IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 13, 2009
No. 07-50586 Charles R. Fulbruge III
Clerk
SETTLEMENT FUNDING, LLC, doing business as Peachtree Settlement
Funding, as Seller/Servicer for Peachtree Finance Company, LLC,
Plaintiff-Counter-Defendant-Appellant,
v.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY,
Defendant-Counter-Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant-Counter-Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Texas, Waco Division.
Before PRADO, ELROD, and HAYNES, Circuit Judges.
JENNIFER W. ELROD, Circuit Judge:
Plaintiff-Appellant Settlement Funding, LLC, (“Settlement Funding”)
appeals the district court’s summary judgment in favor of the United States, as
well as the district court’s denial of Settlement Funding’s motion for default
judgment against Rose Garcia. We affirm.
FACTS AND PROCEEDINGS
No. 07-50586
In 1992, Rose Garcia and the United States settled a lawsuit filed under
the Federal Tort Claims Act. Pursuant to the settlement, the United States
purchased an annuity (the “Annuity”) from TransAmerica Occidental Life
Insurance Co. (“TransAmerica”). Under the terms of the annuity contract, the
United States had the exclusive right to change the annuity’s beneficiary:
Change of Designation - The owner has the right at any time to
designate to whom annuity payments will be made. A change of
designation may only be made by filing a satisfactory written notice
with the Company. A change of designation will not be effective
until recorded at the Home Office of the Company. The change of
designation will take effect on the date the notice was signed.
Garcia was not a party to the annuity contract.
Approximately eight years later, Garcia purported to grant WebBank a
security interest in her right to receive the annuity payments in exchange for
two loans totaling $77,783.40. WebBank assigned the loans to Settlement
Funding, which in turn assigned them to Peachtree Finance Company, LLC
(“Peachtree”). Peachtree then contracted with Settlement Funding to service
and collect the loans.
After Garcia defaulted on the loans, Settlement Funding sued the United
States, TransAmerica, and Garcia, asserting various claims in an effort to force
TransAmerica to make annuity payments to Settlement Funding rather than
Garcia. TransAmerica filed a counterclaim/cross-claim for interpleader against
the United States, Settlement Funding, and Garcia. Pursuant to its interpleader
claim, TransAmerica deposited Annuity payments due during the pendency of
this case into the registry of the district court. The United States filed a
counterclaim for a declaratory judgment that, as the owner of the annuity, it had
the exclusive right to designate to whom the annuity payments would be sent.
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No. 07-50586
Importantly, Settlement Funding dismissed its affirmative claims against the
United States after the United States filed a motion to dismiss on the ground of
sovereign immunity.
The United States and Settlement Funding filed cross-motions for
summary judgment on the United States’s declaratory judgment claim.
Settlement Funding argued in part that a November 2004 order approving a
class action settlement in the United States District Court for the Western
District of Kentucky (the “Kentucky Order”) compelled judgment in its favor.
Settlement Funding also filed a motion for default judgment against Garcia, who
did not answer or otherwise respond to Settlement Funding’s complaint.
The district court granted summary judgment in favor of the United
States, reasoning that the Kentucky Order did not bind the United States and
that “[t]he United States is the owner of the annuity and has the sole right to
designate the payee.” In reaching its decision, the district court correctly
observed that this case turns on whether “Garcia had any rights to transfer
under the Annuity contract[, and] not whether Garcia had any rights to transfer
under her settlement agreement” with the United States. The district court
ordered Settlement Funding to show cause why its pendent state law claims
should not be dismissed. After Settlement Funding failed to respond to the
order, the district court dismissed the claims and entered a final judgment. The
district court denied Settlement Funding’s motion for approval of a supersedeas
bond, and the clerk of the district court disbursed Annuity payments in the
court’s registry to Rose Garcia.
STANDARDS OF REVIEW
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We review the district court’s order granting summary judgment de novo.
Morris v. Equifax Info. Servs., LLC, 457 F.3d 460, 464 (5th Cir. 2006).
“Summary judgment is appropriate where the record shows ‘that there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.’” Whiting v. Univ. of S. Miss., 451 F.3d 339, 343
(5th Cir. 2006) (quoting Fed. R. Civ. P. 56(c)). “We review the denial of a default
judgment for abuse of discretion.” Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir.
2001) (citing Mason v. Lister, 562 F.2d 343, 345 (5th Cir. 1977)). “[A] ‘party is
not entitled to a default judgment as a matter of right, even where the defendant
is technically in default.’” Id. (quoting Ganther v. Ingle, 75 F.3d 207, 212 (5th
Cir. 1996)).
DISCUSSION
I. Jurisdiction
We must first consider the government’s sovereign immunity challenge to
Settlement Funding’s claim.1 See Bernhard v. Whitney Nat’l Bank, 523 F.3d 546,
550 (5th Cir. 2008). In support of this challenge, the government reasons that
“the doctrine of federal sovereign immunity shields the federal government, as
owner of the [Annuity], from being ordered by a court or any party to this
litigation to change the designation of payee of [the Annuity].” Although
Settlement Funding initiated this case with a complaint asserting claims against
the United States, Garcia, and TransAmerica, it dismissed its claims against the
United States after the United States filed a motion to dismiss. Thus, unlike
TransAmerica Assurance Corp. v. Settlement Capital Corp., 489 F.3d 256 (6th
1
The government does not assert that sovereign immunity bars our consideration of
Settlement Funding’s appeal of the district court’s summary judgment on the United States’s
declaratory judgment counterclaim.
