United States District Court, D. Maryland
Lipton Hollander, United States District Judge
Consumer Financial Protection Bureau (“CFPB”)
filed suit against a host of defendants: Access Funding, LLC;
Access Holding, LLC; Reliance Funding, LLC; Lee Jundanian;
Raffi Boghosian; and Michael Borkowski (collectively, the
“Access Funding Defendants”), as well as attorney
Charles Smith. CFBB seeks a permanent injunction, damages,
disgorgement, payment of redress, civil penalties, and costs
based on defendants' alleged violation of various
provisions of the Consumer Financial Protection Act of 2010
(“CFPA”), 12 U.S.C. § 5481 et.
seq., relating to the transfers of structured
subsequently filed motions for Burford abstention
and a stay or, in the alternative, to dismiss. See
ECF 13; ECF 16. On September 13, 2017, the court (Motz, J.)
issued a Memorandum and Order denying the motions for
Burford abstention and a stay. ECF 27; ECF 28.
Moreover, the court granted the motions to dismiss as to
Counts I-IV, which were based upon the conduct of Smith, but
denied the motions as to Count V, lodged against the Access
Funding Defendants, alleging substantial assistance to
Smith's unfair and deceptive acts.
pending is plaintiff's motion for leave to file an
amended complaint (ECF 37), which is supported by a
memorandum. ECF 38 (collectively, “Motion”).
Defendants oppose the Motion. See ECF 39 (Smith
Opposition); ECF 40 (Access Funding Defendants'
Opposition); ECF 41 (Reply).
argument is necessary to resolve the Motion. See
Local Rules 105.6. For the reasons set forth below, I shall
grant the Motion.
dispute involves structured settlement factoring. 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.” ECF 1, ¶ 20. The initial
complaint alleged that each of the defendants violated the
CFPA by playing part in a scheme to pursue aggressively
structured settlement holders in order to purchase their
settlements on unfair terms.
has enacted a Structured Settlement Protection Act
(“SSPA” or the “Act”) in order to
prevent such schemes. See Maryland Code, §
5-1101 et seq. of the Courts and Judicial
Proceedings Article (“C.J.”). Specifically, the
Act is meant to protect structured settlement
holders-individuals who have often suffered long-term
physical or cognitive harm-from entering into transactions
that are not in their best interest. C.J. § 5-1101.1.
The Act requires that a court find that the consumer has
consulted with an independent professional advisor
(“IPA”) before it can approve a structured
settlement transfer. Id. at § 5-1102(b)(3).
During the relevant period, the SSPA required that the IPA
advise the consumer on the “financial, legal, and tax
implications” of a transfer. Id. at §
I-IV of the initial complaint were based on Smith's
conduct as an IPA. Smith is “a Maryland-based
attorney.” ECF 1, ¶ 13. The initial complaint
alleged that Access Funding used Smith as the IPA for
“almost all of its Maryland transactions.”
Id. ¶ 33. Although Smith was supposed to be an
independent advisor, he in fact had both personal and
professional ties to Access Funding. Id. ¶ 34.
Specifically, Access Funding paid him $200 for each IPA
letter he provided. Id. ¶ 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. ¶ 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. ¶ 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. ¶ 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. ¶ 54.
September 13, 2017, the court dismissed Counts I-IV of the
complaint because “the CFPA contains a provision that
excludes lawyers from the scope of the statute's
coverage” (ECF 27 at 22) and, “accepting each of
the allegations in the complaint as true, it is clear that
Smith gave consumers legal advice and therefore was engaged
in the practice of law.” Id. at 23. The court
noted that “there are two exceptions to the practice of
law exclusion under which the CFPA may apply to the conduct
of lawyers.” Id. at 25. But, it found that
“Smith's conduct does not fall within the first
exception to the exclusion, ” id., and
“clearly does not fall within the second
exception.” Id. at 26.
October 3, 2017 the CFPB filed a motion for leave to amend
its complaint in order to revive Counts I-IV. ECF 39.
to Fed.R.Civ.P. 15(a)(2), “a party may amend its
pleading only with the opposing party's written consent
or the leave of court. The court should freely grant leave
when justice so requires.” Notably, “[t]he grant
or denial of an opportunity to amend is within the discretion
of the District Court, but outright refusal to grant the
leave without any justifying reason appearing for the denial
is not an exercise of discretion; it is merely abuse of that
discretion and inconsistent with the spirit of the Federal
Rules.” Foman v. Davis, 371 U.S. 178, 182
Fourth Circuit has interpreted the grant of discretion in
Rule 15 to mean that proposed amendments should be permitted
unless the opposing party would be prejudiced, the amendment
is sought in bad faith, or the amendment would be futile.
Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006);
Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th
Cir. 1999). A proposed amended complaint would be futile
where it would not be able to withstand a motion to dismiss.
Perkins v. United States, 55 F.3d 910, 917 (4th Cir.
1995); Applegate, LP v. City of Frederick, Maryland,
179 F.Supp.3d 522, 527 (D. Md. 2016). Where the underlying
facts or circumstances relied ...