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Lead-poisoning settlement deals draw scrutiny, calls for reform

Maryland lawmakers vowed Thursday to investigate and clamp down on companies that "buy" lawsuit settlements after learning that hundreds of lead-poisoning victims in Baltimore had signed away their court-approved rights to long-term financial support in return for quick cash worth only a fraction of what they were due.

Attorney General Brian E. Frosh said his office would work to strengthen Maryland's law regulating purchases of so-called "structured settlements" when the General Assembly meets in January. But he also pledged to investigate the companies involved and go after them if his staff determines they broke the law as it stands now.


"We want to be able to take action to protect people from this kind of scam and see if we can help the folks that have already been victimized," Frosh said.

State legislators and members of Maryland's congressional delegation joined in expressing dismay and pledging change in reaction to a Washington Post report this week on companies that struck deals with lead-poisoning victims to swap guaranteed regular payments over years for much smaller one-time payouts.


One lead-poisoning victim has filed a lawsuit in Baltimore Circuit Court saying she had been misled into agreeing to such a deal.

Baltimore lawyer Saul Kerpelman said he brought the case because he considers such settlement transfers "obscene." Kerpelman, who's represented thousands of families in lead-poisoning lawsuits, said the companies are undoing financial arrangements specifically crafted to give victims a long-term stream of income, rather than a big one-time payout.

The payments help make up for victims' inability to get or hold a job, Kerpelman said, because they were exposed to the toxic lead-based paint that riddles much of Maryland's older housing. Ingestion by infants and toddlers of even small amounts of lead paint flakes or dust can lead to lasting learning and behavior problems, research has shown.

"Obviously, the reason they go after lead-poisoning victims is they historically get big settlements, and they're easy to take advantage of because the very nature of their [legal] claim is they've suffered cognitive deficits," Kerpelman said.

Rep. Elijah E. Cummings of Baltimore, the top Democrat on the House Oversight and Government Reform Committee, said he is looking into the issue. It's not clear how much of a role Congress will play in the issue, as states have taken much of the initiative in recent years.

"We gotta tighten this thing up," Cummings said in an interview. "We have people who are already suffering from lead paint poisoning. They then have some glimmer of hope to at least not be in dire straits from an economic standpoint, and then somebody comes along and snatches that away."

Responding to an earlier outcry over the practice, the Maryland General Assembly passed a law governing it in 2000, ahead of most other states. Two years later, President George W. Bush signed a federal law that imposed a high excise tax on settlement purchasers that did not have their agreements signed off by a court in accordance with state law.

The federal law prompted statehouses across the country to draft their own legislation guiding how the transactions would take place — and many of the laws were more robust than the Maryland legislation, experts say.


Many states require purchasers to go to court where the seller lives, rather than allowing them to bring the cases in remote jurisdictions. That gap in Maryland's law, critics say, has allowed settlement purchasers to "shop" for judges who would approve the deals in courts far from where the sellers live.

Del. Samuel I. "Sandy" Rosenberg, a Baltimore Democrat and a leader in legislative efforts to curb lead poisoning, said he's working on a bill to reform the state's law. While not willing to discuss it in detail, he did say there aren't strong enough requirements for having independent advisers explain the transactions to potential sellers.

"You want to have the parties fully understand the consequences of what's being discussed and what's being agreed to," Rosenberg said. "Just as people who are thinking about investing in the stock market generally have a financial adviser, part of the solution may be to make sure that people have a financial or legal adviser, and that that must be demonstrated to the court before a structured settlement is approved."

Leaders of national trade groups representing both the drafters of structured settlements and their purchasers said they're already pressing for changes in the law — though not necessarily the same ones.

Eric Vaughn, executive director of the Washington-based National Structured Settlements Trade Association, said his group of attorneys, insurance companies and others has worked to pass and improve laws in other states. But Vaughn, who lives in Bethesda, said he wasn't aware until recently that lead-poisoning victims in Maryland have been targeted by settlement purchasers.

"The law needs to be toughened," he said. But he added that the current law could be enforced better if the state's judges would subject settlement transfers to more careful scrutiny before approving them. Judges need to insist on better disclosure of the deals' terms, and have hearings in which they can assess the settlement sellers' ability to understand what they're agreeing to and what their options are.


"If the judges don't act in the best interests of the [settlement recipients]," Vaughn said, "they're just going to get abused because there's no one there to protect them."

Earl S. Nesbitt, executive director of the Texas-based National Association of Settlement Purchasers, said the industry has been working for months in Maryland to improve the state's law, including supporting a requirement that the seller appear in court in most cases.

"That will improve the situation," Nesbitt said. "That will help with the few situations…where people seem to be regretting having done the transaction."

But Nesbitt cautioned against "going overboard" with regulations. "You don't want to make it so difficult for them to have access to liquidity that they say 'I wish I'd never done this structured settlement,'" he said. "You have to strike a balance."

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Craig Ulman, a Washington lawyer who represents the structured settlement association, said the industry appears to be trying to get ahead of the reform push.

"They're willing to support reasonable improvements in existing legislation rather than run the risk of radical changes," he said.


Cummings, meanwhile, said he may well broaden his inquiry to settlement purchase practices in other states.

"I'm not limiting this to the Maryland corporations, this is national," Cummings said. "We're going to address this and correct it by any means necessary."

Twitter: @TBWheeler