What Steps Should Factoring Companies Take to Ensure Non-Contravention Of Court Orders?

What Steps Should Factoring Companies Take to Ensure Non-Contravention Of Court Orders?

Forty-nine states have structured settlement protection acts – laws that say that if a person who is entitled to receive future structured settlement payments wants to sell the right to those payments to a factoring company in exchange for a more immediate (but lower) payment, then the transaction is not legally effective unless a court approves the deal.

These SSPAs generally provide that a court can approve a transaction only where the court can find that such a transaction is in the best interest of the payee, and only where the court can make other findings, such as that the transfer complies with the SSPA.

Another important precondition for court approval of a transfer is non-contravention of other court orders.

In other words, the court reviewing a proposed transfer – in order to give its approval to the deal – must find that the transfer does not contravene some prior court order.

An examples can help illustrate why this makes sense.

If in 2015, a court order ruled that a payee’s payments are entirely to be paid as child support to an ex-spouse of the payee, then that payee would not be able to sell those payments to a factoring company in 2016 – because the court reviewing the transaction under the SSPA would have to conclude that the transfer would contravene a court order.

Now consider another example.  If the structured settlement was approved by a 2013 court order at the time it was established, and that 2013 order said that any future transfers of payments was prohibited, then what should the factoring company say to the reviewing court about the non-contravention of prior orders?

It’s a question raised by an opinion issued this month by a federal court in Texas.  In DRB Capital, LLC v. Wade, Civil Action No.: 4:17-cv-724-KPJ, 2017 U.S. Dist. LEXIS 205183 (E.D. Tex. Dec. 13, 2017), the U.S. District Court for the Eastern District of Texas described the facts as involving a 1996 order – issued by that court – approving a structured settlement with payments to be paid to Tyler Wade.  That 1996 order “includes an ‘anti-assignability clause,’ which states, ‘It is further ORDERED that Plaintiffs acknowledge that the Periodic Payments cannot be accelerated, deferred, increased, or decreased by the Plaintiffs or any payee; nor shall the Plaintiffs or any payee have the power to sell, mortgage, encumber or anticipate the Periodic Payments or any part thereof by assignment or otherwise.'”  In 2017, Wade entered into an agreement with DRB Capital to sell payments that are due to be paid to him from December, 2024, to November, 2034, for an immediate (and discounted) lump sum cash payment.

DRB Capital then sought approval of the transfer in Texas state court, and a hearing was conducted on the transfer in October, 2017.

Thereafter, because the order approving the settlement includes an “anti-assignmability clause”, the annuity issuer and structured settlement obligor “have asked” DRB to obtain the consent for the transfer from the U.S. District Court for the Eastern District of Texas.

U.S. District Court Judge Kimberly C. Priest Johnson conducted another hearing on the transfer, and concluded that “the Court consents to Plaintiff [DRB Capital] seeking approval of the proposed transfer pursuant to the Texas Structured Settlement Protection Act contained in Chapter 141 of the Texas Civil Practice and Remedies Code.”

Which leads to the question: what steps should a factoring company take to address non-contravention of court orders?

More particularly, if a factoring company is the petitioner or applicant, seeking relief under the SSPA – and thereby with the burden of showing the court that it is entitled to the requested relief – what steps must a factoring company take to show non-contravention of orders?

The question is particularly pertinent because of the fact that the DRB Capital v. Wade court said that the annuity issuer and structured settlement obligor “have asked” that the factoring company take action to address the possible non-contravention of an order.

If a factoring company is not asked to take such action, will it do so on its own?




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