On March 14, 2023, the New York State Court of Appeals heard oral arguments in the matter of Cordero v. Transamerica (Cordero Case) – a significant case for structured settlements because it challenges important assumptions about contractual rights and duties among settlement recipients, assignment companies and annuity providers.
Plaintiff Lujerio Cordero (Cordero) is/was a structured settlement recipient and also a victim of alleged factoring abuse. Having received structured settlement payment until age 22, he subsequently entered into six (6) court-approved transfers during a 22-month period thereby signing away the rights to all of his remaining periodic payments.
In that respect, the Cordero case represents a sad example, but not a unique example, demonstrating how abusive factoring business practices have continued, arguably have even increased, despite the enactment of IRC 5891 and the state structured settlement protection acts.
The Cordero Case is unusual, perhaps unique, however, for two additional reasons.
First, in seeking to recover his lost periodic payments, Cordero has not sued the factoring companies. Instead, Cordero’s lawsuit names as defendants Transamerica Annuity Service Corporation (TASC) and First Transamerica Life Insurance Company (First Transamerica), the assignment company and annuity provider for his original structured settlement (herein together referred to as “Transamerica”).
Second, in the current case before the New York State Court of Appeals, the National Structured Settlement Trade Association (NSSTA), filed an Amicus Curiae Brief but not in support of Cordero, a structured settlement recipient and abused factoring victim. Instead, NSSTA’s Amicus Brief clearly aligns NSSTA with Transamerica against Cordero.
As required by Florida’s SSPA, Transamerica was named an “interested party” in each of Cordero’s six (6) transfer proceedings. During discovery in Cordero’s current lawsuit, Transamerica admitted that, as an “interested party” in those transfer proceedings, it:
- Accepted “administrative fees”, waived “anti-assignment” provisions and consented to each of the transfers.
- Did not notify the transfer court about “anti-assignment” provisions in Cordero’s Settlement documents.
- Had not investigated Cordero’s alleged cognitive injuries when asked to consent.
- Claimed it did not know Cordero suffered cognitive impairment.
Additional Background Summary
Plaintiff Lujerio Cordero (Cordero) allegedly suffered cognitive damage as a result of lead-poisoning when he was a child. Cordero’s attorneys settled a lawsuit on his behalf under New York law against his New York landlord in 1996 when he was 5 years old.
Cordero’s settlement included periodic payments funded with a Qualified Assignment and Release (QAR) utilizing defendant Transamerica Annuity Service Corporation (TASC) as the assignment company and defendant First Transamerica Life Insurance Company (First Transamerica) as the annuity provider (herein sometimes referred to together as “Transamerica”). The Settlement Agreement and QAR each contained anti-assignment language. Unlike the QAR, the Settlement Agreement anti-assignment language added a “no power” clause.
Subsequently, Cordero moved to Florida, where he was targeted by factoring companies. During a 22-month period, beginning when he was age 22, Cordero entered into six (6) transfer agreements signing away all of his remaining periodic payment rights. Each transfer was court approved in Sumter County, Florida under Florida’s structured settlement protection act (SSPA).
Cordero, however, now alleges he was not told, nor did he understand, the nature of the documents he was signing. Neither Cordero, nor anyone representing him, attended any of the transfer hearings. At each hearing, the transfer company submitted a signed, written waiver of Cordero’s entitlement to independent legal advice.
Having received notice as an “interested party”, Transamerica consented to each factoring transaction and received an administrative processing fee from the factoring companies in return. By lack of enforcement, Transamerica effectively waived the “anti-assignment” language and did not notify any of the transfer courts of its existence.
Cordero eventually brought a lawsuit in Federal Court against both Transamerica companies alleging they directly breached their contracts with him for failing to enforce the aforementioned anti-assignment provisions.
In addition to his direct-breach theory, Cordero also alleged Transamerica breached the contracts’ implied covenant of good faith and fair dealing by making no effort to determine whether the factoring companies were taking advantage of his alleged cognitive impairment or otherwise using unfair tactics to coerce a transfer. On appeal, Cordero also claimed rights as a third-party beneficiary under the annuity contract.
The U.S. District Court for the Southern District of Florida dismissed Cordero’s complaint. On appeal,theU.S.CourtofAppealsfortheEleventhCircuitdidnotaddress Cordero’s direct-breach theory but suggested Cordero’s implied-covenanttheorywasviable.
