Shulman Hodges & Bastian LLP

Arizona Court of Appeals Finds Alleged Security Interest in Lottery Winnings Did Not Attach Due to Lack of "Value"

In Woodbridge Structured Funding, LLC v. Arizona Lottery, 326 P.3d 292 (Ariz. App. 2014), the Arizona Court of Appeals held that the first company's alleged security interest in lottery winnings did not attach because the first company never gave "value" to the winner (e.g. the first company never made any payment to the winner). The lottery winner had entered into and signed a structured settlement with the first company whereby the winner attached his lottery rights in return for a lump sum. A few hours later, the lottery winner cancelled the contract with the first company. The first company refused to acknowledge the cancellation and filed a UCC-1 financing statement. The lottery winner then entered into a new agreement with a different structured settlement company and that second company sought to invalidate the UCC-1 filing. The Court held that the first company's security interest never attached because it did not give "value" - the firm never gave any money to the winner - and as such, the first company did not have a valid security interest in the lottery winnings. 

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