by John Darer
The ongoing dispute over whether it is possible to factor payments made under an annuity contract owned by the United States has once again come up empty for the factoring company, this time in the Fifth Circuit Court of Appeals.
8 years after agreeing to a structured settlement purchased and owned by the United States to resolve her action under the Federal Tort Claims Act, Rose Garcia purported to grant a security interest in her structured settlement payments rights to WebBank for several loans in a total of $77,783.40. The loans were then assigned to Settlement Funding, LLC. doing business as Peachtree Settlement Funding, as seller/servicer of Peachtree Finance Company, LLC.
The annuity contract provided that only the owner, the United States, had the right to designate to whom annuity payments were made and as is typically the case under FTCA cases, Garcia, the annuitant, was not a party to the annuity contract.
Settlement Funding sued the United States, Transamerica Occidental Life Insurance Company (TOLIC), a member of the AEGON family of companies and Garcia and made claims to try and force TOLIC make payments to it . United States filed a Declaratory judgement action as owner of the annuity from which Garcia received the payments, The United States maintained as owner of the annuity that it has the exclusive right to direct the payments. Transamerica filed an interpleader claim and deposited payments into the Court registry.
In affirming, the 5th Circuit held on January 13, 2009 that:
A November 2004 Order in the United States District Court for the Western District of Kentucky (which entered an Order approving a class action settlement between Settlement Funding and a class that included Garcia) "HAD NO PRECLUSIVE EFFECT in this case". In its reasoning the 5th Circuit said that the 2004 Order did not address the issue of whether Settlement Funding can compel TOLIC to redirect annuity payments to Settlement Funding despite TOLIC's contractual obligation to the United States. Further, the United States was not a party to the Kentucky class action and thus cannot be bound by it.
The district court correctly determined that the United States has the exclusive contractual right to designate the Annuity's payee. The Court pointed out Settlment Funding's ignorance of the critical distinction between the Annuity, a contract between the United States and TOLIC and the settlement agreement, which is a contract between the United States and Garcia.
Affirmed denial of motion for default judgment, because "having failed to object to the district court's dismissal of claims, Settlement Funding cannot complain about that decision" before the Circuit.
Download Copy of 5th Circuit decison Download 5CA decision
Download Copy of 2007 6th Circuit decision with similar findings Download 6th Circuit Decision