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A.M.Y. Property & Casualty Insurance Corporation v. Insurance Company of North America

United States District Court, S.D. Texas, Houston Division

March 29, 2018

A.M.Y. Property & Casualty Insurance Corporation, et al., Plaintiffs,
v.
Insurance Company of North America, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          GRAY H. MILLER, UNITED STATES DISTRICT JUDGE.

         Pending before the court is a memorandum and recommendation (“M&R”) filed by Magistrate Judge Nancy Johnson. Dkt. 36. The Magistrate Judge considered defendant Insurance Company of America's (“INA”) motion to dismiss (Dkt. 5) and defendants Symetra Life Insurance Company (“Symetra Life”) and Symetra Assigned Benefits Service Company's (“SABSCO”) (collectively, “Symetra Defendants”) motion to dismiss (Dkt. 28). Id. Plaintiffs A.M.Y. Property & Casualty Insurance Corporation (“AMY”) and RSL-3B-IL, Limited Partnership (“3B”) (collectively, “Plaintiffs”) objected to the M&R. Dkt. 38. Symetra Defendants also objected. Dkt. 37. INA did not object. Having considered the M&R, complaint, motions, responses, replies, objections, and other relevant materials in the record, the court is of the opinion that Symetra Defendants' objections should be OVERRULED and Plaintiffs' objections should be SUSTAINED IN PART and OVERRULED IN PART.

         I. Background

         This case arises from a series of business transactions following the settlement of three independent lawsuits.[1] Dkt. 1 at 3, 7-8. INA is the obligor under a settlement agreement with Jodie Koehler. Id. at 3. SABSCO is the obligor under settlement agreements with Thomas Purcell and Janice Scott. Id. at 7, 8. To fund their obligations, INA and SABSCO purchased annuity contracts from Symetra Life. Id. at 3, 7, 8. Then, Rapid Settlements, Ltd. (“Rapid”) entered into three separate factoring agreements with Koehler, Purcell, and Scott. Id. at 4, 7, 8. 3B became the assignee of Rapid's rights. Id. at 4.

         A. Settlements and Factoring Agreements

         In 1989, INA entered into a settlement agreement with Koehler. Id. at 3. The settlement agreement provided for an immediate payment and periodic payments to Koehler over a span of nearly twenty-seven years. Dkt. 1-1 at 3. INA, per the agreement, purchased an annuity contract from Symetra Life to fund its liability for the periodic-payment portion of the settlement. Id. at 4. Pennsylvania law governed the settlement agreement. Id. at 7

         In December 2003, Koehler transferred and assigned to Rapid one periodic payment under the settlement agreement in the amount of $153, 500 due on August 4, 2016. Dkt. 1-3 at 1. Koehler granted Rapid all of Koehler's “right, title, and interest (including all benefits and rights relating thereto) in and to the [a]ssigned [p]ayment(s).” Id. The transfer agreement also provided Rapid with an irrevocable power of attorney to enforce Koehler's rights under the settlement agreement to obtain the benefit of the transfer agreement, a security interest in the assigned payment, the right to file financing statements, and a lien on all of Koehler's periodic payments. Id. at 4. Koehler and Rapid agreed that the agreement would “be binding upon and [would] inure to the benefit of the parties [t]hereto and their respective successors, heirs, legal representatives[, ] and permitted assigns.” Id. at 5. Rapid could assign its rights under the agreement. Id. at 6. Texas law governed the transfer agreement. Id. at 5.

         In order to secure the required court approval of the transfer, Rapid, 3B, INA, and Symetra Life entered into a written stipulation. Dkt. 1 at 4. The stipulation provided that: (1) all of Koehler's rights in the assigned payment were assigned to Rapid and/or 3B; (2) INA and Symetra Life agreed to abide by the stipulation and not to oppose the court petition to approve the transfer; (3) INA agreed to direct Symetra Life to forward the assigned payment to 3B as Rapid's assignee; (4) Symetra Life agreed to make the assigned payment according to the terms of the stipulation; and (5) in the event that Rapid or 3B further assigned the transferred payment, neither INA nor Symetra Life would be obligated to redirect the payment to any person or entity other than 3B. Dkt. 1-4 at 3. The stipulation also contained a release clause inuring to the benefit of INA and Symetra Life. Id. at 4-5. Pennsylvania law governed the stipulation. Id. at 6.

