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Judges deciding between juvenile and adult court must ask, “Is there a program that can provide immediate safety to the public and make recidivism less likely?” wrote Judge Alan M. Wilner for the court's unanimous majority. “If so, absent some other circumstance, the child should be transferred to or remain in the juvenile system.” (File photo)

Md. Court of Appeals to weigh rule protecting settlement sellers

Maryland’s top court on Thursday will consider and possibly vote on a proposed rule designed to ensure judges protect recipients of structured financial settlements from being exploited if they choose to sell them due to an imminent need for money.

The current “lack of any clear rules” governing judicial approval of settlement sales permits potential exploitation, as documented in a Washington Post article in August, Alan M. Wilner, chair of the Maryland Judiciary’s rules committee, stated in a letter to the Court of Appeals explaining the need for greater protection.

The newspaper report found that, despite federal and state laws aimed at preventing abuse, a Baltimore victim of lead paint poisoning had sold for less than $63,000 her nearly $574,000 structured settlement, which was to be paid out over 35 years.

“Unfortunately, there are a number of gaps regarding the procedure to be followed with respect to actions in Maryland to approve the assignment of structured settlement benefits; they are not covered in the statute, and no rules were ever adopted dealing with those proceedings,” stated Wilner, chairman the Standing Committee on Rules of Practice and Procedure. “That lack has left open the ability of factoring [or purchasing] companies to take improper advantage of vulnerable recipients of structured settlement payments, and of courts to routinely approve assignments without the benefit of evidence necessary for them to make the kinds of findings required by both Maryland and federal law.”

The committee found, for example, instances of buyers filing purchase petitions in courts thought most likely to approve settlement sales, regardless of where the seller lived, wrote Wilner, a retired Court of Appeals judge.

To prevent such “forum shopping,” the proposed rule would require would-be purchasers to file their petitions in courts in the seller’s county of residence, he wrote.

Detailed documentation

The proposed rule would also mandate that certain information be included in the petitions. Specifically, the would-be buyer would have to state why the purchase is “necessary, reasonable, or appropriate [and] in the best interest of the payee, taking into account the welfare and support of the payee’s dependents,” the proposed rule states, quoting from Maryland’s structured settlement law.

Some of the information supplied in the petition would include confidential documents, such as the seller’s medical records and financial statements, and be filed under seal. The purchaser would have the burden to include these documents or, if they cannot be found, state the efforts taken to locate the missing documents.

Petitions would also have to include a consent form by the sellers that contains information about them and their obligations regarding dependents. In addition, the form would have to contain documentation that the sellers received independent advice on the sale from a lawyer or financial professional and that they understand what they are giving up and receiving in return.

An affidavit from the professional adviser would also need to be provided with the petition.

The proposed rule would require the reviewing judge to conduct a court hearing that must be attended by the professional adviser and would-be seller, unless he or she is excused by the judge. Judges would have the authority to appoint a representative for the would-be seller or call for an independent mental health evaluation if they suspect he or she lacks capacity to agree to the sale.

“In Maryland, many of the assignment agreements have involved structured settlements in lead poisoning cases or other cases in which there is evidence of intellectual or cognitive impairment on the part of the payee, not to the extent of requiring a guardian of the person or property but sufficient to cast some doubt on the payee’s capacity to understand the nature and consequences of the transaction,” Wilner wrote.

To approve a purchase under the proposed rule, judges would have to make a finding based upon a preponderance of the evidence that the sale is “in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.”

Who should reform?

Attorney Scott E. Nevin, who represents lead-poisoning victims, said he would welcome a rule to protect would-be sellers of structured settlements.

He said the payment-over-time structure of settlements enables the young victims of lead poisoning to manage the more effectively than if they receives the funds in a lump sum.

“The more guidance that the court can give with regard to selling these, I would see that as a benefit to the individuals and allows them to consider other options,” said Nevin, of The Law Offices of Peter T. Nicholl in Baltimore. “As attorneys who represent lead-poisoning victims, we believe that a structured settlement is in most cases in their best interests and would like to see additional protections regarding the sale of the structured settlements.”

But a group representing buyers of structured settlements said reform is best left to the General Assembly, not the high court.

“Although the National Association of Settlement Purchasers supports efforts to improve consumer protections and transparency in Maryland’s secondary market for structured settlements, NASP believes industry issues identified in Maryland should be addressed by the state legislature rather than the Court of Appeals,” Patricia LaBorde, the group’s president, said in a statement. “Reviewing industry regulations through the state legislature is the most appropriate and effective means to ensuring structured settlement transfers safeguard consumers’ best interests.”

LaBorde is senior vice president and Structured Settlement Division counsel at Stone Street Capital LLC in Bethesda.

Wilner said the proposed rule follows from the Maryland and federal laws.

Maryland’s existing structured settlement law – Sections 5-1101 to 5-1105 of the Courts Article – requires sellers to receive independent financial advice from an attorney, accountant or similar professional before selling the settlement and requires purchasers to disclose the discounted present value of future payments being assigned.

The federal law, a 2001 addition to the tax code, imposes a 40 percent excise tax on the purchase of a structured settlement unless the sale was approved by a state court and is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.

The Court of Appeals will hold an open meeting on the proposed rule at 1 p.m. Thursday in Annapolis. Such meetings generally conclude with the high court voting on the rule that has been proposed.