Marshall Johnson v. J.G. Wentworth Originations, LLC and Metropolitan Life Insurance Company

Marshall Johnson is the beneficiary of a right to

periodic payments under a structured settlement agreement.

Petitioner J. G. Wentworth Originators, LLC (J. G.

Wentworth) brought this special proceeding under ORS

33.857 to 33.875 (2005),1 seeking to purchase at a discount

Johnson’s right to one future annuity payment and a portion

of a future lump sum payment. The trial court issued

a judgment approving the transfer, and Metropolitan

Tower Life Insurance Company (Met Tower), the obligor

under the structured settlement agreement, appeals. We

conclude that the trial court erred in approving the transfer,

because the structured settlement agreement included

an anti-assignment clause that Met Tower has a right to

enforce and that prohibited Johnson from transferring his

interest in the payments. We therefore reverse.

The facts are undisputed. In 2006, Johnson, who

was then a minor, was injured an automobile accident. In

2008, the tortfeasor’s insurer, State Farm, and Johnson’s

guardian ad litem settled a personal injury claim on behalf

of Johnson through a structured settlement agreement.

Under the agreement, Johnson was entitled to receive a

first payment of $5,000 on October 5, 2008, five annual

payments of $10,000 each, beginning in October 5, 2010,

and a final payment of $41,970.25 on October 5, 2020. The

structured settlement agreement contained a clause stating

that Johnson did not “have the power to sell, mortgage,

encumber, or anticipate the Periodic Payments, or any part

thereof, by assignment or otherwise.” It is not disputed that

the clause prohibited Johnson from transferring his interest

in future payments, that is, that it is an anti-assignment

clause. Thus, on its face, the structured settlement agreement

prohibited the transfer of Johnson’s interest in the

future payments.

1 The statutes were amended in 2013. Or Laws 2013, ch 236. The amendments

were effective January 1, 2014, and are not applicable to this case. All

subsequent references are to the 2005 version of the statutes.

50 Johnson v. J. G. Wentworth Originations, LLC

But State Farm could assign its obligation under

the settlement agreement. Under Internal Revenue Code,

26 USC section 130, a tortfeasor or its insured may assign

an obligation under a structured settlement agreement to

a “qualified assignee”—an independent third party who

assumes the obligation for making the periodic payments.

The third-party assignee receives favorable income tax

treatment, because the funds received by the assignee

from the original obligor (to be used for the purchase of

an annuity to fund the periodic payments) are excluded

from the assignee’s income. 26 USC § 130(a). To meet the

requirements of a “qualified assignment,” the payments

“cannot be accelerated, deferred, increased, or decreased

by the recipient of such payments.” 26 USC section 130

(c)(2)(B).

Consistent with 26 USC section 130(c)(2)(B),

Johnson’s structured settlement agreement with State

Farm provided that State Farm could assign its payment

obligation to Met Tower, and that Johnson was required

to accept the assignment.2 Contemporaneously with the

structured settlement agreement, State Farm and Met

Tower executed a qualified assignment agreement (QAA)

under which Met Tower assumed responsibility for making

the structured settlement payments to Johnson.3 Like

the settlement agreement, the QAA included a paragraph

prohibiting Johnson from transferring his right to receive

payments under the structured settlement agreement,

except that a transfer could be made with advance approval

of a court, pursuant to Internal Revenue Code section

2 As relevant, the settlement agreement provided:

“Claimant acknowledges and agrees that the Respondent and/

or the Insurer may make a ‘qualified assignment,’ within the meaning

of Section 130(c) of the Internal Revenue Code of 1986, as amended, of

the Respondent’s and/or the Insurer’s liability to make the Periodic

Payments set forth in [the agreement] to MetLife Tower Resources

Group, Inc., (‘Assignees’). The Assignees’ obligation for payment of the

Periodic Payments shall be no greater than that of the Respondent and/

or the Insurer * * * immediately preceding the assignment of the Periodic

Payment obligation.”

3 The QAA was actually executed 11 days before the execution of the structured

settlement agreement.

