Most members of the structured settlement primary market should be thankful for, if not celebrating, the majority decision in the Cordero v. Transamerica case decided by the State of New York Court of Appeals on April 25, 2023.

The decision favoring Transamerica avoided what the National Structured Settlement Trade Association (NSSTA) had argued in its Amicus Brief: would have placed annuity providers in “an untenable position” that “would imperil structured settlements.”

For a summary of the case background, certified issue and legal arguments, see this prior Independent Life article published following the New York State Court of Appeals oral arguments but prior to the court’s decision.

Reformulated Question and Decision

The majority decision written by Justice Shirley Troutman answered in the negative (thereby supporting Transamerica and NSSTA) a question certified to them by the Eleventh Circuit Court of Appeals which the majority reformulated as follows:

“Does a plaintiff sufficiently allege a breach of the covenant of good faith and fair dealing under New York law by pleading that (1) an issuer or obligor failed to object to plaintiff’s sale of periodic payments in a SSPA proceeding, where the underlying agreements contain anti-assignment provisions, and (2) the sale approved by the SSPA court was not in plaintiff’s best interest?”

While four justices in total supported the majority opinion, Justice Jenny Rivera wrote a dissenting opinion and two justices did not participate.

Majority Opinion

In its decision, the court majority adopted reasoning almost identical to arguments put forth in NSSTA’s Amicus Brief.

The majority refused to accept Cordero’s argument that anti-assignment provisions in his structured settlement and qualified assignment agreements were, at least in part, for his benefit – meaning Transamerica (as annuity issuer and obligor) had the sole right to enforce or waive the anti-assignment provisions.

That issue, however, was irrelevant according to the majority opinion – even assuming the anti-assignment provisions benefited Cordero. Cordero, or a similar plaintiff, the majority stated:

“would not be justified in believing, at the time the agreements were made, that the anti-assignment provisions required the issuer and obligor to object to any attempt the plaintiff made to execute prohibited assignments as part of an SSPA proceeding in which the court is charged with determining whether the transfer is ‘in the best interest of the payee.’”

To hold otherwise, the majority opinion continued:

“would create an implied fiduciary duty—on the part of issuers or obligors—to protect a plaintiff from the consequences of their own breach…. Instead, under the SSPA, the court, not the issuer or obligor, is tasked with being the gatekeeper who determines whether a plaintiff’s assignment of periodic payments under a structured settlement agreement is in their best interests.”

As a result, the Cordero majority decision represents a convincing victory for Transamerica and NSSTA and thereby appears to establish important legal precedents benefiting structured settlement annuity providers.

Dissenting Opinion

In her dissenting opinion, Justice Rivera agreed with the majority that the implied covenant did not require Transamerica to object to the settlement transfers in a Florida state judicial proceeding to approve those transfers. Contrary to the majority, however, Justice Rivera argued the implied covenant between Cordero and Transamerica did encompass a duty for Transamerica to disclose Cordero’s mental impairment to any such transfer court.

Justice Rivera’s opinion includes a lengthy summary of: 1) scientific evidence documenting the devastating effects of lead poisoning on human cognitive function; 2) the local, state, and federal laws authorities have promulgated with strict regulations to protect citizens from residential lead exposure; 3) the private tort remedies that exist to protect impacted citizens; and 4) the rationale for enacting structured settlement laws including the state structured settlement protection acts (SSPAs).

As a consequence, echoing one of Cordero’s arguments, Justice Rivera states:

“New York law governing the implied covenant of good faith and fair dealing to a tort victim’s breach of contract action must be read with consideration of the unique historical and legal context in which the parties entered their agreements.”

Unlike the majority, Justice Rivera therefore proposes reformulating the certified question as follows, which she answers in her dissenting opinion in the affirmative favoring Cordero:

“Does the implied covenant of good faith and fair dealing under New York law encompass a promise that defendant will not undermine the purpose of the parties’ settlement and annuity agreements to secure a steady cash flow intended to provide a cognitively impaired plaintiff with a financially stable and independent life, thus requiring that defendants disclose plaintiff’s diminished mental capacity in a statutorily mandated state SSPA judicial proceeding to approve transfers of the plaintiff’s settlement funds?”

Discussion of the Reformulated Questions

In their respective opinions, the majority (Troutman) and dissenting (Rivera) justices dispute how each reformulated the question certified to the New York State Court of Appeals by the Eleventh Circuit – which the Eleventh Circuit did in fact encourage the court to reformulate.

