United States District Court, D. Maryland
L. Hollander United States District Judge.
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.
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.
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.
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).
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.
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. 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.
filed an Opposition (ECF 64), along with two exhibits. ECF
64-1 - ECF 64-2. Defendants have replied. ECF 69 (the
hearing is necessary to resolve the Motion. See
Local Rules 105.6. For the reasons set forth below, I shall
deny the Motion.
“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.
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.
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.
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.
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 . . .
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.
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,
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. ¶
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
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.
Bureau's allegations focus on two of Access Funding's
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. ¶
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.
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.
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.
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.
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.
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.
“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.
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 ...