The recent decision by the New York Court of Appeals in Cordero v. Transamerica Annuity Service Corp.—which held that the plaintiff did not sufficiently allege a breach of the implied covenant of good faith and fair dealing under New York law—affirms that there is no implied fiduciary duty on the part of annuity issuers or owners to protect a plaintiff from the consequences of their own breach. In Cordero, the U.S. Court of Appeals for the Eleventh Circuit certified to the New York Court of Appeals the question of whether a plaintiff sufficiently pleads a cause of action for breach of the implied covenant of good faith and fair dealing under New York law by alleging that, in connection with a Structured Settlement Protection Act proceeding, the defendant structured settlement obligor and the issuer of the annuity funding the settlement failed to enforce the anti-assignment provisions contained in the settlement agreement and qualified assignment.
Lujerio Cordero was a minor when his mother brought suit on his behalf against a landlord, alleging that he was exposed to lead paint. The case was resolved by way of a court-approved structured settlement. That settlement provided for the plaintiff to receive a stream of periodic payments. The insurer for the defendant in that case assigned to Transamerica Annuity the obligation to make those periodic payments. Transamerica Annuity, for its convenience, then funded that obligation by purchasing an annuity from Transamerica Life.
Starting in 2012, when Cordero was 22 years old, his mother encouraged him to enter into a transaction with a factoring company whereby he agreed to sell to the factoring company a portion of his periodic payments in exchange for a present discounted lump sum. Realizing that he could get quick cash, he proceeded to enter into a series of additional factoring transactions with that factoring company and another unrelated one of the plaintiff’s and/or his mother’s own choosing.
In each of the transactions, after the plaintiff and the factoring company entered into an agreement, the factoring company (or, in one case, the factoring company’s assignee) then filed a petition with a Florida court seeking approval of the transfer under the Florida Structured Settlement Protection Act (SSPA). That statute requires prior court approval of such transactions.
Transamerica first learned of the transaction only when it was served with a copy of the factoring company’s petition, as required by the Florida SSPA. Transamerica then entered into a written stipulation with the plaintiff and the factoring company whereby the parties agreed (among other things) that Transamerica would not object to the transfer and would instead rely on the Florida court’s determination as to whether to approve it. The court subsequently entered an order approving the transfer, finding that the requirements of the Florida SSPA were met, the transfer was in the plaintiff’s “best interest,” and the transfer terms were “fair, just and reasonable.” The factoring company then paid Cordero a lump sum.
Years later, the plaintiff regretted his decisions and sought a “do over.” He sought both to keep the money he received from the factoring companies in exchange for his payment rights and to recover from Transamerica the balance of the “present value” of the payments he sold and other unspecified damages. According to the plaintiff, the transfers were not in his “best interest” and not “fair, just, and reasonable.” He argued that instead of relying on the court’s decisions, Transamerica should have conducted an investigation into whether the plaintiff suffered from any cognitive or mental deficiencies and should have objected to the transfers based on the anti-assignment language in the underlying settlement agreement.
Unsurprisingly, it appears that there is no precedent for imposing such liability against Transamerica. The reason is that settlement obligors and annuity issuers like Transamerica Annuity and Transamerica Life do not owe structured settlement payees like the plaintiff a duty to interfere with the assignment agreements those payees voluntarily enter into with factoring companies. As the Florida SSPA makes clear, it is for the court to decide whether to approve such transactions. In this case, it was undisputed that Transamerica knew nothing about the plaintiff’s lead paint exposure or any claimed cognitive deficiencies, which were not mentioned in the settlement contracts or Transamerica’s records.
Cordero’s court-approved structured settlement agreement with the tort defendant and its insurer, Continental Insurance Company, stated that it is governed by New York law and provided for the plaintiff to receive monthly payments of $3,163.84 beginning at age 18 and continuing for 30 years guaranteed. The settlement agreement stated that the periodic payments “cannot be accelerated . . . nor shall the Plaintiff(s) have the power to sell . . . or anticipate same, or any part thereof, by assignment or otherwise.” Transamerica was not a party to the underlying personal injury case or the settlement agreement.
