The opinion of the court was delivered by: Lee H. Rosenthal United States District Judge
This dispute involves two participants in the structured-settlement payment industry and a trade association representing companies that purchase structured settlements. Symetra Life Insurance Co. and Symetra Assigned Benefits Co. (together, "Symetra"), sued Rapid Settlements, Ltd., seeking, among other relief, an injunction barring Rapid from using arbitration to obtain rights to payments from structured-settlement funds administered by Symetra. The National Association of Settlement Purchasers ("NASP") intervened and sought a similar injunction. This court permanently enjoined Rapid from using arbitration to effect a "transfer," as defined by 47 states structured-settlement protection acts, without obtaining the approval required by those Acts.*fn1 (Docket Entry Nos. 240, 253). The Fifth Circuit affirmed the injunction. (Docket Entry No. 250). NASP and Symetra now seek additional relief.
Three motions are pending:
* Rapid seeks "clarification" of this court's July 28, 2009 permanent injunction. (Docket Entry No. 261). NASP and Symetra have responded. (Docket Entry Nos. 263, 266).
* Symetra seeks summary judgment on its claim for declaratory judgment; partial summary judgment on its claims for abuse of process and tortious interference with contract; and dismissal of Rapid's counterclaims for damages and declaratory relief. (Docket Entry No. 276). Rapid has responded, (Docket Entry No. 279), and Symetra has replied, (Docket Entry No. 280).
* NASP seeks entry of a declaratory judgment and attorney's fees. (Docket Entry No. 282). Symetra has responded in support of NASP's motion. (Docket Entry No. 284). Rapid has responded in opposition. (Docket Entry No. 294). Symetra has replied to Rapid's response. (Docket Entry No. 296).
After a thorough review of the extensive record; the motions, responses, and replies; and the relevant law, this court grants Rapid's motion for clarification, grants in part and denies in part Symetra's motion for summary judgment, and grants in part and denies in part NASP's motion for summary judgment. Symetra and NASP must submit a proposed declaratory judgment by October 21, 2011. A status conference is set for October 28, 2011 at 4:00 p.m.
The reasons for these rulings are explained in detail below.
The factual background of this litigation, which has been ongoing in this court for over six years, is spelled out in detail in this court's previous opinions. See generally, e.g., Symetra Life Ins. Co. v. Rapid Settlements, Ltd., 599 F. Supp. 2d 809, 813--26 (S.D. Tex. 2008). Those opinions also describe Rapid's transactions with Abigail Dempsey and Troy Walker, both of which Symetra has focused on in seeking partial summary judgment. See, e.g., id. at 820--22 (Dempsey), 823--24 (Walker).
To recount briefly the procedural history, Symetra sued Rapid in this court on September 9, 2005. (Docket Entry No. 1). After battling Rapid around the country, Symetra sought wide-ranging injunctive relief. This court granted NASP's motion to intervene on August 16, 2006. (Docket Entry No. 41). This court preliminarily enjoined Rapid from using arbitration to effect transfers on January 10, 2007. (Docket Entry No. 84). On June 4, 2007, this court found Rapid in contempt for attempting to garnish a Symetra payee's payments. (Docket Entry No. 148). This court granted Symetra's request to make the preliminary injunction permanent on March 31, 2008, and Rapid took an interlocutory appeal. (Docket Entry Nos. 240, 241). The Fifth Circuit affirmed "[f]or essentially for the reasons stated" in this court's memorandum and opinion. (Docket Entry No. 251, at 2). NASP moved for a permanent injunction on similar grounds to Symetra, and this court entered a permanent injunction in NASP's favor on July 28, 2009. (Docket Entry No. 253). As summarized above, the parties have filed numerous motions, which this memorandum and order addresses.
II. Rapid's Motion for Clarification
Rapid has moved for clarification of this court's injunction, asking whether a court-order exemplar attached to its motion satisfies the standard set out in the injunction for court approval of a transfer of rights of first refusal and security interests. (See id., at 3). Rapid asks that, if the exemplar does not satisfy the standard, this court provide guidance on the necessary contents of a court order and guidance as to the "ability of Rapid to resolve post-court order issues in arbitration . . . involving, for example, a right of first refusal." (Docket Entry No. 261 at 7).
