Court: District Court, W.D. Louisiana; October 7, 2014; Federal District Court
An appeal from the United States Bankruptcy Court for the Western District of Louisiana has been filed by RSL Funding LLC regarding a final judgment. The court affirms the bankruptcy court's decision. In 2008, Gregory Scott Everett settled a wrongful-death claim, receiving periodic payments that could not be modified, assigned, or sold as per the Settlement Agreement. The settling defendants arranged an annuity to fund these payments, with PRUCO Assignment Corporation assuming the obligation to pay Everett. The PRUCO Assignment clearly stated that the periodic payments could not be transferred or assigned, making any such attempt void.
PRUCO purchased an annuity from Prudential Insurance Company of America (PICA), which also maintained that no rights to the periodic payments could be assigned or anticipated. Everett was designated to receive monthly payments starting January 5, 2018, but could not sell or transfer these payments. In January 2009, Everett signed an Assignment Agreement with RSL, which included the Settlement Agreement and other related documents, where RSL agreed to pay Everett $216,000 in exchange for future payments totaling nearly $400,000. Everett received an initial cash loan of $1,000. The Agreement was contingent on RSL's ability to properly purchase the payments and included an arbitration clause.
In February 2009, Everett canceled the Assignment Agreement, prompting PICA to inform RSL that it would not honor the assignment due to the non-transferability of the annuity payments. Subsequently, RSL initiated arbitration against Everett for breach of contract.
An arbitrator issued an award mandating PICA to garnish periodic payments to Everett and designate RSL as the beneficiary of the annuity, despite PICA not being notified of the arbitration. RSL petitioned a Texas state court to confirm this award, which was granted on the basis of an unopposed motion asserting agreement between RSL and Everett for the confirmation. However, PICA was neither named nor served in this proceeding. Following this, RSL initiated a garnishment action against PICA, which led to a ruling by the Houston Court of Appeals in January 2011 that the confirmation judgment was constitutionally defective due to lack of notice to PICA and that RSL had no valid claim against Everett under the RSL Assignment Agreement. Subsequently, RSL obtained a “Corrected Arbitration Award” excluding PICA, which the district court vacated, awarding PICA attorneys' fees.
On August 12, 2011, Everett filed for Chapter 11 bankruptcy, later converting to Chapter 7. RSL submitted claims totaling approximately $889,878 and initiated an adversary proceeding to declare the Assignment Agreement valid and seek owed payments. PICA and Everett challenged the assignment's validity, citing anti-assignment clauses in various agreements. After a trial, the Bankruptcy Court denied RSL's claims for declaratory relief and breach of contract, leading RSL to appeal. Jurisdiction for this appeal is established under 28 U.S.C. 158, with factual findings reviewed for clear error and legal conclusions examined de novo, as outlined in relevant case law.
RSL contends that the Bankruptcy Court incorrectly applied Texas law regarding the Assignment Agreement and improperly denied its breach of contract claim by imposing a justifiable reliance requirement. PICA counters that RSL failed to appeal the Bankruptcy Court's ruling declaring the Assignment Agreement invalid. PICA further asserts that anti-assignment provisions in the Settlement Agreement, the PRUCO Assignment, and the Annuity Contract nullify the attempted transfer to RSL, preventing RSL from establishing the existence of a valid contract necessary for a breach of contract claim, which also bars claims for damages related to missed payments.
The Court acknowledges RSL's lack of response to the Bankruptcy Court's ruling on the Assignment Agreement's invalidity but will review the ruling due to its relevance to the appeal. The Assignment Agreement included a choice-of-law clause favoring Texas or Louisiana, leading to a dispute over applicable law. The Bankruptcy Court determined that Louisiana's choice-of-law rules apply and found such clauses enforceable under Louisiana law. It concluded that the applicability of different laws was only pertinent if a conflict existed.
The Bankruptcy Court ultimately decided that Everett had no ownership rights under the Annuity Contract, rendering the anti-assignment clauses irrelevant. This decision was supported by the case Settlement Capital Corporation v. Allstate Life Ins. Co., where a similar situation involving an annuity contract affirmed that the individual who assigned their rights was not a party to the annuity and thus had no assignable rights. The Court notes that the principles applied in that case are consistent under both Texas and Louisiana law.
The Bankruptcy Court analyzed the Assignment Agreement and determined it did not differentiate between payment rights under the Settlement Agreement and the Annuity Contract. The Agreement stated that Everett was entitled to "Periodic Payments" from an order related to the Settlement Agreement and that PICA, the annuity issuer, had a continuing obligation to make these payments to Everett under both agreements. Ultimately, Everett assigned all rights to the "Assigned Payments," defined as the monthly payments from the Annuity Contract, to RSL. The court concluded that this assignment was invalid, as it attempted to assign rights that Everett did not hold.
RSL claimed that the Bankruptcy Court incorrectly treated its breach of contract claim as a breach of warranties and representations claim, which requires proving reliance. However, since the Assignment Agreement was deemed invalid, there was no contract to breach. The court correctly shifted focus to RSL's claim for damages based on Everett's representations that the Assigned Payments were assignable. Under Texas law, RSL needed to prove that any damages were caused by its reliance on these representations. Louisiana law similarly requires proof that a breach caused the claimed damages. During the trial, Everett testified he disclosed the assignment restrictions and was not the owner of the Annuity Contract, and the relevant documents, including anti-assignment clauses, were attached to the Assignment Agreement.
RSL included assignability provisions in the Assignment Agreement, making their obligation to perform contingent on the ability to assign payments. The Bankruptcy Court ruled that the Assignment Agreement was invalid from the start, preventing RSL from recovering any benefits under it. Additionally, RSL could not claim damages for breach of representations made by Everett since RSL was aware of the assignability issues prior to entering the agreement. Consequently, RSL could not demonstrate damages resulting from reliance on any alleged misrepresentations. After a thorough review of the bankruptcy court's decisions and party briefs, the court affirmed the Bankruptcy Court’s Reasons for Decision and Judgment, dismissing the action with prejudice. RSL had filed identical briefs on two occasions, but the court referenced only the first. RSL was awarded $1,000, representing the amount loaned to Everett, while seeking damages equivalent to the annuity payments less the amount owed for those payments.
