Linton v. Access Funding LLC
| Decision Date | 26 January 2022 |
| Docket Number | 1398, Sept. Term, 2020 |
| Citation | 253 Md.App. 507,268 A.3d 937 |
| Parties | Crystal LINTON, et al. v. ACCESS FUNDING LLC, et al. |
| Court | Court of Special Appeals of Maryland |
Argued by: Raymond L. Marshall, Hayley C. Lucas (Chason, Roener, Leary & Marshall, LLC, Towson, MD, Brian S. Brown, Leah Barron, Brown & Barron, LLC, Baltimore, MD, Byron B. Warnken, LLC, Pikesville, MD), all on the brief, for Appellant.
Argued by: Matthew D. Berkowitz (Brian M. O'Shea, Carr, Maloney PC, Washington, D.C., Charles M. Sims, Alisson Christine Duffy, O'Hagan, Meyer, PLLC, Richmond, VA, Gregg E. Viola, Mark P. Johnson, Eccleston & Wolf, PC, Hanover, MD), all on the brief, for Appellee.
Panel: Kehoe, Berger, Nazarian, JJ.*
Nazarian, J. Crystal Linton and Dimeca D. Johnson, and other putative class members, had obtained structured settlements, and the resulting stream of payments, after resolving their lead paint exposure claims. Ms. Linton, Ms. Johnson, and the others ("Plaintiffs") later signed Purchase and Sale Agreements ("Agreements") that purported to transfer their rights to those income streams to Access Funding LLC and/or affiliated entities ("Access")1 in exchange for discounted lump sum cash payments. Ms. Linton and Ms. Johnson filed this action in July 2016, alleging claims of negligence, misrepresentation, fraud, and conspiracy in connection with those Agreements.
The Agreements contained arbitration clauses, and the Defendants filed petitions to compel arbitration in August 2016. But the circuit court never ruled on that first round of petitions because the parties undertook settlement negotiations. In or about March 2017, the Class Plaintiffs and the Defendants entered into a settlement agreement that the Circuit Court for Baltimore City approved on February 9, 2018. This Court reversed the approval,2 and the Court of Appeals agreed,3 so the case was remanded to the circuit court for further proceedings.
On remand, the Defendants filed renewed motions to compel arbitration that the circuit court granted. Ms. Linton and Ms. Johnson appealed, and we reverse and remand for proceedings consistent with this opinion.
The factual allegations in the Complaint and procedural history were set forth in detail by this Court and the Court of Appeals in the earlier appeal. Linton , 467 Md. at 505–15, 225 A.3d 456 ; Consumer Prot. Div. v. Linton , No. 2609, Sept. Term 2017, slip op. at 2–9, 2019 WL 1770524 at *1–*4. We include a brief sketch of the background to provide context for the narrow question before us—whether this case must proceed to arbitration.
Ms. Linton and Ms. Johnson, on behalf of a putative class of plaintiffs, allege that the Defendants conspired to convince them to transfer their structured settlement annuity benefits to Access in exchange for unfairly discounted lump sum payments. Transfers of annuity benefits at a discount are not inherently improper, but under a statute enacted in 2000, the Structured Settlement Protection Act, any transfers must be authorized by a court.4 Maryland Code , § 5-1102 of the Courts and Judicial Proceedings Article ("CJ"). Before authorizing such a transfer, the court expressly must find, among other things, that the transferor received "independent professional advice" about the transfer. CJ § 5-1102(b)(3). The Act defines "independent professional advice" as "advice of an attorney, certified public accountant, actuary, or other licensed professional adviser" who, among other things, "is not affiliated with or compensated by the transferee of the transfer." CJ § 5-1101(d), (d)(2). And during the times relevant to Ms. Linton's and Ms. Johnson's transfers, "independent professional advice" was defined further to mean the advice of a professional "[w]ho is engaged by a payee to render advice concerning the legal, tax, and financial implications of a transfer of structured settlement payment rights."5 2000 Md. Laws Ch. 366.
The parties don't dispute that the transfers were made pursuant to Purchase and Sale Agreements that Ms. Linton and Ms. Johnson (and others)6 signed and that the transfers were contingent upon court authorization, as the Structured Settlement Protection Act requires. The Plaintiffs allege that after signing the Agreements, Access placed them in contact with an attorney, Charles E. Smith, who did not meet the "independent professional advice" requirement because he was affiliated with, and paid by, Access.7 Mr. Smith then signed form letters falsely representing to the court that he had explained to the Plaintiffs fully the legal and financial implications of the transfer, and Access then submitted the letters to the court in support of its petitions for approval of the transfers.
