United States Court of Appeals for the Second Circuit affirms summary judgment in favor of an annuity owner and annuity issuer in a case addressing the use of arbitrations to effect transfers of structured settlement payment rights.

The United States Court of Appeals for the Second Circuit, in a summary order, affirmed an order from the United States District Court for the Western District of New York granting summary judgment in favor of an annuity owner and annuity issuer.

The case was commenced as a declaratory judgment action, wherein the annuity owner and annuity issuer sought declaratory and injunctive relief against a factoring company in connection with the factoring company’s attempts to enforce a transfer agreement, arbitration award, and judgment confirming the arbitration award.

According to the complaint, the factoring company and the annuitant executed a transfer agreement that purported to assign to the factoring company the right to certain structured settlement payments in exchange for a lump sum. The state court in New York denied the factoring company’s petition to approve the transfer agreement. When the annuitant sought to cancel the transfer agreement, the factoring company commenced arbitration proceedings against the annuitant and obtained an arbitration award, which purported to approve the transfer agreement. The factoring company obtained a judgment confirming the arbitration award in a Texas state court. The factoring company then obtained an enforcement order, which purported to enforce the confirmation judgment against the annuity owner and annuity issuer, neither of which were parties in the arbitration proceedings or the proceedings to confirm the arbitration award.

The district court granted summary judgment in favor of the annuity owner and the annuity issuer, declaring that “the purported assignment of the right to receive structured settlement payments . . . is void and unenforceable.” 2007 WL 2530098 at *1 (W.D.N.Y. Sept. 5, 2007). In the hearing on the motion, the court explained that the statutorily-mandated court approval was a condition precedent to a valid transfer, and it was improper for the factoring company to obtain an arbitration award and confirmation judgment in another forum once the court in New York had denied approval of the transfer agreement. See id. at *2 (proceedings). The court further declared that the arbitration award is void and unenforceable, and the factoring company “is enjoined from taking any further action in any forum to seek to recover the annuity payments due to the annuitant].” See id. at *1. The factoring company appealed the district court’s decision.

On appeal, the factoring company contended that the district court erred in granting summary judgment for several reasons. The factoring company argued that the payments were properly assigned to the factoring company despite the structured settlement agreement’s anti-assignment language and despite the absence of a court order approving the transfer in accordance with the New York Structured Settlement Protection Act, N.Y. GEN. OBLIG. LAW §§ 5-1701 et seq. Further, the factoring company argued that the arbitration award was valid and enforceable under the Federal Arbitration Act. It also argued that the Full Faith and Credit Clause under the U.S. Constitution required that the district court give preclusive effect to the Texas state court’s judgment confirming the arbitration award. Moreover, the factoring company contended that the district court erred in enjoining it from pursuing a recovery of the annuity payments in another forum.

The United States Court of Appeals for the Second Circuit, in affirming the district court’s order, declared that “[f]or substantially the same reasons stated by the District Court…, we conclude that [the factoring company’s] claims are without merit and that the [District] Court did not err in granting summary judgment to the [annuity owner and annuity issuer] or in enjoining the [factoring company]. Pacific Life Insurance Company v. Rapid Settlements, Ltd., 2009 WL 320184 (C.A.2 (N.Y.)). The annuity owner and annuity issuer were represented by Stephen R. Harris and Katherine L. Villanueva of Drinker Biddle & Reath LLP.

 Click here to view the full Summary Order.