by John Darer CLU ChFC MSSC CeFT RSP CLTC
Does a Qualified Assignment Company Have a Duty to Annuitant to Enforce Anti-Assignment Provisions when confronted with a Structured Settlement Transfer Petition?
Lujerio Cordero is at the center of a controversy that AT BEST, if successful, could lead to reduced capacity for ALL structured settlement consumers. On referral from the 11th Circuit Court of Appeals, the New York Court of Appeals, New York's highest Court is considering whether or not the insurers that issue structured settlement annuities have a duty to question and contest possibly abusive structured settlement factoring activity petitions.
After reading this blog, others' may differ from my opinion, which is based on my extensive experience in the structured settlement and financial services industry and more than 17 years observing, chronicling and opining about the space as the Structured Settlement Watchdog. I believe that this case is an important one for the structured settlement industry and its stakeholders.
Who is Lujerio Cordero?
Lujerio Cordero was, a childhood victim of lead poisoning when his family lived in New York in the 1990s. A structured settlement was established the Westchester County lawsuit was settled. Sometime later, in multiple structured settlement factoring transactions Cordero assigned his rights to more than $900,000 in structured settlement payments to factoring companies for the only outcome there could ever be in such structured settlement factoring transactions, pennies on the dollar. However, as a result of the lead poisoning, Plaintiff contends he lacked the capacity to understand the six structured settlement transfer agreements he entered into with the factoring companies—agreements that contained allegedly false statements about Plaintiff’s need for immediate funds and failed to disclose his limited mental capacity. Florida state courts—after holding hearings where Plaintiff was not present or represented, approved the six agreements based on the factoring companies’ incomplete set of facts.
For more than two decades, some stuctured settlement factoring companies have, without consequence, individually or collectively participated in a vulture-like feeding frenzy. figuratively ripping almost every piece of flesh off the bone of structured settlements paid to recipients who have no business selling their structured settlements. In 2008, 15 years ago, I memorialized the words of Rhode Island Judge Netti Vogel in the following referenced blog.
Years later, a multi-part expose by David Weissman, a reporter for McClatchy includes stories such as this from South Carolina:
Murdaugh and Mayhem | Client of Color Ripped Off. Then Factoring Cos. Churned His 6 Children's Structures - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
Lujerio Cordero's Appeal
Plaintiff Cordero sued Defendants-appellees Transamerica Annuity Service Corporation (TASC) and Transamerica Life Insurance Company (TLIC) (collectively, “Transamerica”), the qualified assignment company that received money from the Defendant/Insurer and and the company that issued the structured settlement annuity that funded Cordero's periodic payments before he assigned them to the factoring companies for pennies on the dollar. Transamerica subsidiaries issued structured settlement annuities until the early 2000s.
Plaintiff Made Decision Not to Sue Structured Settlement Factoring Companies and Turned Turrets to a Deep Pocket
See my April 2, 2021 blog for background Lawsuit Over Insurer's Alleged Failure to Enforce Structured Settlement's Anti-Assignment Provisions in 6 Cash Now Deals Fails - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
The United States District Court for the Southern District of Florida GRANTED the motion of the annuity issuer and owner to dismiss plaintiff’s first amended complaint, finding that no such duty pertains, but provided leave for the plaintiff to file a second amended complaint. Plaintiff filed a second amended complaint on April 20, 2020
In ruling on the first Complaint, the District Court reasoned:
- the anti-assignment provision exists to protect the annuity issuer and owner;
- that provision did not require the issuer or owner to exercise discretion for the settlement payee’s benefit; and
- requiring the annuity issuer and owner to analyze each proposed transfer would create new duties not required under the applicable Settlement Agreement.
The Eleventh Circuit then deferred its decision in Plaintiff’s breach of contract of claim, certifying to the New York Court of Appeals to answer: whether a plaintiff sufficiently alleges a breach of the implied covenant of good faith and fair dealing if he demonstrates that the defendant drastically undermined a fundamental objective of the parties’ contract, even when the underlying duty at issue was not explicitly referred to in the writing?