The Eleventh Circuit was unsure, however, whether under New York law, the implied covenant bars contracting parties from breaching unwritten duties that undermine a fundamental contractual objective. As stated above, it certified that question to the New York Court of Appeals – but also invited the New York State Court of Appeals to reformulate the certified question if it desired to do so.
Specific Issue on Appeal
The New York State Court of Appeals has been asked to consider a single issue, as certified by the U.S. Court of Appeals for the Eleventh Circuit: “Does a plaintiff sufficiently allege a breach of the implied covenant of good faith and fair dealing under New York law if he pleads that the defendant drastically undermined a fundamental objective of the party’s contract, even when the underlying duty at issue was not explicitly referred to in the writing?”
The Eleventh Circuit also invited the New York State Court of Appeals to reformulate the certified question if it desired to do so.
Note: it is possible the New York State Court of Appeals could decide the Cordero case on the basis of jurisdictional issues and not address the certified issue.
In his legal briefs, Cordero challenges certain business practices not merely of Transamerica but also potentially of certain other structured settlement annuity providers which may explain both NSSTA’s Amicus Brief and the attention this case is receiving throughout the structured settlement industry.
Cordero argues that Transamerica (because it consented to transfers, waived “no power” anti-assignment clauses and accepted administrative transfer fees from factoring companies) is itself one of the participants in the multi-billion dollar factoring space and together with other factoring participants does not want New York’s appellate courts to consider structured settlement transfer issues.
The New York State Court of Appeals can help fill a critical legal void, Cordero asserts, by resolving in his favor the following issue: “whether tort victims benefit from anti-assignment clauses and enjoy the freedom of contract to prospectively void transactions that would transfer their long-term income streams out from under them.”
An important disputed issue in the Cordero case concerns the relationship of the three settlement documents – the Settlement Agreement; the Assignment Agreement; and the Annuity Policy.
Cordero maintains the three settlement documents create one contract and include an implied covenant that preserves the benefits each party “reasonably understood” the three-document contract to provide. The anti-assignment clauses in the Settlement Agreement and QAR, per Cordero, express the parties’ understanding that Cordero legal representative bargained for unassignable (“no power” to assign) periodic payment rights on his behalf.
Cordero argues his “wishes” at the time of the transfer therefore are irrelevant – even if he had understood the nature of the documents he was signing, which he claims he did not. The wishes that matter, he asserts, are the ones expressed in the three-document contract. And Cordero’s wish, as expressed in the Settlement Agreement, was to prevent himself from making any subsequent transfer, thereby guaranteeing himself long-term security of the periodic payments.
The implied covenant, according to Cordero, also required Transamerica to make a good-faith effort to preserve the Cordero’s benefits from that bargain. Per Cordero, that meant, as an “interested party” for each of the proposed transfers, Transamerica had a duty to review correspondence about its contract with Cordero and to respond appropriately. Responding appropriately, Cordero maintains, should have included Transamerica refusing to waive Cordero’s contractual anti-assignment rights.
Responding to one of Transamerica’s arguments, Cordero disagrees that he waived any benefit he received from the “no power” anti-assignment language by agreeing to transfer his payment rights. “No-power” clauses, according to Cordero, “would give recipients only illusory benefits if recipients could sidestep them by doing exactly what the clauses are designed to prevent: signing away their periodic payments.”
Likewise, Cordero rejects Transamerica and NSSTA’s argument that a ruling in Cordero’s favor would establish a new “fiduciary duty” for annuity providers and effectively substitute annuity providers for judges in determining “best interest” under the SSPAs.
Transamerica duty as an “interested party” in the transfer proceedings, according to Cordero, was to respond appropriately which included enforcing the “anti-assignment” provisions or at least notifying a transfer judge of their existence.
Note: in reviewing a transfer petition, judges must make an affirmative finding whether a proposed transfer contravenes applicable law, applicable statutes, or other court orders. Both the SSPAs and IRC 5891 provide for such findings because, judges have determined in some cases, a transfer of payments rights—even if it is approved by a court—would conflict with preexisting legal restrictions including a pre-existing anti-assignment provision.
As to whether the two anti-assignment clauses both benefit Cordero, he argues that is a question of fact not law and should be decided by a jury. Even if Transamerica could have unilaterally waived the anti-assignment clauses and its related duties, Cordero maintains Transamerica should not be allowed to exercise its discretion “malevolently” by participating in a “scheme” to destroy the fruits of its bargain with Cordero.
