Lottery winner sues state
Wednesday, February 15, 2006 posted 10:18 AM EST
A woman who won a lottery scratch-off ticket worth over $1 million has sued the state for preventing her from assigning some of her winnings to a financial company in return for a lump sum payout.
Like other instant lottery winners, Ethel Newberry of Palmrya wasn’t given the option to get the bulk of her winnings in cash up front. Instead, she gets annual payments of about $52,000 a year for a minimum of 20 years.
Newberry is asking the Davidson County Chancery Court to allow her to transfer half her payments, or 10 years worth, to Prosperity Partners Inc. of Lake Park, Fla. That would give her about $500,000 in cash to buy a house “equipped to accommodate the unfortunate disability of her son and fit her home for his long-term use,” the suit states.
Newberry’s attorneys contend she complied with state law by obtaining approval from Montgomery County Chancery Court. But the state Education Lottery Corp. refused to comply after the state Attorney General’s office’s advised it that state law prohibits the voluntary assignment of lottery prizes.
The suit seeks a court interpretation of an issue that is spelled out in some state lotteries, but is not clear-cut in Tennessee’s two-year-old gaming law.
Prosperity Partners’ Chief Operating Officer Tom Balletta said his company – one of several in the discount cash-flow industry - buys annuity payments from lottery winners all over the United States. This is the first time Prosperity has been in a position to challenge Tennessee’s policy.
“Currently there is specific legislation in about 34 states that allow that transfer [of winnings], and that transfer requires a court order,” he said.
“The law in Tennessee does not allow for voluntary transfers, except with an appropriate judicial order,” he added. “We’ve got the appropriate judicial order. So far, the lottery commission has refused to abide by it.”
Newberry’s attorney, David Silvus, and Kym Gerlock, vice president of communications for the lottery, declined to comment about the case.
The suit states that Newberry won the lottery’s “Win for Life Instant Game Prize,” in July of last year.
Though Gerlock would not comment on the specific case, she said the top prize for “Win for Life” is $1,000 a week for life, a minimum of $1 million.
Two people have won that top prize in Tennessee, she said. The procedure calls for winners to get paid through yearly checks of $52,000, minus federal taxes, for as long as they live. The money can be passed onto their estate if they die.
The suit states that Newberry was informed by the lottery that she was entitled to $1.04 million to be paid in annual installments of $52,000 for 20 years. She proposes to transfer to Prosperity her annual checks from July 5, 2006 to July 2015.
Since the state lottery began in January 2004, officials have introduced more than 80 games, including five “online” games in which participants must wait until a state drawing before finding out whether they have the winning numbers.
Of those, only the Powerball, the multi-state game, allows a choice between a lump sum and installments, Gerlock said. On the other hand, some of the smaller cash games only have a one-time payment with no options for installments.
Balletta says almost all states with a lottery allow the winner a choice on lotto drawings. Typically, scratch-off winnings are only paid out in annuities, he said.
Companies like his cater to people with long-term cash flow, such as lottery and insurance payments, that are paid by recognizable, solid payers like a state or insurance company. If people need it, the company will provide the cash and basically trade places, accepting the annual payments as an investment.
Prosperity acts as a middleman, selling the annuities to insurance companies, which are happy to have a safe income stream that can earn predictable interest over the long-term, Balletta said.
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