Legislature(2003 - 2004)
02/11/2003 08:00 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 64 - PURCHASE OF STRUCTURED SETTLEMENTS Number 1879 CHAIR WEYHRAUCH announced that the last order of business was HOUSE BILL NO. 64, "An Act relating to court approval of the purchase of structured settlements." Number 1848 PAUL LaBOLLE, Staff to Representative Richard Foster, Alaska State Legislature, told the committee that HB 64 is a law dovetailing into federal legislation regarding the purchase of structured settlement. It would disallow the purchase of a structured settlement, "without it first being brought through a court for approval." He stated that, apparently, private firms have been buying structured settlements at discounted rates. He mentioned [the state's] Bush constituency and said, "People out in the village don't necessarily understand the discounts that they're being given and whether or not it is a good deal ..., nor what the tax implications of such a lump-sum transfer are." He said that [the proposed legislation] would "stop them from being unduly burdened on that." CHAIR WEYHRAUCH, in response to a question from Representative Berkowitz, replied that there are witnesses waiting to testify. Number 1750 REPRESENTATIVE HOLM asked Mr. LaBolle to describe specific settlements to which he is referring, that have caused "this act." Number 1728 MR. LaBOLLE answered that there are several types of structured settlements, including workers' compensation. He said: Mostly we're dealing with personal injuries, and the structured settlements are generally set up in cases where it is not felt that the recipient of the payment would be able to handle a large, lump-sum payment and, therefore, it is paid out in increments, so that they will continually have funds and not become a burden on the state. Number 1698 REPRESENTATIVE HOLM asked if the issue being discussed had more to do with a court-designated schedule than a lottery, for example. MR. LaBOLLE answered that, in the case of a lottery, "that's where it happens up front." The proposed legislation would not have any effect on how a person chooses to receive payments originally, "it's only after a structured settlement has been assigned and then an approach is made to purchase that structured settlement after it's already been determined," he explained. Number 1644 REPRESENTATIVE HOLM asked, "What about the idea of a person being able to choose to make a mistake?" MR. LaBOLLE responded that people are free to make decisions and mistakes; however, they might make bad decisions that effect dependents, for example. REPRESENTATIVE HOLM stated that he was attempting to get a feeling of why this [legislation] is necessary and how its implications would be manifested. MR. LaBOLLE responded as follows: The bill is intended to stop the purchase of awarded settlements from being usurped of their intention. At first, the structured settlements are assigned in order to keep people in a constant stream, so if they can't work because they've been disabled, they have a constant income. And the design of this bill is to keep that from being purchased and then, basically, the money being blown, because the person doesn't know how to deal with a lump sum of cash. And then they're in the hands of the state again, on welfare, because they're unable to work, because of the personal injury that they've received. Number 1495 REPRESENTATIVE SEATON asked if the proposed legislation would only [address] "court structured settlements," or could there be "fallout" into mortgages, for example, or other structured payment plans that might result in restrictions. MR. LaBOLLE responded that [HB 64] should be written only in a way which would allow for court approval of court-issued settlements and should not apply to mortgages, for example. REPRESENTATIVE SEATON asked where that language could be found in the proposed legislation. Number 1440 CHAIR WEYHRAUCH noted Section 1, [paragraph] 1, [lines 10-12], which read as follows [original punctuation provided]: (1) the structured settlement arose from an action filed in Alaska or that could have been filed in Alaska, or the payee of the structured settlement is domiciled in Alaska; CHAIR WEYHRAUCH suggested that the language could be amended to add the word "court" before the word "action", to indicate court action, rather than an action filed in a recorder's office, for example. MR. LaBOLLE stated that that is a good idea. Number 1360 REPRESENTATIVE BERKOWITZ asked the following: For purpose of clarification, if someone gets a settlement, where they're being paid $10,000 a year for, say, the duration of their lifetime, what this is intended to prevent is some third party coming in and saying, "We're going to give you $50,000 up front." And then they're going to take over receipt of those $10,000 payments in perpetuity. Is that correct? MR. LaBOLLE concurred. REPRESENTATIVE BERKOWITZ asked if, frequently, parents might take a settlement on behalf of their children and have some kind of trust responsibility for their children, and sometimes there would be nothing to prevent the parent from selling the settlement, even though a child's interest is involved. MR. LaBOLLE stated that if he understands correctly, "this settlement would stop that, because it requires the court consider the dependents' best interest." REPRESENTATIVE BERKOWITZ noted that "this tactic" is frequently used by predatory outside interests to take money from Alaskans. He stated that a structured settlement is something that the court and both parties have agreed to and there is a vested state interest in ensuring that that settlement is carried forward. He mentioned a predatory problem [in regard to ensuring that] a third party not subvert the will of the court. He asked Mr. LaBolle if that is also what he is intending to prevent. MR. LaBOLLE said yes. Number 1265 REPRESENTATIVE LYNN mentioned a reassignment approved by the court. He asked what the cost to the person