Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_02-cv-04891/USCOURTS-cand-3_02-cv-04891-4/pdf.json

Nature of Suit Code: 350
Nature of Suit: Motor Vehicle Personal Injury
Cause of Action: 28:2671 Federal Tort Claims Act

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CONTINENTAL CASUALTY CO, et al,

Plaintiffs,

v

UNITED STATES OF AMERICA, et al,

Defendants. /

No C 02-4891 VRW

RELATED TO 

C 02-5292 VRW

AMENDED ORDER

Plaintiffs seek to establish the Sistrunk Segregated

Settlement Account as a trust responsible for allocating settlement

payments among the plaintiffs. Doc #185. Plaintiffs also seek an

order imposing restrictions on the government’s terms of

settlement. Doc #186. Additionally, plaintiffs request that the

order impose such restrictions on all settlements by the Torts

Branch of the United States Department of Justice, Civil Division. 

Id at 9-10. For the reasons discussed below, plaintiffs’ joint

petitions are DENIED.

//

//

Case 3:02-cv-04891-VRW Document 206 Filed 11/29/06 Page 1 of 6
United States District Court

For the Northern District of California

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I

The court was notified that the parties had reached a

preliminary settlement agreement on January 10, 2006. Doc #175. 

The settlement agreement was memorialized in a letter from the

government to plaintiffs’ counsel. Doc #193 Ex A. The terms of

the settlement agreement, as set forth in a letter memorializing

the settlement, are: 

(1) A settlement of $1.75 million for all claims of all

parties, which includes any and all costs and attorney’s

fees; 

(2) The settlement is contingent upon an Order Approving

Third Party Compromise and Release being issued by the

Worker’s Compensation Appeals Board; 

(3) The parties will propose a protective trial date of

July 10, 2006.

(4) If the settlement is not finalized by June 16, 2006

or otherwise fails to occur by that date, the plaintiffs

will not claim as special damages any damages incurred

between the January 23, 2006 and June 16, 2006.

Id. The agreement contained no provisions for a structured

settlement and the government argues it never agreed to a

structured settlement. Doc #193 at ¶12 (Cheng decl). Plaintiffs

allege, however, that the government understood the agreement was

conditioned upon a structured settlement approved by the Center for

Medicaid Services (CMS). Doc #186 at 3-4.

Plaintiffs desire to structure settlement payments to

establish a Medicare Set Aside Trust to fund future medical

expenses and to reduce the tax liability of the injured person, Ute

Sistrunk. Id. The government provided model language for a

structured settlement in an email on February 17, 2006, although

the model language has not been submitted to the court. Doc #193

¶6 and Ex C. After repeated requests for structured settlement

Case 3:02-cv-04891-VRW Document 206 Filed 11/29/06 Page 2 of 6
United States District Court

For the Northern District of California

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terms from plaintiff Ute Sistrunk’s counsel, the government

informed plaintiffs that “because plaintiffs indicated that they

did not intend to comply with the DOJ’s requirement for structured

settlement, the only authority our office had was to consummate a

cash settlement.” Id at ¶11; see also Id Ex H. 

In anticipation of the government’s promise to enforce

the settlement agreement, Id at Ex H, plaintiffs challenge the DOJ

requirements for structured settlements. Doc #186. Plaintiffs

also seek a court order establishing a qualified settlement trust

responsible for allocating settlement funds, Doc #185, presumably

to bypass the DOJ requirements and privately create a structured

payment plan.

II

Plaintiffs seek to interject the court into settlement

negotiations by challenging the legality of the government’s terms

of settlement. Plaintiffs argue that “conditions that the

[government] seeks to impose on the settlement terms are

overreaching, unjustified, constitute ultra vires policy making and

are in violation of public policy, which causes such conditions to

be illegal.” Doc #186 at 5. Specifically, plaintiffs challenge

DOJ requirements that (1) the government select an annuity broker,

(2) plaintiffs are offered less money for structured settlements

than cash settlements, (3) annuities provide reversionary interests

to the government, (4) limit available financing options and (5)

prohibit assignment of the structured settlement. Id at 10-15. 