NASP seems to suggest that clarifying the injunction in light of the sample disclosure and order violates the rule against advisory opinions. See, e.g., Clinton v. Jones, 520 U.S. 681, 690 n.11 (1997) (federal courts do not "decide abstract, hypothetical or contingent questions" (internal quotation marks omitted)). That rule, however, does not prevent clarification of an injunction. "[A] person subject to an injunction always has the right to ask the court that is administering it whether it applies to conduct in which the person proposes to engage. If this looks like a request for an 'advisory opinion,' it is one that even a federal court can grant, in order to prevent unwitting contempts." In re Hendrix, 986 F.2d 195, 200 (7th Cir. 1993) (Posner, J.) (citations omitted); see also Regal Knitwear Co. v. NLRB, 324 U.S. 9, 15 (1945) ("[W]e think courts would not be apt to withhold a clarification in the light of a concrete situation that left parties or 'successors and assigns' in the dark as to their duty toward the court. Enforcement orders are issued to effectuate the purposes of the Act, not for the entrapment of parties, and courts no less than parties desire to avoid unwitting contempts as well as to punish deliberate ones."); 11A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE § 2956, at 343 (2d ed. 1995) ("It should be noted that when an interested individual is confused as to the applicability of an injunction to him or whether the scope of an order applies to certain conduct, he may request the granting court to construe or modify the decree."). The Fifth Circuit has acknowledged that district courts may clarify injunctions after entering them. Cf., e.g., Frazar v. Hawkins, 376 F.3d 444, 447 (5th Cir. 2004) (explaining that appellate jurisdiction does not extend to district-court orders that clarify injunctions).
This court entered an Order enjoining Rapid from: seeking to enforce rights of first refusal or security interests in transfer agreements, unless before taking any enforcement action a court authorized by the applicable state structured settlement act to approve the proposed transfer has done so in accordance with that act. "Enforcing rights of first refusal or security interests" in the preceding sentence includes, but is not limited to, sending letters that threaten legal action, filing UCC statements, or seeking relief in a legal proceeding.
(Docket Entry No. 253, at 3). This court's Memorandum and Order stated that court approval of a transfer of a right of first refusal or a security interest in accordance with the applicable Act requires that the approving court make "express findings" that:
(1) the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents;
(2) the payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received the advice or knowingly waived the advice in writing; and
(3) the transfer does not contravene any applicable statute or an order of any court or other governmental authority.
(Docket Entry No. 252 at 61 (quoting TEX. CIV. PRAC. & REM. CODE § 141.004)).
The attached exemplar specifically identified monthly payments to be transferred from the annuitant to Rapid:
The following portion of the monthly payments originally in the amount of $2,337.66 (subject to a 3% annual increase every December 27th, presently as of December 27, 2007 in the amount of $2,709.99): Two Hundred Four (204) monthly payments each in the amount of $1650 (subject to a 3% annual increase each December 27th) beginning on December 27, 2015 through and including November 27, 2032 (ultimately increasing to $2,657.77 per month (the "Assigned Payments"). (Docket Entry No. 261, Ex. B, at 3). The exemplar did not mention a right of first refusal or security interest. The exemplar did, however, state that the annuitant has been provided with a separate Disclosure Statement, in compliance with the relevant Act. (Id. at 2). The Disclosure Statement, which Rapid Settlements also attached, stated that, "[a]side from the actual payments listed above, you are also granting to Rapid Settlements, Ltd. a 10 day right of first refusal in all of your remaining Periodic Payments" and "a security interest in all your remaining Periodic Payments due under your annuity." (Id., Ex. A, at 3).
The exemplar that Rapid attached does not satisfy the standard for court approval. The reference to the Disclosure Statement is not sufficient.*fn2 The Acts require court approval not just for the sale of structured-settlement payment rights, but also to the "pledge, hypothecation, or other alienation or encumbrance of structured settlement payment rights," all of which include rights of first refusal and security interests. See, e.g., TEX. CIV. PRAC. & REM. CODE §§ 141.002(18), .004.
To satisfy this requirement, a court order must specifically identify the right of first refusal or security interest to be granted, as the exemplar did with the portions of the future income stream to be transferred. Because court orders such as Rapid's attached exemplar do not satisfy the standard for a transfer of rights of first refusal or security interests, Rapid may not invoke such court orders in arbitration as a basis for enforcing purported rights of first refusal or security interests.
