Structured settlement cash-outs examined

A Pennsylvania federal judge is considering whether to approve a class action in a challenge to the way some companies purchased payment streams from structured settlements in Virginia.

Structured settlements provide steady income for claimants who win substantial litigation recoveries but who might have difficulty managing a sudden financial gain. A handful of companies offer immediate cash in exchange for a portion of the payment stream from structured settlements.

Lawyers for a Southwest Virginia man who sold his expected annuity payments for quick cash say he and hundreds like him were induced to sell at unfair rates by companies that used a Portsmouth lawyer to get the transactions approved in bulk by the Portsmouth Circuit Court. The lawyer allegedly filed about 375 approval petitions per year.

Independence questioned

Virginia requires court approval for cash-out transactions and mandates assurance that the seller has been advised to seek independent professional advice and either received advice or waived the opportunity.

The lawyers hoping to represent a class of up to 1,500 potential plaintiffs say the companies insisted on getting letters from outside lawyers stating that they had reviewed the transactions with the sellers. The plaintiffs’ lawyers say the companies then lied to the court about whether that advice was truly independent and whether the customer had the option to waive advice.

“What the defendants were doing was asserting control over the relationship between the seller and his advisor,” said Jerome M. Marcus of Spring House, Pennsylvania, on March 23. The lead counsel for the would-be class, Marcus was asking U.S. District Judge Chad F. Kenney to certify the lawsuit as a class action.

‘Cash now’

The nominal plaintiff is Larry Dockery of Gate City, who lost an arm in a 1998 industrial accident. A manufacturer agreed to settle a product liability claim for about $400,000 in cash and an annuity that would make periodic payments. Dockery later sold several of his payment streams to companies including J.G. Wentworth of Chesterbrook, Pennsylvania, which advertises that it can provide “cash now” for structured settlement beneficiaries.

To win court approval for the sales, Wentworth allegedly provided Dockery with language to be included in a lawyer’s letter. The company then submitted the letter to the Portsmouth court in support of its bid for approval of the sale.

The lawyer for Wentworth and similar companies is Stephen E. Heretick, a Democratic state delegate with an office in Portsmouth.

Dockery’s lawyers say the defendant companies developed a list of Virginia lawyers who agreed to regularly counsel would-be sellers in exchange for fees paid as part of the transaction.

“As a general matter, these lawyers are not independent,” Marcus said. “For these people, there’s a steady stream of income coming…. They only get the money if the transaction is approved,” he said.

“We sued Wentworth and Heretick for a scheme to defraud,” Marcus told the judge.

Challenge to class status

Lawyers for the defendants told Kenney the case is unworkable as a class action since the details of each transaction will have to be explored.

A. Christopher Young of Philadelphia, representing the defendant companies that purchased payment streams, said the court would have to hold multiple mini-trials over what was in the best interest of each seller and what advice the outside lawyers should have given.

“This inquiry is fraught with individual issues that predominate over common issues,” Young said.

Young questioned whether the plaintiffs’ team could ever prove that the hundreds of participating Virginia attorneys, from hometown lawyers to small firms and even one attorney at a large firm, all “got together and agreed that they were going to abandon their professional duties and responsibilities in order to scheme with Wentworth so that Wentworth could make more money.”

“It just doesn’t make any sense, your honor,” Young said.

Heretick is represented by Jeffrey B. McCarron of Philadelphia, who argued Heretick had no involvement with the outside lawyers who met with those selling payment streams.

“Plaintiff cast his net too wide when he included Mr. Heretick,” McCarron said.

The alleged scheme to process cash-out approvals through the Portsmouth court in assembly line fashion was aimed at limiting or defeating close judicial scrutiny, the plaintiff’s lawyers contend. The lawyers say the defendant companies would even bring structured settlement beneficiaries from other states and have them falsely claim to be Virginia residents so that their petitions could be filed in Portsmouth.

In 2016, Virginia law was changed to require petitions for approval of sales of payment streams to be filed in sellers’ home courthouses or in the court that approved the structured settlement.

The putative class action is Dockery v. Heretick, case no. 2:17-cv-4114 in the U.S. District Court for the Eastern District of Pennsylvania.