Cite as 284 Or App 47 (2017) 51

5891(b)(2),4 if the transfer “otherwise complie[d] with applicable

state law.”5

In 2013, Johnson, who was then 23 years of age, was

in need of funds. He contacted J. G. Wentworth, a factoring

company, expressing an interest in selling at a discount his

annuity payment due in 2014, and half of his final payment

4 The term “factoring” has come to be associated with at least some such

transfers, that is, with a secondary market in which “factoring companies”—

like J. G. Wentworth—purchase rights to receive future payments associated

with structured settlements, sometimes at a substantial discount. See Daniel

W. Hindert & Craig H. Ulman, Transfers of Structured Settlement Payment

Rights: What Judges Should Know about Structured Settlement Protection Acts,

44 No. 2 Judges’ J 19, 20 (Spring 2005). 26 USC section 5891(a) imposes a “tax

equal to 40 percent of the factoring discount as determined under subsection

(c)(4) with respect to such factoring transaction” on any person who “acquires

* * * structured settlement payment rights in a structured settlement factoring

transaction” except when “the transfer of structured settlement payment rights

is approved in advance in a qualified order.”

26 USC section 5891(b)(2) defines a “qualified order” as a “final order, judgment,

or decree” that:

“(A) finds that the transfer described in paragraph (1)—

“(i) does not contravene any Federal or State statute or the order of any

court or responsible administrative authority, and

“(ii) is in the best interest of the payee, taking into account the welfare

and support of the payee’s dependents, and

“(B) is issued—

“(i) under the authority of an applicable State statute by an applicable

State court, or

“(ii) by the responsible administrative authority (if any) which has exclusive

jurisdiction over the underlying action or proceeding which was resolved

by means of the structured settlement.”

Congress enacted 26 USC section 5891 in 2001 to combat abuses associated with

structured settlement factoring. See Hindert & Ulman, 44 No. 2 Judges’ J at 20.

5 The QAA provided:

“Acceleration, Transfer or Payment Rights. None of the Periodic

Payments and no rights to or interest in any of the Periodic Payments * * *

can be

“I. * * *

“II. Sold, assigned, pledged, hypothecated or otherwise transferred

or encumbered, either directly or indirectly, unless such sale, assignment,

pledge, hypothecation or other transfer or encumbrance * * * has been

approved in advance in a ‘Qualified Order’ as described in Section 5891(b)(2)

of the [Internal Revenue] Code (a ‘Qualified Order’) and otherwise complies

with applicable state law, including without limitation any applicable state

structured settlement protection statute.

“No claimant or Successor Payee shall have the power to affect any Transfer

of Payment Rights except as provided in sub-paragraph (II) above.”

52 Johnson v. J. G. Wentworth Originations, LLC

due in 2020. Together, the sums had a discounted present

value of just over $29,000. J. G. Wentworth agreed to pay

Johnson $17,250 for the right to receive those sums in the

future. In December 2013, Johnson signed an agreement for

the transfer of the future payments to J. G. Wentworth. This

litigation arises out of J. G. Wentworth’s petition to obtain

court approval of the transfer.

In Oregon, transactions like the one executed by

J. G. Wentworth and Johnson for the transfer of structured

settlement payment rights are subject to the provisions of

ORS 33.850 to 33.875, which the legislature enacted in 2005

to implement 26 USC section 5891.6 In February 2014, J. G.

Wentworth filed a petition in Multnomah County Circuit

Court seeking an order approving the transfer. As obligor

under the QAA, Met Tower participated in the proceeding

and objected to the transfer. After a hearing in which the

trial court met with Johnson in chambers to discuss his

need for the funds, the court issued an order and judgment

approving of the transfer.

Met Tower now appeals from the judgment, raising

several challenges. As relevant to our analysis, there are

no factual disputes, and the questions presented are purely

legal, involving issues of contract interpretation and statutory

construction; accordingly, we review the trial court’s

decision for errors of law. State v. Gaines, 346 Or 160, 171-

72, 206 P3d 1042 (2009) (questions of statutory construction

reviewed for errors of law, first examining the text and

context of the statute and any useful legislative history to

determine the legislature’s intent); Yogman v. Parrott, 325

Or 358, 361, 937 P2d 1019 (1997) (trial court’s construction

of a contract reviewed for errors of law).

ORS 33.855 describes payments subject to transfer

under Oregon law and sets forth the procedural requirements

for such a transfer. ORS 33.860 specifies the disclosures that

6 Provisions similar to ORS 33.850 to 33.875 have been enacted in almost

every state, and are commonly described as “structured settlement protection

acts.” See Hindert & Ulman, 44 No. 2 Judges’ J at 20. A lump sum payment

received by a beneficiary in exchange for transferring future payment rights,

pursuant to a structured settlement protection act, retains its tax exempt status.