What Are Anti-Assignment Provisions in a Structured Settlement Agreement?
Patrick Hindert, of Independent Life Insurance Company, citing on his company's blog from the seminal industry text he co-authors, says that one of the requirements for a “qualified assignment” under IRC 130 is that “periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments.”
In addition to this statutory language, Hindert states, many structured settlement documents also have added additional restrictive language such as stipulating that the payment recipients may not assign, transfer, pledge or otherwise encumber the rights acquired by settlement.
Validity of Assignments of Structured Settlement Payments
Hindert and his co-authors state that "where a clear anti-assignment provision appears in a bilateral agreement, the general (majority) rule is that it will be enforced, unless some other provision of state law overrides the parties’ express agreement not to permit assignment of future payments – or if the party or parties having the right to enforce the anti-assignment provision (in structured settlements, generally the assignment company and annuity provider) give their approval and support.
There is a minority view, followed in Connecticut, that an anti-assignment provision is not clear unless it expressly makes void any attempt at assignment. Under this minority view, the words “this agreement may not be assigned” are not sufficient. Connecticut distinguishes between the right to assign and the power to assign and requires both the power and the right be negated to prevent an assignment. To enforce an anti-assignment provision in Connecticut, therefore, an agreement must expressly say that any attempt to make an assignment is void and of no effect".
What is a legal duty?
A legal duty is an obligation, created by law or contract. A legal duty requires a person to conform their actions to a particular standard. And it also carries with it a recognition that the law will enforce this duty to the benefit of other individuals to whom this duty is owed. Put another way, the existence of a legal duty depends on whether the interest that a defendant has allegedly invaded is entitled to legal protection. Source: Legal Information Institute, Cornell Univ. Law
Transamerica Brief Highlights
Federal tax rules facilitate structured settlements
State SSPAs require courts to review all proposed transfers
of structured-settlement rights .................................................p14
1. New York’s SSPA applies to settlement agreements
that, like Cordero’s, are governed by New York law ........................p17
2. Florida’s SSPA applies to transfers by payees who,
like Cordero, reside in Florida ..................................................p19
C. SSPA courts approved Cordero’s transfers of his
structured-settlement payment rights.........................................p20
1. Different parties executed the Settlement
Agreement, the Qualified Assignment, and the
2. Courts approved Cordero’s transfers of his
structured-settlement payment rights to the
3. Cordero sued the Transamerica defendants rather
than the factoring companies ...................................................p26
A. The Transamerica defendants made no implied promise to
Cordero to object to his transfers of payment rights during
the court proceedings that approved them ...................................p30
1. Cordero has no contract with Transamerica Life
Insurance and thus no implied covenant with it..............................p34
SIDE BAR How a Structured Settlement Is Established
See the following flow chart describing how a structured settlement is established. Note that step one is the establishment of a future periodic payment obligation as part of the consideration for the release of liability. Then, in step two. the obligation to make the periodic payments is transferred, with the plaintiff's consent, to the qualified assignment company. An assignmment payment is made by the Defendant/Insurer or QSF to the qualified assignment company, which then purchases an annuity as a qualified funding asset (qualified funding asset is defined in IRC 130(d). The Settlement Agreement would have clearly stated that the annuity would be owned by the qualified assignment company, which has all the rights of ownership. The key point is that the payee is not applying for and purchasing an annuity, the assignment company is.
