Johnson v. J.G. Wentworth Originations, LLC

• Decision Date: 01 March 2017
• Docket Number: A156843
• Citation: 284 Or.App. 47,391 P.3d 865
• Parties: Marshall JOHNSON, Plaintiff-Respondent, v. J.G. WENTWORTH ORIGINATIONS, LLC, a Nevada limited liability company, Defendant-Respondent, and Metropolitan Life Insurance Company; and Metropolitan Tower Life Insurance Company, aka Metlife Tower Resources Group, Inc., Other-Appellants.
• Court: Oregon Court of Appeals

284 Or.App. 47

391 P.3d 865

Marshall JOHNSON, Plaintiff-Respondent,

v. J.G. WENTWORTH ORIGINATIONS, LLC, a Nevada limited liability company, Defendant-Respondent,andMetropolitan Life Insurance Company; and Metropolitan Tower Life Insurance Company, aka Metlife Tower Resources Group, Inc., Other-Appellants.

A156843

Court of Appeals of Oregon.

Argued and submitted May 27, 2015.

March 1, 2017

Stephen R. Harris, Pennsylvania, argued the cause for appellants. With him on the briefs were Michael T. Stone, Christopher Allnatt, and Brisbee & Stockton LLC.

Julie A. Weis, Portland, argued the cause for respondent J.G. Wentworth Originations, LLC. With her on the brief was Sara Ghafouri.

No appearance for respondent Marshall Johnson.

Before Sercombe, Presiding Judge, and Hadlock, Chief Judge, and Tookey, Judge.

HADLOCK, C. J.

Marshall Johnson is the beneficiary of a right to periodic payments under a structured settlement agreement. Petitioner J. G. Wentworth Originators, LLC (J. G. Wentworth) brought this special proceeding under ORS 33.857 to ORS 33.875 (2005),¹ seeking to purchase at a discount Johnson's right to one future annuity payment and a portion of a future lump sum payment. The trial court issued a judgment approving the transfer, and Metropolitan Tower Life Insurance Company (Met Tower), the obligor under the structured settlement agreement, appeals. We conclude that the trial court erred in approving the transfer, because the structured settlement agreement included an anti-assignment clause that Met Tower has a right to enforce and that prohibited Johnson from transferring his interest in the payments. We therefore reverse.

The facts are undisputed. In 2006, Johnson, who was then a minor, was injured an automobile accident. In 2008, the tortfeasor's insurer, State Farm, and Johnson's guardian ad litem settled a personal injury claim on behalf of Johnson through a structured settlement agreement. Under the agreement, Johnson was entitled to receive a first payment of $ 5,000 on October 5, 2008, five annual payments of $ 10,000 each, beginning in October 5, 2010, and a final payment of $ 41,970.25 on October 5, 2020. The structured settlement agreement contained a clause stating that Johnson did not "have the power to sell, mortgage, encumber, or anticipate the Periodic Payments, or any part thereof, by assignment or otherwise." It is not disputed that the clause prohibited Johnson from transferring his interest in future payments, that is, that it is an anti-assignment clause. Thus, on its face, the structured settlement agreement prohibited the transfer of Johnson's interest in the future payments.

But State Farm could assign its obligation under the settlement agreement. Under Internal Revenue Code, 26 USC section 130, a tortfeasor or its insured may assign an obligation under a structured settlement agreement to a "qualified assignee"—an independent third party who assumes the obligation for making the periodic payments. The third-party assignee receives favorable income tax treatment, because the funds received by the assignee from the original obligor (to be used for the purchase of an annuity to fund the periodic payments) are excluded from the assignee's income. 26 USC § 130(a). To meet the requirements of a "qualified assignment," the payments "cannot be accelerated, deferred, increased, or decreased by the recipient of such payments." 26 USC section 130(c)(2)(B).

Consistent with 26 USC section 130(c)(2)(B), Johnson's structured settlement agreement with State Farm provided that State Farm could assign its payment obligation to Met Tower, and that Johnson was required to accept the assignment.² Contemporaneously with the structured settlement agreement, State Farm and Met Tower executed a qualified assignment agreement (QAA) under which Met Tower assumed responsibility for making the structured settlement payments to Johnson.³ Like the settlement agreement, the QAA included a paragraph prohibiting Johnson from transferring his right to receive payments under the structured settlement agreement, except that a transfer could be made with advance approval of a court, pursuant to Internal Revenue Code section 5891(b)(2),⁴ if the transfer "otherwise complie[d] with applicable state law."⁵

In 2013, Johnson, who was then 23 years of age, was in need of funds. He contacted J. G. Wentworth, a factoring company, expressing an interest in selling at a discount his annuity payment due in 2014, and half of his final payment due in 2020. Together, the sums had a discounted present value of just over $ 29,000. J. G. Wentworth agreed to pay Johnson $ 17,250 for the right to receive those sums in the future. In December 2013, Johnson signed an agreement for the transfer of the future payments to J. G. Wentworth. This litigation arises out of J. G. Wentworth's petition to obtain court approval of the transfer.