26 USC § 5891(d).

Cite as 284 Or App 47 (2017) 53

the transferee (in this case, J. G. Wentworth) must make to

a structured settlement beneficiary (Johnson) who seeks to

transfer the right to future payments. ORS 33.865 describes

the findings that a court must make in its order approving

a transfer.7 On its face, the order entered by the trial court

in this case complied with ORS 33.865, in that it included

all of the required findings. However, Met Tower asserts on

appeal that the trial court erred, because Met Tower is entitled

to enforce the anti-assignment provision in the structured

settlement agreement, thereby preventing Johnson

from assigning his right to future payments.8

The structured settlement agreement in this case

was executed and approved by a court in California, and

it provides that its construction is subject to California

law. Therefore, we address whether, under California law,

the anti-assignment provision in the structured settlement

agreement was enforceable by Met Tower. ORS 15.350

(“[t]he contractual rights and duties of the parties are governed

by the law or laws that the parties have chosen”); see

M+W Zander v. Scott Co. of California, 190 Or App 268, 78

P3d 118 (2003) (when parties specify their choice of law in

a contract, that choice will be effectuated subject to limitations

under the Restatement (Second) of Conflicts of Laws

(1971)); Pinela v. Neiman Marcus Group, Inc., 238 Cal App

4th 227, 251, 190 Cal Rptr 3rd 159 (2015) (contractual choice

of law clauses are generally construed to designate the substantive

law of the chosen jurisdiction as well as the interpretation

of the agreement).

Under California law, although public policy strongly

favors the free transferability of property, that policy must

7 Under ORS 33.865, the court must find that (1) the transfer is in the best

interests of the payee, taking into account the welfare and support of all persons

for whom the payee is legally obligated to provide support; (2) the payee has been

advised in writing to seek advice from an attorney, certified public accountant,

actuary or other licensed professional adviser regarding the transfer, and the

payee has either received the advice or knowingly the waived advice in writing;

and (3) the transfer “does not contravene any applicable statute or order of any

court[.]”

8 Met Tower also challenges other aspects of the court’s order, including

its finding that the transfer is in Johnson’s best interests, as required by ORS

33.865(1), and its conclusion that the transfer does not contravene any applicable

statute, as required by ORS 33.865(3). In view of our conclusion relating to the

anti-assignment clause, we do not reach those contentions.

54 Johnson v. J. G. Wentworth Originations, LLC

be weighed against the right of parties to freely contract.

Parkinson v. Caldwell, 126 Cal App 2d 548, 552, 272 P2d

934 (1954). Thus, although contractual clauses restricting

assignment of interests are strictly construed, a clear prohibition

against assignment of money due under a contract will

be enforced, if not waived by the obligor. Masterson v. Sine,

68 Cal 2d 222, 230, 436 P2d 561 (1968) (“In the absence of

a controlling statute the parties may provide that a contract

right or duty is nontransferable.”); Parkinson, 126 Cal App

2d at 552 (“Where [contract] language is clear, an agreement

not to assign a debt is effective.”); see San Francisco

Newspaper Printing Co. v. Superior Court, 170 Cal App 3d

438, 442, 216 Cal Rptr 462 (1985) (an anti-assignment clause

is not inherently suspect and is “routinely enforced”); see

also Johnson v. First Colony Life Ins. Co., 26 F Supp 2d 1227,

1229 (C.D. Cal 1998) (upholding anti-assignment clause in

structured settlement agreement).9

Nonetheless, the California Court of Appeal has

held that a contractual anti-assignment clause will not bar

court-approved transfers of structured settlement rights, if

no interested party objects to the transfer. See 321 Henderson

Receivables Origination LLC v. Sioteco, 173 Cal App 4th

1059, 93 Cal Rptr 3d 321 (2009). Sioteco involved an antiassignment

clause in a structured settlement agreement,

which, if enforced, would bar the transfer of structured settlement

payments that otherwise met the requirements of

the state’s “Structured Settlement Transfer Act.” 173 Cal

App 4th at 1065, 1072-73. Although no party had objected

to the proposed transfers of payments under the settlement

agreement at issue in Sioteco, the trial court had nonetheless

concluded that they were barred, in part because they

violated the anti-assignment provision. Id. at 1072.

