Consumer Financial Protection Bureau v. Access Funding, LLC et al
MEMORANDUM OPINION. Signed by Judge J. Frederick Motz on 9/13/2017. (kw2s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Civil No. 16-cv-03759-JFM
LLC, ET AL.
Plaintiff Consumer Financial Protection Bureau ("CFPB")
files suit against defendants
Access Funding, LLC, Access Holding, LLC, Reliance Funding, LLC, Lee Jundanian,
the "Access Funding Defendants")
attorney Charles Smith ("Smith"), seeking a permanent injunction, damages, disgorgement,
payment of redress, civil penalties, and costs for violation of various provisions of the Consumer
12 U.S.C. ~ 5481 et. seq., relating to the transfers of
structured settlements. Now pending are the defendants'
motions for BII~rordabstention 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
BlI/jord abstention and a stay are denied. The motions to dismiss are granted as to Counts I-IV,
but denied as to Count V.I
At the motion to dismiss stage, this court accepts as true the facts alleged in the
complaint. See Aziz v. A/co/ac, 658 F.3d 388, 390 (4'h Cir. 2001). PlaintiffCFPB
Financial Protection Act of2010
- ., :;'1
Boghosian, and Michael Borkowski (collectively
The complaint mistakenly refers to Count V as "Count VI." (ECF No. I. p. 15).
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 holdersa practice known as "structured
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:'
Reliance Funding, LLC is a "successor
Id. at ~ 8. Defendant
in interest to Access Funding," as Access Funding sold
all of its assets to Reliance Funding upon being notified of the CFPB investigation
basis for this matter. Id at ~ 9. Defendant Michael Borkowski ('"Borkowski")
Access Funding and has been since May 2014.Id.
that forms the
is the CEO of
at ~ 12. Prior to becoming CEO, Borkowski
was the CFO and COO of Access Funding. Id. Defendant Raffi Boghosian ("Boghosian")
COO of Access Funding and has been since May 2014.Id.
at ~ II. Defendant Lee 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
interest in Access Funding and [each] helped develop Access Funding's
model and manages its business." Id. at ~ 10-12. Defendant Charles Smith is "a Maryland-based
attorney who provided purportedly
consumers who made structured-settlement
advice for almost all Maryland
transfers to Access Funding." Id. at 11 13.
This dispute involves the sale of structured settlements.
by legal judgments
or settlements of tort claims to provide recipients with an
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 '119. From its founding in December 2012 until November 2015, Access Funding's
Id. at ~ ~ 14, 18. Structured setllement
principal business was structured-senlement-factoring.
factoring is the offering to "recipients of structured setllements the opportunity to transfer a
portion of their future payment streams in exchange for a discounted immediate lump sum." Id.
at '120. 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 Setllement Protection
Acts ("'SSP As") 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.
SSPA requires structured setllement factoring companies to obtain court approval
before purchasing a payment stream. Id. at ~ 22. It also requires the court to "find thalthe
consumer has consulted with an independent professional
advisor ("'IPA") before it can approve
transfer." Id. at ~ 29. "During the relevant period, Maryland's
required that an IPA advise [each consumer] on the financial, legal, and tax implications
transfer. Md. Cts, & Jud, Proc.
Id. at'l 32.
The complaint alleges that Access founding aggressively
pursued structured setllement
holders in the hopes of purchasing their setllements. Their aggressive business practices included
searching court records to identify consumers who had previously transferred a portion of their
then contacting those consumers and enticing them to transfer the
remainder of their setllements
to Access founding; searching court records for pending filings by
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
Funding to transfer to Access Funding all of their remaining expected payments; and more
generally pursuing structured seulement holders via aggressive phone and mail solicitations.
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 ollen 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
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
many of whom were "lead-poisoning
victims with cognitive impairments,"
~ 28, "did not understand the risks or conditions of the advances, including that the advances did
not bind them to complete the transactions."
each allegedly "participated
Id. at'i 80. Jundanian,
Boghosian, and Borkowski
policies related to advances,
including the terms of the advances and how they were presented to consumers,
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
Id. at ~ 36. Smith would then get on the
cell phones that Smith used to contact the consumers."
phone with consumers to provide what was supposed to be "independent
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,
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 transfcr" and in fact had
reccived 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,
Borkowski were aware of this arrangement.
