Transamerica Assur. Corp. v. Settlement Capital

• Decision Date: 05 June 2007
• Docket Number: No. 06-5601.,06-5601.
• Citation: 489 F.3d 256
• Parties: TRANSAMERICA ASSURANCE CORPORATION, Plaintiff, v. SETTLEMENT CAPITAL CORPORATION, Defendant-Appellant, United States of America, Defendant-Appellee, Gary Steele, Defendant.
• Court: U.S. Court of Appeals — Sixth Circuit

489 F.3d 256

TRANSAMERICA ASSURANCE CORPORATION, Plaintiff, v. SETTLEMENT CAPITAL CORPORATION, Defendant-Appellant, United States of America, Defendant-Appellee, Gary Steele, Defendant.

No. 06-5601.

United States Court of Appeals, Sixth Circuit.

Argued: March 16, 2007.

Decided and Filed: June 5, 2007.

ARGUED: Robert B. Weathersby, Andrews Kurth, Dallas, Texas, for Appellant. William G. Cole, United States Department of Justice, Washington, D.C., for Appellee. ON BRIEF: Robert B. Weathersby, Suzanne B. Campbell, Andrews Kurth, Dallas, Texas, Frank P. Doheny, Jr., Dinsmore & Shohl, Louisville, Kentucky, for Appellant. William G. Cole, United States Department of Justice, Washington, D.C., for Appellee. Nathaniel R. Jones, Sharon J. Zealey, Blank Rome, Cincinnati, Ohio, for Amicus Curiae.

Before: COOK and McKEAGUE, Circuit Judges; and EDGAR, District Judge.^*

OPINION

COOK, Circuit Judge.

Settlement Capital Corporation ("Settlement Capital") appeals a district court's order granting summary judgment in favor of the United States on the basis of federal sovereign immunity. We affirm.

I

Gary Steele was injured by a Virginia National Guard vehicle. He filed a claim against the United States under the Federal Tort Claims Act ("FTCA"), 28 U.S.C. §§ 1346(b), 2671, et seq. The United States settled the claim by purchasing an annuity for Steele's benefit from TransAmerica Assurance Corporation ("TransAmerica"). According to its contract with TransAmerica, the United States owns the annuity and retains "the right at any time to designate to whom annuity payments will be made." Steele has been receiving, and is set to receive, various periodic and lump-sum payments under the annuity.

Facing urgent business expenses and needing to finance his daughter's wedding, Steele sought to convey $37,453.53 in anticipated annuity payments to Settlement Capital in exchange for a lump-sum payment of $18,250. To this end and to comply with Florida law regulating the transfer of structured-settlement payment rights, Steele presented his agreement with Settlement Capital for review by the Eleventh Judicial Circuit Court of Miami-Dade County (FL). See Fla. Stat. § 626.99296 (hereinafter "Florida Transfer Act"). The Florida Transfer Act requires that notice of the proposed transfer be sent to "interested parties," so Settlement Capital sent notice to both TransAmerica (as "annuity issuer") and the United States (as "structured settlement obligor"). See Fla. Stat. § 626.99296(2)(i), (3)(a)(5), (4).

Having received no objection to the proposed transfer from either TransAmerica or the United States, the Florida court issued an order approving the transaction. The next day, Settlement Capital wrote to inform TransAmerica of the Florida court's order and to ask that Settlement Capital be designated the payee of record for future annuity payments. The following day, an attorney from the U.S. Department of Justice wrote to the Florida court explaining that while the United States neither intended to appear in the (already-concluded) transfer proceeding nor consented to the Florida court's jurisdiction, it believed the Florida court lacked jurisdiction to enter a structured-settlement transfer order "attempting to alter the United States' contract rights with both Gary Steele and TransAmerica Assurance Company." That is, the United States claims it would alter an alleged anti-assignment provision in the Steele—United States settlement contract, as well as the language in the TransAmerica—United States annuity contract giving the United States the right to designate the annuity payee. The United States also sent a letter directing TransAmerica not to change the annuity payee.

Settlement Capital paid Steele the agreed-upon lump sum, but TransAmerica hesitated to forward annuity payments to Settlement Capital because of the United States' opposition. Settlement Capital urged TransAmerica to comply with the Florida order, noting that despite similar form-letter opposition from the United States, annuity issuers have often acceded to structured-settlement transfers without incident, even when the United States owned the annuity. TransAmerica ultimately filed an interpleader action naming the United States, Settlement Capital, and Gary Steele as defendants and asking the district court to adjudicate the competing claims to the annuity payments. See 28 U.S.C. §§ 1335, 2361. The parties moved for summary judgment, and the district court ordered, in relevant part, (1) that the United States' motion for summary judgment was granted and Settlement Capital's motion for summary judgment was denied; (2) that the Florida court's order was "void, as having been entered without jurisdiction and without a waiver of the United States of America's sovereign immunity"; and (3) that TransAmerica should continue to make annuity payments to Steele unless the United States (as annuity owner) directed otherwise. Settlement Capital appealed the district court's conclusion that federal sovereign immunity applies.

