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Consumer Financial Protection Bureau v. Access Funding, LLC

United States District Court, D. Maryland

November 25, 2019

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

          MEMORANDUM OPINION

          Ellen L. Hollander United States District Judge

         In November 2016, plaintiff Consumer Financial Protection Bureau (the “Bureau” or “CFPB”) filed suit against a host of defendants under the Consumer Financial Protection Act of 2010 (“CFPA” or the “Act”), 12 U.S.C. §§ 5481 et seq., challenging their structured settlement practices. ECF 1 (“Complaint”).[1] In particular, CFPB sued the following defendants: Access Funding, LLC (“Access Funding”); Access Holding, LLC (“Access Holding”); Reliance Funding, LLC (“Reliance”); Lee Jundanian, former Chief Executive Officer (“CEO”) of Access Funding; Raffi Boghsian, Chief Operating Officer (“COO”) of Access Funding; Michael Borkowski, CEO of Access Funding (collectively, the “Access Funding Defendants”); and Charles Smith, Esquire, financial advisor. Among other things, the Access Funding Defendants allegedly steered consumers to Smith for advice with respect to the sale of their structured settlements to the Access Funding Defendants, and paid Smith for his work.

         The Complaint contains five counts: Count I is lodged against Smith for Unfair Acts and Practices Under the CFPA.; Count II is lodged against Smith for Deceptive Acts and Practices Under the CFPA; Count III, filed against Smith, asserts Abusive Acts and Practices Under the CFPA; Count IV is filed against the Access Funding Defendants for Substantial Assistance to Smith's Unfair, Deceptive, and Abusive Acts; and Count VI[2] is filed against the Access Funding Defendants for Abusive Acts and Practices Related to Advances to Customers. ECF 1, ¶¶ 44-81.

         On September 13, 2017, Judge J. Frederick Motz, to whom the case was then assigned, dismissed Counts I-IV of the Complaint as to Smith. ECF 27. He found that Smith was engaged in the practice of law when he provided advice to consumers, and therefore his conduct fell under the “practice of law” exclusion to the CFPA in 12 U.S.C. § 5571(e). ECF 27 at 26. The Bureau moved to amend the complaint, seeking to add allegations that consumers never formed an attorney-client relationship with Smith. ECF 37. The Access Funding Defendants and Smith opposed the motion. ECF 39; ECF 40. I granted the Bureau's motion on December 13, 2017. ECF 42; ECF 43. And, on the same day, the Bureau filed its Amended Complaint (ECF 44), again naming Smith as a defendant, based on additional allegations.

         This Memorandum Opinion resolves the “Motions for (1) a Modification of the Scheduling Order and (2) Leave to File a Second Amended Complaint” (ECF 106) filed by the Bureau, supported by a memorandum of law (ECF 107) (collectively, the “Motion”). Plaintiff has also submitted the proposed Second Amended Complaint (ECF 106-1), the Declaration of Christina S. Coll, Esquire, Senior Litigation Counsel for the Bureau (ECF 108), and several exhibits. ECF 108-1 to ECF 108-17. The proposed Second Amended Complaint (“SAC”) adds three counts under the Act against defendants Access Funding, Access Holding, Reliance, Jundanian, Boghosian, and Borkowski. ECF 106-1, ¶¶ 108-127.

         Smith opposes the Motion. ECF 109 (the “Smith Opposition”). The Access Funding Defendants also oppose the Motion. ECF 110 (the “Access Funding Opposition”). The Access Funding Opposition is supported by several exhibits. ECF 110-1 to ECF 110-7. The Bureau has replied. ECF 111 (the “Reply”). The Reply is supported by another Declaration of Christina S. Coll, Esquire (ECF 111-1) and several exhibits. See ECF 111-2 to ECF 111-4.

         The Motion is fully briefed and no hearing is necessary to resolve it. See Local Rule 105.6. For the reasons that follow, I will deny the Motion.

         I. Statutory Background

         As noted, the case concerns structured settlement factoring. Structured settlement factoring involves the offer to “recipients of structured settlements the opportunity to transfer a portion of their future payment streams in exchange for [payment of] a discounted immediate lump sum.” ECF 44, ¶ 20. CFPB alleges that defendants violated the CFPA by playing a part in a scheme to pursue structured settlement holders in order to purchase their settlements on unfair terms.

         The CFPA prevents “a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” 12 U.S.C. § 5531(a). The CFPA defines “covered person” in part as “any person that engages in offering or providing a consumer financial product or service.” 12 U.S.C. § 5481(6)(A). Further, the CFPA defines a “financial product or service” in part as “providing financial advisory services. . . to consumers on individual financial matters. . .” 12 U.S.C. § 5481(15)(viii).

         Under the CFPA, an act or practice is “unfair” if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers” and “such substantial injury is not outweighed by countervailing benefits to consumers or to competition.” 12 U.S.C. § 5531(c)(1). An act or practice is “deceptive” if it involves a representation, omission, or practice that is both material and likely to mislead reasonable consumers. CFPB v. Gordon, 819 F.3d 1179, 1192-93 (9th Cir. 2016) (internal citation omitted). And, an act or practice is “abusive” if it “takes unreasonable advantage of” either “a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service” or “the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” 12 U.S.C. § 5531(d)(2).