On November 21,2016,
Id. at 1135.
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.
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) and that thc Access Funding Defcndants substantially
Smith's unfair, deccptive, and abusive acts (Count IV), in violation of 12 U.s.c.
The fifth claim arises out of the Access Funding Defendants'
conduct with respect to the
the CFPB alleges that the Access Funding Defendants engaged in abusive
acts and practices, in violation of 12 U.S.C.
9 553 I(d)(2)(a).
On January 30, 2017, defendants
Access Funding, Borkowski, and Smith, each filed a motion for Burford abstention and a stay, or
in the alternative, to dismiss each of the five counts for failure to state a claim upon which relief
can be granted.
PRUDENTIAL AND JURISDICTIONAL
Before turning to defendants'
motions to dismiss the complaint for failure to state a claim
upon which relief can be granted, I must determine whether a federal court has jurisdiction
hear this case. Jones v. Americon Pos/al Workers Union, 192 F. 3d 417, 422 (4th Cir. 1999).
Plaintiff bears the burden of establishing jurisdiction.
F.3d 271, 272 (4th Cir. 2015).
Deme/res v. East West Cons/ .. Inc.• 776
whether plaintiff has carried that burden, the court
"presumes that general allegations embrace those specific facts that are necessary to support the
claim" and "accept as true ... allegations for which there is sufficient factual matter to render them
plausible on their face." Beck v. McDonald, 848 F.3d 262, 270 (4th Cir. 2017). And here, before
question raised by defendants'
doctrine, I address their contentions
invocation of the collateral attack
that the prudential bars of Burford abstention and issue
preclusion preclude me from hearing this case. See Cioca v. RUlilsfeld, 720 F.3d 505 n.4 (4
2013) (noting that prudential bars such as abstention represent the kind of threshold questions
that may be resolved before addressing jurisdiction).
Courts should exercise their discretion to
abstain from deciding a case under Burford in a "narrow range of circumstances"
would unduly intrude upon complex state administrative
Martin v. Stewart, 499 FJd 360, 364, quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706,
726 (1996). The proponent of issue preclusion bears the burdcn of establishing
Sedlack v. Braswell Services Group, Inc., 134 F.3d 219, 224 (4th Cir. 1998).
FAILURE TO STATE A CLAIM
To adequately state a claim under Rule 12(b)(6), a complaint, relying on only well-pled
factual allegations, must state at least a "plausible claim for relief." Ashcroft v. Iqbal, 556 U.S.
662, 679 (2009). The "mere recital of elements of a cause of action, supported only by
is not sufficient to survive a motion made pursuant to Rule 12(b )(6)."
McMahen, 684 F.3d 435, 439 (4th Cir. 2012). To determine whether the CFPB's
claim has crossed "the line from conceivable
to plausible," the court must employ a "context-
specific inquiry," drawing on the court's "experience
and common sense." Iqbal, 556 U.S. at
680. When performing this inquiry. the court accepts "all well-pled facts as true and construes
these facts in the light most favorable to the plaintiff in weighing the legal sufficiency of the
Nemet Chevrolet, Ltd. v. ConsumerajJairs.com. Inc., 591 F.3d 250, 255 (4th Cir.
2009). The court need not, however, accept unsupported
Revene v. Charles
Cnt)'. Comm'rs, 882 F.2d 870, 873 (4th Cir. 1989), nor must it agree with legal conclusions
couched as factual allegations,
Iqbal. 556 U.S. at 678, or conclusory factual allegations devoid of
any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir.
1979); see also Francis
Giacomelli. 588 FJd 186, 193 (4th Cir. 2009).
