United States District Court, D. Maryland
FREDERICK MOTZ, UNITED STATES DISTRICT JUDGE.
Consumer Financial Protection Bureau ("CFPB") files
suit against defendants Access Funding, LLC, Access Holding,
LLC, Reliance Funding. LLC, Lee Jundanian, Raffi Boghosian,
and Michael Borkowski (collectively the "Access Funding
Defendants") and attorney Charles Smith
("Smith"), seeking a permanent injunction, damages,
disgorgement, and payment of redress, civil penalties, and
costs for violation of various provisions of the Consumer
Financial Protection Act of 2010 C'CFPA"), 12 U.S.C.
§ 5481 et. seq., relating to the transfers of
structured settlements. Now pending are the defendants'
motions for Burford abstention and a stay, or in the
alternative, to dismiss. The parties have fully briefed the
issues, and no oral argument is necessary. See Local
Rules 105.6, For the reasons set forth below, the motions for
Burford abstention and a stay are denied. The
motions to dismiss are granted as to Counts I-IV, but denied
as to Count V.
motion to dismiss stage, this court accepts as true the facts
alleged in the complaint. See Aziz v. Alcolac, 658
F.3d 388, 390 (4lh Cir. 2001). Plaintiff CFPB is an
"agency of the United States charged with regulating the
offering and providing of consumer-financial products and
services" under certain federal statutes, including the
CFPA (ECF No. 1, ¶ 5). Defendant Access Funding, LLC is
a limited-liability company with a principal place of
business in Chevy Chase, Maryland that purchased payment
streams from structured settlement holders- a practice known
as "structured settlement factoring"-from December
2012 to November 2015. Id. at ¶ 6. Defendant
Access Holding, LLC is the "sole and managing member of
Access Funding and is legally responsible for the liabilities
of Access Funding." Id. at ¶ 8. Defendant
Reliance Funding, LLC is a "successor in interest to
Access Funding, " as Access Funding sold all of its
assets to Reliance Funding upon being notified of the CFPB
investigation that forms the basis for this matter.
Id. at ¶ 9. Defendant Michael Borkowski
("Borkowski") is the CEO of Access Funding and has
been since May 2014. Id. at ¶
12. Prior to becoming CEO, Borkowski was the CFO and COO of
Access Funding. Id. Defendant Raffi Boghosian
("Boghosian") is the COO of Access Funding and has
been since May 2014. Id. at ¶ 11. Defendant Lee
Jundanian ("Jundanian") was the CEO of Access
Funding from February 2013 to May 2014 and an advisor to
Access Funding thereafter. Id. at ¶ 10.
Jundanian, Boghosian, and Borkowski each have "an
ownership interest in Access Funding and [each] helped
develop Access Funding's business model and manages its
business." Id. at ¶ 10-12. Defendant
Charles Smith is "a Maryland-based attorney who provided
purportedly independent professional advice for almost all
Maryland consumers who made structured-settlement transfers
to Access Funding." Id. at ¶ 13.
dispute involves the sale of structured settlements.
Structured settlements are "'established by legal
judgments or settlements of tort claims to provide recipients
with an arrangement for periodic payment of damages for
personal injuries" and are "often used to ensure
the financial well-being of victims who have suffered
long-term physical or cognitive harm." Id. at
¶ 19. From its founding in December 2012 until November
2015, Access Funding's principal business was
structured-settlement-factoring. Id. at ¶
¶ 14, 18. Structured settlement factoring is the
offering to "'recipients of structured settlements
the opportunity to transfer a portion of their future payment
streams in exchange for a discounted immediate lump
sum." Id. at ¶ 20. Access Funding
conducted approximately seventy percent of its transfers in
Maryland. Id. at ¶ 31.
is one of forty-nine states that have enacted Structured
Settlement Protection Acts ("SSPAs") in order to
protect individuals who have suffered long-term physical or
cognitive harm from entering into transactions that are not
in their best interest. Id. at ¶ 21.
Maryland's SSPA requires structured settlement factoring
companies to obtain court approval before purchasing a
payment stream. Id. at ¶ 22. It also requires
the court to "find that the consumer has consulted with
an independent professional advisor ("IPA") before
it can approve a structured-settlement transfer."
Id. at ¶ 29. "'During the relevant
period, Maryland's SSPA required that an IPA advise [each
consumer] on the financial, legal, and tax implications of a
transfer. Md. Cts. & Jud. Proc. §§
5-1102(b)(3)(2000)." Id. at ¶ 32.
complaint alleges that Access Funding aggressively pursued
structured settlement holders in the hopes of purchasing
their settlements. Their aggressive business practices
included searching court records to identify consumers who
had previously transferred a portion of their structured
settlements, then contacting those consumers and enticing
them to transfer the remainder of their settlements to Access
Funding: searching court records for pending filings by other
structured-settlement-factoring companies, then contacting
the consumers named in those filings and enticing them to
back out of the impending transfers and enter into deals with
Access Funding instead; pressuring individuals who had
already entered into transactions with Access Funding to
transfer to Access Funding all of their remaining expected
payments; and more generally pursuing structured settlement
holders via aggressive phone and mail solicitations.
