White v. Symetra Assigned Benefits Serv. Co.

104 F.4th 1182

Renaldo WHITE; Randolph Nadeau,individually and on behalf of all others similarly situated, Plaintiffs-Appellees, v. SYMETRA ASSIGNED BENEFITS SERVICE COMPANY;Symetra Life Insurance Company, Defendants-Appellants.

No. 22-35748

United States Court of Appeals, Ninth Circuit

Argued and Submitted October 17, 2023 Phoenix, Arizona

Filed June 20, 2024

Appeal from the United States District Court for the Western District of Washington, Marsha J. Pechman, District Judge, Presiding, D.C. No. 2:20-cv-01866-MJP

Alison E. Chase (argued), Keller Rohrback, Santa Barbara, California; Adele A. Daniel, Sydney Read, Gretchen F. Cappio, and Lynn L. Sarko, Keller Rohrback LLP, Seattle, Washington; Edward Stone, Edward Stone Law PC, Greenwich, Connecticut; Jerome M. Marcus and Jonathan Auerbach, Marcus & Auerbach LLC, Spring House, Pennsylvania; Daniel C. Simons, Marcus & Marcus PC, Merion Station, Pennsylvania; for Plaintiffs-Appellees.

Maeve L. O'Connor (argued) and Susan R. Gittes, Debevoise & Plimpton LLP, New York, New York; Medora A. Marisseau, Karr Tuttle Campbell, Seattle, Washington; for Defendants-Appellants.

Before: Sandra S. Ikuta, Bridget S. Bade, and Daniel A. Bress, Circuit Judges.

OPINION

BRESS, Circuit Judge:

This is a putative class action of approximately 2,000 payees who received structured settlement annuities to resolve personal injury claims. The plaintiffs later cashed out their annuities in individualized "factoring" arrangements, giving up the right to periodic payments in return for discounted lump sums. The factoring transactions were permitted by federal and state law, and they were approved by state courts, which found that factoring was in the annuitants' best interests. The plaintiffs now claim, however, that the defendants, Symetra Life Insurance Company and Symetra Assigned Benefits Service Company, wrongfully induced the factoring agreements through misrepresentations, unfair business practices, and a concealed conflict of interest. The district court certified two nationwide classes under Federal Rule of Civil Procedure 23. Because individual issues predominate over common ones, we reverse.

I

A

In a structured settlement annuity, or SSA, a tortfeasor or its insurer purchases an annuity to settle a claim, with the victim receiving periodic payments instead of a lump sum. See Legal Econ. Evaluations, Inc. v. Metro. Life Ins. Co., 39 F.3d 951, 952 (9th Cir. 1994); Daniel W. Hindert, STRUCTURED SETTLEMENTS AND PERIODIC PAYMENT JUDGMENTS § 1.01(2) (2019). The idea behind these arrangements is to provide for the tort victim's long-term care and expenses. In an SSA, the tortfeasor oftentimes assigns payment responsibilities to another entity, called an assignment company. The assignment company purchases an annuity from a life insurance company to facilitate its payment obligations to the tort victim. To incentivize SSA arrangements, both annuitants and assignment companies receive favorable tax treatment. See 26 U.S.C. §§ 104(a)(2), 130; Cordero v. Transamerica Annuity Serv. Corp., 34 F.4th 994, 997 (11th Cir. 2022) (per curiam).

Annuitants who enter SSAs may later cash out their right to future payments, in whole or in part, in exchange for an immediate discounted lump sum. See Symetra Life Ins. Co. v. Rapid Settlements, Ltd., 775 F.3d 242, 245 (5th Cir. 2014) (explaining that annuitants "often . . . prefer a large one-time payment in lieu of the smaller payments over time," and that companies can "offer to pay the annuitant a lump sum now in exchange for the right to collect the annuitant's future payments"); In re Hughes, 513 S.W.3d 28, 30-31 (Tex. Ct. App. 2016) (analyzing a case involving a partial assignment). This practice is known as "factoring." Federal and state law permit factoring, but, as one may expect, these transactions are subject to oversight. See Cordero, 34 F.4th at 996.

Federal law uses the favorable tax treatment of SSAs to incentivize parties to safeguard factoring transactions from potential abuse. For SSA payments to maintain their preferred tax treatment post-factoring, a state court or other qualifying state authority must find that the factoring agreement complies with federal and state law and is "in the best interest of the payee, taking into account the welfare and support of the payee's dependents." 26 U.S.C. § 5891(b)(2)(A)(ii); see also TransAmerica Assur. Corp. v. Settlement Cap. Corp., 489 F.3d 256, 259-60 (6th Cir. 2007). To implement this, states have enacted Structured Settlement Protection Acts, or SSPAs. See Hindert, supra, § 16.04(1) ("Starting with Illinois in 1997, every state and the District of Columbia has enacted a form of Structured Settlement Protection Act or SSPA."); Symetra Life, 775 F.3d at 245.

