RSL Funding v. Alford

• Court: California Court of Appeal
• Decided: September 10, 2015
• Docket: E060421M
• Status: Published

Opinion

Filed 9/10/15 (unmodified opn. attached) CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

RSL FUNDING, LLC, E060421

Plaintiff and Respondent, (Super.Ct.No. RIC1308571)

v. ORDER MODIFYING OPINION AND DENYING PETITION FOR FELICIA ALFORD, REHEARING

Defendant and Respondent; [NO CHANGE IN JUDGMENT]

STATE FARM FIRE AND CASUALTY COMPANY et al.,

Objectors and Appellants.

THE COURT

The petition for rehearing filed on September 1, 2015, is denied. The opinion filed

in this matter on August 18, 2015, is modified as follows:

On page 3, the first full paragraph should read: On July 12, 2013, Alford entered

into a second contract with RSL in which Alford agreed to assign to RSL $25,000 of the

$100,000 payment due on August 11, 2016, and $25,000 of the payment of $151,558.80

1 due on August 11, 2021, in exchange for a current payment of $22,500. RSL assigned its

rights to receive the periodic payments to EHL. RSL filed a petition for approval of the

transfer. State Farm filed an opposition to the petition, asserting, among other grounds,

that (1) the proposed transfer would violate a California statute (Ins. Code, § 10139.5,

subd. (e)(3)),1 which provides that an annuity issuer and settlement obligor may not be

required to divide payments; and (2) the proposed transfer would materially increase

State Farm’s burdens and risks.

On page 4, the second full paragraph beginning “State Farm contends . . . ,” should

read: State Farm initially contended that the trial court’s order requires it to split the

$100,000 lump sum payment due on August 11, 2016, three ways, among (1) RSL

($25,000), (2) EHL, RSL’s assignee in the 2012 transfer ($50,000), and (3) Alford

($25,000). At oral argument, State Farm’s counsel conceded that because RSL had

assigned both the 2012 and 2013 payments to EHL, it was required to make only two

payments, not three.

On page 5, the third, fourth and fifth sentences in the first paragraph should read:

“‘One of the strongest indications of what construction should be given a statutory

provision may be found in the use of negative, prohibitory, or exclusionary words.

Where statutory restrictions are couched in negative terms they are usually held to be

mandatory. In the language of one court “there is but one way to obey the command

‘thou shalt not,’ and that is to refrain altogether from doing the forbidden act.”’

1 All further statutory references are to the Insurance Code unless otherwise indicated.

2 (2A Sutherland, [Statutory Construction (4th ed. 1972)] § 57.09, p. 661, fns. omitted.)”

(People v. Harner (1989) 213 Cal.App.3d 1400, 1418 (dis. opn. of Kline, J.).)

On page 8, in the first paragraph, the sentence beginning, “RSL and State Farm

agreed to an order similar . . . ,” should read: State Farm stated it would agree to an order

in the form of the 2012 order, but RSL did not submit that proposed order to the trial

court.

These modifications do not change the judgment.

CERTIFIED FOR PUBLICATION

McKINSTER Acting P. J. We concur:

KING J.

CODRINGTON J.

3 Filed 8/18/15 (unmodified version)

RSL FUNDING, LLC,

Plaintiff and Respondent, E060421

v. (Super.Ct.No. RIC1308571)

FELICIA ALFORD, OPINION

Defendant and Respondent;

APPEAL from the Superior Court of Riverside County. Dallas Holmes, Judge.

(Retired judge of the Riverside Super. Ct. assigned by the Chief Justice pursuant to art.

VI, § 6 of the Cal. Const.) Reversed.

Drinker Biddle & Reath, Ryan S. Fife, Alexis N. Burgess and Stephen R. Harris

for Objectors and Appellants.

1 Law Offices of Amir M. Kahana, Amir M. Kahana; The Feldman Law Firm and

E. John Gorman for Plaintiff and Respondent.

No appearance for Defendant and Respondent Felicia Alford, in pro. per.