Id. at ¶ ¶ 23-26. It is not this general
pattern of aggressive business practices, however, that forms
the basis for the complaint.
complaint is based instead on two of Access Funding's
specific business practices. First, the complaint alleges
that Access Funding violated the CFPA by abusing consumers
with respect to the payment of advances. It alleges that
after contacting consumers and offering to purchase their
settlements. Access Funding entered into advance agreements
with many of them, pursuant to which it advanced their lump
sum payments while they waited to complete their paperwork
and finalize their transfers. Id. at ¶ 41.
"These advances often consisted of $500 for signing a
contract, $1, 000 when a court date was set, and another $1,
000 when a judge approved the sale." Id. The
advance agreements notified the consumers that they would be
liable to repay the advances if they did not ultimately go
through with the transaction, and that in order to keep the
advances they would have to cooperate fully with the company
in obtaining court approval for the transaction. Id.
at ¶ ¶ 43, 78. Specifically, the complaint alleges
that ''consumers who could not otherwise repay the
advances were told that they were obligated to go forward
with the transfer even if they realized it was not in their
best interest." Id. at ¶ 79. It further
alleges that the consumers, many of whom were
"lead-poisoning victims with cognitive impairments,
" id. at ¶ 28, "did not understand
the risks or conditions of the advances, including that the
advances did not bind them to complete the
transactions." Id. at ¶ 80. Jundanian,
Boghosian. and Borkowski each allegedly "participated in
establishing Access Funding's policies related to
advances, including the terms of the advances and how they
were presented to consumers, and dictated when Access Funding
would issue advances to consumers." Id. at
second basis for the complaint is Smith's conduct as an
IPA. The complaint alleges that Access Funding used Smith as
the IPA for "almost all of its Maryland
transactions." Id. at ¶ 33. Although Smith
was supposed to be an independent advisor, he in fact had
both personal and professional ties to Access Funding.
Id. at ¶ 34. Specifically, Access Funding paid
him $200 for each IPA letter he provided. Id. at
¶ 39. Access Funding would email Smith, "telling
him when and at which phone number to contact consumers"
and would "courier to consumers prepaid cell phones
that Smith used to contact the consumers." Id.
at ¶ 36. Smith would then get on the phone with
consumers to provide what was supposed to be
"independent professional advice" regarding the
"legal, tax, and financial implications" of the
transfers. Id. at ¶ 46. In fact, the calls
would last only a few minutes and involved Smith doing little
more than reciting the terms of the contract and asking the
consumers whether they understood them. Id. at
¶ 37. Afterwards, Smith would send an affidavit to the
consumers for them to sign, which stated that they had been
"advised to seek independent professional advice in
connection with the transfer" and in fact had received
such advice and still desired to proceed with the transfer.
Id. at ¶ 54. Although the consumers did not
know that Smith had ties to Access Funding, Jundanian,
Boghosian, and Borkowski were aware of this arrangement.
Id. at ¶ 35.
November 21, 2016, the CFPB filed a complaint in this court
alleging three violations of the CFPA by Smith and two
violations of the CFPA by the Access Funding Defendants. Each
of the claims against Smith and one of the claims against the
Access Funding Defendants arise out of Smith's conduct as
an IPA. Specifically, the CFPB alleges that Smith engaged in
unfair (Count I), deceptive (Count II), and abusive (Count
III) acts and practices, in violation of 12 U.S.C.
§§ 5531 (a), (b), and (d) and that the Access
Funding Defendants substantially assisted Smith's unfair,
deceptive, and abusive acts (Count IV), in violation of 12
U.S.C. § 5536(a)(3). The fifth claim arises out of the
Access Funding Defendants' conduct with respect to the
advances. Specifically, the CFPB alleges that the Access
Funding Defendants engaged in abusive acts and practices, in
violation of 12 U.S.C. § 5531(d)(2)(a). On January 30,
2017, defendants Access Funding, Borkowski, and Smith, each
filed a motion for Burford abstention and a stay, or
in the alternative, to dismiss each of the five counts for
failure to state a claim upon which relief can be granted.
Prudential and Jurisdictional Bars
turning to defendants' motions to dismiss the complaint
for failure to state a claim upon which relief can be
granted, I must determine whether a federal court has
jurisdiction to hear this case. Jones v. American Postal
Workers Union, 192 F.3d417, 422(4th Cir.
