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www.drinkerbiddle.com
STRUCTURED SETTLEMENT UPDATESet forth below are summaries of several recent court decisions and developments involving the transfer of structured settlement payment rights. Copies of the decisions are attached below. If you have any questions, comments, or additional cases or materials that you would like us to consider, please feel free to send us a reply.
May 2007
WE’VE COMBINEDOn January 1, 2007, Drinker Biddle & Reath LLP and Gardner Carton & Douglas LLP merged to form one of the 70 larg-est law fi rms in the United States, with more than 630 lawyers located in 12 cities nationwide. The fi rm is known as Drinker Biddle & Reath LLP. In Illinois and Wisconsin, the fi rm will do business as Drinker Biddle Gardner Carton for a transitional period.
CNA Structured Settlements, Inc. and Continental Assurance Company v. Rapid Settlements, Ltd. and Willie T. Lawrence (Supreme Court of New York, Onondaga County) (2007 WL 811983, March 15, 2007)
A factoring company sought approval under the New York Structured Settlement Protection Act (the “New York Act”) of a transfer agreement, despite the fact that the annuitant had previously sold the payment at issue to another factor-ing company. The Onondaga County Supreme Court denied the factoring company’s application for approval. The fac-toring company then commenced an arbitration proceed-ing in Texas in an attempt to enforce its transfer agreement with the annuitant. The annuity owner and annuity issuer sought interpleader relief in the Onondaga County Supreme Court. The court awarded summary judgment in favor of the plaintiffs, stating that the factoring company had no right to receive the payments at issue. The court also permanently enjoined the factoring company from prosecuting an action in Texas to confi rm the arbitration award. In its opinion, the court explained that “the arbitration proceeding in Texas is without any effect as to [the plaintiffs].” The court further explained that the arbitration clause in the transfer agree-ment, as well as the entire transfer agreement, was void and without any effect. Therefore, the arbitrator in Texas had no authority to enforce the terms of the transfer agreement. The annuity owner and issuer were represented by Stephen R. Harris of Drinker Biddle.
Roman v. Bermudes (Supreme Court of New York, Bronx County) (2007 WL 431115, February 7, 2007)
Minerva Roman, as mother and natural guardian of the in-fant plaintiff Jenny Lee Roman, sought approval of an infant compromise order. The Bronx County Supreme Court held that “[j]ust as the court retains the power to reject transfers of structured settlements by adult payees where it is not in their best interests to do so, the court is even more impelled to vigilance where infants are involved.” The court stressed the legislative intent of the New York Act, namely, to provide the payee with long-term fi nancial security with secure tax-free income over a lifetime. While acknowledging that “the power of the court to approve settlement does not confer a concomitant power to dictate the terms of settlement,” the court found that there was no showing that Minerva Roman explored any other fi nancial avenue to prevent the depletion of her daughter’s assets nor had she sought fi nancial advice from objective fi nancial experts, and that her initial assent to a structured settlement, followed by a complete reversal of position, was without rational basis or even articulable reasons, and bespoke of an arbitrary and capricious mind. The court denied the application on the grounds that it was not in the best interest of the infant and could only result in prejudice to her rights. This case is a helpful example of the importance of the benefi ts of a structured settlement.
www.drinkerbiddle.com | 2
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© 2007 Drinker Biddle & Reath LLP. All rights reserved.Drinker Biddle & Reath LLPA Delaware limited liability partnership
Jonathan I. Epstein and Edward A. Gramigna, Jr., Partners in Charge of the Princeton and Florham Park, New Jersey Offi ces, respectively.
This Drinker Biddle & Reath LLP communication is intended to inform our clients and friends of developments in the law and to provide information of general interest. It is not intended to constitute advice regarding any client’s legal problems and should not be relied upon as such.
© 2007 Drinker Biddle & Reath LLP. All rights reserved.Drinker Biddle & Reath LLPA Delaware limited liability partnership
Jonathan I. Epstein and Edward A. Gramigna, Jr., Partners in Charge of the Princeton and Florham Park, New Jersey Offi ces, respectively.
This Drinker Biddle & Reath LLP communication is intended to inform our clients and friends of developments in the law and to provide information of general interest. It is not intended to constitute advice regarding any client’s legal problems and should not be relied upon as such.
If you have questions regarding the information contained in this publication, please contact the authors below:
Michael J. Miller215-988-2782Michael.Miller@dbr.com
Stephen C. Baker215-988-2769Stephen.Baker@dbr.com
Stephen R. Harris215-988-2806Stephen.Harris@dbr.com
Timothy J. O’Driscoll215-988-2865Timothy.O’Driscoll@dbr.com
Metropolitan Mortgage & Securities Co., Inc. v. Cochran (Court of Appeals of Washington) (2007 WL 1218001, April 26, 2007)
Metropolitan, the assignee of a factoring company with which the annuitant had entered into a pre-transfer act factoring transaction, commenced a garnishment action against the annuity owner in an attempt to satisfy a default judgment against the annuitant. The trial court directed the annuity owner to pay Metropolitan. The annuity owner ap-pealed. The court of appeals held that the annuity owner is entitled to raise defenses to the garnishment. The court of appeals was not persuaded by Metropolitan’s insistence that the doctrine of collateral estoppel, or issue preclusion, prevented the annuity owner from arguing the validity of the transfer agreement and the assignment. Specifi cally, “Metropolitan cannot show that [the annuity owner] was a party or in privity with a party to the prior adjudication and that precluding the issue will not work an injustice on [the annuity owner].” The annuity owner was represented by Stephen R. Harris and Jenifer N. Smith of Drinker Biddle.
Metropolitan Mortgage/Summit Securities – Stone Street Sale (Bankr. E.D. Wa., No. 04-00757-W11)
In April 2005, factoring company Stone Street Services, Inc. (“Stone Street”) fi led a motion for approval of the purchase of approximately 450 non-court approved structured settle-ment factoring transactions that were entered into prior to the effective date of Section 5891 of the Internal Revenue Code, by factoring company Metropolitan Mortgage & Se-curities Co., Inc. (“Metropolitan Mortgage”). Because Met-ropolitan Mortgage (along with its affi liate, Summit Secu-rities, Inc.) is in bankruptcy, court approval of the sale to
Stone Street was required. Stone Street served notice of its motion on (and afforded an opportunity to object to) all in-volved annuity owners and issuers, as well as all involved annuitants. In May 2005, on behalf of its insurer clients, Drinker Biddle (along with outside counsel for several other involved insurers) negotiated an agreed upon sale order in connection with Stone Street’s motion. The involved insur-ers then obtained from Stone Street a list of the involved annuitants, and after reviewing the relevant annuitant fi les, proceeded to negotiate a supplemental court order on be-half of each insurer that provided appropriate protections as well as administrative fees.
