Fresno County Factoring Cases - 2

An earlier S2KM blog post (Fresno County Factoring Cases-1) summarized two recent decisions (Tomahawk and Ramos) by a California Appellate Court. In those decisions, the Appellate Court reversed earlier decisions against 321 Henderson Receivables, a J.G. Wentworth affiliate, by Superior Court Judges in Fresno County, California.

This S2KM blog post provides S2KM's commentary about the Tomahawk and Ramos cases following telephone conversations with legal experts familiar with the cases.

Case issues:

• The Superior Court decisions raise many issues which are identified in S2KM's earlier blog post.
• The California Appellate Court addressed two issues:
  • In Tomahawk and Ramos - Should a structured settlement transfer petitioner in California be permitted to withdraw a transfer petition prior to a final transfer order? The California Appellate Court said "yes".
  • In Ramos - Are settlement transfer orders final? Restated: can one California Superior Court Judge review and overrule a transfer order approved by another California Superior Court Judge? The California Appellate Court said "yes" to the first question and "no" to the second.

Case results:

• Judicially-approved transfers are now "final" in California - and probably not even an issue in other states!
• J.G. Wentworth won important legal victories in Tomahawk and Ramos for:
  • J.G. Wentworth - appeals in Tomahawk and Ramos are possible but not likely. The California Appellate Court has agreed to accelerate Wentworth's 11 related case appeals which are scheduled to be argued in mid-April.
  • The secondary annuity market - a different result in Tomahawk and Ramos could have closed the Fresno County secondary structured settlement market and perhaps the entire California market.
  • The structured settlement industry - all stakeholders depend upon the finality of judicial orders.
• In retrospect, industry experts say the Tomahawk decision was "positive" and "expected".
• The Ramos decision, by comparison, was "positive" but "somewhat unexpected".
• In Ramos, the California Appellate Court:
  • Did more than simply reverse and remand on the narrow basis that Henderson should be allowed to dismiss its own transfer petition;
  • Exercised its discretion to rule on an issue it did not have to decide: the finality of settlement transfer orders.
  • Ruled the Fresno County Superior (trial) Court did not have the right to re-open or overturn prior transfer orders.
  • Ordered the Fresno County Superior Court to publish the appellate opinion (reversing the Superior Court rulings) on its website for at least as long as the widely reported Superior Court rulings were posted.

Bigger Picture

• Final results for the Fresno County factoring cases are still to be determined.
  
• The primary and secondary structured settlement markets both face unprecedented challenges.
  
• Primary market challenges:
  
  • IRC section 468B Qualified Settlement Funds (QSFs);
  • The secondary market defined by IRC section 5891 and the state protection statutes;
  • Successfully integrating structured settlement laws, processes and documentation with Social Security, Medicare and Medicaid;
  • Surviving the current financial crisis without annuity provider insolvencies and/or payment defaults.
    
• Secondary market challenges:
  • Successfully implementing state structured settlement protection statutes - examples of challenges: the Fresno County cases and the Rapid Settlements cases;
  • Surviving the current financial crisis without annuity provider insolvencies and/or payment defaults.
    • Other bloggers (John Darer and Mark Wahlstrom) have previously reported Standard & Poor's recent downgrade of J.G. Wentworth's:
      • Corporate credit rating from CCC to CC; and
        
      • Bondholder's recovery rating from 4 to 6. 
    • DZ Bank, the financing conduit for several mid-sized structured settlement transfer companies, recently announced closure of its U.S. commercial-paper conduit operation.

Amid these challenges, the Tomahawk and Ramos cases represent important and timely industry victories.  As for the future of structured settlements, other commentators have asked the pertinent question more generally: why waste a crisis?

For more detailed information about the secondary structured settlement market, see Chapter 16 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

For prior S2KM reporting about Rapid Settlements, see:

• Pacific Life v. Rapid Settlements
• Rapid v. Symetra
• CNA v. Rapid Settlements