IN RE: KAUFMAN

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IN RE: KAUFMAN
2001 OK 88
37 P.3d 845
72 OBJ 3061
Case Number: 96254
Decided: 10/16/2001

SUPREME COURT OF THE STATE OF OKLAHOMA

In re: JOHN A. KAUFMAN, Debtor

CERTIFIED QUESTIONS OF LAW FROM THE UNITED STATES BANKRUPTCY COURT, WESTERN DISTRICT OF OKLAHOMA

Honorable John TeSelle, Judge

¶0 The United States Bankruptcy Court for the Western District of Oklahoma certified the following questions pursuant to the Uniform Certification of Questions of Law Act, 20 O.S. Supp. 1997 §1601 et seq:

1) Are anti-assignment provisions limiting the power of an annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, valid?

2) If a party to a contract containing a valid anti-assignment provision assigns the contract in contravention of the restriction on alienability, is the assignment enforceable between the assignor and the assignee?

The questions are answered as follows:

1) Where the anti-assignment provision is clear and unambiguous in its limitation of the power of the annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, the restriction on alienability is valid.

2) Although an anti-assignment provision is valid, well settled principles of Oklahoma law prevent an assignor from enforcing the clause against its assignee.

Lisa K. Endes, Oklahoma City, Oklahoma, For Debtor
Steven W. Bugg, John N. Hermes, Lyle R. Nelson, Oklahoma City, Oklahoma, William J. Beckett, Malvern, Pennsylvania, for Creditor.

KAUGER, J.:

¶1 We are asked to answer two questions:1 1) whether anti-assignment provisions restricting the power of an annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, are valid; and 2) whether a purchase agreement between an annuitant/assignor and third-party/assignee for future annuity payments in exchange for a lump-sum payment is enforceable if the annuitant is restricted by an anti-assignment provision from selling, mortgaging, encumbering, or anticipating future payments by assignment or otherwise? The questions are answered as follows: 1) Where the anti-assignment provision is clear and unambiguous in its limitation of the power of the annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, the restriction on alienability is valid.; and 2) Although an anti-assignment provision is valid, well settled principles of Oklahoma law prevent an assignor from enforcing the clause against its assignee.

FACTS

¶2 In April of 1996, the debtor, John A. Kaufman (Kaufman/debtor/annuitant/assignor), settled a wrongful death claim with Love's Country Stores, Inc. and United States Fidelity & Guaranty Company (USF&G/insurer). In association with his claim, Kaufman signed a Settlement Agreement and Release (settlement agreement) providing that it would be construed and interpreted in accordance with Oklahoma law.2 The settlement agreement provides for a lump-sum payment and for periodic monthly payments of $2,008.75 measured by Kaufman's life with a twenty-year payment guarantee.3 The settlement agreement specifically provides that Kaufman has no "power to sell, mortgage, encumber, or anticipate the future payments by assignment or otherwise".4

¶3 As contemplated by the settlement agreement, the insurer entered into a qualified agreement5 with SAFECO Assigned Benefits Company (SAFECO) under which SAFECO assumed the responsibility of making Kaufman's periodic payments. Pursuant to the settlement agreement, SAFECO purchased a qualified funding asset6 in the form of an annuity7 to ensure Kaufman's monthly payments.8 ¶4 After seeing a television commercial involving purchases of structured settlements aired by J.G. Wentworth S.S.C., Limited Partnership (Wentworth/creditor/assignee),9 Kaufman called and requested the paperwork necessary to complete the sale. Via a purchase agreement executed on June 9, 1999, Kaufman sold his right to receive sixty monthly annuity payments of $2,008.75 with a total value of $120,525.00 to Wentworth for a lump sum payment of $80,507.26. The purchase agreement provided that Wentworth was entitled to receive payments beginning in July of 1999 and running through June of 2004. The creditor has received no payments since May of 2000.

