Source: https://s2kmblog.typepad.com/rethinking_structured_set/henderson-v-scioteco/
Timestamp: 2019-04-21 08:51:17+00:00

Document:
One of three fundamental transitions reshaping the structured settlement industry is the change from a singular, illiquid and non-assignable product to multiple products with greater flexibility to address changing needs and circumstances of injury victims. This transition includes the potential of greater product liquidity for traditional structured settlements provided by IRC section 5891 and the state protection statutes.
During their 2011 annual meetings and educational conferences, both the Society of Settlement Planners (SSP) and the National Structured Settlement Trade Association (NSSTA) addressed this structured settlement industry transition.
Judge Edward Burke and Judge Steven Denton (moderated by Vodola) - "Judicial Perspective" (on structured settlements).
Summarized the Ceron v. Henderson case which S2KM previously reported as part of S2KM's "business standards and practices" series.
How NSSTA members should respond to plaintiff attorneys and judges who resist structured settlements because of proliferating factoring transactions.
The theme of NSSTA's "Judicial Perspective", as stated by participating Judge Denton, might have been: "don't presume that judges understand structured settlements". Previously a plaintiff attorney, Judge Denton claimed a familiarity with structured settlements but acknowledged he had never been asked to approve a structured settlement transfer application. Conversely, Judge Burke stated that his structured settlement experience was limited to reviewing and approving transfer applications.
Among his NSSTA comments, Judge Burke identified his "heroes" to include the superior court judges involved in the California Fresno County factoring cases. Judge Burke's judicial praise is both noteworthy and difficult to understand. In Henderson v. Scieteco (one of the Fresno County factoring cases) , a California appellate court subsequently reversed the entire consolidated order from the Fresno County Superior Court because of "multiple prejudicial errors in making its factual findings and in reaching legal conclusions" (emphasis added).
Also in Henderson v. Scieteco, the California appellate court held that public policy supports state court approved structured factoring transactions (emphasis added). NSSTA's Legal Committee representatives failed to mention this case when they discussed "public policy" and factoring during their structured settlement legal update.
Some judges not only understand structured settlements, but also have experience with both primary and secondary market structured settlement cases and publish local court rules for structured settlements. See, for example, Rule 68.2 and Rule 68.3 of the Local Rules for the Hamilton County, Ohio Probate Court.
Rick Miller - "Equity Indexed Annuities and Settlement Planning".
Prieto and Denehy introduced a product called "The Settlement Asset Management Trust (SAM trust) with Enhanced Structured Income (ESI)" which is essentially an irrevocable spendthrift trust generating level monthly income payments for durations of 10-30 years plus access to discretionary distributions.
The ESI component, according to Prieto and Denehy, consists of payment rights previously sold (i.e., transferred or factored) by a structured settlement recipient to a third party purchaser (factoring company) with an approved court order pursuant to a state protection statute. The SAM trust product managers purchase the payment rights from one or more factoring companies and transfer the payment rights to the SAM trust.
According to Prieto and Denehy, the resulting SAM trust can produce a taxable interest rate that is "typically three (3%) percent higher than comparable fixed products with similar guarantees and safety." Their explanation for the enhanced interest rate: the ESI does not have the same high internal costs as a typical annuity during the first few years of the annuity policy.
Although the flow of structured settlement payment rights purchased from various factoring companies is typically uneven, Prieto and Denehy maintain the SAM trustee can consolidate selected payment rights to create an even payment flow to the SAM trust beneficiary who might be an injury victim or a plaintiff attorney.
In addition to an interest rate risk, Prieto and Denehy acknowledge the ESI has an insurance company insolvency risk similar to a traditional structured settlement. According to Prieto and Denehy, however, a typical SAM trust will include between two and ten separate payment rights purchases thereby diversifying the insolvency risk.
Although some secondary market brokers and factoring companies have previously sold "re-cycled" structured settlement payment rights to individuals, Prieto and Denehy believe their product is different because the SAM trust integrates multiple streams of separate payment rights and also includes a cash allocation permitting discretionary distributions.
For additional S2KM reporting about the SSP and NSSTA 2011 Annual Meetings, see the structured settlement wiki.
2010 promises to be an important year for the structured settlement industry.