2. Cordero’s implied-covenant theory is incompatible
with the common law in any event .................................. .........p36
a. Cordero’s theory is incompatible with the
common law because it calls for the parties to
obstruct each other during contract
b. Cordero’s theory also is incompatible with the
common-law rule allowing obligors to waive
anti-assignment clauses .........................................................p45
i. Cordero had no right to compel the Transamerica parties to enforce anti-
assignment clauses against assignments he approved .................... .p47
ii. The law gives obligors the right to not enforce anti-assignment clauses that say
obligees have no “power” to make assignments........................... .p50
iii. Cordero has no viable theory that the Transamerica defendants’ non-
enforcement of these clauses was an abuseiscretion ......................p55
B. Cordero’s implied-covenant theory is incompatible with
policy choices embodied in state SSPAs.......................................p58
1. New York’s SSPA reflects the General Assembly’s
judgment that issuers and obligors should not be
liable for court-approved transfers............................................p59
2. The other states’ SSPAs operate in a manner that is
inconsistent with Cordero’s implied-covenant theory .....................p62
In cases in which the plaintiff’s conduct is what caused the injury alleged, on the other hand,an implied-covenant theory makes no sense. Nor is there foundation for Cordero’s suggestion that, “if [the parties’] attention had been drawn” to the issue when these contracts were executed, the expectations wrapped up in their obligation of good faith would have included an understanding that the Transamerica defendants were promising to keep him from selling his payment rights if he
ever demanded to do so in the future That would amount to a promise to save the other contracting party from its own
choices, and that is not what the implied covenant does. As Judge Posner has suggested, it is “unlikely” that any State has, “in the name of” the implied covenant, made “every contract signatory his brother’s keeper.
Read the Transamerica Respondents' full brief Download Cordero Respondent Brief for Filing
Bipartisan Congressional Support for Structured Settlements
Bipartisan congessional support for structured settlements has been unwavering for more than 40 years. In addition to enacting the Periodic Payment Settlement Act of 1982, which went into effect in January 1983, the Victims of Terrorism Tax Relief Act of 2001 (VTTRA 2001), included legislation that created IRC 5891 which opened a liquidity spigot for structured settlement annuitants.
The intent of the 2001 Federal legislation to allow liquidity, with limitations, was in good faith. It took another two decades for all of the 50 states and DC to adopt a state structured settlement protection act.
Cordero Case Exposes the Strategic Failure of State Legislatures to Deal With Known Reasonably Forseeable Risk
The Cordero case is the latest case to expose (1) a two decade long strategic failure of state legislatures to be proactive and enact adequate structured settlement protection laws that includes licensing and regulation of structured settlement factoring companies' sales and solicitation practices in a manner consistent with other financial services, leading in some cases to disasterous outcomes for targeted annuitants; (2) serious questions about the adequacy of state judicial reviews of structured settlement transfer petitions when judges approve multiple structured settlement transfer petitions in short tiime frames, with disasterous outcomes for unsophisticated annuitants and the judges, immune from any consequences. Imagine some judges as bartenders with with a gavel, who continue to serve the obviously drunk, as if they were following God's guidelines to power delivered to Bruce in Bruce Almighty (" you can't mess with free will"). The system is far from adequate.
But as I have persisted for the majority of better part of close to two decades, the intervening years suggest that the absence of regulation of sales practices in the structured settlement secondary market which would give a regulator the power to fine, suspend or revoke authority to transact business has led to some poor outcomes. That and judicial immunity for inadequate oversight.
These negative outcomes were reasonably forseeable, yet from the outset and at every opportunity to amend the state laws to regulate companies and salespeople who interact with annuitants and their sales and solicitation practices, legislatures failed, in my opinion.
