Settlement Funding, L.L.C. v. Rapid Settlements, Ltd.

• Decision Date: 22 March 2017
• Docket Number: No. 16-20109,16-20109
• Citation: 851 F.3d 530
• Parties: SETTLEMENT FUNDING, L.L.C.; Peachtree Settlement Funding, L.L.C.; Evelyn E. Franklin, Plaintiffs–Appellants Cross–Appellees v. RAPID SETTLEMENTS, LIMITED, Rapid Management Corporation; Stewart A. Feldman, Defendants–Appellees Cross–Appellants and RSL Funding, L.L.C., Defendant–Third Party Plaintiff–Appellee Cross–Appellant v. J.G. Wentworth S.S.C., L.P.; JGWPT Holdings, L.L.C.; JLL Partners, Incorporated; David Miller; JG Wentworth Originations, L.L.C., Third Party Defendants–Cross–Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

851 F.3d 530

SETTLEMENT FUNDING, L.L.C.; Peachtree Settlement Funding, L.L.C.; Evelyn E. Franklin, Plaintiffs–Appellants Cross–Appellees

v.RAPID SETTLEMENTS, LIMITED, Rapid Management Corporation; Stewart A. Feldman, Defendants–Appellees Cross–AppellantsandRSL Funding, L.L.C., Defendant–Third Party Plaintiff–Appellee Cross–Appellant

v.J.G. Wentworth S.S.C., L.P.; JGWPT Holdings, L.L.C.; JLL Partners, Incorporated; David Miller; JG Wentworth Originations, L.L.C., Third Party Defendants–Cross–Appellees

No. 16-20109

United States Court of Appeals, Fifth Circuit.

FILED March 22, 2017

Lawrence Bradley Hancock, Esq., Christopher David Johnsen, Holland & Knight, L.L.P., Houston, TX, for Plaintiffs–Appellants Cross–Appellees.

Lawrence Bradley Hancock, Esq., Christopher David Johnsen, Holland & Knight, L.L.P., Houston, TX, for Third Party Defendants–Cross–Appellees.

Paul Jonathan Brown, Greenberg Traurig, L.L.P., Houston, TX, for Third Party Defendants–Cross–Appellees J.G. Wentworth S.S.C., L.P., JGWPT Holdings, L.L.C., JLL Partners, Incorporated, David Miller.

Michael Alan Choyke, Esq., Wright & Close, L.L.P., John Robert Craddock, Counsel, Feldman Law Firm, L.L.P., Houston, TX, for Defendant–Third Party Plaintiff–Appellee Cross–Appellant.

Edward John Gorman, John Robert Craddock, Counsel, Feldman Law Firm, L.L.P., Houston, TX, for Defendants–Appellees Cross–Appellants.

Before JOLLY, SMITH, and PRADO, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This dispute arises between two companies in the secondary market for structured settlement payments: Peachtree and Rapid.¹ These two companies are in the business of identifying individuals who are the beneficiaries of structured settlements, which provide a stream of payments, much like an annuity, usually over an extended period of years; once an annuitant is identified, the companies offer to purchase the stream of payments in return for a lump sum. Here, Peachtree sued Rapid for tortious interference with its contracts, alleging that Rapid "poached" clients whose annuities it had already contracted to purchase.

The district court, relying on a decision by a Texas appellate court, dismissed Peachtree's tortious interference claims as a matter of law. Peachtree appeals. Rapid cross-appeals, arguing for the first time after nearly four years of federal litigation that there is no federal subject matter jurisdiction because (1) the removal notice did not adequately plead the citizenship of the LLC entities that are parties to this case, and (2) the pleadings did not, on their face, raise a federal question.

We are not happy that jurisdiction is a late show-up in this case. Nevertheless, we hold that the plaintiffs have failed to meet their burden of establishing either federal question or federal diversity jurisdiction. In short, the federal courts have no subject matter jurisdiction over this case. We vacate the judgment and remand with directions to remand the case to the state court.

I.

A.

In the world of purchasing payment rights to structured settlement agreements, it appears that not all the players wear white gloves. This characteristic of the business has been noticed by the State of Texas and several other states. Thus, to protect recipients of structured settlements from unfair or abusive offers, many states have enacted Structured Settlement Protection Acts that require court approval of any contract to sell the payment rights to a structured settlement. See, e.g. , Tex. Civ. Prac. & Rem. Code § 141.001 et seq.²

The crux of this dispute is that Peachtree claims that Rapid has been interfering with the business relations between it and its clients. In distilled terms, Peachtree alleges that, through expensive search and advertising efforts, it finds "clients"—recipients of structured settlements—makes them an offer for their payment stream, and then helps them through the hurdle of court approval of the transfer agreement. The defendant, Rapid, then peruses the court filings, directly contacts Peachtree's clients while the approval request is still pending in court, and makes the client a more generous offer, causing the client to either renege on his agreement with Peachtree or demand that Peachtree increase its offer.

B.