         On September 13, 2004, the Court of Common Pleas of Montgomery County, Pennsylvania, entered an order transferring Koehler's payment of $153, 500 due on August 4, 2016, to Rapid and/or 3B. Dkt. 1 at 6. The order repeated many of the stipulation's provisions, providing that: (1) all of Koehler's rights in the assigned payments were assigned to Rapid and/or 3B; (2) at the direction of INA, Symetra Life would forward the assigned payment to 3B; and (3) neither INA nor Symetra Life would be obligated to redirect the payment or any portion thereof to any other person or entity should the payment be further assigned. Dkt. 1-5 at 3. It also contained a similar release clause as the stipulation. Id. at 5-6. In a letter dated October 12, 2004, INA directed Symetra Life to forward the Koehler payment to 3B. Dkt. 1-18.

         Purcell and Scott also entered into factoring agreements. Dkt. 1 at 7-8. On February 23, 2004, the Superior Court of New Jersey, Middlesex County, entered an order directing Symetra Life to make certain payments to Rapid that were previously due to Purcell. Id. at 8. On March 1, 2007, the Civil County Court of Harris County, Texas, entered an order directing Symetra Life to make certain payments to Rapid that were previously due to Scott. Id. at 7.

         B. Business Transactions

         Beginning in 2003, a series of assignments and financing transactions moved the rights to the payments among various entities. In 2003, AMY made a loan to 3B that included “security agreements and [Uniform Commercial Code (“UCC”)]-1 and UCC-3 financing statements covering the Koehler, Scott, and Purcell [a]ssigned [p]ayments.” Id. at 8. 3B “represented and warranted its right to grant the security interest in the covered collateral[, ] which consisted of ‘all personal property' ‘now owned' or ‘hereafter acquired.'” Id. at 9.

         In 2004, 3B obtained a loan from Amegy Bank, NA (“Amegy”) and pledged a security interest in the Koehler, Scott, and Purcell payments. Id. at 10. “The original Amegy loan and security interest went through various extensions, restructures, and assignments involving different lenders, ultimately being assigned to Green Bank, NA and to IberiaBank.” Id. The bank “lenders maintained a continuous lien against the Koehler, Scott, and Purcell [a]ssigned [p]ayments as noticed and disclosed by UCC-1 financing statements and continuations.” Id.

         In 2008, FinServ Casualty Corp. (“FinServ”) entered into a participation agreement with AMY involving the loan to 3B. Id. at 9. “Thereafter, the loan was split into two loans with a separate loan for FinServ, which has been modified, amended[, ] and extended . . . with attendant security agreements and UCC-1 filings.” Id. Then, in April 2012, 3B “transferred and assigned its ownership interest in the Koehler, Scott, and Purcell [a]ssigned [p]ayments[] to RSL 2012-1, LP (“[RSL 2012]").” Id. 3B notified Symetra Defendants of the assignment, but remained RSL 2012's custodial agent for the purposes of receiving and administering the payments. Id.

         In February 2016, “the banks assigned the lien and related portion of [3B's] loan obligation to [AMY] and FinServ, ” including the security interest in the Koehler, Scott, and Purcell assigned payments. Id. at 10. In March 2016, AMY and FinServ foreclosed on their interests in the Koehler, Scott, and Purcell payments and purchased the payments at a public auction. Id. As of January 1, 2017, AMY and FinServ merged, leaving AMY as the successor organization. Id. at 9 n.2.

         Previously, in July 2016, Symetra Defendants notified AMY that they were executing on a judgment in their favor against Rapid by applying an offset to the $20, 000 Scott payment due on July 15, 2016, and to the $153, 500 Koehler payment due on August 4, 2016. Id. at 11. On December 28, 2016, Stewart Feldman, in his role as chief executive officer of RSL Funding, LLC, sent a demand letter to INA regarding the Koehler payment. Dkt. 1-17. “Another demand letter was sent on March 27, 2017[, ] demanding payment of the sums outstanding.” Dkt. 1 at 11.

         C. Procedural Background

         Plaintiffs sued INA, SABSCO, and Symetra Life alleging breach of contract, conversion, and wrongful offset.[2] Dkt. 1. In their ...


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