In re Kaufman

• Decision Date: 16 October 2001
• Docket Number: No. 96,254.,96,254.
• Citation: 2001 OK 88,37 P.3d 845
• Parties: In re John A. KAUFMAN, Debtor.
• Court: Oklahoma Supreme Court

37 P.3d 845

2001 OK 88

In re John A. KAUFMAN, Debtor.

No. 96,254.

Supreme Court of Oklahoma.

October 16, 2001.

Lisa K. Endes, Oklahoma City, OK, for Debtor.

Steven W. Bugg, John N. Hermes, Lyle R. Nelson, Oklahoma City, OK, William J. Beckett, Malvern, PA, for Creditor.

KAUGER, J.:

¶ 1 We are asked to answer two questions:¹ 1) whether anti-assignment provisions restricting the power of an annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, are valid; and 2) whether a purchase agreement between an annuitant/assignor and third-party/assignee for future annuity payments in exchange for a lump-sum payment is enforceable if the annuitant is restricted by an anti-assignment provision from selling, mortgaging, encumbering, or anticipating future payments by assignment or otherwise? The questions are answered as follows: 1) Where the anti-assignment provision is clear and unambiguous in its limitation of the power of the annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, the restriction on alienability is valid.; and 2) Although an anti-assignment provision is valid, well settled principles of Oklahoma law prevent an assignor from enforcing the clause against its assignee.

FACTS

¶ 2 In April of 1996, the debtor, John A. Kaufman (Kaufman/debtor/annuitant/assignor), settled a wrongful death claim with Love's Country Stores, Inc. and United States Fidelity & Guaranty Company (USF & G/insurer). In association with his claim, Kaufman signed a Settlement Agreement and Release (settlement agreement) providing that it would be construed and interpreted in accordance with Oklahoma law.² The settlement agreement provides for a lump-sum payment and for periodic monthly payments of $2,008.75 measured by Kaufman's life with a twenty-year payment guarantee.³ The settlement agreement specifically provides that Kaufman has no "power to sell, mortgage, encumber, or anticipate the future payments by assignment or otherwise".⁴

¶ 3 As contemplated by the settlement agreement, the insurer entered into a qualified agreement⁵ with SAFECO Assigned Benefits Company (SAFECO) under which SAFECO assumed the responsibility of making Kaufman's periodic payments. Pursuant to the settlement agreement, SAFECO purchased a qualified funding asset⁶ in the form of an annuity⁷ to ensure Kaufman's monthly payments.⁸

¶ 4 After seeing a television commercial involving purchases of structured settlements aired by J.G. Wentworth S.S.C., Limited Partnership (Wentworth/creditor/assignee),⁹ Kaufman called and requested the paperwork necessary to complete the sale. Via a purchase agreement executed on June 9, 1999, Kaufman sold his right to receive sixty monthly annuity payments of $2,008.75 with a total value of $120,525.00 to Wentworth for a lump sum payment of $80,507.26. The purchase agreement provided that Wentworth was entitled to receive payments beginning in July of 1999 and running through June of 2004. The creditor has received no payments since May of 2000.

¶ 5 Kaufman used the monies received under the purchase agreement to start a trenching business. When the business failed, the debtor filed a voluntary Chapter 13 bankruptcy petition on September 22, 2000.¹⁰ In the bankruptcy petition, the debtor listed the purchase agreement with the creditor as an unsecured claim and proposed that the annuity payments¹¹ be utilized to fund the Chapter 13 plan. On November 27, 2001, Wentworth filed a motion for relief from the automatic stay requesting permission to seize the contracted for annuity payments. It is this action and Kaufman's assertion that the purchase agreement is invalid due to the anti-assignment language in the settlement agreement¹² which prompted the bankruptcy court to certify questions to this Court pursuant to the Uniform Certification of Questions of Law Act, 20 O.S. Supp.1997 § 1601 et seq., on May 9, 2001. We set a briefing cycle which was completed on June 25, 2001.

I.

¶ 6 WHERE THE ANTI-ASSIGNMENT PROVISION IS CLEAR AND UNAMBIGUOUS IN ITS LIMITATION OF THE POWER OF THE ANNUITANT TO SELL, MORTGAGE, ENCUMBER, OR ANTICIPATE FUTURE PAYMENTS, BY ASSIGNMENT OR OTHERWISE, THE RESTRICTION ON ALIENABILITY IS VALID.

