by Structured Settlement Watchdog
Maricopa County Arizona judge Danielle J. Viola has issued an under advisement order in important litigation concerning investments in structured settlement payment rights. Genex Capital Corporation et al. v Seeley Capital Management Inc, et al Superior Court Maricopa County CV 2020-004958.
The Maricopa docket CV 2020-004958, consolidates the original action brought by Genex Capital in April 2020, the counterclaims of Defendants in May 2020, investor lawsuits against Genex Capital CV2020-013796 commenced October 2020, additional investor lawsuits against Genex Capital amending the same case number December 2020 and additional investor lawsuits against Genex Capital, CV 2022-002266 commenced February 2022, with associated counterclaims. Other legal actions beteen Genex Capital and some of the same parties remain pending in other states, as well as an action by Genex Capital against another investor, octogenarian Geraldine Yeisley, a retired school teacher from Oklahoma which has also associated counterclaims [ see Genex Capital Corporation v Provident Trust Group Geraldine Yeisley Pottawatomie County OK CJ-2021-00115]
Genex Capital Corporation Lawsuit Update v New England Annuity Associates et al. v Genex Capital Corporation et al.
The Court declined to enter a partial summary judgment against Genex Capital Corporation in its lawsuit against New England Annuity Associates, Bulbrook-Drislane, Seeley Capital Management Inc., Income Stream Funding Partners, LLC, John Bulbrook/Jane Doe Bulbrook, and Christopher Seeley (collectively, “Defendants”) The Court found that Genex Capital presented sufficient evidence demonstrating that factual disputes remain as to what damages Genex may have suffered. As a result, the Court declined to enter summary judgment on the issue of damages. The Court found that Defendants have not shown an absence of any genuine issue of material fact regarding causation. Based on its conclusions, the Court declined to enter summary judgment on the issue of damages or causation of damages.
Keefer Investor Lawsuit Update v Genex Capital Corporation
Keefer was the first investor lawsuit filed. Between 2011 and 2013, Plaintiffs Richard L. Keefer and Vicki L. Keefer (the “Keefers”) purchased the right to collect future structured settlement payments (“Payment Streams”) from Defendant Genex Capital Corporation (“Genex”) including rights to the Lessa Perdun payments (“Perdun Payments”) and Leigh Laura Duran payments (the “Duran Payments”). Genex executed an Assignment consistent with the applicable Receivable Purchase Agreement. Genex designated Security Title Agency, Inc. as the Servicing Company.
In September 2019, the Keefers executed documents entitled “Assignment of Sale and Assignment Agreement” to effectuate the sale and reassignment of some of the Payment Streams to New England Annuity Associates (“NEAA”). NEAA then reassigned the Payment Streams to other third-party investors and Security Title began remitting payments to the investors. Before providing notice to the Keefers of their alleged default, Genex directed Security Title to remit payments from the reassigned Payment Streams to Genex. Later, payments related to reassigned Payment Streams were held by Security Title [ Judge Viola Under Advisement Ruling 6/7/2022 p 5 ]
On February 24, 2020 and April 3, 2020, Genex provided notice to the Keefers of the alleged default resulting from the reassignments of Payment Streams to NEAA without Genex’s consent. The notices required proof that the reassignments had been reversed within twenty days. In order to avoid a dispute, the Keefers and NEAA revoked the reassignments. Genex asserts that the Keefers did not respond to the notices of default. Genex alleges that it terminated the RPAs, repossessed the rights to the Perdun Payments and Duran Payments, and reassigned them to new investors.
Plaintiffs seek partial summary judgment that (1) they are the owners of and have the right to receive payments arising from the Payment Streams; (2) Genex has no right, title, or interest in the Keefers’ Payment Streams; and (3) Genex had and has no right to withhold, sell, or reassign the Keefers’ Payment Streams. Genex seeks summary judgment that (1) the Keefers did not have the power or the right to reassign the receivables; (2) Genex had the right to terminate and/or void the RPAs; and (3) Genex had the right to withhold and reassign future Receivables payments from the Keefers.
The parties’ motions for partial summary judgment are summed up in the following questions:
(1) What are the Keefers and Genex’s rights and interest in the Payment Streams?
(2) Did the Keefers have the power or right to reassign the Receivables?
(3) Did Genex have the right to terminate the RPAs?
(4) Can Genex withhold Receivables payments from the Keefers? [6/7/2022 Viola Order p6]
Rights and Interest in the Payment Streams
The Court granted Plaintiffs Richard L. Keefer’s and Vicki L. Keefer’s Motion for Partial Summary Judgment in Case No. CV2020-013796 filed November 23, 2021 that (1) the Keefers are the owners of and have the right to receive payments arising from the Payment Streams; (2) Genex has no right, title, or interest in the Keefers’ Payment Streams; and (3) Genex had and has no right to withhold, sell, or reassign the Keefers’ Payment Streams. Genex had the opposite motion.
