Allstate Settlement Corp. v. Rapid Settlements

• Decision Date: 03 March 2009
• Docket Number: No. 07-3224.,07-3224.
• Citation: 559 F.3d 164
• Parties: ALLSTATE SETTLEMENT CORPORATION; Allstate Life Insurance Company v. RAPID SETTLEMENTS, LTD.; Andino Ward Rapid Settlements, Ltd., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

559 F.3d 164

ALLSTATE SETTLEMENT CORPORATION; Allstate Life Insurance Company v. RAPID SETTLEMENTS, LTD.; Andino Ward Rapid Settlements, Ltd., Appellant.

No. 07-3224.

United States Court of Appeals, Third Circuit.

Submitted Under Third Circuit L.A.R. 34.1(a) December 1, 2008.

Filed: March 3, 2009.

Monica Cavazos-Rosas, Esquire, Susan F. Hatcher, Esquire, Stewart A. Feldman, Esquire, The Feldman Law Firm, LLP, Houston, TX, Attorneys for Appellant.

Stephen R. Harris, Esquire, Katherine L. Villanueva, Esquire, Drinker Biddle & Reath LLP, Philadelphia, PA, Attorneys for Appellees.

Before: AMBRO, WEIS and VAN ANTWERPEN, Circuit Judges.

OPINION

WEIS, Circuit Judge.

State legislation requires court approval of the transfer of future periodic payments provided by a structured settlement of a personal injury claim. In this case, a factoring company sought to evade that requirement by the use of arbitration after a state court refused to approve a lump sum payment in exchange for the rights to future installments. The District Court criticized the factoring company's practices and entered declaratory as well as injunctive relief against it. We will affirm.

I.

The receipt of a large sum of money is not always the blessing the recipient envisioned. Advice as to how to manage newfound wealth is freely given by well-meaning friends, as well as by others whose motives are purely self-serving. Among those who must cope with the various problems of sudden wealth are persons who have settled a personal injury claim and also the few lucky winners of a government-sponsored lottery. In most instances, payments are made in installments rather than in a lump sum.

Seizing what they perceive as a lucrative financial opportunity, a number of factoring companies offer a lump sum in exchange for the rights to some or all future periodic settlement payments. Because of abusive practices employed by some factoring companies, at least forty-three state legislatures have enacted statutes requiring court approval of a transfer of future structured settlement payments. Such legislation is similar to that which requires court approval of a settlement with a minor, see, e.g., Pa. R.C.P. No.2039(a) ("[n]o action to which a minor is a party shall be compromised, settled or discontinued except after approval by the court"), or the assignment of future prize installment payment rights by the winner of a state lottery. See, e.g., 72 P.S. § 3761-306(a)(3) ("Payment of any prize drawn [in the state lottery] may be made to any person pursuant to a voluntary assignment of the right to receive future prize payments ... if ... the court ... issue[s] an order approving the assignment").

Under Pennsylvania's Structured Settlement Protection Act, 40 P.S. §§ 4001-4009, court approval is required to "transfer ... structured settlement payment rights." Id. at § 4003. Among the findings that a court is required to make is that "the transfer is in the best interests of the payee or his dependents." Id. at § 4003(a)(3).

This case arises from Rapid Settlements' negotiations with Andino Ward, a Pennsylvania resident.¹ In April 1991, Ward settled a personal injury claim with the City of Philadelphia. Through a qualified assignment, Allstate Settlement Corporation agreed to make periodic payments to Ward. The settlement was funded by the purchase of an annuity issued by Allstate Life Insurance Company.² The qualified assignment stated, "This Agreement shall be governed by and interpreted in accordance with the laws of the State of PENNSYLVANIA."

On August 25, 2004, Rapid Settlements and Ward entered into a "Transfer Agreement" under which he agreed to transfer and assign 192 future monthly payments of $2,032.79 each, subject to an annual increase of three percent, in exchange for a lump sum of $32,500.³ The "Preliminary" clause provided that, "This Transfer Agreement is subject to court approval.... [Ward] and Rapid Settlements agree to proceed in good faith to obtain court approval of this Transfer Agreement." The contract included an arbitration clause that provided,

"Any dispute or disagreement arising under this Agreement of any nature whatsoever including but not limited to those sounding in constitutional, statutory, or common law theories as to the performance of any obligations, the satisfaction of any rights, and/or the enforceability hereof, shall be resolved through demand by any interested party to arbitrate the dispute and shall submit the same to a nationally recognized, neutral, arbitration association for resolution...."

