by Structured Settlement Watchdog
With oral arguments in Cordero v Transamerica in the New York Court of Appeals on March 14, Independent Life's Patrick Hindert has made a valuable contribution to the discussion about Cordero v Transamerica, a lawsuit which seeks to get Transamerica's qualfied assignment company and structured settlement annuity issuer to foot the bill for improvident structured settlement factoring transactions approved by Sumter and Broward County judges in the State of Florida. Cordero did not sue the factoring companies and instead went after the annuity issuer and qualified assignment company.
The New York Court of Appeals was certified from the 11th Federal Circuit to address the focal point of plaintiff's allegation, whether or not 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] is a manifestation of the assignor’s [structured settlement recipient’s] intention to transfer it [right to receive periodic payments] by virtue of which the assignor’s [structured settlement recipient’s] right to performance by the obligor [assignment company] is extinguished in whole or in part and the assignee [factoring company] 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 and immediately led to a vigorous discussion among members of the Society of Settlement Planners as to whether (or not) the VTTRA created new rights for plaintiffs (both right to structure, right to factor). The concept that "Factoring is Settlement Planning" was strongly advocated by a number of members and commentators.
An effort was made by SSP members and other settlement planners to advocate for the insertion of language into settlement agreements and qualified assignment agreements that plaintiffs and their counsel signed (when QAR or QARP used) signed, that on the plain reading seems to be a waiver of anti-assignment provisions. This "Except as" language was initially approved on an exception basis by annuity issuers and their qualfied assignment companies and eventually incorporated into the standard adminstrative 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;
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.
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.
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