Settlement Funding LLC v. RSL Funding, LLC

Citations: 3 F. Supp. 3d 590; 2014 U.S. Dist. LEXIS 31747; 2014 WL 975602Docket: Civil Action No. H-12-2044

Court: District Court, S.D. Texas; March 12, 2014; Federal District Court

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The court has adopted the Magistrate Judge’s Memorandum, Recommendation, and Order dated February 25, 2014, in the case involving Settlement Funding LLC as the plaintiff against RSL Funding LLC and others as defendants. The court reviewed several motions, including Settlement Funding's Motion for Partial Summary Judgment on a tortious-interference claim, which it recommended be denied. Additionally, Settlement Funding's Motion to Strike the defendants' response was denied, while the RSL Parties' Motion to Extend Time was granted.

The case originates from a 2006 lawsuit initiated by Settlement Funding to prevent Rapid Settlements from enforcing an arbitration clause related to the purchase of structured settlement payments. Subsequently, additional claims were made against RSL Funding for failure to maintain corporate formalities and for interfering with assignment agreements. A temporary injunction was granted to prevent RSL and its agents from interfering with Settlement Funding's contracts and from contacting its customers. This injunction was set to remain in effect until the scheduled trial on October 25, 2010. The RSL Parties appealed the injunction, which was found to be overly broad by the Fourteenth Court of Appeals, leading to a remand for a new hearing.

The court determined that the temporary injunction was an "unreasonable restraint on trade" due to its extensive scope. There was no record of a state court re-evaluating the injunction's breadth. In March 2012, RSL filed an amended counterclaim against J.G. Wentworth S.S.C. Limited Partnership, JGWPT Holdings, LLC, David Miller, and JLL Partners, Inc., serving them on June 7, 2012. These parties filed special appearances in state court and subsequently removed the case to federal court on July 6, 2012. J.G. Wentworth Originations, LLC, although named in a pleading in late June 2012, had not been served by that time. In early 2013, the parties expressed willingness to resubmit previously filed motions for partial summary judgment from state court; however, there were concerns about the relevance of these motions given the elapsed time and developments in similar cases nationwide. The court recommended denial of all pending motions at the time of removal, stating that any motion for partial summary judgment on tortious interference should be filed within thirty days after the adoption of this recommendation, which occurred on June 17, 2013. Following this, Settlement Funding filed a motion for partial summary judgment on July 17, 2013. In September 2013, the court upheld the recommendation to dismiss JGWPT, Miller, and JLL due to lack of personal jurisdiction. Settlement Funding subsequently filed two additional pending motions for partial summary judgment in October 2013.

The factual background reveals that Michale Parenti initially contacted Settlement Funding in 2009 to sell part of his structured settlement, a transaction approved by a state court under the Texas Structured Settlement Protection Act. After a year of periodic contacts from Settlement Funding, Parenti sought another transfer in June 2010, leading to a second Absolute Assignment Agreement on July 5, 2010. RSL's Jim Kelly, upon discovering this pending agreement, contacted Parenti, believing he could cancel without penalty prior to court approval. Kelly offered a significantly higher bid than Settlement Funding's, prompting Parenti to visit RSL's office, where he executed a transfer agreement. On July 22, 2010, Nicola Parenti informed Settlement Funding of their intent to cancel the 2010 Agreement to pursue the transfer with RSL.

Parenti determined independently that Settlement Funding's offer was uncompetitive. Settlement Funding issued a cease-and-desist letter to RSL regarding Parenti's transfer and had sent multiple similar letters to prevent RSL from contacting its clients. Parenti alleged that as of August 17, 2010, Settlement Funding had "threatened and harassed" him in attempts to intimidate him into returning. Jason Sutherland, Settlement Funding's vice president of legal affairs, noted that a court approval application for the agreement between Parenti and RSL was pending on August 24, 2010, related to the same structured settlement payments. However, on November 19, 2010, a Harris County court approved the transfer of these payments to Settlement Funding, rendering RSL's application for approval void.

Prior to considering the merits of the summary judgment motion, the court addressed nondispositive issues. Settlement Funding sought to strike the RSL Parties' response, claiming it was untimely. The RSL Parties contended it was timely or that the court should consider it timely at its discretion. Federal Rule of Civil Procedure, Rule 6(a) outlines time period computations, while Rule 6(b) permits deadline extensions for good cause after expiration due to excusable neglect. Settlement Funding's partial summary judgment motion on tortious interference was filed on July 17, 2013, with a response deadline set for August 7, 2013. The RSL Parties requested an extension to August 17, 2013, which the court approved. They filed their response on August 19, 2013, the first business day after the deadline. The court agreed with Settlement Funding's view that the response was late, but chose not to strike it due to the lack of prejudice to Settlement Funding. The court expressed frustration with both parties' handling of deadlines and indicated potential sanctions for future noncompliance.