INTRODUCTION

Objectors and appellants State Farm Fire and Casualty Company (State Farm Fire)

and State Farm Life Insurance Company (State Farm Life) (collectively, State Farm)

appeal from the trial court’s approval of an order directing the transfer of structured

settlement payments to plaintiff and respondent RSL Funding, LLC (RSL).

FACTS AND PROCEDURAL BACKGROUND

In 1994, defendant Felicia Alford, then a minor, by her guardians, settled a

personal injury claim against certain insureds of defendant State Farm Fire. The

settlement was approved by a court order that provided, “for the best interest of the

minor . . . the proceeds of such settlement be paid and used in the manner hereinafter

specifically provided.” Under the settlement, the payor, State Farm Life, was to deliver

an annuity providing for guaranteed payments, as follows: (1) $10,000 annually from

August 11, 2003, through August 11, 2006; (2) $50,000 on August 11, 2009;

(3) $100,000 on August 11, 2016; and (4) $151,558.80 on August 11, 2021. State Farm

Fire purchased an annuity contract from State Farm Life, which provides for the periodic

payments to be made.

In July 2012, Alford entered into a contract with RSL under which she received

$30,000 in exchange for a $50,000 portion of the payment due on August 11, 2016. RSL

assigned its payment to Extended Holdings, Ltd. (EHL). The trial court approved the

2 transfer, and State Farm did not contest the transfer. Thus, under the 2012 order, State

Farm was required to deliver a $50,000 portion of the August 11, 2016, payment to EHL.

On July 12, 2013, Alford entered into a second contract with RSL in which Alford

agreed to assign to RSL $25,000 of the $100,000 payment due on August 11, 2016, and

$25,000 of the payment of $151,558.80 due on August 11, 2021, in exchange for a

current payment of $22,500. RSL filed a petition for approval of the transfer. State Farm

filed an opposition to the petition, asserting, among other grounds, that (1) the proposed

transfer would violate a California statute (Ins. Code, § 10139.5, subd. (e)(3)),2 which

provides that an annuity issuer and settlement obligor may not be required to divide

payments; and (2) the proposed transfer would materially increase State Farm’s burdens

and risks.

The trial court approved the transfer petition, and State Farm has appealed.

DISCUSSION

Standard of Review

We review a trial court’s interpretation of a statute under a de novo standard of

review. (Gogri v. Jack in the Box, Inc. (2008) 166 Cal.App.4th 255, 264.)

The Structured Settlement Protection Act

The California Legislature has adopted the Structured Settlement Protection Act

(SSPA) (§ 10134 et seq.) to protect structured settlement payees from exploitation by

factoring companies. Annuity issuers and structured settlement obligors are defined as

2 All further statutory references are to the Insurance Code unless otherwise indicated.

3 “interested parties” under the SSPA (§ 10134, subd. (g)), and as such, are entitled to

notice of petitions to authorize transfer of payments under a structured settlement

agreement. (§§ 10139, subd. (a), 10139.5, subd. (f)(2).)

A transfer to a factoring company must be approved by the court and requires an

express finding that the proposed transfer “will not contravene other applicable law.”

(§ 10137, subd. (b).) The SSPA specifically provides, “Neither the annuity issuer nor the

structured settlement obligor may be required to divide any structured settlement

payment between the payee and any transferee or assignee or between two or more

transferees or assignees.” (§ 10139.3, subd. (e).)

State Farm contends that the trial court’s order requires it to split the $100,000

lump sum payment due on August 11, 2016, three ways, among (1) RSL ($25,000),

(2) EHL, RSL’s assignee in the 2012 transfer ($50,000), and (3) Alford ($25,000), and to

split the August 11, 2021, payment two ways between (1) RSL ($25,000) and (2) Alford

($126,558.80). State Farm asserts the order therefore violates section 10139.3,

subdivision (e).