¶5 Kaufman used the monies received under the purchase agreement to start a trenching business. When the business failed, the debtor filed a voluntary Chapter 13 bankruptcy petition on September 22, 2000.10 In the bankruptcy petition, the debtor listed the purchase agreement with the creditor as an unsecured claim and proposed that the annuity payments11 be utilized to fund the Chapter 13 plan. On November 27, 2001, Wentworth filed a motion for relief from the automatic stay requesting permission to seize the contracted-for annuity payments. It is this action and Kaufman's assertion that the purchase agreement is invalid due to the anti-assignment language in the settlement agreement12 which prompted the bankruptcy court to certify questions to this Court pursuant to the Uniform Certification of Questions of Law Act, 20 O.S. Supp. 1997 §1601 et seq., on May 9, 2001. We set a briefing cycle which was completed on June 25, 2001.

I.

¶6 WHERE THE ANTI-ASSIGNMENT PROVISION IS CLEAR
AND UNAMBIGUOUS IN ITS LIMITATION OF THE POWER
OF THE ANNUITANT TO SELL, MORTGAGE, ENCUMBER, OR
ANTICIPATE FUTURE PAYMENTS, BY ASSIGNMENT
OR OTHERWISE, THE RESTRICTION ON ALIENABILITY
IS VALID.

¶7 Kaufman asserts that the clear language of the anti-assignment provision of the structured settlement requires that the provision be enforced. Because the contractual language does not specifically provide that any attempted assignment will be void, Wentworth argues that the anti-assignment provision is invalid.13OurOur determination that the contract language clearly and unambiguously precludes assignment places the clause squarely within the exceptions allowing enforcement of anti-assignment provisions outlined in subsection (c) of §317 [assignment precluded by contractual language] and §322 [allowing for the expression of a different intent]. See, Liberty Life Assurance Co. of Boston v. Stone St. Capital, Inc., 93 F. Supp. 2d 630, 633 (D.Md. 2000). ¶8 An assignment is the expressed intent of one party to pass rights owned to another.14 It realigns the parties to a contract.15 Valid assignments pass the assignor's title, leaving no interest to be reached by a creditor.16 In Oklahoma, contractual rights are presumed to be assignable.17 Nevertheless, parties may expressly provide otherwise.18 The issue here is whether the language utilized in the settlement agreement stripping Kaufman of the "power to sell, mortgage, encumber, or anticipate the future payments by assignment or otherwise" is sufficient to support a determination that the annuity payments are inalienable. We determine that it is.

¶9 Absent clear, unambiguous language, the majority of courts generally will not honor attempts to restrict the right to assign freely.19 Some jurisdictions require language providing that an assignment will be void or invalid before anti-assignment provisions are upheld.20 These courts treat anti-assignment provisions as personal covenants which will not invalidate an otherwise proper transfer21 determining that unless the contractual provision eliminates both the power and the right to assign, an assignment may give rise to damages for breach but will not render the assignment ineffective.22

¶10 However, a number of courts have enforced anti-assignment provisions similar to the one at issue here which explicitly deprive the assignor of the assignment power.23 Others are less insistent on the use of any particular phraseology and simply uphold anti-assignment provisions if the prohibitive language utilized is clear and unambiguous24 while some jurisdictions enforce such provisions as a general matter.25 Decisions upholding anti-assignment provisions containing language limiting the power of assignment are characterized as being within the modern legal approach to the assignability of contracts.26

¶11 The courts addressing the precise issue of whether an anti-assignment provision in a structured settlement agreement prohibiting the alienation of future payments made under an annuity policy is enforceable have reached differing results. No clear majority has emerged. Rather, the decisions are divided almost evenly.27

¶12 The jurisdictions striking anti-assignment provisions have done so: on the basis that no harm comes to the party obligated to perform by the mere assignment of contractual payments;28 due to a lack of specific language binding the tort victim to assignment restrictions;29 or because the anti-assignment provisions circumscribe the right, but not the power, to assign.30 The courts enforcing anti-assignment provisions in the structured settlement context have grounded their decisions on: the premise that such provisions, included for the benefit of the insurer, could not be waived by the annuitant;31 policy arguments supporting enforcement of the provisions in relation to structured settlements;32 or the clear language of the provision taking it out of the general rule of assignability.33