II

This case turns on whether the doctrine of federal sovereign immunity deprives a state court of jurisdiction to approve a transfer of structured-settlement payment rights where the United States nominally owns—but has no beneficial interest in—the annuity funding these payments. If federal sovereign immunity applies, summary judgment should be granted in favor of the government. Cf. Akers v. Alvey, 338 F.3d 491, 497 (6th Cir.2003). This court reviews de novo the district court's grant of summary judgment and resolution of legal questions, but accepts the district court's factual findings unless clearly erroneous. Cf. S.J. v. Hamilton County, 374 F.3d 416, 418 (6th Cir.2004).

III

Tort damages have traditionally been paid on a lump-sum basis. The structured settlement, often involving periodic payments over a long term, evolved as a way to foreclose a tort victim from improvidently exhausting his award.¹ The federal tax characterization of a tort award matters both to the victim and to the obligor. Although lump-sum tort-settlement payments have always been excluded from the victim's income, see 26 U.S.C. § 104, the tax treatment of a structured-settlement award was once uncertain. Tort victims' periodic annuity payments received from a structured settlement, for example, might formerly have been included in the victim's income, even though clearly part of a tort settlement. In the late 1970s, the Internal Revenue Service (IRS) issued several rulings suggesting that tort-settlement periodic payments would be excluded from the victim's income as long as the victim could not control or accelerate the payments. A 1982 amendment to 26 U.S.C. § 104 and enactment of 26 U.S.C. § 130 clarified the tax treatment of structured settlements and revealed their potential advantages. Section 130 allows tort obligors to fund their obligations via an annuity and excludes these payments from the payee's income as long as (among other things) the payments are "fixed and determinable as to amount and time of payment" and "cannot be accelerated, deferred, increased, or decreased by the recipient." 26 U.S.C. § 130(c).

In response to victims' desire to liquidate such periodic-payment rights, a market developed where companies purchase a tort victim's rights to future payments in exchange for a lump sum. This business of liquidating anticipated structured-settlement payments is known as "factoring," and the firms engaged in it as "factors." But the industry faced a problem in the possibility of factored structured-settlement payments being deemed "accelerated," no longer being deemed "fixed and determinable," and accordingly being denied the favorable tax treatment otherwise accorded tort settlement proceeds. That is, factoring, it was feared, might disqualify payments from being excluded either from the payee's income under § 130 or from the factor's income (since the factor is not a tort claimant under § 104). But new legislation prescribing a method to accomplish a factoring transaction while retaining favorable tax treatment essentially eliminated this possibility. The Victims of Terrorism Tax Relief Act of 2001, Pub.L. No. 107-134, § 115 (2002), added § 5891 to Title 26 to govern the tax treatment of structured-settlement factoring transactions. It imposes a stiff excise tax on anyone acquiring structured-settlement payment rights in a factoring transaction, 26 U.S.C. § 5891(a), but then excepts from this tax any factoring transaction "approved in advance in a qualified order," id. § 5891(b)(1). Approval essentially turns on a finding that the transaction is in the best interest of the payee and is not contrary to law or court order, see id. § 5891(b)(2)(A), and a "qualified order" may be issued "under the authority of an applicable State statute by an applicable State court," id. § 5891(b)(2)(B)(i). To support this scheme, states have passed statutes regulating the transfer of structured-settlement payments and empowering state courts to conduct transfer proceedings and issue orders that comply with federal tax law. The Florida Transfer Act is one such statute. The issue posed here concerns the intersection of federal sovereign immunity principles and such implementing state statutes.

IV

Settlement Capital first argues that under the relevant Supreme Court precedent, federal sovereign immunity does not deprive the Florida state court of jurisdiction to issue an order directing the United States to redesignate the payee of the annuity in question. It invokes the Supreme Court's decision in Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 69 S.Ct. 1457, 93 L.Ed. 1628 (1949), as its starting point for this argument. See Malone v. Bowdoin, 369 U.S. 643, 646, 82 S.Ct. 980, 8 L.Ed.2d 168 (1962) (explaining that Larson marks the beginning of the modern doctrine of federal sovereign immunity). Larson, as with most cases on federal sovereign immunity, required...