by Structured Settlement Watchdog
Oral arguments in Cordero v Transamerica took place in the New York Court of Appeals on March 14. Independent Life’s Patrick Hindert made a valuable contribution to the discussion about the case. This lawsuit aims to hold Transamerica’s qualified assignment company accountable. It also seeks responsibility from the structured settlement annuity issuer for covering the costs of improvident structured settlement factoring transactions. These transactions were approved by Sumter and Broward County judges in the State of Florida.
Notably Cordero did not sue the factoring companies and instead went after the annuity issuer and qualified assignment company.
Was there an implied covenant in the Settlement Agreement and in the Qualified Assignment?
The New York Court of Appeals received certification from the 11th Federal Circuit. It will tackle the focal point of the plaintiff’s allegation. The question is whether there is an implied covenant in the anti-assignment provisions in the settlement agreement and qualified assignment. Hindert, who is co-author of the seminal structured settlement text, addresses some basic contract law.
Assignment of a Right vs a Contractual Right
Section 317 Assignment of a Right (from Restatement of Contracts)
Section 317 provides in relevant part, explains HIndert:
- An assignment of a right [to receive periodic payments] indicates the assignor’s [structured settlement recipient’s] intention. They wish to transfer the [right to receive periodic payments]. The assignor’s [structured settlement recipient’s] right to performance by the obligor [assignment company] is completely or partially extinguished. The assignee [factoring company] then acquires a right to such performance.
- “A contractual right [to receive periodic payments] can be assigned unless … (b) the assignment is forbidden by statute [IRC 5891 or state protection laws] or is otherwise inoperative on grounds of public policy, or (c) assignment is forbidden by contract [anti-assignment provisions].
Read the rest of Hindert’s analysis of Assignment of Rights or Delegation of Duties.
“…, Except as may be authorized by IRC 5891 and applicable State Structured Settlement Protection Acts”
To parody 1990s rapper Sir Mix-A-Lot, “There’s a Big But and You Cannot Lie”. The Victims of Terrorism Tax Relief Act of 2001, which begat IRC 5891, went into effect in January 2002. It promptly led to a vigorous discussion among members of the Society of Settlement Planners. They debated whether or not the VTTRA created new rights for plaintiffs. This includes both the right to structure and the right to factor. The concept that “Factoring is Settlement Planning” was strongly advocated by a number of members and commentators.
SSP members and other settlement planners made an effort. They advocated for the insertion of language into settlement agreements and qualified assignment agreements. Plaintiffs and their counsel signed these agreements when QAR or QARP was used. The plain reading of the language seems to be a waiver of anti-assignment provisions. Annuity issuers and their qualified assignment companies initially approved this “Except as” language on an exception basis. They eventually incorporated it into the standard administrative package embedded in the software supplied to appointed agents and brokers.
Model Qualified Assignment and Release Paragraph 7(ii)
Acceleration, Transfer of Payment Rights. None of the Periodic Payments and no rights to or interest in any of the Periodic Payments (all of the foregoing being hereinafter collectively referred to as “Payment Rights”) can be
i. Accelerated, deferred, increased or decreased by any recipient of any of the Periodic Payments;
or
ii. Sold, assigned, pledged, hypothecated or otherwise transferred or encumbered, either directly or indirectly, unless such sale, assignment, pledge, hypothecation or other transfer or encumbrance (any such transaction being hereinafter referred to as a “Transfer”) has been approved in advance in a “Qualified Order” as defined in Section 5891(b)(2) of the Code (a “Qualified Order”) and otherwise complies with applicable state law, including without limitation any applicable state
structured settlement protection statute.
No Claimant or Successor Payee shall have the power to effect any Transfer of Payment Rights except as provided in sub-paragraph (ii) above, and any other purported Transfer of Payment Rights shall be wholly void. If Payment Rights under this Agreement become the subject of a Transfer approved in accordance with sub-paragraph (ii) above the rights of any direct or indirect transferee of such Transfer shall be subject to the terms of this Agreement and any defense or claim in
recoupment arising hereunder.
Download Model qualified assignment and release
North Carolina Superior Court Judges 2008 Summer Conference on the Sale of Structured Settlements-Deal, or No Deal?
Taking into account the protections available under the SSPAs and IRC section 5891, however, insurers now do
not generally find it necessary to insist on enforcement of anti-assignment provisions. Thus, contravention of purely contractual anti-assignment provisions, as distinguished from anti-assignment provisions contained in a statute or a court order, is an issue that effectively is waived in most cases.
Read NC Superior Court Judge Ron Spivey’s Presentation
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SIDE BAR
Adam Scales Law Professor “What is objectionable in the rhetoric of structured settlement enthusiasts is the unsubtle attribution to tort claimants of characteristics, values and habits that are generally held in contempt in American political discourse: a lack of self-control, and the concomitent propensity to wind up on welfare.”Scales, Adam F., Against Settlement Factoring? The Market in Tort Claims Has Arrived. Available at SSRN: https://ssrn.com/abstract=461534 October 28, 2003
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