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RSL Funding, LLC v. JG Wentworth Originations, LLC

United States District Court, Fifth Circuit

December 20, 2013

RSL FUNDING, LLC, Plaintiff,


GRAY H. MILLER, District Judge.

Pending before the court is a motion to dismiss plaintiff RSL Funding, LLC's ("RSL") supplemental pleading pursuant to Federal Rule of Civil Procedure 12(b)(1) or 12(b)(6) and, alternatively, motion for summary judgment filed by defendant J.G. Wentworth Originations, LLC ("Wentworth"). Dkt. 24. Having considered the motion, response, reply, and applicable law, the court is of the opinion that the motion should be GRANTED.


Wentworth and RSL are competitors in the secondary market for structured settlement receivables. Dkt. 20. They purchase structured settlement payment rights from payees. Id. The Texas Legislature has enacted the Texas Structured Settlement Protection Act ("SSPA")" to protect unwary tort claimants from potential abuse in their transactions with companies that buy tort claimants' future payment rights in exchange for a present lump sum." Tex. Civ. Prac. & Remedies Code Ann. § 141.001 n.1 (purpose of statute). Under the SSPA, transactions to purchase settlement payment rights from payees must be approved by a court. Id. § 141.004. In order to approve the transaction, the court must find that it is in the best interest of the payee, that the payee has been advised in writing to seek independent professional advice or waived that right, and that the transfer does not contravene a statute, court order, or other government authority. Id.

Some structured settlement payees seek to sell part of their monthly settlement amounts for a lump sum and retain the other portion. See generally Dkt. 20. Indeed, some payees elect to sell portions of their settlement payment rights multiple times, to multiple purchasers. See id. (discussing multiple transactions relating to Shantel Freelon's settlement payment rights). Under the SSPA, settlement obligors or annuity issuers "may not be required to divide any periodic payment between the payee and any transferee or assignee or between two or more transferees or assignees." Tex. Civ. Prac. & Remedies Code Ann. § 141.005(4). Some insurance companies will not agree to split the payments. See Dkt. 20 (noting that PacLife and Confederation Annuity would not agree to split payments of Freelon's annuity). Wentworth was able to get around this obstacle by obtaining court approval of a payment servicing arrangement whereby the court orders 100% of the payments to be remitted to Wentworth during the payment period set forth in the order, and then Wentworth retains its portion and remits the remainder to the structured settlement payee (the "Wentworth Servicing Plan"). Id.

On at least two occasions-one involving settlement payment rights of Shantel Freelon and one involving settlement payment rights of Onexada Perez-RSL has desired to buy other portions of structured settlement payees' payment rights in Texas after courts have entered the Wentworth Servicing Plan, and Wentworth has moved to intervene, arguing that the orders it received approving the Wentworth Servicing Plan were final and non-appealable and that the RSL transaction could not be approved because it would contravene the prior orders and the Texas Transfer Statute. Id. The Texas courts ultimately approved the RSL transactions in both the Freelon and the Perez cases, and Wentworth has appealed both cases to the First Court of Appeals in Houston. Id.

Florida has a similar but not identical statutory scheme, and Wentworth obtained Florida court approval of the Wentworth Servicing Plan when it purchased portions of settlement payment rights of Annette Protani and Jamie Richard Bentley. Id. Like the Texas cases, RSL initiated court proceedings to obtain portions of the payments due Protani and Bentley and the courts approved the transactions. Id. However, in the Protani matter, Wentworth filed a motion to vacate, which was granted after Protani sent in a letter asking that the order be set aside. Id. & Ex. 48. In the Bentley case, Wentworth "balked at complying with the RSL-Bentley Order, " which required Wentworth to receive and service payments for RSL's assignee, Extended Holdings. Dkt. 20 & Exs. 36, 37. The Florida court eventually ordered the structured settlement obligor to split the payments between Wentworth and RSL, noting that the Florida statute does not prohibit courts from ordering the obligor to split payments. Dkt. 20 & Ex. 41.