In Oregon, transactions like the one executed by J. G. Wentworth and Johnson for the transfer of structured settlement payment rights are subject to the provisions of ORS 33.850 to 33.875, which the legislature enacted in 2005 to implement 26 USC section 5891.⁶ In February 2014, J. G. Wentworth filed a petition in Multnomah County Circuit Court seeking an order approving the transfer. As obligor under the QAA, Met Tower participated in the proceeding and objected to the transfer. After a hearing in which the trial court met with Johnson in chambers to discuss his need for the funds, the court issued an order and judgment approving of the transfer.

Met Tower now appeals from the judgment, raising several challenges. As relevant to our analysis, there are no factual disputes, and the questions presented are purely legal, involving issues of contract interpretation and statutory construction; accordingly, we review the trial court's decision for errors of law. State v. Gaines , 346 Or. 160, 171-72, 206 P.3d 1042 (2009) (questions of statutory construction reviewed for errors of law, first examining the text and context of the statute and any useful legislative history to determine the legislature's intent); Yogman v. Parrott , 325 Or. 358, 361, 937 P.2d 1019 (1997) (trial court's construction of a contract reviewed for errors of law).

ORS 33.855 describes payments subject to transfer under Oregon law and sets forth the procedural requirements for such a transfer. ORS 33.860 specifies the disclosures that the transferee (in this case, J. G. Wentworth) must make to a structured settlement beneficiary (Johnson) who seeks to transfer the right to future payments. ORS 33.865 describes the findings that a court must make in its order approving a transfer.⁷ On its face, the order entered by the trial court in this case complied with ORS 33.865, in that it included all of the required findings. However, Met Tower asserts on appeal that the trial court erred, because Met Tower is entitled to enforce the anti-assignment provision in the structured settlement agreement, thereby preventing Johnson from assigning his right to future payments.⁸

The structured settlement agreement in this case was executed and approved by a court in California, and it provides that its construction is subject to California law. Therefore, we address whether, under California law, the anti-assignment provision in the structured settlement agreement was enforceable by Met Tower. ORS 15.350 ("[t]he contractual rights and duties of the parties are governed by the law or laws that the parties have chosen."); see M+W Zander v. Scott Co. of California , 190 Or.App. 268, 78 P.3d 118 (2003) (when parties specify their choice of law in a contract, that choice will be effectuated subject to limitations under the Restatement (Second) of Conflicts of Laws (1971)); Pinela v. Neiman Marcus Group, Inc. , 238 Cal.App.4th 227, 251, 190 Cal.Rptr.3d 159 (2015) (contractual choice of law clauses are generally construed to designate the substantive law of the chosen jurisdiction as well as the interpretation of the agreement).

Under California law, although public policy strongly favors the free transferability of property, that policy must be weighed against the right of parties to freely contract. Parkinson v. Caldwell , 126 Cal.App.2d 548, 552, 272 P.2d 934 (1954). Thus, although contractual clauses restricting assignment of interests are strictly construed, a clear prohibition against assignment of money due under a contract will be enforced, if not waived by the obligor. Masterson v. Sine , 68 Cal.2d 222, 230, 65 Cal.Rptr. 545, 436 P.2d 561 (1968) ("In the absence of a controlling statute the parties may provide that a contract right or duty is nontransferable."); Parkinson , 126 Cal.App.2d at 552, 272 P.2d 934 ("Where [contract] language is clear, an agreement not to assign a debt is effective."); see San Francisco Newspaper Printing Co. v. Superior Court , 170 Cal.App.3d 438, 442, 216 Cal.Rptr. 462 (1985) (an anti-assignment clause is not inherently suspect and is "routinely enforced"); see also Johnson v. First Colony Life Ins. Co. , 26 F.Supp.2d 1227, 1229 (C.D. Cal. 1998) (upholding anti-assignment clause in structured settlement agreement).⁹

Nonetheless, the California Court of Appeal has held that a contractual anti-assignment clause will not bar court-approved transfers of structured settlement rights, if no interested party objects to the transfer. See 321 Henderson Receivables Origination LLC v. Sioteco , 173 Cal.App.4th 1059, 93 Cal.Rptr.3d 321 (2009). Sioteco involved an anti-assignment clause in a structured settlement agreement, which, if enforced, would bar the transfer of structured settlement payments that otherwise met the requirements of the state's " Structured Settlement Transfer Act." 173 Cal.App.4th at 1065, 1072-73, 93 Cal.Rptr.3d 321. Although no party had objected to the proposed transfers of payments under the settlement agreement at issue in Sioteco , the trial court had nonetheless concluded that they were barred, in part because they violated...