A Virginia state court has ruled that the anti-assignment provision of the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. § 901 et seq. (the "Longshore Act") prohibits a transfer of structured settlement payment rights arising from a claim under the Longshore Act. In In re Jeffrey Butts, No. CL11-240 (Portsmouth Cir. Ct.), Judge Dean Sword held that the Longshore Act therefore compelled the denial of a petition for transfer of structured settlement payment rights filed under the Virginia Structured Settlement Protection Act, Va. Code Ann. § 59.1-475 et seq. (the "Virginia Act").
Jeffrey Butts suffered an injury while working for a ship repair company and sought workers' compensation benefits under the Longshore Act. A settlement was reached among Mr. Butts, his employer, and the employer's insurer, Liberty Mutual Insurance Company ("Liberty Mutual"). Mr. Butts and Liberty Mutual executed a settlement agreement (the "Settlement Agreement") that provided for an immediate payment to Mr. Butts, as well as for future periodic payments (the "Periodic Payments").1 The Settlement Agreement was approved in an Order entered by the U.S. Department of Labor, Office of Workers' Compensation Program.
Mr. Butts recently entered into an agreement to sell his Periodic Payment rights to CBC Settlement Funding, LLC ("CBC"). CBC petitioned the court to approve the transfer. Liberty – represented by Timothy O'Driscoll of Drinker Biddle & Reath, LLP – opposed the transfer, arguing, inter alia, that the transfer was prohibited by the anti-assignment provision of the Longshore Act, which states: "No assignment, release, or commutation of compensation or benefits due or payable under this Act, except as provided by this Act, shall be valid, and such compensation and benefits shall be exempt from all claims of creditors and from levy, execution, and attachment or other remedy for recovery or collection of a debt, which exemption may not be waived." 33 U.S.C. § 916. CBC relied on the opinion in In re Sloma, 43 F.3d 637 (11th Cir. 1995), in which a divided panel held, in connection with a bankruptcy proceeding and under unusual facts, that the antiassignment provision of the Longshore Act did not void a prior assignment of benefits.
Judge Sword issued an order on March 31, 2011, denying the proposed transfer. Rejecting CBC's reliance on In re Sloma, Judge Sword wrote in his decision, "With all due respect to a divided [E]leventh [C]ircuit panel this court feels the [In re Sloma] opinion is controlled by bankruptcy issues . . . and is not directly responsive to our case." Judge Sword also opined that the issue at the heart of the matter was whether the Longshore Act preempts the Virginia Act, writing, "Using well-known legal principles we must apply federal law in this matter (particularly where the entire claim was under federal law and control of a federal administrative agency) and it seems that federal law prohibits this transfer." The Order denying the transfer states that "the Court finds that Section 16 of the Longshore and Harbor Workers' Compensation Act (33 U.S.C. § 916) prohibits a transfer of structured settlement payment rights under the Virginia Act."
Footnote
1 As provided in the Settlement Agreement, Liberty Mutual assigned its obligation to make the Periodic Payments to Liberty Assignment Corporation ("Liberty Assignment") by way of a Uniform Qualified Assignment. In order to fund its obligation to make the Periodic Payments, Liberty Assignment purchased an annuity from Liberty Life Assurance Company of Boston ("Liberty Life" and together with Liberty Assignment, "Liberty").
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