PRUDENTIAL AND .JURISDICTIONAL BARS
Defendants argue that there are both prudential bars and a jurisdictional
bar to the court
hearing this case. First, defendants argue that the abstention doctrine set forth in Bli/ford v. Sun
Oil, 319 U.S. 315 (1943), mandates that the court dismiss the CFPB's claims for equitable
remedies and stay its claims for damages. Second, defendants argue that the doctrine of issue
preclusion bars the CFrB from re-litigating
whether Smith gave independent professional
the issues at the heart of its complaint-namely,
advice and whether the Access Funding transfers
were fair and reasonable. Third, defendants argue that the collateral attack doctrine bars the
CFrB from challenging
of the Maryland state courts. For the reasons that follow,
I find none of these three arguments persuasive and therefore determine that there is neither a
prudential nor a jurisdictional
bar to the court hearing this case.
Defendants first argue that the court should abstain from hearing this case under Blilford
because the CFrB asks this court to come to a decision that would conflict with decisions of the
Maryland statc courts. The CFrB argues that this case is not one of the few in which the Blilford
abstention doctrine applies. I agree with the CFrB.
have a "virtually unflagging obligation ... to exercise the jurisdiction
given them" by Congress. Colorado River WaleI' COl7serWlliol7 Disl. v.
U.S. 800, 817
(1976). The Blilford doctrine relaxes this obligation, allowing federal courts to abstain from
hearing cases in two very limited circumstances.
First, courts may abstain where there are
"difficult questions of state law bearing on policy problems of substantial public import whose
importance transcends the result in the case then at bar." Id. at 814. Second, they may abstain
where the "exercise of federal review of the question in a case and in similar cases would be
disruptive of state efforts to establish a coherent policy with respect to a matter of substantial
is the exception, not the rule." Id. at 813.
Neither of the circumstances
in which BlI/ford is appropriate
is present here. First, there
are no difficult questions of state law before thc court. In fact, there are no questions of state law
before the court. The only question before the court is how to interpret the Consumer Financial
Protection Act of 20 I0, which is a question offederal
law. (ECF No. I, ~ I). Of the three cases
defendants cite in support of their argument for BlI/ford abstention, two involved federal courts
that were asked to interpret state law. See Johnson v. Collins Entertainment Co., Inc., \99 F.3d
710, 715 (4th Cir. 1999) ("The district court granted the injunction based on its interpretation
state law and ruled in plaintiffs
favor on a question of slale wifair competition law. In doing so,
however, the district court improperly interfered with a state regulatory scheme whose design is
at the heart of the state's police power. The district court should instead have abstained under the
doctrine of Burford .... ") (emphasis added); First Penn-Pac. Life Ins. v. Evans, 304 F.3d 345,
351 (4th Cir. 2002) ("State law also controls the instant dispute over the validity of a policy that
may be a substantial asset of the receivership estate.") (emphasis added). The first rationale for
Burford abstention was applicable in these cases because the courts were presented with difficult
questions of state law. This case is far different because the court is asked to interpret federal
law. Here the first rationale for BlI/ford is simply not applicable.
Moreover. this court's review of this case will not disrupt Maryland's
efforts to establish
a coherent policy with respect to a matter of substantial public concern. The Maryland SSPA
requires the sellers of structured settlements to obtain court approval before selling a settlement.
(ECF No. I, ~ 29). This requirement
reflects a policy decision that Maryland citizens should not
be allowed to make ill-advised, uninformed decisions to sell structured settlements.
of the CFPA-a
federal statute meant to protect consumers
from unfair, deceptive,
and abusive acts and practices by individuals who provide consumer-financial
do nothing to create confusion regarding this policy. 12 U.S.c.
S 5531 (a).
anything, the consumer protection rationale underlying the state and federal statutes is the same.
Defendants cite only one case where a court abstained under the second BUiford
rationale, that resolution of the federal claim would interfere with a state's attempt to establish a
coherent policy. [n Pomponio v. Fauqier Counly Bd. ofSup'rs,
plaintiff brought an 18 U.S.C.