¶13 In Oklahoma, the cardinal rule in contract interpretation is to determine and give effect to the intent of the parties.34 In considering whether contractual rights may be alienated, we look to the parties' intent manifested by the agreement's language.35 Here, the settlement agreement specifically provides that Kaufman has no "power to sell, mortgage, encumber, or anticipate the future payments by assignment or otherwise".36 The anti-assignability clause is a condition of the contract for which the parties bargained.37 The language is clear and definite38 in its intent to prohibit Kaufman from alienating by assignment or otherwise the annuity payments. We determine that where the anti-assignment provision is clear and unambiguous in its limitation of the power of the annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, the restriction on alienability is valid. Oklahoma's tenets of contract construction, as well as decisions from other jurisdictions upholding anti-assignment provisions limiting the assignor's "power" to alienate contractual rights39 along with the general policy considerations favoring steady income, long-term security and tax-favorable treatment underlying structured settlements40 support our determination.

II.

¶14 ALTHOUGH AN ANTI-ASSIGNMENT PROVISION
IS VALID, WELL SETTLED PRINCIPLES OF OKLAHOMA
LAW PREVENT AN ASSIGNOR FROM ENFORCING
THE CLAUSE AGAINST ITS ASSIGNEE.

¶15 Kaufman argues that a finding that the anti-assignment provision is valid requires that the purchase agreement with Wentworth be declared void and unenforceable. Wentworth asserts that notwithstanding the anti-assignment provision in the settlement agreement, a debtor/assignor may not rely on principles of nonassignability to defeat the contract as against its creditor/assignee.41 We agree.

¶16 Kaufman seeks to void the purchase agreement on general public policy grounds intended to protect tort victims.42 He also points to the recent enactment of the Structured Settlement Protection Act of 2001 (Structured Settlement Act), 12 O.S. 2001 §3238 et seq, in support of an argument that the anti-assignment provision should be enforceable on public policy grounds.

¶17 Clearly, the Legislature was concerned with the long-term economic well being of tort victims and their dependents when it enacted the Structured Settlement Act. Otherwise, there would be no need for court or administrative approval prior to assignment based on findings that the transfer is in the best interests of the payee and that the annuitant had either sought professional advice or waived the right to do so.43 If the Structured Settlement Act were applicable, the purchase agreement here would be unenforceable no prior court or administrative review having been received prior to the sale. However, §3245 of the Structured Settlement Act44 also provides that nothing in the act shall45 imply that any transfer concluded prior to the effective date of its provisions is either effective or ineffective.

¶18 Just as it is clear and undisputed that the provisions of the Structured Settlement Act are inapplicable to the transfer here, the mandatory language of §3245 also directs that nothing associated with the enactment is intended to "imply" that agreements entered before the effective date are valid or invalid. Our power to void a contract as being in contravention of public policy is delicate and undefined. We exercise it only in cases free from doubt.46

¶19 Certainly, under 12 O.S. 2001 §3245, there is a question as to the efficacy of general public policy considerations and their application to structured settlements entered before the effective date of the Structured Settlement Act. This Court will not, with the expressed intent of the Legislature that no implications be drawn on the validity of purchase agreements not governed by the enactment, void the contract on public policy principles underlying the statutory scheme.

¶20 If we were inclined to accept the argument for avoidance of the contract on public policy grounds, we would be hard pressed to ignore a principle characterized as well settled in Oklahoma jurisprudence as early as 1939. The following language appears in Harris v. Tipton, 1939 OK 256. ¶17, 90 P.2d 932:

"An assignor is not permitted to raise [nonassignability] as against the assignee, and it is right and just that he should not be permitted to do so, for a more perfect illustration of the necessity for the doctrine of estoppel could hardly be stated. The rule that an assignor cannot as against his assignee allege nonassignability is well settled."

