in Re: Rapid Settlements, Ltd

• Court: Court of Appeals of Texas
• Decided: March 29, 2007
• Docket: 14-06-00698-CV
• Status: Published

Opinion

Petition for Writ of Mandamus Denied and Memorandum Opinion filed March 29, 2007

Petition for Writ of Mandamus Denied and Memorandum Opinion filed March 29, 2007.

In The

Fourteenth Court of Appeals

____________

NO. 14-06-00698-CV

IN RE RAPID SETTLEMENTS, LTD., Relator

ORIGINAL PROCEEDING

WRIT OF MANDAMUS

M E M O R A N D U M   O P I N I O N

Relator Rapid Settlements, Ltd. has filed a petition for a writ of mandamus requesting that we direct the trial court to compel arbitration in a dispute involving real parties Simmie B. King and Settlement Funding, LLC d/b/a Peachtree Settlement Funding.  See Tex. Gov=t Code Ann. ' 22.221 (Vernon 2004).  Because Rapid Settlements has not established its right to arbitration, we deny the petition.

                                                         I.  Factual Background

Rapid Settlements is a factoring company  that purchases future income streams from individuals who are entitled to receive future payments, typically as compensation for the settlement of a personal injury claim.  Rapid Settlements offers to buy the individual=s future income stream in exchange for an immediate lump sum payment.  Because of the risks for abuse inherent in such arrangements, most states, including Texas, have enacted statutes that require court approval of proposed transfers of settlement funds.  See Tex. Civ. Prac. & Rem. Code '' 141.001B.007 (Vernon 2005) (detailing the AStructured Settlement Protection Act@).^[1]

In this case, Rapid Settlements offered to purchase a future income stream to which Simmie King was entitled.  As a result of an earlier settlement, Mr. King was entitled to receive eighty-three (83) monthly payments in the amount of $532.50, beginning on September 1, 2009 and ending on July 1, 2016.  The sum of these payments over time exceeded $44,000.  Rapid Settlements offered an immediate lump sum of $12,000 to receive these payments.  Mr. King agreed, and on January 5, 2005, the parties executed an agreement entitled AAmended Transfer Agreement (For Transfer of Structured Settlement Payments)@ to govern their transaction (ATransfer Agreement@).  The Transfer Agreement contains an arbitration clause.^[2]

Because Mr. King resides in Georgia, the parties applied to a Georgia court for approval of the Transfer Agreement, as required by Georgia law.  See generally Ga. Code Ann. ' 51-12-70 et seq.  The Georgia Court refused to approve the proposed transfer.  On May 23, 2005, the Georgia court issued a final order expressly finding that, after considering the evidence, including Mr. King=s testimony, Athe proposed transfer is not in the best interest of Mr. King.@ 

Mr. King accordingly entered a second agreement with another company, Settlement Funding, for the purchase of the same future income stream.  On January 12, 2006, the Georgia Court approved the transfer proposed by Settlement Funding, expressly finding, among other things, that the proposed transfer Ais fair and reasonable and in the best interest of [Mr. King] taking into account the welfare and support of his dependents.@  After Rapid Settlements received notice of this order, Rapid Settlements began asserting a Aright of first refusal@ that it claimed to have in Mr. King=s future income stream, threatening to initiate arbitration if it was not permitted to exercise this right.^[3]

When Mr. King did not acquiesce to Rapid Settlements= demand, on January 25, 2006, Rapid Settlements initiated arbitration in Texas before an arbitrator, Jeffery Newport, whom Rapid Settlements has allegedly used several times in the past.  The arbitrator promptly issued an order finding that he had jurisdiction over Mr. King, Settlement Funding, and all of the future income payments themselves.  He then issued a scheduling order setting the arbitration for April 25, 2006.

