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Settlement Funding, L.L.C. v. Rapid Settlements, Ltd.

United States Court of Appeals, Fifth Circuit

March 22, 2017

RAPID SETTLEMENTS, LIMITED, RAPID MANAGEMENT CORPORATION; STEWART A. FELDMAN, Defendants-Appellees Cross-Appellants and RSL FUNDING, L.L.C., Defendant-Third Party Plaintiff-Appellee Cross-Appellant

         Appeals from the United States District Court for the Southern District of Texas

          Before JOLLY, SMITH, and PRADO, Circuit Judges.

          E. GRADY JOLLY, Circuit Judge.

         This dispute arises between two companies in the secondary market for structured settlement payments: Peachtree and Rapid.[1] These two companies are in the business of identifying individuals who are the beneficiaries of structured settlements, which provide a stream of payments, much like an annuity, usually over an extended period of years; once an annuitant is identified, the companies offer to purchase the stream of payments in return for a lump sum. Here, Peachtree sued Rapid for tortious interference with its contracts, alleging that Rapid "poached" clients whose annuities it had already contracted to purchase.

         The district court, relying on a decision by a Texas appellate court, dismissed Peachtree's tortious interference claims as a matter of law. Peachtree appeals. Rapid cross-appeals, arguing for the first time after nearly four years of federal litigation that there is no federal subject matter jurisdiction because (1) the removal notice did not adequately plead the citizenship of the LLC entities that are parties to this case, and (2) the pleadings did not, on their face, raise a federal question.

         We are not happy that jurisdiction is a late show-up in this case. Nevertheless, we hold that the plaintiffs have failed to meet their burden of establishing either federal question or federal diversity jurisdiction. In short, the federal courts have no subject matter jurisdiction over this case. We vacate the judgment and remand with directions to remand the case to the state court.



         In the world of purchasing payment rights to structured settlement agreements, it appears that not all the players wear white gloves. This characteristic of the business has been noticed by the State of Texas and several other states. Thus, to protect recipients of structured settlements from unfair or abusive offers, many states have enacted Structured Settlement Protection Acts that require court approval of any contract to sell the payment rights to a structured settlement. See, e.g., Tex. Civ. Prac. & Rem. Code § 141.001 et seq.[2]

         The crux of this dispute is that Peachtree claims that Rapid has been interfering with the business relations between it and its clients. In distilled terms, Peachtree alleges that, through expensive search and advertising efforts, it finds "clients"-recipients of structured settlements-makes them an offer for their payment stream, and then helps them through the hurdle of court approval of the transfer agreement. The defendant, Rapid, then peruses the court filings, directly contacts Peachtree's clients while the approval request is still pending in court, and makes the client a more generous offer, causing the client to either renege on his agreement with Peachtree or demand that Peachtree increase its offer.


         The present litigation began in 2006, when Peachtree sued Rapid in Texas state court alleging, among other things, tortious interference with a contract between it and Franklin, a New York resident. Rapid, it alleged, found Franklin through the court filings and tried to persuade her to breach her contract with Peachtree by making her a better offer.[3] The litigation was consolidated with Peachtree's similar claim against Rapid involving a Texas resident, Michale Parenti.[4]

         In 2012, some six years into the litigation before the Texas state court, Rapid asserted new claims against a group of third-party defendants called the "Wentworth Parties."[5] Rapid[6] alleged, among other things, a state law civil conspiracy claim. The newly-impleaded Wentworth Parties promptly removed the entire case to federal court. They stated that the basis for removal was both diversity jurisdiction and federal question jurisdiction.[7] The Wentworth Parties were later dismissed, and are no longer parties to the case. Peachtree and Rapid continued to litigate their tortious interference suit in federal court.

         By September 2015, the only disputed colorable claims were Peachtree's tortious interference claims against Rapid with respect to Franklin and Parenti. On summary judgment, the district court[8] dismissed Peachtree's interference claims as a matter of law. The court relied on a recent decision from a Texas appellate court, Washington Square Fin., LLC v. RSL Funding, LLC, 418 S.W.3d 761 (Tex. App.-Houston [14th Dist.] 2013, pet. denied), which held Texas law did not recognize a tortious interference claim based on a contract that had not yet been approved pursuant to the Texas Structured Settlement Protection Act; Peachtree's contracts with Franklin and Parenti had not been approved at the time Rapid allegedly made its raid. Peachtree voluntarily dismissed any remaining claims it had pending, and the district court entered final judgment. Peachtree timely appeals the judgment.[9]


         As earlier indicated, for the first time on appeal, after nearly four years of litigation in the federal district court, Rapid now makes the argument that there is no federal jurisdiction. Specifically, it argues that there was neither federal question jurisdiction nor diversity of ...

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