The various districts of the Texas Court of Appeals have considered a number of cases relating to the Texas Structured Settlement Protection Act. In a recent opinion, a panel of the Texas Court of Appeals for the Fourteenth District came out with some views that are at odds with an opinion from last year from a panel from the Seventh District. The more recent opinion also stands out as being at odds in other ways with other opinions addressing structured settlement protection acts.
The recent opinion from the Fourteenth District is Metro. Life Ins. Co. v. Structured Asset Funding, No. 14-15-00584-CV, 2016 Tex. App. LEXIS 9359 (Tex. Ct. App. Aug. 25, 2016), and the crux of the issue was whether the trial court could issue an order approving a transfer that included a servicing arrangement, whereby the annuity issuer was ordered to send full payments to a transferee, notwithstanding that only a portion of the payments were to be assigned.
The opinion makes a point to distinguish itself from a 2015 opinion, In re Rains, No. 07-14-00132-CV, 2015 Tex. App. LEXIS 8219, 2015 WL 4647779 (Tex. Ct. App. Aug. 5, 2015), where the Seventh District reversed a trial court’s approval of a transfer under the Texas SSPA, saying that there was insufficient evidence to support a finding of best interest, and for other reasons.
Much of the Structured Asset opinion has to deal with arguments about the authority of a court in connection with the servicing arrangement. As described above, servicing arrangements arise from structured settlement factoring transactions whereby the contract rights being transferred to a transferee, or factoring company, constitute only a portion of a particular future payment; the full payment would be sent, pursuant to the servicing arrangement, to the factoring company, which would have an obligation to pass along the unassigned portion to the payee.
In dealing with the arguments about judicial authority in dealing with transfers of contract rights and their relation to servicing arrangements, the Fourteenth District panel said that the Texas SSPA is a statutory action, and is not an action to enforce a contract, criticizing as purportedly irrelevant case law cited by the annuity issuer and structured settlement obligor having to do with contract rights.
Later in its Structured Asset opinion, however, the panel does turn to contract law authority, so as to address the meaning of a term under the Texas SSPA – a term relating to the “assignment” of rights.
Thus, while implicitly recognizing the import of general contract law authority in one section of the Structured Asset opinion dealing with the meaning of the Texas SSPA, the appeals court in another section of the opinion decides to expressly reject contract law’s relevancy – notwithstanding also that such relevancy that has been repeatedly recognized in numerous proceedings under the Texas SSPA.
Indeed, in this respect, the Structured Asset opinion is an anomaly, as no other appeals court interpreting any state structured settlement protection act has so concluded that contract law is irrelevant in this way. Indeed, to the contrary many courts have relied on relevant contract law authority in SSPA proceedings.
Perhaps even more conspicuous is the unusual view that the Structured Asset panel takes when it comes to the best interest determination. Under the Texas SSPA, as under all 49 state structured settlement protection acts, there is no express definition of the term “best interest”. Nonetheless, the Texas SSPA, as with most SSPAs, provides that a transfer cannot receive court approval without a finding that the transfer is in the payee’s best interest. Appeals courts in Texas and elsewhere have found that a court’s determination as to the best interest determination is wide-ranging and, in fact, encompasses a broad array of facts – indeed, virtually any fact that the trial court finds relevant to that determination. This view is underscored by the judicial opinions on the subject, which include appellate authority beginning in 2002, when the first state appeals court reviewed the scope of a trial court’s authority in an SSPA proceeding and said that the best interests determination involves a “global determination of the facts, circumstances, and means of support available to the payee and his or her dependents” that include consideration of “the payee’s age, mental capacity, maturity level, and stated purpose for the transfer” and should include whether the periodic payments “were intended to cover future income loss or future medical expenses”, “whether the offered discount rate is in line with the market rate for similar transfers” and “may involve an assessment of whether the payee can meet the financial needs of and obligations to the payee’s dependents if the transfer is allowed to proceed.” Settlement Capital Corp. v. State Farm Mut. Auto. Ins. Co., 646 N.W.2d 550 (Minn. Ct. App. 2002).
In Structured Asset, the court took note of the fact that “best interest” is not a term defined in the Texas SSPA, and that the annuity issuer and structured settlement obligor urged the court to follow the Seventh Circuit Texas Court of Appeals’ best interest analysis in In re Rains, which looked at eighteen non-exclusive factors:
1. the financial resources and income available to the payee and the payee’s dependents from sources other than the structured settlement payments;
2. the extent or amount of the payee’s debt and expenses; the debt and expenses of the payee’s family; and the ability to pay those debts and expenses;
3. the real and personal assets available to the payee and the payee’s family;
4. the future yet reasonably foreseeable liabilities of the payee and the payee’s family;
5. the future yet reasonably foreseeable domestic, economic, physical, medical, and educational needs of the payee and the payee’s dependents;
6. the payee’s current need for and intended use of the lump sum to be received;
7. the number and ages of the dependents maintained by the payee;
8. the percentage of payments being assigned;
9. the payee’s age, education, and acumen;
10. the payee’s business or financial acumen;
11. the payee’s ability to secure independent and informative financial advice;
12. the payee’s attempt to secure independent and informative financial advice if the payee otherwise lacked financial acumen;
13. the value being received in exchange for the value being relinquished by the payee;
14. the payee’s effort, if any, to maximize the return;
15. the payee’s search for and communication with other factoring companies;
16. the presence of other factoring companies or entities willing to strike a bargain and the value they would give in exchange for the value received;
17. the financial alternatives available to the payee, if any; and
18. the financial capability of the factoring company to perform, depending upon the manner in which the assignment is structured.
While the Rains court cited other judicial opinions in SSPA proceedings as persuasive authority for these types of considerations, the Structured Asset court said that these considerations “take the court’s analysis well beyond the scope of the inquiry authorized by the Act” and therefore the court expressly declined “to follow Rains.” Instead, said the Structured Asset court said that it held “that ‘best interest’ is to be determined by general reasonableness and consistency with the Act’s purpose, which is to protect the payee from a factoring company’s overreaching by requiring the factoring company to make certain disclosures and by requiring a trial court to find that the transfer is in the payee’s best interests, ‘taking into account the welfare and support of the payee’s dependents.'” Further, said the Structured Asset panel, “[i]f the exchange is reasonable and the payee is left with sufficient resources to provide for the welfare and support of himself and his dependents, then the trial court’s best-interest analysis need go no further.”
Such a view of the best interest determination is, again, unique. Indeed, it also appears internally inconsistent, as all eighteen of the factors listed in the Rains opinion are self-evidently relevant to best interests, reasonableness and the “welfare and support” of dependents.
Perhaps the Structured Asset panel did not recognize such relevancy because it was not made aware of the nature of “factoring company overreaching” that has involved, among other things, communications by factoring company representatives relating threats of lawsuits against payees (as recognized by the recently-adopted statewide Maryland court rules for Maryland SSPA proceedings), the failure of factoring companies to perform (by, among other things, making deductions from disclosed purchases prices for items that the factoring company did not disclose would be deducted), and other issues. Indeed, Rains accurately summarizes the considerations used by courts in many states to address the best interest question, noting the listed factors “and any other thought [to be] pertinent serve as a means of assisting the trial court at arriving at an informed decision” – exactly what court after court, including courts of appeals, have said about this important and fact-heavy determination.
Thus, it would appear that the Structured Asset panel’s limited view of the best interest determination is at odds with its express recognition that an important function of a trial court in an SSPA proceeding is to protect a payee from factoring company overreaching, as well as with the weight of other SSPA authority, including the Rains court’s on-the-mark reflection of what judge after judge has said about the scope of the “best interest” inquiry.