Stone Street now has confi rmed that there is an additional group of factoring transactions, of slightly lesser number, that Stone Street is purchasing from Metropolitan Mort-gage. Stone Street has advised that, unlike the transactions described above, which were considered “non-securitized” (the “NSC transactions”), this additional group of factor-ing transactions is considered “securitized.” Stone Street also has advised that it is proceeding with a process similar to that which took place in connection with the NSC trans-actions (i.e., the fi ling of a motion for sale order with the bankruptcy court, and the negotiation of an agreed sale or-der with the involved insurers, followed by negotiation of supplemental orders with the involved insurers). As in the case of the NSC transactions, this development, if handled appropriately, has the potential to be a positive one for in-surers whose structured settlements were factored by Met-ropolitan Mortgage before the passage of Section 5891 of the Internal Revenue Code. Specifi cally, this development presents an opportunity for the involved insurers to ef-fi ciently resolve with Stone Street a large number of these cases in a relatively short period of time, with maximum li-ability protections for the insurers, as well as administrative fees to offset the associated burden and expense.
2007 WL 811983
2007 WL 811983 (N.Y.$up.) (Tr±al Order)
Page 1
Supreme Court, New York.
Onondaga County
CNA STRUCTURED SETTLEMENTS, INC. and Continental Assurance Company, Plaintiffs,
v.
RAPID SETTLEMENTS, LTD. and Willie T- Lawrence, Defendants.
Nos. 2006-7751, 33-07-0215.
March 15, 2007.
RJI No. 33-07-0215
Order
Stephen R. Harris, Esq., for Plaintiff. Alan J. Knauf, Esq., for Defendant.
Hon. Deborah H. Karalunas, Justice of Supreme Court.
Defendant Rapid Settlements, Ltd. having moved for an order dismissing plaintiffs’
complaint pursuant to CPLR ~ 3211(a) (4), and plaintiffs CNA Structured Settlements,
Inc. and Continential Assurance Co. having moved for an order discharging them from
liability pursuant to CPLR ~ 1006(f), and the matter h~ving come on to be heard at a
regular motion term of this court on February 28, 2007,
Now, upon the Notice of Motion of Rapid Settlements, Ltd. dated January 19, 2007
and the affidavit of Stewart A. Feldman, Esq. dated January 19, 2007 with attached
exhibits, the affidavit of Stephen R. Harris, Esq. in opposition dated February 20,
2007 with attached exhibits, and the affidavit in response of Monica Cavazos-Rosas,
Esq. dated February 27, 2007, all in relation to the motion to dismiss plaintiffs’
complaint,
And upon the Notice of Motion of CNA Structured Settlements Inc. and Continental
Assurance Company dated January 12, 2007, the affidavit of Stephen R. Harris, Esq.
dated January 12, 2007 with attached exhibits, and the affidavit of Stewart A. Feld-
man, Esq. in opposition dated February 6, 2007, with attached exhibits, all in rela-
tion to plaintiffs’ motion to discharge,
And upon hearing oral argument on February 28, 2007 by Stephen R. Harris, Esq. on
behalf of plaintiffs and Alan J. Knauf, Esq. on behalf of defendant Rapid Settle-
ments, Ltd., and the court having converted the motion to one for summary judgment
pursuant to CPLR ~ 3211(c) upon consent of defendant Rapid Settlements, Ltd. and
upon finding that the parties deliberately charted a summary judgment course, and
the court having issued an oral decision from the bench, a transcript of which is
attached hereto and incorporated herein,
Now, upon the motion of plaintiffs CNA Structured Settlements Inc. and Continental
Assurance Company, it is
ORDERED that defendant’s motion to dismiss the complaint is DENIED; and it is fur-
ther
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
2007 WL 811983
2007 WL 811983 (N.Y.Sup.) (Trial Order)
Page 2
ORDERED that plaintiff’s motion for discharge is GRANTED and plaintiffs are GRANTED
summary judgment on their complaint; and it is further
ORDERED that plaintiffs are GRANTED a declaratory judgment that Rapid Settlements,
Ltd. has no right to receive the payments at issue; and it is further
ORDERED that Rapid Settlements, Ltd. is permanently ENJOINED from further prosecut-
ing an action in County Civil Court at Law for Harris County Texas entitled Cause
No. 865,901 Rapid Settlements, Ltd. v. Willie Lawrence in the County Civil Court at
Law Number 2, Harris County, Texas; and it is further
ORDERED that the court will decide a request by plaintiffs for attorneys fees on
submission, with plaintiffs submitting an application for fees within 30 days of the
date of entry, of this order and defendant submitting responding papers, if any,
within 30 days of its receipt of the application.
Entered: Syracuse, New York
Dated: March 15, 2007
<<signature>>
HON. DEBORAH Ho KARALUNAS
Justice of Supreme Court
CNA STRUCTURED SETTLEMENTS, INC. and Continental Assurance Company, Plaintiffs, v.
RAPID SETTLEMENTS, LTD. and Willie T- Lawrence, Defendants.
2007 WL 811983
END OF DOCUMENT
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
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STATE OF NEW YORK FIFTH JUDICIAL DISTRICT
SUPREME COURT COUNTY OF ONONDAGA
CNA STRUCTURED SETTLEMENTS, INC.and CONTINENTAL ASSURANCE COMPANY,
Plaintiffs,
RAPID SETTLEMENTS, LTD. andWILLIE T. LAWRENCE,
Defendants.
HELD BEFORE
Index No. 2006-7751
The Honorable DEBORAH H. KARALUNAS,Supreme Court Justice, in and for the FifthJudicial District, State of New York, held atthe Onondaga County Courthouse, Syracuse, NewYork, on February 28, 2007.
APPEARANCES:
DRINKER BIDDLE & RF~ATH, LLPBY: STEPHEN R. HARRIS, ESQ.Attorney for Plaintiffs
~AUF SHAW, LLPBY: ALAN J. KNAUFAttorney for Defendant Rapid Settlements
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THE COURT: Okay, the Court is prepared to
rule today. This ~s the matter of CNA
Structured Settlement and Continental Assurance
Company versus Rapid Settlements Limited and
Willie T. Lawrence.
The facts of this case are as follows:
Willie T. Lawrence, a minor at the time,
received a personal injury settlement in 1991.
According to the court -- you gentlemen can sit
down, sorry. According to the court approved
(by Justice T. Murphy on July twenty-fourth,
1991) settlement agreement, Lawrence was to
receive among other things a lump sum payment
of twenty-seven thousand seven-hundred fifty
dollars on August twelfth, 2010 and monthly
paymengs of two-hundred and fifty dollars for
life. Plaintiffs CNA Structured Settlements
Inc. and Continental Assurance Company are
responsible for funding the struciured
settlement.
The settlement agreement contained
language precluding asslsnment or transfer of
deferred ~.and deferred lump sum payments.
Settlement agreement at three, Complaint
Exhibit A. The document in which plaintiff
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supervised the payment obligation also stated
that "none of the structured settlement
payments may be accelerated, deferred,
increased or decreased and may not be
anticipated, sold, assigned or encumbered."
Complaint Exhibit C. The annuity itself
contains a similar restriction. Complaint
Exhibit D. Nonetheless, on September
fifteenth, 2003, Justice Murphy signed an order
approving the transfer of the deferred lump sum
payment of twenty-seven thousand seven-hundred
fifty dollars due August twelfth, 2010 to
Settlement Funding of New York, LLC.
