United States: RSL Funding, LLC v. Alford

(Trial Court’s Order to Divide Structured Settlement Payments Over Insurer’s Objection Violates the Structured Settlement Protection Act)

In RSL Funding, LLC v. Alford, 239 Cal. App. 4th 741 (August 18, 2015), the California Court of Appeal reversed the “trial court’s approval of an order directing the transfer of structured settlement payments to plaintiff and respondent RSL Funding, LLC (RSL).

Defendant Felicia Alford, then a minor, entered into a settlement in 1994 (by her guardians) for her personal injury claim against State Farm’s insureds. A court order approved the settlement, which directed State Farm to provide an annuity with specified structured payments to Ms. Alford ($10,000 annually from August 11, 2003 through August 11, 2006; $50,000 on August 11, 2009; $100,000 on August 11, 2016; and $151,558.80 on August 11, 2021).

Ms. Alford then entered into two contracts with RSL, assigning a portion of her future payments in exchange for present payments. In July 2012, she received $30,000 in exchange for $50,000 of the August 11, 2016 payment. RSL then assigned its payment to Extended Holdings, Ltd. (“EHL”). In a 2012 order, the trial court approved the transfer, which State Farm did not contest. In July 2013, she received $22,500 in exchange for assigning to RSL $25,000 each from the August 11, 2016 payment and from the August 11, 2021 payment. RSL filed a petition for the court to approve this transfer. State Farm opposed the petition on the grounds that “(1) the proposed transfer would violate a California statute (Ins. Code, § 10139.5, subd. (e)(3)), which provides that an annuity issuer and settlement obligor may not be required to divide payments, and (2) the proposed transfer would materially increase State Farm’s burdens and risks.” The trial court approved the transfer petition.

The Court of Appeal applied a de novo standard of review on appeal.

The Court summarized the relevant provisions of the Structured Settlement Protection Act:

The California Legislature has adopted the Structured Settlement Protection Act (SSPA) (§ 10134 et seq.) to protect structured settlement payees from exploitation by factoring companies. Annuity issuers and structured settlement obligors are defined as “‘interested parties’” under the SSPA (§ 10134, subd. (g)), and as such, are entitled to notice of petitions to authorize transfer of payments under a structured settlement agreement. (§§ 10139, subd. (a), 10139.5, subd. (f)(2).)

A transfer to a factoring company must be approved by the court and requires an express finding that the proposed transfer “will not contravene other applicable law.” (§ 10137, subd. (b).) The SSPA specifically provides, “Neither the annuity issuer nor the structured settlement obligor may be required to divide any structured settlement payment between the payee and any transferee or assignee or between two or more transferees or assignees.” (§ 10139.3, subd. (e).)

State Farm argued the transfer requires it to split the 2016 payment three ways – among RSL, EHL, and Alford – in violation of Section 10139.3(e). RSL argued on appeal that this provision is merely permissive, not mandatory. The Court rejected that argument:

We agree that settled principles of statutory construction direct that “we ‘ordinarily’ construe the word ‘may’ as permissive and the word ‘shall’ as mandatory, ‘particularly’ when a single statute uses both terms.” [Citation] However, RSL fails to recognize that a contrary principle of statutory construction governs when the statute, such as section 10139.3, subdivision (e), uses a negative form of the word “may.” “‘One of the strongest indications of what construction should be given a statutory provision may be found in the use of negative, prohibitory, or exclusionary words. Where statutory restrictions are couched in negative terms they are usually held to be mandatory. In the language of one court “there is but one way to obey the command ‘thou shalt not,’ and that is to refrain altogether from doing the forbidden act.”’ [Citation.]” [Citation] As a court in another state has pointed out, if a legislature intends the phrase to be permissive, it can simply omit the word “‘not.’” [Citation] Here, the statute’s use of the words “neither” and “nor” combined with “may be required” clearly indicates the Legislature’s intention to impose a mandatory rule.

The Court further stated that, while neither did the parties cite nor could it find California law to that effect, the case law of other jurisdictions similarly construes such language.

Although such authorities are persuasive rather than mandatory precedent, we agree with their reasoning and conclusions. We therefore conclude that the trial court erred in entering an order that requires State Farm to divide payments because the SSPA provides that an annuity issuer may not be required to do so. (§ 10139.3, subd. (e).).

The Court then rejected RSL’s arguments that State Farm could not oppose the petition on the grounds of waiver, forfeiture, or judicial estoppel. As to waiver, the Court found:

[T]he 2012 order expressly stated that State Farm’s “lack of opposition to this matter, or stipulation hereto or compliance herewith, shall not constitute evidence in any other matter, and is not intended to constitute evidence in any other matter that: [¶] . . . . [¶] c. Annuity Owner [State Farm Fire] and Annuity Issuer [State Farm Life] have waived any right in connection with any other litigation or claims.” The 2012 order thus makes it clear that State Farm did not intentionally relinquish its rights under section 10139.3, subdivision (e), with respect to future transactions.

RSL next contended that State Farm consented to the splitting, which the Court also rejected:

State Farm filed a written opposition to the proposed transfer and appeared at hearings on the proposed transfer where it asserted its opposition to payment splitting. At the close of the September 24, 2013, hearing, the trial court stated it would approve the transfer and instructed the parties to work out the form of the order. RSL and State Farm agreed to an order similar to the 2012 order, but RSL did not submit that proposed order to the trial court. State Farm therefore filed an objection to the proposed order, stating that State Farm had not withdrawn its objection to the proposed order, that State Farm disagreed with the trial court’s ruling, and that RSL had misrepresented State Farm’s position by submitting a proposed order that differed from the proposed order to which State Farm had agreed.

It is clear from the record that State Farm never withdrew its objections to the proposed 2013 transfer and never consented to split payments in connection with the 2013 transfer.

Finally, the Court rejected the claim of judicial estoppel, finding that the current situation was a separate and distinct transaction from the prior petition wherein State Farm did not object but reserved its right to do so, and that State Farm’s positions were “not totally inconsistent.”

Finding that the trial court’s order violated Insurance Code section 10139.3(e), the Court reversed the trial court. The Court also declined to grant RSL’s request to remand the matter to the trial court with the direction to enter an order requiring State Farm to pay the entirety of the amount due to RSL, who would then distribute the amounts owed to the other payees.

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