Criticizing the dissent’s reformulation, the majority opinion points out: “[t]he Settlement Agreement and Qualified Assignment did not include information about Cordero’s mental capacity. Furthermore, the annuity contract did not restrict assignment.” The majority opinion also states:

“Defendants’ failure to disclose is not a claim at issue in this case … and our precedent requires” that “[w]e rely solely on the facts presented by the certified question,” including “[t]he claims in the facts presented to us”… To do otherwise would violate our constitutional obligation to answer only certified questions . . . which may be determinative of the cause then pending in the certifying court.”

In response, Justice Rivera argues:

“The ultimate question pending before the Eleventh Circuit is whether the District Court erred in granting defendants’ motion to dismiss plaintiff’s breach of contract claim for failure to state a cause of action under Federal Rule of Civil Procedure 12 (b) (6). The answer to my proposed reformulation seeks to define the scope of the contractual duty owed by defendants to plaintiff under the facts alleged in the complaint. Surely, then, the answer to my proposed reformulation may be determinative of the ultimate question. Moreover, in asserting that I have impermissibly strayed from the Eleventh Circuit’s presentation of the legal and factual issues, the majority ignores that the Eleventh Circuit ‘d[id] not intend to restrict the issues considered by [this Court] or to limit [this Court’s] discretion in choosing how to frame or answer the[] issues in the light of the facts of this case,’ and ‘ask[ed] broadly for [our] help in getting the state law right.’… As plaintiff points out, defendants have previously disclosed information to Florida courts in SSPA proceedings. And to the extent the majority implies otherwise, the complaint asserts that defendants ‘knew or should have known’ that plaintiff lacked the capacity to transfer his structured settlement rights.”

The Jennifer Realty Case

Both the majority and dissenting opinions discuss the Jennifer Realty case (511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 153 [2002]) in reaching their respective conclusions about whether and how the covenant of good faith and fair dealing impacts the questions as reformulated in the Cordero case under New York law.

The majority maintains the Jennifer Realty case does not support Cordero’s claim that a Cordero can invoke the implied covenant simply by alleging that Transamerica’s conduct “drastically undermined a fundamental objective of the parties’ contract.” Instead, the majority states the implied duty must arise from the contract and the reasonable expectations of Cordero, which as the summary above indicates, the majority opinion concludes was not justified.

The dissenting opinion disagrees arguing: “Jennifer Realty is instructive but does not account for cases where the plaintiff lacks capacity to appreciate whether their own actions might undermine the purpose of an agreement under which transfers are allowable only once a court approves them as in the payee’s best interest…. the whole point of the structured settlement and the anti-assignment clauses was to protect settlement funds from dissipation resulting from plaintiff’s diminished mental capacity… Therefore, the covenant of fair dealing and good faith that New York law implies in the parties’ agreements must account for the parties’ appreciation of the plaintiff’s special needs.”

What’s Next in the Cordero Case?

The Cordero case now presumably will return to the Eleventh Circuit Court of Appeals which was reviewing the earlier dismissal of Cordero’s case by a Federal District Court in Florida when it petitioned the New York State Court of Appeals to grant its writ of certiorari. Presumably Cordero’s legal goal has been, and continues to be, obtaining a trial by jury in Federal District Court to decide one or more of his allegations against Transamerica.

Following the majority certiorari decision by the New York State Court of Appeals denying Cordero’s implied covenant contract theory, what, if any, lines of argument remain open to Cordero and his legal counsel before the Eleventh Circuit?

The Eleventh Circuit has yet to rule on Cordero’s alternative allegation, that Transamerica directly breached the “no power” anti-assignment terms of his settlement agreement. However, the Eleventh Circuit may view the reasoning of the New York State Court of Appeals majority opinion (as summarized above) as effectively encompassing and negating Cordero’s direct breach contract allegation as well as his implied covenant contract breach allegation.

An alternative argument for Cordero could be a third-party beneficiary claim attempting to link his structured settlement annuity to the “no power” anti-assignment provision in his structured settlement agreement. If successful, this argument could also impose a contractual duty on Transamerica which it arguably violated when it accepted administrative fees from factoring companies multiple times to waive the anti-assignment provision.

This type of third-party beneficiary argument was put forward by James Gordon in a 2020 Columbia Law Review article titled “Enforcing and Reforming Structured Settlement Protection Acts: How the Law Should Protect Tort Victims,” in which he specifically addresses the role of structured settlement annuity providers like Transamerica in factoring transactions. Gordon’s conclusion: the state legislative scheme to approve transfer petitions “has fundamental substantive and procedural flaws that prevent it from achieving its purpose.”

Is an additional constitutional argument on Cordero’s behalf likely – or even possible? During oral arguments, New York State Court of Appeals Chief Justice Rowan Wilson asked Cordero’s attorney, Scott Eisman the following two-part question:

– “[I]s it possible to write a structured settlement so that a court could not agree to an acceleration or a sale?”

