     Case: 18-20245   Document: 00515178032     Page: 1   Date Filed: 10/29/2019




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                                                  FILED
                                                              October 29, 2019
                                 No. 18-20245
                                                               Lyle W. Cayce
                                                                    Clerk
FINSERV CASUALTY CORPORATION; A.M.Y. PROPERTY & CASUALTY
INSURANCE CORPORATION,

             Plaintiffs - Appellees
v.

SYMETRA LIFE INSURANCE COMPANY; SYMETRA ASSIGNED
BENEFITS SERVICE COMPANY,

             Defendants - Appellants

                          ****************


                                 No. 18-20762


FINSERV CASUALTY CORPORATION; A.M.Y. PROPERTY & CASUALTY
INSURANCE CORPORATION,

             Plaintiffs - Appellees

v.

SYMETRA LIFE INSURANCE COMPANY; SYMETRA ASSIGNED
BENEFITS SERVICE COMPANY,

             Defendants - Appellants


                Appeals from the United States District Court
                     for the Southern District of Texas
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                            No. 18-20245 c/w No. 18-20762
Before SMITH, DENNIS, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
       Symetra Life Insurance Co. and Symetra Assigned Benefits Service Co.
(collectively, “Symetra”) appeal a jury verdict in favor of appellees FinServ
Casualty Corp. (“FinServ”) and A.M.Y. Property & Casualty Insurance Corp.
(“A.M.Y.”). We REVERSE the district court’s judgment and REMAND with
instruction to RENDER judgment as a matter of law for Symetra.

                                  I.    Background
       The parties operate in the structured-settlement market. 1 Symetra is
an issuer and obligor of annuity contracts, meaning it acquires money to make
annuity payments to tort victims with structured settlements. Non-parties
Rapid Settlements, Ltd. (“Rapid”) and RSL-3B-IL, Ltd. (“RSL-3B”) purchase
structured settlements from such victims for a discounted lump sum. 2 To fund
their business, Rapid and RSL-3B obtained secured loans from FinServ and
A.M.Y., which are casualty insurance companies. 3
       These entities have been litigating against each other for nearly two
decades.     The present consolidated cases involve structured settlement
payments Symetra owed to two individuals, Ana Meza and Patrick Reihs.
Symetra owed $25,000 to Meza and $60,000 to Reihs. RSL-3B acquired the
rights to the Meza and Reihs payments from those individuals in 2004 and
2005, respectively, with Rapid acting as broker. Both payments were subject
to security interests held by FinServ and A.M.Y. in all of Rapid and RSL-3B’s



       1A structured settlement provides a tort victim with periodic annuity payments over
time rather than an immediate lump sum.
       2 A Washington court of appeals previously determined that Rapid and RSL-3B were
alter egos. In re Rapid Settlements, Ltd. (Rapid II), 271 P.3d 925, 931 (Wash. Ct. App. 2012).
       All four of these entities are owned or controlled by Stewart Feldman of the Feldman
       3

Law Firm, LLP.
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                           No. 18-20245 c/w No. 18-20762
then-owned and after-acquired property. 4 UCC-1 financing statements were
filed with the Texas Secretary of State in 2004 and 2008 disclosing FinServ’s
and A.M.Y.’s rights in Rapid’s and RSL-3B’s property.
      Symetra has obtained several judgments against RSL-3B and Rapid. In
2006 and 2008, Washington courts awarded $39,287.04 in attorney fees and
costs to Symetra from Rapid due to Rapid’s violations of the Washington
Structured Settlement Protection Act (“SSPA”), WASH. REV. CODE ANN.
§§ 19.205.010–.901, and an unsuccessful appeal from that judgment. In re
Rapid Settlements, Ltd. (Rapid II), 271 P.3d 925, 927–28 (Wash. Ct. App.
2012); Rapid Settlements, Ltd. v. Symetra Life Ins. Co. (Rapid I), 139 P.3d 411,
412, 414 (Wash. Ct. App. 2006). Symetra was granted a right to offset the
Reihs payment with the attorney-fee award in 2010. Rapid II, 271 P.3d at 929,
931 (affirming the trial court’s grant of the right to offset). As a result of
separate litigation concerning Rapid’s circumvention of the Washington and
Texas SSPAs, a Texas federal district court directed Rapid to pay Symetra
$901,297.63 in fees and costs in 2015.             Symetra Life Ins. Co. v. Rapid
Settlements, Ltd., No. H-05-3167, 2015 WL 6739022, at *1 (S.D. Tex. Nov. 4,
2015).    Finally, in 2013, a Washington state court awarded Symetra a
substantial amount in sanctions when RSL-3B violated a temporary
restraining order enjoining it from collaterally attacking the offset order from
Rapid II. In re Rapid Settlements, Ltd. (Rapid III), 359 P.3d 823, 830, 835–40
(Wash. Ct. App. 2015) (affirming in part the trial court’s award of sanctions).
      In 2012, FinServ and A.M.Y. notified Symetra via letter that they
claimed security interests in the Reihs payment. Symetra then notified RSL-



