Thursday, July 24, 2008
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Court of Appeal Rejects Bid to Assign Lottery Prize
By KENNETH OFGANG, Staff Writer
A purported assignment of a lottery winner’s remaining payments as part of a divorce proceeding was invalid, this district’s Court of Appeal has ruled.
In a June 26 opinion, certified yesterday for publication, Div. Two ruled that specific provisions of the California State Lottery Act that limit assignments of prizes take precedence over more general provisions of the Uniform Commercial Code. The court also held that Stone Street Capital, LLC, which obtained the assignment from Linda Foster, failed to show that the assignment was permitted by the Lottery Act.
Foster and her then-husband won a lottery jackpot of about $14 million in 1996, payable in 20 annual installments. They divorced in Arizona in 2003.
In 2006, Foster agreed to sell her rights to the last three payments to Stone Street Capital, a Bethesda, Md.-based company that purchases rights to payment under annuities, structured settlements, judgments for periodic payments, and lottery and other gambling jackpots. The company has also recently entered the business of advance verdict funding, in which plaintiffs borrow money at high interest rates, collateralized by their expected recoveries.
Stone Street’s agreement with Foster provided that the company would buy her interest only if the State Lottery Commission gave an unqualified promise to make the payments to the company. The commission, however, said it could not do so absent a showing that Foster’s rights were assignable within the limitations of the Lottery Act.
Foster moved to reopen her divorce proceedings, and obtained an Arizona court order allowing Foster, or Foster and her ex-husband jointly, to assign their rights to the lottery prize to Stone Street for a lump-sum cash payment, of which Foster would receive $387,000 and her former spouse $141,000. The order directed the Lottery Commission, which was not a party to the proceedings, to make the payments to Stone Street.
Foster subsequently obtained a Sacramento Superior Court judgment declaring that the Arizona order was entitled to full faith and credit. The judgment was served on the commission, which refused to acknowledge the assignment, and Stone Street then sued the commission in a declaratory action in Los Angeles Superior Court.
Judge Ann I. Jones granted judgment on the pleadings, finding that the Arizona order was unenforceable because the court lacked jurisdiction over the commission and that the assignment was unlawful because the Lottery Act prohibits assignment of a winner’s last three payments other than under narrow circumstances, none of which applied.
Justice Victoria Chavez, writing for the Court of Appeal, said the trial judge was correct.
Chavez rejected the plaintiff’s contention that the Lottery Act provisions had been superseded by a 2001 amendment to the California Uniform Commercial Code, generally eliminating legal barriers to the transfer of any “account,” including “winnings in a lottery or other game of chance operated or sponsored by a state, governmental unit of a state, or person licensed or authorized to operate the game by a state or governmental unit of a state.”
Chavez reasoned that the Lottery Act provisions take precedence over the UCC amendment because they are more specific. The justice acknowledged that courts in other states may have found to the contrary, but said they may have done so under rules of construction that, unlike California’s, provide that a later statute amends an earlier one if even if the earlier enactment was more specific.
The UCC amendment, Chavez explained, is a more general provision because it applies to all prizes won in lotteries, while the Lottery Act applies only to prizes won in the California State Lottery.
The justice went on to reject the contention that the assignment is valid under a provision of the Lottery Act permitting assignments, including of the last three payments, pursuant to “an appropriate judicial order appointing a conservator or a guardian for the protection of the prizewinner or for adjudicating rights to, or ownership of, the prize.”
The clear meaning of the language, Chavez wrote, is that the exception only applies when a guardian or conservator is appointed, whether the appointment is made in order to protect the prizewinner or to adjudicate ownership.
To rule otherwise, as argued by Stone Street, “would require us to ignore the word ‘for’ the second time it is used,” the justice explained. “The word ‘for,’ used in the final clause of the subdivision, ensures that we read the statute as describing the two purposes for which the conservator or guardian may properly have been appointed: first, for the protection of the prizewinner; or second, for adjudicating rights to, or ownership of, the prize.”
The case is Stone Street Capital, LLC v. California State Lottery Commission, 08 S.O.S. 4386.
Copyright 2008, Metropolitan News Company