Secondary Insurance Market Blog

Imperial Investigation's Focus Is Limited, Says News Report

In a news story about the federal investigation into Imperial Holdings, Inc., The Wall Street Journal last week reported that the company's president "was the only current executive targeted by a previously disclosed government probe."

The story is available here.

Previous Secondary Insurance Market Blog posts on the investigation are available here and via additional links at that post. 

Court Strikes Down Attempted Sale Of Military Pension Pay

Factoring companies that are active in the secondary markets for insurance products sometimes seek to effectuate transactions that courts later deem to be legally impermissible.

One example of this is with a military pension factoring transaction that became the subject of litigation in bankruptcy court over the last few years.

The case is In re Dunlap, Bankruptcy No. 09-75282-SCS and Adversary No. 10-07041-SCS (Bankr. E.D. Va. Sept. 13, 2011), and the court in that case said that the retired Air Force Major was legally precluded from transferring any rights to his military pension payments, and therefore the factoring company could not enforce the transaction where it purported to purchase those payment rights.

The reason, the court said, was that the

The court's opinion describes some of the background, including how Dunlap, a retired Air Force Major and the person entitled to receive military pension payments, entered into an agreement with Structured Investments Company, LLC.

The Agreement provided that SICO would pay an immediate, $100,000 lump sum to Dunlap, in exchange for the right to receive certain pension payments that were due to be paid to Dunlap.

Pursuant to the agreement, Dunlap executed a direct deposit authorization, instructing that the paymnents be sent to an account that was designated by Structured Investments, and further providing that Dunlap would forward payments from that account to Structured Investments.

After receiving a number of payments, Dunlap stopped forwarding then to Structured Investments, and Dunlap and his wife then filed a Chapter 7 bankruptcy petition.

Dunlap moved for summary judgment.  In his summary judgment papers, Dunlap, while admitting that he was in breach of the agreement to direct the deposit of his payments into the bank account specified by Structured Investments, contended that he could not have assigned his payments rights, and Structured Investments could not have a property interest in the payments, because federal law prohibits such transactions.

In particular, Dunlap said that the decision of the United States Court of Appeals for the Fourth Circuit in Dorfman v. Moorhous (In re Moorhous), 108 F.3d 51 (4th Cir.1997), and its interpretation of 37 U.S.C. § 701 showed that an attempted assignment of military retirement pay does not vest a creditor with ownership in the pension payments because of the anti-assignment provision contained in 37 U.S.C. § 701(a).

That statute, Section 701(a), provides that "[u]nder regulations prescribed by the Secretary of the military department concerned, a commissioned officer of the Army, Navy, Air Force, or Marine Corps may transfer or assign his pay account, when due and payable."

Dunlap argued that, under this statute, any assignment of military retirement pay prior to that pay being due and payable to the retiree is impermissible - and, therefore, Structured Investments could not have a property interest in his pension payments.

In response, Structured Investments made a number of arguments, including that Dunlap did not have standing to raise the statutory provision, that Dunlap was estopped from raising it, that Structured Investments had an equitable assignment. 

In a very detailed opinion, the bankruptcy court granted summary judgment for Dunlap, rejecting the arguments made by Structured Investments.  The court concluded that "the reasoning of the United States Court of Appeals for the Fourth Circuit in Moorhous controls, that 37 U.S.C. § 701(a) is an “absolute prohibition on assignments” and transfers of pay (In re Moorhous, 180 B.R. at 150), and that Dunlap's attempt to transfer rights in the pension payments when those payments were not yet due and payable was in contravention of 37 U.S.C. § 701(a) because, at the time the agreement was entered into, Dunlap had no rights in his future payments to convey.  Accordingly, Structured Investments had no property interest to enforce, and its other arguments also failed.

The full opinion is available beginning here.

Federal Criminal Investigation Focuses On Imperial Holding's Life Insurance Finance Business, Says Newspaper Report

The federal criminal investigation targeting Imperial Holdings, Inc., is focusing on whether the company's "life insurance premium finance division misled life insurance companies on applications for beneficiaries," according to a news report this week.

The South Florida Business Journal, in a January 9, 2012 article by reported Brian Bandell, said that the secondary market company confirmed in a recent Securities and Exchange Commission finding that the federal raid of company offices in September - made in connection with a probe by the U.S. District Attorney's Office for the District of New Hampshire - is aimed at "the company's life insurance premium finance business, not its life insurance settlement purchase or its structured legal settlement businesses."

