Access Funding, LLC v. Linton
| Decision Date | 01 December 2022 |
| Docket Number | 5-2022 |
| Parties | ACCESS FUNDING, LLC, ET AL v. CHRYSTAL LINTON, ET AL. |
| Court | Maryland Court of Appeals |
Modified 2023-03-16
Watts, Hotten, Booth, Gould, Eaves, Adkins, Sally D. (Senior Judge, Specially Assigned) McDonald, Robert N. (Senior Judge, Specially Assigned), JJ.
OPINIONSHIRLEY M. WATTS SENIOR JUSTICE.
Generally used to resolve tort cases, structured settlements are voluntary agreements under which an injured party receives periodic payments, rather than one lump sum payment, as settlement of a claim. With a structured settlement, the party providing the settlement buys an annuity that provides regular payments to the injured party over time. The theory is that spreading payments over an extended period of time will provide better assurance of future financial stability for an injured party, who may need payment for medical bills or be vulnerable as a result of an injury.[1] The use of structured settlements first became popular in the 1980s as a result of a federal tax incentive framework introduced to encourage use of such settlements. See James Gordon, Enforcing and Reforming Structured Settlement Protection Acts: How the Law Should Protect Tort Victims, 120 Colum. L. Rev. 1549, 1552 (2020). Because structured settlements are transferrable assets, the buying and selling of structured settlements became a highly profitable venture. See id.
A Maryland statute regulates the sale of structured settlement payment rights and requires court authorization of the transfer of such rights, upon the court's consideration of factors, including whether the party purporting to transfer structured settlement rights has received independent professional advice. See Md. Code Ann., Cts. &Jud. Proc. (1974, 2020 Repl. Vol.) ("CJ") § 5-1102. Companies that are in the business of purchasing payment rights from structured settlement annuitants are called factoring companies.
Factoring companies often use contracts called Purchase and Sale Agreements to consummate the purchase of structured settlements. These agreements generally contain arbitration clauses.
The arbitration clause at issue in this case stems from transactions between lead paint tort plaintiffs who received structured settlements and affiliated factoring companies that specialize in purchasing structured settlement rights. Although the case raises interesting questions concerning arbitration and agreements transferring structured settlement benefits for lump sum payments, at the heart of the matter is a straightforward issue: Whether in bringing an action against a factoring company and others, the plaintiffs challenged the existence of an agreement to arbitrate and, if so, whether the trial court erred in granting a motion to compel arbitration upon finding that an arbitrator was to determine "arbitrability." The Court of Special Appeals was not persuaded by the position that an arbitrator should decide the issue of whether a valid agreement to arbitrate exists, and neither are we.
In this case, Crystal Linton[2] and Dimeca D. Johnson, Respondents, who had been lead paint tort plaintiffs, obtained structured settlements with periodic payments over time as the resolution of lead paint exposure claims. Subsequently, Linton and Johnson signed agreements purporting to transfer their rights to the structured settlement payments to Access Funding, LLC and Assoc, LLC in exchange for discounted lump sum cash payments. Later, Linton and Johnson filed a class action complaint in the Circuit Court for Baltimore City against Access Funding, LLC, and its affiliates Access Holding, LLC, Reliance Funding, LLC, Assoc, LLC, and En Cor, LLC (collectively, "Access"), Anuj Sud and Sudlaw, LLC (collectively, "Sud"), and Charles E. Smith and CES Law Group, LLC (collectively, "Smith"), Petitioners, alleging negligence; negligent misrepresentation; fraud, misrepresentation, and deceit; constructive fraud; and civil conspiracy in connection with procurement of the agreements.
