A Virginia circuit court has denied a petition filed by a factoring company seeking to purchase structured settlement payments from a woman with neurocognitive impairments.
The present value of the payments is $140, 738. The proposed purchase price? A mere $10,000.
“It is difficult to fathom many circumstances in which a person’s best interests are advanced by relinquishing $261,251 in future payments having a present value of $140,738, for $10,000 — 7% of that present value,” Judge Mary Jane Hall wrote in denying the petition. “In the case of a lead-poisoning victim whose mother asserted that she had cognitive impairments as a result of the poisoning, together with the very little evidence presented in court, the Court has no basis to conclude that this transaction is in her best interest.”
What was in the woman’s best interest, Hall pointed out, was the monthly payment stream set up by the woman’s lawyers and her mother — and “that has been largely plundered by factoring companies. What does remain should be protected.”
The Norfolk Circuit Court case is In re: Approval for transfer of structured settlement proceeds by and between ShWawnda Lancaster, payee, and Peachtree Settlement Funding, LLC, transferee (VLW 022-8-021).
While parties in Virginia “have the autonomy to enter into contracts freely, be they prudent or imprudent, […] the General Assembly specifically charged circuit courts with protecting those who seek to contract away their right to settlement payments,” Hall said.
In 2016, negative media attention about the abusive practices surrounding the purchasing of structured settlement payments triggered the Virginia General Assembly to tighten some of the requirements in the Virginia Structured Settlement Protection Act.
The changes required that purchasing companies disclose prior transfers in a petition filed where the payee lives, and the payee must appear for a hearing.
However, the updates failed to address “the often shocking disparity between the value of the payments being transferred and the very minimal prices that are proposed to be paid,” Hall wrote.
The judge also noted that, in a vast majority of these cases, “the Court is provided very little information about the underlying claim that gave rise to the structured settlement.”
In this case, though, the underlying litigation took place in the Norfolk Circuit Court. A review of the court’s file showed that Shawnda Lancaster suffered lead poisoning as a child, Hall said, pointing out that “[n]othing in the Petition alerted this Court to that fact.”
“If a case involved lead poisoning or other alleged mental or cognitive impairment issues, those facts are surely pertinent to a court’s evaluation of the decision to sell an income stream; but Virginia’s statute does not require parties to provide this information,” the judge wrote.
The lawsuit filed by Lancaster’s mother was settled in 2000, part of which included the purchase of a $400,000 annuity that would make lifetime payments to the child. Lancaster received monthly payments of nearly $2,000 and other lump sums through her guardian ad litem until her 21st birthday in 2008.
Lancaster testified that she sold the payment stream that began on her 21st birthday in 2008 and she hasn’t received any payments since.
According to this petition, another sale was approved in April 2020 for payments totaling about $356,000 in exchange for $17,500. While the petition provided no other information about the sales, the judge calculated that the 2020 transfer represented 15 years of payments from 2020 through 2035.
Lancaster also testified that she has no dependents. She could not remember exact details about selling her payment rights or what she did with the money she was paid, “but it has obviously been more than one time reported in the petition; and she does not have any of the money that she received from those earlier sales,” Hall observed.
Here, Peachtree Settlement Funding, LLC, sought approval to buy Lancaster’s payments beginning when she turns 68 in 2055 through 2066 for an aggregate amount of about $261,000. Peachtree initially offered $4,500, then raised it to $5,000, and now has offered $10,000.
The present value of Lancaster’s future payments is about $140,000, meaning Peachtree intended to purchase the payments at only 7% of present value.
Hall acknowledged Peachtree’s argument that “Lancaster might not live until age 68 and that the purchaser is taking the risk that she will die and the payments will cease.”
Best interests analysis
According to Hall, the term best interests is nebulous, adding that “[n]either the statute nor any controlling case authority enumerates factors that would guide courts in making this analysis.”
The judge found a 2018 article by University of Maryland Law Professor Karen Czapanskiy — “Structured Settlement Sales and Lead-Poisoned Sellers: Just Say No” — to be instructive.
“The Court finds Professor Czapanskiy’s argument persuasive and agrees that the ‘best interests’ inquiry mandated by [Virginia’s Structured Settlement Protection Act] should focus on how the proposed transfer will improve the economic security of the transferor,” Hall wrote.
Notwithstanding Peachtree’s statutory compliance, the judge said “this Court has serious doubts about [Lancaster’s] level of comprehension of the nature of these transactions. An experienced person with an advanced education would find these transactions complicated.”
As such “Lancaster’s history of lead poisoning and neurocognitive impairments increase the Court’s concern,” the judge added.
The court denied the petition, saying it could not find that Lancaster’s best interests were served by her handing over the vast majority of the value of her structured settlement payments to the factoring company.