But plaintiffs provide no legal basis for the court to force

particular settlement conditions upon the government, relying

Case 3:02-cv-04891-VRW Document 206 Filed 11/29/06 Page 3 of 6
United States District Court

For the Northern District of California

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instead on equitable policy arguments. The court is not in the

position to make policy decisions regarding DOJ settlement

practices and finds no illegality in any of the requirements. To

the extent these practices are contrary to sound or appropriate

public policy, it rests with the executive or legislative branches

to regulate.

The identified legal objections that plaintiffs raise are

inapplicable. First, plaintiffs argue that an annuity agent

selected by the government would have a conflict of interest in

violation of Model Rules of Professional Conduct 1.7(a). Unless

the annuity agent is a lawyer, however, the model rules are not

binding for annuity brokers. Rule 1.7 applies only to lawyers with

current clients who have conflicting interests. But plaintiffs are

represented by independent counsel.

Second, plaintiffs argue that any condition prohibiting

assignment of the structured settlement eliminates rights granted

by 26 USC §5891. But section 5891 involves tax exemptions for

transfers of structured settlement rights and does not establish a

statutory right for such transfers. Plaintiffs are free to

contract away any right of assignment and the government can seek

such a provision. 

Finally, plaintiffs argue that the government practice of

selecting brokers without advertising violates the procurement law

41 USC §5. But section 5 governs only services purchased for the

government, not brokers selected to benefit third parties - such as

plaintiffs. Additionally, section 5 exempts services “of a

technical and professional manner” such as an annuity broker.

The parties have an enforceable settlement agreement for

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$1.75 million, but the agreement is ambiguous regarding any

structured settlement terms. If the agreement was conditioned upon

a structured settlement and parties cannot agree upon the specific

terms of payment, then the settlement agreements would be void. In

this case, parties would be free to begin negotiations anew or

continue with the underlying litigation. Alternatively, if the

agreement was for a cash payment of $1.75 million, then the

plaintiff can take the money and purchase any annuities privately

without government involvement. Because the plaintiffs have failed

to assert any legal authority justifying judicial intervention, the

court DENIES plaintiffs’ joint petition.

III

Plaintiffs also seek an order establishing a segregated

settlement account defined in 26 CFR 1.468B-1. Doc #185. But

plaintiffs fail to identify the court’s authority to create such a

trust fund. As a court of limited jurisdiction this court may not

create a qualified settlement account merely because a tax

regulation allows the creation of such settlement accounts. 

Rather, plaintiffs must identify some constitutional or

congressional grant of authority providing this court with

jurisdiction to create unilaterally qualified settlement accounts.

The federal regulation plaintiffs identify provides a

mechanism whereby courts have authorized qualified settlement

accounts by approving a settlement agreement. Specifically,

plaintiffs may create a trust that complies with 26 CFR 1.468B1(c)(2) and (c)(3). The opposing party, the government in this

case, and the fund administrator may later jointly make a relationCase 3:02-cv-04891-VRW Document 206 Filed 11/29/06 Page 5 of 6
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back election pursuant to 26 CFR 1.468B-1(j)(2) when the court

approves the fund as part of a settlement approval. This allows

the settlement fund to be created as a trust for the purpose of

settling a contested claim, but obtain court approval at a later

date. See 26 CFR 1.468B-1(c)(1) (fulfilled if a court either

establishes or approves the qualified settlement fund). Of course,

this would require the government’s acquiescence and the government

has objected to the creation of a qualified settlement account. 

Doc #203.

Because plaintiffs have failed to demonstrate that this

court has authority to create a qualified settlement fund,

plaintiffs’ joint petition to establish the Sistrunk Segregated

Settlement Account is DENIED.

The parties are directed to appear on January 2, 2007, at

9:00 am to report on the status of the case and for further

scheduling, if necessary.

SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

Case 3:02-cv-04891-VRW Document 206 Filed 11/29/06 Page 6 of 6