21 F.3d 1319 (4th Cir. 1994), the
1983 claim, alleging that state officials had engaged in
made false statements, abused their authority, and engaged in other misconduct
local land and zoning laws. The court held that BlI/ford abstention was
the case involved an issue of federal law-because
boil[ed] down to an assertion that his plan complied with the zoning laws, and the
local authorities wrongfully disapproved his plan by misapplying the laws and by
abusing their authority in the decision-making
process. In NOPSI v. Council of
Nell' Orleans, 491 U.S. 350 (1989), the Supreme Court found BlI/ford abstention
inappropriate in part because the claim asserted there was not "a claim that a state
agency has misapplied its lawful authority or has failed to take into consideration
or properly weigh relevant slale-Iaw factors." 491 U.S. at 362. [Plaintiffs] claim
is just such a claim, and under the Supreme Court's precedent and our own, the
BlI/ford abstention doctrine applies in this case.
Id. at 1328. The second rationale for BlI/ford was applicable in Pomponio because the plaintiff
was arguing that the defendant-a
state actor who was supposed to be the arbiter of its own state
misapplied that law. The court determined that by hearing such a case it would
necessarily disrupt the state's efforts to establish a coherent policy with respect to its own state
law. Here, unlike in Pomponio, the CFPB does not argue that the defendants violated federal law
by improperly applying state law. This case would be like Pomponio if the CFPB were suing the
state judges who approved the settlements at issue, arguing that they violated federal law by
approving those settlements.
The CFPS makes no such argument. Hcre the federal claim stands
on its own. Thus, the second rationale for Burford is equally inapplicable.
Ultimately, defendants seem to be asking this court to abstain from hearing this case
under Bwford based on a belief that it is inappropriate
might impact a state administrative
for a federal court to hear a case that
Neither the Supreme Court nor the Fourth Circuit
has taken such an expansive view of Bwford. Indeed, "while Burford is concerned with
protecting complex state administrative
processes from undue federal interference,
it does not
require abstention whenever there exists such a process, or even in all cases where there is a
potential for conflict with state regulatory law or policy'" NOPS!, 491 U.S. 350, 362 (1989).
Congress enacted thc CFPA to ensure that federal law protects consumers
by financial advisers. The existence of a state administrative
from unfair treatment
scheme whose requirements
a similar concern does not provide this court with a reason to abstain from enforcing federal law
if it has been violated. Accordingly,
I will not abstain from hearing this case under Bwford.
Defendants next ask the court to find that the CFPS is barred by the doctrine of issue
preclusion from relitigating two issues that were decided in Maryland state court: whether Smith
advice and whether the structured settlement transfers were
fair to the consumers.
The CFPS argues that three of the four requirements
are not present and that it would therefore be inappropriate
find that at least two of the requirements
for issue preclusion
to apply the doctrine in this case. I
for issue preclusion are not present and therefore agree
with the CFPS.
The Full Faith and Credit Act, 28 U.S.c. ~ 1738, dictates that a federal court must give a
state court judgment
the same preclusive effect it would be given in the courts of the state that
rendered the judgment.
Therefore, this court must give any Maryland judgments
preclusive effect they would be given in Maryland state court under Maryland law. Under
Maryland law, a party is precluded from relitigating an issue when:
(1) the issue previously decided was identical to the one presented in the current
action; (2) there was a final judgment on the merits in the previous action; (3) the
party against whom preclusion is sought to be applied was in privity with a party
to the prior adjudication; and (4) the party against whom preclusion is sought to
be applied was given a fair opportunity to be heard on the issue.
Garrity v. MOly/and State Board ofP/umbing,
135 A.3d 452, 459 (Md. 2016).
The issues presented in this case are closely related, if not identical, to those that were
previously decided by final judgments
it would be inappropriate
of the Circuit Court for Prince George's
to apply the doctrine of issue preclusion
in this case, as
the CFPB was neither a party to those cases nor in privity with a party to those cases, and
therefore has not yet been given a fair opportunity
to be heard on thc issues currently before the
Under Maryland law, "the analysis of privity for purposes of collateral estoppel focuses
on whether the interests of the party against whom estoppel is sought were fully represented,
with the same incentives, by another party in the prior matter." A1allhelVs v. Cassidy Tur/ey
Inc., 435 Md. 584,628
(2013). "Maryland cases analyzing the concept of privity
within the rules of collateral estoppel place great emphasis on the procedural rights of the party
against whom the doctrine is to be invoked." Warner v. Germal1, 100 Md.App. 512, 520 (Md.