Complaint, Exhibit .H.
Less than eighteen months later, Lawrence
signed an agreement dated Februaryeighteenth,
2005 purporting to sell the same twenty-seven
thousand seven-h~ndred fifty dollar payment due
August tweifth, 2010 to Rapid Settlements
Limited. Complaint Exhibit E. After applying
a twenty-one percent d±scount rateand
subtracting seventeen hundred dollars for
attorney’s fees, Rapidproposed to pay Lawrence
seven-thousand two-hundred dollars. Rapid
moved for court approval of the transfer in
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June 2005, but the Onondaga County Supreme
Court did not approve the transfer. The
transfer agreement between Lawrence and rapid
expressly stated that it was ".subject tocourt
approval" and governed by the laws of New York.
Complaint Exhibit E. The transfer agreemen~
also contained an arbitration provision.
Rapid commenced an arbitration proceeding
in its home State of Texas in January, 2006.
Lawrence did not appear in the proceedings.
The Texas arbitrator did not determine whether
he had jurisdiction Over CNA and Continental.
Award at one. Variously invoking breach of
contract and interpleader theories in the
award, the Texas arbitrator found in favor of
Rapid. Specifically, the Texas arbitrator
found that Lawrence breached the transfer
agreement and assessed damages against him by
purporting to garnish Lawrence’s monthly
annuity payments from April twelfth, 2017
through March twelfth, 2037. Rapid is seeking
to confirm the arbitration award in a pending
proce~ in Texas court. Rapid misrepresented
to the Texas court in its Confirmation petition
that a court had approved the transfer
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agreement. Petition at Paragraph 6 (Exhibit C
to the January nineteenth, 2007 notice of
motion.)
Rapid argues that the complaint of CNA and
Continental must be dismissed because
plaintiffs failed to participate in the Texas
arbitration or to attack the resulting
arbitration award. According to Rapid,.
plaintiffs must address their arguments to the
Texas arbitrator or in the pending Texas state
court arbitration confirmation proceeding.
Plaintiff’s responded that because they were
never parties to the purported transfer
agreement between Lawrence and Rapid, the
agreement containing the arbitration clause on
which Rapid relies, they are not bound to the
arbitgation proceeding. Plaintiffs also argue
~hat the arbitration clause upon which Rapid.
relies is void.
This ~nterpleade~ action is properly
before the Court. Rapid was properly served
with the complaint, appeared .and defended the
action. Rapid makes no argument that this
court lacks personal jurisdiction over it.
Indeed, Rapid would be hard pressed to make
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such an argument because Rapid recognized the
authority of this court over disposition of the
structured settlement proceeds asrecently as
June 2005 when Rapid sought approval of the
transfer agreement between it and Lawrence.
As noted more fully below, the arbitration
proceeding in Texas is without any effect as to
either CNA and Continental or Willie Lawrence.
I therefore reject Rapid’s insistence that
plaintiffs raise thei~ concerns in ihat
improper forum.
CNA and Continental ask this court to
discharge them from all liability in this case
pursuant to CPLR Section 1006(£) because they
are disinterested stakeholders and are subject
to double liability .from Rapid and Lawrence for
the monthly payment stream from April twelfth,
2017 through March twelve, 2037. Rapid opposes
the motion for the same ~easons it seeks
dismissal of the complain£, relying on £he
arbitration proceedings in Texas. It argues
that the FAA preempts the substantive New York
Structured Settlement Protection Act.
There is no dispute that plainti££s are
disinterested stakeholders facing potentially
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competing claims ~the structured settlement
payment stream as a result of the award of that
Texas arbitrator. The interpleader remedy
affords this court"util±ty and flexibility"
and allows the Court to exercise its equitable
powers. Agriculture Insurance Company v
Matthews, 301 AD2d 257, 258 and 260 (l~t Dept.
2002.) See also Boris v Flaherty, 242 AD2d 9,
13 (4th Dept. 1998.)
The Court hereby exercises those powers to
declare the respective r±ghts of Rap~d and
Lawrence to the stream of monthly annuity
payments from April twelfth, 2017 through March
twelfth, 2037. Rapid argues that it is
entitled to that payment stream based on the
terms of the Texas arbitration award, I wholly
reject this contention.
It is a prerequ±site to arbitration that
the parties agree to arbitrate their disputes.
That agreement did nQt exist ±n this case.
Rapid rel±es on the arbitrat±on clause in the
transfer agreement, but that clause, as well as
the entire asreement, is v0±d and without any
effect. Under the explicit terms of the
transfer agreement, "this Transfer Agreement is
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subject to court approval." No court ever
approved the transfer agreement. Therefore,
the agreement and all of its terms, i~cluding
the arbitration provision and Lawrence’s
representations in that agreement, are
.unenforceable and not actionable. Because no
agreement to arbitrate ever existed, the Texas
arbitrator was w~thout any authority to
consider Rap~d’s claims. Moreover, I reject
Rapid’s contention during oral ar~umentthat
the FAA preempts the substant±ve protections of
the Structured Settlement Protection Act.
Moreover, as a matter of.N~w York law,
Rap±d’s claim to the monthly payment stream
from April twelfth, 2017 through March twelfth,
2037 is patently improper. The Structured
Settlement Protection Act explicitly provides
that a New York court must approve any ".direct
or indirect transfer of structured settlement
payment rights" upon the satisfaction of
certain stringentconditions. New York General
Obligations Law Section 5-170~. The award of
the Texas arbitrator, if enforced, would
~ransfer structured settlement payment rights
from Lawrence to Rapid withouh court approval.
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Rapid,s actions in Texas and before this
court are an express violation o£ Section
S-1708(d) of the act which states in its
entirety:
"No payee who proposes to makea transfer
of structured settlement rightsshall incur any
penalty~ forfeit any application fee or other
payment, or otherwise incur any liability to
the proposed transferee or any assignee based
on any failure of such transfer to satisfy the
conditions of this title."
Rapid seeks to impose liability on
Lawrence for breach Of contract based on the
failure of the Onondaga County Supreme Court to
approve the transfer agreement in June 2005.
Even by the terms of the ~ransfer agreement,
which as noted is unenforceable, New York law
applied to the parties’ agreement. There is no
way Rapid can avoid the plain effect of Section
5-1708 (d) .
Accordingly, CNA and Continental’s motion
for discharge is granted[ The Court grants a
declaratory judgment that Rapid has no rights
or interest to any payments tunder the
structured settlement agreement. Rapid is
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permanently enjoined from further prosecuting
the Texas action to confirm its improper
arbitration award (Cause No. 865,901 Rapid
Settlements Limited v Willie Lawrence in the
County Civil Court at Law Number 2, Harris
County, Texas) and the Court grants summary
judgment to CNA on its complaint.
This constitutes the decision of the
Court. I’m going to require Mr. Harris that
you obtain a copy of the transcript of today’s
decision and to attach it to a proposed order
which should be submitted to Mr. K~auf on
notice.
MR. HARRIS: Your Honor, I just have one
more thing which I believe is under the
interpl~ader statute. We can request our .
attorney’s fees in connection with the
interpleader.
