AUSTIN – In yet another show of support for mandatory arbitration, the Texas Supreme Court has ruled unanimously that a duly assigned arbitrator has the power to decide a dispute, even when it involves conflicting court orders.
The decision reversed a Dallas Court of Appeals ruling that supported the claim of a North Texas man that an arbitrator could not determine the validity of a court order transferring his personal injury settlement.
The case involves Rickey Newsome, a North Texas man who assigned his monthly insurance payments to a company that pays cash for structured settlements. Newsome’s lawyer says he has yet to be paid the $53,000 promised by RSL Funding five years ago.
Earl Nesbitt, who represents Newsome, says the ruling is devastating to his client.
“We can only conclude that the court ignored the relevant statute, its own case law and the facts of the case because it was trying to continue its blind adherence to arbitration clauses,” said Nesbitt, a founder of Nesbitt Vassar & McCown in Addison.
The Supreme Court held on Dec. 21 that the appeals court erred because the contract transferring the settlement from Newsome to RSL Funding gave an arbitrator authority to decide the scope of arbitration issues. The court of appeals had cited the unique facts in the dispute between Newsome and RSL in disregarding the parties’ agreement to arbitrate.
Newsome settled a personal injury suit several decades ago and began receiving structured settlement payments from an insurance company. In 2013, he assigned 120 monthly payments of varying amounts to RSL Funding and its related entities for a promised lump-sum payment of $53,000.
The state’s Structured Settlement Protection Act requires court approval to validate such a transfer. A district court judge signed an order in October 2013 approving the transfer and included a handwritten note that said if Newsome was not paid the $53,000 in 10 days the payment would jump to $106,000.
Seven months later, Newsome wrote to the judge complaining that he had not been paid. The district court ordered the parties to mediation, which resulted in an agreement to remove the 10-day penalty. The court issued a corrected order in September 2014.
After several more months passed without payment, Newsome filed a new pleading attacking both the original and corrected orders. Newsome argued that the corrected order was void because the court’s jurisdiction had expired. He claimed the original transfer order was subject to enforcement but said in a later summary judgment motion that it should be vacated because RSL had not complied with it.
RSL responded that it had not yet paid Newsome because of his refusal to accept the $53,000 and lack of cooperation in transferring the settlement payments. RSL moved to compel arbitration.
The district court declared the corrected order void and denied RSL’s motion to compel arbitration.
Ruling on RSL’s appeal, the Dallas-based Fifth Court of Appeals in August 2016 affirmed the trial court’s order. It said that Newsome’s challenge to the conflicting approval orders offered “nothing for an arbitrator to determine” because approval of such transfers was a “purely judicial function.” A dissenting justice said the parties had agreed to arbitrate all matters, including whether the corrected order was effective and whether the trial court’s penalty properly altered the transfer agreement.
The Texas Supreme Court heard the case in October.
E. John Gorman of The Feldman Law Firm in Houston represented RSL. He argued that the appeals court impermissibly decided the case was not subject to arbitration in the face of a valid arbitration clause that explicitly assigns such disputes to the arbitrator. He said the appeals court had no legal basis for applying a “relevance test” to the dispute.
In its opinion by Justice John Devine, the court said the Structured Settlement Protection Act does not mention arbitration.
“While the statute requires a court to approve a settlement-payment transfer, it is silent as to who should decide disputes that arise after such approval, including disputes that require application of the court order itself,” said Devine. “In the fact of such silence, we must apply the general rule that arbitrators are competent to decide any type of dispute.”
Devine added that even if the Texas law prohibited arbitration of certain disputes arising from the approval of structured-settlement transfer, the Federal Arbitration Act would preempt such a restraint of arbitration agreements.
“Here, the courts below have not questioned the validity of parties’ arbitration clause. We thus have no choice but to send this dispute to arbitration for the arbitrator to at least decide arbitrability,” said Devine.
Nesbitt said although the court didn’t decide the merits of Newsome’s claims, he said the decision will allow RSL to “tactically use arbitration to seize payment from an annuitant.”
Gorman did not return a call or email seeking comment on the decision.
Read the opinion in RSL Funding v. Newsome.