1999). Plaintiff bears the burden of establishing
jurisdiction. Demetres v. East West Const., Inc.,
776 F.3d 271, 272 (4th Cir. 2015). In determining
whether plaintiff has carried that burden, the court
"presumes that genera! allegations embrace those
specific facts that are necessary to support the claim"
and "accept as true.. .allegations for which there is
sufficient factual matter to render them plausible on their
face." Beck v. McDonald, 848 F.3d 262, 270 (4th
Cir. 2017). And here, before determining the jurisdictional
question raised by defendants' invocation of the
collateral attack doctrine, I address their contentions that
the prudential bars of Burford abstention and issue
preclusion preclude me from hearing this case. See Cioca
v. Rumsfeld, 720 F.3d 505 n.4 (4th Cir. 2013)
(noting that prudential bars such as abstention represent the
kind of threshold questions that may be resolved before
addressing jurisdiction). Courts should exercise their
discretion to abstain from deciding a case under
Burford in a '"narrow range of
circumstances" in which "federal adjudication would
unduly intrude upon complex state administrative
processes." Martin v. Stewart, 499 F.3d 360,
364, quoting Ouackenbush v. Allstate Ins. Co., 517
U.S. 706, 726 (1996). The proponent of issue preclusion bears
the burden of establishing its elements. Sedlack v.
Braswell Services Group, Inc., 134 F.3d 2!9, 224 (4th
Failure to State a Claim
adequately state a claim under Rule 12(b)(6), a complaint,
relying on only well-pled factual allegations, must state at
least a "plausible claim for relief." Ashcroft
v. Iqbal, 556 U.S. 662, 679 (2009). The "mere
recital of elements of a cause of action, supported only by
conclusory statements, is not sufficient to survive a motion
made pursuant to Rule 12(b)(6)." Walters v.
McMahen, 684 F.3d 435, 439 (4th Cir. 2012). To determine
whether the CFPB's claim has crossed "the line from
conceivable to plausible, " the court must employ a
"context-specific inquiry." drawing on the
court's "experience and common sense."
Iqbal, 556 U.S. at 680. When performing this
inquiry, the court accepts "all well-pled facts as true
and construes these facts in the light most favorable to the
plaintiff in weighing the legal sufficiency of the
complaint." Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.
2009). The court need not, however, accept unsupported legal
allegations, Revene v. Charles Cnly. Comm'rs,
882 F.2d 870, 873 (4th Cir. 1989), nor must it agree with
legal conclusions couched as factual allegations,
Iqbal, 556 U.S. at 678, or conclusory factual
allegations devoid of any reference to actual events,
United Black Firefighters v. Hirst, 604 F.2d 844,
847 (4th Cir. 1979); see also Francis v. Giacomelli,
588 F.3d 186, 193 (4th Cir. 2009).
Prudential and Jurisdictional Bars
argue that there are both prudential bars and a
jurisdictional bar to the court hearing this case. First,
defendants argue that the abstention doctrine set forth in
Barford v. Sun Oil, 319 U.S. 315 (1943),
mandates that the court dismiss the CFPB's claims for
equitable remedies and stay its claims for damages. Second,
defendants argue that the doctrine of issue preclusion bars
the CFPB from re-litigating the issues at the heart of its
complaint-namely, whether Smith gave independent professional
advice and whether the Access Funding transfers were fair and
reasonable. Third, defendants argue that the collateral
attack doctrine bars the CFPB from challenging final
judgments of the Maryland state courts. For the reasons that
follow, I find none of these three arguments persuasive and
therefore determine that there is neither a prudential nor a
jurisdictional bar to the court hearing this case.
first argue that the court should abstain from hearing this
case under Burford because the CFPB asks this court
to come to a decision that would conflict with decisions of
the Maryland state courts. The CFPB argues that this case is
not one of the few in which the Burford abstention
doctrine applies. I agree with the CFPB.
courts have a "virtually unflagging obligation ... to
exercise the jurisdiction given them" by Congress.
Colorado River Water Conservation Dist. v. U.S., 424
U.S. 800, 817 (1976). The Burford doctrine relaxes
this obligation, allowing federal courts to abstain from
hearing cases in two very limited circumstances. First,
courts may abstain where there are "difficult questions
of state law bearing on policy problems of substantial public
import whose importance transcends the result in the case
then at bar." Id. at 814. Second, they may
abstain where the "exercise of federal review of the
question in a case and in similar cases would be disruptive
of state efforts to establish a coherent policy with respect
to a matter of substantial public concern. Id.
"Abstention is the exception, not the rule."
Id. at 813.
of the circumstances in which Burford is appropriate
is present here. First, there are no difficult questions of
state law before the court. In fact, there are no questions
of state law before the court. The only question before the
court is how to interpret the Consumer Financial Protection
Act of 2010, which is a question of federal law. (ECF No. 1.