"Through its Imperial Premium Finance subsidiary, the company finances the cost of life insurance premiums for mostly elderly people. When the person dies, the company is repaid out of the death benefit," said the article, which appeared on the Business Journal's web site under the headline "Criminal probe of Imperial Holdings targets life insurance financing."

The newspaper also reported that "numerous shareholder class action securities fraud lawsuits" have been filed against Imperial."

The news story is available in full starting here.

Previous Secondary Insurance Market Blog posts on Imperial are aviailbe here and here.

Assignment Of Claim Against Collection Agency Was Akin To Champtery, Violated Illinois Public Policy, Says Federal Court

Champerty and barratry are "anachronistic" terms - but nonetheless fairly accurate when describing the types of claims brought by a purported assignee against a collection agency, a federal court recently concluded.

Accordingly, a federal district court dismissed the claims of the would-be assignee, saying the assignment violated Illinois public policy, in part because the assignment was akin to champerty or to the practice of law without a license.

The decision came last month in Todd v. Franklin Collection Service, Inc., No. 11 C 6128 (N.D. Ill. Dec. 9, 2011).

The court described the facts as follows:

Plaintiff Michael Todd (Todd) alleges that he is the assignee of legal claims that originally belonged to Vicki Fletcher (Fletcher).  Fletcher allegedly owed a debt to AT & T (AT & T Debt) that Franklin attempted to collect.  Franklin allegedly reported the AT & T Debt, which had become an account with Franklin (Franklin Account), to TransUnion and Equifax (collectively, Credit Reporting Agencies).  According to Todd, sometime between September 2010 and February 2011, AT & T allegedly recalled the AT & T Debt from Franklin.  Although the AT & T Debt was allegedly recalled from Franklin, and the Franklin Account was closed as a result, Franklin allegedly failed to inform the Credit Reporting Agencies that the Franklin Account was closed or recalled until August 3, 2011, at the earliest.

Todd alleges that Franklin knew that the Franklin Account needed to be updated upon recall of the AT & T Debt from Franklin, but that Franklin 'has a policy and procedure to refuse to properly update credit reports of consumers, like Fletcher,' so that false information remains on the credit reports of consumers. . . .  In addition, Todd alleges that Franklin's alleged failure to provide an update to the Credit Reporting Agencies regarding the Franklin Account was willful, malicious, reckless, wanton, and/or negligent.  Todd further alleges that Franklin's alleged failure to provide an update to the Credit Reporting Agencies regarding the Franklin Account was in violation of Franklin's agreements with the Credit Reporting Agencies, the Fair Credit Reporting Act, and state law.

As a result of Franklin's alleged failure to inform the Credit Reporting Agencies that the Franklin Account was closed or recalled, Fletcher, her credit worthiness, and/or her credit score were allegedly harmed.  Todd includes in his pro secomplaint a state law negligence claim (Count I), a state law gross negligence claim (Count II), and a claim alleging a violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. (Count III).  Franklin has moved to dismiss all claims.

Todd v. Franklin Collection Service, Inc., No. 11 C 6128 (N.D. Ill. Dec. 9, 2011).  The court granted Franklin's motion, and in doing so, had a few things to say about the attempted assignment of Fletcher's claim to Todd:

Franklin argues that the assignment of Fletcher's claims to Todd is void because it violates Illinois public policy.  Under Illinois law, claims are generally assignable, unless the assignment violates public policy. . . .  To determine the public policy of Illinois, the court looks to the Illinois Constitution, Illinois statutes, and decisions of Illinois courts. . . .  An agreement violates public policy when 'the agreement is so capable of producing harm that its enforcement would be contrary to the public interest.' . . . .  The particular facts and circumstances of a case will govern whether an agreement is contrary to public policy. . . . .

Franklin argues that through the assignment, Todd is engaging in the unauthorized practice of law, champerty, and/or barratry.  Franklin also argues that Fletcher's claims are strictly personal in nature.  In addition, Franklin argues that, to the extent Fletcher's claims are not considered personal injuries, any economic damages sought by Todd are barred by the economic loss doctrine.

