Structured Settlement Sale Arbitration: Access v. Linton

Kopec Law Firm

This blog post addresses the situation where the parties to a sale of a structured settlement annuity dispute over whether they have to go to arbitration of related claims.

What is a Structured Settlement Annuity?

Lawyers often use structured settlements in personal injury case settlements, including Maryland medical malpractice cases. When the parties settle, the plaintiff receives some or all of the funds to buy an annuity. The annuity is a contract that provides for future payments.

The plaintiff can customize when the payments are received. For instance, in the case of an injured child, the parents may provide annuity payments when the child needs college tuition. The annuity can schedule future payments periodically to ensure the injured person receives money regularly. These can help with future medical expenses or general costs of living.

The defendant purchases the annuity through a broker who works with insurance companies that issue annuities. There are tax advantages to annuities in personal injury structured settlements. The future payments are tax-free.

Sale of a Structured Settlement Annuity and Arbitration

Despite the above, sometimes the injured person wants to get the remaining money out of the annuity. An adult plaintiff may have changed their mind on an annuity, or a child who has become an adult may want to get out of the annuity their parent arranged for them.

An industry has developed to respond to the people who want out of their annuities. They are factoring companies. They will give a lump sum of cash to the annuity owner to purchase the annuity and receive future payments under the annuity.

Present Value

Annuities have a present value based on current interest rates. If you receive $1,000 today or $1,000 a year from now, you should choose now. However, the choice is more difficult if you could choose between $1,000 today or $1,050 a year from now. If the current interest rate is 5%, many would prefer to wait and be compensated 5% for waiting.

The seller of an annuity will now receive less than the total of the future payments. The problem for the sellers is that many of these factoring companies offer unreasonably low offers, significantly less than present value calculations. In other words, the offers are often an abysmal financial deal for the seller.

So why would the sellers accept these terrible offers? Many times, the sellers are financially unsophisticated. Sometimes, they have cognitive injuries that occurred as part of the events in their underlying claim. They may often be in difficult financial circumstances, needing the money for medical expenses or other living costs. Of course, sometimes the sellers want the money now, even if it is a bad deal for them.

Maryland law regulates the sale of structured settlements to protect sellers. CJP 5-1102. It requires court authorization of the sale. One of the factors for courts to consider is whether the injured party has received independent professional advice.

The factoring companies have paid lawyers to advise sellers in these transactions. There has been litigation in Maryland for sellers challenging the sales as fraudulent. In one of the cases, the issue was whether the parties had to arbitrate the claims.

Access Funding, LLC, et al. v. Chrystal Linton, et al.: Sale of Structured Settlement and Arbitration

In Access Funding, LLC et al. v. Chrystal Linton et al. (December 1, 2022), the Maryland Supreme Court issued a reported opinion on an arbitration issue. The general rule is that a plaintiff s allegation of fraudulent inducement of a contract containing an arbitration agreement do not invalidate the arbitration clause. The arbitration agreement is considered severable from the rest of the agreement. The plaintiff must allege that the defendant procured the arbitration clause by fraud.

Structured Settlement Sale Arbitration
Structured Settlement Sale Arbitration

The Access Funding case had additional factors which made the analysis more complex. Maryland law requires sellers to receive independent counsel and a court to approve the annuity sale. The parties argued over the significance of several factors, including that the plaintiffs did not plead a separate count that the defendants fraudulently procured the arbitration clause; they did not seek to have the agreements voided, and they had not appealed or otherwise sought relief in the case where the trial court had approved the sale transaction.

The judges of the Maryland Supreme Court split in their decision. The majority held that the circuit court must decide whether the parties must arbitrate the claims. The Court found that the plaintiffs had adequately pled fraud as the arbitration clause. The plaintiffs alleged that they had not received the independent counsel required by law. (Op. at 16-18). This failure included counsel to understand counsel to understand the arbitration agreement specifically. In addition, the arbitration clause conditioned arbitration on the closure of the transaction, and the plaintiffs challenged the validity of the court’s approval. (Id. at 4-5, 31-32). Because the agreement linked the arbitration clause to court approval of the sale, the arbitration clause was not severable from the rest of the contract. (Id. at 44).

Dissenting Opinion

The dissenting judge asserted that the plaintiffs were required to allege fraud specifically to the arbitration clause. Those allegations had to differ from the plaintiffs allegations that the defendant fraudulently induced the contract generally. The dissent believed the plaintiffs had relied on the same facts for both. (Dissent at 3-4). As a result, it would have been impossible for the trial court to limit its findings to the existence of an arbitration agreement. The trial court would necessarily decide that the defendants also procured the overall agreement by fraud. (Id. at 5). The dissent also argued that the requirement for court approval of the sale did not alter this analysis. (Id. at 8-9).

Commentary By the Baltimore Medical Malpractice Lawyer

Structured Settlement Sale and Arbitration

Access Funding Holding

Both the majority and dissent make persuasive arguments. Under the prevailing principles in the majority opinion, plaintiff lawyers can take away a few points. As discussed below, even though certain things will not be required, they should be provided when possible. As parties argue and courts interpret the Access Funding opinion, plaintiffs should position themselves as firmly as possible.

  1. It is unnecessary to do a separate count for fraudulent inducement of the arbitration clause. However, there is no reason not to do this. It will clarify and emphasize that the fraud claims go specifically to the arbitration clause.
  2. It is not necessary to seek to void the agreement. However, if such a claim fits in the relief the plaintiff is seeking, pleading it will complement pleading fraudulent inducement.
  3. It is not necessary to allege facts that relate solely to fraudulent inducement of the arbitration clause, apart from inducement of the overall agreement. However, if such facts exist, they should be alleged. The plaintiff should plead anything the defendant did to conceal or misrepresent the existence, terms or applicability of the arbitration provision.

Factoring Industry

Annuity owners and lawyers should be careful when dealing with the factoring industry.

Owners of Annuities

Annuity owners should carefully evaluate whether to sell the annuity and, if so, on what terms. Leaving the annuity in place can make good financial sense. There is security in having future payments and protection against being able to spend those funds now.

There may be extenuating circumstances that require money now. In that instance, even though the seller cashes out the annuity, the seller could re-invest a significant portion for the future.

The annuity owner should get independent advice from someone knowledgeable about the industry and its current products.


Any lawyer who has a client considering selling an annuity should be cautious. The lawyer should ensure they are competent before advising on the transaction. Also, it is prudent to recommend a professional financial consultation. Access Funding shows the need to fully explain the requirement that any disputes over the structured settlement sale must go to arbitration.

Last, if the client is considering a transaction substantially less than the present value, the lawyer may want to steer completely clear of the situation. Point out how grossly unfair the offer is and put in writing that you will not provide any advice on it. Why? Because once you go down the road of giving advice, you cannot guarantee you can stay out of disputes like Access Funding. You can explain all the terms, recommend against the transaction, and put it all in writing. None prevents a plaintiff from later saying you didn’t explain it and they didn’t understand it. Some engagements are not worth taking.

Mark Kopec is a top-rated Baltimore medical malpractice lawyer. Contact us at 800-604-0704 to speak directly with Attorney Kopec in a free consultation. The Kopec Law Firm is in Baltimore and helps clients throughout Maryland and Washington, D.C. Thank you for reading the Baltimore Medical Malpractice Lawyer Blog.

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