The Michigan Court of Appeals last week affirmed an award of attorneys’ fees to insurers based on a factoring company’s failure to comply with the state’s structured settlement protection act.
J.G. Wentworth S.S.C. v. Morris, No. 333413, 2018 Mich. App. LEXIS 347 (Mich. Ct. App. Feb. 22, 2018), involved a dispute over a single structured settlement payment due to be paid in 2015 to payee Anthony Morris. Between 1998 and 2007, Morris entered into a series of transactions whereby he sold to factoring company J.G. Wentworth, S.S.C., his right to receive various payments under a structured settlement agreement. The payments he sold included a $60,000 payment due in 2015. There was some question as to whether the payment was due on July 1, 2015, or June 1, 2015, and an addendum to the structured settlement annuity clarified that the due date was June 1, 2015. Although he previously sold the full amount of the payment to J.G. Wentworth, in 2012, Morris entered into an agreement with another factoring company, RSL Funding, LLC, to sell to RSL (and its assignee, Extended Holdings, Ltd.) a $40,000 portion of that same 2015 payment. RSL applied to a Michigan court, seeking an order approving the transfer pursuant to the Michigan Structured Settlement Protection Act. After the court issued such an order approving the transfer, and before any of the $60,000 payment was paid to anyone, “Wentworth discovered the transaction between Morris and RSL” and filed a lawsuit against Morris, RSL, annuity issuer Integrity Life Insurance Company and structured settlement obligor General American Life Insurance Company. Integrity filed a counterclaim and cross-claim for interpleader relief, naming Extended as a cross-defendant (among ther other parties). Integrity also sought to prevent RSL and Extended from proceeding with an arbitration regarding the issues raised in proceeding initiated by J.G. Wentworth, and “[u]ltimately, the trial court entered a stipulated order providing that neither RSL nor Extended would seek to compel Wentworth, Integrity, or General American to participate in the Texas arbitration proceeding.” “In due course, the trial court granted Integrity and General American the interpleader relief they sought”, ruling that J.G. Wentworth was entitled to the entire $60,000 payment, and ordering Integrity to send that payment to J.G. Wentworth. The trial court also ordered Wentworth, RSL, and Extended to pay costs and attorneys’ fees incurred by Integrity and General American in obtaining the injunction, defending the lawsuit, and bringing their interpleader claims.
On appeal, the Michigan appellate court first rejected the argument by Extended and RSL that the trial court lacked personal jurisdiction over Extended, since, among other things, Extended did not raise that issue until after a ruling on the merits. The appeals court then also rejected the arguments by RSL and Extended that the trial court erred in granting the injunction, since RSL and Extended “affirmatively assented to the trial court’s entry of a stipulated order precluding them from seeking to compel General American to participate in the Texas arbitration proceeding.” The trial court also did not err in granting equitable interpleader relief to Integrity and General American, the appeals court ruled. This was so for several reasons, according to the appellate court – in part because the argument that such relief was barred by the doctrine of unclean hands was unavailable to RSL. A “defendant with unclean hands may not defend on the ground that the plaintiff has unclean hands as well”, said the appeals court. “RSL failed to comply with the provisions of the [Revised Michigan Structured Settlement Protection Act, or] RSSPA in this case, and its hands are therefore unclean with regard to the transactions at issue in this case.” Continued the Court of Appeals:
RSL was the “transferee” in its transaction with Morris. See MCL 691.1302(u). Accordingly, under MCL 691.1307(6), RSL had the “sole responsibility” to comply with the requirements of MCL 691.1303, which, among other things, required RSL to provide “the payee” (i.e., Morris) with a “disclosure statement” at least three days before he signed the transfer agreement, setting forth both “[t]he amounts and due dates of the structured settlement payments to be transferred” and “[t]he discounted present value of the payments to be transferred . . . under federal standards for valuing annuities[.]” In its briefs on appeal, RSL admits that when it entered into a transfer agreement with Morris, it was unaware of both the actual due date for the $60,000 payment and the amount that then remained due to be paid to Morris (i.e., nothing-he had previously assigned his rights to Wentworth). Under MCL 691.1307(6), it is immaterial why RSL lacked such information. The relevant consideration is that without such information, RSL could not have provided Morris with the disclosures required by MCL 691.1303. It is impossible to provide a disclosure statement including information that one does not have, and it is equally impossible to calculate the discounted present value of an annuity payment without knowing either the amount of that payment or when it is due.
RSL contends that it had no obligation, common law or statutory, to obtain such information. But as the trial court recognized, under MCL 691.1307(6), RSL did, in fact, have a statutory obligation to do so. . . . Because RSL’s hands are unclean with regard to this transaction, it cannot assert an unclean hands defense against General American and Integrity.
In light of the fact that we reject RSL’s unclean hands theory, we hold that the trial court did not err by granting interpleader relief to General American and Integrity. The RSSPA unambiguously provides that neither a structured settlement obligor nor an annuity issuer “shall . . . bear any responsibility or liability arising from a transferee’s failure to comply with” MCL 691.1303. MCL 691.1307(6). As already noted, RSL failed to comply with MCL 691.1303. Had it done so, it would have been aware of the actual due date for the $60,000 payment, and it also would have been aware that those funds were no longer owed to Morris.
The appellate court then reached the dispute over the award of attorneys’ fees to Integrity and General American, and affirmed the trial court’s decision awarding attorneys’ fees:
The RSSPA provides a statutory basis for a fee award. MCL 691.1305(b) provides in pertinent part:
The transferee is liable to the structured settlement obligor and the annuity issuer for both of the following:
(ii) Other liabilities or costs, including reasonable costs and attorney fees, arising from the structured settlement obligor’s and the annuity issuer’s compliance with the order of the court or from the transferee’s failure to comply with this act.
As Integrity (the annuity issuer) and General American (the obligor) note, the transfer order obtained by RSL ordered Integrity to pay $40,000 of the $60,000 payment to Extended, despite the fact that the right to receive those same funds had previously been assigned to Wentworth. In other words, the costs and attorney fees incurred by Integrity and General American in this matter arise out of both their attempts to lawfully comply with the trial court’s previous orders and from RSL’s failure to abide by the notice requirements of the RSSPA. Accordingly, the trial court had the discretion to award Integrity and General American their costs and fees in this matter under MCL 691.1305(b)(ii).
In addition, the court noted that the Michigan court rule governing interpleader actions provided an alternate basis for an award of fees.
The appellate court also reviewed the cross-appeal of Intergrity and General American, which had challenged the amount of the fee award. The appeals court agreed that the trial court failed to consider all of the relevant factors in assessing the award, and remanded for the trial court to consider those factors.
The full opinion is available here: