Consumer Fin. Prot. Bureau v. Access Funding, LLC

• Decision Date: 13 September 2017
• Docket Number: Civil No. 16–cv–03759–JFM
• Citation: 270 F.Supp.3d 831
• Parties: CONSUMER FINANCIAL PROTECTION BUREAU v. ACCESS FUNDING, LLC, et al.
• Court: U.S. District Court — District of Maryland

270 F.Supp.3d 831

CONSUMER FINANCIAL PROTECTION BUREAU

v.ACCESS FUNDING, LLC, et al.

Civil No. 16–cv–03759–JFM

United States District Court, D. Maryland.

Signed September 13, 2017

Jeffrey Paul Ehrlich, John C. Wells, Christina S. Coll,Meghan Sherman Cater, James Arthur Meade, Washington, DC, San Francisco, CA, for Consumer Financial Protection Bureau.

Andrew J. Chiang, O'Hagan Meyer, PLLC, Alexandria, VA, Michael Thomas Hamilton, Marks ONeill OBrien Doherty and Kelly PC, Towson, MD, Gregg Edward Viola, Eric Matthew Rigatuso, Eccleston and Wolf PC, Hanover, MD, for Access Funding, LLC, et al.

MEMORANDUM

J. Frederick Motz, United States District Judge

Plaintiff Consumer Financial Protection Bureau ("CFPB") files suit against defendants Access Funding, LLC, Access Holding, LLC, Reliance Funding, LLC, Lee Jundanian, Raffi Boghosian, and Michael Borkowski (collectively the "Access Funding Defendants") and attorney Charles Smith ("Smith"), seeking a permanent injunction, damages, disgorgement, and payment of redress, civil penalties, and costs for 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. Now pending are the defendants' motions for Burford abstention and a stay, or in the alternative, to dismiss. The parties have fully briefed the issues, and no oral argument is necessary. See Local Rules 105.6. For the reasons set forth below, the motions for Burford abstention and a stay are denied. The motions to dismiss are granted as to Counts I–IV, but denied as to Count V.¹

BACKGROUND

At the motion to dismiss stage, this court accepts as true the facts alleged in the complaint. See Aziz v. Alcolac , 658 F.3d 388, 390 (4th Cir. 2001). Plaintiff 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 No, 1, ¶ 5). Defendant Access Funding, LLC is a limited-liability company with a principal place of business in Chevy Chase, Maryland that purchased payment streams from structured settlement holders—a practice known as "structured settlement factoring"—from December 2012 to November 2015. Id. at ¶ 6. Defendant Access Holding, LLC is the "sole and managing member of Access Funding and is legally responsible for the liabilities of Access Funding." Id. at ¶ 8. Defendant Reliance Funding, LLC is a "successor in interest to Access Funding," as Access Funding sold all of its assets to Reliance Funding upon being notified of the CFPB investigation that forms the basis for this matter. Id. at ¶ 9. Defendant Michael Borkowski ("Borkowski") is the CEO of Access Funding and has been since May 2014. Id. at ¶ 12. Prior to becoming CEO, Borkowski was the CFO and COO of Access Funding. Id. Defendant Raffi Boghosian ("Boghosian") is the COO of Access Funding and has been since May 2014. Id. at ¶ 11. Defendant Lee Jundanian ("Jundanian") was the CEO of Access Funding from February 2013 to May 2014 and an advisor to Access Funding thereafter. Id. At ¶ 10. Jundanian, Boghosian, and Borkowski each have "an ownership interest in Access Funding and [each] helped develop Access Funding's business model and manages its business." Id. At ¶ 10–12. Defendant Charles Smith is "a Maryland-based attorney who provided purportedly independent professional advice for almost all Maryland consumers who made structured-settlement transfers to Access Funding." Id. at ¶ 13.

This dispute involves the sale of structured settlements. Structured settlements are "established by legal judgments or settlements of tort claims to provide recipients with an arrangement for periodic payment of damages for personal injuries" and are "often used to ensure the financial well-being of victims who have suffered long-term physical or cognitive harm." Id. at ¶ 19. From its founding in December 2012 until November 2015, Access Funding's principal business was structured-settlement-factoring. Id. at ¶ ¶ 14, 18. 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. at ¶ 20. Access Funding conducted approximately seventy percent of its transfers in Maryland. Id. at ¶ 31.

Maryland is one of forty-nine states that have enacted Structured Settlement Protection Acts ("SSPAs") in order to protect individuals who have suffered long-term physical or cognitive harm from entering into transactions that are not in their best interest. Id. at ¶ 21. Maryland's SSPA requires structured settlement factoring companies to obtain court approval before purchasing a payment stream. Id. at ¶ 22. It also requires the court to "find that the consumer has consulted with an independent professional advisor ("IPA") before it can approve a structured-settlement transfer." Id. at ¶ 29. "During the relevant period. Maryland's SSPA required that an IPA advise [each consumer] on the financial, legal, and tax implications of a transfer. Md. Cts. & Jud. Proc. §§ 5–1102(b)(3) (2000)." Id. at ¶ 32.

The complaint alleges that Access Funding aggressively pursued structured settlement holders in the hopes of purchasing their settlements. Their aggressive 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; searching court records for pending filings by other structured-settlement-factoring companies, then contacting the consumers named in those filings and enticing them to back out of the impending transfers and enter into deals with Access Funding instead; pressuring individuals who had already entered into transactions with Access Funding to transfer to Access Funding all of their remaining expected payments; and more generally pursuing structured settlement holders via aggressive phone and mail solicitations. Id. at ¶ ¶ 23–26. It is not this general pattern of aggressive business practices, however, that forms the basis for the complaint.

The complaint is based instead on two of Access Funding's specific business practices. First, the complaint alleges that Access Funding violated the CFPA by abusing consumers with respect to the payment of advances. It alleges that after contacting consumers and offering to purchase their settlements. Access Funding entered into advance agreements with many of them, pursuant to which it advanced their lump sum payments while they waited to complete their paperwork and Finalize their transfers. Id. at ¶ 41. "These advances often consisted of $500 for signing a contract, $1,000 when a court date was set, and another $1,000 when a judge approved the sale." Id. 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. at ¶ ¶ 43, 78. Specifically, the complaint alleges that "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. at ¶ 79. It further alleges that the consumers, many of whom were "lead-poisoning victims with cognitive impairments," id. at ¶ 28, "did not understand the risks or conditions of the advances, including that the advances did not bind them to complete the transactions."Id. at ¶ 80. Jundanian, Boghostan, 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. at ¶ 42.

The second basis for the complaint is Smith's conduct as an IPA. The complaint alleges that Access Funding used Smith as the IPA for "almost all of its Maryland transactions." Id. at ¶ 33. Although Smith was supposed to be an independent advisor, he in fact had both personal and professional ties to Access Funding. Id. at ¶ 34. Specifically, Access Funding paid him $200 for each IPA letter he provided. Id. at ¶ 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. at ¶ 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. at ¶ 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. at ¶ 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. at ¶ 54. Although the consumers did not know that Smith had ties to Access Funding, Jundanian, Boghosian, and Borkowski were aware of this arrangement. Id. at ¶ 35.

On November 21, 2016, the CFPB filed a complaint in this court alleging three violations of the CFPA by Smith and two violations of the CFPA by the Access Funding Defendants. Each of the claims against Smith and one of the claims against the Access Funding Defendants arise out of Smith's conduct as an 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)...