Structured Settlement Sales

Call for Attorneys to Participate in the Proposed Attorney Ad Litem Wheel

BY JUDGE MAYA GUERRA GAMBLE

Background on Structured Settlement Sales

If you practice in the area of personal injury law then you already know that many settlements are awarded in the form of annuities or “structured settlements,” especially in the situation where a plaintiff is a minor. In theory a structured settlement is thought to be a win/win/win situation: The minor receives compensation for her injury and that money is protected from both her own potentially unwise and youthful spending decisions and from her parents’ potentially unwise spending decisions. Depending on the size of a settlement, the plaintiff could end up with multiple lumpsum payments as well as monthly payments stretching over 10, 20, 30 years, or in some cases even “lifetime” benefits, all tax-free. A definite “win” for the plaintiff. 1

A structured settlement is also a “win” for the defendant, by reducing the cost of settlement without reducing the compensation to the plaintiff. The state also has a “win” as the income stream will likely prevent reliance on any state support down the line for the injured person.

The Texas Structured Settlement Protection Act

But what if our hypothetical minor plaintiff is now 18, 30, or 40 years old and wants more of the money than he is receiving in monthly payments, what can he do? That is where CPRC Chapter 141, the “Structured Settlement Protection Act” governs. 2 Chapter 141 took effect Sept. 1, 2001 in response to a rise of “factoring companies” and their often unscrupulous and abusive tactics. If you have ever found yourself watching daytime tv on a sick day, you have seen the slick ads. Factoring companies buy the right to receive all or a portion of the plaintiff’s payments but often only give the plaintiff a greatly reduced sum in return. The legislature believed this practice defeated the very purpose of the structured settlements and enacted Chapter 141 to provide for court review of these transactions.

Chapter 141 is comprised of three major requirements: (1) the settlement purchaser must provide specific disclosures to the payee; (2) the settlement purchaser must provide notice to the court and “interested parties”; and (3) the court must make three express findings of fact before a transfer may be approved.

Depending on the size of a settlement, the plaintiff could end up with multiple lump-sum payments as well as monthly payments stretching over 10, 20, 30 years, or in some cases even “lifetime” benefits, all tax-free.

Disclosure Requirements At least three days before the date on which the payee signs the transfer agreement, the purchaser must provide her with a disclosure statement clearly outlining (in bold type and 14-point font):

• The amount and due dates of the structured settlement payments being sold;

• The aggregate amount of the payments being sold;

• The discounted present value of the payments being sold;

• An itemized listing of all applicable transfer expenses;

• The amount of any penalties or liquidated damages payable by the payee in the event of breach of the transfer agreement by the payee; and

• A statement that the payee has the right to cancel the transfer agreement without penalty or obligation within the next three business days.

Notice Requirements

The purchaser must file an application to approve the transfer with the appropriate court (i.e., the court of original jurisdiction or the court in the county in which the payee currently lives) and at least 20 days before the hearing provide all “interested parties” with notice of the proposed transfer and a copy of the following documents: the application, including a copy of the transfer agreement; the disclosure statement; a list of the payee’s dependents and their ages; notice that any interested party is entitled to support, oppose or otherwise respond; and notice of the time and location of the hearing on the application.

Findings of Fact

The court must make the following express findings of fact:

1. The transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents;

2. The payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received the advice or knowingly waived the advice in writing; and

3. The transfer does not contravene any applicable statute or an order of any court or other governmental authority.

As you might expect, the “best interest” finding is the one which keeps judges up at night. Telling an adult that you believe you know better than they do and thus you will not allow them to have their money can be a difficult task. Sometimes the decision is easy, such as when the payee is evidently suffering from reduced capacity and is being taken advantage of by a friend or family member. Other times the decision is more fraught: when the payee is not of a reduced capacity but perhaps makes life and financial choices that do not seem to be in her own best interest. One might ask, why is this adult to be treated differently than any other adult who is allowed to make mistakes with their finances?

Courts’ Judgment and Establishing Guidance

Similar to a trust established by a parent, the structured settlement is put in place with restrictions that the beneficiary may not change. Public policy and Texas law require that the court make an arguably paternalistic determination as to whether the payee is able to decide for himself whether to sell his own property. No other guidance is given by Chapter 141 to direct the courts in their examination, and typically the only parties appearing are the payee and the proposed purchaser. Thus, courts are left to craft their own examination and set of red flags to consider.

In Travis County, the bench has created just such guidance for the judges. Another tool the Travis County bench can use is to appoint an attorney ad litem. An attorney ad litem reviews fees paid by the purchaser, advises the payee, and negotiates on her behalf. Involving an attorney ad litem often can result in a significantly better deal for the payee.

The Travis County District Court is looking to create an appointment wheel of attorneys who are qualified and interested in accepting these short-term appointments. In Travis County, the structured settlement sale requests typically come to the courts during the uncontested docket or the submission docket. Approximately 70 such requests were filed in Travis County District Courts in 2020 and 2021.

Please consider becoming an attorney ad litem. AL

Footnote

1. See IRC §104(a)(1) or (2); 25 U.S.C. § 130.

2. See generally Tex. Civ. Prac. & Rem. Code §§ 141.001–.007.

Interested In Being on the Wheel Appointment List for Travis County District Court?

Contact Judge Maya Guerra Gamble through her assistant. Email shannon.matusek-steele@ traviscountytx.gov and include “Chapter 141 Wheel” in the subject line. Include your name, phone number, bar license number, and any relevant experience you believe you have. Once we have a sufficient number of interested attorneys, we will hold a CLE on the topic (one hour) and then begin appointments.

The Hon. Maya Guerra Gamble is the presiding judge of the 459th Civil District Court in Travis County.