Less than one month after the Second Circuit Court of Appeals rejected Rapid Settlements' claim that the Federal Arbitration Act supersedes the New York Structured Settlement Protection Act in Pacific Life v. Rapid Settlements, the Third Circuit has reached a similar result for Pennsylvania's Protection Act in All State v. Rapid Settlements.
In its All State v. Rapid decision, the Third Circuit unanimously affirmed a decision of the United States District Court for the Eastern District of Pennsylvania which criticized Rapid's business practices and entered declaratory and injunctive relief against Rapid. Similar to the Second Circuit case involving New York's Protection Act, Rapid attempted to avoid the Pennsylvania Structured Settlement Act in the All State case by obtaining an arbitration award and court order (subsequently vacated) in Texas purporting to approve a transfer agreement.
All State refused to comply with the arbitration order and subsequently filed a complaint in Pennsylvania, where the structured settlement recipient resides, seeking declaratory and injunctive relief against Rapid.
All State argued that it was not bound to honor any such arbitration award without court approval as provided by an applicable state protection statute. The Pennsylvania District Court ruled in All State's favor and also determined that Rapid's attempt to use arbitration, and a court order confirming the arbitration award, violated the Pennsylvania Structured Settlement Protection Act.
Rapid argued unsuccessfully that Pennsylvania's Protection Act does not apply because the arbitrator did not order a "transfer" which the Pennsylvania Protection Act defines as: "Any direct or indirect sale, assignment, pledge, hypothecation or other form of alienation, redirection or encumbrance made by a payee for consideration". The Third Circuit rejected Rapid's argument as well as these additional Rapid arguments:
- The Federal Arbitration Act preempts the state statute;
- The District Court's decision was impermissibly broad; and
- The District Court's decision violated the federal full faith and credit statute.
In his written opinion denying Rapid's appeal, U.S. Third Circuit Judge Joseph F. Weis, Jr. noted: "We are one of the many courts to face Rapid Settlements' transparent attempt to use this arbitration scheme to evade the legislatures' intentions to protect the recipients of structured settlement payments".
All State's attorney, Stephen R. Harris, refused to comment about the Third Circuit decision or the future status of Rapid's arbitration business model. Other industry experts, however, point to a pending Fifth Circuit case (Symetra v. Rapid Settlements) as Rapid's next (and possibly final) legal challenge to the state structured settlement protection statutes.
For prior S2KM reporting about Rapid Settlements, see:
For information about structured settlement transfers and state protection statutes, see Chapter 16 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).
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