III. The Motions for Summary Judgment
A. The Summary-Judgment Standard
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a). "The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact." Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322--25 (1986)). If the burden of proof at trial lies with the nonmoving party, the moving party may satisfy its initial burden by "'showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325. Although the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmoving party's case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005). "A fact is 'material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law." Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir. 2009) (internal quotation marks omitted). "If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the non-movant's response." United States v. $92,203.00 in U.S. Currency, 537 F.3d 504, 507 (5th Cir. 2008) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam)).
When the moving party has met its Rule 56(a) burden, the nonmoving party cannot survive a summary-judgment motion by resting on the mere allegations of its pleadings. The nonmoving party must identify specific evidence in the record and articulate how that evidence supports that party's claim. Baranowski v. Hart, 486 F.3d 112, 119 (5th Cir. 2007). "This burden will not be satisfied by 'some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'" Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d at 1075). In deciding a summary-judgment motion, the court draws all reasonable inferences in the light most favorable to the nonmoving party. Connors v. Graves, 538 F.3d 373, 376 (5th Cir. 2008).
B. The Declaratory Judgment Act
Each party seeks relief under the federal Declaratory Judgment Act, which provides that "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). The Declaratory Judgment Act is "an enabling act, which confers a discretion on the courts rather than an absolute right on a litigant." Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)). "The Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton, 515 U.S. at 286. "In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Id. at 288.
Although the permissive "may" in § 2201(a) gives the district court broader discretion to decline to hear a declaratory-judgment action than it has in other kinds of actions, the district court's discretion is not wholly unfettered. See Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382, 390 (5th Cir. 2001); St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590 (5th Cir. 1994); Travelers Ins. Co. v. La. Farm Bureau Fed'n, Inc., 996 F.2d 774, 778 (5th Cir. 1993). In deciding whether to retain or dismiss a federal declaratory-judgment action, a district court "must determine: (1) whether the declaratory action is justiciable; (2) whether the court has the authority to grant declaratory relief; and (3) whether to exercise its discretion to decide or dismiss the action." Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383, 387 (5th Cir. 2003) (citing Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000)).
C. NASP's and Symetra's Requests for Declaratory Relief
NASP and Rapid seek similar declaratory relief. Symetra seeks declarations that:
(1) Rapid's attempts to obtain security interests, secured rights of first refusal and powers of attorney coupled with interests, based on provisions in its transfer agreements, are all "transfers" under the Protection Acts and are ineffective absent court approval;
(2) Rapid must comply with the Protection Act of the state in which each payee resides;
(3) [U]nder most Protection Acts, Rapid's transfer agreements are ineffective, as against payees, absent court approval due to the Protection Act's "no liability" provisions, and other provisions, when the Acts are read as a whole;
(4) Symetra is entitled to object to proposed Rapid transfers without regard to Symetra's alleged motives; and
(5) Symetra is not bound by any garnishment or other collection device that would have the effect of causing a transfer absent Protection Act court approval. (Docket Entry No. 277, at 15). NASP, meanwhile, seeks declarations that:
(1) Rapid's attempts to obtain and acquire security interests, secured rights of first refusal, and powers of attorney coupled with interests from payees are "transfers" under the [Protection Acts] and are ineffective absent state court approval;
(2) Rapid therefore must comply with the applicable [Protection Act] when it seeks to obtain or acquire security interests or rights of first refusal in structured settlement payment rights;
(3) Rapid cannot use arbitration proceedings, in lieu of court orders issued under applicable [Protection Acts], to effectuate transfers, including rights of first refusal and security interests, of structured settlement payment rights; and
(4) Rapid must comply with [Protection Acts] seeking state court approval for any transfer of a structured settlement payment rights. (Docket Entry No. 282, at 13). These requests are considered together insofar as they overlap.
Rapid does not contest the Sherwin-Williams factors. Instead, it argues that this court should not grant declaratory relief insofar as that would duplicate the relief already granted through the final injunctions. Rapid relies on the Fifth Circuit's decisions in Pan-Islamic Trade Corporation v. Exxon Corporation, 632 F.2d 539 (5th Cir. 1980), and Madry v. Fina Oil & Chemical Company, No. 94-10509, 1994 WL 733494 (5th Cir. Dec. 27, 1994). Neither case supports Rapid's position.
Pan-Islamic Trade was not a declaratory-judgment case. Rather, it concerned whether the trial court abused its discretion in denying leave to amend a complaint under Rule 15 to add claim under the Sherman Act. The Fifth Circuit affirmed, because the plaintiff failed to allege sufficient facts to show it had standing under the Sherman Act. 632 F.2d at 545--46.
