Category Archives: Settlement

Settlement Funding, LLC v. Brenston – Appellate Court Determines Transfer of Structured Settlement Obtained by Fraud Upon the Court and Reverses Transfers

Settlement Funding, LLC v. Brenston, 2013 IL App (4th) 120869 (Cates)

Facts: In 1999, Cathy Brenston obtained a settlement in a medical negligence case that was set up with a structured component wherein she would receive monthly payments over a period of time.  The written settlement agreement contained a provision where claimant (Brenston) “acknowledges that the periodic payments could not be accelerated, deferred, increased or decreased” nor could she have “the power to sell, mortgage, encumber or anticipate the Periodic Payments by assignment.”  The defendant in the medical malpractice case executed two uniform qualified assignments to accomplish the periodic payments, one to Allstate and another to GE.  Each of the qualified assignments contained language that Cathy Brenston was not the owner of the annuity contract, instead she was the secured party, and had no right to sell or assign the contract.

In 2007, Cathy Brenston entered into an agreement with Settlement Funding, LLC whereby she assigned her interest in each of the annuity contracts for a lump sum payment, which not surprisingly were significantly lower than the present cash value of each of the contracts. Settlement Funding, LLC presented petitions to the trial court to have the transfer orders approved pursuant to the provisions of the Structured Settlement Protection Act.  Notably absent from each of the petitions was an expression to the trial court that there were anti-assignment provisions in the annuity contracts and the attachments to the petition did not include copies of any of the documents that would provide the trial court with that information.  The trial court granted the petitions and entered orders permitting the transfers to Settlement Funding, LLC on March 31, 2008 and April 10, 2008.

On October 28, 2011, Cathy Brenston filed a 2-1401 petition to vacate the orders entered in 2008 and declare them void because the Structured Settlement Protection Act and the anti-assignment clauses in the settlement agreement and qualified assignments prevented the trial court from exercising jurisdiction. Settlement Funding moved to dismiss the petition on the grounds that it was time barred as result of being filed over 2 years after the order was entered, which the trial court granted and dismissed the petitions.  Cathy Brenston appealed the trial court’s denial of her 2-1401 petition.

Holding: Because of the anti-assignment clause in the settlement agreement and annuity contract, the trial court was without authority to approve Settlement Funding, LLC’s petitions under the Structured Settlement Protection Act. Further, the underlying transfer orders were procured by a fraud on the trial court and are void ab initio and therefore are not time-barred by 2-1401.

Filed in Trial Book Under: Structured Settlement Protection Act, Fraud Upon the Court, 735 ILCS 5/2-1401, Judgment – Void Ab Initio

Commentary:  The attorney for Settlement Funding has really gotten himself into some hot water in this case.  The same attorney had handled prior cases where the appellate court established its precedent that anti-assignment clauses would serve to prohibit the trial court from having authority to enter a transfer order.  As a result, this appellate court panel was convinced that the attorney deliberately excluded documents that would reveal to the trial court that there had been such language in the original settlement agreements and found an outright fraud upon the court.  Because the orders were obtained by fraud, they were void ab initio and could be attacked at any time and the trial courts dismissal of the 2-1401 petition was reversed.  This is an equitable result, particularly because the appellate court has ordered that a hearing be held to restore the plaintiff to her original position, less the money she received so that there is no windfall.  It’s too bad that we permit these types of companies to exist.  They prey on the poor and unsophisticated for a profit that is simply unconscionable.

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Ahle v. D. Chandler, Inc. – Equitable Estoppel Used to Circumvent Settlement Error Allegedly Caused by Misrepresentation of State Farm Adjustor

Ahle v. D. Chandler, Inc. – 5-10-0346 (Goldenhersh)

Facts:  Plaintiff was injured by a pizza delivery vehicle.  The driver of the vehicle was insured by Allstate, while the pizza parlor was insured by State Farm.  Plaintiff’s attorney made a joint demand to both insurers for $400,000.  In response to this demand, and adjustor for State Farm wrote :

“As I previously explained the State Farm policy would be excess to the liability coverage provided by Allstate Insurance.  Insurance follows the car in the state of Illinois.  If and when the Allstate liability insurance is exhausted, will I then be required to review for additional consideration and payment as an excess policy.”

Shortly after, Allstate tendered it’s policy limits of $100,000.  When Plaintiff’s attorney contacted State Farm to advise them of Allstate’s position, he was requested to send written proof of the amount of Allstate’s policy and confirmation that the limits had been tendered, which were sent immediately along with several follow-up letters with medical records and other materials for evaluating the claim.  For the next two months, State Farm was silent, so Plaintiff’s counsel accepted Allstate’s offer and had Plaintiff sign a release for the claims for the delivery driver insured by Allstate, but reserving all claims against the pizza parlor insured by State Farm.    After another month of silence from State Farm, Plaintiff filed suit against the pizza parlor.  State Farm retained counsel for its insured who ultimately filed a motion for summary judgment on the basis that Plaintiff’s settlement with the delivery driver extinguished all vicarious liability claims against the pizza parlor.  Plaintiff then substituted counsel and his new attorneys argued that the defendant should be equitably estopped from asserting this defense on the basis that State Farm’s adjuster had misrepresented that it’s policy was excess and that Plaintiff’s former counsel detrimentally relied upon their assertion that they would evaluate the claim only after the Allstate policy had been exhausted.  The defendant denied that the State Farm adjustor had made any misrepresentation or concealment and argued that the issue was solely whether in a respondent superior case the plaintiff can make a claim against the principal after having already released its agent.  The trial court ruled in favor of the defendant and  granted summary judgment against the plaintiff.