The instant case is an offshoot of the Freelon matter. RSL filed its application for transfer of a portion of Freelon's structured settlement payment rights in the 152nd Judicial District Court in Harris County, Texas, on March 27, 2012. Dkt. 1. On May 1, 2012, Wentworth filed a plea in intervention and objection to transfer. Id. On May 24, 2012, RSL filed a "Supplemental Pleading Asserting Claim for Decalratory [sic] Judgment" in the state court against Wentworth. Wentworth removed the case to this court on May 28, 2012. Id. RSL filed a motion to transfer the case to Judge Lee Rosenthal in the interest of judicial economy due to Judge Rosenthal's familiarity with the SSPA in Texas and around the country. Dkt. 2. RSL also argued that only a state court could approve the transfer of Freelon's settlement funds to RSL. Id. On October 15, 2013, the court denied the motion to transfer the case to Judge Rosenthal, but it severed and remanded the claims relating to RSL's request for court approval of the transfer of Freelon's payments to RSL. Dkt. 13.

In its supplemental pleading, RSL seeks a declaratory judgment stating: (1) the RSL "has a legal right to enter into transactions with annuitants that have non-assigned structured settlement payments rights serviced by Wentworth due to a prior transaction between an annuitant and Wentworth"; (2) "[t]hat it is in the best legal interest of the annuitants to receive and at least be able to consider [RSL's] offers to purchase structured settlement payment rights for monies that belong to the annuitant but are currently being serviced by Wentworth"; (3) "[t]hat Wentworth has imposed an encumbrance on structured settlement payment rights not transferred to it by a court of competent jurisdiction in accordance with Chapter 41 of the Texas Civil Practice Remedies Code in Texas and other states"; (4) that [b]y asserting an encumbrance on structured settlement payments rights not transferred to it by a court of competent jurisdiction in accordance with Chapter 141 of the Texas Civil Practice Remedies Code, Wentworth is subject to a 40% federal excise tax pursuant to 26 U.S.C. § 5891"; and (5) "[t]hat Wentworth has violated the Texas Structured Settlement Protection Act by intentionally objecting to a proposed transfer of structured settlement payment rights between an annuitant and RSL...." Dkt. 1, Ex. 6. RSL also requests reasonable attorneys' fees under the Texas Uniform Declaratory Judgments Act. Id.

Wentworth argues that the supplemental claim should be dismissed pursuant to Rule 12(b)(1) because there is no justiciable controversy and pursuant to Rule 12(b)(6) because it contains no factual allegations capable of redress. Dkt. 24. Alternatively, Wentworth requests that the court apply the doctrines of abstention, res judicata, and/or collateral estoppel and dismiss RSL's claims or grant judgment as a matter of law in Wentworth's favor. Id.

II. Declaratory Judgment Act

RSL brought its claim in state court pursuant to the Texas Declaratory Judgments Act. See Dkt. 1, Ex. 6. Since a declaratory judgment is procedural rather than substantive, federal courts cannot award relief pursuant to state declaratory judgment acts. See, e.g., Hurd v. BAC Home Loans Servicing, LP, 880 F.Supp.2d 747, 769 (N.D. Tex. 2012). However, these actions "may be construed as [actions] brought under the federal Declaratory Judgment Act." Id. (citing 28 U.S.C. §§ 2201, 2202; Bell v. Bank of Am. Home Loan Servicing, LP, No. 11-cv-02085, 2012 WL 568755, at *8 (S.C. Tex. Feb. 21, 2012) (Ellison, J.)).

The federal Declaratory Judgment Act provides a federal court with jurisdiction over "a case of actual controversy within its jurisdiction, " with some exceptions, to "declare the rights and other legal relations of any interested party seeking such a declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). In order to satisfy the case-or-controversy requirement, a dispute "must be definite and concrete, touching the legal relations of parties having adverse legal interests'; and... it [must] be real and substantial' and admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.'" MedImmune, Inc. v. Genetech, Inc., 549 U.S. 118, 126, 127 S.Ct. 764 (2007) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461 (1937)). "Basically, the question in each case is whether the facts alleged, under all the circumstances, show that ...

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