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321 Henderson Receivables Origination LLC. v. Tomahawk

March 18, 2009


APPEAL from a judgment of the Superior Court of Fresno County. Donald S. Black, Judge. (Super. Ct. No. 08CECG00797).

The opinion of the court was delivered by: Ardaiz, P.J.




In this appeal from an Order Denying Petition for Approval of Transfer of Structured Settlement Payment, appellant, 321 Henderson Receivables Origination LLC (hereinafter Henderson), contends that the superior court exceeded its authority in issuing the order. For the following reasons, we reverse and remand with instructions.*fn1


Henderson, an indirect subsidiary of J.G. Wentworth, LLC, is a factoring company. Factoring companies engage in the business of paying people, who have received a structured settlement annuity because of a successful tort claim, a lump sum payment and, in exchange, the right to some or all of the structured settlement annuity payments is transferred to the factoring company. Henderson earns a profit, in part, by paying these persons a lump sum payment that is less than the discounted face value of the annuity payments. Partially in response to then-pending federal tax legislation that would provide favorable tax treatment to structured settlement transfers that were court-approved, California enacted a law, the Structured Settlement Transfer Act (hereinafter SSTA), that requires: (1) disclosures to the seller of the structured settlement payment rights, (2) notice to the Attorney General, and (3) court approval. (See Ins. Code, §§ 10136 et seq.)

The court approval process requires the factoring company to file a petition in the county in which the transferor resides for approval of the transfer, attaching copies of the petition, the transfer agreement, the disclosure form, the annuity contract, any qualified assignment agreement and the structured settlement agreement, a list of the names and ages of the transferor's dependents, notice of the court hearing date, and notice of a right to respond. (Ins. Code, § 10139.5, subd. (c).)

After consideration of the petition and its attached documents, any written support or opposition by interested parties, and any evidence presented at the hearing, the court grants or denies the petition. In order to grant the petition for approval, the court must expressly find: (1) the transfer is in the best interest of the transferor, taking into account the welfare and support of the transferor's dependents; (2) the transferor has been advised in writing to seek independent professional advice and either has received that advice or knowingly waived it; (3) the transferor has received the disclosure form; (4) the transfer agreement complies with Insurance Code sections 10136 and 10138; (5) the transfer does not contravene any applicable statute or court order; (6) the transferor reasonably understands the terms of the transfer agreement and disclosure form; and (7) the transferor understands his or her right to cancel and does not wish to do so. (Ins. Code, § 10139.5, subd. (a).)

The transfer agreement is effective only upon approval in a final court order. (Ins. Code, § 10139.5, subd. (a).) The court that approves the transfer retains "continuing jurisdiction to interpret and monitor the implementation of the transfer agreement.." (Ins. Code, § 10139.5, subd. (f).) A transfer that is not court-approved and does not comply with the requirements of the SSTA is void. (Ins. Code, § 10137.)

Since the SSTA court-approval requirement went into effect, California courts have approved thousands of structured settlement transfers; Henderson alone has obtained judicial approval of more than 2,000 structured settlement payment transfers throughout California. However, beginning in March of 2008, several superior court judges in Fresno County began to deny petitions for court approval of structured settlement payment transfers based upon actual or perceived misconduct on the part of factoring companies and concerns that the transfers could violate the anti-assignment provisions in the annuity contracts and underlying settlement agreements. Henderson has appealed 11 of these orders. This Court has consolidated those appeals.

On April 29, 2008, Judge Donald S. Black issued a tentative ruling in a pending Henderson petition proceeding (In re David Fleming, 08CECG0098). The tentative ruling denied the petition for approval because it found that Henderson had not complied with the requirements of the SSTA. The tentative ruling criticized Henderson for omitting material information and documents from the petition for court approval, and voiced the concerns about the anti-assignment provisions. In addition, Judge Black found that Henderson had a pattern and practice of referring lawyers to the sellers in violation of the SSTA's independent counsel requirement and directed that the Fleming order be served on the Attorney General and State Bar, and attached to certain future SSTA petitions.

Although the Fleming tentative order did not explicitly void prior court approvals of SSTA petitions, the tentative ruling concluded that errors similar to the ones that the court found in the Fleming petition, such as the failure to include required documentations with the petition and to comply with the independent counsel requirement, would void any prior court approval of SSTA petitions. In addition, the tentative ruling stated that Henderson was not entitled to the structured settlement payments that were transferred and that Henderson could not recover the lump sum payments that it made to the transferors. The tentative ruling required Henderson to serve the order on each person who had transferred payments to Henderson in approximately 100 Fresno and Kern County petition cases as well as the insurers in those transactions.

Henderson had a number of other SSTA petitions pending in Fresno County. Before similar orders could be issued in those special proceedings, Henderson filed requests for dismissal of all its pending petitions. Most of these petitions, including all of the petitions before Judge Black, were not dismissed.

With respect to the instant case, Henderson submitted a request for dismissal without prejudice of the Red Tomahawk petition on May 1, 2008. Because a voluntary dismissal without prejudice had not been entered by May 5, 2008, on that date, Henderson submitted a notice of withdrawal of the petition and also a request for dismissal with prejudice.

The instant Red Tomahawk petition was the third petition that Henderson filed in order to transfer a structured settlement payment from Ms. Red Tomahawk to Henderson. Henderson filed the first petition for approval of the transfer of a single annuity payment from Ms. Red Tomahawk on August 14, 2007. According to Henderson, before the matter was heard by the trial court, Ms. Red Tomahawk informed Henderson that she wished to cancel the sale. As a ...

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