Consider the following " small" sampling:
- The collapse of the Advance Funding Ponzi Scheme, although those in charge of Advance Funding have not been arrested or convicted. See Advance Funding LLC Structure Advance Program a Madoff Like Ponzi Scheme Says New Complaint - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
- The collapse of SMA Hub, a tertiary market company that marketed factored structured settlement payment streams as annuities to investors, through financial advisors, including several settlement planners with ties to prominent trial lawyers. Some of the factored streams with a bogus secondary market annuity label were sourced from Access Funding (see 3, 4 & 5 below)
- The collapse of Access Funding in October 2015 after blistering high profile mainstream news reports about the Access Funding scam
- The Consumer Financial Protection Bureau legal action against Access Funding which uncovered exhibits such as the Access Funding training manual targeting "Lead Paint Virgins".Lee Jundanian and Company's Two Year Pillage of Baltimore "Lead Paint Virgins" | Victims to Get 4% of Money Owed Says AG - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
- The indictment in 2021 and subsequent conviction in November 2022 of an officer of Access Funding (and its successor Reliance Funding) its lawyer and a Derwood MD lawyer who did gave purported Independent Professional Advice.Criminal indictments filed against Maryland company that targeted Baltimore lead paint victims’ settlements – Baltimore Sun
- The Sumter County forum shopping mall, the courtroom of Judge Michelle Morley, the scene of pillaging of New York City lawyer Evan Torgan's excellent work for the late James McMillan, the 2003 Staten Island Ferry crash victim's settlement undone in a series of in a series of improvident structured settlement factoring transactions. The first factoring vulture appeared 4 years after the 2009 settlement. McMillan had a 2012 attempt dismissed by a New York judge and then was financially raped through 9 transactions in 2013 alone in the Sumter County Florida "kill zone", one of several preferred forum shopping venues that cash now pushers were using at that time. Paralyzed Staten Island Ferry Victim in Structured Settlement Annuitant v Factoring Co. War Part 1 - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
- Class Action lawsuit against former structured settlement annuity issuer Symetra certified Symetra Hit With Class Certification In Structured Settlement Lawsuit Over Affiliate Factoring Operation - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
- Judges like now retired Judge Dean Sword of Portsmouth Virginia presided over the majority of Terrence Taylor's ridiculous number of approved sales in two years. The flawed system that allows companies to make millions off the injured - The Washington Post. That the Taylor case is finally set for trial in June 2023, 8 years after its filing, speaks volumes.
- FL Company Preyed on Mentally Disabled Man's Structure and Caused Alleged Loss of Government Benefits - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
- High Pressure Structured Settlement Factoring Company Mailers Reviewed - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com) 
- Was Client First Settlement Funding Show Of 8% Investment Projection to Structured Settlement Annuitant A Permissble Inducement? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
- How Long Are State Legislatures Going to Tolerate Bribes for Structured Settlement Factoring Quotes? - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
- JG Wentworth Faces Potential Liability in TCPA Class Action (natlawreview.com) July 26, 2022
- A Miami lawyer forged structured settlement transfer documents a massive scandal. Lawyer Charged With Forging Signatures Of 7 Judges On Over 100 Court Documents - Above the Law February 24, 2016. It was the second such incident involving stuctured settlement factoring transactions in less than a year. A 2015 incident involved forgery by a paralegal for a New York City personal injury law firm that also served structured settlement factoring companies.
- Houston Plaintiff Lawyer's Company's Purchase of Client's Structure | "Crossing The Streams" - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
When capital supply tightened as the result of the Financial Crisis of 2008-2009, secondary and tertiary market companies sought to raise capital from alternative sources. They began to offer factored structured settlement payment rights to individual investors as annuities ("secondary market annuities"), knowing that these were factored structured settlement receivables were not annuities and still are not annuities. In addition to calling the receivables annuities when soliciting investors in the receivables, some solictors even inferred state guaranty fund protection for those who purchased receivables thinking they were annuities, a practice that would be unlawful if they were indeed annuities.
These were perhaps unnoticed, or perhaps ignored, by state financial regulators.
The NAIC Takes Action, Finally
It took until 2017 for the National Association of Insurance Commissioners (NAIC) to make revisions to the Life & Health Guaranty Association Model Act (#520) which at 3(B)2(n), specifically excludes:
"Structured settlement annuity benefits to which a payee (or beneficiary) has transferred his or her rights in a structured settlement factoring transaction as defined in 26 U.S.C. 5891(c)(3)(A), regardless of whether the transaction occurred before or after such section became effective". As of July 2022, 37 states had adopted the 2017 Revisions.
Insurers are among those who buy factored stuctured settlement payment rights through securitizations
When Judges Actually Do Their Job Under the Structured Settlement Protection Act
Judge in Niagara Foils Structured Settlement Factoring Last Stand, Citing Bob Dylan in Reject of Boca Broker - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
NY Judge Lisa Fisher Sings "Bier Bier Baby" to Forging NY Structured Settlement Seller - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary (typepad.com)
Last updated February 24, 2023