Although Transamerica disputes most, if not all, of Cordero’s arguments, it may be more valuable for structured settlement and settlement planning professionals to summarize here NSSTA’s perspective. In its Amicus Brief, NSSTA argues an Appellate Court decision favoring Cordero would place annuity providers in “an untenable position” and “would imperil structured settlements.”
NSSTA maintains if the Appellate Court accepts Cordero argument that Transamerica is obligated to enforce the anti-assignment provisions in the structured settlement governing documents pursuant to an implied covenant of good faith and fair dealing, the court will establish “what is nothing less than a heretofore unknown fiduciary duty.”
NSSTA further maintains this new fiduciary duty would require structured settlement annuity providers and obligors [“interested parties” in SSPA transfer hearings] to expend considerable time and resources investigating whether a proposed transfer is in a payee’s “best interest” before waiving their rights to enforce anti-assignment provisions. And to do so within the highly restricted time periods during which SSPAs require “interested parties” to file their responses.
Such a “fiduciary duty”, according to NSSTA, would violate existing laws and undermine important structured settlement public policy goals. Without any standard interpretation of the covenant of good faith and fair dealing in the context of SSPA applications, NSSTA argues that structured settlement annuity providers would face risks of liability and litigation expense regardless of whether or how they respond as interested parties to SSPA applications.
For example, if Transamerica and other annuity provider are subsequently required to enforce “no power” anti-assignment clauses, NSSTA argues annuity providers would risk being sued both by structured settlement payees, claiming they accepted periodic payments assuming the SSPAs allowed subsequent transfers, and by factoring companies.
Anticipating these potential problems and costs, annuity providers therefore would be forced to either charge higher premiums for structured settlement annuities or exit the market.
Regardless of how the New York State Court of Appeals rules in the Cordero case, the case itself clearly demonstrates how Congressional intent and state legislative intent have been frustrated by abuses in the structured settlement factoring marketplace. Leaving a lead paint victim penniless is inconsistent with IRC Sections 104 (a) (2), 130 and 5891 and the SSPAs.
A victory for Cordero presumably will result in a new trial for Cordero with a jury deciding whether he benefited from the “anti-assignment” clauses and whether Transamerica was required to enforce the “no power” anti-assignment provision thereby rendering each of the six (6) transfer orders approving assignments “void ab initio”.
A victory for Cordero presumably could also establish new legal precedent concerning rights of structured settlement recipients and duties of assignment companies and annuity providers as they relate to structured settlement documentation, “anti-assignment” clauses, and perhaps even the SSPAs.
For example, a Cordero victory might result in some annuity providers adding new language to their assignment agreements attempting to confirm that a “no power” anti-assignment clause, or anti-assignment clauses more generally, cannot be waived or will be waived only under specified circumstances.
Whether a Cordero victory would create the existential results NSSTA claims in its Amicus Brief, it could nonetheless force uncertainty and unwelcome change to some primary structured settlement market participants.
What about a Transamerica victory? Would a Transamerica victory change anything for any structured settlement stakeholders? A Transamerica victory certainly wouldn’t help Lujerio Cordero who, like thousands of other structured settlement recipients annually, are victims of factoring abuse despite IRC 5891 and the SSPAs, the intended legislative “solution” for factoring.
What lessons, if any, will NSSTA, current structured settlement annuity providers, settlement planning professionals, plaintiff attorneys and/or judges learn from the Cordero case? Or will a Transamerica victory merely reinforce the structured settlement status quo? A status quo that produces thousands of factoring victims every year and no-growth in the primary structured settlement market?
Or, in the event of a Transamerica and NSSTA “victory” in the Cordero case, will judges, plaintiff attorneys and settlement planners begin to make new demands in recommending and/or approving life companies as “best interest” structured settlement annuity providers.
For example, in future cases, before approving any proposed structured settlement, should judges now insist any proposed annuity provider declare the policy and procedures it will apply, if any, when acting as an “interested party” in future transfer proceedings on behalf of the plaintiff to determine: 1) whether the annuity provider will oppose or consent to a proposed transfer; 2) whether the annuity provider will enforce or waive an existing “no power” anti-assignment provision?
Here is Independent Life’s Payee Protection Policy which we plan to review in the context of whatever decision occurs in the Cordero Case.
Related Independent Life Articles
- Factoring Problems and Solutions
- Factoring: Is Judicial Education Really the Solution?
- Anti-Assignment Language
- Assignment of Rights or Delegation of Duties?