App. 1994). "In discerning whether a party's procedural rights have been addressed adequately, a
court may focus on the nature of the interests binding the two parties, and, correspondingly,
whether they share the same incentive in their separate litigation attempts." Id. at 521. "This
priority is reflected in the requirement
of collateral estoppel that a second party cannot be
covered by a previous decision unless he or she had an appropriate opportunity
to appeal the first
The CFPB was not fully represented,
by a party with the same incentives, in the state
cases. The CFPB has an incentive to curb consumer fraud by ensuring that financial advisers do
not take advantage of potentially vulnerable consumers. The parties to the state cases were the
consumers and Access Funding. The consumers came before the court as willing participants
whose primary incentive was to have those transfers
approved. It would be circular to find that the consumers adequately represented the interests of
the CFPB when the very reason the CFPB exists is to represent individuals
who are not positioned to adequately represent themselves.
CFPB had any opportunity
like the consumers
Moreover, no one suggests that the
to appeal the decisions in the statc cases.
Defendants argue that the CFPB was in privity with the consumers
for two reasons. First,
defendants argue that the CFPB is seeking remedies that "will inure to the consumers'
(ECF No. 13, p. 20). Second, defendants argue that the CFPB "is asserting in this action
essentially the same legal right to damages and disgorgement
remedies that the consumers would
assert if they brought a claim against defendants arising out of the same facts and circumstances
giving rise to the Bureau's
claims." (ECF No. 13, p. 21). See also ECF No. 26, p. 10 ("Plaintiff
represents the same legal rights and interest in damages and other forms of equitable relief as the
have for such relief').
Even assuming the CFPB is seeking remedies that will inure to the consumers'
and is asserting the same legal rights that the consumers would assert if they brought a claim
neither fact is relevant to determining
the consumers under Maryland law. In fact, defendants'
whether the CFPB was in privity with
arguments are at odds
with the law of issue preclusion, which is inherently backward-looking.
The question is not
whether the consumers \Vould assert similar claims or \ViII benefit if the CFPB makes out its
claims, but whether the consumers have already adequately represented the CFPB's interests
such that it can be said that the CFPB has already had its day in court.
Although, as defendants point out, the mutuality requirement
has been relaxed, this
relaxation has its bounds. Privity does not exist wherever two parties make similar arguments or
assert claims that may benefit each other. The CFPB's interests were not actually and efficiently
protected by the consumers
in the state cases. As a result, the CFPB was not in privity with them,
and has not yet had a chance to fully and fairly litigate the issues before the court. Accordingly,
the doctrine of issue preclusion does not preclude this court from deciding the issues presented in
Defendants next argue that the collateral attack doctrine deprives this court of jurisdiction
over the CFPB's claims. Defendants argue that the CFPB is essentially trying to relitigate
whether the structured settlement transfers should have occurred, in order to deny the force and
effect of the judgments
of the Maryland Circuit Courts that approved those transfers. The CFPB
argues that the collateral attack doctrine is not yet at issue because the finality of judgments
only at issue when a court enters relief inconsistent with a prior judgment.
I disagree with both
parties' arguments. The resolution of this issue turns on whether the CFPB was in privity with
Because, as explained above, they were not, the collateral attack doctrine does
The CFPB's argument that the collateral attack doctrine is not yet before the court is
plainly incorrect. Indeed, "while res judicata is concerned only with the effect of final judgments
and with their effect assuming them to be valid and enforceable,
collateral attack includes
and orders of all kinds without regard to their finality and is concerned with the
under which and the extent to which they may be impeached and shown to be
invalid." Klein v. Whitehead, 40 Md.App. 1,21 (Md. App. 1978). Thus, the reason the collateral
attack doctrine does not apply in this case is not that the issue is not yet before the court.
