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Genworth Life Insurance Co., F/K/A General Electric Capital Assurance Co., and v. William Z. Davis and Settlement

May 3, 2011

GENWORTH LIFE INSURANCE CO., F/K/A GENERAL ELECTRIC CAPITAL ASSURANCE CO., AND
G.E. CAPITAL ASSIGNMENT CORP., PLAINTIFFS,
v.
WILLIAM Z. DAVIS AND SETTLEMENT FUNDING LLC D/B/A PEACHTREE SETTLEMENT FUNDING,
DEFENDANTS.
WILLIAM Z. DAVIS, THIRD-PARTY PLAINTIFF,
v.
STRUCTURED RECEIVABLES FINANCE #5, LLC, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: James F. Holderman, Chief Judge

MEMORANDUM OPINION AND ORDER

On April 1, 2010, Genworth Life Insurance Company ("Genworth") and G.E. Capital Assignment Corporation ("G.E. Capital") (collectively "Plaintiffs") filed a Complaint for Interpleader under 28 U.S.C. §§ 1335, 1397, and 2361, against William Z. Davis ("Davis") and Settlement Funding, LLC d/b/a/ Peachtree Settlement Funding ("Peachtree") (Dkt. No. 1 ("Pls.' Compl.")). Both Peachtree and Davis filed cross-claims against each other (Dkt. Nos. 13, 19), and Davis additionally filed a third-party complaint against Structured Receivables Finance #5 LLC ("Structured Receivables"). (Dkt. No. 20("Davis's 3d Party Compl.") ¶ 47.) This court has jurisdiction under 28 U.S.C. § 1335 because the adverse claimants are minimally diverse and the amount in controversy exceeds $500. (Dkt. No. 35, Jurisdictional Statement; Metro Life Ins. Co. v. Price, 501 F.3d 271, 275 (3d Cir. 2007) ("District Courts have subject matter jurisdiction under [28 U.S.C. § 1335] if there is 'minimal diversity' between two or more adverse claimants, and if the amount in controversy is $500 or more.").) Currently before the court is Peachtree and Structured Receivables's (collectively "Peachtree Defendants") "Motion to Dismiss or Stay Based on the Doctrine of Abstention" (Dkt. No. 28 ("Peachtree Defs.' Mot.")). For the reasons explained below, the Peachtree Defendants' Motion is denied.

BACKGROUND

The Plaintiffs filed a Complaint for Interpleader under 28 U.S.C. §§ 1335, 1397, and 2361, against defendants Davis and Peachtree with respect to the rights and obligations of the parties pursuant to an Individual Single Premium Structured Settlement Annuity Contract ("Annuity") issued by Genworth on June 7, 1997. (Pls.' Compl ¶ 5.) The Annuity identifies G.E. Capital as the Owner and Davis as both the Annuitant and the Payee. (Id. ¶ 5, Ex. A.)

Based on the allegations in Peachtree's Cross-Claim against Davis, on or about August 4, 2008, Peachtree entered into a purchase agreement ("First Purchase Agreement") with someone purporting to be William Z. Davis. (Dkt. No. 13, Peachtree's Cross-cl. ¶ 5.) Under the terms of the First Purchase Agreement, Peachtree purchased Davis's right, title, and interest in certain Annuity payments. (Id.) Peachtree then filed a "Petition for Approval of Structured Settlement Rights" in the Circuit Court of Sangamon County, Illinois (Case No. 08 CH 951) pursuant to the Illinois Structured Settlement Protection Act, 215 ILCS 153/1, for court approval of the transfer, and the circuit court entered the "Agreed Order" transferring those rights on August 22, 2008. (See Pls.' Compl., Exs. B, C.) According to Peachtree's Cross-Claim, after the closing of the First Purchase Agreement, Peachtree assigned the Agreement to Structured Receivables. (Peachtree's Cross-cl. ¶ 9.) Peachtree also alleges that it is the seller/servicer for Structured Receivables and is authorized to pursue collection, in its own name, of the Annuity payments due to Structured Receivables. (Id.)

