnson said in In re T. Keena, Transfer of Structured Settlement Proceeds to Peachtree Settlement Funding, which was approved for publication Sept. 29.
“The court’s obligation is much more than merely inquiring into whether the payee is competent and has voluntarily entered into the agreement with knowledge of its consequences,” Johnson added.
He noted that judges are “often called upon to resolve thorny issues involving litigants’ personal lives: some entail second-guessing the wisdom of a person’s choice, and more vexing, what’s best for them.”
Providing occasion for the guidance was an agreement reached between litigant Tami Keena, who had obtained a judgment in an undisclosed matter, and Peachtree Settlement Funding, one of numerous “factoring companies” that offer via consumer advertising to buy annuities and other future payments.
A pleading and order to show cause were filed last April, as the New Jersey Structured Settlement Act requires court approval of any transfer of payment rights.
Keena was pro se—”as is the situation in 100 percent of such matters handled by this court,” Johnson said—and had agreed to sell a $66,175 judgment, payable in June 2019, for an immediate payment of $46,250.
“This court has handled a large number of such transactions, and … the proposed sale is more reasonable than most,” the judge noted in the decision.
He nonetheless directed Keena, at a hearing, to explain how the sale would change her life for the better.
The resulting decision does more than just approve Keena’s agreement with Peachtree.
Johnson laid out 15 factors he typically considers: the payee’s age and education level; the payee’s living situation; whether the payee has any dependents; whether the payee has other sources of income; the nature of any injuries sustained, and of the resulting lawsuit that yielded the judgment; whether the payee will require future medical treatment; whether the payee understands the agreement terms; what circumstances led to the structured payment schedule becoming untenable; whether a lawyer has examined the agreement, or whether the payee sought advice from any lawyer or nonlawyer; how the proceeds of any prior structured settlement sales were utilized by the payee; how the funds from the pending sale would be used; and “how the sum to be paid to you will benefit you to such a degree that it is better to receive that reduced sum now, rather than receiving the full amount on the date you originally agreed to.”
The “threshold inquiry,” according to Johnson, is how the payee’s life will be changed for the better.
The judge said he has approved transfers over the years for the purpose of paying education expenses, home or vehicle expenses, urgent debts consequential to employment or living situation, non-routine medical expenses, retention of professional services, wedding or new household costs, adoption or other family costs, and funeral expenses.
Johnson noted that he has required documentation of the payee’s need for funding, and, in some cases, legal counsel paid for by the factoring company will assist.
The Structured Settlement Act, adopted in 2001, was pushed to address potentially exploitative practices by factoring companies and requires judges to make “express findings” that the sale is in the payee’s “best interest”—but the statute does not define “best interest,” Johnson said.
The only published opinion in New Jersey dealing with structured settlement transfers—In re Transfer of Structured Settlement Rights by Spinelli, a 2002 Law Division ruling—noted the “best interest” is not defined by the statute itself, nor by any accompanying regulations. That court examined how “best interest” is applied in connection with family law cases: “‘In essence, the term refers to optimizing the condition of the person, entity or public interest that the law is designed to protect.’”
The judge also relied on several out-of-state decisions, among them a 2003 New York Supreme Court decision which laid out seven factors, including the intended use of the funds and the “financial acumen” of the payee.
Johnson, in his June 18 decision, wrote that it’s “not enough for the court to merely learn that the payee understands the consequences and the significant sacrifice being made through the sale.
“The court must make ‘express findings’ that the proposed sale is in the payee’s ‘best interest’ by somehow improving his or her life (or addressing an urgent need),” the judge said.
In Keena’s case, Johnson found that the structured settlement sale was in her best interest. The judge noted that Keena, a married mother of two, sought to move from their Brigantine home, which sustained damage in Superstorm Sandy, to a more inland location.
Keena didn’t return a call for comment on the ruling.
Neither did Lance Bitterman of Fredson & Statmore in Clifton, who appeared on behalf of Peachtree.
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