With regard to arbitrability, the Plaintiffs allege that "[i]n using [ ] Mr. Smith," Access "sought to prevent Plaintiffs from fully understanding and appreciating the Purchase [A]greement's provision with respect to binding arbitration and/or limiting class action rights ...." The arbitration clause provided that, after the transaction closed—that is, after court authorization, among other preconditions—any claim or dispute arising from the agreement would be "resolved by mandatory binding arbitration."
In or about August 2016, the Defendants filed separate motions to compel arbitration; the circuit court later consolidated them. On September 28, 2016, the court stayed the case pending a ruling on the motion to compel arbitration. See CJ § 3-209. In the meantime, the parties negotiated a settlement with the assistance of mediation (and without any formal discovery), and on March 28, 2017, the parties filed a joint motion for preliminary approval of the settlement. While that motion was pending, on April 13, 2017, the Consumer Protection Division of the Office of the Maryland Attorney General (the "Division") moved to intervene in the case. The parties opposed the motion to intervene jointly, but the circuit court granted it on June 8, 2017.
The Division had filed a separate enforcement action relating to Access's alleged wrongdoing (as had the Federal Consumer Financial Protection Bureau (the "Bureau")). Linton , 467 Md. at 507, 225 A.3d 456 ; see also id. at 528–29, 225 A.3d 456 (Booth, J., dissenting) (). The Division's action, filed under the State Consumer Protection Act (Maryland Code, Commercial Law Article ("CL"), Title 13), alleged that in soliciting and consummating the transfers, Access had engaged in unfair or deceptive trade practices in violation of CL § 13-303. See id. The Division sought civil penalties on Access; to have the court enjoin Access from continuing their alleged misconduct; to restore to the transferors the future payment streams; and to obtain restitution and disgorgement from Access. See id. As an intervenor, the Division opposed the motion to approve the class action settlement. But after holding a hearing, the circuit court granted the motion for approval on February 13, 2018.
The Division appealed the circuit court's approval to this Court. In an unreported opinion filed on April 22, 2019, and with one judge dissenting, we affirmed in part and reversed in part. Consumer Prot. Div. v. Linton , No. 2609, Sept. Term 2017, slip op. We held, among other things,8 that the settlement was improper because it would interfere impermissibly with the Division's (and the Bureau's) enforcement authority by assigning the Plaintiffs’ right to recover any restitution those government agencies might collect back to Access:
The point of settlements is to settle, and the Class Action Defendants understandably sought in this agreement to achieve total peace. But parties can only settle their own claims—they can't settle the claims of those who aren't parties to the agreement or otherwise not theirs to settle. The Division and the Bureau weren't parties to the settlement and their rights to seek restitution was not something the Class could bargain away. And because the settlement effectively preempted a major portion of the pending claims being pursued by the Division and the Bureau when it assigned any benefit from those actions to Access and the Class Defendants—i.e. , the targets of the agencies’ enforcement efforts—the judgment approving the settlement must be reversed.
Id. at 13, 2019 WL 1770524 at *6.
Both Access and the Division filed petitions for certiorari and the Court of Appeals granted them. In vacating this Court's judgment and remanding the case to circuit court, the Court of Appeals agreed with our conclusion that the settlement was improper because the parties had no authority either to direct that any recoveries achieved from restitution and disgorgement be handed over to Access (or to anyone else) or otherwise to preclude the Division from pursuing its own remedies.9 Linton , 467 Md. at 521, 225 A.3d 456.
The Court remanded the case to the circuit court and concluded with three additional observations. First , the Court observed that if the parties were to attempt to settle the case anew, the circuit court should consider evidence of the Defendants’ financial status (regarding which no discovery had yet been conducted) and their ability to pay. Id. at 521, 225 A.3d 456. Second , the Court commented in dicta that the circuit court should reconsider its grant of partial summary judgment against the Division in the separate enforcement action.10 Id. at 521, 225 A.3d 456. Third , and finally, the Court suggested that the circuit court should consider whether Access had waived any right it may have had to arbitration through its participation in the litigation:
If the case reaches that stage, the court will need to consider ... whether, by participating in the litigation of this case for three-and-a-half years, most of which was taken up negotiating and defending a...
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Access Funding, LLC v. Linton
...affirm the judgment of the Court of Special Appeals. BACKGROUND This case has a lengthy factual and procedural history which was set forth in Linton I. See Linton I, 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......
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