Holding:  Summary judgment is improper because genuine issues of material fact exist regarding State Farm’s conduct prior to the settlement and release of the delivery driver such that equitable estoppel could preclude the defendant employer from raising the defense that the Allstate settlement extinguished Plaintiff’s claim for compensation from the State Farm policy.

Filed in Trial Book Under:  Equitable Estoppel; Settlements; Respondeat Superior

Analysis:  In Gilbert v. Sycamore Municipal Hospital, 156 Ill.2d 511, the Supreme Court held that the release of an agent serves to extinguish the vicarious liability of the principal, even if the agent expressly reserves the plaintiff’s right to seek recovery from the principal.  As a result, it was clearly a mistake on the part of the plaintiff’s counsel to release the agent on the assumption that State Farm would continue to negotiate the remainder of the claim with him.  Under these circumstances, it’s nice to see the appellate court see through the technically correct legal defense raised by State Farm and apply some common sense and principles of equity in order to save this badly injured plaintiff from the misadventure of his first attorney.  As the opinion points out, there were two separate policies that applied to two separate insured’s and therefore both policies were primary, not one primary and the other excess.  Certainly, the plaintiff’s attorney didn’t see it that way, and at the outset of the claim the State Farm adjustor didn’t either.  It seems as if they were both treating the case like an underinsured claim, rather than a third party case involving respondeat superior.  Clearly, the release never should have been signed, but, then again, State Farm never should have told the plaintiff that it would only negotiate after the Allstate policy was exhausted.  In a circumstance like this, when the law is clearly against you, the only avenue is to seek an equitable remedy.  And, of course, pray.  (As a child of the Star Wars era, the image I have in my head is a hologram of Princess Leia repeating “Help me Equitable Estoppel, You’re my only hope!”)  What clinched the case for me was the two months of silence after the adjustor asked for proof that Allstate had tendered it’s limits.  If the adjustor was being sincere about how the claim would be handled, then you would have expected her to begin immediately negotiating the remainder of the claim with plaintiff’s counsel, which isn’t what happened here.  On the other hand, if the adjustor was being insincere and trying to mislead the plaintiff, then you would expect her to go silent in the hope that plaintiff’s counsel would do exactly what he ended up doing.  But, there is also a third possibility, which in my opinion is most likely, and that is that the adjuster was sincere when she initially made the statement, but then subsequently learned that her position was wrong.  If that is the case, then State Farm should have simply owned up to the misrepresentation, albeit inadvertent, and not tried to benefit from a mutual mistake.  That didn’t happen here, and rather than trying to negotiate a fair settlement, they tried to get out of the case without paying anything.  The majority position in this case did what was fair under these unfortunate circumstances and allowed the plaintiff his day in court.

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Glavinskas v. Dawson Nursing Center – Court Protects Disabled Plaintiff From Unconscionable Settlement

Glavinskas v. William L. Dawson Nursing Center, Inc. – 332 Ill.Dec. 188 (1st Dist. 2009)

Facts:  The plaintiff is a passenger in a vehicle owned by the defendant when he is severely injured, rendering him both mentally and physically disabled.  He is later adjudicated a mentally disabled person by the probate court and his half brother, Michael Poland, is appointed plenary guardian.  Poland subsequently files suit on behalf of the plaintiff in the law division through attorney Sheldon Belofsky. 

During the pendency of the case, Belofsky neglects the matter and several discovery sanction orders are entered, the last of which he does not even respond to or attend the hearing such that an order was entered barring the plaintiff from calling any expert witnesses at trial and further barring the plaintiff from testifying on his own behalf.  Subsequently, a pretrial conference was conducted where the defendant agreed to pay $175,000 in an annuity.  (It is unclear in the record whether Belofsky was even present at this pretrial as the opinion indicates that the “only support for this assertion is a letter from defense counsel to plaintiff’s counsel”).  A full year after the settlement/offer was extended to the plaintiff, no action was taken by plaintiff’s counsel to conclude the matter and counsel for defendant presents an unorthodox  motion to both the law division and the probate division seeking the court to compel the plaintiff to approve the settlement. 

In the law division Judge Lopez Cepero granted the motion to compel plaintiff to approve the settlement and then ordered plaintiff’s counsel to “seek to approve the settlement on or before October 21, 2005 or this Court will make its own motion to approve the settlement.”  Par for the course, plaintiff’s counsel took no action and Judge Lopez Cepero subsequently entered an order that the settlement was “proper and hereby approves the settlement.”  

