A federal court has concluded that the structure of the Consumer Financial Protection Bureau is unconstitutional. In the ruling, described here and here, the court dismissed the CFPB as a party but allowed the New York Attorney General to proceed with claims against a litigation funding company, RD Legal Funding (RD), for violations of federal and state law.
One important issue that the court reached was whether the judge overseeing the NFL concussion litigation was correct in is view of the impact of an anti-assignment clause in the order that approved the NFL concussion settlement – namely, that the anti-assignment clause invalidated purported litigation funding agreements between ex-NFL players and various litigation funding companies.
U.S. District Court judge Loretta Preska made it clear that there could be no other conclusion that the one reached by Judge Anita Brody in her decision in December, 2017, invalidating the litigation funding agreements. Said Judge Preska:
Following the issuance of Judge Brody’s Explanation and Order that found the assignments in the NFL Purchase Agreement void based on the NCLSA’s anti-assignment provision, Defendants filed a letter in this Court objecting to Judge Brody’s conclusion. . . . As explained below, the Court rejects Defendants’ arguments in support of these objections in all respects. Accordingly, the Court adopts the Explanation and Order’s finding that the NCLSA’s anti- assignment provision is valid, thereby rendering the assignments in the NFL-related Purchase Agreements void.
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The express terms of the NCLSA restrict Class Members’ ability to assign their rights or claims ‘relating to the subject matter of the Class Action Complaint,’ . . . :
Section 30.1 No Assignment of Claims. Neither the Settlement Class nor any Class or Subclass Representative or Settlement Class Member has assigned, will assign, or will attempt to assign, to any person or entity other than the NFL Parties any rights or claims relating to the subject matter of the Class Action Complaint. Any such assignment, or attempt to assign, to any person or entity other than the NFL Parties any rights or claims relating to the subject matter of the Class Action Complaint will be void, invalid, and of no force and effect and the Claims Administrator shall not recognize any such action.
Settlement Agreement § 30.1 (emphasis added).
The [New York Attorney General and CFPB assert] . . . that the assignments in the NFL Purchase Agreements are void because the NCLSA’s express terms prohibit class members from assigning ‘any rights or claims relating to the subject matter of the Class Action Complaint,’ which include their interest in their settlement award (or a portion thereof) under the NCLSA. . . . In response, the RD [Legal] Entities contend that the NCLSA’s anti-assignment provision violates New York’s general prohibition of contractual anti-assignment clauses and, therefore, does not prevent the NFL Class Members from assigning their rights to settlement compensation under the NCLSA. . . .
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First, Defendants contend that Judge Brody did not construe the anti-assignment language ‘narrowly’ when interpreting the phrase ‘relating to’ as required under New York law. In particular, they note that the anti-assignment provision does not specifically prohibit Class Members from assigning their right to a settlement award under the NCLSA, and therefore is not ‘sufficiently express’ to be upheld under New York law. . . . C.U. Annuity Serv. Corp. v. Young, 722 N.Y.S.2d 236, 236 (N.Y. App. Div. 2001). Defendants also assert that the anti-assignment provision’s reference to ‘the subject matter of the Class Action Complaint’ limits assignment only of Class Members’ personal injury claims, not Class Members’ rights to settlement awards stemming from a later-dated settlement agreement. . . .
As a matter of policy, New York generally permits parties to assign their interests unless ‘the relevant provision of the contract contains “clear, definite, and appropriate language declaring an assignment invalid.”’ . . . . To this end, New York law requires that courts construe contractual anti-assignment language ‘narrowly.’ . . .
It is well-settled that, in interpreting a contract’s terms, courts must give effect to the plain meaning of its words or terms. This basic principle encompasses phrases, including ‘relating to.’ . . . . In relevant part, the term ‘relate to’ is defined as ‘to have relationship or connection.’ Relate, Merriam Webster (May 24, 2018), https://www.merriam- webster.com/dictionary/relate . In accord with its dictionary definition, courts in New York have given effect to the plain meaning of the phrase ‘relating to’ when interpreting contracts in the past. . . .
Rights to settlement awards under the NCLSA indisputably ‘relat[e] to the subject matter of the Class Action Complaint.’ As the Explanation and Order correctly notes, monetary awards under the NCLSA would not exist but for the events giving rise to the Class Action Complaint. . . . . The ‘relationship’ or ‘connection’ between rights to settlement awards under the NCLSA and the ‘subject matter of the Class Action Complaint’ is straightforward.
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In sum, Judge Brody’s interpretation of the term ‘relating to’ complies with New York contract law and basic principles of contract interpretation by giving meaning to the plain meaning of the phrase. Accordingly, the Court agrees with the Explanation and Order’s conclusion. The NCLSA’s terms state clearly that the anti-assignment provision validly applies to the assignment of Class Members’ claims to settlement awards under the NCLSA.