ASNP Annual Meeting - March 19-20 in Charleston, S.C.
SSP Annual Meeting - April 27-28 in Washington, D.C.
NSSTA Annual Meeting - May 4-6 in Washington, D.C.
For prior S2KM reports about structured settlement and settlement consulting professional associations, see S2KM's structured settlement wiki.
For S2KM's most recent strategic analysis of the structured settlement industry, see S2KM's blog post "Structured Settlements in 2009".
This S2KM post follows "Structured Settlements in 2009 - 1" and features topical links to S2KM 2009 blog reports.
For 2010 industry updates, please continue to visit S2KM's blog as well as S2KM's structured settlement wiki.
Supplemental stress tests to access insurance carrier default risk in structured settlement transactions.
S&P's new criteria for structured settlement securitizations appear in an S&P article titled "Update to Methodology And Assumptions And New Supplemental Tests for U.S. Structured Settlement Payment Securitizations".
Use the latest version of CDO Evaluator (version 5.0) when analyzing structured settlement securitizations. The CDO Evaluator is S&P's analytical tool for estimating the defaults and losses of collateralized debt obligation (CDO) transactions at different rating levels.
the largest-industry default test or the alternative-industry default test, which ever is applicable, to tranches at the 'AAA', 'AA+', 'AA', and 'AA-' rating levels, assuming an immediate flat recovery of 60%.
Use the results of the two supplemental tests without running cash flows to assess whether the tranche in question is likely to have sufficient credit enhancement to absorb the losses at each rating level.
must also pass the two supplemental tests applicable at the given rating level.
The complete S&P article is available on RatingsDirect and S&P's website.
Wikipedia's entry for "structured settlement factoring transaction"
"Structured Settlements and Periodic Payment Judgments" - Release 47.
This blog post continues S2KM's summary and analysis of the NASP 2009 Annual Meeting. Prior S2KM blog posts about NASP are accessible on S2KM's structured settlement wiki.
NASP's 2009 strategic educational analysis occurred primarily during a two-hour panel discussion titled "Re-thinking Structured Settlements". S2KM assisted NASP in organizing this panel discussion. Jeremy Babener's NASP presentation titled "Factoring and the Structured Settlement Tax Subsidy" preceded and contributed to NASP's strategic discussions.
NASP Panel Discussion: "Re-thinking Structured Settlements".
Moderator: Earl Nesbitt, Executive Director of NASP.
Panelists: Jeremy Babener; Matthew Bracy; Daniel Hindert; Richard Risk; Andrew Savysky; Robin Shapiro; Michael Upchurch.
Format: S2KM identified and submitted to NASP a preliminary list of strategic structured settlement questions. NASP encouraged the panelists to identify and address S2KM questions that most interested them. NASP allocated time for audience questions and participation.
Which 2009 events and developments (legal; financial; political) will most significantly impact the future of structured settlements?
What are the best and worst structured settlement business practices?
Are factoring transactions good or bad for structured settlements?
Does public policy support state court ordered structured settlement factoring transactions?
How has the financial crisis changed the structured settlement market? Note: although NASP's strategic panel acknowledged the importance of this issue, the panel also recognized the related comprehensive discussion by the NASP "Capital Markets" panel.
Spencer v. Hartford - how the recent United States Second Circuit Court decision (denying Hartford's appeal) impacts the Hartford class action lawsuit and which other structured settlement programs are now at risk for potential RICO class action lawsuits?
Revised California protection statute - viewed by the panel as a legislative victory for the structured settlement industry and featuring specific "best interest" criteria for state judges to consider in California settlement transfer cases.
Fresno County cases - viewed by the panel as a judicial victory for the structured settlement industry with an appellate court ruling that public policy supports state court approved structured settlement factoring transactions.
Rapid Settlement cases - viewed by the panel as a victory for the structured settlement industry with continuing judicial denial of arbitration alternatives to state court approved transfers pursuant to IRC 5891 and state structured settlement protection statutes.
Scott Rothstein ponzi scheme - identified as a legal and public relations reminder that all participants in settlements featuring periodic payments with potential subsequent payment transfers would benefit from applicable legislation (protection statutes) and required state court approvals.
Multiple (blended) product offerings, licensing and expertise.