THE COUI{T:
MR. HARRIS:
okay.
And we’d like to make that
request and submit an appropriate affidavit of
fees.
THE COU~T: The Court will take that on
submission if you want to submit papirs in
support of an attorney’s fee application, and
Jennifer AdydanOfficial Court Reporter
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if you.want to oppose that application, I’m not
prepared to address that today obviously.
fees.
MR. KNAUF:
THE COLTRT:
We would oppose attorney’s
Do you want to set up a
briefing schedule on that now or --
MR. HARRIS:
Honor.
THE COURT:
MR. HARRIS:
THE COURT:
MR. HARRIS:
THE COURT:
to --
MR. KNAUF:
THE COURT:
That would be fine, Your
How much time would you need?
I guess r_
It doesn’t matter to me so --
Thirty.days.
How much time did you want
Thirty days.to respond.
And I will take that on
submission. I don’t think that should in any
way delay the order on this. I will just put
in the order that the submission -- that the
Court will entertain papers, so when you
prepare a proposed order, put in it as well
that the Court will decide the issue of
attorney’s fees on submission and the plaintiff
is to submit supportingpapers within thirty
days and defense within thirty days.
Jennifer AdydanOfficial Court ReDorter
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MR. KNAUF:
merits.
THE COURT: Pardon?
well as the amount, yes.
,
And we can oppose on the
Yes, on the merits as
Absolutely. Okay.
CERTIFICATE
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Dated: March 3, 2007
Jennifer AdydanOfficial Court Reporter
I,. Jennifer Adydan, Official Court Reporter for the
State of New York, Fifth Judicial District, DO HEREBY CERTIFY
that the foregoing is a true, complete and accurate transcript
of my stenographic notes taken in the above-entitled matter
and the whole thereof.
We iaw.2007 WL 43111515 Misc.3d 321, 2007 WL 431115 (N.Y.Sup.)(Cite as: 2007 WL 431115 (N.Y.Sup.))
Page l
Supreme Court, Bronx County, New York.Jenny Lee ROMAN, an infant by her mother and natural
guardian, Minerva ROMAN,and Minerva Roman individually, Plaintiff,
V,
Wilfredo BERMUDES and Unique People Services, Inc.,Defendants.
Feb. 7,2007.
Background: Mother and natural guardian of infantbrought action to recover damages for personal injuriessustained by infant who was struck by vehicle. Mothersought approval of submitted infant compromise order.
Holdingl The Supreme Court, Bronx County, _NormaRuiz, J., held that proposal for full distribution of settle-ment when infant turned 18 years of age was not in bestinterests of infant and only could have resulted in preju-dice to her rights.Request denied.
11!1 Infants211 k21 Most Cited CasesProposal for full distribution of personal injury settlementwhen infant turned 18 years of age was not in best in-terests of infant and only could have resulted in prejudiceto her rights, and thus infant compromise order could notissue, where implementation of proposal would have res-ulted in loss of more than 50 percent of infant’s assets, in-fant likely had need for long-term medical treatment, andmother, as guardian, initially assented to structured settle-ment and then completely reversed her position withoutrational basis or even articulable reasons.
1~ Infants ~=;~21211k21 Most Cited CasesWhen considering whether a particular personal injurysettlement for an infant should be approved, courts arebound to protect infants, who are their wards.
~ Guardian and Ward ~:=~33196k33 Most Cited CasesWhere reasonable minds may legitimately differ as towhether a particular personal injury settlement for an in-fant should be approved, the judgment of the infant’s nat-ural guardian should prevail.
3121. Infants ~;:::~2121 lk21 Most Cited CasesWhere reasonable minds may legitimately differ as towhether a particular personal injury settlement for an in-fant should be approved, the judgment of the infant’s nat-ural guardian should prevail.
L~[ Infants ~:==~2121 lk21 Most Cited CasesThe power of the court to approve a personal injury settle-merit for an infant does not confer a concomitant power todictate the terms of the settlement.
51~ Guardian and Ward ~:==~33196k33 Most Cited CasesGreat deference is given to the guardian’s judgment con-ceming the choice of a particular structured settlement foran infant.
Ifil Infants21 lk21 Most Cited CasesGreat deference is given to the guardian’s judgment con-cerning the choice of a particular structured settlement foran infant.
I6] Infants ~=:~2121 lk21 Most Cited CasesWhen considering whether a particular structured person-al injury settlement for an infant should be approved, acourt must consider the potential for future medical care,the financial acumen of the payee or, more properly, thelack thereof, and whether the payee has sought alternatefinancial advice, i.e. from a financial consultant.Harmon, Linder & Rogowsky (Mark Linder of counsel),for plaintiffs.
O’Connor, O’Connor, Hintz & Devenney, LLP (.Alfred R.Hintz of counsel), for defendants.
NORMA RUIZ, J.
*1 Application by Minerva Roman, as mother and naturalguardian of the infant plaintiff Jenny Lee Roman ("JennyLee"), for an order pursuant to CPLR § 1207 seeking ap-proval of the submitted infant compromise order of the in-fant plaintiffs claim is denied.
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
2007 WL 43111515 Misc.3d 321, 2007 WL 431115 (N.Y.Sup.)(Cite as: 2007 WL 431115 (N.Y.Sup.))
Page 2
The within action was commenced to recover damages forpersonal injuries sustained by the infant plaintiff, who, asa nine year old pedestrian, was struck by a vehicle whichwas owned and operated by the defendants in the vicinityof Broadway and West 160th Street in upper Manhattan.The infant plaintiffs injuries required hospital admissionfor, among other things: displaced fractures of her lefttibia and fibula requiring open reduction, with externalfixation and later fixator removal; loss of consciousness;chipped teeth, and most importantly, two left parietalskull fractures with closed head trauma and intracranialhemorrhage, resulting in undisputed traumatic brain in-jury along with post concussion syndrome.
At the outset, it should be noted that the initial papersfiled in this application were in conformity with the re-quirements of the CPLR and included: the proposed In-fant Compromise Order; the mother’s Petition in affidavitform; the attorney’s affirmation; various hospital records;treating doctors’ reports; and doctors’ affirmations of re-cent physical examinations. Missing from the initial pa-pers was a recent examination by plaintiffs neurologist;however, this was supplied to the Court before its firstscheduled hearing with all of the parties.
The total settlement amount of $800,000.00 ($10,000.00of which was in satisfaction of the mother’s individualclaims for emotional distress) was agreed upon onDecember 13, 2005, following mediation, as evidenced bythe Post Mediation Agreement (annexed as exhibit "I").This settlement amount was characterized by counsel inhis affirmation as being in the best interest of the infantgiven issues concerning liability, and as such, the Court isin agreement that this amount appears to be fair and reas-onable.
1[~ However, of significant concern to the Court is the re-port of Jenny Lee’s neurologist--Dr. Aric Hausknecht--following his August 22, 2006 examination of the infant,wherein he found that she had "sustained significant limit-ation of function of her neurocognitive and neuropsycho-logical facilities" which would "have lifelong sequelaefrom this injury." These neurological deficits were furtherdescribed by Jenny Lee herself when, in response to theCourt’s interview concerning her condition, she respondedthat she continued to experience episodes where she"zoned-out" for periods of time; a sensation that left herfeeling that her "body was there, but her mind was not."