In the probate division Judge Riley took an entirely different approach.  Clearly suspicious that the motion was being forwarded without any active participation by the Plaintiff’s counsel, the probate court appointed a GAL to investigate the reasonableness of the settlement and to determine why nothing had been done to adjudicate or address a lien from Public Aid in the amount of $272,000, a figure far in excess of the settlement amount.  The GAL conducted its investigation and reported  to Judge Riley regarding the underlying facts of the case, the neglect of Plaintiff’s counsel and that the plaintiff’s representative had been previously convicted in 2001 of a felony for stealing money from the disabled plaintiff, a fact that was disclosed in a discovery deposition and presumably not mentioned in the defendant’s motion.  Judge Riley ordered that the GAL file a motion to intervene in the law division and vacate the settlement order, which was then denied by Judge Lopez Cepero in the law division; then Judge Riley suspended the powers of the original representative and appointed a temporary guardian who quickly fired the original attorney and retained new counsel who quickly set about presenting a 2-1401 petition to vacate the law division dismissal order.  Judge Riley then entered an order in the probate division specifically denying the petition to approve the settlement finding the amount of $175,000 unconscionable. 

Meanwhile, in the law division Judge Lopez Cepero initially denied the 2-1401 petition, then reconsidered and vacated the order denying the petition but in doing so entered a new order striking the intial 2-1401 petition and then recused himself from further proceedings.  The matter was then transferred to Judge Dooling who ultimately granted the plaintiff’s 2-1401 petition and vacated the December 1, 2005 dismissal order specifically finding that due to the disability of the plaintiff and the incompetence of his representatives in protecting his interests he was excused from strict compliance with the due diligence requirement of a 2-1401 petition and that enforcement of the order under these circumstances would be unjust.  She further found that Judge Lopez Cepero’s dismissal order did not comply with local Circuit Court rules 6.4 and 12.15(c) governing the settlement of disabled persons’ personal injury cases in the law division and probate divisions and was thus deficient.

Holding:  Courts have a responsibility to protect the interests of mentally disabled persons and plaintiff, who was adjudged incompetent, is not accountable for the negligence of his representatives such that any finding that under the facts of this case that plaintiff failed to exercise due diligence in prosecuting the action for purposes of subsequent petition to vacate judgment that approved settlement agreement in this case is unfair and unconscionable.

Filed in Trial Book Under:  735 ILCS 5/2-1401; Disabled Persons; Settlement

Commentary:  For the normally dry and boring analysis of the validity of a 2-1401 petition this case really has a lot of drama and intrigue.  We have a thieving family member, a bumbling plaintiff’s attorney, an opportunistic defendant’s attorney, a protracted turf battle between the law division and the probate division, and ultimately a hero in both the new plaintiff’s counsel and the probate judge.  Despite all of the juicy details that are actually included in the opinion, including the names of all of the key players (a rarity in appellate decisions), I get the distinct impression that the written opinion doesn’t do justice to the perfect storm of incompetence and possibly scheming that nearly served to completely disadvantage this disabled plaintiff.  On the bright side, the checks and balances built into the procedures for settling lawsuits for disabled persons  in Cook County, requiring the involvement of both the law division and the probate division to approve the settlement, really worked in this case. 

In that regard, the proposition that a court must act to protect a disabled person is not new and that function is not limited to the probate court, it applies to all judges.  Therefore, it is surprising that the plaintiff’s counsel was able to be disengaged from the discovery process for so long without raising a red flag to one of the four law division judges that entered adverse orders in this case that something was amiss in the representation of this disabled plaintiff and needed to be investigated.   Put simply, the brakes should have been applied before the case was hijacked and driven off of a cliff.  This is particularly true where you have the defendant’s attorney literally quarterbacking the settlement in the absence of any involvement by the  plaintiff’s attorney.  This is highly unusual and should have set off alarm bells that something more needed to be done to determine the reasonableness of the settlement than merely relying upon the representations of the attorney that’s job is to pay the least amount possible to the plaintiff.  The fact that the dismissal order did not consider the issue of liens, attorneys fees and costs is equally perplexing.  Although the fact section of the appellate opinion goes out of its way to name the defendant’s attorney and then includes Judge Dooling’s criticism of him for a lack of candor to the trial court for not informing the court of the existence of a public aid lien, it seems as if this is a pretty basic question that the judge should have been asking without any prompting from the petitioner, particularly given the fact that the judge is required to approve the settlement and make a specific finding that the amount is reasonable.  How that could be done without having information what amounts will be deducted from the gross to account for liens, attorneys fees and costs is anybody’s guess.  The fact that the dismissal order did not include language that the settlement was reasonable, nor did the order comply with the local Circuit Court rules regarding the settlement of a disabled persons estate, would seem to indicate that neither the judge nor the defendant’s attorney was aware of the special requirements surrounding settlements for disabled persons and, instead, was treating the settlement just like any other arms length negotiation between consenting parties.

As an aside, it would be interesting to know whether the plaintiff was a resident of the nursing home at the time of the collision.  If so, there would be a potential basis to file a count under the Nursing Home Care Act which could ultimately serve to protect the settlement from a requirement of reimbursement on the public aid lien.

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