The present litigation began in 2006, when Peachtree sued Rapid in Texas state court alleging, among other things, tortious interference with a contract between it and Franklin, a New York resident. Rapid, it alleged, found Franklin through the court filings and tried to persuade her to breach her contract with Peachtree by making her a better offer.³ The litigation was consolidated with Peachtree's similar claim against Rapid involving a Texas resident, Michale Parenti.⁴

In 2012, some six years into the litigation before the Texas state court, Rapid asserted new claims against a group of third-party defendants called the "Wentworth Parties."⁵ Rapid⁶ alleged, among other things, a state law civil conspiracy claim. The newly-impleaded Wentworth Parties promptly removed the entire case to federal court. They stated that the basis for removal was both diversity jurisdiction and federal question jurisdiction.⁷ The Wentworth Parties were later dismissed, and are no longer parties to the case. Peachtree and Rapid continued to litigate their tortious interference suit in federal court.

By September 2015, the only disputed colorable claims were Peachtree's tortious interference claims against Rapid with respect to Franklin and Parenti. On summary judgment, the district court⁸ dismissed Peachtree's interference claims as a matter of law. The court relied on a recent decision from a Texas appellate court, Washington Square Fin., LLC v. RSL Funding, LLC , 418 S.W.3d 761 (Tex. App.—Houston [14th Dist.] 2013, pet. denied), which held Texas law did not recognize a tortious interference claim based on a contract that had not yet been approved pursuant to the Texas Structured Settlement Protection Act; Peachtree's contracts with Franklin and Parenti had not been approved at the time Rapid allegedly made its raid. Peachtree voluntarily dismissed any remaining claims it had pending, and the district court entered final judgment. Peachtree timely appeals the judgment.⁹

II.

As earlier indicated, for the first time on appeal, after nearly four years of litigation in the federal district court, Rapid now makes the argument that there is no federal jurisdiction. Specifically, it argues that there was neither federal question jurisdiction nor diversity of citizenship at the time the Wentworth Parties removed the case to federal court.¹⁰

"A lack of subject matter jurisdiction may be raised at any time and may be examined for the first time on appeal." Volvo Trucks N. Am., Inc. v. Crescent Ford Truck Sales, Inc. , 666 F.3d 932, 935 (5th Cir. 2012). The burden of establishing subject matter jurisdiction rests upon the party asserting jurisdiction—in this case, Peachtree. Id.

III.

Peachtree urges us to keep the case in federal court. It first argues that there is federal question jurisdiction because the third-party complaint that Rapid filed against the Wentworth Parties raised a federal question at the time of removal. Specifically, Peachtree contends that Rapid's state law civil conspiracy claim, which alleged that the Wentworth Parties conspired to restrain trade, also implicated federal antitrust law. We cannot agree and hold that the state law conspiracy claim did not raise a federal question.

"Under the well-pleaded complaint rule, a federal court does not have federal question jurisdiction unless a federal question appears on the face of the plaintiff's well-pleaded complaint." Elam v. Kan. City S. Ry. Co. , 635 F.3d 796, 803 (5th Cir. 2011) ; see also 28 U.S.C. § 1331. A federal question, however, may arise from a state law claim where "(1) a federal right is an essential element of the state claim, (2) interpretation of the federal right is necessary to resolve the case, and (3) the question of federal law is substantial." Howery v. Allstate Ins. Co. , 243 F.3d 912, 917 (5th Cir. 2001) (footnote omitted). Still, "there is no federal question jurisdiction if the plaintiff properly pleads only a state law cause of action." Elam , 635 F.3d at 803 (citations, quotations, and alterations omitted). Further, "[a] plaintiff is the master of his complaint and may allege only state law causes of action, even when federal remedies might also exist." Id.

Rapid's third-party state court complaint for civil conspiracy against the Wentworth Parties alleged that the Wentworth Parties conspired to artificially depress offer prices in the secondary market for structured settlement payment rights. They did so, Rapid alleged, by making improper agreements with other companies to refrain from soliciting other members' deals and to refrain from making bids to customers who have already signed with another company.

The elements of a civil conspiracy in Texas include "(1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as a proximate result." Tri v. J.T.T. , 162 S.W.3d 552, 556 (Tex. 2005). Rapid's complaint does not specifically state what "unlawful, overt act" with which it is charging the Wentworth Parties. It appears plausible, based on the allegations, that the complaint is accusing them of violating either federal antitrust laws, see 15 U.S.C. § 1 et seq. , or Texas antitrust laws, see Tex. Bus. & Com. Code § 15.01 et seq. , or both.

Peachtree argues that the complaint asserts a claim for violation of federal antitrust laws, and thus raises a federal question, because it alleges an "industry-wide agreement." Further, it notes, Rapid alleges a "nationwide scheme" to thwart competition on a "nationwide basis" by companies that control "upwards of 65% of the U.S. market."

But Rapid's allegations are compatible with a claim for violations of only Texas antitrust law. As this court has...