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Consumer Financial Protection Bureau v. Access Funding, LLC

United States District Court, D. Maryland

January 18, 2019

CONSUMER FINANCIAL PROTECTION BUREAU Plaintiff,
v.
ACCESS FUNDING, LLC, et al. Defendants.

          MEMORANDUM OPINION

          Ellen L. Hollander United States District Judge.

         Plaintiff Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) filed suit on November 21, 2016, against a host of defendants: Access Funding, LLC (“Access Funding”); Access Holding, LLC (“Access Holding”); Reliance Funding, LLC (“Reliance Funding”); Lee Jundanian; Raffi Boghosian; and Michael Borkowski (collectively, the “Access Funding Defendants”); as well as attorney Charles Smith. ECF 1 (the “Complaint”). CFBB seeks a permanent injunction, damages, disgorgement, payment of redress to consumers, 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. See ECF 1.[1]

         Defendants filed motions for Burford abstention and a stay or, in the alternative, to dismiss. See ECF 13; ECF 16. By Memorandum (ECF 27) and Order (ECF 28) of September 13, 2017, Judge Motz denied these motions. But, he granted the motion to dismiss as to Counts I-IV, which were based upon the conduct of Smith, and denied the motion as to Count V, lodged against the Access Funding Defendants, alleging substantial assistance in regard to Smith's unfair and deceptive acts. Id.[2]

         CFPB subsequently moved for leave to file an Amended Complaint as to Counts I-IV. ECF 37. By Memorandum and Order of December 13, 2017, I granted the motion. ECF 42; ECF 43.

         The Amended Complaint (ECF 44) alleges three violations of the CFPA by Smith and two by the Access Funding Defendants. The claims against Smith and one of the claims against the Access Funding Defendants arise out of Smith's conduct as an independent professional advisor (“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). See ECF 44, ¶¶ 62-92. Count V is based on the conduct of the Access Funding Defendants with respect to credit advances. See ECF 44, ¶¶ 93-99. According to the CFPB, the Access Funding Defendants engaged in abusive acts and practices, in violation of 12 U.S.C. § 5531(d)(2)(a).

         Smith and Borkowski filed motions to dismiss the Amended Complaint. ECF 46; ECF 48. In a Memorandum and Order of June 4, 2018, I denied both motions. ECF 66.

         Now pending is the defendants' Joint Motion for Partial Summary Judgment with regard to the Bureau's claims for monetary damages on behalf of consumers. ECF 58. It is supported by a memorandum of law (ECF 59) (collectively, the “Motion”) and several exhibits. ECF 59-1 - ECF 59-4. Discovery is not yet completed.[3] However, the basis for defendants' Motion is a settlement agreement in connection with a class action suit filed in the Circuit Court for Baltimore City, Crystal Linton, et al. v. Access Holding, LLC, et al., No. 24-C-16-003894-OT. ECF 59 at 1-2. In light of the settlement agreement, defendants contend that the Bureau's demand for consumer relief to enforce the CFPA “is barred by the doctrine of res judicata and the bar against obtaining a double recovery.” Id. at 2.

         CFPB filed an Opposition (ECF 64), along with two exhibits. ECF 64-1 - ECF 64-2. Defendants have replied. ECF 69 (the “Reply”).

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

         I. Factual Background[4]

         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 44, ¶ 5. It “has independent litigating authority, including the authority to enforce the CFPA.” Id. (citing 12 U.S.C. § 5564(a)-(b)).

         On or around December 1, 2012, Jundanian, Boghosian, and Borkowski founded Access Funding. ECF 44, ¶ 14. Access Funding is a limited liability company with its principal place of business in Chevy Chase, Maryland. ECF 44, ¶ 6. “Access Funding conducted business under two alter-ego names, Assoc LLC, and En Cor LLC.” Id. Access Holding is “the sole and managing member of Access Funding and is legally responsible for the liabilities of Access Funding.” Id. ¶ 7. Reliance Funding is a “successor in interest to Access Funding, ” as Access Funding sold all of its assets to Reliance Funding after it was notified of the CFPB investigation that forms the basis of this suit. Id. ¶ 9.

         Jundanian, Boghosian, and Borkowski all have “an ownership interest in Access Funding and [each] helped develop Access Funding's business model and manage its business.” ECF 44, ¶¶ 10-12. From February 2013 to May 2014, Jundanian served as CEO of Access Funding. Id. ¶ 10. As CEO, he “was responsible for managing all operations of the company.” Id. ¶ 14. “After May 2014, Jundanian was an advisor to Access Funding.” Id. ¶ 10. Since May 2014, “Boghosian has served as COO of Access Funding . . . .” Id. ¶ 11. His “responsibilities include[e] managing marketing and sales activities.” Id. Also since May 2014, “Borkowski has served as CEO of Access Funding . . . .” Id. ¶ 12. “Before May 2014, he served as CFO and COO of Access Funding.” Id. As CFO, COO, and CEO, Borkowski “was responsible for managing all operations of the company.” Id. ¶ 17.

         Access Funding's principal business was to acquire future structured-settlement-payment streams and transfer those payment streams to third-party investors.” Id. ¶ 18. Access Funding purchased the “payment streams from structured-settlement holders, ” a practice known as “structured-settlement factoring.” Id. ¶ 6. More specifically, 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. ¶ 20.

         “Structured settlements are often used to ensure the financial well-being of victims who have suffered long-term physical or cognitive harm.” Id. ¶ 19. They “are established by legal judgments or settlements of tort claims to provide recipients with an arrangement for periodic payment of damages for personal injuries.” Id. Access Funding “provided advances to consumers that were to be repaid through a deduction from the proceeds of structured-settlement transfers once those transactions were completed.” Id. ¶ 7. Notably, the advances constitute extensions of credit to consumers . . . .” Id.