      4 FinServ was a spinoff from A.M.Y. and acquired an interest in the loan to RSL-3B
when it was created. A.M.Y. and FinServ have since merged, with A.M.Y. being the surviving
entity.
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                         No. 18-20245 c/w No. 18-20762
3B that it would offset the Reihs and Meza payments pursuant to the offset
order from Rapid II and the sanctions judgment from Rapid III, respectively.
In all, Symetra offset $83,543.77, including the entire Meza payment and all
but $1,456.23 of the Reihs payment.
      RSL-3B filed suit in Texas state court to challenge Symetra’s offsets, and
the case was removed to the Southern District of Texas. FinServ and A.M.Y.
joined as plaintiffs based on their stated security interests, claiming that the
rights to payment arising from their security interests were not subject to
Symetra’s offset rights. The court granted summary judgment against all RSL-
3B’s claims, leaving only claims by FinServ and A.M.Y. 5 Symetra moved for
summary judgment against FinServ and A.M.Y., arguing that they had failed
to provide timely notice of their security interests. The district court denied
the motion, stating in relevant part that “there [were] fact issues relevant to
whether Symetra received notification of [the] assignments of the disputed
payments [to FinServ and A.M.Y.] prior to the accrual of Symetra’s offsetting
claims.” The court also denied Symetra’s subsequent motion for a judgment as
a matter of law.
      The case went to a jury, which found that Symetra had received notice
that RSL-3B had assigned the Meza and Reihs payments by 2005, well before
its offsetting claims accrued. Therefore, the district court ruled that Symetra
could not assert its rights to offset against assignees FinServ and A.M.Y.
Symetra filed a renewed motion for judgment as a matter of law, arguing that,
if the law were properly applied, no reasonable jury could find that Symetra
had notice of assignment in 2005.        The district court denied the motion.
Symetra also moved for a new trial, arguing that the notice finding was



      5  Eventually, RSL-3B transferred its rights in the Meza and Reihs payments to
different entities also controlled by Feldman.
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                         No. 18-20245 c/w No. 18-20762
unsupported by the evidence. That motion was likewise denied. Symetra
timely appealed.

                         II.    Standard of Review
      “We review the denial of a motion for judgment as a matter of law de
novo but apply the same legal standard as the district court.” OneBeacon Ins.
Co. v. T. Wade Welch & Assocs., 841 F.3d 669, 675 (5th Cir. 2016). We will
reverse the district court “if the legal conclusions implied from the jury’s
verdict cannot in law be supported by [the jury’s factual] findings.” Id. at 676
(quoting Am. Home Assurance Co. v. United Space All., LLC, 378 F.3d 482, 488
(5th Cir. 2004)). Notice is generally “an inference of fact.” Exxon Corp. v.
Raetzer, 533 S.W.2d 842, 846 (Tex. Civ. App.—Corpus Christi 1976, writ ref’d
n.r.e.). Notice “becomes a question of law only when there is no room for
ordinary minds to differ as to the proper conclusion to be drawn from the
evidence.” BarclaysAmerican/Bus. Credit, Inc. v. E & E Enters., Inc., 697
S.W.2d 694, 700 (Tex. App.—Dallas 1985, no writ). The issue here is not the
jury’s construction of the facts, to which great deference would be owed, but
rather the district court’s construction of the law of “notice,” which is reviewed
de novo. United States v. Posada Carriles, 541 F.3d 344, 353 (5th Cir. 2008)
(“[W]e review de novo the district court’s interpretation of the law.”); Pendarvis
v. Ormet Corp., 135 F.3d 1036, 1038 (5th Cir. 1998) (“We review the district
court’s construction of state law de novo.”); see Palmco Corp. v. Am. Airlines,
Inc., 983 F.2d 681, 685 (5th Cir. 1993) (“[T]he issue [of notice for breach of
contract] is a matter of law based upon the undisputed facts of this case.”).