For their part, defendants appear to conOate two distinct applications
of the collateral
attack doctrine. On the one hand, the collateral attack doctrine bars attempts by non-parties
expressly invalidate the judgment of a court rendered in a dispute between two other parties.
Certain of the cases defendants cite involved this application of the doctrine. See, e.g Fisher v.
DeMarr, 226 Md. 509 (Md. 1961) (decedent's
brothers and sisters sought to invalidate
wife's divorce decree from a prior marriage, because they would have inherited the
entirety of the decedent's
estate had that decree been invalid and her marriage to decedent
therefore also invalid); Kent Island, LLC v. DiNapoli, 430 Md. 348, 356 (Md. 2013) ("The
present action, Kent Island I/, was filed by Respondents,
who were not parties to Kent Island I,
on 23 December 2009 in the Circuit Court for Queen Anne's County. Respondents
Circuit Court for Queen Anne's County to invalidate the Consent Order entered in Kent Island
I."). This case is unlike those cases, because the CFPS is not seeking to expressly invalidate any
Maryland state court judgments.
At most, the CFPS is seeking a judgment
that would be
with the state court judgments.
The second application of the collateral attack doctrine bars attempts by parties or privies
of parties to an original case to obtain judgments
that would be inconsistent with judgments
that prior case. Defendants Borkowski and Smith2 cite the correct legal standard for this
application of the doctrine:
Judgments of a legally organized judicial tribunal, proceeding within the scope of
its allotted powers, and possessing the requisite jurisdiction over the subject
matter of the suit and the parties thereto, whether correct or erroneous, cannot be
called in question by the parties or privies in any collateral action or proceeding.
Jd. at 20 (emphasis added). See also Second Restatement of Conflicts
("Persons who are
bound personally by the adjudication of litigated matters are (I) parties who were personally
subject to the jurisdiction
of the court which rendered the judgment;
party, and (3) more rarely, persons who stand in a special relationship
(2) persons in privity with a
to a party or privy.").
Certain of the cases defendants cite refer to this application of the doctrine. See Johnson v.
Johnson, 265 Md. 327, 330-31 (Md. 1972) ("Nothing is more certain than the proposition that an
appeal will not lie from a court's refusal to reopen a previous decision which has become final.
To hold otherwise would lead to interminable
litigation ... The ... court order of22 March
1971 was entered in a case involving the same parties and dealing with the same issues .... ");
Klein v. Whitehead, 40 Md.App. 1,21 (Md. App. 1978) (trustee in bankruptcy sought to
attack an earlier judgment entered against the bankrupt, with whom the court found
he was in privity). Although the CFPB seeks a judgment
that would be inconsistent
with the state
In its opening brief, Access Funding cites the wrong legal standard, arguing that collateral
attacks are only allowed where either "( I) the court entering the judgment lacked jurisdiction or
(2) the prevailing party, by some extrinsic or collateral fraud has prevented a fair submission of
the controversy." (ECF No. 13, p. 22) (citing Bland v. Hammond, 935 A.2d 457, 463 (Md. App.
2007)). Bland was not a case about the collateral attack doctrine. In Bland the plaintiff sought to
vacate a dismissal of his claim based upon the misconduct of his attorney. Jd. at 459. Thus,
Bland sets forth a standard for what type of fraud justifies reopening and vacating an enrolled
judgment in a subsequent action between the original two parties to the judgment. It has no
bearing on this case, where a non-party to the original action seeks to obtain a separate ruling
that may be inconsistent with the enrolled judgment. In its reply brief, Access Funding makes the
same arguments made by Borkowski and Smith, which arguments fail for the same reasons theirs
this case is unlike the cases defendants cite because-as
CFPB was neither a party, nor in privity with a party, to any of the original state court cases. In
fact, while arguing that the first application of the collateral attack doctrine bars the CFPB's
claim, defendant Borkowski goes so far as to admit that the CFPB was
in privity with any
party to the state cases. He argues that "the Bureau was a stranger to each and everyone
more than 150 enrolled judgments
referenced in the Complaint].