Todd argues that he is not engaging in the unauthorized practice of law, since he is merely representing himself and his own interests in the instant action.  However, '[a]n assignment cannot be used as a subterfuge to enable plaintiff to indulge his overwhelming desire to practice law, without complying with the requirements for admission to the bar.'  Biggs v. Schwalge, 341 Ill.App. 268, 93 N.E.2d 87, 88 (Ill.App.Ct.1950); see also Lazy “L' Family Preservation Trust v. First State Bank of Princeton,167 Ill.App.3d 624, 118 Ill.Dec. 130, 521 N.E.2d 198, 200–01 (Ill.App.Ct.1988).  The assignment agreement between Todd and Fletcher (Agreement) identifies Fletcher as Todd's 'client .' . . . .  There are no facts to suggest that, prior to Fletcher becoming Todd's client, Fletcher and Todd have any connection to one another or any relationship with one another.  In addition, the Agreement indicates that Todd has given the 'client' some type of consideration for the opportunity to litigate her claims. . . . .  Further, Franklin argues that Todd 'maintains a website dedicated to Litigation via Assignment.' . . . .  According to Franklin, Todd indicates on the website 'that he has "been litigating consumer-related cases in state and federal courts since 2002." ' . . . .  In addition, Franklin indicates that Todd's website states that Todd provides free consultations to people who might have legal claims and does all work 'at no out of pocket expense' to his clients. . . . .  Further, the court takes judicial notice of the many other lawsuits Todd has filed in this district as an assignee of legal claims.  In this case, as in the others, it appears Todd has become an assignee of legal claims solely for the purpose of litigating the claims.  Such facts indicate that, at the very least, Todd has engaged in 'subterfuge to enable [Todd] to indulge his overwhelming desire to practice law.'  Biggs, 93 N.E.2d at 88.

Todd also argues that his actions do not amount to champerty or barratry.  Although the terms are anachronistic and Todd's actions do not satisfy the technical definitions of the terms, Todd's actions are close enough to champerty and barratry to bolster Franklin's argument that the assignment of Fletcher's claims in this case violates Illinois public policy. . . .  

[U]nder the facts specific to this case, the assignment of Fletcher's claims to Todd is void as a matter of Illinois public policy.  It appears from the facts in this case that, by providing consultation to those who believe they may have a legal claim and by litigating the assigned claims of his 'clients,'Todd may be engaged in the unauthorized practice of law or, at least, engaging in subterfuge to facilitate the prosecution of others' claims.  Further, it appears from the facts in this case that Todd's conduct approximates champerty and barratry.

Todd v. Franklin Collection Service, Inc., No. 11 C 6128 (N.D. Ill. Dec. 9, 2011).

A complete copy of the opinion is available here.

News Story: Illinois 'Stiffed' Some Lottery Winners

From the well-read blog Instapundit, a line about lottery payments and checks, written out by the state, that turned out to be no good:

WIN THE LOTTERY, GET A CHECK, find out the check’s no good. Only in Illinois. . . .

In Opinion That Suggested Rate Cap, Court Detailed Reasons For Rejecting Structured Settlement Factoring Transaction

As described in this previous post, a New York trial court judge recently issued an opinion in which he called for that state's legislature to consider amending the New York structured settlement protection act (SSPA) to add a cap on the discount rates set by factoring companies.

The judge said that the legislature should consider "prohibitions against using annual discount rates above a certain percentage point" - and specifically referred to the 10% limit in New York's lottery transfer law.

Justice David J. Elliot, a Queens County, New York, trial court judge, made his statement in the case of In The Matter Of The Petition Of J.G. Wentworth Originations, LLC and Allia Rahman, No. 216362011 (N.Y. Sup. Ct. Dec. 14, 2011).

In that case, the court had before it a proposed transfer from a payee named Allia Rahman to factoring company J.G. Wentworth Originations, L.L.C. 

The court said it could not find that the proposed transfer was in Rahman's best interest, or that it was fair and reasonable.

So, what were the terms that led the court to its conclusion in that case?  Here are some of the details, as described by the court:

•  
  • Based on Wentworth's disclosure statement, filed with the court, "the aggregate amount of the transferred payments would be $89,237.76."
  • "The discounted present value of such payment is $62,097.77, using the federal interest rate of 2.20%.
  • "The net advance amount Rahman would receive pursuant to the transfer agreement would be $12,500.00, using an annual discount rate of 17.78%" - in contrast to a previous proposed transfer, when a factoring company had sought - and failed to obtain - court approval of a transfer in which the discount rate would have been 14.99%.
  • "[T]he current cost of purchasing a comparable annuity is $52,162.00 . . . ."
  • The factoring company would not deduct its attorneys' fees from the purchase price paid to Rahman (as opposed to the previous proposed transfer, which would have included a charge of $2,000 in attorneys' fees).