Rather, pursuant to a “Transamerica Qualified Assignment and Release,” Continental assigned to Transamerica Annuity the obligation to make the periodic payments. For its convenience, Transamerica Annuity then purchased from Transamerica Life an annuity that generated a periodic payment stream identical to Transamerica Annuity’s payment obligation. The settlement agreement, qualified assignment, and annuity made clear that (i) Transamerica Annuity is nothing more than a payment obligor; (ii) Transamerica Annuity owns the annuity; (iii) Transamerica Life issued the annuity, and its only obligation is to issue the payments to the annuitant designated by Transamerica Annuity; (iv) the annuity is for Transamerica Annuity’s “convenience”; (v) the plaintiff has no rights in or control over the annuity; and (vi) the plaintiff “has no rights against Transamerica Annuity greater than a general creditor.”
Notably, the settlement agreement, qualified assignment, and annuity did not indicate the nature of the claim that gave rise to the settlement. Nor did they or any of Transamerica’s records mention lead paint or any cognitive impairment, handicaps, or other condition allegedly suffered by the plaintiff.
The plaintiff received the periodic payments of $3,163.84 per month from Transamerica starting when he turned 18 in December 2008. He received those payments for approximately four years before he entered into his first factoring transaction. Each of the subject transfer petitions stated that the plaintiff was advised of his right to obtain independent professional advice but elected to waive that right, that all requirements of the Florida SSPA had been satisfied, and that a notice of hearing was provided to all interested parties. The waivers filed with the petitions indicated that the applicable factoring company recommended that the plaintiff seek “advice from an attorney, certified public accountant, actuary or other licensed professional advisor” and that the plaintiff “waived” such advice. Affidavits signed by the plaintiff attached to each of the petitions stated, “I am of sound mind, sane and not under the influence of alcohol or drugs, and I am not suffering from any physical or mental impairment affecting my judgment.” Finally, the notice of hearing filed in each of the subject transfer cases indicated that a notice of hearing was served on the plaintiff.
A claim for breach of contract under New York law requires proof of the “existence of a contract, performance, the defendant’s breach, and resulting damages.” The plaintiff claimed that Transamerica violated an implied covenant of good faith and fair dealing in the settlement agreement by failing to seek enforcement of that contract’s anti-assignment language.
However, here, the plaintiff stipulated in writing that Transamerica would not object to the transfers and would rely on the court’s approval. And the anti-assignment language is for the benefit of the settlement obligor, Transamerica Annuity, which has the right to waive it. Even if that language is also (or solely) for the plaintiff’s benefit, the plaintiff waived it when he voluntarily entered into the transfer agreements with the factoring companies.
Moreover, to hold that Transamerica had an implied contractual duty to seek enforcement of the anti-assignment provision and object to the plaintiff’s transfers would be directly at odds with the Florida SSPA. That statute requires the Florida courts to determine whether to approve a transfer of structured settlement payment rights, and it does not impose any obligations on Transamerica. The Florida SSPA also allows a court to approve a transfer even over an objection based on contractual anti-assignment language and relieves settlement obligors and annuity issuers of liability. Indeed, if it were a breach of contract for a settlement obligor and annuity issuer not to object to transfer petitions under the Florida SSPA (and similar statutes in all other states), nearly every transfer would result in a breach of contract by those entities because nearly all structured settlements contain such language.
Given the thousands of transfer petitions filed by factoring companies throughout the country, opposing them on the basis of anti-assignment language (which appears in nearly all structured settlements) would be prohibitive. Like Transamerica in this case, such entities typically lack information about the payee’s original injury and the payee’s current condition. Nor are they obligated, equipped, or qualified to conduct mental capacity, “best interest,” and “fair and reasonable” evaluations. There is no legal basis on which to find Transamerica breached any contractual obligation by deferring to the courts in connection with the subject transfers, as the New York Court of Appeals properly found.