These episodes were reported to be sporadic but persist-ent. She also indicated that she had difficulty remember-ing school material, notwithstanding this she managed tomaintain good grades and had demonstrated an interest ingoing to college.
*2 ~ Bearing in mind that "Courts are bound to protect
infants, who are their wards" (see Valdimer v. Mount Ver-non Hebrew Camps, 9 N.Y.2d 21,210 N.Y.S.2d 520, 172N.E.2d 283 [1961] ), one of the primary concerns in de-ciding how Jenny Lee’s award should be distributed is thepotential for her life-long medical needs.
Therefore, in reviewing the proposed Infant’s Comprom-ise Order in advance of the scheduled hearing, the Courtinformed the plaintiffs attorney that it was not inclined toauthorize an outright pay-out of $519,967.00 to be depos-ited in a bank for distribution to the infant at the age ofeighteen (18) years. Indeed, at the hearing of September11, 2006, the Court, the attorneys for the plaintiff and de-fendant, along with their respective structured settlementcompany representatives, spent a considerable period oftime devising an optimum structure which would take intoconsideration all of Jenny Lee’s future needs. Allowanceswere made for college, medical insurance, lump sum pay-ments, etc. The proposed structured settlement and annu-ity is represented as follows:
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
2007 WL 431115
15 Misc.3d 321, 2007 WL 431115 (N.Y.Sup.)
(Cite as: 2007 WL 431115 (N.Y.Sup.))
Page 3
Benefit Description
Period
Certain
Annuity-
$25,000.00 payable annually,
guaranteed for 6 year(s),
beginning on 8/01/2012,
with the last guaranteed
payment on 8/1/2017.
Period
Certain
Annuity-
750.00 payable monthly,
guaranteed for 6 year(s)
and i0 months(s),
beginning on 8/01/2012,
increasing at a rate of
3.00% compounded annually,
with the last guaranteed
payment on 5/01/2019.
Life with
Certain
Annuity-
1,972.58 for life, payable
monthly, guaranteed for 36
years(s), beginning on
6/01/2019, increasing at a
rate of 3.00% compounded
annually, with the last
guaranteed payment on
5/i/2o55.
Guaranteed
Lump Sum-
$50,000.00 paid as a lump
sum on 4/15/2015
guaranteed.
Subtotal For Jenny Lee Roman
Guaranteed
$ 150,000
Expected
Benefit
$ 150,000
$ 67,171 $ 67,171
$1,497,802 $3,987,470
$ 50,000 $ 50,000
$1,764,973 $4,254,641
Benefit
Cost
$ 99,525.00
$ 42,179.00
$344,966.00
$ 33,047~00
$519,716.00
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2007 WL 431115
15 Misc.3d 321, 2007 WL 431115 (N.Y.Sup.)
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Surprisingly, the parents were not in agreement with astructure which would maximize their daughter’s award.They were both adamant that all of the funds be available
to plaintiff on her eighteenth birthday, notwithstandingthe financial advice from both of the structure representat-
ives who agreed that a lump sum distribution would beunderminded by tax considerations, markedly decreasing
the funds available, rather than increasing it exponen-tially.
Echoing the advice of these representatives, the Court ad-journed the hearing for the purpose of allowing the par-ents to explore financial products which would not de-
plete the infant’s assets. On the date of the continued hear-ing, the attorneys and their respective structure company
representatives were again present in a timely manner,however, the Court was made to wait for both the parents.The first to arrive was the presumptive father JuanRamos. All of the submitted papers reflect Jenny Lee’s
surname to be Roman--which is her mother’s surname.There is no documentary proof anywhere that Juan Ramosis her natural or adoptive father, and hence has any stand-
ing to have his wishes concerning Jenny Lee’s assets con-sidered by the Court. Nevertheless, giving him the benefitof the doubt, the Court requested--but did not receive
from him-- alternate financial plans regarding the man-agement of her funds. Other than the proposed structure
arrived at on the prior hearing date, Mr. Ramos failed to
submit any counter proposals. When Ms. Roman ulti-mately arrived in court, she likewise failed to provide theCourt with any other financial suggestions.
*3 Once again, she insisted that her preference was to de-
posit the money in the bank for full distribution whenJenny Lee turned eighteen (18) years of age.
3[~ This intransigent stance leads the Court to conclude
that the mother’s interests are at odds with that of the in-
fant’s which the Court is duty-bound to protect. ThisCourt is mindful that "where reasonable minds may legit-imately differ, the judgment of the infant’s natural guardi-
an should prevail"(Stahl v. Rhee, 220 A.D.2d 39, at 46,643 N.¥.S.2d 148 [2d Dept.1996] ). However, the mother
was a signatory to the Post Mediation Agreement, whichspecifically provided that the award would be placed intoa structure plan acceptable to both the guardian and the
Court.
Unlike the infant plaintiffs mother in Stahl, supra who re-
jected the settlement amount because it was grossly dis-proportionate with the infant’s life-time needs (which re-quired twenty four [24] hour nursing care and assistance
with his activities of daily living), here, Ms. Roman re-jects the structure merely because it fails to place the en-
tire award in the infant’s hands at the age of eighteen(18).
Such judgment is unreasonable, arbitrary and capriciousand will likely result in prejudice to Jenny Lee’s futurefinancial stability (see DeForte v. Liggett & Myers To-
bacco Co. 42 Misc.2d 721, 248 N.Y.S.2d 764 [Sup.Ct.Kings County 1964] ). This conclusion is bome out byempirical analysis conducted by structure companies
which reveal that about thirty percent (30%) of peoplewho receive lump sum awards have nothing left after onlytwo (2) months; fifty percent (50%) have no money with-
in one (1) year, and over ninety percent (90%) of peoplehave spent all of their money within five (5) years.
(Source: Ringlet Associates--Structured Settlement Con-sultants--January 9, 2007).
Bearing this analysis in mind, the Court likewise rejects asupplemental settlement structure which awards JennyLee lump sum payments of: two hundred twenty thousand
dollars ($220,000.00) at eighteen (18) years old; two hun-dred sixty thousand dollars ($260,000.00) at twenty one
(21) years old; and the balance of three hundred twentyseven thousand eight hundred twenty six dollars and
twenty seven cents ($327,826.27) at twenty five (25)years old; resulting in a value of the guaranteed benefits
in the amount of eight hundred seven thousand eight hun-dred twenty six dollars ($807,286.00), versus one millionseven hundred sixty four thousand nine hundred seventy
three dollars ($1,764,973.00) in guaranteed benefits in theplan arrived at on September 11, 2006. That is, a potentialloss of more than fifty percent (50%) of her assets.
