A loan agreement whereby a payee agreed to give a factoring company a security interest in her structured settlement payments also gave the company the right to collect the payments in the event of a default on the loan – and since the loan agreement pre-dated the statute governing such transactions, the right to enforcement of the agreement via collection of the payments also pre-dated the statute.
So concluded a federal magistrate judge, in reviewing the issue of whether enforcement of the agreement implicated the Ohio Structured Settlement Protection Act.
In the opinion, Singer Asset Fin. Co. v. Cassidy-Elliot, Civil Action 2:13-cv-0638 (S.D. Ohio Sept. 30, 2014), Magistrate Judge Mark R. Abel detailed a factual history of the case that included the following:
- The payee, Kelly Cassidy-Elliott (referred to as Elliott by Magistrate Abel) entered into a loan agreement with Merck Bank Corporation in April, 2000.
- Under the loan agreement, she assigned to Merck a $63,000 structured settlement payment due to be paid to her in 2013.
- The collateral she pledged to Merck under the loan agreement included, among other things, a $100,000 structured settlement payment due to be paid to her in 2018.
- In May, 2000, Singer Asset Finance Company – which had acquired the loan agreement from Merck – filed a UCC-1 financing statement to secure its rights in the loan collateral.
- Ohio’s Structured Settlement Protection Act went into effect on October 27, 2000.
- Elliott later defaulted on the loan, then reached an agreement with Singer on settling the default claim against her by Singer, whereby Singer would collect $90,000 of the 2018 payment.
- The annuity issuer and structured settlement obligor wished to avoid litigation over whether the Ohio SSPA applied based on the terms of the default settlement.
The court went on to note that the parties did not dispute that the April 2000 loan agreement and the May 2000 UCC filing pre-date the SSPA “and, as such, are not subject to it” and that the question before the court “is whether the pledge of the 2018 . . . payment as collateral under for the loan was a transfer under Ohio’s SSPA.”
The court also said that the annuity issuer and structured settlement obligor pointed out that “lien rights are not the same as payment rights” and that the UCC financing statement “placed a lien upon the 2018 periodic payment, but in the absence of a default [under the loan agreement] it did not give Singer the right to receive the 2018 periodic payment.”
Magistrate Abel appeared to reach a conclusion that differed from the point made by the issuer and obligor, namely, that the loan agreement did give Singer the right to receive the payment, at least in the event of a default:
While the April 2000 loan agreement pledging the 2018 periodic payment as collateral and the May 2000 UCC filing may not have transferred an immediate right to the payment, its legal purpose and effect was to give Singer the right to the payment in the event Elliott defaulted on the loan. Elliott knew then that if she later defaulted on the loan, Singer had the right to the 2018 periodic payment. Her signature on the UCC filing acknowledges that fact. Since the parties do not dispute that she is in default on the loan, here assigning $90,000 of the $100,000 2018 periodic payment did not effect a transfer of a structured settlement payment requiring Ohio court approval under the SSPA because that right was transferred to Singer in May 2000 before the October 2000 effective date of Ohio’s SSPA.
The full opinion is available here.