In The Matter Of The Petition Of J.G. Wentworth Originations, LLC and Allia Rahman, No. 216362011 (N.Y. Sup. Ct. Dec. 14, 2011).

The judge took note of the information that had been submitted to the court: "a copy of the transfer agreement, a copy of the disclosure statement and proof of notice of that statement pursuant to section 5–1703 [of the New York SSPA], [and] a statement that Rahman is single and has no dependents . . . ."

The judge was also able to review an affidavit from Rahman, in which she stated that she "is currently unemployed and is attending Hunter College of New York, and avers that she plans to use the cash received from the sale to pay for the next two years of tuition and for school books."

Also filed with the court was "a copy of an order and decision of the Honorable Charles J. Markey, said decision having denied a prior application made in Supreme Court, Queens County, for a transfer of certain future payments due to Rahman (under Index No. 1573/2011)."  That prior transfer "was denied without prejudice so as to permit petitioner, if so advised: (1) to demonstrate why a 14.99% discount rate is 'fair and usual'; (2) to cite comparative cases approving or disapproving a transfer agreement where the transferee applied a similar discount rate; (3) to show why the attorney's fee of $2,000.00 was fair and reasonable; and (4) to adequately address whether Rahman indeed received independent professional advice."

A "global consideration" of this information led the court to determine that the factoring company "failed to demonstrate that the transfer "is in Rahman's best interest or that it is fair and reasonable, considering, inter alia, the annual discount rate of 17.78%,the fact that the current cost of purchasing a comparable annuity is $52,162.00, the fact that Rahman would be selling her right to guaranteed payments for a fraction of their value (receiving a staggering 20% of what these payments are worth, using the present discounted value), and the fact that Rahman has not consulted independent legal counsel."

Commenting on the prior transfer attempt, the court said that "though given a second opportunity to explain certain issues, which Justice Markey found were necessary in order to determine whether the transfer was in Rahman's best interest and whether the transaction was fair and reasonable, those issues were not addressed herein."  Additionally, the court pointed out that, while the factoring company was not charging attorneys' fees in this second proposed transfer (as opposed to the first), the factoring company "has increased the discount rate from 14.99% to 17.78% and has failed to show any comparable cases approving or disapproving a transfer agreement with the same or a similar rate."

The judge also considered the factoring company's attorney's argument that the rate was justified because it was "considerably better than industry standards for these types of transfers and is comparable to major credit card rates" - and argument that the judge said was "without merit."  Said the judge:

The comparison counsel makes to major credit card rates is inapposite, as credit card companies grant a line of credit to the cardholder with the latter's promise to repay along with added interest of a certain percentage. . . .  While Petitioner has gone to great lengths in its attempt to rationalize the high discount rate offered to [the payee], it has failed to explain adequately why the guaranteed nature of the annuity payout and the minimal risk involved for Petitioner justifies such an exorbitant interest rate.  Moreover, that Petitioner incurs what it considers to be significant administrative and legal costs when entering into these transfer agreements is of little concern to the Court.  The General Obligations Law, as well as the statutory intent of the SSPA, require this Court to protect the best interests of the recipient of a structured settlement award, not the profit margins of a company seeking access to its proceeds.

In The Matter Of The Petition Of J.G. Wentworth Originations, LLC and Allia Rahman, No. 216362011 (N.Y. Sup. Ct. Dec. 14, 2011).  

A full copy of the opinion is available here.  The opinion is also discussed in this post, which describes the three state SSPAs that currently set a rate cap.

Federal Judge Rejects Request To Revoke Detention Order For Defendant Pending Trial In Life Settlements Fraud Case

The recent opinion in U.S. v. Gennaco, Criminal No. 11-100061-NMG (D. Mass. Dec. 14, 2011), was one in which the federal district court in Massachusetts denied the criminal defendant's motion for review and revocation of a detention order. 

The case has to do with secondary market for life insurance because the underlying acts that resulted in a multi-count indictment for violations of federal wire and mail fraud related to "investment of life insurance policies, also known as 'life settlements,' in which [Defendant Joseph Gennaco] . . . solicited approximately $4 million from about 20 purported customers," according to the opinion.