9 Anti-assignment provisions are also generally enforceable in Oregon. See,

e.g., Holloway v. Republic Indemnity Co. of America, 341 Or 642, 651-52, 147 P3d

329 (2006) (anti-assignment provision in insurance contract was not ambiguous

and rendered invalid insured’s assignment of payment rights under policy).

In Holloway, the court said that an unambiguous anti-assignment clause in an

insurance contract was enforceable against the insured. In that case, the insurance

policy provided: “Your rights or duties under this policy may not be transferred

without our written consent.” 341 Or at 645. The court concluded that the

clause was unambiguous and prohibited the insured’s assignment of rights under

the policy. Id. at 651.

Cite as 284 Or App 47 (2017) 55

In reversing the trial court, the Court of Appeal first

noted its disagreement with the federal district court’s holding

in Johnson, 26 F Supp 2d at 1230, that a section of the

California Commercial Code generally disapproving of contractual

restrictions on assignments of intangible assets did

not apply to the assignment or transfer of a structured settlement

payment right. The Sioteco court concluded that the

commercial-code provision did apply to such transfers, and

it also observed that the California Structured Settlement

Transfer Act favored court-approved transfers of structured

settlement payments. 173 Cal App 4th at 1075. However,

the court acknowledged that “it is possible that the annuity

issuer or the settlement obligor might be able to enforce

those anti-assignment provisions in certain situations.” Id.

Thus, the court did not hold that anti-assignment provisions

are always ineffective in the structured-settlement context;

instead, it held only that, “where no interested parties object

to the transfer of structured settlement payment rights,”

the anti-assignment provision in the structured settlement

agreement “do not bar” a court-approved transfer of structured

settlement payments. Id. at 1076.

Sioteco is distinguishable from this case on its facts,

but as the most recent California appellate decision addressing

the effect of anti-assignment provisions in structured

settlement agreements on the transfer of structured settlement

payments, it, along with the other cases we have discussed,

guides our reasoning. Here, as in Sioteco, the antiassignment

clause in the structured settlement agreement

prohibits a transfer of the right to payments. But in this

case, unlike in Sioteco, Met Tower, as State Farm’s assignee

and as the obligor under the structured settlement agreement,

has objected to the transfer and seeks to enforce the

anti-assignment provision. Under those circumstances, and

based on our reading of Sioteco and California’s case law

regarding the general enforceability of anti-assignment

clauses, we conclude that Met Tower was entitled to enforce

the anti-assignment clause in the structured settlement

agreement, barring the transfer.

In arguing to the contrary, J. G. Wentworth focuses

on the provision in the QAA that explicitly permits a transfer

of payments approved by a “qualified order.” It argues

56 Johnson v. J. G. Wentworth Originations, LLC

that, when the settlement agreement and that provision of

the QAA are considered together, it shows that the parties

contemplated the possibility that the beneficiary would seek

to transfer future payments, and that Met Tower implicitly

agreed to permit such a transfer, if approved in a qualified

order. Met Tower responds that under the QAA, transfer

is permitted only if it “otherwise complies with applicable

state law.” Met Tower contends that when, as here, applicable

state law permits enforcement of an anti-assignment

provision by the obligor, and the obligor seeks to enforce it, a

transfer would not comply with state law.

We agree with J. G. Wentworth that the structured

settlement agreement and the QAA must be construed

together, because of their contemporaneous execution and

related subject matters.10 Vertopoulos v. Siskiyou Silicates,

Inc., 177 Or App 597, 602-603, 34 P3d 704 (2001) (under

California law, several documents related to the same subject

matter and as parts of substantially one transaction are

to be construed together as one contract). The basic goal of

contract construction under California law is to give effect to

the parties’ mutual intentions, Bank of the West v. Superior

Court, 2 Cal 4th 1254, 1264, 833 P2d 545 (1992), as evidenced

by the words of the contract, Cedars-Sinai Medical

Center v. Shewry, 137 Cal App 4th 964, 980, 41 Cal Rptr 3d

48 (2006). In construing seemingly conflicting provisions,

the goal, when possible, is to reconcile them so as to give

effect to all the provisions. See Epic Communications, Inc. v.

