Judge: Elaine Lu, Case: 24STCP00180, Date: 2024-02-28 Tentative Ruling

Case Number: 24STCP00180    Hearing Date: February 28, 2024    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Background   

             On January 18, 2024, Petitioner J.G. Wentworth Originations, LLC (“Petitioner”) filed the instant petition seeking the court’s approval of the transfer of certain structured settlement payment rights by Darryl Savala (“Payee”) to Petitioner.

            On February 2, 2024, filed the operative first amended petition.  No opposition has been filed. 

Legal Standard

            “‘Structured settlements are a type of settlement designed to provide certain tax advantages. In a typical personal injury settlement, a plaintiff who receives a lump-sum payment may exclude this payment from taxable income under [the Internal Revenue Code]. However, any return from the plaintiff's investment of the lump-sum payment is taxable investment income. In contrast, in a structured settlement the claimant receives periodic payments rather than a lump sum, and all of these payments are considered damages received on account of personal injuries or sickness and are thus excludable from income. Accordingly, a structured settlement effectively shelters from taxation the returns from the investment of the lump-sum payment.’” (321 Henderson Receivables Origination LLC v. Sioteco (2009) 173 Cal.App.4th 1059, 1064.)

            Under federal law, the transferee of the structured settlement payment rights must pay a federal tax on the transaction, unless the transferee obtains court approval of the transfer in advance in a qualified order. (26 U.S.C. § 5891(a), (b).) A “‘qualified order’ [is] a final order, judgment, or decree which [¶] (A) finds that the transfer ... [¶] (i) does not contravene any Federal or State statute or the order of any court or responsible administrative authority, and [¶] (ii) is in the best interest of the payee, taking into account the welfare and support of the payee's dependents.” (26 U.S.C. § 5891(b)(2)(A).)

The qualified order must be issued “under the authority of an applicable State statute by an applicable State court.” (26 U.S.C. § 5891(b)(2)(B)(i).) In California, the Structured Settlement Protection Act (Ins. Code § 10134 et seq.) is the applicable state statute.

Insurance Code section 10139.5 provides that a transfer of structured settlement payment rights is not effective unless the transfer has been approved in advance in a final court order based on the following express findings by the court that:

(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 that advice or knowingly waived that advice in writing.

(3)   The transferee has provided the payee with a disclosure form that complies with Section 10136 and the transfer agreement complies with Sections 10136 and 10138.

(4)   The transfer does not contravene any applicable statute or the order of any court or other government authority.

(5)   The payee reasonably understands the terms of the transfer agreement, including the terms set forth in the disclosure statement required by Section 10136.

(6)   The payee understands and does not wish to exercise the payee’s right to cancel the transfer agreement.

(Ins. Code § 10139.5(a).)

            “When determining whether the proposed transfer should be approved, including whether the transfer is fair, reasonable, and in the payee’s best interest, the court shall consider the totality of the circumstances, including, but not limited to: (1) the reasonable preference and desire of the payee to complete the proposed transaction, taking into account the payee’s age, mental capacity, legal knowledge, and apparent maturity level; (2) the stated purpose of the transfer; (3) the payee’s financial and economic situation; (4) the terms of the transaction, including whether the payee is transferring monthly or lump sum payments or all or a portion of his or her future payments; (5) whether the future periodic payments were intended to pay for future medical care of the payee related to the incident that was the subject of the settlement; (6) whether the payee has other means of income or support sufficient to meet the payee’s future financial obligations for support of payee’s dependents, such as child support; (7) whether there were previous transactions involving payee’s structured settlement payments; and (8) whether the payee and his or her dependents are facing a hardship situation.” (Ins. Code § 10139.5(b).)

            Procedurally, Insurance Code section 10136 provides that ten or more days before the payee executes a transfer agreement, the transferee shall provide the payee with a separate written disclosure statement, accurately completed with the information that applies to the transfer agreement in at least 12-point type or 14-point font as specified in the example given in the section. (Ins. Code § 10136(b).)

            The court-approval process requires the transferee to file a petition in the county in which the transferor resides for approval of the transfer.  (Ins. Code § 10139.5(f)(1).)  In addition, the following elements are required to be served and filed not less than 20 days prior to the scheduled hearing on any application for approval of a transfer of structured settlement payment rights:

(A) A copy of the transferee’s current and any prior petitions.

(B) A copy of the transfer agreement.

(C) A listing of each of the payee’s dependents, together with each dependent’s age.

(D) A copy of the disclosure required in subdivision (b) of Section 10136.

(E)  A copy of the annuity contract, if available.

(F)  A copy of any qualified assignment agreement, if available.

(G) A copy of the underlying structured settlement agreement, if available.

(H) If a copy of a document described in subparagraph (E), (F), or (G) is unavailable or cannot be located, then the transferee is not required to attach a copy of that document to the petition or notice of the proposed transfer if the transferee satisfies the court that reasonable efforts to locate and secure a copy of the document have been made, including making inquiry with the payee. If the documents are available, but contain a confidentiality or nondisclosure provision, then the transferee shall summarize in the petition the payments due and owing to the payee, and, if requested by the court, shall provide copies of the documents to the court at a scheduled hearing.

(I)    Proof of service showing compliance with the notification requirements of this section.

(J)   Notification that any interested party is entitled to support, oppose, or otherwise respond to the transferee’s application, either in person or by counsel, by submitting written comments to the court or by participating in the hearing.

(K) Notification of the time and place of the hearing and notification of the manner in which and the time by which written responses to the application must be filed, which may not be less than 15 days after service of the transferee's notice, in order to be considered by the court.

