One of Two Counts Survive Motion to Dismiss by Finance Company, in Litigation Over Invalidated Structured Settlement Factoring Transfer

One of Two Counts Survive Motion to Dismiss by Finance Company, in Litigation Over Invalidated Structured Settlement Factoring Transfer

In November, a federal court pointed out that “[a]s a caution to those investing in these [structured settlement factoring transactions], a court can later vacate the sale of the . . . payments when the underlying plaintiff selling his . . . payments lacked authority to sell . . . leaving the eventual investors without the purchased asset.”

Those words of warning came in an opinion concerning personal jurisdiction in a lawsuit captioned Wall v. Corona Capital, Civil Action No. 16-1044, 2016 U.S. Dist. LEXIS 161683 (W.D. Pa. Nov. 22, 2016).  The court – as described in this Secondary Insurance Market Post – concluded that the court did not have personal jurisdiction over Corona Capital in Pennsylvania, and did have personal jurisdiction over Altium Group, LLC, a financial advisor company that connected investors Robert and Linda Wall with Corona.

Subsequently, the Walls proceeded with their claims against Altium Group.  This week, the court addressed Altium’s motion to dismiss the Walls’ two-count complaint.  The result was that the Walls’ claim for breach of a Uniform Commercial Code warranty failed as a matter of law, but the Walls adequately alleged that the Altium Group breached the contract with the Walls, and therefore could proceed to try to prove their case.

The opinion in Wall v. Altium Group, Civil Action No. 16-1044, 2017 U.S. Dist. LEXIS 4546 (W.D. Pa. Jan. 12, 2017), is available here.

The court’s introduction provides an interesting overview:

A person injured by another’s negligence may be awarded a sum of money either through settlement or verdict.  Sometimes the party at fault agrees to pay the verdict or settlement in a defined amount over a defined length of time as financed by a lender.  These payments are called structured annuity payments.  Finance companies have created a secondary market selling these structured annuities because the injured party needs immediate cash and is willing to assign her right to the structured annuity payments at a slightly discounted value in a lump sum.  The finance company, in turn, finds intermediaries and stockbrokers who sell the assignment of the structured annuity payments to an investor.  Today, we address the damage when a court later invalidates the assignment of the structured annuity payments but the investor has already paid and turns around and sues the finance company selling her the annuity payments.  When, as here, the investor has no specific commercial relationship with the original injured party who sold the structured annuity, she may not sue the finance company for breach of transfer warranties under the Uniform Commercial Code but may sue the intermediary seller receiving her investment for breach of contract.

There are a number of statements in the above paragraph that one can take issue with, in terms of accuracy or use of proper terms.  But the court’s introduction summarizes the way the court sees things.

The court also includes a noteworthy description of the “allegations and defenses” that expounds on the facts of the case:

Corona Capital purchases structured annuity payments at a discount from injured individuals who settled personal injury claims.  Altium Group LLC connects Corona Capital, with potential purchasers or investors for annuity payments.  Robert and Linda Wall are two of those investors, who with the aid of their financial advisor, purchased a structured annuity payment from Altium.

On November 8, 2011, the Walls and Altium signed a ‘Master Structured Settlement Receivable Purchase and Sale Agreement and Non-Circumvention Agreement.’  Under this agreement, the Walls wired Altium a $5,000 deposit on the purchase price and agreed to wire Altium the balance upon receipt of the Closing Book.

Corona Capital then arranged for the purchase and transfer of Kenneth Stevens’ structured settlement payment rights, payable under an annuity issued by New York Life Insurance.  On January 12, 2012, Kenneth Stevens signed an ‘Absolute Assignment and UCC Article 9 Security Agreement’ assigning his right to payments . . . to Corona Capital.

Corona Capital then sold the . . . payments . . . to Altium on March 15, 2012.  A Florida state court granted Corona Capital’s petition to approve the transfer on March 28, 2012 entitling the Walls to receive 60 payments of $3,000 with 3% annual increase in payments beginning on June 1, 2014, and ending with the last payment on May 1, 2019.

On April 19, 2012, Altium sent the Walls the ‘Closing Books’ and the Walls wired Altium the remaining purchase price of $147,833.37.

Over two years later, the same Florida state court vacated its March 28, 2012 Order and ordered . . . the structured settlement payments [be paid] to Stevens’ attorneys and not to the Walls.

The Walls paid $152,833.37 to Altium under the Master Agreement but never received payments from Altium or Corona Capital.  The Walls sued Altium Group and Corona Capital for breach of Uniform Commercial Code (‘UCC’) transfer warranties, breach of contract, and unjust enrichment.  We lacked personal jurisdiction over Corona Capital and dismissed it on November 22, 2016.

The court, as mentioned above, concluded that the Walls – who were not parties to the transfer agreement – could not bring the breach of UCC warranty claim, but could, and properly alleged, a breach of contract claim against Altium.

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