Virginia Court Ruling Allows Payee’s Challenge to Factoring Transactions to Proceed

Virginia Court Ruling Allows Payee’s Challenge to Factoring Transactions to Proceed

The legal rulings in SAF Funding, LLC v. Taylor, Case No. CL-3022, 2017 Va. Cir. LEXIS 316 (Va. Cir. Ct. Oct. 27, 2017), are many and follow a long and complicated history, but the bottom line is this: the structured settlement payee who is challenging factoring transactions may proceed with his lawsuit.

In the ruling, the Virginia Circuit Court for City of Portsmouth addressed a number of ancillary issues, but the key determination was that the payee would be allowed to try to prove his claim that the orders approving transfers of structured settlement payment rights were void ab initio due to fraud.

The payee had filed a lawsuit that challenges the orders, entered pursuant to the Virginia Structured Settlement Protection Act which, like all state structured settlement protection acts (SSPAs) provides that sales of future payments by payees to factoring companies are not effective without court approval based on the finding that the transfer complied with the statutory requirements.

The payee challenges seven transfers that received court approval from 2012 to 2014, when the payee alleges that the factoring company, SAF, made misrepresentations to the payee and also filed with the reviewing court documents that had false or misleading information – such as that the payee, Mr. Taylor, lived in Virginia when he actually resided elsewhere.

An important issue, according to the court, was whether the orders approving the transfers could be subject to such attacks.  In this case, the court said that the payee’s allegations, if true, sufficiently alleged extrinsic fraud of the kind that could be the basis for overturning the orders:

[SAF] contends that the [payee’s] counterclaim cannot state a cause of action because the Transfer Orders were not appealed or otherwise challenged within the 21 day window provided by [Virginia Supreme Court] Rule 1:1 and, as a result, this Court lacks jurisdiction to modify or even revisit the issue of their validity.

Rule 1:1 and Virginia’s preference for ‘a certainty of result, and a high degree of finality’ operate to limit the authority of the circuit courts to modify or revisit final orders more than 21 days after their entry. . . .  This procedural bar can be circumvented in only a few limited circumstances.  Relevant for the Court’s purposes is the well-established principle that Rule 1:1 does not apply to judgments of the circuit courts that are void ab initio, and consequently such judgments may be attacked collaterally at any time. . . .  For example, a judgment procured by extrinsic fraud is void ab initio and may be challenged at any time. . . .  Extrinsic fraud, as it applies to void judgments, refers to ‘conduct which prevents a fair submission of the controversy to the court . . . .’

The primary contention advanced by Mr. Taylor as to this point is that each of the Transfer Orders was procured by extrinsic fraud and that, as a result, Rule 1:1 does not preclude this Court from revisiting them.  In support of this position, Mr. Taylor offers several instances of fraudulent conduct perpetrated by SAF including, but not limited to, (1) filing false affidavits with the Court containing material misrepresentations as to Mr. Taylor’s domicile, the reasons for the transfer, and the transfer’s compliance with holdings of other courts, (2) drafting these affidavits and inducing Mr. Taylor to sign them, (3) materially misrepresenting to the Court Mr. Taylor’s domicile and that the transfers were in his best interest.

At this stage in proceedings, the Court has not assumed the role of factfinder.  The Court offers no position on whether it finds these allegations credible or meritorious as a matter of fact or of law.  But the Court cannot conclude, based solely on the pleadings, that Mr. Taylor has failed to plead a claim that the Transfer Orders were void ab initio such as to divest this Court of the authority to review them.  On the contrary, the Counterclaim alleges numerous instances of conduct which, if true, would have ‘prevent[ed] a fair submission of the controversy to the court.’ . . . .

Accordingly, the court let stand the payee’s claims challenging the orders.


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