by John Darer CLU ChFC MSSC CeFT RSP CLTC
Should an Annuity Issuer or Qualified Assignment Company Be Responsible for Annuitant's depletion of structured settlement through repeat factoring?
A Florida Court said no in a March 29, 2021 decision in LUJERIO CORDERO, Plaintiff, v. TRANSAMERICA ANNUITY SERVICE CORPORATION, also known as Wilton Re Annuity Service Corporation, and TRANSAMERICA LIFE INSURANCE COMPANY, Defendants. | TRANSAMERICA ANNUITY SERVICE CORPORATION, Third-Party Plaintiff, v. ALLIANCE ASSET FUNDING, LLC, SINGER ASSET FINANCE COMPANY, LLC, and LIBERTY SETTLEMENT SOLUTIONS, LLC, Third-Party Defendants. FLSD 1:18-cv-21665-DPG
Plaintiff Alleged That the Settlement Agreement's Anti Assignment Clause Was Intended to Protect Him and His Economic Viability
According to the Plaintiff, whose structured settlement was established June 25, 1996 as part of the consideration for settlement of a lawsuit arising out of childhood lead poisoning, alleges that Defendants’ failure to enforce the anti-assignment clause arose out of a “malevolent intention” to profit at Plaintiff’s expense based on transfer administrative fees Transamerica Life received from factoring companies. As a result, Plaintiff argued that Defendants breached their contractual duty of good faith and fair dealing to enforce the anti-assignment clause and refuse authorization of the six structured settlement transfers that occurred between July 11, 2012 and May 15, 2014.
However, the Court agreed that the Plaintiff’s claims failed because Defendants had no affirmative obligation to prevent Plaintiff from assigning his annuity benefits. The Settlement Agreement does not require that Defendants exercise the anti-assignment clause for Plaintiff’s benefit. Rather, the anti-assignment clause exists for Defendants’ benefit and may be exercised at their discretion.
Plaintiff failed to show a fiduciary relationship between the parties. The Settlement Agreement also explicitly stated that the Settlement Agreement shall be governed and interpreted in accordance with the laws of the State of New York.
What is an Anti- Assignment Clause in a Settlement Agreement?
Plaintiff made reference that the Settlement Agreement contains an anti-assignment clause restricting Plaintiff’s “power to sell, mortgage, encumber or anticipate same” any part of the periodic payments and prohibiting the periodic payments from being “accelerated, deferred, increased or decreased” by Plaintiff to support its claims.
The basis of the so-called anti-assignment language is grounded in tax law and various Revenue Rulings and Private Letter Rulings.
IRC 130(c)(2)(B) " if such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments"
Rev. Rul. 2003-115 (Oct. 28, 2003)(periodic payments made to a claimant of the September 11th Victim Compensation Fund pursuant to an Award Determination Agreement among the claimant, the Special Master administering the Fund and an assignment company excludable from the claimant’s gross income under §§ 104(a)(2) and 139(f); Award Determination Agreement included a §130 assignment of the periodic payment obligation and provided that “no payee or beneficiary shall have the right or power to transfer, mortgage, encumber or anticipate the periodic payments, by assignment or otherwise”);
PLR 9024017 (Mar. 14, 1990) (structured settlement payments excludable from recipient’s income under § 104(a)(2); recipient had “no right to accelerate payments under the annuity contract, receive a lump sum equivalent to its present value, or alienate the right to receive the series of payments”);
PLR 8435154 (June 1, 1984) (same; settlement agreement provided that the periodic payments were “not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance” by the recipient);
PLR 8527050 (Apr. 9, 1985) (structured settlement payments excludable from recipient’s income under § 104(a)(2); settlement agreement provided that “[n]o amount payable” to the recipient “shall be subject to alienation by anticipation, sale, transfer, assignment, bankruptcy pledge, attachment, charge, or encumbrance of any kind, except as may otherwise be required by law”);
PLR (May 21, 1979) (same; settlement agreement provided that settlement payments were “not subject to assignment[,] transfer, commutation, or encumbrance”); cf. Rev. Rul. 72-25, 1972-1 C.B. 127 (amounts payable to an employee under a deferred compensation
Source: Footnote to Model Qualified Assignment & Release Agreement Rel. 23
Factoring was not as pervasive back in 1996 when Cordero's structured settlement was established. A turning point for structured settlement factoring came in January 2002 when the Victims of Terrorism Tax Relief Act of 2001 was signed into law and the state structured settlement protection acts that followed. With the new laws came a volume of transfer petitions and the associated legal and administrative costs for structured annuity issuing insurers that were neither anticipated, nor priced into the cost when the structured settlements were established. It would not be fair to have new annuitants absorb the cost by having less competitive structures when a minority of people sell their payment rights down the road.
Plaintiff also alleged exploitation of a disabled adult under the Florida Adult Protective Services Act
What is the Florida Adult Protective Services Act?
FAPSA is designed to protect vulnerable adults in the state of Florida from “abuse, neglect, and exploitation.” Fla. Stat. § 415.101(2). A “vulnerable adult” is defined as “a person 18 years of age or older whose ability . . . to provide for his or her own care or protection is impaired due to a mental, emotional, sensory, long-term physical, or developmental disability or dysfunction, or brain damage, or the infirmities of aging.” Fla. Sta. § 415.102(28). A vulnerable adult is “exploited” when: [A] person . . . knows or should know that the vulnerable adult lacks the capacity to consent, and obtains or uses, or endeavors to obtain or use, the vulnerable adult’s funds, assets, or property with the intent to temporarily or permanently deprive the vulnerable adult of the use, benefit, or possession of the funds, assets, or property for the benefit of someone other than the vulnerable adult.
FAPSA provides that exploitation “may include, but is not limited to” actions such as: (1) “Breach of fiduciary relationships . . . resulting in the unauthorized appropriation, sale, or transfer of property;” (2) “Unauthorized taking of personal assets;” (3) “Misappropriation, misuse, or transfer of moneys belonging to a vulnerable adult from a personal or joint account;” or (4) “Intentional or negligent failure to effectively use a vulnerable adult’s income and assets for the necessities required for that person’s support and maintenance.” Id. § 415.102(8)(b). FAPSA provides “[a] vulnerable adult who has been . . . exploited . . . a cause of action against any perpetrator and may recover actual and punitive damages for such . . . exploitation.” Fla. Stat. § 415.1111.
The Court ruled that Plaintiff bases his FAPSA claim on the allegation that “Defendants allowed [Plaintiff’s] exploitation by the factoring companies through its failure to honor his contractual entitlement under the [Settlement Agreement’s] anti-assignment provision . . . .”Defendants had no affirmative obligation to prevent Plaintiff from assigning his annuity benefits to factoring companies—transfers that were approved on six occasions by Florida state court judges. As Plaintiff’s FAPSA claims are belied by the Settlement Agreement, Count II must also be dismissed with prejudice