Enforceable or Binding Settlement Arrangement

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7^th Circuit Court of Appeals

Case Name: Diane M. Hendricks, et al. v. Novae Corporate Underwriting, LTD.,

Case No.: 16-1712

Officials: POSNER, WILLIAMS, and SYKES, Circuit Judges.

Focus: Enforceable or Binding Settlement Arrangement

As a general rule, choses in action are freely alienable. But courts can—and indeed must—refuse to enforce certain contractual assignments on public-policy grounds. In Texas “assignments of choses in action that tend to increase and distort litigation” violate public policy and are invalid. State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 711 (Tex. 1996). The question in this case is whether that public policy prohibits enforcement of a settlement arrangement in which the defendant admitted liability, stipulated to an amount in damages, and assigned its claim against its insurer to the plaintiff; the plaintiff promised to seek the stipulated damages only from the insurer; and the insurer played no role in the settlement because it had no duty to defend. The defendant’s insurer, Novae Corporate Underwriting, Ltd., contends that this settlement-and assignment is neither enforceable nor binding against it. We agree. This type of settlement scheme is collusive and distorts the adversarial process. The assignment is invalid as a matter of Texas public policy.

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.