Because the agreements contained arbitration clauses, Petitioners filed motions to compel arbitration and to stay the proceedings. Before the circuit court ruled on the motion to compel arbitration, the parties filed a joint motion for approval of a class action settlement. While the joint motion was pending, the Consumer Protection Division of the Office of the Maryland Attorney General ("the CPD"), Respondent, moved to intervene in the case, and the circuit court granted the motion. As an intervenor, the CPD opposed the joint motion to approve the settlement.[3] Nonetheless, after a hearing, in February 2018, the circuit court approved the settlement. The Court of Special Appeals reversed the circuit court's approval of the settlement, and this Court affirmed the judgment of the Court of Special Appeals, see Linton v. Consumer Prot. Div., 467 Md. 502, 521, 225 A.3d 456, 467 (2020) ("Linton I"), resulting in the case being remanded to the circuit court for further proceedings.[4]
On remand, Petitioners renewed the motions to compel arbitration and stay the proceedings. The circuit court granted the motions, ruling that the question of "arbitrability" must be determined by an arbitrator and not the court. The Court of Special Appeals reversed and remanded the case to the circuit court for further proceedings, holding that the circuit court erred in compelling arbitration because a court, not an arbitrator, must decide the question of whether a valid arbitration agreement exists. See Linton v. Access Funding, LLC, 253 Md.App. 507, 510, 517, 526, 268 A.3d 937, 939, 943, 948 (2022). Petitioners filed the instant petition for a writ of certiorari, which we granted. See Access Funding, LLC v. Linton, 478 Md. 244, 273 A.3d 890 (2022).
Against this backdrop, as to the predominant issue in this case, we hold that where Linton and Johnson alleged that the circuit court's approval of the transfer of their structured settlement payment rights was procured through fraud and deceit, Linton and Johnson denied the existence of a valid agreement to arbitrate, and the question of whether a valid arbitration agreement exists is a question for the court to determine, not the arbitrator. Because Linton and Johnson alleged fraud as to the arbitration clause of the agreement in particular, the existence of a valid arbitration agreement is in dispute and the issue is a matter for the court to decide. In addition, because the plain language of the arbitration clause expressly conditions arbitration on closure of the transaction, by challenging the validity of the circuit court's approval of the transfer, Linton and Johnson challenge the existence of an agreement to arbitrate, which is an issue for the court, and not an arbitrator, to determine.
We conclude that the question of whether an agreement to arbitrate exists, i.e., whether the arbitration clause in the agreements is valid, has been raised and is a question for the circuit court, not the arbitrator, to determine. It is well settled that where a party denies the existence of an arbitration agreement, the court-not an arbitrator-determines if the agreement exists. In this case, we conclude that the circuit court erred in compelling arbitration of the question of whether the arbitration clause in the agreements is valid. Accordingly, we affirm the judgment of the Court of Special Appeals.
This case has a lengthy factual and procedural history which was set forth in Linton I. See Linton I, 467 Md. at 505-15, 225 A.3d at 458-64. We need describe only the background relevant to resolution of the issue before us namely, whether the court or an arbitrator must decide the validity of the arbitration clause in the agreements.
We begin with a brief overview of Maryland law with respect to structured settlement transactions. In 2000, seeking to protect vulnerable consumers and to ensure fairness in the transactions, the General Assembly enacted the Maryland Structured Settlement Protection Act ("the MSSPA"). See 2000 Md. Laws 2076 (Vol. III, Ch. 366, H.B. 357); CJ §§ 5-1101 to 5-1112. The Fiscal Note of House Bill 357, which became the MSSPA, stated that the purpose of the bill was as follows:
Fiscal Note (Revised), H.B. 357 (2000), available at https://mgaleg.maryland.gov/2000rs/ fnotes/bil_0007/hb0357.PDF [https://perma.cc/YX8P-UYHD].
The MSSPA provides that a "structured settlement" is "an arrangement for periodic payment of damages for personal injury established by a settlement or judgment in resolution of a tort claim[.]" CJ § 5-1101(i)(1). The MSSPA states that "structured settlement payment rights" are "the rights to receive periodic payments, including lumpsum payments under a structured settlement, whether from the settlement obligor or the annuity issuer, if[,]" among other things, "[t]he structured settlement agreement was approved by a court or responsible administrative authority in this State[.]" CJ § 5-1101(1). Pursuant to CJ § 5-1102(a) "[a] direct or indirect transfer of structured settlement payment rights to a transferee is effective as...
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