California Supreme And Appellate Court
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Contract Law

CONTRACT LAW

■ 321 Henderson Receivables Origination LLC v. Sioteco F056205

INTRODUCTION

Petitioner, 321 Henderson Receivables Origination LLC (hereinafter Henderson) appeals from a final consolidated Order Denying Petition for Approval of Transfer of Structured Settlement Payment, contending that the superior court committed multiple legal errors.  For the following reasons, we reverse.[1]

FACTUAL BACKGROUND AND PROCEDURAL HISTORY[2]

A.     General Background

Henderson, an indirect subsidiary of J.G. Wentworth, LLC, is a factoring company.  Factoring companies deal with people who receive structured settlements.  “Structured settlements are a type of settlement designed to provide certain tax advantages.  In a typical personal injury settlement, a plaintiff who receives a lump-sum payment may exclude this payment from taxable income under I.R.C. [Internal Revenue Code] § 104(a)(2) (providing that the amount of any damages received on account of personal injuries or sickness are excludable from income).  However, any return from the plaintiff’s investment of the lump-sum payment is taxable investment income.  In contrast, in a structured settlement the claimant receives periodic payments rather than a lump sum, and all of these payments are considered damages received on account of personal injuries or sickness and are thus excludable from income.  Accordingly, a structured settlement effectively shelters from taxation the returns from the investment of the lump-sum payment.  [Citations.]”  (Western United Life Assur. Co. v. Hayden (3rd Cir. 1995) 64 F.3d 833, 839-841 (Western).)

■ Held:Reversed

In an action involving the transfer of structured settlement payments, trial court judgment is reversed where: 1) trial court erred in denying plaintiff's Structured Settlement Transfer Act petitions as the anti-assignment provisions in the settlement agreement do not bar transfers of structured settlement payment rights where no interested parties have objected; 2) a conclusion that the petitions must be denied because the transfers would violate the prohibition on usury found in California's Constitution was in error as the transfer of structured settlement payment rights under the Act is not a loan secured by assignment of periodic payments but is a sale of certain rights to receive periodic payments; and 3) many of the trial court's factual findings and legal conclusions on the issue of whether the payees received independent professional advice were erroneous.
321 Henderson v. Sioteco -F056205-5/6/09 CA5
321 Henderson v. Sioteco -F056205-5/6/09 CA5-pdf

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