~ Again, the Court is aware that "the power of the
Court to approve a settlement does not confer a concomit-ant power to dictate the terms of the settlement" (Stab/.supra at 44-45, 643 N.Y.S.2d 148), and great deference isgiven to the guardian’s judgment concerning the choice of
a particular structured settlement (See Barretta v. NBKL
Corp., 298 A.D.2d 539, 748 N.Y.S.2d 669 [2d Dept.2002]
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
2007 WL 431115
15 Misc.3d 321, 2007 WL 431115 (N.Y.Sup.)
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L. Nevertheless, there is no showing that Ms. Minerva Ro-man has explored any other financial avenue to preventthe depletion of her daughter’s assets nor that she has
sought financial advice from objective financial experts.Her initial assent to a structured settlement, followed by acomplete reversal of position, without rational basis or
even articulable reasons, bespeaks an arbitrary and capri-cious mind.
*4 This application represents the flip-side of a petition,made pursuant to the Structured Settlement Protection Act
("SSPA"), for the transfer of structured settlements. Inthose petitions pursuant to General Obligations Law(GOL) § 5-1706, the Court must similarly determine
whether the transfer is in the "best interest" of the payeeand whether the transaction, including the discount rate
used, is "fair and reasonable". (See Matter of SettlementFunding of New York, LLC [Asproules] 1 Misc.3d
910(A), 2003 WL 23199560 [Sup.Ct. Ontario County2003]; Matter qf Petition of Settlement Funding of NewYork, LLC [Cunningham], 195 Misc.2d 721, 761
N.Y.S.2d 816 [Sup.Ct. Rensselaer County 2003]; Matterof 321 Henderson Receivables Limited Partnership
[DeMallie], 2 Misc.3d 463, 769 N.Y.S.2d 859 [Sup.Ct.Monroe County 2003]; Matter of Barr v. Hartford L~feIns. Co. 4 Misc.3d 1021(A), 2004 WL 2008607 [Sup.Ct.
Nassau Coun .ty 2004] ).
Since the governing statute offered scant guidance on thedetermination of these key issues, this Court turned to
cases of concurrent jurisdiction for illumination. In Barr,supra, the Court took into consideration developing case
law, along with the intent of the statute and suggested thefollowing factors:
(1) the payees age, mental capacity, maturity level, in-
dependent income and ability to support dependents;(2) purpose of the intended use of the funds;
(3) potential need for future medical treatment;(4) the financial acumen of the Payee;
(5) whether the Payee is in a hardship situation to theextent that he or she is in ’dire straits’
(6) the ability of the Payee to appreciate financial con-sequences based upon independent legal and financial
advise; and(7) the timing of the application.
ld. at 1021.
[.@1 To be sure, such analysis is made where the payee is
an adult. Nevertheless, the Court is still mandated to con-sider whether the transfer of any part of the structure is inthe payee’s best interest. Significantly, in this regard, theCourt must consider the potential for future medical care,
the financial acumen of the payee (or more properly, thelack thereof) and whether the payee has sought alternate
financial advice (i.e. from a financial consultant).
Moreover, turning to the "fair and reasonable" component
of this review, Courts have found discounted present val-ues ranging from as low as 13% (Settlement Funding of
New York, LLC v. Solivan, 8 Misc.3d 1006(A), 2005 Wl,1498217 [Sup.Ct. Kings County 2005] ), to 15.46% (Mat-
ter qf Petition qf Settlement Funding qf New York LLC[Cunningham], supra ) and as much as 36.5% (when thefees and associated costs of these petitions are factored in
see, Matter of Settlement Capital Corp. (Ballos), 1Misc.3d 446, 769 N.Y.S.2d 817 [Sup.Ct. Queens County
2003]..~ to fall far from the mark of what could bedeemed "fair and reasonable" to the payee.
Clearly, Courts have been loathe to undermine structured
settlements which sought to provide the payee with long-term financial security. Indeed, in a footnote to its de-
cision in Ballos, supra the Court quoted from the legislat-ive memorandum in support of the enactment of SSPA:.
"... The structuring of a settlement enables the settlementrecipient to receive secure tax-free income over a course
of years or a lifetime to provide for future medical care ....education, etc. In this way, the proceeds from an awardare not dissipated or lost by individuals unaccustomedto managing large sums." Id. at 463.(emphasis supplied).
*5 Just as the Court retains the power to reject transfers ofstructured settlements by adult payees where it is not in
their best interests to do so, the Court is even more im-pelled to vigilance where infants are involved. Indeed, a
review of what is in the best interest of its ward in the es-tablishment of a structure is even more imperative.
Accordingly, the Court finds that the proposed Infant
Compromised Order is not in the best interests of the in-fant plaintiff and can only result in prejudice to her rights.As such, the proposed Infant Compromised Order, along
with the supplemental order, is denied in all respects.
This constitutes the decision and order of the Court.
15 Misc.3d 321, 2007 WL 431115 (N.Y.Sup.)
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
2007 WL 43111515 Misc.3d 321, 2007 WL 431115 (N.Y.Sup.)(Cite as: 2007 WL 431115 (N.Y.Sup.))
Page 6
END OF DOCUMENT
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
Westiaw.2007 WL 1218001
--- P.]d ....,2007 WL 1218001 (Wash.App. Div. ])(Cite as: 2007 WL 1218001 (Wash.App. Div. 3))
Page 1
Only the Westlaw citation is currently available.
Court of Appeals of Washington,
Division 3.METROPOLITAN MORTGAGE & SECURITIES
CO., INC., a Washington corporation,Respondent,
V.
Frankie COCHRAN, Jr., Appellant.No. 24587-0-III.
April 26, 2007.
Background: After obtaining a default judgmentagainst personal-injury victim, assignee of personal-in-jury victim’s right to receive payments under settle-
ment agreement obtained a writ of garnishmentagainst insurance company that had been assignedduty to make periodic payments under the settlement
agreement. The Superior Court, Spokane County,Salvatore F. Cozza, J., denied insurance company’smotion for summary judgment and entered garnish-
ment judgment against insurance company. Insurancecompany appealed.
Holdings: The Court of Appeals, Kulik, J., held that:
1~3 insurance company was not an indispensableparty to assignee’s action against personal-injury vic-tim to enforce its contractual right to the periodic
payments it purchased from victim, and2(~ insurance company was not collaterally estopped
from asserting defenses that the assignment of vic-tim’s right to payments was invalid and that insurancecompany had fulfilled its obligations by paying vic-
tim.Reversed and remanded.
Garnishment ~:=:~118
189kl 18 Most Cited CasesA gamishment proceeding is ancillary to the principal
action between the creditor and the debtor. West’sRCWA 6.27.060.
I21 Garnishment ~=~105189k105 Most Cited Cases
A garnishing creditor has no greater rights than those
of the debtor.
Parties ~:::~18287kl 8 Most Cited Cases
3]~[ Parties ~=~29
287k29 Most Cited CasesA "necessary party" is one who has sufficient interestin the litigation that the judgment cannot be determ-ined without affecting that interest or leaving it unre-
solved.
Parties ~=z,18287k18 Most Cited Cases
1.~ Parties ~=;~29287k29 Most Cited Cases
An "indispensable party" is one without whose pres-ence and participation a complete determination ofthe case may not be made.
Parties
287k79 Most Cited Cases
~ Parties ~82287k82 Most Cited CasesThe doctrine of indispensability of parties is not juris-
dictional and, instead, is based on equitable consider-ations.
