by Structured Settlement Watchdog™
Interesting Arizona Court of Appeal's decision involving two structured settlement factoring companies who competed for a lottery winner's lottery payment rights that is a chilling reminder to investors in lottery and structured settlement payment rights that "it ain't over until it's over".
Genex Capital was apparently gazumped and sued the customer to assert what it claimed were its rights. Genex Capital lost in Maricopa County Superior Court [CV2012-009751 ] and then lost again on all points of its appeal.
Below is a bullet point excerpt from the May 13, 2014 published decision [No. 1 CA-CV 13-0043].
- Wallace Thomas, Jr. (Thomas) won a one million dollar prize from the Arizona Lottery (AZ Lottery) in October 2010. Thomas chose to receive his prize in twenty-five annual installments of $40,000. Several structured settlement companies subsequently approached Thomas and offered to pay him a lump sum in exchange for an assignment of the annuity payments (Lottery Payments). Thomas eventually negotiated both with Genex and Appellee, Woodbridge Structured Funding, LLC (Woodbridge), over such an assignment.
- On June 8, 2012, Thomas signed an agreement with Genex to assign his interest in the remaining twenty-three installments of the Lottery Payments in exchange for a lump sum payment of $428,148 from Genex. Later that day, however, Thomas emailed Genex to inform the company he wanted to cancel the agreement. Because Thomas did not receive a response to his email, on June 9, he faxed Genex a letter stating that he was canceling the agreement in order to “pursue other funding.” Five days later, on June 14, Genex’s president (upon information and belief Roger Proctor) left Thomas a voicemail that Genex did not accept Thomas’s rescission notice and asserted that Thomas “had no right to cancel” the agreement.
- Genex attempted to perfect a security interest in its rights to the Lottery Payments on June 19, 2012, by filing a Uniform Commercial Code (UCC) Financing Statement (UCC-1 form) with the Arizona Secretary of State.
- Meanwhile, Thomas and Woodbridge entered into a written agreement dated June 9, 2012, (Assignment Agreement) in which Thomas assigned to Woodbridge his interest in the remaining annual $40,000 payments, in exchange for a lump-sum cash payment of $430,000.
- Thomas and Woodbridge filed a complaint against the AZ Lottery and Jeff Hatch-Miller, the Director of the AZ Lottery on June 26, 2012, requesting a court order pursuant to Arizona Revised Statutes (A.R.S.) section 5-563 (2012), which provides that a person may assign a lottery prize only after filing an affidavit with the trial court and receiving an appropriate order from the superior court (Approval Action).
- On July 12, 2012, Genex filed a lawsuit alleging breach of contract by Thomas and tortious interference by Woodbridge with Genex’s contractual relationship with Thomas (Damages Action).
- Thomas and Woodbridge moved for summary judgment in the Approval Action on July 16, 2012. With the motion, Thomas submitted the statutorily required affidavit stating that he (1) was over the age of majority and of sound mind; (2) had not made the decision to
assign and sell his interest in his lottery prize under any duress; (3) was capable of making decisions in his own interest and of assessing his own best financial interests; (4) had received independent advice regarding the financial and tax implications of this [Assignment Agreement]; and (5) understood the terms of the [Assignment Agreement], including the
Agreement’s term that discounts the prize’s present value. Section 5-563.A.3(a) requires such an affidavit prior to a trial court’s approval of an assignment of lottery winnings. AZ Lottery did not oppose the motion. The trial court granted the motion for summary judgment and approved
the Assignment Agreement on July 27, 2012.
Read the rest of the decision here