Federal Court Limits Use of Arbitration and Rights of First Refusal In Structured Settlement Factoring

In an opinion issued on July 28th, Judge Rosenthal of the United States District Court for the Southern District of Texas (Houston) has enjoined factoring company Rapid Settlements, Ltd. from using contractual arbitration clauses or rights of first refusal to circumvent the state structured settlement protection laws. 

This injunction, which is still subject to a motion for clarification and possible appeal, would effectively end Rapid's unusual and controversial business practices.  As alleged in the injunction order, Rapid has used arbitration clauses in its contracts with sellers as a means to effectively complete a transfer, even if a court has denied the transfer under the state structured settlement protection laws.  Further, the order prohibits Rapid from continuing to use "rights of first refusal" in its contracts to encumber future payments, when the grant of such first refusal rights had not been approved by a court. 

The injunction was obtained by the National Association of Settlement Purchasers (NASP), the trade association for the secondary or factoring industry.  Rapid Settlements is not a member of NASP.

A copy of the injunction order is here. 

For more information on this injunction, watch the Legal Broadcast Network's Scott Drake interview Matt Bracy, General Counsel of Settlement Capital Corporation. 

I welcome your comments on this article or any other structured settlement factoring issue.  You may leave a comment here, or email me at mbracy@setcap.com. 

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