         The requirement of independent financial advice in a structured settlement transaction is based on Maryland's Structured Settlement Protection Act (“SSPA”). See Maryland Code (2013 Repl. Vol, 2019 Supp.), § 5-1101 et seq. of the Courts and Judicial Proceedings Article (“C.J.”). The SSPA is intended to protect certain payees from “deceptive practices.” C.J. § 5-1101.1. Under the SSPA, a court must authorize by order the transfer of structured settlements, and may do so only if the “payee received independent professional advice [‘IPA'] regarding the legal, tax, and financial implications of the transfer.” Id. at § 5-1102(b)(3).[3]

         At about the same time that the Bureau began its investigation of defendants in 2015, Maryland's Consumer Protection Division began its own investigation. According to the defense, the two agencies have “worked in tandem” in prosecuting the defendants, including the sharing of documents. ECF 110 at 2, n.2; id. at 3 n.4.

         II. Factual and Procedural Background [4]

         As noted, on September 13, 2017, Judge Motz dismissed Counts I-IV of the Complaint against Smith. In the Amended Complaint (ECF 44), filed December 13, 2017, CFPB alleged that the Access Funding Defendants targeted “consumers who had previously transferred a portion of their structured settlements.” Id. ¶ 23. They allegedly pressured payees into “signing away their future payment streams” in exchange for a lump sum that “typically represented only about 30% of the present value of those future payments.” Id. ¶ 27. In addition, the Access Funding Defendants allegedly referred the payees to Smith to act as the IP A, as required under the Maryland SSPA, yet Smith was compensated for his services by the Access Funding Defendants. Id. ¶¶ 33- 34. The Bureau also added allegations reflecting that Smith and the payees he advised never entered into an attorney-client relationship. Id. ¶¶ 35-57.

         The Amended Complaint otherwise alleged the same scheme as the initial Complaint: 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 Id. ¶¶ 93-99.

         Thereafter, on December 27, 2017, Smith moved to dismiss, or in the alternative, for summary judgment. ECF 46. Defendant Borkowski also moved to dismiss. ECF 48. And, on April 6, 2018, the defendants filed a joint motion for partial summary judgment with respect to the Amended Complaint. ECF 58. By Order of June 5, 2018 (ECF 66), I denied the motions to dismiss filed by Smith (ECF 46) and Borkowski (ECF 48). And, on January 18, 2019, I denied the defendants' joint motion for partial summary judgment. ECF 87; ECF 88.

         In the meantime, on February 22, 2018, I entered a Scheduling Order. ECF 56. It set a discovery deadline of September 26, 2018; a dispositive motion deadline of October 30, 2018; and a deadline of June 22, 2018, for amending the pleadings. Id.

         On September 10, 2018, the parties submitted a joint motion to extend the discovery deadline to November 16, 2018, and the dispositive motion deadline to December 28, 2018. ECF 77. That motion was granted. ECF 79. Then, on October 29, 2018, the parties submitted another joint motion, seeking to extend the discovery deadline to December 19, 2018, and the dispositive motion deadline to January 30, 2019. ECF 83. Again, I granted the motion. ECF 84.

         A discovery dispute arose in late 2018 regarding interactions between the Access Funding Defendants and the consumer payees. The Bureau claimed it had been seeking certain information about the Access Funding Defendants' interactions with consumers since September 2015. ECF 107 at 5. In this regard, plaintiff claimed that it had sent three requests to the Access Funding Defendants: the civil investigative demand (“CID”) on September 18, 2015; a request for production of documents (“RFP”) on May 7, 2018; and another RFP on July 27, 2018. Id. at 5-8.

         According to Christina Coll, the Bureau made the following requests in the 2015 CID, ECF 108, ¶¶ 14-17:

“All policies, procedures, and training materials relating to. . . consumer sales, solicitations, or telemarketing; . . . communications with consumers or third parties about consumer transactions; assessing a consumer's financial needs and use of Structured Settlement transfer proceeds; structuring consumer transactions; interest or effective-interest rates, discount rates, and calculations of the same; . . .[and] terms or fees associated with consumer transactions.”
“All telephone scripts, talking points, and FAQs.”
“All written materials, including, but not limited to scripts, talking points, outlines, guidelines, and FAQs used by individuals who advise consumers regarding Structured Settlements.”
“All documents (other than contracts or agreements) used to communicate the costs and/or benefits to the consumer of a Company product or service.”

         The Access Funding Defendants aver that they produced “thousands upon thousands” of documents in response to the CID. ECF 110 at 12. The Bureau claims that the Access Funding Defendants' responses to the CID “downplayed the influence of Access Funding employees on consumers.” ECF 107 at 6. In a letter to the Bureau of October 13, 2015, Access Funding's counsel stated: “The individual tells Access how much money they need and what their payments are, and Access then makes them an offer.” ECF 108, ¶ 19.

         In May 7, 2018, CFPB submitted the following RFP, in part, ECF 108-5 at 7:

“8. All Documents relating to [Access Funding's] evaluation of a consumer's mental capacity to complete a Structured Settlement transfer.”
“9. All Documents relating to [Access Funding's] evaluation of a consumer's best interest in connection with a Structured Settlement transfer.”
“10. All Documents used by any of [Access Funding's] employees who interacted with consumers regarding Structured Settlements, including but not limited to scripts, talking points, outlines, marketing, advertisements, and FAQs.”
“12. All Documents used to assess or describe a consumer's financial situation or needs or anticipated use of the proceeds from the consumer's transfer of Structured Settlement payments to Access Funding.”
CFBP's RFP of July 27, 2018, sought, ECF 108-6 at 6:
“23. All Documents reflecting communications with consumers, regardless of whether they completed a structured-settlement ...

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