Taxes and structured settlements

In structured settlements, injury compensation is paid in installments over years rather than as a lump sum up front. It has long been argued that arrangements of this sort should be strongly favored by public policy: many accident settlements are premised on the need to cover years of needed therapy or future income lost through disability, and if it’s spent down too quickly through mishandling or “lottery winner syndrome”, the victim could wind up an expensive public charge. For reasons of this sort, structured settlements have been accorded highly favorable tax treatment.

Then an industry sprang up that offered to turn structured settlements into quick cash on the barrel, a choice that many lawsuit beneficiaries might be tempted to make (or might make after being leaned on by family members). Although laws often require that conversions of this sort be submitted for review to a court, judicial review may be cursory in the absence of adversary process to call attention to the potential drawbacks of a conversion. Not only has the structured-settlement-conversion industry managed to thrive, but somehow, as Shaun Martin notes, Congress has even been prevailed on to bestow favorable tax treatment on its doings — the same doings that tend to undermine the public benefits thought to arise from the original tax-favored structured settlement. More details are to be found in this decision, PDF, in which an appeals court recently sided with the factoring companies in a series of Fresno, California disputes (also discussed at this new blog on structured settlements, via Dan Schwartz).

Tax incentives that encourage lottery-winner syndrome? To paraphrasewhat Martin says, it’s almost as if someone was managing to work the system.

Wahlstrom decries structured settlement kickbacks

Trial attorneys are pressuring the structured settlement industry to pay kickbacks in exchange for clients, an industry expert said Sunday.Mark Wahlstrom, president of Wahlstrom & Associates, wrote on his blog Sunday that settlement companies are facing "relentless pressure to from some unscrupulous plaintiffs' attorneys."I've always felt that any time we participate in something as shady as rebating or kicking back commissions, no matter how you dress it up or try to justify it, we are devaluing our professional services in the eyes of our customers," he wrote.Wahlstrom, founder of The Settlement Channel, said pay-to-play practices leads to an "endless cycle of professional debasement, deterioration of our profit margins and in ability to invest in other business lines or services to help the end consumer."He said what he finds to be "really upsetting" is the widespread pressure structured settlement brokers have on them to either make contributions to a trial lawyer association or pressure to directly pay kickback commissions in return for writing an annuity for their clients.Wahlstrom noted that he has never been solicited to make a kickback to a trial lawyer nor does he make contributions to plaintiffs' attorney groups beyond the "modest" membership fee, he said."I'm not sure what I find most appalling about this practice of demanding kickbacks from structured settlement brokers, the disgusting ethics of the lawyers involved or the pure stupidity of the settlement professionals who cave in to this pressure and write checks to these ethically challenged bags of dirt," he wrote.He offers some advice to his colleagues in the structured settlement industry. Chief among his suggestions is not to compromise one's integrity."In short, don't sell out. I promise you, you will hate yourself for it later. Most of these brokers who do it, if you look at their lives are a string of fail marriages, broken business relationships, substance abuse and other addiction problems," he said. "They are miserable people pretending they are living a life they can be proud of, but at the end of the day the money means nothing and they are forced to deal with who they really are."

Library groups gripe about settlements over Google Book Search

Three groups representing hundreds of libraries lodged a long series of concerns about a proposed settlement of lawsuits over Google Book Search on Monday--but refrained from objecting overall.
Specifically, the American Library Association, the Association of College and Research Libraries, and the Association of Research Libraries expressed some affinity for Google's mission of sharing books with the public, but raised concerns in a legal filing that the settlement would concentrate power in Google's hands and poses pricing and privacy concerns.

Google has patented technology for scanning books.(Credit: U.S. PTO)
Google is scanning millions of books, presenting their contents online at the Google Book Search site and blending some information into its regular search results, but the move triggered lawsuits by the Association of American Publishers and the Authors Guild. A proposed settlement of the class-action suit would permit Google to share some contents of books online--not just those that are in the public domain and those still being sold with which Google has agreements with publishers, but also those that are still in copyright but out of print.
The settlement terms are of high interest to the library world. Under the proposed settlement, Google would offer a free computer terminal in U.S. libraries that would permit people to read books online and a subscription service that would permit paying customers, such as larger libraries, to offer more computer terminals. In cases where readers or institutions pay for access to online books, funds would be divided between Google and a proposed independent non-profit group, the Book Rights Registry, set up to handle payments, find authors and other rights holders, and let them include or exclude their works from the project.
"The library associations do not oppose approval of the settlement. The settlement has the potential to provide unprecedented public access to a digital library containing millions of books," the groups said in their filing. "However, the digital library enabled by the settlement will be under the control of Google and the Book Rights Registry. Moreover, the cost of creating such a library and Google's significant lead-time advantage suggest that no other entity will create a competing digital library for the foreseeable future."
That power could put libraries at a disadvantage, they argue.
"We are concerned that the cost of an institutional subscription may skyrocket, as academic journal subscriptions have over the past two decades," said Erika Linke, president of Association of College and Research Libraries, in a statement.
Added Jim Rettig, president of the American Library Association, the proposed settlement "offers no assurances that the privacy of what the public accessed will be protected, which is in stark contrast to the long-standing patron privacy rights libraries champion on behalf of the public."
In its response, Google looked on the sunny side but didn't address pricing or privacy details: "We're pleased that the thousands of librarians and libraries represented by the ALA recognize the promise of our groundbreaking agreement, and we appreciate that the Library Associations do not oppose approval of the settlement. Google is proud to partner with dozens of libraries around the world as part of our Book Search efforts, and we have consistently maintained that, if approved by the court, our settlement agreement stands to unlock access to millions of books for users in the U.S."
But the library groups struck a more sober tone in their filing. Take, for example, this section on the power Google would get by virtue of obtaining online publishing rights through the class action settlement:
The settlement of copyright class action litigation might well have been the only feasible way this research tool could have been created. A class action settlement provided perhaps the most efficient mechanism for cutting the Gordian knot of the huge transactions costs of clearing the rights of millions of works whose ownership often is obscure. However, the class representatives and Google structured the settlement in such a manner as to give them enormous control over this essential facility. This is not surprising, given their economic interests. Indeed, precisely because of their economic interests, it is unlikely that they would have agreed to a structure that did not grant them such control.
To be sure, nothing in the Settlement prevents another entity from undertaking a mass digitization effort similar to Google's. But given the enormous cost of such an effort, and Google's significant lead time advantage (Google has been digitizing in-copyright books since 2004), no other entity is likely to so in the near future. Hence, there is no foreseeable threat to the control Google and the Registry have over this essential research facility.