"Pay for play" endorsements by professional associations.
Competitive bidding fostered by the Internet.
Failure to fund (or delayed funding) of court ordered settlement transfers.
Is the secondary market good or bad for structured settlements? This question was discussed in detail during the NASP 2008 Annual Meeting with Jack Meligan and Michael Upchurch providing a primary market critique of the secondary market. NASP's 2009 Annual Meeting featured two published critics of secondary market business behavior: Judge Edward Burke of Arizona and attorney Daniel Hindert of Utah. In addition, Michael Upchurch participated on the NASP strategic analysis panel. If the NASP program reached any conclusion for this issue, it was: the secondary structured settlement market is a reality. Whether the secondary market is good or bad for structured settlements depends upon business behavior and business results in both the primary and secondary markets.
Does public policy support state court ordered structured settlement factoring transactions? Jeremy Babener discussed the public policy arguments for and against factoring transactions. Babener concluded that more information is needed to make a comprehensive public policy declaration. The recent California appellate court decision in Henderson v. Scioteco holds that public policy supports state court approved factoring transactions. Babener, acknowledged the importance of the decision, but disagreed with the California court's characterization of IRC 5891 as an "express sanction" of factoring. Richard Risk agreed with Babener that IRC 5891 does not contain a clear statement of public policy about factoring. Risk, however, pointed to examples of IRC 5891 legislative history that contradict any claim that public policy is against structured settlement factoring. As one example, Risk cited the Joint Committee on Taxation’s report released on March 18, 1999, “Tax Treatment of Structured Settlement Arrangements,” which Risk interprets as public policy support that structured settlements can co-exist with factoring.
Inviting and featuring structured settlement industry experts with diverse viewpoints and opinions.
The purpose of this S2KM blog post is to summarize educational discussions which occurred at the NASP 2009 Annual Meeting. In a prior post (NASP 2009 Annual Meeting-1), S2KM listed the discussion topics, moderators, speakers and panelists and also identified Van Tran as the winner of the NASP 2009 Alexander Hamilton award. In subsequent blog posts, S2KM will provide analysis and feature interviews with selected NASP educational program participants.
2009 Legislative Developments - Matthew Bracy summarized California Senate Bill 510 which Governor Arnold Swarzenegger signed into law October 11, 2009 and which becomes effective January 1, 2010. Among changes to the California structured settlement protection statute, SB 510 adds factors for the court to consider when determining whether a proposed transfer is fair, reasonable and in the payee's best interest. These factors now include the reasonable preference of the payee considering age and mental capacity. Bracy also summarized the new North Dakota structured settlement protection statute which generally follows the NCOIL Model Act. North Dakota becomes the 47th state to enact structured settlement protection legislation.
Legal Case Update - Tricia Laborde's legal case update focused primarily on the Fresno County cases and Rapid Settlement cases. Among other holdings in Scioteco v. Henderson, a California appellate court ruled that public policy supports state court approved structured settlement factoring transactions. In Allstate v. Rapid Settlements, which denied Rapid's appeal, U.S. Third Circuit Judge Joseph F. Weis, Jr. noted: "We are one of the many courts to face Rapid Settlements' transparent attempt to use this arbitration scheme to evade the legislatures' intentions to protect the recipients of structured settlement payments".
What Happened in California? - A panel of legal and political experts provided background and analysis of SB 510 and the Fresno County cases. NASP lobbyist Carl London summarized the collaboration between NASP and Consumer Attorneys of California (formerly the California Trial Lawyers), plus the role of California legislator Van Tran, in securing enactment of SB 510. Linda Morris, General Counsel for J.G. Wentworth, provided background information and strategic commentary about appellate decisions for the Fresno County cases which she characterized as an important victory for the structured settlement industry.
Transactional Structured Settlement Issues - A panel of attorneys discussed practical problems in securing judicial approval for proposed structured settlement transfers. Some of the issues discussed: difficulties in determining the domicile of transient payees; privacy issues including the impact of Pennsylvania Rule 229.2; difficulties in finding independent professional advisers; and what happens when judges attempt to re-negotiate agreed upon transfers.
Structured Settlement Capital Markets - A panel of factoring company executives discussed how the 2008-2009 capital market upheaval has changed the secondary structured settlement market.