                               III.   Discussion
      The parties agree, and choice-of-law rules dictate, that Texas law
applies. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78–79 (1938). Normally,
in diversity cases like this one, federal courts “look to the final decisions of the

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                        No. 18-20245 c/w No. 18-20762
state’s highest court.” Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co.,
352 F.3d 254, 260 (5th Cir. 2003). However, the Texas Supreme Court has not
squarely addressed the parameters of whether an account debtor may be given
notice of assignment by the filing of a financing statement. Accordingly, we
must make an “Erie guess” as to how the Texas Supreme Court would rule.
Carrizales v. State Farm Lloyds, 518 F.3d 343, 345 (5th Cir. 2008) (per curiam).
      Section 9.404(a) of the Texas Business and Commerce Code governs
whether an account debtor’s right to offset a debt takes priority over a security
interest in that debt.      TEX. BUS. & COM. CODE ANN. § 9.404(a); see
BarclaysAmerican, 697 S.W.2d at 698 (interpreting TEX. BUS. & COM. CODE
ANN. § 9.318(a) (1974), a former version of section 9.404(a) with substantially
similar language). Under section 9.404(a)(2), “the rights of an assignee are
subject to . . . any other defense or claim of the account debtor against the
assignor that accrues before the account debtor receives a notification of the
assignment authenticated by the assignor or the assignee.” Therefore, the
interests held by FinServ and A.M.Y. would be subject to Symetra’s offset
rights against RSL-3B unless Symetra received notice of their security
interests before its rights accrued. TEX. BUS. & COM. CODE ANN. § 9.404(a).
      The parties agree that Symetra did not have actual knowledge of the
assignment until the 2012 letter, well after Symetra’s offset rights accrued.
But FinServ and A.M.Y. argue that Symetra had inquiry notice, or “reason to
know,” that the Meza and Reihs payments were assigned based on “all the facts
and circumstances” available to Symetra before accrual. See id. § 1.202(a).
They make several arguments to support this contention. First, they assert
that Symetra is a sophisticated party in the structured settlement and
securitization industry, originating over $40 billion of secured loans. Second,
they point out that Symetra received notice of transfer agreements for the
Meza and Reihs payments that stated that Rapid “may assign all or any
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                         No. 18-20245 c/w No. 18-20762
portion of its right, title, and interest in and to this Agreement . . . without the
consent of any other person.” Third, they argue that Symetra was aware that
Rapid and RSL-3B and their existing assignees could make further
assignments of the payments. Fourth and finally, they claim that according to
industry practice, a company in Symetra’s position could and should have
conducted a record search to find financing statements and determine the
identity of RSL-3B’s assignees.
      FinServ and A.M.Y. essentially argue that because Symetra knew that
Rapid and RSL-3B could assign their security interests, Symetra was on notice
of, and thus had a duty to look for, hypothetical assignments. Even accepting
the facts as asserted by FinServ and A.M.Y. and found by the jury, the law
does not support this conclusion. The priority rules of the Texas Business and
Commerce Code do not place the burden on an account debtor to search for and
discover assignments of the debt. See id. § 9.404(a).
      Even assuming that an account debtor need not receive formal notice
like the 2012 letter, section 9.404(a) still requires “actual notice” of assignment.
BarclaysAmerican, 697 S.W.2d at 699 (“[T]he account debtor’s right to assert
claims against the assignee should not be disturbed until [it] has actual notice
of the assignment.”). Actual notice is not the same as actual knowledge, but
the notice requirement must be strict enough to “protect the rights of an
account debtor.” Id.; see TEX. BUS. & COM. CODE ANN. § 1.202 (a)–(b) (defining
“notice” as broader than “actual knowledge”). According to this standard, the
financing statement existing in the world somewhere is not the same thing as
Symetra’s receiving actual notice.        See TEX. BUS. & COM. CODE ANN.
§§ 9.404(a). A financing statement is not transmitted to an account debtor and
therefore gives it no notice or reason to know that a debt has been assigned.
See id. § 1.202(a). An account debtor would find the financing statement only
if it were continually searching for one, which is not what the statute requires:
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                         No. 18-20245 c/w No. 18-20762
instead, the assignor or assignee has the burden to provide notice to the
account debtor. See id. § 9.404(a).
        “An account debtor . . . is not obligated to check the UCC recordings
continually to ascertain whether the debt has been assigned[.]” 4447 Assocs.
v. First Sec. Fin., 889 P.2d 467, 473 n.9 (Utah Ct. App. 1995). This is true even
though a financing statement has been filed and the account debtor knows that
the debt can be assigned freely. Notice of a possibility that there could be an
assignment is not actual notice that assignment occurred. See Citizens State
Bank of Corrigan v. J.M. Jackson Corp., 537 S.W.2d 120, 120–21 (Tex. Civ.
App.—Houston [14th Dist.] 1976, no writ) (holding under Texas law that pre-
assignment instruction to pay the eventual assignee on an invoice did not
provide notice to an account debtor that the right to payment had been
assigned). Put differently, knowledge that a debt may be assigned in the future
does not create a duty to inquire and a corresponding generalized inquiry
notice of all potential assignments. Constructive knowledge from a document
that could have been found if a search were conducted is not “actual notice” in
this context under these statutes.
        Other courts have reached the same conclusion. In In re Alliance Health
of Fort Worth Inc., a Texas federal district court held that “mere filing of a UCC
financing statement is not notice” to an account debtor. 240 B.R. 699, 704 (N.D.
Tex. 1999). Instead, “the burden is on the secured creditor to establish that
the account debtor received notice.” Id. Likewise, the Tenth Circuit has held
that “[a] filed financing statement offers no actual notice of the assignment’s
existence that would affect an account debtor’s right to assert subsequent
claims and defenses.” In re Davidson Lumber Sales, Inc., 66 F.3d 1560, 1566
(10th Cir. 1995) (emphasis removed) (quoting 4447 Assocs., 889 P.2d at 473
n.9).