Despite conceding in the trial court that “an issuer cannot be forced to split or

divide payments,” RSL now argues that section 10139.3, subdivision (e), is merely

permissive, not mandatory, because the statute uses the word “‘may’” instead of

“‘shall.’” RSL contends the trial court properly exercised its discretion to permit

payment splitting.

4 We agree that settled principles of statutory construction direct that “we

‘ordinarily’ construe the word ‘may’ as permissive and the word ‘shall’ as mandatory,

‘particularly’ when a single statute uses both terms.” (Tarrant Bell Prop., LLC v.

Superior Court (2011) 51 Cal.4th 538, 542.) However, RSL fails to recognize that a

contrary principle of statutory construction governs when the statute, such as section

10139, subdivision (e), uses a negative form of the word “may.” “‘One of the strongest

indications of what construction should be given a statutory provision may be found in

the use of negative, prohibitory, or exclusionary words. Where statutory restrictions are

couched in negative terms they are usually held to be mandatory. In the language of one

court “there is but one way to obey the command ‘thou shalt not,’ and that is to refrain

altogether from doing the forbidden act.”’ [Citation.]” (People v. Harner (1989) 213

Cal.App.3d 1400, 1418.) As a court in another state has pointed out, if a legislature

intends the phrase to be permissive, it can simply omit the word “‘not.’” (State v.

Gettman (1989) 56 Wash.App. 51, 54.) Here, the statute’s use of the words “neither” and

“nor” combined with “may be required” clearly indicates the Legislature’s intention to

impose a mandatory rule.

Moreover, while the parties have cited no published California case law expressly

applying section 10139.3, subdivision (e), and our own research has revealed none, courts

in other states have construed similar language in their own statutes to be mandatory. For

example, in J.G. Wentworth Originations, LLC v. Freelon (Tex.Ct.App. 2014) 446

S.W.3d 426, at page 428, footnote 4, the court observed that under language of Texas’s

version of the SSPA (identical to that of subdivision (e)), a settlement obligor “would not

5 agree, and it could not be compelled under the SSPA, to divide the annuity payments”

between the annuitant and her transferee. (See also In re A Transfer of Structured

Settlement Payment Rights by Laurel J. Shanks (Tenn.Ct.App. May 27, 2014, No. E2013-

01702-COA-R3-CV) 2014 Tenn.App. Lexis 301, at pages *26-*27 [stating that it would

violate a similar provision under Tenn. law to require an annuity issuer or structured

settlement obligor to divide payments].)

“Where, as here, there is no California case directly on point, foreign decisions

involving similar statutes and similar factual situations are of great value to the California

courts.” (Martinez v. Enterprise Rent-A-Car Co. (2004) 119 Cal.App.4th 46, 55.)

Although such authorities are persuasive rather than mandatory precedent, we agree with

their reasoning and conclusions. We therefore conclude that the trial court erred in

entering an order that requires State Farm to divide payments because the SSPA provides

that an annuity issuer may not be required to do so. (§ 10139.3, subd. (e).)

Waiver, Forfeiture, Judicial Estoppel

RSL contends that State Farm has waived or forfeited or is judicially estopped

from asserting its statutory right to avoid splitting payments because it waived any

objections to dividing payment in the 2012 transfer order and agreed in its 2013 proposed

order to divide payments. State Farm responds that it expressly preserved its ability to

object to payment splitting in 2012 and timely objected to the 2013 transfer.

6 Effect of 2012 Order

Waiver is the “intentional relinquishment of a known right.” (Applera Corp. v.