The impact of a potential ELNY liquidation remains uncertain.
Structured Settlement Court Practices and Issues - Judges Edward Burke of Arizona and Christopher Marshall of Oregon joined a panel of attorneys in discussing settlement transfer court practices and issues including: prior transfers by the same payee; the roles of transfer attorneys and independent professional advisers; privacy concerns for transferring payees; the advantages of utilizing a single state judge for all transfer requests; plus other problems which cause continuing judicial concerns about factoring and factoring companies.
The tax subsidy prevents dissipation?
The tax subsidy discourages factoring?
Factoring undermines the tax subsidy?
Babener challenged NASP to develop better information about who actually sells structured settlement payment rights and why.
"It may be possible to draft provisions in the servicing agreement to anticipate some of the consequences of the servicing company entering bankruptcy and perhaps lessen the impact on all parties."
What developments in 2009 will most impact the future of structured settlements?
What are the best (and worst) structured settlement standards and business practices?
Which structured settlement myths are most out-of-line with reality?
How will commutations change the structured settlement market?
What knowledge and skill sets are most important for future success in the structured settlement industry?
For S2KM reports about prior NASP meetings, see the structured settlement wiki.
The National Association of Settlement Purchasers (NASP) hosted its 2009 Annual Meeting at the Mandalay Bay Hotel in Las Vegas November 12-13 almost one month following NSSTA and SSP 2009 Fall meetings at the same location.
Better recognition of industry leaders who are contributing to the growth and improvement of structured settlements.
Structured Settlement Wiki - for S2KM reports about prior NASP meetings, see the structured settlement wiki.
This S2KM blog post, the first in a series about the NASP 2009 meeting, highlights the NASP Alexander Hamilton honoree plus educational topics and speakers. Subsequent S2KM posts will summarize and analyze NASP discussions and provide interviews with some of the industry experts who spoke at the NASP meeting.
Alexander Hamilton Award - Van Tran was named 2009 recipient of NASP's Alexander Hamilton award. Van Tran is the California legislator who led the enactment of California SB 510 which amends and improves California's structured settlement protection statute.
2009 Legislative Developments - Matthew Bracy.
Legal Case Update - Tricia Laborde.
What Happened in California? - Michael Damore; Carl London; John Shafhi; Matt Eason; Linda Morris; Matt Bracy.
Transactional Structured Settlement Issues - Tricia Laborde; Ken Barnett; Michael Green; Jim Klohn; David Barfield; Scott Topoloski; Kevin Mack; Joe Siegel.
Structured Settlement Capital Markets - Jason Sutherland; Burt Kroner; John Ryan; Robin Shapiro; Josh Tobin.
Structured Settlement Court Practices and Issues - Earl Nesbitt; Judge Edward Burke; Judge Christopher Marshall; Thomas Dixon; Roger Dunaway; Tricia Laborde; Amy Schwartz.
Factoring and the Structured Settlement Tax Subsidy - Jeremy Babener.
Structured Settlement Bankruptcies - Bruce Akerly.
Re-thinking Structured Settlements - Earl Nesbitt; Jeremy Babener; Matthew Bracy; Daniel Hindert; Richard Risk; Andrew Savysky; Robin Shapiro; Michael Upchurch.
Meeting at the Mandalay Bay Hotel in Las Vegas on October 15 and 16, the NSSTA 2009 Fall Educational Conference provided a potpourri of perspectives on the central topic of structured settlements.
Although lacking a unifying theme and failing to provide noteworthy handout materials, the conference did offer a general industry overview and did address several important industry developments without encouraging or generating meaningful discussion or detailed inquiry.
NSSTA Legal Committee representatives - Peter Vodola; Ilana Hanau; Michael Miller; and Mark Alpert.
Hanau's summary of the Henderson v. Sioteco case where a California appellate court reversed earlier Fresno County trial court decisions and declared that public policy now supports state court approved factoring transactions.
Vodola's summary of California's new structured settlement protection statute (SB 510) which includes a detailed definition for "best interest".
From a critical perspective, NSSTA's 2009 Fall Educational Conference represented a series of "missed opportunities".