– “Or does the legislature override whatever you put into an agreement?”

In response to Justice Wilson, attorney Eisman answered: “No the [SSPA] legislation does not override [whatever words you could put into structured settlement agreements]” and suggested there might be constitutional avoidance issues under the Contract Clause of the United States Constitution.

Lessons Learned from the Cordero Case

Recognizing the Cordero case remains on appeal, what lessons to date, if any, can structured settlement professionals learn from the Cordero case – and how might the Cordero case impact future settlement planning?

The justices of the New York State Court of Appeals have rendered a decision which gives Transamerica and NSSTA the results they wanted and what they argued existing legislation, case law and structured settlement documentation requires concerning specific rights and duties of annuity providers and structured settlement obligors.

The same decision, however, undoubtedly will have an opposite impact and interpretation for Lujerio Cordero and thousands of similar factoring victims.

For individuals like Lujerio Cordero, structured settlements have not achieve the public policy legislative justification (avoiding dissipation) that produced the original Periodic Payment Settlement Act of 1982 or the “best interest” public policy standards of IRC 5891 and the 50 state SSPAs.

The Cordero case is also notable and controversial because, instead of blaming the evil factoring companies and rubberstamping judges, the Cordero case shines a light on structured settlement annuity providers to help explain why the legislative scheme intended to reduce factoring and factoring abuse has failed to achieve its objectives.

What Should Have Happened?

What should have happened, or could have happened, in the Cordero case to prevent factoring abuse? Cordero argued that Transamerica, as an interested party in Cordero’s six transfers, was the only party possessing a copy of Cordero’s settlement agreement which included the “no power” anti-assignment provision. [text amended 5/4/2023]

Regardless of whether the transfer judges had a copy of assignment agreement and were aware of the “no power” anti-assignment provision, what was important was for Transamerica itself to send a copy of the assignment agreement to each transfer judge highlighting the “no power” anti-assignment provision – before Transamerica accepted any “administrative fee” from the factoring company and before Transamerica waived the anti-assignment provisions. [text amended 5/4/2023]

Such action by Transamerica would not impose a fiduciary duty on Transamerica. Arguably instead, the proposed de minimus action by Transamerica would have:

– Represented a bare minimum “best practice;”

– Allowed each transfer judge, not Transamerica, to determine whether a proposed transfer contravened Cordero’s “no power” anti-assignment provision;

– Allowed each transfer judge, not Transamerica, to decide whether a proposed transfer was in Cordero’s “best interest.”

Transamerica is no longer a member of NSSTA and no longer actively markets and sells structured settlement annuities. Transamerica, however, was formerly a member of NSSTA and continues to administer structured settlement annuity payments.

NSSTA’s Mission and “Best Practices”

The suggested “best practice” (providing a transfer judge with a copy of Cordero’s settlement agreement) arguably would be consistent with NSSTA’s Mission of promoting structured settlements “in order to provide long-term financial security to personal injury victims and their families through periodic payments.”

What should settlement parties expect from structured settlement annuity providers who are NSSTA members in the event of a proposed transfer – not in terms of their fiduciary duty but as a “best practice” consistent with NSSTA’s Mission?

Would it be unreasonable for a structured settlement agent, or a plaintiff attorney, or the judge who approves a structured settlement, to now expect (or even insist) that a proposed structured settlement annuity provider, in the event of a subsequent proposed transfer, promise to send the transfer judge a copy of the settlement agreement highlighting any “no power” anti-assignment provision – not based on their fiduciary duty but merely as an industry “best practice” and as a NSSTA member that supports NSSTA’s Mission?

Alternatively, as a “best practice”, following the Cordero decision and consistent with NSSTA’s Mission, why couldn’t annuity providers create, at the inception of a structured settlement annuity, when the factual case details are known, a factoring document they could instantly provide to a transfer judge in the event of a future transfer notification?

Conclusion: NSSTA’s Opportunity

Cordero, in his Reply Brief, challenged the integrity of NSSTA and its Mission for filing its Amicus Brief to support Transamerica and oppose Cordero, a structured settlement recipient and factoring victim.

Having achieved its immediate objectives in the Cordero case, NSSTA should now encourage its members to learn from the Cordero case and thereby advance its Mission in the context of structured settlement transfers.

Instead of forgetting about the Cordero case, NSSTA should feature the Cordero case as an association “Case Study” and encourage its members to develop new structured settlement “best practices” that will:

– Help transfer judges become aware of and decide whether and when to enforce “no power” anti-assignment provisions in structured settlement agreements;

– Improve the effectiveness of the SSPAs;

– Reduce factoring and factoring abuses;

– Improve and increase the use of structured settlements.

See also: Independent Life’s Payee Protection Policy