May 4, 2009
Previously published on April 22, 2009
Recently, federal courts rejected a structured settlement factoring company’s attempts to arbitrate its requests to obtain transfers of structured settlement annuity payment rights. In Allstate Settlement Corp. v. Rapid Settlements, Ltd., 559 F.3d 164 (3d Cir. 2009) and Symetra Life Ins. Co. v. Rapid Settlements, Ltd., No. H-05-1367, 2008 WL 901584 (S.D. Tex. Mar. 31, 2008) the federal courts ruled that Rapid Settlements’ (“Rapid”) requested transfers of structured settlement annuity payments must be approved by the court as specified in the governing state structured settlement statutes. In both cases, Rapid maintained that it was not circumventing the structured settlement statutes by seeking arbitration.
In Symetra Life Ins. Co. v. Rapid Settlements, Ltd., Rapid argued that it was invoking arbitration proceedings against its customers who entered into proposed transfer contracts with Rapid to seek damages for the breach of those contracts. Rapid also contended that it was appropriate for arbitrators to award damages, which included requiring the transfer of the future-income stream that was the subject of the transfer agreement, under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16. According to Rapid, the FAA preempts the state structured settlement statutes to the extent the statutes would preclude arbitration. The Texas district court disagreed with Rapid and held that no FAA-preemption existed. The court explained that the structured settlement acts do not prohibit arbitration or conflict with the FAA. The district court also noted:
"Rapid is using arbitration to circumvent the state structured settlement protection acts. By obtaining arbitration awards that require an annuity issuer to redirect from the annuitant to Rapid the same payments that the payee would have assigned to Rapid under a proposed transfer agreement, Rapid effects a transfer of the annuitant’s future payment rights without the court approval required by the state structured settlement protection acts. Rapid’s practice of using arbitration to effect a transfer of an annuitant’s future-payment stream without state–court approval prevents annuity issuers, including Symetra, from asserting their contractual and statutory rights to oppose transfers that have not complied with the state structures settlement protection acts." Symetra Life Ins. Co., 2008 WL 901584, *24 (emphasis added).
Similarly, in Allstate Settlement Corp. v. Rapid Settlements, Ltd., the Third Circuit concluded that no FAA preemption existed to preclude application of the state structured settlement protection statutes. The court opined that its ruling hinged upon whether Allstate Settlement Corp. (“Allstate”) was bound by the arbitrator’s award. 559 F.3d at 169. The court explained that Allstate could not be bound by the arbitrator’s award since Allstate, the annuitant, and the factoring company all had disparate interests. 559 F.3d at 170.
Generally, in cases involving transfers of structured settlement annuity payments, factoring companies file a petition with the court seeking approval of their request to obtain a transfer of an annuitants right to receive structured settlement payments. Forty-three states, including Florida, have enacted structured settlement protection statutes that mandate court approval to effectuate a transfer. The statutes also set forth detailed criteria for the approval of the transfers. Structured settlement annuity issuers have a number of well founded objections to the transfers.
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