The RSL Parties objected to five pieces of evidence from Settlement Funding, specifically challenging statements in Masten’s affidavit as hearsay. One particular statement, expressing Parenti's satisfaction with the progress of the transfer process, was deemed admissible under the hearsay exception for statements reflecting the declarant's then-existing mental condition.

The RSL Parties' objections are addressed as follows: 

1. Nicola Parenti's statement about being pleased with the agreement and looking forward to completing the transaction is admissible under Federal Rule of Evidence 803(3), as it reflects his feelings about the transfer process. The objection is overruled.
   
2. Parenti's claim that a competitor visited their home unexpectedly and offered to take over the structured settlement transfer is inadmissible hearsay, as it is used to prove the truth of the competitor's visit and offer. The objection is sustained.

3. Parenti's refusal to disclose the competitor's name, describing it as "local," is also inadmissible hearsay, and the objection is sustained.

4. Nicola Parenti's desire to cancel the transfer with Settlement Funding is admissible under the hearsay exception for expressing her then-existing mental state. The objection is overruled.

5. Jim Gregory's statement that Parenti wanted to cancel his transfer due to an agreement with a competing company is admissible, reflecting Parenti's intent and motive. The objection is overruled.

6. Gregory's claim about the competitor’s unexpected visit is inadmissible hearsay, and the objection is sustained.

7. Identifying the competitor as RSL Funding is also inadmissible hearsay, and the objection is sustained.

8. Gregory's assertion that there was "no penalty" and "Get your attorney and bring it on" is admissible under the then-existing condition exception, reflecting Parenti’s state of mind. The objection is overruled.

9. The statement about relaying Parenti’s position to the legal department is not asserted for its truth, making it admissible. The objection is overruled.

10. The RSL Parties object to the depositions of Parenti and Nicola Parenti due to missing certification pages, which were later provided by Settlement Funding. The objection is overruled.

11. The objection to using the hearing transcript from the temporary injunction hearing is based on the witness's lack of personal knowledge and qualifications. However, lay witnesses can offer opinion testimony if it meets specific criteria. The objection's outcome is not explicitly stated.

Overall, the RSL Parties' objections are largely overruled, with several key statements deemed admissible, while others are sustained as inadmissible hearsay.

Sutherland, an executive at Settlement Funding, provided opinions on damages based on personal knowledge from his involvement in the company's operations rather than specialized expertise, aligning with Fed. R. Evid. 701. The court overruled objections from the RSL Parties that Sutherland's testimony was speculative or conclusory, finding it admissible. Settlement Funding raised general objections to the RSL Parties' factual characterizations and contradictions of prior admissions, which were also overruled due to lack of specific evidence. However, an objection to Stewart A. Feldman’s affidavit was sustained; while it affirmed the truth of the RSL Parties' claims, it lacked factual specifics. Feldman’s affidavit was criticized for creating a disputed fact where none existed, but that objection was overruled since it did not address Parenti’s structured settlement payments. The RSL Parties submitted an Absolute Assignment Agreement dated July 18, 2009, as evidence, which Settlement Funding objected to, claiming the relevant agreement was dated July 3, 2010; this objection was sustained due to Masten’s affidavit confirming the interference related to the 2010 agreement. An objection to a summary judgment motion by Settlement Funding was denied as moot. Lastly, Settlement Funding objected to Parenti's affidavit for contradicting prior testimony, as he had previously stated RSL offered more money than Settlement Funding. Parenti's conflicting statements during deposition about RSL's knowledge of his contract with Settlement Funding raised concerns about his credibility.

Kelly referenced a contract involving Parenti and Settlement Funding. Under federal rules, affidavits for summary judgment must be based on personal knowledge, state facts admissible as evidence, and confirm the affiant's competence. An affidavit cannot counter prior deposition testimony without explanation. In this case, Parenti’s affidavit was signed before his deposition, and his deposition did not directly contradict his affidavit, leading to the objection being overruled.

Settlement Funding seeks a permanent injunction against the RSL Parties to prevent interference with its transfer agreements, supported by facts from the agreement with Parenti and testimony from Sutherland regarding damages. Summary judgment is appropriate when no genuine dispute exists over material facts, as defined by substantive law, and the moving party is entitled to judgment as a matter of law. A genuine dispute must be substantiated by evidence that a reasonable jury could favor either party. The moving party must clarify the basis for the summary judgment motion and provide relevant evidence demonstrating no genuine factual issues exist. The court resolves doubts and makes reasonable inferences in favor of the nonmoving party without weighing evidence or assessing credibility.

