STATE OF MINNESOTA
IN COURT OF APPEALS
Settlement Capital Corporation,
Jody Lee Lundgren,
State Farm Mutual Automobile Insurance Company,
Safeco Life Insurance Company,
Filed July 2, 2002
Ramsey County District Court
File No. C0016648
John G. Westrick, Tammy L. Merkins, Westrick & McDowall-Nix, P.L.L.P., 400 Minnesota Bldg., 46 East Fourth St., St. Paul, MN 55101 (for appellant Lundgren)
Lawrence P. Zielke, Shapiro & Nordmeyer, LLP, Suite 390, 7300 Metro Boulevard, Edina, MN 55439-2306 (for appellant Settlement Capital Corp.)
Sean Simpson, Brian J. Slovut, Hinshaw & Culbertson, Suite 3100, 222 South 9th St., Minneapolis, MN 55402 (for respondent State Farm Mut. Ins. Co.)
Considered and decided by Lansing, Presiding Judge, Anderson, Judge, and Poritsky, Judge. *
S Y L L A B U S
I. To determine whether the transfer of structured-settlement payment rights is in the “best interests” of a payee under Minn. Stat. § 549.31 (2000), the district court should consider factors that include, among other case-specific factors, the payee’s reasonable preference, the purpose for the transfer, the potential for future income loss or future medical expenses related to the settlement, the relationship of the proposed discount rate to the market rate for similar transfers, and the payee’s financial needs and obligations to dependents.
II. A payee is not required to show that the transfer of structured-settlement payment rights will have no adverse tax consequences; rather the payee must show the receipt of “independent professional advice” on the legal, tax, and financial implications of the transfer. Minn. Stat. § 549.31, subd. 1(d) (2000).
Jody Lundgren is the payee under a structured minor settlement. When she reached 21 years of age, Lundgren sought permission from the district court under Minn. Stat. § 549.31 (2000), to allow her to transfer some of her structured-settlement payment rights in exchange for a lump-sum payment from Settlement Capital Corporation. The district court denied her petition. Because the undisputed facts show that Lundgren did not receive independent tax and financial advice, we affirm the denial.
F A C T S
In 1986, when she was six years old, Jody Lundgren was involved in a car accident that caused permanent scars on her face and back and required stomach surgery. She settled her claims against the negligent parties and their insurer, State Farm Insurance Company, through a structured settlement funded by an annuity purchased by State Farm and issued by Safeco Insurance Company. The structured settlement provided that Lundgren would receive $1,000 monthly from August 20, 1998 (at age 18), through July 20, 2003; $750 monthly from August 20, 2003, to July 20, 2008; $800 monthly from August 20, 2008, through July 20, 2018; and $1,125 monthly from August 20, 2018, until her death. The terms of the structured settlement do not prohibit assignment.
When Lundgren turned 21 years old, she contacted Settlement Capital Corporation to inquire about transferring some of her structured-settlement payment rights in exchange for a lump-sum payment. Settlement Capital agreed to buy the payment rights from August 2001 through March 2011 in exchange for the lump sum of $50,615. Settlement Capital arrived at this figure by discounting the future payments to present value using the relatively high discount rate of 15.986%. As part of the transaction, Settlement Capital agreed to pay its own attorneys’ fees, attorneys’ fees incurred by Lundgren exceeding $1,500, and any brokerage fees exceeding $4,000. Settlement Capital furnished Lundgren the disclosure statement required under Minn. Stat. § 549.31.
Settlement Capital petitioned the district court under Minn. Stat. § 549.31 (2000) for authorization of the transfer. At the motion hearing, Lundgren was represented by her own attorney. In response to court questioning, Lundgren testified that she was satisfied with her attorney’s legal advice. Lundgren testified that she planned to use about $15,000 of the lump-sum payment to make a house down-payment she could not otherwise afford, about $11,500 to pay off a car loan, and the remainder to pay off miscellaneous bills and debts.
Lundgren testified that she holds a regular job in a group home for vulnerable adults and that her injuries from the 1986 car accident were scars that do not affect earning ability. She testified that the purchase of a house was in her best interests. She confirmed that she understood she was giving up her right to ten years of structured settlement payments; she also said that she understood the lump sum was significantly less than the total amount of the payments over time ($96,600) and less than the present-day value of the payments ($73,291.15) using a much-lower, 6.2% discount rate published by the Internal Revenue Service.
The district court denied the petition, finding that the transfer was not in Lundgren’s “best interests” because she had no immediate health emergency or other pressing need for money, the lump-sum payment was too deeply discounted, and Lundgren had not received independent advice on the tax and financial implications of the transfer. The district court also questioned whether the transfer might affect the tax consequences of the remaining unsold payments under the structured settlement. Lundgren and Settlement Capital Corporation appeal the district court’s denial of the petition.
I S S U E S
I. Do the requirements of the transfer statute apply to a structured settlement that does not prohibit assignment?
II. Did the district court apply the proper statutory criteria in finding that the transfer was not in the best interests of Lundgren?
III. Did the district court err in finding that Lundgren did not receive advice on the tax and financial implications of the transfer?
A N A L Y S I S
We believe that the best interests determination involves a more global consideration of the facts, circumstances, and means of support available to the payee and his or her dependents. These considerations would include, among other case specific factors, the reasonable preference of the payee, in light of the payee’s age, mental capacity, maturity level, and stated purpose for the transfer. See, e.g., Minn. Stat. § 518.17, subd. 1(2) (2000) (including reasonable preference of a child of sufficient age as factor to be considered in determining best interests of child); Minn. Stat. § 525.539, subd. 7 (2000) (including reasonable preference of a ward with sufficient capacity to express a preference as factor to be considered in determining best interests of ward).
The factors for consideration should also include whether the periodic payments of the structured settlement were intended to cover future income loss or future medical expenses. If so, the district court should inquire whether the payee has means of support aside from the structured settlement to meet these obligations. See, e.g., Minn. Stat. § 549.25(1) (2000) (requiring district court to hold hearing if injured person receives jury verdict for future damages exceeding $100,000 to consider if structured settlement would permit injured person to meet obligations likely to be incurred in the future). The district court should also consider whether the offered discount rate is in line with the market rate for similar transfers. The discount rate used by Settlement Capital for this transfer is, on its face, relatively high, but not illegal, and also takes into account the payment of various fees that Lundgren might otherwise incur. The legislature has not provided a specific limit on the discount rate for such a transaction. Finally, the district court should consider whether the transfer is in the best interests of the payee’s dependents; we believe this may involve an assessment of whether the payee can meet the financial needs of and obligations to the payee’s dependents if the transfer is allowed to proceed.
D E C I S I O N
* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.
 Present value is the sum of money that would, with compound interest, amount to a specific sum on a specific future date, or put another way, the future value of the money discounted to today’s value. Black’s Law Dictionary 1203 (7th ed. 1999). The higher the discount rate used to calculate the present value, the smaller the present value sum will be.