¶ 7 Kaufman asserts that the clear language of the anti-assignment provision of the structured settlement requires that the provision be enforced. Because the contractual language does not specifically provide that any attempted assignment will be void, Wentworth argues that the anti-assignment provision is invalid.¹³

¶ 8 An assignment is the expressed intent of one party to pass rights owned to another.¹⁴ It realigns the parties to a contract.¹⁵ Valid assignments pass the assignor's title, leaving no interest to be reached by a creditor.¹⁶ In Oklahoma, contractual rights are presumed to be assignable.¹⁷ Nevertheless, parties may expressly provide otherwise.¹⁸ The issue here is whether the language utilized in the settlement agreement — stripping Kaufman of the "power to sell, mortgage, encumber, or anticipate the future payments by assignment or otherwise" — is sufficient to support a determination that the annuity payments are inalienable. We determine that it is.

¶ 9 Absent clear, unambiguous language, the majority of courts generally will not honor attempts to restrict the right to assign freely.¹⁹ Some jurisdictions require language providing that an assignment will be void or invalid before anti-assignment provisions are upheld.²⁰ These courts treat anti-assignment provisions as personal covenants which will not invalidate an otherwise proper transfer²¹ determining that unless the contractual provision eliminates both the power and the right to assign, an assignment may give rise to damages for breach but will not render the assignment ineffective.²²

¶ 10 However, a number of courts have enforced anti-assignment provisions similar to the one at issue here which explicitly deprive the assignor of the assignment power.²³ Others are less insistent on the use of any particular phraseology and simply uphold anti-assignment provisions if the prohibitive language utilized is clear and unambiguous²⁴ while some jurisdictions enforce such provisions as a general matter.²⁵ Decisions upholding anti-assignment provisions containing language limiting the power of assignment are characterized as being within the modern legal approach to the assignability of contracts.²⁶

¶ 11 The courts addressing the precise issue of whether an anti-assignment provision in a structured settlement agreement prohibiting the alienation of future payments made under an annuity policy is enforceable have reached differing results. No clear majority has emerged. Rather, the decisions are divided almost evenly.²⁷

¶ 12 The jurisdictions striking anti-assignment provisions have done so: on the basis that no harm comes to the party obligated to perform by the mere assignment of contractual payments;²⁸ due to a lack of specific language binding the tort victim to assignment restrictions;²⁹ or because the anti-assignment provisions circumscribe the right, but not the power, to assign.³⁰ The courts enforcing anti-assignment provisions in the structured settlement context have grounded their decisions on: the premise that such provisions, included for the benefit of the insurer, could not be waived by the annuitant;³¹ policy arguments supporting enforcement of the provisions in relation to structured settlements;³² or the clear language of the provision taking it out of the general rule of assignability.³³

¶ 13 In Oklahoma, the cardinal rule in contract interpretation is to determine and give effect to the intent of the parties.³⁴ In considering whether contractual rights may be alienated, we look to the parties' intent manifested by the agreement's language.³⁵ Here, the settlement agreement specifically provides that Kaufman has no "power to sell, mortgage, encumber, or anticipate the future payments by assignment or otherwise".³⁶ The anti-assignability clause is a condition of the contract for which the parties bargained.³⁷ The language is clear and definite³⁸ in its intent to prohibit Kaufman from alienating — by assignment or otherwise — the annuity payments. We determine that where the anti-assignment provision is clear and unambiguous in its limitation of the power of the annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, the restriction on alienability is valid. Oklahoma's tenets of contract construction, as well as decisions from other jurisdictions upholding anti-assignment provisions limiting the assignor's "power" to alienate contractual rights³⁹ along with the general policy considerations favoring steady income, long-term security and tax-favorable treatment underlying structured settlements⁴⁰ support our determination.

II.

¶ 14 ALTHOUGH AN ANTI-ASSIGNMENT PROVISION IS VALID, WELL SETTLED PRINCIPLES OF OKLAHOMA LAW PREVENT AN ASSIGNOR FROM ENFORCING THE CLAUSE AGAINST ITS ASSIGNEE.

¶ 15 Kaufman argues that a finding that the anti-assignment provision is valid requires that the purchase agreement with Wentworth be declared void and unenforceable. Wentworth asserts that notwithstanding the anti-assignment provision in the settlement agreement, a debtor/assignor may not rely on principles of nonassignability to defeat the contract as against its creditor/assignee.⁴¹ We agree.

¶ 16 Kaufman seeks to void the purchase agreement on general public policy grounds intended to protect tort victims.⁴² He also points to the recent enactment of the Structured Settlement Protection Act of 2001 (Structured Settlement Act), 12 O.S.2001 § 3238 et seq, in support of an argument that the anti-assignment provision should be enforceable on public policy grounds.

¶ 17 Clearly, the Legislature was concerned with the long-term economic well being of tort victims and their dependents when it enacted the Structured...