Then, on or about September 18, 2008, Peachtree entered into a second purchase agreement ("Second Purchase Agreement") with someone purporting to be William Z. Davis. (Id. ¶ 10.) According to the terms of the Second Purchase Agreement, Peachtree purchased Davis's right, title, and interest in certain Annuity payments. (Id.) Peachtree proceeded to file a second "Petition for Approval of Structured Settlement Rights" in the Circuit Court of Sangamon County (Case No. 08 CH 1178) under the Structured Settlement Protection Act for court approval of the transfer, and the circuit court entered the "Agreed Order" transferring those rights on October 10, 2008. (See Pls.' Compl., Exs. D, E.) In its Cross-Claim, Peachtree also alleges that after the closing of the Second Purchase Agreement, Peachtree assigned that Agreement to Structured Receivables. (Peachtree's Cross-cl. ¶ 9.) According to Peachtree's allegations, it is the seller/servicer for Structured Receivables and is authorized to pursue collection, in its own name, of the Annuity payments due to Structured Receivables. (Id.)

In January 2010, Davis sent a letter to Genworth claiming that someone had stolen his identity and fraudulently sold his rights in the Annuity payments to Peachtree. (Pls.' Compl. ¶ 13; see also id. at Ex. F.) Davis alleges that his brother, Junior Davis, stole Davis's identify sometime between May and July 2008 and then entered into the First and Second Purchase Agreements with Peachtree purporting to be Davis. (Davis's 3d Party Compl. ¶¶ 14-19, 29-31.) Because Davis's claim to the Annuity payments contradicted the circuit court's orders transferring Davis's rights in the Annuity payments to Peachtree, Plaintiffs filed a Complaint for Interpleader against Davis and Peachtree in the United States District Court for the Northern District of Illinois to resolve the dispute. (Pls.' Compl. ¶¶ 14-15.)

Peachtree proceeded to file cross-claims against Davis for Breach of Contract (Count I); Constructive Trust (Count II); Unjust Enrichment (Count III); and Declaratory Judgment (Count VI). (Dkt. No. 13.) Davis similarly has asserted several affirmative defenses and cross-claims against Peachtree, including, inter alia, (1) "no valid sale of the [A]nnuity"; (2) negligence in allowing an imposter to sell the Annuity; (3) violation of the Structured Settlement Protection Act; and (4) violation of the anti-assignment clause in the Annuity. (Dkt. No. 19, Davis's Affirmative Defenses Peachtree's Cross-cl. ¶¶ 44-57; Davis's Cross-cl. ¶¶ 3-16.) In addition, Davis has filed a third-party complaint against Structured Receivables asserting similar claims. (Davis's 3d Party Compl. ¶¶ 50-75.)

On April 8, 2010, this court entered a restraining order enjoining any litigation against Genworth and ordered Genworth to deposit the ongoing annuity payments into the court's Registry. (Dkt. Nos. 10, 11.) Then, on August 19, 2010, Davis filed two petitions in the Circuit Court of Sangamon County (Case Nos. 08 CH 951, 08 CH 1178) to vacate the orders assigning Davis's rights in the Annuity payments to Peachtree; Davis filed amended petitions on December 2, 2010. (Case No. 08 CH 951 ("Davis's Am. Pet. I"); Case No. 08 CH 1178 ("Davis's Am. Pet. II") (attached as Ex. E to Peachtree Defs.' Mem.).) In his amended petitions, Davis alleges that the Circuit Court of Sangamon County lacked jurisdiction over Davis because he was never served with a summons. (Davis's Am. Pet. I ¶¶ 44-46; Davis's Am. Pet. II ¶¶ 38-40.) He additionally requests that the circuit court vacate the two orders under 735 ILCS 5/2-1401 based on Davis's defenses to the transfer of the Annuity. (Davis's Am. Pet. I ¶¶ 44-46; Davis's Am. Pet. II ¶¶ 41-43.) The Peachtree Defendants have moved to either dismiss or stay this action under the Colorado River doctrine based on the pending litigation in the Circuit Court of Sangamon County. (Dkt. No. 28.)

LEGAL STANDARD

Under the Colorado River doctrine, "a federal court may stay or dismiss a suit when there is a concurrent state proceeding and the stay or dismissal would promote 'wise judicial administration.'" AXA Corporate Solutions v. Underwriters Reinsurance Corp., 347 F.3d 272, 277 (7th Cir. 2003) (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 818 (1976)). For the Colorado River doctrine to apply, the federal and state suits must be parallel, i.e., "substantially the same parties are contemporaneously litigating substantially the same issues in another forum." Id. (quoting Caminiti & Iatarola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 700 (7th Cir. 1992)). If the two actions are parallel, the court then must consider the following ten Colorado River factors to determine if abstention by the federal court is appropriate:

(1) whether the state has assumed jurisdiction over property;

(2) the inconvenience of the federal forum;

(3) the desirability of avoiding piecemeal litigation;

(4) the order in which jurisdiction was obtained in the ...


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