The defendant is subject to the detention order while he awaits trial.

The court said that the indictment charged that the defendant:

• obtained about $225,000 from one individual to invest in a particular life insurance policy but that the defendant, instead of investing the funds, "allegedly spent all but $40,000 on his own business and personal expenses";
• obtained an additional $31,000 from the same individual "by representing, among other things, that the funds would be used to purchase an insurance policy which could be sold to pay back the earlier $225,000 debt" but that instead, the defendant "allegedly used the $31,000 for his own personal and business purposes";
• obtained approximately $289,000 from a different individual, "ostensibly to pay . . . insurance premiums and invest in a 'side fund'" but that, "[t]o the contrary . . . [the defendant] allegedly used all of the funds for his own personal and business purposes" while persisting in telling that individual that the "the non-existent 'side fund' was still safe"
• defrauded two more individuals, "out of about $298,000 between September, 2008 and November, 2010."

The detention order was issued after a federal magistrate revoked the defendant's release, based on findings that the defendant "violated the conditions of his release by: 1) traveling to New Hampshire when the order restricted his travel to Massachusetts and Florida, 2) contacting victims or potential witnesses in the subject investigation or prosecution and 3) committing a federal, state or local crime while on release."

The full opinion rejecting the defendant's motion to revoke the detention order is available in full beginning here.

Some Structured Settlement Protection Acts Set Rate Caps

As described in this post, a New York trial court judge recently called for that state's legislature to consider amending the state's structured settlement protection act (SSPA) to cap the discount rates charged by factoring companies.

Three SSPAs currently have some sort of a cap.

• The Michigan SSPA provides that a court is authorized to approve a transfer if it finds, among other things, that the “discount rate or rates used in determining the discounted present value of the structured settlement payments to be transferred do not exceed 25% per year . . . .”  Mich. Comp. Laws Ann. § 691.1304, Sec. 4(d).
• The Nebraska SSPA provides that a factoring company may not charge a discount rate "in an effective annual rate in excess of the maximum interest rate per year applicable in Nebraska to a consumer loan" as set by another Nebraska law which establishes a maximum, non-usurious interest rate of sixteen percent.  Neb. Rev. Stat. § 25-3104(5)
• The North Carolina SSPA provides that the rate may "not exceed an annual percentage of prime plus five percentages points . . . ."   N.C. Gen. Stat. § 1-543.12(6).

The North Carolina SSPA also sets a separate cap on the amount of fees charged by the factoring company: “Any brokers’ commissions, service charges, application fees, processing fees, closing costs, filing fees, administrative fees, notary fees and other commissions, fees, costs, expenses, and charges payable by the payee or deductible from the gross amount otherwise payable to the payee" may not exceed two percent of the net amount payable to the payee.  N.C. Gen. Stat. § 1-543.12(7).

Federal Court Judge Allows Insurance Policy Rescission In Latest Chapter Of Long-Running Viatical Fraud Story

The story of James Capwill and Liberte Capital Group, involving viatical transactions and fraud, is a long-running one that spans a number of lawsuits over the course of years. 

The most recent opinion in one of those lawsuits contains a good general summary of what happened.  The court, in Chicago Ins. Co. v. Capwill, No. 1:01CV2588 (N.D. Ohio Dec. 21, 2011), concluded that Capwill lied when he applied for insurance with the plaintiff, Chicago Insurance Company.  The Court also determined that Capwill "persisted in his falsehoods when he applied for renewal", "[h]is motive and intent when he did so are manifest," that the "questions he fraudulently answered were material to the plaintiff's decision to issue and then renew the policies, and the pricing thereof" and that "had plaintiff been told the truth, it would not have accepted the applications."  Accordingly, the court concluded, Chicago Insurance Company's "entitlement to rescission is clear" and "neither laches nor doctrines of estoppel, acquiescence or waiver bar the right to rescind."  The court therefore granted the insurance company's motion for summary judgment, seeking rescission.

The court's general summary of the overall facts follows after the break.

As of 1996, Capwill was a Certified Public Accountant running his own small accounting firm.  He entered into negotiations with another accountancy firm, Wesley, Mills & Co., to form a separate company, CWN Group.  Though the Wesley, Mills participants did not go forward with CWN, Capwill did.