In Madry, the court invalidated a declaratory judgment that the plaintiff was an at-will employee because the judgment "was duplicative and superfluous in light of the resolution of the contract claim. . . . The declaratory judgment does not declare any significant rights not already at issue in the contract dispute and the grant of such relief was an abuse of discretion under the Texas declaratory judgment statute." 1994 WL 733494, at *2. NASP distinguishes Madry from the present case. NASP notes that the relief it seeks includes a declaratory judgment that the power-of-attorney clause in Rapid's transfer agreements is a transfer under the Acts. This issue was not addressed in the injunction litigation, thereby making parts of the declaratory relief non-duplicative.
Rapid's reliance on Madry is also unpersuasive because the federal Declaratory Judgment Act, not its Texas counterpart, applies in federal court. See Utica Lloyd's of Tex. v. Mitchell, 138 F.3d 208, 210 (5th Cir. 1998) (citing Housing Auth. v. Valdez, 841 S.W.2d 860, 864 (Tex. App.-Corpus Christi 1992, writ denied)); Little Giant Mfg. Co. v. Chromalox Indus. Heating Prods., No. 1:96-CV-44, 1996 WL 363026, at *3 (E.D. Tex. June 26, 1996) (holding that declaratory relief should be examined under federal, not Texas, declaratory-judgment law, even though the case was first filed in state court under the Texas statute); see also Haagen-Dazs Shoppe Co. v. Born, 897 F. Supp. 122, 126 n.2 (S.D. N.Y. 1995) (under Erie, federal declaratory-judgment act governs propriety of declaratory relief in diversity cases); DeFeo v. Proctor & Gamble Co., 831 F. Supp. 776, 779 (N.D. Cal. 1993) (federal declaratory-relief action is implicated even in diversity actions); cf. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 674 (1950) ("[T]hat the declaratory remedy which may be given by the federal courts may not be available in the State courts is immaterial.").*fn3
Under federal law, there is no rule against duplicative relief. The Declaratory Judgment Act allows the court to enter a declaratory judgment "whether or not further relief is or could be sought."
28 U.S.C. § 2201(a). The Federal Rules of Civil Procedure make clear that a district court cannot decline to enter a declaratory judgment merely because of the "existence of another adequate remedy." FED. R. CIV. P. 57; Marinechance Shipping Ltd. v. Sebastian, 143 F.3d 216, 219 (5th Cir. 1998) ("Rule 57 of the Federal Rules of Civil Procedure expressly states that the availability of an alternative remedy does not prevent the district court from granting a declaratory judgment."). As the 1937 Advisory Committee notes explain, "the fact that another remedy would be equally effective affords no ground for declining declaratory relief." FED. R. CIV. P. 57 advisory committee notes (1937); Tierney v. Schweicker, 718 F.2d 449, 457 (D.C. Cir. 1983); United States v. 0.35 of an Acre of Land, More or Less, Situated in Westchester Cnty., N.Y., 706 F. Supp. 1064, 1073 (S.D.N.Y. 1988). Accordingly, this court will consider the claims for declaratory relief.
1. Powers of Attorney Coupled with Rights of First Refusal and Security Interests Are "Transfers" Under the Acts
NASP and Symetra seek a declaratory judgment that Rapid's use of security interests and rights of first refusal, and powers of attorney coupled with those interests, are "transfers" under the Acts, requiring Rapid to comply with the applicable Act when it seeks such rights. This court has already held that the rights of first refusal and security interests are "transfers" under the Acts. (See Docket Entry No. 252, at 50--55). This court has not yet specifically addressed the role of security interests.
In a typical agreement, the power-of-attorney clause reads:
8. Power of Attorney. Assignor hereby grants to Rapid Settlements an Irrevocable Power of Attorney with full powers of substitution to do all acts and things that Assignor might do regarding the Periodic Payments and any and all rights Assignor has under the Settlement Agreement, including, without limitation, the power to endorse checks, drafts or other instruments, the power to alter edit and change payment instructions and/or beneficiary designation and any other act which, in the sole discretion of Rapid Settlements as Assignor's Attorney-in-Fact, is necessary or expedient for Rapid Settlements to obtain all of the benefit of the bargain contemplated by this agreement. The power of attorney is coupled with an interest and shall survive Assignor's death or disability. (Symetra Preliminary Injunction Binder 2, Ex. 1.3, Agreement at 4--5). The agreements also typically contain a right of first refusal and security interest in the payments that this court already has held qualify as transfers. The power-of-attorney clause gives Rapid the power to effect the transfers by "any  act" necessary. When linked with the security interests and rights of first refusal, it is an "encumbrance" under the Acts and qualifies as a "transfer." See In re Rapid Settlement Ltd.'s Application for Approval of Structured Settlement Rights, 136 P.3d 765, 769--70 (Wash. Ct. App. 2006).