161 Pretrial Procedure ~:z~558307Ak558 Most Cited Cases
Ordinarily, the failure to join an indispensable partywarrants dismissal.
I71 Parties ~zzzq8
287k18 Most Cited Cases
IZ[ Parties ~=:~29287k29 Most Cited CasesThe label of "indispensable" is attached to a partyonly after deciding that the action cannot proceed
without the missing party.
181 Assignments ~E~==~129
38k129 Most Cited CasesInsurance company that had duty to make periodic
payments to personal-injury victim under a settle-
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
2007 WL 1218001
--- P.3d ....,2007 WL 1218001 (Wash.App. Div. 3)
(Cite as: 2007 WL 12181)1)1 (Wash.App. Div. 3))
Page 2
ment agreement was not an indispensable party to ac-tion brought against the victim by assignee of vic-
tim’s right to settlement payments, in which assigneesought to enforce its contractual right to the periodicpayments it purchased from victim, as insurance
company was not in privity to the contract betweenvictim and assignee.
~ Insurance ~:~3557217k3557 Most Cited Cases
After assignee of personal-injury victim’s right topayments under settlement agreement obtained a de-
fault judgment against the victim, insurance companythat had duty to make periodic payments under thesettlement agreement was not collaterally estopped,
in garnishment proceeding brought against it by theassignee, from asserting defenses that the assignment
was invalid and that insurance company had fulfilledits obligations by paying victim; insurance companywas not a party or in privity with a party to the prioradjudication against victim, and precluding relitiga-
tion of the issues raised by insurancecompany’s defenses would work an injustice on theinsurance company.
[10t Judgment ~===~720
228k720 Most Cited CasesGenerally, the doctrine of "collateral estoppel," or is-sue preclusion, prevents a party from relitigating is-
sues that have been raised and litigated by the partyin a prior proceeding.
Ill] Judgment ~[~:7~634
228k634 Most Cited CasesCollateral estoppel promotes judicial economy and
prevents inconvenience.
I121 Judgment ~:::~634
228k634 Most Cited CasesA party asserting collateral estoppel must prove: (1)
the issue decided in the prior adjudication is identicalto the one presented in the current action; (2) the pri-or adjudication must have resulted in a final judg-
ment on the merits; (3) the party against whom collat-eral estoppel is asserted was a party or in privity with
a party to the prior adjudication; and (4) precludingrelitigation of the issue will not work an injustice onthe party against whom collateral estoppel is to be ap-
plied.
Jacke L. Blair, Steven M. Cronin, Attorneys at Law,Spokane, WA, for Appellant.
David Ernest Eash, Noel James Pitner, Ewing Ander-son, P.S., Spokane, WA, for Respondent.
KULIK, J.
*1 ¶ 1 In 1989, on behalf of her then minor son,Frankie Cochran, Debra Cochran entered into a set-
tlement agreement to resolve a personal injury claim.At the same time, Allstate Insurance Company
(Allstate) and Colonial Penn Insurance Company(Colonial) executed a uniform qualified assignment,under which Allstate assigned to Colonial, the duty to
pay periodic payments to Mr. Cochran under the set-tlement agreement. The uniform qualified assignmentcontained anti-assignment language. In 1998, Mr.
Cochran entered into an agreement to assign his rightto receive payments to Settlement Funding, L.L.C.
(Settlement Funding). Settlement Funding assignedthis right to Metropolitan Mortgage (Metropolitan).In 2001, when Metropolitan failed to receive pay-
ment, Metropolitan obtained a default judgmentagainst Mr. Cochran.
¶ 2 In 2002, Metropolitan obtained a writ of garnish-ment against Colonial Penn Insurance Company. In
response, Colonial filed a motion for summary judg-ment arguing that the writ should be dismissed be-
cause the assignment was invalid and Colonial hadfulfilled its obligation under the qualified assignmentby paying Mr. Cochran. The court denied the motion
for summary judgment, concluding that Colonialcould not assert a defense as long as the underlying
default judgment against Mr. Cochran was valid. Thecourt later entered a judgment on the garnishment
against Colonial, directing that payment be made toMetropolitan. Colonial appeals, contending the courterred by barring Colonial’s defenses. We agree that
Colonial should be allowed to raise its defenses to thegarnishment. We reverse and remand.
FACTSPersonal Injury Settlement--Cochran and Allstate
¶ 3 In October 1989, Debra Cochran, on behalf of herminor son, Frankie Cochran, entered into a settlement
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
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agreement with Elizabeth and Robert Gibson, andAllstate Insurance Co. (Allstate) to resolve a personalinjury claim. The settlement agreement provided forthe disbursal of periodic payments to Mr. Cochran:$8,000 on December 11, 1998; $I0,000 on December11, 2000; and $17,000 on December 11, 2002.
Qualified Assignment--A llstate and Colonial
¶ 4 At the same time, Allstate and Colonial executeda uniform qualified assignment under which Allstateassigned to Colonial the obligation to make the peri-odic payments to Mr. Cochran as set forth in the set-tlement agreement. The qualified assignment anticip-ated that Colonial may fund the payments by pur-chasing an annuity contract. The assignment statedthat "[a]ll rights of ownership and control of such an-nuity contract shall be and remain vested in[Colonial] exclusively." Clerk’s Papers (CP) at 17.Colonial purchased an annuity in May 1991. Colonialis listed as the owner on the application. In 1991, Ms.Cochran executed an addendum to the qualified as-signment.
Purchase Agreement--Cochran, Settlement Fundingand Metropolitan
¶ 5 In June 1998, Mr. Cochran entered into a pur-chase and sale agreement (purchase agreement) withSettlement Funding, L.L.C. whereby he purportedlyassigned to Settlement Funding, his right to receivethe periodic payments. Settlement Funding then as-signed all of its rights, title, and interest to Metropol-itan.
Payments from Colonial
*2 ¶ 6 In September 1998, Mr. Cochran wrote a letterto Colonial requesting a change of address so that thepayments could be sent to his new address inMichigan. In order to process this request, Colonialasked Mr. Cochran to sign an affidavit stating that hewould not attempt to accelerate, anticipate, sell, as-sign, or encumber any periodic payment owed. Mr.Cochran complied, and sent the notarized affidavit toColonial.
¶ 7 Metropolitan received the periodic payment of$8,000, due on December 11, 1998.
Metropolitan v. Cochran
¶ 8 In June 2001, Metwest Mortgage Services, Inc.(Metwest) sent Colonial a notice of assignment ad-vising that Mr. Cochran had assigned his payments toMetropolitan. Metropolitan did not receive the peri-odic payment due December 11, 2000. Shortly there-after, Metropolitan filed suit against Mr. Cochran andobtained a default judgrnent. Metropolitan did not sueColonial or provide notice to Colonial of the actionagainst Mr. Cochran.
Garnishment--Metropolitan v. Colonial
¶ 9 In May 2002, Metropolitan obtained a writ of gar-nishment listing Conseco Direct Life Insurance Com-pany (also known as Colonial Penn Insurance Com-pany), and Colonial Penn Insurance Company as gar-nishees. The insurance commissioner of the state ofWashington accepted service and proof of servicewas filed with the superior court for Spokane County.