In addition, Capwill, along with a different Wesley, Mills employee, formed Viatical Escrow Services (VES).  VES serviced viatical insurance policies that Liberte and Alpha held for investors.  Richard Jamieson, the principal in Liberte and Alpha, and Capwill jointly defrauded the investors of several tens of millions of dollars.

Jamieson's part of the fraud involved arranging for life insurance policies for persons afflicted with AIDS.  Jamieson provided financial incentives to individuals to apply for life insurance, but withheld relevant medical information or provided false medical information in exchange for the issuance of a policy.  These professional 'viators' would then secure multiple insurance policies through this method, described as 'clean-sheeting.'  The policies were then obtained by Jamieson and marketed as an investment opportunity to the public-at-large.  Interests in these policies were then sold to investors for a portion of their face value with the promise of a significant return within a given time frame.  Jamieson perpetrated a fraud not only upon the various insurance companies, but upon investors by not disclosing the insureds' true life expectancy.  The jig was up when Jamieson, through Liberte and Alpha, was unable to meet the returns promised.

The servicing which Capwill, through VES, was to provide included payment of the policy premiums.  For that service, he received fees.

Capwill had exclusive control over the funds which he was, through VES, to pay for the policy premiums.  At some point, he began using those funds to make investments through another company which he established.  Those investments, on the whole, were unwise and unsound.

As policies began to lapse for nonpayment of premiums, Liberte and Alpha sued Capwill in 1998.  Liberte and Alpha went into receivership, with its investors having lost tens of millions of dollars from their purchase of fraudulently obtained life insurance policies for which they never received payment on the death of the insured.  Following determination of Capwill's defalcations and Jamieson's frauds, they each were indicted.  The government successfully prosecuted Jamieson and Capwill.  Each remains in prison.

In 1997, Capwill first sought professional liability insurance from the plaintiff through an insurance brokerage firm, Todd Associates, Inc.  Todd submitted Capwill's application to the Herbert H. Landy Insurance Agency.

Landy was . . . [Chicago Insurance Company]'s managing agent for its line of accountant's malpractice insurance.  Landy referred the application to plaintiff, which ultimately issued three annual policies covering Capwill, CWN and VES for accountancy professional liability.

To obtain continued coverage, Capwill submitted renewal applications.  Each of the applications included the same or similar questions on a variety of topics.  The purpose of those questions was to enable the plaintiff to assess the risk, decide whether to provide coverage and appropriately price the premiums.

Plaintiff claims that Capwill's answers to questions on five subjects were deliberately false and fraudulently intended to induce it to issue its policies, namely, questions relating to: 1. Investment activities while the owner of VES; 2. Professional disciplinary actions; 3. Lawsuits and claims; 4. Potential claims; and 5. Number of professionals performing accountancy for a covered entity.

According to plaintiff, Capwill gave false answers on each application.  In doing so, the company contends, he intended to defraud it into providing coverage which it otherwise would not have covered, or would have priced differently.  Capwill's fraudulent intent is the gravamen of plaintiff's demand for rescission.

* * *

The parties agree that the insurance policies covered accountancy malpractice.  They did not, and could not, in light of the intentional and criminal nature of Capwill's defalcations, cover losses which that misconduct engendered.

The receiver, as successor in interest to Liberte and Alpha, seeks to recover on the 1999 policy vis-a-vislosses resulting from alleged negligence in performing accounting for VES during the coverage period. . . .  In addition to asserting that plaintiff is not entitled to rescission, the receiver claims that laches and estoppel/acquiescence/waiver bar the insurer's action.

* * *

Capwill's false responses to questions about his investment activities and disciplinary actions suffice . . . to entitle the plaintiff to rescission.  No rational fact-finder could conclude otherwise than that Capwill lied with the intent to deceive the plaintiff and induce it to issue the policies.

In addition to challenging the plaintiff's claim for rescission on the basis of Capwill's false answers, the receiver asserts affirmative defenses of laches and estoppel/acquiescence/waiver.

The gravamen of the estoppel/acquiescence/waiver defense is that once the plaintiff became aware of the creation of the receivership and Capwill's apparent role in the events leading to the collapse of Liberte and Alpha, it did not immediately cancel the 1998 policy.  It had not done so because the policy entitled Capwill to a ninety-day notice of cancellation.  To provide notice for that period, the plaintiff renewed the policy, gave the notice and then cancelled the renewed policy.  This, according to the receiver, either estops the plaintiff from recovering or constituted acquiescence in any lies in the renewal application or a waiver of the right to rescind on the basis of those lies.