         Charles Smith is purportedly an IPA who advised “almost all Maryland consumers who made structured-settlement transfers to Access Funding.” Id. ¶ 13. However, he “did not have an attorney-client relationship with the Maryland Consumers . . . .” Id.

         Maryland is one of forty-nine states that has enacted a Structured Settlement Protection Act (“SSPA”). Id. ¶ 21. See Md. Code (2013 Repl. Vol., 2018 Supp.), §§ 5-1101 et seq. of the Courts and Judicial Proceedings Article (“C.J.”). Maryland's SSPA requires structured-settlement-factoring companies, such as Access Holding, to obtain court approval before purchasing a payment stream. ECF 44, ¶ 22; C.J. § 5-1102. It also requires “the court to find that the consumer has consulted with an [IPA] before it can approve a structured-settlement transfer.” ECF 44, ¶ 29.

         The Amended Complaint asserts: “During the relevant period, Maryland's SSPA required that an IPA advise on the financial, legal, and tax implications of a transfer.” Id. ¶ 32. To finalize transfers of structured settlements, “Jundanian, Boghosian, and Borkowski each had responsibility for ensuring that Access Funding's transferors had consulted an IPA.” Id. ¶ 30.

         Access Funding conducted approximately seventy percent of its transfers in Maryland. Id. ¶ 31. From 2013 to 2015, it sought court approval in Maryland for about 200 transfers, “of which at least 158 have been approved.” Id.

         The Bureau contends that Access Funding aggressively pursued structured settlement holders in the hopes of purchasing their settlements. ECF 44, ¶ 25. Its 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, id. ¶ 24; pressuring individuals who had already entered into transactions with Access Funding to transfer to the company all of their remaining expected payments, id. ¶ 25; and more generally, pursuing structured settlement holders via phone and mail solicitations. Id. ¶ 26.

         The Bureau's allegations focus on two of Access Funding's business practices.

         First, the Amended Complaint alleges that Access Funding abused consumers with respect to the payment of advances. Id. ¶¶ 93-99. Access Funding entered into advance agreements with consumers while they waited to complete their paperwork and finalize their transfers. Id. ¶ 59. Under these agreements, consumers assigned their future payment streams to Access Funding and, in return, the company advanced “a steeply discounted lump sum” payment to the consumers. Id. ¶¶ 27, 59. But, the advances provided by Access Funding typically “represented only about 30% of the present value of those future payments.” Id. “These advances often consisted of $500 for signing a contract, $1000 when a court date was set, and another $1000 when a judge approved the sale.” Id. ¶ 59.

         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. ¶ 60. 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. ¶¶ 61, 96.

         Specifically, the Amended Complaint alleges: “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. ¶ 97. And, the consumers, many of whom “were lead-poising victims with cognitive impairments, ” id. ¶ 28, “did not understand the risks or conditions of the advances, including that the advances did not bind them to complete the transactions.” Id. ¶ 98.

         The Amended Complaint also concerns Smith's conduct as an IPA. Id. ¶¶ 62-83. The Bureau asserts that Access Funding “steered nearly all its Maryland consumers” to Smith, “who acted as the IPA for almost all of its Maryland transactions.” Id. ¶ 33.

         According to the Bureau, “Smith had both personal and professional ties to the Access Funding Defendants.” Id. ¶ 34. Ordinarily, Access Funding directly “paid Smith $250 for each IPA letter he provided.” Id. ¶ 35. To initiate Smith's contact with consumers, Access Funding “sen[t] him a copy of the consumer's structured-settlement-transfer-disclosure statement, along with the consumer's phone number.” Id. ¶ 36. In some cases, “Access Funding couriered to consumers prepaid cell phones that Smith used to contact the consumers.” Id. ¶ 37. “Other times, Access Funding's salespeople initiated a three-way call with Smith and a consumer.” Id.

         Before Smith spoke to the consumers, “Access Funding had consumers sign statements indicating that they had received IPA services from Smith . . . .” Id. ¶ 38. However, “neither Access Funding nor Smith typically informed consumers that Smith was an attorney, and consumers typically did not know that Smith was an attorney.” Id. ¶ 39. Indeed, they “did not believe that Smith was acting as their attorney, and they did nothing to indicate that they intended to have an attorney-client relationship with him.” Id. ¶ 40.

         Generally, before Smith spoke with a consumer, he “spent ten to fifteen minutes reviewing the settlement-transfer-disclosure statement and any other documents provided by Access Funding.” Id. ¶ 41. Beyond the documents Access Funding provided, “Smith did not ask for any additional information . . . .” Id. ¶ 42. His “phone calls with consumers typically lasted between five and ten minutes.” Id. ¶ 43. And, during the calls, he “merely recited the terms from the structured-settlement transfer disclosure statement provided by Access Funding and asked whether the consumers understood them.” Id.

         Notably, “Smith did not tell consumers he was acting as their attorney on these calls or at any other time.” Id. ¶ 44. “In some instances, Access Funding's salespeople were on these calls along with Smith and the consumer.” Id. ¶ 45. And, “Smith did not explain to consumers that he represented them, as opposed to Access Funding, or that their interests might be different from Access Funding's.” Id. ¶ 46. Aside “from this single, brief phone call, Smith typically had no other contact with the consumer.” Id. ¶ 47. Indeed, he “never met with a consumer in person.” Id. ¶ 50.

         Following each telephone call, Smith drafted and sent a letter and invoice to Access Funding, “stating that the consumer had received ‘independent professional advice.'” Id. ¶ 48. Later, Access Funding “submitted the IPA letters to the court for approval of the ...


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