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Arizona Appeals Court Rules For Winner Of Race To The Courthouse In Legal Battle Between Two Factoring Companies Over Lottery Payments

Earlier this week, an appeals court issued an opinion in a lawsuit between two factoring companies over a structured settlement factoring dispute.  See In Dispute Between Factoring Companies, Appellate Court Says An Order Is Not A Statute Under Tennessee Structured Settlement Protection Act.

That opinion followed another appeals court opinion issued earlier this month in a lawsuit between two factoring companies over a lottery payment factoring dispute.

The lottery dispute also involved a court order obtained by one factoring company and challenged by another.

In Woodbridge Structured Funding, LLC v. Arizona Lottery, No. 1 CA-CV 13-0043, 2014 Ariz. App. LEXIS 89 (Ariz. Ct. App. ay 13, 2014), the challenge was brought by Genex Capital Corporation to an order obtained by Woodbridge Structured Funding, LLC.

Woodbridge had obtained an order approving the lottery factoring transaction, pursuant to Arizona’s lottery factoring statute which, as with the statutes of a number of other states, provides that a sale of lottery payment rights is not valid without court approval.

In the trial court matter filed by Woodbridge, Genex had moved to intervene, saying that it had an agreement with the lottery payee (Thomas) that pre-dated the agreement with Woodbridge and the same payee and involving the same payments.  Said the appeals court, describing the facts of the case:

Genex moved to intervene in the Approval Action alleging that because Woodbridge and Thomas failed to inform the trial court that Thomas had a prior contract with Genex to assign the Lottery Payments, the court should have denied the motion . . . [filed by Woodbridge].  Genex asserted that it had a right to intervene in the Approval Action because it had a ‘direct interest in the Lottery [Payments], and the disposition of this action without a determination of Genex’s rights may . . . impair Genex’s ability to recover the Lottery [Payments]’ . . . .

Note that, according to the facts described by the appeals court: (1) Genex and Thomas entered into an agreement on June 8, 2012, then Thomas emailed Genex on the same day telling Genex that he was canceling the agreement – and Genex on June 14 left Thomas a voicemail saying he had no right to cancel the agreement; and (2) Woodbridge and Thomas entered into an agreement on June 9, 2012, and the trial court entered an order approving the transaction on July 27, 2012.

The trial court denied Genex’s motion to intervene, and Genex appealed.  The appeals court concluded that the agreement between the payee and Genex did not give Genex an enforceable interest that would entitle it to intervene, because the Arizona lottery statute precluded such an interest prior to court approval:

An Arizona lottery prize is not freely assignable.  See A.R.S. § 5-563(A)(3) (2012).  A prize winner may assign his prize only pursuant to an appropriate judicial order and only if all of the following conditions are met: (1) the prize winner provides an affidavit certifying that he is not acting under duress, is of sound mind, and has received outside financial and tax advice concerning the assignment; (2) the ‘assignee pays the prize winner a lump sum for all amounts that are due to the prize winner under the assignment agreement on or before the date that the assignment takes effect;’ and (3) the ‘parties to the assignment pay a fee to the commission to defray the expenses incurred by the commission in processing the assignment.’  Id.  Therefore, because a prize annuity is not freely assignable, the assignee’s interest in an assignment is contingent until the trial court has entered an appropriate order approving the assignment.

Genex’s agreement with Thomas to assign the Lottery Payments gave it only a contingent interest in the annuity for the purposes of intervention.  Genex had neither commenced an action to obtain the required judicial order, nor received the appropriate judicial order.  Its contingent interest in the Lottery Payments was insufficient to constitute an interest in the case entitling it to intervention . . . .

The appeals court did say that the disposition of this matter “did not foreclose Genex’s ability to litigate its alleged breach of contract and tortious interference with a contractual relationship claim.”

The full opinion is available here.

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