None of the judgments
challenged in this action affected either the status or the interest of the Bureau, let alone the
(ECF No. 16, p. 6) This is true, but is fatal to defendants'
Defendants fail to cite a single case in which the court applied the collateral attack doctrine
against a party like plaintiff, who was neither a party nor in privity with a party to an earlier case
and who does not seck to expressly vacate an earlier judgment.
The collateral attack doctrine is not implicated every time the outcome of one case might
impugn the validity of the outcome ofa prior case. Separatc parties litigatc separate claims
regarding the same facts all the time. Absent proof that a party to the second case was in privity
with a party to the first case, such conflicts are not problematic.
relationship of privity exists in this case. Accordingly,
As discussed above, no
I find that the collateral attack doctrine
does not apply. Because there is no prudential or jurisdictional
hearing this case, 1 proceed to consider the merits of defendants'
bar that prohibits this court from
argument that the complaint
fails to state a claim upon which relief can be granted.
FAILURE TO STATE A CLAI~I
Defendants raise three arguments as to why the CFPB's complaint fails to state a claim
upon which relief can be granted. First, they argue that Counts I-IV of the complaint must be
dismissed because Smith was not a "covered person" under the CFPA, and therefore the statute
does not apply to him. Second, they argue that Counts I. IV of the complaint must be dismissed
because, as an attorney who was giving legal advice, Smith's conduct was excepted from the
CFPA under the "practice of law" exclusion. Third, they argue that Count V of the complaint
must be dismissed because the CFPB has done no more than offer conclusory
support of that claim. I find that Smith is a "covered person" under the meaning of the CFPA, but
that as an attorney who was giving legal advice, he falls within the statute's "practice of law"
I dismiss Counts I.IV. But because the CFPB has alleged Count V with
sufficient specificity to state a claim upon which relief can be granted, I deny the motion to
dismiss Count V.
Defendants first argue that Counts I.IV of the complaint should be dismissed because
Smith is not a "covered person" under the CFPA and therefore the statute does not apply to his
conduct. The CFPB argues that Smith is a "covered person" under the plain meaning of the
statute. I agree with the CFPB.
The CFPB alleges in Counts 1.111 that Smith engaged in unfair, deceptive, and abusive
acts or practices, in violation of
and 5536 of the CFPA. Under
The Bureau may take any action authorized under part E to prevent a covered
person or service provider from committing or engaging in any unfair, deceptive,
or abusive acts or practices 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.
(emphasis added). Under
"[i]t shall be unlawful for any covered person or
service provider to engage in any unfair, deceptive, or abusive act or practice" (emphasis added).
The CFPB alleges in Count IV that the Access Funding Defendants substantially
in Smith's unfair, deceptive, and abusive acts. Under
It shall be unlawful for any person to knowingly or recklessly provide substantial
assistance to a covered person or sen'ice provider in violation of the provisions of
Section 5531 of this title, or any rule or order issued thereunder,
any provision of this title, the provider of such substantial
assistance shall be deemed to be in violation of that section to the same extent as
the person to whom such assistance is provided.
Thus, for Counts I-IV to survive defendants'
motions to dismiss, Smith must be a
"covered person or service provider." Because the CFPB does not claim that Smith is a "service
provider," each of these claims is dependent upon Smith being a "covered person." Under
5481 (6), a "covered person" is "any person that engages in offering or providing a consumer
financial product or service." Under
S 5481 (15)(A)(viii),
one type of "financial product or
providing financial advisory services ... to consumers on individual financial
matters or relating to proprietary financial products or services, including
providing credit counseling to any consumer; and providing services to assist a
consumer with debt management or debt settlement, modifying the terms of any
extension of credit, or avoiding foreclosure.
Thus, if Smith provided "financial advisory services ...
to consumers on individual financial
matters" he is a "covered person" for purposcs of the CFPA.
Defendants cite the correct legal standard for interpreting a statutory provision: "without
a clear indication of legislative intent to the contrary, the statutory language controls [the
Ford Molor Credil Co. v. Cenance, 452 U.S. 155, 158 (1981).
Neither party argues that the legislative intent of the CFPA is at odds with the statutory language.
Therefore, the plain language of the statute controls.