Richwave Technology, Inc., 237 Cal App 4th 1342, 1352, 188

Cap Rptr 3d 844 (2015) (conflicting contract provisions must

be reconciled, if possible, by such interpretation as will give

some effect to the repugnant clauses). As explained below,

we conclude that Met Tower’s interpretation is more consistent

with the goal of reconciling the two contract provisions.

First, the express terms of the settlement agreement

prohibit a transfer of the beneficiary’s interest in

future payments, thereby creating an anti-assignment right

belonging to the obligor. It is undisputed that, by the terms

10 That conclusion is consistent with the pertinent Oregon statutes. For purposes

of ORS 33.850 to 33.875, ORS 33.850(8) defines the “terms of the structured

settlement agreement” to include the terms of the QAA.

Cite as 284 Or App 47 (2017) 57

of the QAA, Met Tower became the obligor under the structured

settlement agreement, assuming all of State Farm’s

obligations. And, under California law, as the obligor under

the structured settlement agreement, Met Tower is entitled

to enforce the anti-assignment provision. See Newspaper

Printing Co., 170 Cal App 3d at 442 (an anti-assignment

clause is not inherently suspect and is “routinely enforced”).

Second, nothing in the QAA suggests that, by signing

it, Met Tower somehow abandoned its right to enforce

the anti-assignment clause in the settlement agreement, as

J. G. Wentworth seems to suggest. Rather, the QAA simply

describes the only set of conditions under which a transfer of

the beneficiary’s interest may occur if Met Tower chooses not

to enforce the anti-assignment clause—that is, the transfer

must be approved in advance by a court, pursuant to

the pertinent Internal Revenue Code provisions, and must

otherwise comply with state law. Thus, the QAA is consistent

with the settlement agreement in that it reflects both

Met Tower’s explicit contractual right to enforce the antiassignment

provision and Met Tower’s implicit right not to

enforce that provision. See Sioteco, 173 Cal App 4th at 1075.

Put differently, if Met Tower had not objected to Johnson

transferring his right to receive structured settlement payments,

then the QAA’s requirements for compliance with

state and federal law would have kicked in.

As noted, J. G. Wentworth attaches greater significance

to the QAA’s description of the conditions under which

a transfer may occur, suggesting that, by signing the QAA,

Met Tower must have agreed never to enforce the antiassignment

clause in the settlement agreement. That proposed

interpretation of the contracts would not only read the

anti-assignment clause out of the settlement agreement, but

would read something close to a waiver into the QAA. That

interpretation does not reconcile the provisions, but instead

significantly changes both contracts. Such a result is not

favored under California law. See Pinela, 238 Cal App 4th at

251 n 13 (avoiding construction that would render contract

provision superfluous).

J. G. Wentworth makes a second argument, contending

that Met Tower’s decision to object to the transfer

58 Johnson v. J. G. Wentworth Originations, LLC

in this case is arbitrary and that, in light of the provision

in the QAA permitting a qualified transfer when approved

by the court, the documents together must be construed to

impose on Met Tower an implied duty of good faith and fair

dealing to permit the transfer. But the duty of good faith

and fair dealing does not require a party to take action that

is inconsistent with the express terms of a contract. Carma

Developmers (Cal.), Inc. v. Marathon Development California,

Inc., 2 Cal 4th 342, 371, 826 P2d 710 (1992) (“[A]s a general

matter, implied terms should never be read to vary express

terms.”) Tollefson v. Roman Catholic Bishop, 219 Cal App 3d

843, 854, 268 Cal Rptr 550 (1990) (The implied duty of good

faith and fair dealing is designed to effectuate the intentions

and reasonable expectations of the parties reflected

within their mutual promises within the contract but cannot

be used to imply an obligation which would completely

obliterate a right expressly provided by a written contract.)

Having reconciled the conflicting contractual provisions so

as to sustain the enforceability of the anti-assignment provision,

we conclude that Met Tower did not have an implied

duty of good faith and fair dealing to either waive or not

object to the enforcement of that provision.

In view of our conclusion that Met Tower was entitled

to enforce the anti-assignment clause preventing Johnson

from transferring his interest in the future payments under

the structured settlement agreement, we conclude that Met

Tower’s objection to the judgment is well-taken and that the

trial court erred in approving the transfer. We therefore do

not reach Met Tower’s remaining contentions.

Reversed and remanded.