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No. 07-50586
Cir. 2007), this appeal does not involve any affirmative claim against the United
States—Settlement Funding sought in the district court to compel TransAmerica
to transfer the Annuity payments to Settlement Funding without the United
States’s approval, not to force the United States to approve the transfer.2 For
this reason, the government’s sovereign immunity argument is without merit.
II. Summary Judgment
A. The Kentucky Order has no preclusive effect on the United States’s
claim for declaratory judgment.
In November 2004, the United States District Court for the Western
District of Kentucky entered an order approving a class action settlement
between Settlement Funding and a class that included Garcia. Settlement
Funding argues that this order has preclusive effect in this case. For two
reasons, Settlement Funding is incorrect. First, as Settlement Funding
acknowledged in its motion for summary judgment before the district court, the
class action settlement order relates to “who, as between Garcia and [Settlement
Funding], is entitled to receive and collect the Periodic Payments” provided for
by the settlement agreement between Garcia and the United States. The order
does not address the issue here—whether Settlement Funding can compel
TransAmerica to redirect annuity payments to Settlement Funding despite
TransAmerica’s contractual obligation to the United States to make those
2
TransAmerica responded to Settlement Funding’s complaint with an interpleader
counterclaim/cross-claim against the United States, Garcia, and Settlement Funding. The
government does not argue that sovereign immunity barred TransAmerica’s interpleader claim
against the United States, and we do not consider that issue. See Kentucky ex rel United Pac.
Ins. Co. v. Laurel County, 805 F.2d 628, 636 (6th Cir. 1986) (“The United States may not be
required to interplead when it has not waived its sovereign immunity.” (internal quotation
marks and citations omitted)).
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No. 07-50586
payments to Garcia. Second, the United States was not a party to the Kentucky
class action and is thus not bound by it. See, e.g., Blonder-Tongue Labs., Inc. v.
Univ. of Ill. Found., 402 U.S. 313, 329 (1971) (“Some litigants—those who never
appeared in a prior action—may not be collaterally estopped without litigating
the issue. . . . Due process prohibits estopping them despite one or more existing
adjudications of the identical issue which stand squarely against their
position.”).
B. The district court correctly determined that the United States has the
exclusive contractual right to designate the Annuity’s payee.
Settlement Funding acknowledges that the United States is the owner of
the Annuity at issue in this case. It also acknowledges that Garcia is not a party
to the Annuity contract, and that the Annuity contract gives the United States
the exclusive right to determine the Annuity’s beneficiary. It nonetheless
asserts that its acquisition of Garcia’s “beneficial interest in the Annuity
Payments” requires TransAmerica to redirect the Annuity payments to
Settlement Funding over the explicit objection of the United States.
In making this assertion, Settlement Funding ignores the critical
distinction between the Annuity, which is a contract between the United States
and TransAmerica, and the settlement agreement requiring the United States
to make periodic payment to Garcia, which is a contract between the United
States and Garcia. See, e.g., W. United Life Assurance Co. v. Hayden, 64 F.3d
833, 838 (3d Cir. 1995) (distinguishing between an annuity beneficiary’s rights
under an annuity contract and her rights under a related settlement agreement).
Garcia has no rights under the Annuity contract, and “[i]t is axiomatic that one
may not sell, assign, or hypothecate that which [s]he does not own.” Allstate Ins.
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No. 07-50586
Co. v. Am. Bankers Ins. Co., 882 F.2d 856, 859 (4th Cir. 1989).3 Garcia “could not
lawfully assign” any interest in the Annuity because she had none. See id. For
this reason, Settlement Funding’s security interest in Garcia’s right to receive
periodic payments under the terms of her settlement agreement with the United
States provides no basis for compelling TransAmerica to direct the Annuity
payments to Settlement Funding. The district court was thus correct in refusing
to do so.4
III. Default Judgment
Settlement Funding also attempts to appeal the district court’s denial of
its motion for default judgment on its pendent state law claims against Garcia,
arguing that “the District Court abused its discretion in denying the motion for
default judgment and dismissing [Settlement Funding]’s claims against Garcia.”
The district court, however, dismissed Settlement Funding’s pendent state law
claims against Garcia only after Settlement Funding ignored an order to show
cause why the claims should not be dismissed. Having failed to object to the
district court’s dismissal of the claims, Settlement Funding cannot complain
about that decision before this court. See Tex. Commercial Energy v. TXU
3
The settlement agreement, which is not before us, and the annuity, which is before
us, are two distinct contracts. Thus, we express no opinion on the question of whether
Settlement Funding has a claim in the United States Court of Claims to enforce its security
interest in the periodic payments due Garcia under her settlement agreement with the United
States.
4
Our decision does not reach the question of whether Settlement Funding was entitled
to the funds TransAmerica paid into the registry of the district court. The district court
allowed the funds to be paid to Garcia, despite the fact that Garcia never appeared as a party
in the case, and denied Settlement Funding’s request for a supersedeas bond, which would
have preserved the funds while Settlement Funding proceeded with its appeal. The registry
funds are now gone, and as Settlement Funding concedes, the issue of whether Settlement
Funding may have been entitled to those funds is moot.
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No. 07-50586
Energy, Inc., 413 F.3d 503, 510 (5th Cir. 2005) (holding that arguments not
raised before the district court are waived on appeal).
CONCLUSION
For the reasons set forth above, the judgment of the district court is
AFFIRMED.
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