seeking court approval would be. MR. LaBOLLE answered that he is not sure, but that it would probably be deducted in the lump-sum payment. REPRESENTATIVE LYNN asked how long it would take for "one of these people" to receive a hearing and a decision by the court. MR. LaBOLLE replied that he did not know. Number 1190 REPRESENTATIVE GRUENBERG said, "We're duplicating a statute that I think may be at the root of the problem." He indicated AS 09.17.040. He mentioned a tort reform which allows the court, at the request of the injured party, to order periodic payments - structured settlements that are paid out over time. Furthermore, there is a provision in that statute that says that once the court has ordered periodic payments, it can't change that order unless the party dies, and then it can only change it to provide for support [to persons to whom the judgment creditor owed a duty of support, as provided by law, immediately before death]. He said a "Rule 60(b) motion," which allows a person to get relief from judgment, can't be filed. He mentioned the requirements to modify a court rule. REPRESENTATIVE GRUENBERG offered the example of a person who is "down the road on periodic payments" and can't live with that anymore. He said that, normally, that person should have the right to seek relief from judgment, to go back to court and get an order for a lump-sum payment. He suggested a [solution] would be to amend the statute to allow a person to file a Rule 60(b) motion, so the court can allow a lump-sum payment, and [that person] would not have to deal with "this industry." He asked Mr. LaBolle if he thinks that is an idea that should be considered. Number 0992 MR. LaBOLLE responded, "It does seem that the court closing the door at the end of the decision does open the door for the sharks to come in." REPRESENTATIVE GRUENBERG mentioned a jurisdiction and an amount limited to $75,000. He said, "But in here, you only allow the superior court to entertain such a motion." MR. LaBOLLE indicated that the reference to "superior court" is on page 3, line 19 of [HB 64]. Number 0935 REPRESENTATIVE GRUENBERG asked Mr. LaBolle if there was any reason why the language should not say "the court with competent jurisdiction", since some decisions may have been rendered by the district court. He asked Mr. LaBolle if he would object to that suggestion as an amendment. MR. LaBOLLE said no. REPRESENTATIVE GRUENBERG referred to page 2, beginning on line 26, which read as follows: (5) the payee has received independent professional advice regarding the legal, tax, and financial implication of the transfer; REPRESENTATIVE GRUENBERG asked how that would affect people living in the Bush who don't have easy access to a lawyer. MR. LaBOLLE answered that those people would be able to speak with a lawyer via a telephone. REPRESENTATIVE GRUENBERG indicated chapter 55 of a federal law [P.L. 107-134], which says that tax is imposed [on any person who acquires] structured settlement [payment rights in a structured settlement factoring transaction]. He said the tax is [equal] to 40 percent of the factoring discounts, and he added that it looks to him like a confiscatory tax, rather than a revenue-raising tax. He said he could see how this tax could drive down the amount to the injured party even further. He stated that he was contemplating a state tax to further attempt to "ratchet down the industry." REPRESENTATIVE GRUENBERG referred in part to AS 09.17.040, subsection (f), which read as follows: Payments may be modified only in the event of the death of the judgment creditor, in which case payments may not be reduced or terminated, but shall be paid to persons to whom the judgment creditor owed a duty of support, as provided by law, immediately before death. Number 0728 REPRESENTATIVE GRUENBERG stated, "It seems to me maybe we could cure this problem by simply changing that sentence to allow the judge to entertain a Rule 60(b) motion." MR. LaBOLLE noted that a definition of "structured settlement" can be found on [page 5, lines 16-18, of HB 64], which reads as follows: (9) "structured settlement" means an arrangement for periodic payment of damages for personal injuries established by settlement or judgment in resolution of a tort claim or for periodic payments in settlement of a workers' compensation claim; Number 0600 WILLIAM AZAR, Attorney at Law, told the committee that he has been practicing personal injury law in the State of Alaska since May 1973, representing plaintiffs. He said his practice is composed of a large number of Native individuals. Over the years, he noted, he has settled many cases for large amounts of money, where structured settlements were employed as a vehicle to pay off the money to the individuals, with the idea that those individuals would obtain periodic, tax-free, payments and live the rest of their lives without worrying about the fact that they could no longer work. MR. AZAR stated that even though court order would provide that the structured settlements could not be cashed in, he has seen them cashed in by a number of "fraudulent, artificial means," with the consent of the injured party who wants a lump-sum settlement, rather than the periodic payments he/she originally agreed to. Number 0492 MR. AZAR stated his understanding that [HB 64] would not prohibit "these assignments," but is a consumer bill that requires disclosure through the court system. He opined that that is a good thing; it requires people who want to pay a lump sum for structured settlement to get court approval and prove that they have shown to the injured party exactly how much it will cost him/her. Mr. Azar said, where there have been large settlements and structured settlements employed, most of his Native clients have cashed them in. He said it's a pity, because the money is dissipated quickly, and they're worse off then if they had just been given one large lump sum in the beginning. MR. AZAR stated that he is in favor of [HB 64], just as he was