2. Rapid Must Comply with the Applicable Act Before Effecting a "Transfer"
NASP and Symetra seek a declaratory judgment that Rapid must comply with the Acts when seeking any transfer, and that Rapid cannot use arbitration to effect any transfer. This court already has held that Rapid cannot use arbitration to evade an Act's requirements. (See Docket Entry No. 252, at 64). Rapid opposes this request insofar as it would require Rapid to comply with the Act of the state in which each payee resides.
Rapid and Symetra have already contested one iteration of this issue in the State of Washington. Symetra argued in a Washington court that the judge should not approve the proposed transfer unless it met the requirements of North Carolina, the home state of the payees. Under the Washington Act, a court must find that the "transfer does not contravene any applicable statute" as a condition for approval. WASH. REV. CODE § 19.205.030(3); Rapid Settlements, 136 P.3d at 772; see also WASH. REV. CODE § 19.205.060(5) ("This chapter does not authorize any transfer of structured settlement rights in contravention of any law . . . ."). Looking to the North Carolina Act, the Washington court found that it required court approval of any transfer of structured-settlement payments to a person "domiciled" in North Carolina. Rapid Settlements, 136 P.3d at 367 (citing N.C. GEN. STAT. §§ 1-543.11(12)(a), .12)). The court held that the North Carolina Act was applicable to the transaction. Id. Both the Texas and Washington Acts require that the court from which approval is sought find that the proposed transfer does not contravene any applicable law.
TEX. CIV. PRAC. & REM. CODE § 141.004(3); WASH. REV. CODE § 19.205.030(3). As this court has already observed, this requirement is "typical," (Docket Entry No. 252, at 5), and Rapid has not indicated that any of the Acts vary in this respect. Nor has Rapid suggested that the North Carolina Act is unique in its application to all transfers for its residents.
Rapid's only argument in response is that 26 U.S.C. § 5891 preempts any such requirement. Courts have repeatedly rejected this argument. See, e.g., Annuity Transfers, Ltd. v. United States,
86 Fed. Cl. 173, 182--83 (Fed. Cl. 2009).*fn4 Section 5891 only determines what tax treatment a transfer receives, not whether a transfer is valid. Subsection (a) creates a tax "imposed on any person who acquires directly or indirectly structured settlement payment rights in a structured settlement factoring transaction." Subsection (b) then allows exceptions to the tax. Section 5891 specifically acknowledges that the Acts exist, making approval under an Act a precondition to an exemption from the tax. See 26 U.S.C. § 5891(b)(2). Section 5891 does not preempt the Acts. See Wyeth v. Levine, 129 S. Ct. 1187, 1194--95 (2009) (explaining the presumption that Congress has not preempted state law unless preemption was "the clear and manifest purpose of Congress" (quoting Medtronic, Inc. v. Lohr, 518 U.S. at 470, 485 (1996))).
3. Only California, Nevada, and West Virginia's Acts Make the Enforceability of a Transfer Agreement Contingent on Court Approval
Symetra seeks a declaratory judgment that the entirety of a proposed
transfer agreement is ineffective against a payee until a court
approves it under the applicable Act. California, Nevada,
and West Virginia expressly so provide. CAL. INS. CODE § 10136(c)(1);
NEV. REV. STAT. § 42.030(1); W. VA. CODE § 46A-6H-3(a),*fn5
and Rapid conceded that in such states, the transfer
agreement is invalid absent court approval.
The parties disagree whether transfer agreements are invalid absent court approval under Georgia law. Under the Georgia Act, "[a]ny payee who executes in writing a transfer agreement shall have the right to rescind the transfer within the next 21 days following the written execution of the transfer agreement or at the hearing . . . , whichever event occurs last." GA. CODE § 51-12-72(c). Rapid argues that although the statute allows cancellation of the agreement, it does not make the agreement contingent on court approval. The declaratory relief Symetra seeks appears broader than Georgia law supports. The Georgia statute gives the payee the right to cancel the ...