For a tortious interference claim, the plaintiff must establish that (1) a contract existed, (2) the defendant intentionally interfered, (3) the interference caused damage, and (4) the plaintiff incurred actual damages. The plaintiff must provide evidence that the defendant knowingly induced a breach of contract. Justification serves as an affirmative defense in such claims.

In *Prudential Ins. Co. of Am. v. Fin. Review Servs. Inc.*, the Fourteenth Court of Appeals upheld the trial court's finding that Settlement Funding adequately pleaded a tortious interference claim and established a probable right to relief. The appellate court affirmed a temporary injunction but criticized its overly broad scope, which imposed an unfair restraint on trade, and remanded for the trial court to set appropriate geographic limitations and assess whether the RSL Parties could engage with Settlement Funding’s clients without prior contact. Under Texas law, a temporary injunction requires proof of a viable cause of action, a probable right to relief, and imminent irreparable injury. The appellate court's validation of the temporary injunction implicitly confirmed Settlement Funding's tortious interference claim. The court will not reassess this issue as it is already settled law. Consequently, structured settlement transfer agreements may be subject to tortious interference claims prior to court approval mandated by the TSSPA. The next step involves determining if Settlement Funding can meet its burden for summary judgment on its tortious interference claim, requiring undisputed evidence for each claim element. The RSL Parties do not dispute the contract's existence but contest Settlement Funding's assertion of intentional interference. The scope of a permanent injunction will only be addressed after all merits favor Settlement Funding.

To establish willful and intentional interference, a plaintiff must demonstrate that the defendant actively persuaded a third party to breach a contract. Merely knowing about another party's obligations is insufficient; there must be direct interference, such as offering better terms. The defendant must act with the knowledge that their actions would likely lead to contract interference. In this case, RSL's representative, Kelly, identified the 2010 Agreement, contacted Parenti, and proposed a higher offer than Settlement Funding, satisfying the requirement of interference despite Parenti's claim of independent decision-making. Kelly's awareness of Parenti's contract and his actions indicate intentional interference.

Settlement Funding claims RSL's actions caused damages, while RSL argues that Parenti had the right to cancel the agreement without penalties, suggesting no actual damages occurred. However, the court clarifies that while Parenti could cancel within a limited time without penalty, this does not negate the potential for damages resulting from RSL’s interference. Furthermore, despite RSL's assertion that Settlement Funding suffered no damages because it eventually completed a transaction with Parenti, the lack of details regarding the court's approval order raises factual issues. Testimony indicated that Settlement Funding experienced monetary losses as clients opted for RSL's offers over its agreements.

Settlement Funding experienced damages due to ongoing litigation against a specific competitor and a loss of goodwill and customers. Testimony presented did not provide specific details regarding the 2010 Agreement with Parenti, except for a cease-and-desist letter sent to RSL. This general testimony weakened its relevance as proof of damages from RSL’s interference with the 2010 Agreement, which is the only contract for which evidence exists. Consequently, only damages related to this agreement are relevant to the motion for partial summary judgment, with the cease-and-desist letter being the sole pertinent evidence. Sutherland's testimony was deemed sufficient to establish causation and damages related to the minor injury of sending the letter, and the court found that there was no factual dispute regarding the elements of tortious interference with a contract.

The court then addressed the RSL Parties' affirmative defense of justification or privilege, which applies if the interference was based on the exercise of a legal right or a good-faith claim to such a right, even if mistaken. The court determines the existence of a legal right as a matter of law, while a jury assesses whether the defendant acted in good faith regarding a colorable legal right. The burden of proof for this defense lies with the defendant. The RSL Parties presented three arguments for justification: public policy favoring competitive bids, their claim of exercising bona fide rights under the TSSPA, and supporting language and prior court opinions that could suggest a colorable legal right.

The court found merit in the RSL Parties' third argument regarding the TSSPA, which stipulates that transfers of structured settlement payment rights require prior court approval. Relevant federal and state court opinions had addressed the viability of such contracts prior to court approval, creating a factual issue regarding RSL's claim to a colorable legal right, even if ultimately mistaken.

In *Settlement Capital Corp.*, the U.S. District Court for the Northern District of Texas examined a conflict between a factoring company and annuity owners regarding a structured settlement. The factoring company had a transfer agreement with the structured settlement payee and sought court approval, notifying the defendants as interested parties. The defendants contested the transfer's appropriateness, leading the payee to cancel her agreement with the factoring company and instead align with the defendants. The court found that the plaintiffs' transfer agreement faced improper interference, ruling that the defendants' justifications for their involvement were insufficient.

