Settlement Funding v. Von Neumann-Lillie

• Decision Date: 08 June 2007
• Docket Number: Record No. 061373.
• Citation: 645 S.E.2d 436
• Parties: SETTLEMENT FUNDING, LLC v. Carla VON NEUMANN-LILLIE.
• Court: Virginia Supreme Court

645 S.E.2d 436

SETTLEMENT FUNDING, LLC v. Carla VON NEUMANN-LILLIE.

Record No. 061373.

Supreme Court of Virginia.

June 8, 2007.

Stephen E. Heretick, for appellant.

Thomas R. Breeden, Manassas, for appellee.

Present: All the Justices.

OPINION BY Justice ELIZABETH B. LACY.

In this appeal we consider whether the circuit court erred in refusing to apply the law of the jurisdiction stipulated in the choice of law provision of a contract and in its application of Virginia's usury law to the provisions of that contract.

FACTS

On November 12, 1996, Carla Von Neumann-Lillie (Lillie) redeemed a winning ticket in the "Money for Life" instant win game of the Virginia Lottery. The prize was $1,000 per month for the duration of Lillie's life.

Lillie entered into a loan agreement with WebBank Corporation (WebBank) for $29,000 plus interest. Lillie was to repay the loan in monthly installments of $500 for a period of 178 months, commencing April 1999 and ending January 15, 2014. The loan agreement contained a choice of law provision, stating all disputes would be determined in accordance with the laws of the State of Utah.

Lillie also executed a secured promissory note in which she promised to pay WebBank, its successors and assigns, the principal amount of $29,000 plus interest and a UCC-1 Financing Statement, which was filed in the Circuit Court of Prince William County on March 10, 1999. WebBank assigned its right, title, and interest in the loan to Settlement Funding, L.L.C. Lillie then submitted a change of address form to the Virginia Lottery directing the Lottery to send her award payments to a post office box in Georgia owned by Settlement Funding. Settlement Funding collected the loan payments from the Virginia Lottery checks and refunded to Lillie any amount received over the loan payment due.

After Lillie had paid $13,500 on the loan over 27 months, she contacted Settlement Funding to pay the balance of her loan. Settlement Funding informed Lillie that, including interest and fees, the prepayment amount was $67,023. Lillie claimed she was unaware that any interest was due under the loan and stopped all payments to Settlement Funding, thereby defaulting on the terms of the loan agreement. Subsequently, Settlement Funding notified the Virginia Lottery of its security interest in Lillie's Lottery prize, that Lillie had defaulted on her loan, and that all payments due to Lillie "must be paid and delivered" to Settlement Funding.

On September 21, 2001, the Commonwealth of Virginia State Lottery Department filed a Bill of Complaint for Interpleader, asserting that pursuant to Code § 58.1-4013 Lottery prizes are not assignable. The circuit court granted the interpleader, and directed all prize installments be paid to the Registry of the Court.¹

On October 31, 2001, Settlement Funding filed an answer in the interpleader action and a Cross-Bill against Lillie. The Cross-Bill requested equitable relief in the form of a court order declaring Settlement Funding's security interest in the Lottery payments valid and enforceable and ordering the Virginia Lottery to pay the Lottery Prize Payments to Settlement Funding.

On May 15, 2002, Lillie filed an answer to Settlement Funding's Cross-Bill in which she asserted four affirmative defenses. First, Lillie asserted that under Code § 58.1-4013, the security interest in and assignment of the Lottery winnings was unlawful, and therefore void and unenforceable. Second, Lillie asserted that the interest sought under the loan agreement was usurious. Third, she claimed that the loan agreement, Security Agreement, Secured Promissory Note, and UCC-1 Financing Statement were void and unenforceable under the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. (Truth in Lending Act). Finally, she asserted that Settlement Funding could not recover in equity because it acted with unclean hands. Lillie also filed a third party Bill of Complaint and Cross-Bill against Settlement Funding asserting breach of contract, usury, avoidance, and fraud actions.

In an opinion letter dated November 7, 2005, the circuit court held that the assignment of Lottery proceeds was unlawful pursuant to Code § 58.1-4013 and thus Settlement Funding did not possess a valid security interest in Lillie's Lottery winnings. The circuit court also granted Settlement Funding leave to file an amended pleading against Lillie seeking a money judgment for a specific sum due under the note and loan agreement.

Settlement Funding filed an amended "Cross-Claim" seeking judgment against Lillie for the loan's principal balance plus accrued interest and penalties for a total of $253,727.89 plus interest and legal expenses. Settlement Funding asserted four counts against Lillie: breach of contract, quantum meruit, promissory estoppel, and unjust enrichment. Lillie raised several affirmative defenses to the Cross-Claim including: usury, violations of the Truth in Lending Act, fraud, and unclean hands. At the hearing on Settlement Funding's Cross-Claim, Settlement Funding argued that Lillie's fraud claim should be stricken, that the Truth in...