in favor of [its precursor] two years ago. He said, "It was so important that the U.S. Congress passed legislation that penalized these people when they don't get a state court to approve the cashing in of the settlement." He urged the House State Affairs Standing Committee to pass HB 64. He said he thinks the bill is in the best interest of, not only the Native people, but every citizen of the State of Alaska. Number 0273 REPRESENTATIVE GRUENBERG asked Mr. Azar if he concurred with his previously suggested amendment for AS 09.17.040, subsection (f), regarding a Rule 60(b) motion. Furthermore, he told Mr. Azar that he would welcome a response in writing, rather than putting him on the spot right then. Number 0203 MR. AZAR read Sec. 09.17.040, subsection (d), which reads as follows: (d) In an action to recover damages, the court shall, at the request of an injured party, enter judgment ordering that amounts awarded a judgment creditor for future damages be paid to the maximum extent feasible by periodic payments rather than by a lump-sum payment. MR. AZAR said, "Sometimes they're settled without a court case, you see, so that doesn't apply there." He suggested considering an amendment to say "whether there's a case filed, or not". He agreed to clarify his comments in writing. He stated that he thinks [HB 64] ought to pass, regardless of AS 09.17.040. REPRESENTATIVE GRUENBERG clarified that he had not considered it an alternative issue, but "something we could do as part of the bill, maybe." Number 0045 RANDY DYER, Executive Vice President, National Structured Settlement Trade Association (NSSTA), Washington D.C., reminded the committee that structured settlements have served Alaskans for more than two decades. TAPE 03-07, SIDE A Number 0010 MR. DYER told the committee that when the legislature last considered this legislation in Alaska, 18 states had already passed similar legislation; today that number is 35 states. He said that the factoring companies have, for the most part, "found religion as a result of the federal bill and the companion bills in the state." A new industry has emerged to take their place, and it supports the legislation now before the committee. He listed the following supporters of this legislation nationally: members of both the plaintiff and defense bar, members of the disability community, members of the consumer community, judges, and mediators. He noted that [HB 64] stands as a companion to the federal legislation. MR. DYER discussed the purpose of the federal legislation. He said it establishes a 40 percent excise tax on the factoring companies. The excise tax is designed to be the difference between the amount given to the victim of the factoring transaction and the total undiscounted payments given in exchange for that, he said. Furthermore, the 40 percent excise tax can't, in effect, be deducted from the amount given to the person, because as soon as the person gets less, the tax goes up, which creates a sort of tax spiral. The tax was never intended to be levied on anyone, he said; it is so confiscatory that it is intended only to control behavior. He explained that the behavior, in this case, is to drive the factoring transaction into the oversight of a court, which is what [HB 64] would do. With the court order, as described in [HB 64], the tax would be waived and the individual could receive a fair deal, he said. MR. DYER said that in the past three years since legislation has been enacted around the country, factoring companies have created good deals for people. He added that those companies are still not quite as good as normal lending practices would be, but "they are much better deals for people." He pointed out that the factoring companies have come to realize that there's no point in bringing a bad deal before a judge, because "they'll just get it thrown out." He stated that the legislation has served its purpose and he hopes the committee will pass [HB 64]. MR. DYER described a periodic payment statute that's "on the books" in the State of Alaska as "a little bit different than this." He defined a periodic payment as one in which the tort- feasor can simply pay their judgment over time. A structured settlement is a similar agreement, but is always achieved as an agreement between the parties, pretrial; no court can force anyone to take a structured settlement. He continued as follows: To make a change which would allow the individual to undo a periodic payment arrangement is one thing. To do that with a structured settlement is another. And the difference is that under a structured settlement, a funding vehicle would have been purchased. And, under federal tax law, the funding vehicle has to be fixed and determinable. That is to say the amount and timing of the payments have to be determined in advance and cannot be changed. To make a change to bring the periodic payment legislation under Rule 60(b) may trigger an unwanted tax result. So, I would suggest that, if the committee decides to go that way, that they do so very carefully. And we'd be happy to help you understand the elements of that change. Number 0500 REPRESENTATIVE GRUENBERG suggested that a subcommittee might be formed to deal with [any technical changes regarding Rule 60(b)]. He stated that he would like to have Mr. Dyer's input. CHAIR WEYHRAUCH told Representative Gruenberg that if he would work with Mr. LaBolle, Mr. Dyer, and Mr. Azar on [the issue], the committee would be consider it [further]. Number 0550 JOHN GEORGE, representing the American Council of Life Insurers (ACLI) - the providers of annuities that fund structured settlements - stated that ACLI supports [HB 64] as a good disclosure for recipients of structured settlements. In response to a request by Chair Weyhrauch, he said he would be happy to work with Representative Gruenberg and the sponsor on any committee substitutes that may come before the committee. [HB 64 was heard and held.]
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