Missed opportunity #1 - Karen Meyers, who co-developed and annually presents NSSTA's "Certified Structured Settlement Consultant" (CSSC) program, addressed a NSSTA educational program for the first time in several years - and didn't talk about the CSSC program.
External challenge - The Society of Settlement Planners (SSP) Registered Settlement Planner Certification Program.
Missed opportunity #4 - related to missed opportunity #3: NSSTA's educational programs continue to ignore the strategic relationship among structured settlements, financial planning and life care planning.
Missed opportunity #5 - although NSSTA's legal committee has successfully expanded the scope of NSSTA's structured settlement legal education (from "Tax Posse" to "All Things Considered"), their programs tend to be repetitive (e.g. "Contracts 101") and fail to translate current legal developments into broader topical presentations.
Comparative business standards and practices for various structured settlement stakeholders and "competitors" - insurance agents; financial securities salespersons; attorneys; trustees.
Transactional analysis - what does a structured settlement look like in the context of 468B qualified settlement funds; special needs trusts; Medicare set-aside arrangements; and secondary market transfers?
Integrating annuities with settlement trusts - how do integrated products impact traditional structured settlement planning, documentation and education?
Many structured settlement leaders no longer attend NSSTA educational conferences - especially those leaders who are defining the future of the structured settlement industry. When those industry leaders do attend NSSTA conferences, they attend primarily for networking opportunities or committee meetings - not for the educational programs.
With some exceptions, NSSTA's educational programs are no longer educational. They are mundane, repetitive and suitable primarily for persons new to the industry. Controversial subjects do not appear on the program - or they are circumscribed to avoid controversy. Debate is discouraged. Speakers rarely face tough questions - or provide handout materials.
Perhaps it is time for NSSTA to re-think structured settlements and structured settlement education. What will it take to attract a new generation of structured settlement leaders to join and participate in NSSTA? What will it take to re-engage the industry's best and brightest professionals in NSSTA's educational programs? The NSSTA Fall 2009 educational conference in Las Vegas highlighted those issues without providing any answers.
For prior S2KM reports about NSSTA educational programs, see S2KM's structured settlement wiki.
S2KM has begun a mid-year 2009 strategic analysis of the structured settlement industry. This analysis includes attending and reporting about 2009 structured settlement professional stakeholder meetings plus continuing conversations with structured settlement industry leaders.
To organize and publish S2KM's findings and analysis, S2KM is developing, and plans to publish and update, a related public wiki titled "Structured Settlements 2009". Here is a preview of this S2KM public wiki home page.
Provide S2KM with a dedicated online resource to identify, capture, organize and publish 2009 structured settlement strategic analysis.
Demonstrate how blogs and wikis can interact to improve strategic analysis and learning.
Encourage structured settlement knowledge leaders and professional associations to endorse, encourage and participate in strategic industry analysis.
Help all structured settlement stakeholders to better understand, improve and grow structured settlements.
SSP: Settlement Planning Industry Update - Patrick Hindert.
NSSTA: Looking Forward - Chris Diamantis and Dan Durbin.
NSSTA:Web 2.0 - Patrick Hindert.
Public policy - no 2009 stakeholder association discussions.
SSP: Tax Panel - Richard Risk; Sylvius von Saucken; Peter Wayne.
SSP: Judicial Approval of Minors Settlements - Phillip McCrury.
NSSTA: Exemptions for Structured Settlement Payments - Craig Ulman.
Proposed - no 2009 stakeholder association discussions.
NSSTA: Federal Entitlement Programs - Andrew Imparato.
NSSTA: Washington Reports - Eric Vaughn.
SSP: AAJ Strategy - John Bowman.
NSSTA: Federal and State Issues - Len Blonder.
Plus the Chiefs of Staff for four congressmen.
SSP: Litigation and Legislative Update - Anthony Alfieri.
NSSTA: Spencer v. Hartford - Michael Miller.
NSSTA: Fresno County Factoring Cases - Illana Hanau.
NSSTA: Secondary Market Update - Michael Miller and Illana Hanau.
ASNP: Medicare Secondary Payer Compliance - Mark Popolizio.
ASNP:Lien Resolution Strategies - William Browning; Mark Popolizio; Sylvius von Saucken.
SSP: MMSEA Section 111 - Mark Popolizio.