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                       No. 18-20245 c/w No. 18-20762
      This case is not like those where the specific circumstances gave rise to
a conclusion of actual notice. See TEX. BUS. & COM. CODE ANN. § 1.202(a)
(providing that notice of a fact exists when a person, “from all the facts and
circumstances known to the person at the time in question, has reason to know
that it exists”); Robert Parker’s Truck & Trailer Repair, Inc. v. Speer, 722
S.W.2d 45, 48 (Tex. App.—Houston [1st Dist.] 1986, no writ) (“‘Actual notice’
embraces those things that a reasonably diligent inquiry and exercise of the
means of information at hand would have disclosed.”). Instead, this falls into
the category of speculation or suspicion:      “The realm of suspicion, and
conjecture or surmise based upon it is outside the bounds of the doctrine of
implied notice.” Steinmetz & Assocs., Inc. v. Crow, 700 S.W.2d 276, 280 (Tex.
App.—San Antonio 1985, writ ref’d n.r.e.) (discussing implied notice under
Texas contract law). Although Symetra knew that the payments might be
assigned, and even if it knew that such payments were routinely assigned in
the structured-settlement industry, it could not have had more than a
suspicion that the payments had in fact been assigned.
      We note that in addition to being untethered to any supporting law, the
broad inquiry requirement advanced by FinServ and A.M.Y. would be
especially onerous for an entity like Symetra, which is an account debtor for a
vast number of structured settlements. The relevant statutes impose no such
burden. Under Texas law, an account debtor is entitled to assert defenses
against an assignee until it receives actual notice of assignment. TEX. BUS. &
COM. CODE § 9.404(a); BarclaysAmerican, 697 S.W.2d at 699.

                            IV.   Conclusion
      Filing a financing statement does not provide actual notice. Without an
inquiry duty, Symetra’s failure to find the financing statement is not “actual
notice.” Because the facts presented do not support the conclusion of actual
notice, the district court should have granted judgment in favor of Symetra as
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                           No. 18-20245 c/w No. 18-20762
a matter of law, since Symetra did not receive notice that the Meza and Reihs
payments were assigned to FinServ and A.M.Y. until 2012, after its offset
rights accrued.      Its defenses were thus not subordinated to the security
interests held by FinServ and A.M.Y. 6 Therefore, we REVERSE the district
court’s judgment and REMAND to the district court to RENDER judgment as
a matter of law for Symetra.




     6   Accordingly, we do not reach the other issues raised by Symetra.
                                            10