Because Ward had previously assigned certain payment rights he agreed to assign to Rapid Settlements, the parties signed an "Amended Transfer Agreement" on December 3, 2004, which assigned 120 monthly payments of $2,427.26 each, subject to an annual increase of three percent, to Rapid Settlements in exchange for a lump sum of $13,250.00.⁴ This second Transfer Agreement was presented to the Court of Common Pleas of Montgomery County, Pennsylvania, pursuant to Pennsylvania's Structured Settlement Protection Act, but the court denied approval.

On March 21, 2005, Rapid Settlements filed a demand for arbitration against Ward alleging, inter alia, that Ward had received an advance of $9,937.50 toward the money he was to receive under the second agreement and that he had failed to return the money after the court denied approval of the transfer.

Before the arbitration took place, Ward and Rapid Settlements agreed to a third "Transfer Agreement," dated April 18, 2005. It differed from the second agreement in two material respects. The lump sum was changed to $23,250, instead of the $13,250 in the second agreement. The "Preliminary" clause was revised to read,

"This Transfer Agreement arises out of the settlement of a breach of contract claim by [Rapid Settlements] against [Ward]. Consummation of this Transfer Agreement is subject to both a favorable arbitrator's award and court confirmation of such. The arbitrator and a court must approve [Ward]'s sale, assignment, and transfer to Rapid Settlements of the Assigned Payments before such payments can be transferred and the Assignment Price ... paid to [Ward]. The Final Order shall state that both the arbitrator and court at least have made all findings required by applicable law, and that [Allstate is] authorized and directed to pay the Assigned Payments to Rapid Settlements, its successors and, or assigns. [Ward] and Rapid Settlements agree to proceed in good faith to obtain the arbitrator's award and court confirmation of such award approving this Transfer Agreement."

On April 23, 2005, after the third agreement was reached, Rapid Settlements notified Allstate of the pending arbitration and that a hearing was scheduled on May 23, 2005, in Houston, Texas.

An arbitrator, Bryan Coleman, entered an award dated May 23, 2005, which stated, "Rapid and Ward are collectively, the `Parties' or individually, a `Party.'" The arbitrator found that Rapid Settlements had suffered losses from Ward's breach of the second agreement and that he was unable to return the funds that Rapid Settlements advanced him. The arbitrator also found that, "Ward breached the December 3, 2004 [second] transfer agreement with Rapid ... [and][i]n satisfaction [of Ward's breach], the Parties have agreed to complete a transfer pursuant to the [Pennsylvania Structured Settlement Protection] Act under the April 18, 2005 [third] transfer agreement." The arbitrator then found that the third, April 18, 2005, agreement "complies with all statutory requirements of the Act and does not contravene any applicable law ... or the order of any court or responsible administrative authority." The findings went on to declare that "[t]he transfer is in the best interests of Ward."

The award concluded with the arbitrator's order, which purported to approve "the April 18, 2005 transfer agreement" and ordered Allstate "to deliver and make payable to" Rapid Settlements the payments Ward agreed to assign in the third agreement. The arbitrator further ordered Rapid Settlements to pay Ward the $23,250 lump sum due under the third contract, less the $9,937.50 alleged advance and Ward's $500 share of arbitration fees. Finally, the parties were ordered to notify Allstate of the arbitration award.

A Texas county court confirmed the award in June 2005 and a Notice of Entry of Foreign Judgment was filed in the Court of Common Pleas of Montgomery County.⁵

Allstate refused to comply with the arbitrator's order. Instead, Allstate requested that Pennsylvania court approval be secured for the third agreement and the arbitrator's award. On May 12, 2006, Rapid Settlements and Ward filed a petition in the Court of Common Pleas of Montgomery County for approval of the third transfer agreement.

The Common Pleas Court denied the petition on September 19, 2006, noting that Ward withdrew his request for approval at the hearing.

Rapid Settlements subsequently filed a "renewed demand" in Texas for arbitration against Ward. Allstate notified Rapid Settlements that it was not a party to any arbitration between Ward and Rapid Settlements, did not consent to be bound by, and would not honor, any forthcoming award.

On November 13, 2006, Allstate filed its complaint in this action, seeking declaratory and injunctive relief against Rapid Settlements. Specifically, Allstate sought an injunction and a declaration that it was not bound to honor the agreements between Ward and Rapid Settlements, or any arbitration award, without court approval as contemplated in any applicable state structured settlement protection act.

Two days later, the same arbitrator who had entered the first award against Ward entered an order on Rapid Settlements' "renewed demand." The arbitrator found that Ward breached the third agreement by refusing to cooperate with Rapid Settlements in the second petition to the Pennsylvania court.

Rapid Settlements was awarded $11,000 in...