Under the agreement, Mr. 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 prohibited Mr. Johnson from transferring his interest in future payments.

Consistent with 26 U.S.C. Section 130(c)(2)(B), however, Mr. Johnson's structured settlement agreement with State Farm provided that State Farm could assign its payment obligation to Metropolitan Tower Life Insurance Company (“Met Tower”), and that Mr. Johnson was required to accept the assignment. 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 Mr. Johnson.

The QAA included a paragraph prohibiting Mr. 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 5891(b)(2), if the transfer “otherwise complie[d] with applicable state law.”

In 2013, Mr. 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 due in 2020. Together, the sums had a discounted present value of just over $29,000. J. G. Wentworth agreed to pay Mr. Johnson $17,250 for the right to receive those sums in the future.

In December 2013, Mr. Johnson signed an agreement for the transfer of the future payments to J. G. Wentworth.

In February 2014, J. G. Wentworth filed a petition in an Oregon state 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 Mr. Johnson in chambers to discuss his need for the funds, the trial court issued an order and judgment approving the transfer.

Met Tower appealed, asserting that the trial court had erred because Met Tower was entitled to enforce the anti-assignment provision in the structured settlement agreement, thereby preventing Mr. Johnson from assigning his right to future payments.

The Structured Settlement Agreement

The structured settlement agreement provided that Mr. Johnson did not:

have the power to sell, mortgage, encumber, or anticipate the Periodic Payments, or any part thereof, by assignment or otherwise.

The structured settlement agreement also 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.

The QAA

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.

The Appellate Court's Decision

The appellate court reversed.

In its decision, the appellate court decided that, based on California case law regarding the general enforceability of anti-assignment clauses, Met Tower was entitled to enforce the anti-assignment clause in the structured settlement agreement, barring the transfer.

The appellate court was not persuaded by J. G. Wentworth's contention that a provision in the QAA that explicitly permitted a transfer of payments approved by a “qualified order” demonstrated that the parties had contemplated the possibility that the beneficiary would seek to transfer future payments, and that Met Tower implicitly had agreed to permit such a transfer, if approved in a qualified order.

First, the appellate court said, the express terms of the structured settlement agreement prohibited a transfer of the beneficiary's interest in future payments, thereby creating an anti-assignment right belonging to the obligor. By the terms of the QAA, the appellate court continued, Met Tower became the obligor under the structured settlement agreement, assuming all of State Farm's obligations. And, the appellate court added, under California law, as the obligor under the structured settlement agreement, Met Tower was entitled to enforce the anti-assignment provision.

The appellate court then found nothing in the QAA that suggested that, by signing it, Met Tower had abandoned its right to enforce the anti-assignment clause in the structured settlement agreement. Rather, it reasoned, the QAA simply described the “only set of conditions” under which a transfer of the beneficiary's interest could occur if Met Tower chose not to enforce the anti-assignment clause – that is, the transfer had to be approved in advance by a court, pursuant to the pertinent Internal Revenue Code provisions, and otherwise had to comply with state law.

Finally, the appellate court rejected J.G. Wentworth's argument that Met Tower's decision to object to the transfer was arbitrary and that, in light of the provision in the QAA permitting a qualified transfer when approved by the court, the documents together had to be construed to impose on Met Tower an implied duty of good faith and fair dealing to permit the transfer. Given the enforceability of the anti-assignment provision, the appellate court ruled, 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.”

Accordingly, the appellate court concluded, Met Tower was entitled to enforce the anti-assignment clause preventing Mr. Johnson from transferring his interest in the future payments under the structured settlement agreement, and the trial court had erred in approving the transfer.

The case is Johnson v. J.G. Wentworth Originations, LLC, No. A156843 (Ore. Ct.App. March 1, 2017). Attorneys involved include: Stephen R. Harris, Pennsylvania, argued the cause for appellants. With him on the briefs were Michael T. Stone, Christopher Allnatt, and Brisbee & Stockton LLC. Julie A. Weis argued the cause for respondent J.G. Wentworth Originations, LLC. With her on the brief was Sara Ghafouri.