Settlement Funding and Mr. King both sought to prevent the arbitration from going forward by seeking temporary restraining orders from Texas district courts.^[4]  Temporary restraining orders were granted and extended, and the two cases were consolidated.  The hearing on the temporary injunction and Rapid Settlements= motion to compel arbitration was eventually set for June 2006.  Apparently, at Rapid Settlements= request, the arbitrator also issued a new scheduling order re-setting arbitration for June 2006.  Because Rapid Settlements would not agree to stay the arbitration until after a hearing on the temporary injunction and its own motion to compel arbitration, Settlement Funding and Mr. King sought emergency relief from the trial court.  The trial court agreed that emergency relief was warranted and granted an order restraining Rapid Settlements from conducting any arbitration until it received an order compelling arbitration from the trial court.  Rapid Settlements filed its first petition for mandamus, which this court dismissed as moot absent a ruling from the trial court on the pending motion to compel.    

The parties returned to the trial court.  After an oral hearing, the trial court entered an order denying the motion to compel.  Rapid Settlements filed its second petition for a writ of mandamus, which we address herein.

                                                                   II.  Analysis

Denials of motions to compel arbitration under the Federal Arbitration Act are typically reviewable via a petition for mandamus.  See FirstMerit Bank, N.A., 52 S.W.3d 749, 753 (Tex. 2001).  A party seeking to compel arbitration by a writ of mandamus must: (1) establish the existence of a valid agreement to arbitrate under the Federal Arbitration Act (AFAA@), and (2) show that the claims in dispute are within the scope of the agreement.  In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding). AWhether a valid arbitration agreement exists is a legal question subject to de novo review.@  In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006).

Rapid Settlements is not a stranger to Texas courts.  Two Texas courts have recently addressed whether Rapid Settlements is entitled to arbitration under circumstances similar to those in this case.  The Southern District of Texas enjoined Rapid Settlements from conducting arbitrations that would effect transfers of settlement rights, portraying Rapid Settlements= strategy as one of using arbitration to effect the transfer of all or part of the future-payment stream under the annuities, despite the absence of court approval for such a transfer under the applicable state structured settlement protection statute.  See Symetra Life Ins. Co. v. Rapid Settlements Ltd., No. H-05-3167, 2007 WL 114497, at *21B22 (S.D. Tex. Jan. 10, 2007).  The Beaumont Court of Appeals has also recently ruled that Rapid Settlements may not obtain rights to structured settlement proceeds by arbitration absent court approval of its contract.  In re Rapid Settlements, Ltd., 202 S.W.3d 456, 462B63 (Tex. App.CBeaumont 2006, orig. proceeding [mand. denied])(refusing to order arbitration because Rapid had failed to obtain court approval under the Settlement Act). 

We agree with the outcome of these cases: Rapid Settlements may not avoid mandatory state statutes designed to protect the beneficiaries of structured settlements by resorting to arbitration.  Although our decision does not rest on these grounds, we note that this case involves: (1) a non-negotiated arbitration clause in a form contract that Rapid Settlements drafted, (2) a demand for arbitration before an arbitrator that Rapid Settlements chose without Mr. King=s input, whom Rapid Settlements has apparently used on several occasions before, and (3) a process that Rapid has hurried at every turn, trying to force Mr. King to arbitration notwithstanding the fact that issues relating to the enforceability of the relevant arbitration clause were pending in the trial court.

A Georgia court has already issued two final orders regarding Mr. King=s settlement proceeds.  That court unequivocally found that the proposal by Rapid Settlements was not in Mr. King=s best interests and refused to approve it as such.  It also found that Mr. King=s arrangement with Settlement Funding was in his best interests, and issued a final order approving the Settlement Funding arrangement.  Rapid Settlements now tries to force an arbitration that will revisit one or both of these final rulings. 

Rapid Settlements claims that it is only trying to enforce a right of first refusal, which it maintains is still valid.  An examination of its arbitration demand suggests otherwise.  Rapid Settlements expressly states that it seeks to void the transaction between Mr. King and Settlement Funding and reinstate its own transaction with Mr. King.  In addition to this, Rapid Settlements demands that Mr. King and Settlement Funding be jointly responsible for it attorneys= fees and costs, including the arbitrator=s fee.  The arbitration demand states:

Rapid continues to have a valid contract with Mr. King. . . . Rapid therefore seeks that [sic] the voiding of the transfer between Mr. King and Settlement Funding . . . and that Rapid, which has invoked [the] contractual right of first refusal be allowed to consummate its transaction free of Settlement Funding=s interference.  Additionally, Rapid seeks the costs of these proceedings including Rapid=s attorneys [sic] fees.