MP Biomeds, LLC (2009) 173 Cal.App.4th 769, 791.) RSL argues that by agreeing to

split payments in the 2012 order, State Farm intentionally relinquished its right to assert

the anti-splitting statute. However, the 2012 order expressly stated that State Farm’s

“lack of opposition to this matter, or stipulation hereto or compliance herewith, shall not

constitute evidence in any other matter, and is not intended to constitute evidence in any

other matter that: [¶] . . . . [¶] c. Annuity Owner [State Farm Fire] and Annuity Issuer

[State Farm Life] have waived any right in connection with any other litigation or

claims.” The 2012 order thus makes it clear that State Farm did not intentionally

relinquish its rights under section 10139.3, subdivision (e), with respect to future

transactions.

RSL nonetheless argues that by failing to object to the 2012 order, State Farm put

an end to the anti-assignment condition. To support that position, RSL cites German-

American Sav. Bank v. Gollmer (1909) 155 Cal. 683. That case stated the principle that a

condition against waiver of assignment of a leasehold estate is permanently discharged by

consent or waiver. (Id. at p. 688.) That principle is inapposite in the present context.

The Proposed 2013 Order

RSL argues that State Farm submitted a proposed 2013 order in the same form as

the 2012 order (which provided for splitting the Aug. 11, 2016, payment between Alford

and EHL) and consented to splitting payments.

7 State Farm filed a written opposition to the proposed transfer and appeared at

hearings on the proposed transfer where it asserted its opposition to payment splitting. At

the close of the September 24, 2013, hearing, the trial court stated it would approve the

transfer and instructed the parties to work out the form of the order. RSL and State Farm

agreed to an order similar to the 2012 order, but RSL did not submit that proposed order

to the trial court. State Farm therefore filed an objection to the proposed order, stating

that State Farm had not withdrawn its objection to the proposed order, that State Farm

disagreed with the trial court’s ruling, and that RSL had misrepresented State Farm’s

position by submitting a proposed order that differed from the proposed order to which

State Farm had agreed.

It is clear from the record that State Farm never withdrew its objections to the

proposed 2013 transfer and never consented to split payments in connection with the

2013 transfer.

Judicial Estoppel

RSL argues that State Farm is judicially estopped by its prior conduct from

challenging the order requiring it to divide payments.

“‘Judicial estoppel prevents a party from asserting a position in a legal proceeding

that is contrary to a position previously taken in the same or some earlier proceeding.’”

(Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181.) Judicial estoppel

applies when “(1) the same party has taken two positions; (2) the positions were taken in

judicial or quasi-judicial administrative proceedings; (3) the party was successful in

asserting the first position (i.e., the tribunal adopted the position or accepted it as true);

8 (4) the two positions are totally inconsistent; and (5) the first position was not taken as a

result of ignorance, fraud, or mistake.” (Id. at p. 183.) Judicial estoppel does not apply

when a party merely advocates inconsistent provisions; rather, it applies when a party

successfully asserts one position and later attempts to benefit from asserting an

inconsistent position. (Tiffin Motorhomes, Inc. v. Superior Court (2011) 202 Cal.App.4th

24, 32.)

Here, the 2012 transfer was a separate and distinct transaction as to which State

Farm elected to raise no objection while explicitly reserving its right to do so in the

future. Thus, State Farm’s positions in the two transactions are not “totally inconsistent.”

The doctrine of judicial estoppel does not apply.

Reversal of Order

We have concluded that the trial court’s order violated section 10139.5,

subdivision (e), and State Farm has not forfeited its right to oppose that order. Reversal

is therefore required. RSL has requested this court to vacate that order and remand the

case with instructions to the trial court to order a servicing arrangement under which

State Farm would send the entirety of the 2016 and 2021 payments to EHL, with EHL to

retain the transferred portions and remit the balance to Alford. We decline to do so.

State Farm aptly points out that such an order would put it in the position of having to

rely on another entity to fulfill its contractual obligations to Alford and would expose

State Farm to litigation if, for example, RSL or its assignee sought bankruptcy protection.

9 DISPOSITION

The order appealed from is reversed. Appellants are awarded their costs on

appeal.