The Court reasoned that plain language of Section 3.1 of the Genex RPA and Schedule E are clear that Genex transferred all of its right and interest in the Receivables. The Court found that the Keefers are entitled to a declaration that they are the owners of and have the right to receive payments arising from the Payment Streams and that Genex has no material right, title, or interest in the Keefers’ Payment Streams.
The Court further reasoned that although the RPA is clear regarding the Keefers’ interest in the Payment Streams, the RPA is equally clear regarding restrictions on reassignment. Section 3.4 of the RPAs states: “Buyer shall not have the right to further assign or sell the Receivable and must keep the Receivable for the balance of its term unless otherwise expressly approved by Genex.” SOF, Ex. 1, RPA § 3.4. The Court found that Genex is entitled to a declaration that the RPA does not permit reassignment of the Receivables without Genex’s consent, but denied all other relief.
Furthermore, the Court reasoned
- The parties argued regarding the distinction between the right to assign and the power to assign.
- The Keefers argue that a breach of a promise not to assign does not render the assignment void or invalid.
- The Keefers also argue that the distinction between the right to assign and the power to assign does not change the fact that Genex does not obtain rights to the Payment Streams or have the ability to resell them based on an unauthorized assignment—either the reassignment was void or the reassignment constituted a breach. Neither would result in the Keefers forfeiting the Payment Streams back to Genex, said the Judge in her Order
I've previously reported about the 2020 amplification of paragraph 3.4 of the Genex Capital Receivables Purchase Agreement, which appears to be an attempt by Genex Capital to address the reassignment issues that gave rise to the litigation and makes clear the potential consequences to investors in block capitals.
A prospective investor would have to agree to such terms (as well as the rest of the terms) of the latest version of the RPA, if entering into an RPA with Genex to buy receivables (e.g. structured settlement payment rights).
It is undisputed that the Keefers reassigned the Payment Streams to NEAA. However, the Keefers assert that disputed issues of material fact remain that preclude summary judgment on the issue of whether there was an uncured material breach. The Keefers assert that Security Title approved the assignments. Genex also asserts that the Keefers did not respond to the Notices of Default. The Keefers assert that they revoked the reassignments and informed Genex of the revocations.
Based on the disputed facts, the Court declines to enter summary judgment in favor of Genex declaring it had the right to terminate and/or void the RPAs.
Even if the Court concluded a material breach occurred, Genex’s remedies are limited to those set out in the RPA. Genex may have a claim for breach, but Genex does not obtain any right, title, or interest in the Payment Streams or the right to withhold, sell, or reassign the Payment Streams as a result of the Keefers’ breach and default. Genex’s remedies in the event of the Keefers’ default are as follows:
(a) terminate the Agreement in respect of the Receivable Transaction in question by Notice delivered to the Buyer on or before Closing. In such case Genex shall be entitled to keep any funds deposited by Buyer by way of liquidated damages and not as a penalty; and/or
(b) enforce specific performance of Buyer’s obligations under this Agreement; and/or
(c) terminate the Agreement generally; and/or
(d) bring an action in law or equity to recover damages for the default, including Genex’s reasonable costs and attorney’s fees. Genex shall have the right, but not the obligation, to mitigate its damages. [Under Advisement Order 6/7/2022 p9]
Obviously there is more to come in this litigation which continues to be instructive of the transactional risks of investing in structured settlement payment rights, or subsets of those rights.
I, for one, continue to be grateful for Mr. Proctor's introduction of the term "subset" to refer to portions of structured settlement payment rights acquired by investors that are being serviced. [Proctor Declaration of 1/3/2022]
The RPA defines “Annuity” as “a payment or set of payments paid over a fixed term by an insurance company arising from a structured settlement, lottery prize winning payment or other annuity.” SOF, Ex. 1, RFP at 3. “Receivable” is defined as “all or such part of the payments from an Annuity which Buyer has agreed purchase [sic] under this Agreement as set out in a Request.” Id. Other language from the RPA also supports the conclusion that the distinction between “Receivable” and “Annuity” is immaterial. [ Under Advisement Order p 7]
While the judge references a defined term "annuity" in the RPA and that the distinction between annuity and recevable is immaterial, acquired structured settlement payment rights are not considered annuities or insurance products [ NAIC Statutory Issue paper No. 160, finalized April 6, 2019] and the definition of annuity under the insurance laws of many states is inconistent with what Genex Capital or similar companies are selling to investors. For example,