NSSTA: Medicare Panel - Roy Franco; Mark Popolizio; David Korch; Rafael Gonzoles.
ASNP: Structured Settlement Annuities - Jack Meligan and Michele Whitmore.
SSP: Life Insurance Insolvencies - Eric Nordman.
NSSTA: Financial Strength Ratings - William Pargeans.
NSSTA: 468B QSFs - Henry Strong, William Winslow, James Klapps.
ASNP: 468B QSFs - Richard Risk and Jason Lazurus.
SSP: Settlement Trusts - Christi Fried.
SSP: Settlement Trust Software - David Eichenbaum.
ASNP: Anatomy of a SNSP Case - Frank Johns, Kevin Urbatsch, Patrick Hindert.
NSSTA (2), SSP and ASNP 2009 meetings.
NSSTA: Business Ethics - Father Oliver Williams.
NSSTA: Business Ethics - Mike Jones.
SSP: Registered Settlement Planner - Joseph Tombs.
NSSTA: Plaintiff and Defense Brokers - Ronald Sullivan, James Early, Roger Bernstein, Bruce DeBacher, Michael Goodman.
SSP:Structured Settlement Insolvencies - Randy Dyer.
SSP: Growing Structured Settlements - Randy Dyer.
SSP: In-House Structured Settlement Programs - Kevin Mack.
NSSTA: Minnesota Bridge Collapse - Jerry Lothrop.
NSSTA: Settlement Consulting - Joseph DiGangi.
ASNP: Integrating SNSP with an Elder law Practice - Tim Nay and Sandy Conley.
ASNP: Marketing to the Trial Bar - Frank Johns, Jason Lazurus, Kevin Urbatsch.
SSP: State of the Art Settlement Planning - Joseph Tombs.
To borrow a baseball analogy from Len Blonder, the National Structured Settlement Trade Association (NSSTA) "hit a home run" (or rather a series of home runs) during its 2009 Annual Meeting in Washington, D.C. April 28-May 1.
Blonder's comments to NSSTA attendees about "federal and state issues", which occurred near the end of an exceptional NSSTA program, served as a belated key note address for the entire NSSTA program.
Blonder was one of three NSSTA past-Presidents, along with Henry Strong and Chris Diamantis, whom NSSTA, and new NSSTA President Daniel Durbin, honored during its meeting.
Blonder, a two-time NSSTA President who continues to co-chair NSSTA's Legislation and Regulation Committee, spoke passionately about baseball and structured settlements. Blonder traced his involvement in structured settlements to the late 1970s when he helped organize a pre-NSSTA political coalition which formulated, and eventually helped to enact, the original structured settlement tax legislation in 1982.
With support from Blonder and its Legislation and Regulation Committee, NSSTA announced and introduced a new "D.C. two-step" political strategy: move one-step backward before moving two or more steps forward.
Consolidate and transition NSSTA's administrative, financial and political strengths.
Continue to define NSSTA's Internet strategy and online voice.
NSSTA's strengths were displayed during the 2009 Annual Meeting.
Joseph Ricci, NSSTA's new Executive Director, summarized improvements in NSSTA governance.
A new NSSTA Channel on YouTube.
NSSTA General Counsel Hogan & Hartson partner Craig Ulman.
Address structured settlement secondary market advertising as part of his proposed Financial Product Safety Commission.
Ricci, Vaughn and NSSTAPAC Chairman Brad Cantwell complemented NSSTA congressional presentations with a NSSTAPAC status report.
Craig Ulman re-introduced "Exemption of Structured Settlement Payments" as a sales and marketing enhancement to help grow structured settlements.
Medicare and Medicaid - NSSTA's government benefits committee sponsored two panel discussions.
John McCulloch, Timothy O'Driscoll and Dennis Mc Andrews spoke about Medicaid and structured settlements.
35W Bridge Collapse - Jerry Lothrop summarized structured settlement results and lessons learned from the Minnesota August 1, 2007 bridge collapse.
Challenging the NSSTA audience to identify and support ethical leaders within the structured settlement industry.
Congratulations to NSSTA for an outstanding 2009 annual meeting in Washington, D.C. Future S2KM blog posts will offer commentary.
For S2KM reports about prior NSSTA meetings, see S2KM's structured settlement wiki.

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