The gravamen of the receiver's laches defense is that when, on November 1, 2001, plaintiff filed this action for declaratory judgment, it did not include a claim for rescission.  Instead, it asserted coverage issues.

Plaintiff did not assert a claim for rescission until April, 2004.  In addition to arguing that the delay between the filing of the original and the amended complaint caused him prejudice, the receiver protests how the plaintiff's factual contentions in support of its demand for rescission have expanded during the intervening years.  Most principally, he complains about being prejudiced due to the loss of documents and other evidence, including the loss of potential testimony due to faded memories.

I conclude that no rational trier of fact could find for the receiver on either of his defenses.

Accordingly, I grant summary judgment for the plaintiff on its demand for rescission and against the receiver on his affirmative defenses.

Chicago Ins. Co. v. Capwill, No. 1:01CV2588 (N.D. Ohio Dec. 21, 2011).

A complete copy of the opinion is available starting here.

New York Judge Rejects Structured Settlement Factoring Transaction, Calls For Legislature To Consider Rate Cap

A New York trial court judge last week, in an opinion denying a request for court approval of a proposed transfer of structured settlement payment rights, called for that state's legislature to consider amending the state's structured settlement protection act (SSPA) to cap the discount rates charged by factoring companies.

"[U]nless there are bright-line rules or, for example, prohibitions against using annual discount rates above a certain percentage point, it appears, in many cases, that the transaction rates currently being used . . . are inherently not fair and reasonable, nor in the payees' best interests," said Justice David J. Elliot, a Queens County, New York, trial court judge, in the opinion captioned In The Matter Of The Petition Of J.G. Wentworth Originations, LLC and Allia Rahman, No. 216362011 (N.Y. Sup. Ct. Dec. 14, 2011).

The court was considering a proposed transfer from a payee named Allia Rahman to factoring company J.G. Wentworth Originations, L.L.C.  The court denied Wentworth's application, under the New York SSPA, that had sought court approval of the transfer, "and the court respectfully suggests that the issues raised herein deserve Legislative attention."

Said the court, in the opinion in which it found the proposed transfer was not in the payee's best interests and was not "fair and reasonable" as that term is set forth in the New York SSPA:

[I]t has been the intent of the Legislature (as evidenced by the reasons for enacting the SSPA . . .) to place the court in a position of in loco parentis to these payees, so as to ensure that the transactions are, inter alia, fair and reasonable, reason being that the Legislature was dissatisfied with transfer market rates, requiring judicial intervention to the extent that courts were not “to be mere rubber stamps” . . . .  However, while the Legislature has outlined factors for courts to take into account . . . it has not set forth any parameters to determine whether these transactions are, in fact, fair and reasonable.  Though case law in this area has developed since the SSPA's enactment due to the hundreds of applications of this nature, unless there are bright-line rules or, for example, prohibitions against using annual discount rates above a certain percentage point, it appears, in many cases, that the transaction rates currently being used (along with other factors) are inherently not fair and reasonable, nor in the payees' best interests.

Comparatively, the Legislature has outlined such a limitation with respect to the assignment of lottery winnings.  [New York] Tax Law § 1613(d)(1)(ii) provides that a court may issue an order approving a voluntary assignment to an assignee if the court finds, inter alia, that “[t]he purchase price being paid for the payments being assigned represents a present value of the payments being assigned, discounted at an annual rate that does not exceed ten percentage points over the Wall Street Journal prime rate published on the business day prior to the date of execution of the contract.”  A similar provision may very well be appropriate under the SSPA, especially considering the fact that: (1) the unequal bargaining power of these payees as compared to the transferees is palpable; (2) it appears that persons in financial distress may be disproportionately targeted by transferees simply because of their financial position, thereby forcing the former to accept pennies on the dollar on AAA-rated annuities; and (3) there is little, if any, risk on the part of transferees yet payees nevertheless receive a small portion of what their annuities are presently worth.

In The Matter Of The Petition Of J.G. Wentworth Originations, LLC and Allia Rahman, No. 216362011 (N.Y. Sup. Ct. Dec. 14, 2011).

A full copy of the opinion is available here.