‘Underwriter’ And ‘Guarantor’ Of Factoring Transaction? Third Circuit Mistakenly Looks To Non-Party

‘Underwriter’ And ‘Guarantor’ Of Factoring Transaction? Third Circuit Mistakenly Looks To Non-Party

In Wall v. Corona Capital, LLC, Nos. 17-2275 and 17-2361, 2018 U.S. App. LEXIS 33071 (3rdCir. Nov. 23, 2018), the U.S. Court of Appeals for the Third Circuit ruled that Altium Group, LLC, did not breach its contract with Robert and Linda Wall, in a dispute over a structured settlement factoring transaction that the Walls invested in before it turned out that the transaction documents had been forged.

As described in posts here and here, in 2012, Altium and the Walls entered into a contract.  Under the contract, the Walls were to obtain the structured settlement payment rights – rights that originally belonged to an individual personal injury victim, Kenneth Stevens.  The contract contemplated that Stevens would transfer the payment rights, pursuant to the requirements of the the Florida Structured Settlement Protection Act, to a factoring company, Corona Capital, LLC.  A court approved the transfer from Stevens to Corona, and the transfer thus could become effective pursuant to the Florida SSPA. According to the Third Circuit in its opinion, Corona then sold the payment rights to Altium, which then sold them to the Walls.  But two years after issuing the order approving the transfer, the court reversed itself, and voided the order when the court learned that Stevens’s wife had forged his signature on the transaction documents.  Once the transaction unraveled, the Walls sued Corona and Altium.  A federal district court decided that it did not have personal jurisdiction over Corona, and dropped the factoring company from the case.  Eventually, that U.S. District Court ruled in favor of the Walls against Altium, determining that that Altium breached the contract with Altium.

The Third Circuit last week reversed the District Court’s decision, holding that Altium had not breached the contract between the Walls and Altium.  The opinion is described in further detail in the following posts:

  • In Wall v. Corona Capital, Federal Appeals Court Did Not Make Distinction Between Sale Of Structured Settlement Payment Rights (Which Was At Issue) And Sale Of Annuity (Which Was Not), here; and
  • Appellate Court Deals Setback To Couple Trying To Recover More Than $150,000 Invested In Structured Settlement Factoring Transaction That Later Unraveled, here.

Besides the parts of the opinion described in the above posts, the Third Circuit Court of Appeals also made some additional unusual statements about a non-party to the Wall-Altium contract – the annuity issuer.  The court said that the Walls “should have known that they had to look” to the annuity issuer “and not Altium” as the “underwriter and guarantor”.  The Third Circuit again misconstrued the transaction: the annuity issuer was not an underwriter or guarantor of the payments.  Under a structured settlement annuity contract, an annuity issuer owes a contractual duty only to the annuity owner, which is also the structured settlement obligor.  It’s that structured settlement obligor that owes a duty, to pay the payments, to the structured settlement payee – all pursuant to the terms of a settlement agreement (or a court order approving the settlement, if there is one).  When a factoring transaction occurs, the payee sells the rights – owed to it by the obligor – to the factoring company.  Furthermore, the annuity issuer and structured settlement obligors are not parties to the transfer agreement – the agreement between the payee and the factoring company.  The idea that that an annuity issuer would be an “underwriter” or “guarantor” of a factoring transaction is not merely contrary to the terms of these agreements, but absurd.  As with other details concerning transfers of structured settlement payment rights, a review of the Florida Structured Settlement Protection Act would shed light on these concepts – such as that there is no contract between an annuity issuer and a payee, or between an annuity issuer and a factoring company.

Finally, it is worth repeating the District Court’s point, made in one of its opinions in the course of this litigation, about how transactions such as these represent risks to investors.  The lower court that this case represents “a caution to those investing in these [structured settlement factoring transactions because], a court can later vacate the sale of the . . . payments when the underlying plaintiff selling his . . . payments lacked authority to sell . . . leaving the eventual investors without the purchased asset.”  On this point, the District Court was spot on, as the Walls – still out their $150,000 investment and without the property that they sought to purchase – might attest.

The full opinion is available here.

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