An Oregon appellate court recently gave effect to a contractual anti-assignment provision to preclude a structured settlement factoring transaction.
In Johnson v. J.G. Wentworth Originations, LLC, 284 Ore. App. 47, 2017 Ore. App. LEXIS 280 (Ore. Ct. App. Mar. 1, 2017), the Oregon Court of Appeals reversed a trial court’s decision to approve a transfer of structured settlement payment rights, saying that the insurer with payment obligations had the right to enforce the contractual prohibition against such a transfer.
The decision applies California law, and follows earlier precedent giving effect to such contractual anti-assignment provisions in settlement agreements.
The payee, Marshall Johnson, had entered into a structured settlement in 2006, and the settlement agreement included a provision stating that he did not “have the power to sell, mortgage, encumber, or anticipate” the periodic payments. In 2013, J.G. Wentworth, a structured settlement factoring company, sought to purchase from Johnson some of the rights to future periodic payments, and began a court proceeding pursuant to the Oregon Structured Settlement Protection Act (Oregon SSPA), which provides that such transactions are not effective unless they meet certain requirements and have been approved by a court. The insurer, MetLife, objected to the transfer on several grounds, including that the transfer would contravene the anti-assignment provision and that the transfer violate the Oregon SSPA’s prohibition against requiring MetLife to split payments. The trial court approved the transfer, and MetLife appealed.
On appeal, the appellate court reversed the trial court’s decision, saying that MetLife had the contractual right to preclude the transfer based on the anti-assignment provision. Noting that the settlement agreement was governed by California law, the appeals court said that, while California disfavors restrictions on assignment, “a clear prohibition against assignment of money due under a contract will be enforced, if not waived by the obligor.” The Oregon appellate court distinguished a 2009 opinion from a California appellate court (321 Henderson Receivables Origination, LLC v. Sioteco, 173 Cal. App. 4th 1059) that said, as an aside, that a contractual anti-assignment provision may not preclude a transfer, noting that the obligor in that case had not appeared in the SSPA proceeding to enforce the contractual prohibition against assignment and thus had waived its right. Thus, said the appellate court in Johnson, the Sioteco case was distinguishable.
The appellate court also rejected J.G. Wentworth’s argument that the qualified assignment agreement allowed a transfer so long as it was a “qualified order”, since such a reading would not give effect to all provisions of the structured settlement arrangement. The court said that the qualified assignment agreement should be read consistently with the settlement agreement, and J.G. Wentworth’s reading would mean that one contract would have altered the terms of the other; instead, the qualified assignment agreement “describes the only set of conditions under which a transfer . . . may occur if [MetLife] chooses not to enforce the anti-assignment clause — that is, the transfer must be approved in advance by a court, pursuant to the pertinent Internal Revenue Code provisions, and must otherwise comply with state law.” In this, proper interpretation, reading the contracts together, the qualified assignment agreement “is consistent with the settlement agreement in that it reflects both [MetLife’s] explicit contractual right to enforce the anti-assignment provision and [MetLife’s implicit right not to enforce that provision.”
The court did not take expressly refer to prior California opinions enforcing contractual anti-assignment provisions to preclude a structured settlement factoring transaction.
The Johnson opinion follows not only such prior precedent under California law, but also the great weight of appellate opinions from a number of states whereby courts of appeals, in cases arising from SSPA proceedings, have enforced contractual anti-assignment provisions where an insurer has elected to enforce its contractual rights to preclude a structured settlement factoring transaction.