Harris

¶21 In Oklahoma, an assignor cannot maintain the inequitable position of asserting, as against its assignee, nonassignability.47 Based on this well-settled legal principle, we determine that an assignor of a contract containing a valid anti-assignment provision may not invoke the clause as against its assignee.

CONCLUSION

¶22 Policy supporting free alienability is not so absolute as to override contract provisions clearly prohibiting assignment.48 To hold otherwise would require us to ignore validly executed, and freely made, anti-assignment provisions in contravention of well settled principles of Oklahoma's contract law allowing parties to include such provisions in their negotiations.49 This we will not do. Rather, we maintain a healthy respect for the power of independent persons to bargain for, or away, contractual provisions and maintain our position that it is not this Court's province to remake contracts to suit the changing whims of contracting parties.50 Although we recognize the rights of contracting parties to negotiate for valid anti-assignment provisions, we also note that well settled principles of Oklahoma law prohibit an assignor, as against an assignee, to allege nonassignability.51

¶23 The bankruptcy court certified the questions as unanswered in Oklahoma law. Nevertheless, we note that the responses supplied are grounded in well settled principles of contract construction and our jurisprudence relating to the relationship between an assignor and an assignee.

¶26 QUESTIONS ANSWERED.

¶25 The questions are answered as follows:

1) Where the anti-assignment provision is clear and unambiguous in its limitation of the power of the annuitant to sell, mortgage, encumber, or anticipate future payments, by assignment or otherwise, the restriction on alienability is valid.

2) Although an anti-assignment provision is valid, well settled principles of Oklahoma law prevent an assignor from enforcing the clause against its assignee.

¶27 HARGRAVE, C.J., HODGES, LAVENDER, OPALA, KAUGER, SUMMERS, BOUDREAU, WINCHESTER, JJ. concur.

¶28 WATT, V.C.J. concurs in part and dissents in part.

FOOTNOTES

1

1) Are contractual provisions in a settlement agreement prohibiting an annuitant from selling, mortgaging, encumbering, or anticipating the future payments or any part thereof by assignment or otherwise, enforceable under Oklahoma law?

2) If an annuitant is entitled to receive periodic payments pursuant to a settlement agreement containing the above-referenced contractual provisions, but nevertheless enters into a purchase agreement with a third party in which the annuitant sells his or her right to receive the annuity payments in the future to the third party in return for a lump sum paid by the third party to the annuitant, is the purchase agreement between the annuitant and the third party enforceable under Oklahoma law?

The questions are reformulated pursuant to 20 O.S. Supp. 1997 § 1602.1. The style of the case has been corrected pursuant to the unopposed motion filed on June 1, 2001.

The Court notes that effective November 1, 2001, all transfers of structured settlement payments will be governed by the Structured Settlement Protection Act of 2001, 12 O.S. 2001 §3238 et seq. Section 3241 of the new law requires that all structured settlement agreements be submitted for court or administrative approval. However, §3245 specifically provides that the act will not apply to transfer agreements reached in excess of 30 days before the date of enactment [April 10, 2001]. 12 O.S. 2001 §3241 provides:

"No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been approved in advance in a final court order or order of a responsible administrative authority based on express findings by such court or responsible administrative authority that:

1. The transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents;

2. The payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received the advice or knowingly waived the advice in writing; and

3. The transfer does not contravene any applicable statute or the order of any court or other government authority."

Title 12 O.S. 2001 §3245 provides:

"This act shall apply to any transfer of structured settlement payment rights under a transfer agreement entered into on or after the thirtieth day after the date of enactment of this act; provided that nothing contained herein shall imply that any transfer under a transfer agreement reached prior to such date is either effective or ineffective."

2

"Governing Law

This Settlement Agreement and Release shall be construed and interpreted in accordance with the law of the State of Oklahoma."

