Opinion
NO. 2011-CA-000852-MR
04-05-2013
LIBERTY ASSIGNMENT CORPORATION AND LIBERTY LIFE ASSURANCE COMPANY OF BOSTON APPELLANTS v. BLUEGRASS CAPITAL GROUP, LLC AND DURAN ESTILL APPELLEES
BRIEFS FOR APPELLANT: Ellen C. Moore Versailles, Kentucky Michael J. Miller Gregory J. Star Philadelphia, Pennsylvania BRIEFS FOR APPELLEES: Michael B. Fox Olive Hill, Kentucky AMICUS CURIAE BRIEF FOR NATIONAL STRUCTURED SETTLEMENTS TRADE ASSOCIATION: William Jay Hunter, Jr. Amy Olive Wheeler Louisville, Kentucky Craig H. Ulman Washington, D.C.
NOT TO BE PUBLISHED
APPEAL FROM MADISON CIRCUIT COURT
HONORABLE WILLIAM G. CLOUSE, JR., JUDGE
ACTION NO. 10-CI-02004
OPINION
REVERSING AND REMANDING
BEFORE: KELLER, TAYLOR AND THOMPSON, JUDGES. THOMPSON, JUDGE: This case involves Duran Estill's attempt to transfer his right to receive workers' compensation benefits funded through an annuity and the approval of the transfer by the Madison Circuit Court pursuant to KRS 454.430 et seq. Because the settlement agreement and qualified assignment executed to purchase an annuity for the purpose of funding periodic payments to Estill contains an anti-assignment provision, we conclude that the right to future benefits cannot be assigned.
Judge Michelle M. Keller concurred in this opinion prior to her appointment to the Kentucky Supreme Court. Release of this opinion was delayed by administrative handling.
We summarize the procedural background. In 1999, Estill sustained a work-related injury. On August 31, 2004, he settled his workers' compensation claim against his employer and its insurer, Liberty Mutual Insurance Company. As approved by the Workers' Compensation Board, the settlement agreement provided for an immediate cash payment to Estill and future payments to be funded through an annuity. The settlement agreement recited that "the annuity is incorporated into this agreement." The future payments included a single $50,000 payment due in October 2014.
Liberty Mutual assigned the obligation to make periodic payments to Liberty Assignment and an annuity was purchased from Liberty Life for the purpose of funding Mr. Estill's periodic payments. (For clarity, we refer to the three corporations as Liberty.) The qualified assignment, dated August 11, 2004, states that it is a qualified assignment "within the meaning and subject to the conditions of section 130(c) of the Internal Revenue Code of 1986" and, further, states:
The claimant [Estill] has no rights against the Assignee greater than a general creditor. None of the periodic payments may be accelerated, increased or decreased and may not be anticipated, sold, or assigned or encumbered."
Bluegrass Capital Group, LLC, is a corporation that purchases future settlement payments from consumers in exchange for lump-sum payments, a business commonly referred to as factoring. In December 2010, Bluegrass and Estill filed a petition in the Madison Circuit Court seeking approval of an agreement pursuant to which Estill would transfer his right to receive $20,000 of the $50,000 payment due in October 2014, in exchange for $8,000. The disclosed discount rate on the transaction was 23.5%. Although the agreement purported to bind Estill's wife, she did not sign the original agreement.
Liberty objected to the petition arguing that the settlement agreement and statutory law prohibited Estill from assigning his benefits, that the court lacked authority to approve the petition, and that Estill's wife had not consented to the transfer of benefits. Bluegrass and Estill filed an amended petition with a modified agreement that did not require Mrs. Estill's signature. Additionally, through the amended petition, the effective interest rate of the transaction increased to 29.5%.
Liberty again objected. After the circuit court approved the petition, this appeal followed.
Liberty requests that we revisit our decision in Kentucky Employers' Mutual Insurance v. Novation Capital, LLC, 361 S.W.3d 320 (Ky.App. 2011), where this Court was asked to decide whether KRS 342.180 prohibits the assignment of the right to receive workers' compensation benefits awarded as a result of a structured settlement agreement. We held that the statute does not prohibit the transfer of future benefits, and our Supreme Court denied discretionary review and ordered the opinion published.
Additionally, Liberty argues that KRS 454.431, which requires court approval of structured settlement payment rights, does not apply to the transfer of workers' compensation benefits but applies only to the transfer of payment rights arising from tort claims. Liberty and this Court acknowledge that the application of KRS 454.431 was not presented as an issue in Kentucky Employers' Mutual. We conclude that because the qualified assignment in this case contains an anti-assignment clause, it is unnecessary to address Liberty's arguments based on statutory law and decline to revisit our decision in Kentucky Employers' Mutual.