(L)  If the payee entered into the structured settlement at issue within five years prior to the date of the transfer agreement, then the transferee shall provide notice to the payee’s attorney of record at the time the structured settlement was created, if the attorney is licensed to practice in California, at the attorney’s address on file with the State Bar of California. The notice shall be delivered by regular mail.

 (Ins. Code § 10139.5(f)(2))

            Lastly, the court shall retain continuing jurisdiction to interpret and monitor the implementation of the transfer agreement as justice requires.  (Ins. Code § 10139.5(i).) 

Discussion

            Petitioner seeks the transfer of 48 monthly payments of $3,500.00 beginning March 1, 2024 and ending on February 1, 2028.  In return for this structured settlement payments totaling $168,000.00 split over four years, Payee would receive $128,500.00.

Procedural Requirements

Venue is proper.  Payee is domiciled in Los Angeles County.  (Savala Decl. ¶ 1.)  The proof of service filed indicates that the second amended petition and notice, including exhibits, were served on all interested parties on February 2, 2024 by overnight and regular mail – more than twenty days before this hearing.  The proof of service reflects service on Payee, the annuity obligator, and the annuity issuer.  Accordingly, this petition is timely, and all interested parties have been served.   

Petitioner’s petition includes the required documents under Insurance Code section 10139.5(f)(2): (A) copy of the current petition (no previous petition has been filed), (B) a copy of the transfer agreement (Exh. A); (C) that Payee has a no spouse or minor children, (Savala Decl. ¶ 8), (D) a copy of the disclosures for the transfer agreement (Exh. B); (E) a copy of the annuity contract (Exh. C); (H) as a copy of the underlying settlement agreement is unavailable, an affidavit from Payee setting forth that reasonable efforts to locate such settlement agreement were made (Exh. D); (I-K) proof of service of notice on interested parties that they are entitled to respond to this petition and of the time and place of the hearing; and (L) as the structured settlement was made in 1996 a courtesy copy is not necessary to Payee’s attorney of record at the time.

Accordingly, Petitioner has fulfilled the requirements of Insurance Code section 10139.5(f)(2). 

Factual Findings

The disclosure (Exh. B) complies with the requirements of Insurance Code section 10136.  Moreover, the transfer agreement complies with Insurance Code section 10138 as no prohibited language is included in the transfer agreement.  (Exh. A.)  Accordingly, the Court finds that the transfer agreement complies with Sections 10136 and 10138, as required by Section 10139.5(a)(3).  (Ins. Code § 10139.5(a)(3).) 

Here, the Petitioner sufficiently shows that the transfer is in the Payee’s best interest.  The payment amount represents 86.10% of the estimated current value of the payments.  (Exh. A.)  The settlement payments were not intended to pay for the future medical care and treatment relating to the incident that was the subject of the settlement nor for necessary living expenses.  (Savala Decl. ¶¶ 6-7.)  Payee has no court ordered obligation to pay child support.  (Savala Decl. ¶ 8.)  Payee has two dependents, a 17-year-old minor child, and a 8-year-old minor child who resides with Payee.  (Savala Decl. ¶ 8.)  Plaintiff is married and has a steady income through his spouse’s employment, from his unemployment benefits, and from SSI.  (Savala Decl. ¶ 8.)  However, “[Payee] [is] currently experiencing a financial hardship. If approved, [Payee] will use the money received from the proposed settlement to start a business, more specifically a General Contracting company with specialization in Electrical work as [he] ha[s] many years of experience in this field as well as all the necessary certifications from [his] past. [Payee] would also need to purchase tools, and other business necessities in order to operate. [Payee] [is] currently working a Business Plan to lay out [his] goals for [his] future company.”  (Savala Decl. ¶ 11.)

Given these factors, the instant transfer appears to be in Payee’s best interest.  Payee does not wish to exercise his right to cancel the transaction.  (Savala Decl. ¶ 13.)  In addition, Payee was advised in writing by Petitioner to seek independent professional advice regarding the transfer and knowingly waived this right.  (Savala Decl. ¶ 12; Exh. E.)

In sum, the (1) transfer is in the Payee's best interest, taking into account the welfare and support of the Payee's dependents, (Ins. Code § 10139.5(a)(1)); (2) Payee has been advised in writing by the Petitioner to seek independent professional advice regarding the transfer and has either received that advice or knowingly waived, in writing, the opportunity to receive this advice, (Ins. Code § 10139.5(a)(2)); (3) the Petitioner complied with the notice requirements in Insurance Code § 10139.5(f)(2), the disclosure complies with Insurance Code § 10136, and the transfer agreement complies with Insurance Code § 10138, (Ins. Code § 10139.5(a)(3)); (4) the transfer does not contravene any applicable statute or the order of any court or other government authority, (Ins. Code § 10139.5(a)(4)); (5) the Payee understands the terms of the transfer agreement, (Ins. Code § 10139.5(a)(5)); and (6) the Payee understands and does not wish to exercise the Payee's right to cancel the transfer agreement, (Ins. Code § 10139.5(a)(6)).

CONCLUSION AND ORDER 

Based on the foregoing reasons, Petitioner J.G. Wentworth Originations, LLC’s petition approving transfer of structured settlement payment rights is GRANTED.

Pursuant to Insurance Code § 10139.5(i), the Court retains jurisdiction to interpret and monitor the implementation and closing of the transaction that is the subject of the transfer agreement as justice requires.

Petitioner is ordered to provide notice of this order and file proof of service of such. 

DATED: February ___, 2024                                                 ___________________________

                                                                                          Elaine Lu

                                                                                          Judge of the Superior Court