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Defendants also assert that Judge Brody’s Explanation and Order refers to the assignment of ‘monetary claims,’ while the Purchase Agreements at issue purport to assign Class Members’ right to “settlement proceeds.” . . . . Defendants argue that the Explanation and Order’s use of the term “monetary claims” rather than ‘settlement proceeds’shows that Judge Brody conflated legally distinct concepts under New York law. Specifically, Defendants note that although New York law prohibits the assignment of claims, it does not similarly prohibit the assignment of settlement proceeds. For this reason, Defendants argue that the Explanation and Order’s findings, which use the term ‘monetary claims,’ are inapplicable to the assignment of ‘settlement proceeds’ at issue in the NFL-related Purchase Agreements. . . .
Defendants’ argument is a combination of mere word mincing and misconstruction of the law. As to misconstruction of the law, the assignments in the NFL-related Purchase Agreements purport to effectuate a transfer of Class Members’ full ownership rights and interest in the Property Amount to RD Legal Finance, LLC. . . . Through these Purchase Agreements, RD Legal Finance, LLC purports to ‘step into the shoes of the assignor’ and obtain the full right to demand direct payment of the Property Amount from NFL Monetary Award Fund through a limited irrevocable power of attorney. . . . Defendants fail to note that the right to demand direct payment from the NFL Monetary Award Fund in itself is a ‘claim’ that ‘clearly encompasses a cause of action for nonpayment.’ . . . . Although the NCLSA does not define the word ‘claim,’ the assignment attempts to transfer all of the Class Members’ rights and interests in the Property Amount to RD Legal Funding, LLC. . . . The RD Entities provide no basis for believing that this bundle of ownership rights includes anything less than the full benefits of ownership, and that includes the right to sue the NFL Monetary Award Fund in the event of nonpayment. Accordingly, Judge Brody’s Explanation and Order addresses squarely the scenario at issue in the NFL Purchase Agreements by analyzing the assignment of ‘monetary claims’ under it.
Defendants’ assertion that the NFL Purchase Agreements are assignments of the ‘right to settlement proceeds’ under the NCLSA is unavailing. Defendants cite Grossman v. Schlosser, 244 N.Y.S.2d 749, 749-50 (N.Y. App. Div. 1963), in an attempt to illustrate that the NFL Purchase Agreements involve the assignment of ‘settlement proceeds,’ a concept that is legally distinct from the assignment of a ‘claim’ for settlement proceeds in New York. In Grossman, the court held that the ‘assignment of proceeds of a [cause of action for personal injury], prior to its settlement or adjudication, [is] valid and effectual as an equitable assignment against the assignor and his attaching creditor.’ Id. (emphasis added). This arrangement gives an equitable assignee ‘no legal estate or interest in the fund’ but rather ‘constitute[s] an equitable lien on the property.’ Matter of Hoffman, 435 N.Y.S.2d 235, 237 (N.Y. Surr. Ct. 1980) . . . .
Thus, New York law permits, at most, the creation of an equitable lien on future settlement proceeds. . . . This framework, however, still does not permit the transfer of an individual’s present ownership interest in future receivables for damages to recover for personal injury, which is what the NFL Purchase Agreements attempt to do, albeit unsuccessfully. . . .
In sum, Defendants’ arguments that assignments of claims to settlement award funds under the NCLSA are valid are without merit.
Judge Preska also rejected RD’s argument based on the Uniform Commercial Code. She wrote that the “New York Uniform Commercial Code (‘NY UCC’) § 9- 408(d)(1) establishes a general bar on anti-assignment clauses limiting the transfer of ‘general intangibles.’ N.Y. U.C.C. § 9-408(d)(1)” and also establishes exceptions to the general bar, including an exception for “the right to receive compensation for injuries or sickness as described in 26 U.S.C. § 104(a)(1) and (2), as amended from time to time.” Id. “Section 104(a) of the Internal Revenue Code excludes certain types of compensation from gross income, including ‘the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness[.]’ 26 U.S.C. § 104(a)(2).
RD had contended that because Judge Brody’s order “does not specify whether compensation from it qualifies as excludable income under Section 104, the NY UCC’s exception for restrictions on assignments of monetary claims for personal injury settlements does not save the anti-assignment provision as it relates to ‘proceeds’ from settlement of personal injury claims.”
This argument was baseless, according to Judge Preska:
It is beyond peradventure that compensation from the NFL Settlement Agreement constitutes ‘damages . . . received . . . on account of personal physical injuries’ under Section 104 of the Internal Revenue Code. Id. § 104(a)(2). The NCLSA is rooted in the physical injuries resulting from repeated brain injuries that retired NFL players experienced while active in professional football. . . . Accordingly, the NY UCC does not invalidate the NFL Settlement Agreement’s anti-assignment provision.
In conclusion, Judge Preska held that Judge Brody’s December 2017 order “validly prohibits the assignment of NFL Class Members’ monetary claims” and, thus, “the assignments in the NFL Purchase Agreements are void.”
The full opinion is available here: CFPB_v._RD_Legal_Funding_06.2018