State SSPAs require factoring companies and payees to follow specified procedures before a factoring transaction can be carried out. See Hindert, supra, § 16.04(3). The process differs state by state, but broadly speaking, SSPAs impose disclosure and other procedural requirements and require court approval. Under each state SSPA, factoring companies are required to make written disclosures to the payee "designed to highlight the value of the transferred payments and to contrast that value with the net amount the payee will actually receive." Id. § 16.04(3)(a). Some SSPAs mandate the format, language, and even the size of the typeface in these written disclosures. See, e.g., Cal. Ins. Code § 10136(b). These disclosures can include required provisions relating to the payee's right to seek and receive independent professional advice on the transaction, see, e.g., Ohio Rev. Code Ann. § 2323.582(J), and itemization of fees and expenses that will be deducted from the gross amount the payee will receive, see, e.g., Neb. Rev. Stat. § 25-3104(1)(b)(v). Many SSPAs require disclosure of the discounted present value and effective interest rate of the transferred payments. See, e.g., id. § 25-3104(1)(b)(vii)-(viii); Cal. Ins. Code § 10136(c)(6), (8); Symetra Life, 775 F.3d at 245-46; Hindert, supra, § 16.04(3)(a). If a factoring company tries to avoid the procedural requirements, the transaction can be denied, and fees and costs can be awarded against the company. Hindert, supra, § 16.04(3)(c); Symetra Life, 775 F.3d at 246.

Advance court approval is the "cornerstone" of both state and federal law in this area. Hindert, supra, § 16.04(3)(b). To consummate their transaction, the payee and factoring company obtain from a state court or other competent body a finding that factoring "will serve the best interests of the payee and the payee's dependents and/or is necessary to enable them to avoid hardships," and will not contravene any applicable law. Id.; see also, e.g., Cal. Ins. Code § 10139.5(a) (deeming ineffectual the transfer of structured settlement payment rights "unless the transfer has been approved in advance in a final court order"); Wash. Rev. Code. § 19.205.030. Many SSPAs call for the court to find that the factoring company complied with the relevant disclosure obligations. See, e.g., W. Va. Code § 46A-6H-3(f)(2). SSPAs also often require either a finding "that the payee has received 'independent professional advice' concerning the proposed transfer" or that the payee was advised to do so and waived that right. Hindert, supra § 16.04(3)(b); see, e.g., Tex. Civ. Prac. & Rem. Code § 141.004(2). The approval process typically involves a hearing in which a state court judge considers the context of the transaction and the payee's needs for immediate funds. See Hindert, supra, § 16.05(4)(a); Va. Code Ann. § 59.1-477(B).

Ultimately, the state court must make an independent determination that the factoring transaction is in the payee's "best interest." 26 U.S.C. § 5891(b)(2)(A). This test "refers to the personal circumstances of the individual seeking an immediate cash sum," and "is akin to . . . best interest determinations" made in family, probate, or guardianship proceedings. Hindert, supra, § 16.05(4)(a). The "best interest" of a payee can also be legislatively defined. California's SSPA, for example, provides fifteen non-exclusive factors that a state court must consider when making this determination. See Cal. Ins. Code § 10139.5(b).

Some state SSPAs take this a step further and require that any factoring transaction be adjudged "fair and reasonable." Hindert, supra, § 16.05(4)(a). This standard "is largely associated with the difference between what is being paid in cash by the transfer company and the aggregate value of the future payment rights being acquired." Id.; see also, e.g., Cal. Ins. Code § 10139.5(b)(9) (requiring an approving court to consider "[w]hether the financial terms of the transaction, including the discount rate[,] . . . the expenses and costs of the transaction[,] . . . [and] the available financial alternatives to the payee . . . are fair and reasonable").

In sum, the state court approval process is designed to evaluate each transaction individually and to protect annuitants when they engage in factoring.

B

Defendant Symetra Assigned Benefits Service Company (SABSCO) operated as an SSA assignment company that assumed the obligations of tortfeasors to make periodic payments to tort victims. To make these payments, SABSCO purchased SSAs from an affiliated entity, defendant Symetra Life Insurance Company (Symetra Life). After concluding that SSAs could become unprofitable over time, the defendants in the mid-2000s began soliciting their annuitants to enter factoring transactions. When a tort victim elected to factor, SABSCO would purchase from the annuitants at a discounted price the stream of SSA payments that Symetra Life was issuing through its annuities.

To market their factoring opportunities, the defendants sent solicitations to eligible annuitants on a quarterly basis through mass mailings, newsletters, and emails. An exemplar mailing informed annuitants that due to changed circumstances, they might "face the need for...