Claimant seeks an order and judgment against Mr. King and a turnover/garnishment of the future payments described in the transfer order obtained by Settlement Funding.  Rapid will pay to Mr. King the called for up-front cash payment . . . following the entry of the arbitrator=s award by an appropriate court.  Such amount would be reduced by the other damages (the costs of these proceedings and Rapid=s attorneys= fees).  In essence the arbitrator is being asked to specifically enforce the contracts at issue.

In the alternative, [Rapid] seeks payment of the ten percent penalty called for under the agreement which should be awarded against both [Mr. King and Settlement Funding], along with a garnishment and turnover order be [sic] issued in connection with same.

In all instances, Rapid requests that the costs of this proceeding including Rapid=s attorneys [sic] fees and the arbitrator=s compensation be assessed against Respondents jointly and severally.

(January 25, 2006 Arbitration Demand) (emphasis added).

Rapid Settlements cannot accomplish in arbitration that which a Georgia court has already refused to allow as contrary to Mr. King=s best interests.  As the Southern District of Texas concluded, Rapid cannot use arbitration proceedings to avoid the applicable state structured settlement protection acts by obtaining arbitration awards to effect a transfer of structured settlement future payment rights.  See Symetra, 2007 WL 114497, at *34.  This is particularly true where, as here, a state court has already issued final orders rejecting the transfer that Rapid Settlements proposed and accepting the transfer proposed by Settlement Funding.  See also In re Rapid Settlements, 202 S.W.3d at 461B62 (holding that the agreement is not effective until the trial court Aapproves the transfer in a final order,@ because Athe word >transfer= in section 141.004 refers to the transfer agreement, not just to the payment to the transferee@).

Rapid Settlements has not established its right to arbitration.  We accordingly deny the petition for mandamus.     The emergency stay granted on August 14, 2006, is lifted.         

PER CURIAM

Petition Denied and Memorandum Opinion filed March 29, 2007.

Panel consists of Justices Anderson, Hudson, and Guzman.

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            ^[1]In a recent decision involving Rapid Settlements, the Southern District of Texas noted that A[t]he legislatures of forty-three states . . . saw a potential for abuse in these secondary-market transactions and enacted paternalistic statutes regulating them.@  Symetra Life Ins. Co. v. Rapid Settlements, Ltd., No. H-05-3167, 2007 WL 114497, at *1 (S.D. Tex. Jan. 10, 2007).

            ^[2]In relevant part, Rapid Settlements= arbitration clause provides: AAny dispute or disagreement arising under this Agreement of any nature whatsoever including but not limited to those sounding in constitutional, statutory, or common law theories as to the performance of any obligations, the satisfaction of any rights, and/or the enforceability hereof, shall be resolved through demand by any interested party to arbitrate the dispute and shall submit the same to a nationally recognized, neutral, arbitration association for resolution pursuant to its single arbitrator, expedited rules.@ (Amended Transfer Agreement '11(a).). 

            ^[3]In relevant part, the Transfer Agreement provides that A[in consideration of the Transfer Agreement=s execution, Assignor hereby grants and conveys to Rapid Settlements a ten (10) day right of first refusal beginning upon Rapid Settlements= receiving actual written notification of an offer to purchase or otherwise acquire any Periodic Payments, as follows: If Assignor receives an oral or a written offer to sell, assign, borrow against, pledge or otherwise encumber any Periodic Payments and Assignor desires to enter into a transaction involving the sale, assignment, borrowing against, pledging, or other encumbrance thereof, Assignor agrees to immediately notify Rapid Settlements in writing: (a) that Assignor has received such an offer; and (b) describing in detail all terms of said offer along with providing all writings evidencing such.  Assignor agrees to direct any other purchaser to pay over to Rapid Settlements ten percent of the amount of Assigned Payments transferred by Assignor to a person in violation or breach of this para. 10.@ (Transfer Agreement ' 10.).

            ^[4]This procedural background is a summary of the procedural rulings that are relevant to Rapid Settlement=s petition for a writ of mandamus.