Senate Bill S6407

                                 BILL NUMBER:  S6407

 TITLE OF BILL :  An act to amend the general obligations law, in
relation to transfers of structured settlements

This is one in a series of measures being introduced at the request of
the Chief Administrative Judge upon the recommendation of his Advisory
Committee on Civil Practice.

This measure would add certain procedural requirements to the laws
governing structured settlement transfers. For reasons explained more
fully below, we recommend that sections 5-1703, 5-1705 and 5-1708 of
the General Obligations Law be amended to require: (1) that the
caption of a petition to transfer structured settlement payments
identify the transferee as the petitioner and the transferor (L e.,
the beneficiary, or payee, of the structured settlement payments) as
the respondent; (2) that a guardian ad litem be appointed when the
payee is an infant or an adult incapable of adequately prosecuting or
defending his or her rights; and (3) that an independent advisor be
appointed when the payee needs assistance in understanding the legal
and financial implications of the transfer.  We further recommend that
any advance payments by the transferee prior to court approval be at
the transferee's risk, in the event the transfer is disallowed, and
that the transferee so advise the payee prior to any advance payment.

 BACKGROUND :
              

The underlying problem is all-too-familiar to the courts:
beneficiaries of future payments from structured settlements seek to
sell without sufficient legal or financial advice the right to
long-term security in the form of those future payments for an
immediate lump-sum payment, at a significantly discounted rate that
represents only a fraction of the present value of the structured
payout. While there are of course legitimate reasons for such
transfers, the bench and bar alike have reported many instances of
predatory practices by funding companies and ill-informed
beneficiaries such that there is, yet again, urgent need for proper
safeguards to legislate preventative measures against these practices.

 REQUIRING CAPTION TO INCLUDE NAME OF FUNDING COMPANY AND NAME OF
BENEFICIARY/TRANSFEROR :

This measure adds a new subdivision (c) to section 5-1705, to read as
follows: "The caption of a petition for approval of a transfer of
structured settlement payment rights must identify the transferee as
the petitioner and the payee as the respondent." Standardizing the
caption of the petition in this way will make it easy to identify the
real parties in interest in the proceeding and will also facilitate
searches for other applications involving the same parties.

 APPOINTING A GUARDIAN AD LITEM IF THE PAYEE IS AN INFANT :

Under this measure, the court would appoint a guardian ad litem to
appear for an infant payee in a structured settlement transfer
proceeding. Currently, under CPLR 1201, infants ordinarily appear in
actions by a parent or other person having legal custody. However,
there is an inherent risk that a parent facing financial difficulties
may seek immediate funds by transferring an infant's structured
settlement at the expense of the infant's best interest. While section
1201 authorizes the appointment of a guardian ad litem because of a
conflict of interest, that authority is rarely exercised when an
infant appears by a parent. Given the substantial potential of a
conflict of interest when a parent seeks immediate funds that may
significantly impair or eliminate an infant's entitlement to future
payments, this measure would require that an infant appear in a
transfer proceeding by a guardian ad litem. Compensation for the
reasonable value of the guardian ad litem's services would be paid by
the transferee.

In addition, consistent with CPLR 1201 and 1202, the measure would
permit the appointment of a guardian ad litem when the payee is an
adult who is incapable of adequately prosecuting or defending his or
her rights.

Appointing an independent advisor to assist the payee in assessing the
financial and legal implications of the transfer

Even when an adult seeks to transfer his or her own structured
settlement in exchange for an immediate payment, there is a risk that
the adult may, particularly if financially unsophisticated, agree to a
transaction that is grossly ill-advised or unfair. Currently, under
sections 5-1703 and 5-1706 of the General Obligations Law, the party
seeking to acquire structured settlement payment rights is required to
disclose certain financial aspects of the transaction to the payee and
advise the payee to seek independent professional advice regarding the
transfer. Before the court can approve the transfer, it must find that
the payee obtained such independent advice or knowingly waived it. In
practice, many payees do not obtain independent professional advice
and, without a proper understanding of the transaction, agree to the
transfer despite terms that may be unfair. Under this measure, whether
or not the payee appears by a guardian or guardian ad litem, if the
court determines that the payee is unsophisticated concerning the
legal, tax or financial implications of the transfer, the court would
appoint an independent advisor to counsel the payee about the terms of
the transaction.  Where appropriate, the advisor could also recommend
less costly means of meeting the payee's financial need. The advisor
would be required to file a report with the court, with copies to the
parties as appropriate, to assist the court in making the findings
required by section 5-1706 as to whether the transaction is in the
best interest of the payee and whether the discount rate and any fees
and expenses are fair and reasonable. The advisor would be appointed
from the fiduciary list established under part 36 of the rules of the
chief judge.

The court would not appoint an independent advisor if it was satisfied
that the payee had already received such advice or understood the
implications of the transfer. Compensation for the reasonable value of
the advisor's services would be set by the court and paid by the
transferee.

 PROVIDING THAT ADVANCE PAYMENTS BY THE TRANSFEREE TO THE BENEFICIARY
PRIOR TO JUDICIAL APPROVAL OF THE TRANSFER ARE AT THE TRANSFEREE'S
RISK

In developing this measure, our Advisory Committee considered
forbidding altogether advance payments by the funding company to the
beneficiary before the transfer is approved. Because there are
situations where such payments are likely necessary before the court
approval process is complete, however, the Committee urged us to
propose that such payments be permitted but only at the transferee's
risk, so that the funding company would have no recourse against the
beneficiary if the transfer is not approved. The payee would be so
advised prior to receiving the advance payment. Placing the risk on
the funding company would serve as an appropriate check on abusive and
predatory practices by funding companies who entice beneficiaries with
promises of easy and fast money.

This measure, which would have no fiscal impact on the State, would
take effect immediately.

 LEGISLATIVE HISTORY :

None. New proposal.