¶ 1). Of the three cases defendants cite in support of
their argument for Burford abstention, two involved
federal courts that were asked to interpret state law.
See Johnson v. Collins Entertainment Co., Inc., 199
F.3d 710, 715 (4th Cir. 1999) ("The district
court granted the injunction based on its interpretation of
state law and ruled in plaintiffs favor on a
question of state unfair competition law. In doing
so, however, the district court improperly interfered with a
state regulatory scheme whose design is at the heart of the
state's police power. The district court should instead
have abstained under the doctrine of Burford. . .
.") (emphasis added); First Penn-Pac. Life Ins. v.
Evans, 304 F.3d 345, 351 (4th Cir. 2002)
("State law also controls the instant dispute
over the validity of a policy that may be a substantial asset
of the receivership estate.") (emphasis added). The
first rationale for Burford abstention was
applicable in these cases because the courts were presented
with difficult questions of state law. This case is far
different because the court is asked to interpret federal
law. Here the first rationale for Burford is simply
this court's review of this case will not disrupt
Maryland's efforts to establish a coherent policy with
respect to a matter of substantial public concern. The
Maryland SSPA requires the sellers of structured settlements
to obtain court approval before selling a settlement. (ECF
No. l, ¶ 29). This requirement reflects a policy
decision that Maryland citizens should not be allowed to make
ill-advised, uninformed decisions to sell structured
settlements. Rigid enforcement of the CFPA-a federal statute
meant to protect consumers from unfair, deceptive, and
abusive acts and practices by individuals who provide
consumer-financial products or services-would do nothing to
create confusion regarding this policy. 12 U.S.C. §
5531(a). If anything, the consumer protection rationale
underlying the state and federal statutes is the same.
cite only one case where a court abstained under the second
Burford rationale, that resolution of the federal
claim would interfere with a state's attempt to establish
a coherent policy. In Pomponio v. Fauqier County Bd. of
Sup'rs, 21 F.3d 1319 (4th Cir. 1994), the
plaintiff brought an 18 U.S.C. § 1983 claim, alleging
that state officials had engaged in arbitrariness, made false
statements, abused their authority, and engaged in other
misconduct while administering local land and zoning laws.
The court held that Buford abstention was
appropriate-although the case involved an issue of federal
law-because the plaintiffs argument:
boil[ed] down to an assertion that his plan complied with the
zoning laws, and the local authorities wrongfully disapproved
his plan by misapplying the laws and by abusing their
authority in the decision-making process. In NOPSI v.
Council of New Orleans, 491 U.S. 350 (1989), the Supreme
Court found Burford abstention inappropriate in part
because the claim asserted there was not "a claim that a
state agency has misapplied its lawful authority or has
failed to take into consideration or properly weigh relevant
state-law factors." 491 U.S. at 362.
[Plaintiffs] claim is just such a claim, and under the
Supreme Court's precedent and our own, the
Burford abstention doctrine applies in this case.
Id. at 1328. The second rationale for
Burford was applicable in Pomponio because
the plaintiff was arguing that the defendant-a state actor
who was supposed to be the arbiter of its own state law-had
misapplied that law. The court determined that by hearing
such a case it would necessarily disrupt the state's
efforts to establish a coherent policy with respect to its
own state law. Here, unlike in Pomponio, the CFPB
does not argue that the defendants violated federal law by
improperly applying state law. This case would be like
Pomponio if the CFPB were suing the state judges who
approved the settlements at issue, arguing that they violated
federal law by approving those settlements. The CFPB makes no
such argument. Here the federal claim stands on its own.
Thus, the second rationale for Burford is equally
defendants seem to be asking this court to abstain from
hearing this case under Burford based on a belief
that it is inappropriate for a federal court to hear a case
that might impact a state administrative scheme. Neither the
Supreme Court nor the Fourth Circuit has taken such an
expansive view of Burford. Indeed, "while
Burford is concerned with protecting complex state
administrative processes from undue federal interference, it
does not require abstention whenever there exists such a
process, or even in all cases where there is a potential for
conflict with state regulatory law or policy.”
NOPSI, 491 U.S. 350, 362 (1989). Congress enacted
the CFPA to ensure that federal law protects consumers from
unfair treatment by financial advisers. The existence of a
state administrative scheme whose requirements reflect a
similar concern does not provide this court with a reason to
abstain from enforcing federal law if it has been violated.
Accordingly, 1 will not abstain from hearing this case under
next ask the court to find that the CFPB is barred by the
doctrine of issue preclusion from relitigating two issues
that were decided in Maryland state court: whether Smith
provided independent professional advice and whether the
structured settlement transfers were fair to the consumers.
The CFPB argues that three of the four requirements for issue
preclusion are not present and that it would therefore be
inappropriate to apply the doctrine in ...