Attorney General Keith Ellison said he will push for legislation that would make Minnesota the first state to guarantee that anybody who wants to sell part of their court settlement would be represented by an attorney.
"I think having a lawyer on your side will make a dramatic and important difference and will ensure that people have the best outcome," Ellison said in an interview this week. "This is an industry that depends on taking advantage of vulnerable people in desperate circumstances. In most cases, if these deals are put through proper scrutiny, they aren't going to happen."
Each year, settlement purchasing companies persuade U.S. accident victims to sell an estimated $1 billion in future payments. On average, the companies keep 60% of the money, according to a Star Tribune analysis of more than 2,400 deals from seven states from 2000 to 2020.
Typically, accident victims who opt to sell some or all of their settlement payments represent themselves in court, leaving many judges with little information to make an informed decision about whether to approve the deal, records and interviews show.
Judges in Minnesota and other states are required to approve the sale of future settlement payments to avoid stiff federal tax penalties that would make the deals unattractive to the companies buying them.
Many of the deals involve people who suffered traumatic brain injuries and other long-term harm. In Minnesota, 1 in 8 transactions involved a seller with documented mental health problems.
Ellison said a recent Star Tribune series on abuses within the industry showed that Minnesota needs to lead the way on reforming the business. In the past two decades, hundreds of Minnesotans have given up decades of financial security in exchange for upfront cash payments, sometimes for pennies on the dollar, records and interviews show.
"This is at the very heart of why I wanted to be the attorney general," Ellison said. "I want to help balance the scales between individuals and massive corporations and give people a chance for prosperity."
Gov. Tim Walz and state legislators of both parties have also called for reform, promising to unveil bills during the upcoming legislative session in January aimed at curbing abuses.
Ellison's proposal would greatly expand on an approach now popular in Washington, D.C., where local judges have routinely referred people seeking approval to sell their payments to the local Legal Aid Society.
Tom Papson, an attorney in Washington, D.C., who handles a large number of those cases, said some clients have decided to walk away from the deals after spending a couple of hours with a volunteer attorney. Others have wound up with much better terms after a Legal Aid attorney helped negotiate a bigger payout. Papson said some clients have doubled their money.
Ellison said he thinks Minnesota should set aside enough money to cover the legal bills by providing extra funding to local Legal Aid groups. He said he doesn't know how much that would cost, but he predicted it would ultimately save the state money since some people who sell their payments wind up broke and relying on public assistance.
"If you add up all of the housing subsidies and health care subsidies and other subsidies that have to come to to bear when these folks find themselves without any resources due to these predatory actors, it is probably much cheaper to give them some sound legal advice," he said.
Ellison said the attorneys would help judges by conducting background investigations of the sellers that would reveal possible mental health problems or ongoing financial issues that would otherwise remain unknown.
Attorneys also should be required to provide judges with a recommendation on whether the deal should be approved or rejected, Ellison said. Currently, Minnesota law requires that sellers obtain "independent" advice from an attorney or financial planner, but those advisers rarely tell them whether they should go forward with a deal.
Noting that current law merely requires that a judge find a deal is in a seller's "best interest," Ellison said legislators should define that term more narrowly, making it possible for judges to turn down deals they think are unfair. He said judges also should be required to make additional factual findings, such as whether a seller is mentally competent.
Ellison said the state also should ban courtroom shopping, a practice in which companies attempt to find judges who are more friendly to settlement sales. He said Minnesota should require that all settlement sales are handled by the judge who handled the original civil case that led to the settlement.
"That judge knows more about it than anybody else," Ellison said, adding that if that judge has died or retired, the sale should be handled by that judge's successor, which would prevent companies from finding friendlier jurisdictions.
Finally, Ellison backed proposals from legislators that would establish a minimum financial threshold for settlement sales, such as requiring sellers to receive a certain percentage of their money. He said hearings should be held to establish those thresholds, with testimony from economists experienced in the field.
Ellison said that if any sellers feel they have been defrauded, they should contact his office and file a complaint so his investigators can look into the deal. In some cases, Ellison said, it may be possible for people to get their payments back.
"You never know until you look into it," Ellison said. "If there has been fraud or deception, we may have an angle, but we won't know until you call us."
Complaints can be filed online, at https://www.ag.state.mn.us/office/complaint.asp, or by calling the Attorney General's office at 651-296-3353.