Initially, we address the contention that Estill is not bound by the anti-assignment provision in the qualified assignment because he did not sign that document. The language contained in the addendum to the settlement agreement is conclusive. In addition to providing for the purchase of an annuity to fund the periodic payments, it states that the "parties agree the annuity is incorporated into this agreement." The qualified assignment was executed prior to the approval of the settlement agreement and incorporated into that agreement. Because Estill signed the settlement agreement pursuant to which it was agreed that an annuity would be purchased to fund the periodic payments owed, he is bound by any of its terms enforceable under the law. We now turn to the validity of the anti-assignment clause.
Under Kentucky law, "a contractual right to receive a future stream of payments is assignable." Wentworth v. Jones, 28 S.W.3d 309, 313 (Ky.App. 2000). KRS 304.14-250(1) expressly provides that an annuity contract "may be assignable or not assignable, as provided by its terms." The qualified assignment incorporated into the settlement agreement explicitly prohibits the sale or assignment of the periodic payments to be received by Estill. When terms of a contract are unambiguous, "[a] fundamental rule of contract law holds that, absent fraud in the inducement, a written agreement duly executed by the party to be held, who had an opportunity to read it, will be enforced according to its terms." Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 341 (Ky.App. 2001).
In Wentworth, this Court considered whether anti-assignment provisions in structured settlement agreements were enforceable. The legal analysis began with the recognition that the settlement agreements involved were drafted in contemplation of the Internal Revenue Code (26 U.S.C. § 104(a)(2) 130 (1988 & Supp. 1999)) containing special tax provisions that encourage structured settlements in cases involving physical personal injuries and sicknesses, including workers' compensation claims, to provide the recipient with income over the long term. Wentworth, 28 S.W.3d at 313. This Court summarized the purpose and structure of the Code provision as follows:
Pursuant to 26 U.S.C. § 130(c)(2)(B), the payees had agreed not to "accelerate, defer, increase or decrease any payment. . . ." In order that the payments not be treated as taxable income, the payees' only possessory interest in the proceeds had to consist of periodic payments asId. With the restrictions imposed by the settlement agreements and the Internal Revenue Code in mind, this Court concluded that the anti-assignment provisions in the settlement agreements were enforceable.
opposed to any other form of receipt—thus assuring a continuing cushion of income to prevent "binging away" of an asset that would effectively render tort victims indigent. In consideration for the ability to guarantee adequate income for this protected class of beneficiaries, the Internal Revenue Code provided for one qualified assignment of liability for making the periodic payments to a qualified assignee[.]
We apply the same reasoning. Pursuant to a qualified assignment, an annuity was purchased to fund the periodic payments. The language of the qualified assignment contemplated the favorable tax treatment provided by the Internal Revenue Code and its provision that the recipient cannot accelerate, defer, increase, or decrease the periodic payments was specifically included. Internal Revenue Code 26 U.S.C. § 130(c)(2)(B). In accordance with our decision in Wentworth and the tax consequences clearly contemplated by the parties, we hold that the anti-assignment provision is enforceable by Liberty without proof that it was intended to benefit it or that it has a legitimate interest in avoiding an assignment. See Rapid Settlements Ltd's Application for Approval of Structured Settlement Payment Rights v. Symetra Assigned Benefits Service Co., 133 Wash.App. 350, 372-374, 136 P.3d 765 (Wash.App. Div. 1, 2006).
We conclude by noting that anti-assignment language in a structured settlement agreement is common. However, a party who desires to avoid its consequences is free to negotiate the terms of the settlement agreement and exclude such a provision.
For the reasons stated, the order of the Madison Circuit Court approving the transfer of $20,000 of the structured settlement payments owed to Estill is reversed and the case remanded for proceeding consistent with this opinion.
ALL CONCUR. BRIEFS FOR APPELLANT: Ellen C. Moore
Versailles, Kentucky
Michael J. Miller
Gregory J. Star
Philadelphia, Pennsylvania
BRIEFS FOR APPELLEES: Michael B. Fox
Olive Hill, Kentucky
AMICUS CURIAE BRIEF FOR
NATIONAL STRUCTURED
SETTLEMENTS TRADE
ASSOCIATION:
William Jay Hunter, Jr.
Amy Olive Wheeler
Louisville, Kentucky
Craig H. Ulman
Washington, D.C.