3

4

"Plaintiffs agree that they maintain no right to:

- accelerate or defer said future payments to any time or vary in any respect the payments;

- receive the present discounted value of future payments;

- have any control of the investments or funds from which payments are made; have any right to increase or decrease the payments;

- change or modify the manner, mode or method of meeting any payment or discharging any obligation set forth in this agreement;

- have power to sell, mortgage, encumber, or anticipate the future payments, or any part thereof by assignment or otherwise."

5

"Qualified assignment.For purposes of this section, the term 'qualified assignment' means any assignment of a liability to make periodic payments as damages (whether by suit or agreement), or as compensation under any workmen's compensation act, on account of personal injury or sickness (in a case involving physical injury or physical sickness)--

(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, or the workmen's compensation claim, and

(2) if--

(A) such periodic payments are fixed and determinable as to amount and time of payment,

(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,

(C) the assignee's obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and

(D) such periodic payments are excludable from the gross income of the recipient under paragraph (1) or (21) of section 104(a).

The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor."

6

"Qualified funding asset.For purposes of this section, the term 'qualified funding asset' means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if--

(1) such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,

(2) the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates,

(3) such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and

(4) such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment."

7

8

". . . None of the Periodic Payments may be accelerated, deferred, increased or decreased and may not be anticipated, sold, assigned or encumbered."

The annuity contract contained in the record provides in pertinent part:

". . . ENDORSEMENT

. . . No payment under this annuity contract may be accelerated, deferred, increased, or decreased, or anticipated, sold, assigned, or encumbered in any manner by the annuitant (or either joint annuitant) or any other recipient of the payment. . . .

PROVISIONS

. . . Benefits . . . Benefit payments may not be advanced, accelerated, commuted, or encumbered by the annuitant or any beneficiary. . . ." [Emphasis in original.]

The facts as outlined by the Bankruptcy Court also indicate that the annuity contract contains an endorsement providing:

". . . IMPORTANT NOTICE

This contract belongs to the owner shown on the application. It will pay all benefits when due exactly as shown on the schedule of benefits. Benefits may not be delayed or paid before they are due. The right to receive benefits may not be sold to anyone else or used as collateral for a loan. This contract has no cash surrender value. . . ."

A perusal of the record does not reveal this endorsement.

9

10

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12

13

"A term in any contract between an account debtor and an assignor is ineffective if it prohibits assignment of an account or chattel paper or prohibits creation of a security interest in a general intangible for money due or to become due or requires the account debtor's consent to such assignment or security interest."

The assertion is unconvincing. We note that the provision cited has been repealed and replaced by 12A Supp. 2001 §1-9-404 [Relating to rights acquired by assignee.]; 12A Supp. 2001 §1-9-405 [Relating to modifications of an assigned contract.]; and

Wentworth also relies on two provisions of the Restatement (Second) of Contracts in support of its position. Section 317(2) provides:

"A contractual right can be assigned unless

(a) the substitution of a right of the assignee or the right of the asignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or

(b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or

(c) assignment is validly precluded by contract."

Restatement (Second) of Contracts §322 provides in pertinent part:

". . . (2) a contract term prohibiting assignment of rights under the contract, unless a different intention is manifested,

(a) does not forbid assignment of a right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation;

(b) gives the obligor a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective;

(c) is for the benefit of the obligor, and does not prevent the assignee from acquiring rights against the assignor or the obligor from discharging his duty as if there were no such prohibition. . . ."

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21

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31

32

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". . . Congress enacted favorable tax rules intended to encourage the use of structured settlements and conditioned such tax treatment on the injured person's inability to accelerate, defer, increase or decrease the periodic payments because recipients of structured settlements are less likely than recipients of lump sum awards to consume their awards too quickly and require public assistance. . . ."

See also, notes 3 and 32, supra.

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47

"Rescission, when not effected by consent, can be accomplished only by the use, on the part of the party rescinding, of reasonable diligence to comply with the following rules . . .

2. He must restore the other party everything of value which he has received from him under the contract . . ."

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50