¶ 10 In December 2002, Colonial sent a check for$17,000 to Mr. Cochran, who subsequently cashedthe check. In June 2003, Metropolitan obtained a de-fault judgment against Colonial Penn. In August2003, Colonial filed a motion to set aside the defaultjudgment. In January 2004, Metropolitan agreed tovacate the default judgment in the garnishment ac-tion.
¶ 11 Colonial filed a motion for summary judgment.Colonial argued that the writ of gamishment must bedismissed because: (1) the purported assignment ofMr. Cochran’s settlement payments contravened lawenforcing contractual anti-assignment provisions; (2)Colonial had fulfilled its obligation with respect tothe qualified assignment; (3) Mr. Cochran could notenforce an invalid contract through the writ processbecause he is not the owner of the annuity; and (4)the attempted assignment was invalid because it ma-terially increased Colonial’s obligations, risks, andburdens.
¶ 12 The trial court denied the motion for summaryjudgment, concluding that Colonial could not assertany defense as long as the underlying default judg-ment against Mr. Cochran was valid. Metropolitanfiled a motion to direct the garnishee to make pay-
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ment. The court entered a gamishment judgmentagainst Colonial, directing that payment be made to
Metropolitan. Colonial appeals the order directingpayment to Metropolitan.
STANDARD OF REVIEW
¶ 13 Colonial appeals the garnishment judgment,contending the court erred by precluding Colonial’sdefenses. The issues for the court to consider are is-
sues of law which are reviewable de novo..Gildon v.
Simon Prop. Group, lnc., 158 Wash.2d 483,493,145P.3d 1196 (2006).
ANALYSIS1. Did the court err by denying Colonial the right toassert its defenses in the garnishment proceeding?
*3 ~ ¶ 14 A garnishment proceeding is ancillary
to the principal action between the creditor and thedebtor. Bout v. Johnson, 80 Wash.App. 643,648,910P.2d 548 (1996) (quoting N. Sea Prods. Ltd. v. Clip-
per Seafoods Co., 92 Wash.2d 236, 239, 595 P.2d938 (1979); RCW 6.27.060). The garnishing creditorhas no greater rights than those of the debtor. James
v. Ward, 6 Wash.App. 915, 918, 496 P.2d 555
19R2~.
¶ 15 In the principal action, Metropolitan obtained adefault judgment against Mr. Cochran. In its findings
of fact and conclusions of law, the court stated thatthe purchase and sale agreement and the assignmentto Metropolitan Mortgage were valid and enforce-able. Later, Metropolitan obtained a writ of garnish-
ment. When Colonial failed to respond, Metropolitan
obtained a default judgment. But Metropolitan lateragreed to vacate the default judgment, and Colonialfiled an answer.
¶ 16 Metropolitan argues that Colonial cannot chal-
lenge the garnishment order because the relevant is-sues were addressed in the underlying action. Metro-
politan also asserts that Colonial should have joinedthat action and taken an active part in litigating thoseissues. In Metropolitan’s view, Colonial ignored the
process and judgment in the underlying proceeding,and ignored every opportunity to protect its interests.
In response, Colonial argues that it was an indispens-able party to the underlying judgment and that it had
a right to notice of the proceeding and a right to parti-
cipate in the proceeding.
[LI[~ ¶ 17 A necessary party is one who "has suffi-cient interest in the litigation that the judgment can-not be determined without affecting that interest or
leaving it unresolved." Harvey v. Bd. of CountyComm’rs 90 Wash.2d 473, 474, 584 P.2d 391
~!_~7_~. An indispensable party is one without whosepresence and participation a complete determinationof the case may not be made. Lindberg v. Kitsap
Count_, 133 Wash.2d 729, 744-45, 948 P.2d 805
~ ¶ 18 The doctrine of indispensability is notjurisdictional and, instead, is based on equitable con-
siderations, ld. Ordinarily, the failure to join an indis-pensable party warrants dismissal. Cathcart-
Maltby-Clearview Cmty. Council v. SnohomishCount, 96 Wash.2d 201,207, 634 P.2d 853 (1981).The label of "indispensable" is attached only after de-
ciding that the action cannot proceed without themissing party.
~ ¶ 19 Colonial contends that it was an indispens-
able party to the proceeding filed against Mr. Co-chran by Metropolitan to enforce Metropolitan’s con-tractual right to the periodic payments Metropolitan
purchased from Mr. Cochran. But Colonial was notin privity to the contract between Metropolitan andMr. Cochran. Consequently, Colonial was not an in-
dispensable party to the proceeding filed against Mr.Cochran by Metropolitan. Moreover, party indispens-
ability was not raised in the underlying action and noattempts were made to join Colonial to the action.
*4 [9_][10_][11_] ¶ 20 Metropolitan points out that, inthe underlying action, the court determined that the
purchase and sale agreement and the assignment toMetropolitan were valid. Generally, the doctrine of
collateral estoppel, or issue preclusion, prevents aparty from relitigating issues that have been raisedand litigated by the party in a prior proceeding. Ren~-
inger v. Dep’t q[’Corr., 134 Wash.2d 437, 449, 951P.2d 782 (1998). Collateral estoppel promotes judi-cial economy and prevents inconvenience. Id.
1~ ¶ 21 A four-part test is used to determine wheth-
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
2007 WL 1218001
--- P.3d ....,2007 WL 1218001 (Wash.App. Div. 3)
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Page 5
era previous litigation should be given collateral es-toppel effect in a subsequent action. Hence, the partyasserting collateral estoppel must prove: (1) the issue
decided in the prior adjudication is identical to theone presented in the current action; (2) the prior adju-
dication must have resulted in a final judgment on themerits; (3) the party against whom collateral estoppelis asserted was a party or in privity with a party to the
prior adjudication; and (4) precluding relitigation ofthe issue will not work an injustice on the party
against whom collateral estoppel is to be applied.State v. Harrison 148 Wash.2d 550, 561, 61 P.3d
1104 (2003).
¶ 22 Metropolitan cannot meet the four-part test.Metropolitan cannot show that Colonial was a party
or in privity with a party to the prior adjudication andthat precluding the issue will not work an injustice onColonial. Collateral estoppel does not bar Colonial
from asserting its defenses in the garnishment pro-ceeding. As a result, the court erred by precludingColonial’s defenses. This matter is remanded to the
trial court so that Colonial’s defenses can be heard.
Given our decision, we need not reach other issuesraised by Colonial.
ATTORNEY FEES¶ 23 Metropolitan seeks attorney fees pursuant toRCW 6.27.230, which provides for attorney fees to
the prevailing party when the answer is controverted.Metropolitan’s request for attomey fees is denied be-
cause Metropolitan is not the prevailing party.
¶ 24 We reverse, remand, and deny the request for at-torney fees.
WE CONCUR: SWEENEY., C.J., and BROWI~., J.
--- P.3d ....,2007 WL 1218001 (Wash.App. Div. 3)
END OF DOCUMENT
© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.
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