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Consumer Financial Protection Bureau v. Access Funding, LLC

United States District Court, D. Maryland

December 13, 2017



          Ellen Lipton Hollander, United States District Judge

         Plaintiff 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 settlements.[1]

         Defendants 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.[2]

         Now 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).

         No oral argument is necessary to resolve the Motion. See Local Rules 105.6. For the reasons set forth below, I shall grant the Motion.

         I. BACKGROUND

         This 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.

         Maryland 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 § 5-1102(b)(3) (2000).

         Counts 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.

         On 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.

         On October 3, 2017 the CFPB filed a motion for leave to amend its complaint in order to revive Counts I-IV. ECF 39.

         II. STANDARD

         According 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 (1962).

         The 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 ...

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