Subsequently, in *In re Rapid Settlements, Ltd.*, the Beaumont court of appeals dealt with a similar issue involving the same parties. Following notice of the factoring company's court approval application, annuity owners communicated the fair market value of the payments and proposed that amount. The factoring company initiated arbitration based on the transfer agreement, but the trial court suspended arbitration, asserting the arbitration clause was ineffective until court approval was secured. The appeals court concurred, stating that without a final court order approving the transfer, there was no arbitration agreement.

Later, the U.S. District Court for the Southern District of Texas reviewed the implications of arbitration provisions prior to court approval in *Symetra Life Ins. Co.* The court considered whether court approval was a condition precedent to the contract’s existence or just to the defendant's obligations to pay. It determined that parts of the transfer agreement were not contingent on court approval, including the transferor's promises to cooperate and execute necessary documents. The court ultimately disagreed with the findings in *In re Rapid Settlements*, concluding that the absence of court approval affected the contract's validity, not its existence.

The court analyzed the implications of its ruling on a tortious interference claim, noting that conflicting findings regarding the existence of a transfer agreement prior to court approval created ambiguity over whether RSL's solicitation constituted tortious interference with an existing contract. The court concluded that the RSL Parties presented a claim that could be deemed a colorable legal right. Feldman, an executive at RSL, cited the In re Rapid Settlements, Ltd. decision, which was not reviewed by the Supreme Court of Texas. The jury will need to assess the credibility of Feldman’s testimony and whether the RSL Parties acted in good faith. A jury question arises if the defendant shows evidence of a good faith, albeit mistaken, belief in a colorable legal right. As there remains a factual question regarding RSL Parties' affirmative defense, Settlement Funding's motion for summary judgment on the tortious interference claim is denied.

The court recommends denying Settlement Funding's Motion for Partial Summary Judgment, denying the Motion to Strike, and granting the RSL Parties' Motion to Extend Time. If adopted, the trial will address: 1) the good faith of the RSL Parties in pursuing a colorable legal right; 2) whether Settlement Funding incurred monetary damages from the interference with the 2010 Agreement; and 3) if a permanent injunction extending beyond the completed 2010 Agreement is warranted based on proven facts. Parties have 14 days to file written objections to the Memorandum and Recommendation. The document concludes by stating that no objections were filed, and notes that the case was referred to a magistrate judge under relevant statutes and rules. Additional motions from Settlement Funding are pending and will be addressed separately.

Settlement Funding's legal proceedings involve multiple documents and orders related to a dispute with RSL Parties, including applications for temporary and permanent injunctions and motions for partial summary judgment. Key components include a Texas State District Court Order dated August 24, 2010, and the case Rapid Settlements, Ltd. v. Settlement Funding, LLC, which provides relevant case law context. 

Various affidavits, including those from Chad Masten and Jim Kelly, indicate that Masten reviewed public court records regarding a pending approval application around July 2010, while Kelly highlighted that RSL approached Nicole Parenti after a transfer motion was filed. Parenti's deposition reveals that the offer made by Settlement Funding was significantly less than what RSL proposed. 

Parenti also stated he canceled a 2010 Agreement before contracting with RSL, though discrepancies in timelines between his testimony and other evidence raise issues regarding the validity of the cancellation and subsequent agreements. The ongoing motions address allegations of theft of property, conversion, fraudulent transfer, civil conspiracy, and wrongful injury, underscoring the complexity of the legal conflict.

Parenti sought to cancel the 2010 Agreement after discovering a more favorable financial deal, indicating prior communication with RSL before terminating the contract with Settlement Funding. Evidence presented includes various affidavits and testimony, but the court noted a lack of clarity regarding how Settlement Funding regained Parenti as a customer, as referenced in a November 19, 2010 State District Court Order. The RSL Parties acknowledged this order in their brief, yet the court found no record explaining the circumstances. Furthermore, the court rejected the RSL Parties' interpretation of an appellate comment regarding temporary injunctions, asserting that it did not limit the ability to assess the viability of a tortious-interference claim in this case.

The appellate court evaluated the validity of a temporary injunction by determining if the trial court abused its discretion in finding that Settlement Funding had a probable right to relief. An abuse of discretion would occur if the trial court based its decision on an invalid legal claim. The court considered whether the identity of the party initiating contact was relevant, noting that the second element of a tortious-interference claim requires proof of intentional interference, which encompasses this issue. The only directly relevant case cited was *Settlement Capital Corp. v. BHG Structured Settlements, Inc.*, where the court found improper interference regarding a structured settlement purchase agreement. Settlement Funding could not rely on the state court's determination of sufficient evidence for a temporary injunction, as the summary judgment standard is stricter. Additionally, the state appellate court indicated that a transfer agreement lacking approval from a state district court could be subject to tortious interference, but this did not eliminate the potential that the RSL Parties had a colorable legal right at the time of the interference.