Under that plain language, Smith provided "financial advisory services ... to consumers
on individual financial matters." Indeed, the complaint alleges that Smith provided advice to
consumers relating to the financial, legal, and tax implications of selling structurcd settlement
payments to Access Funding. (ECF No. I, ~ 13). The decision whether to sell a structured
settlement for an immediate lump sum payment is clearly an "individual
financial matter." When
Smith advised consumers that they should go ahead with the sales, he provided "financial
advisory services" on those matters. Moreover, the consumers signed affidavits stating that
Smith fulfilled the role of independent professional
advisor. This role required him to give legal,
tax, andjinancial advice regarding the prudence of selling their settlements.
CFPB's argument that Smith is a "covered person" for purposes of the CFPA is plainly correct.
Defendant Access Funding argues that "[a] 'consumer
means, in relevant part, 'extending
financial product or service'
credit and servicing loans, including acquiring, purchasing,
selling, brokering, or other extensions of credit (other than solely extending commercial
a person who originates consumer credit transactions)."
(ECF No. 13, p. 27) (citing ~
Likewise, defendant Borkowski argues that "[t]he Bureau has attempted to
activities into the CFPA, stating (in eonclusory
provided constitute an 'extension
of credit to consumers,'
fashion) that the services
and therefore fall under the CFPA."
(ECF No. 16, p. 8). Both defendants then explain why Smith did not "extend credit," and
therefore did not engage in conduct which is prohibited under ~ 5481 (I5)(A)(i).
are unavailing because Plaintiff does not allege that Smith "extend(edJ
credit" and is therefore a
"covered person" under ~ 5481 (15)(A)(i). Plaintiff alleges that Smith is a "covered person"
under ~ 5481(15)(A)(viii)
because he "provided financial advisory services ... to consumers on
individual financial matters.") Therefore, defendants'
) Defendants conflate the allegations that fonn the basis of Counts I.IV and the allegations that
fonn the basis of Count V. The CFPB alleges in Count V that Access Funding engaged in
abusive acts or practices relating to the advances they allegedly gave consumers, in violation of
~~ 553 I(d)(2)(A) and 5536(a)(I)(B). With respect to Count V, the CFPB argues that Access
Funding is a "covered person" under ~ 5481 (15)(A)(i) because it engaged in "extending credit
Only defendant Smith's reply brief engages with the allegations
that ifhe "provid[ed]
in the complaint. Smith
'financial advisory services' to consumers regarding
individual financial matters" he would qualify as a "covered person" under the statute. (ECF No.
24, p. 12). He argues that he did not provide such services because '''financial
include matters such as 'credit counseling, debt management
and debt settlement. '" Id. Smith
argues that his advice did not pertain to "credit counseling, debt management,
but instead pertained to a "sale or assignment."
plain language of
S 5481 (15)(A)(viii),
counseling, debt management
or debt settlement"
Id. This argument too fails. Indeed, under the
"financial advisory services" are not limited to matters of
and debt settlement."
list of what constitutes "individual
Rep. Br., ECF No. 24, p. 12 C"financial
financial matters." See Defendant Smith's
and debt settlement")
Those form an illustrative, rather
includes matters such as 'credit
(emphasis added). Defendant Smith cites
only one case in support of his contention that only "credit counseling, debt management,
qualify as "financial advisory services." See Consumer Financial Protection
Bureau v. ITT Educational Services, Inc., 2015 WL 1013508 (S.D. Ind. 2015). That case,
however, provides no support for his argument.
and debt settlement"
In fact, it confirms that "credit counseling, debt
are merely a few of the many types of "individual
matters" covered by the statute. Id. at **22 ('"the Act specifies that such advisory services
include, without limitation, 'providing
credit counseling to any consumer'
services to assist a consumer with debt management
or debt settlement, modifying the terms of
and servicing loans, including acquiring, purchasing, selling, brokering, or other extensions of
credit (other than solely extending commercial credit to a person who originates consumer credit
transactions)." The concept of "extension of credit" is relevant to why Access Funding is a
"covered person" with respect to the conduct at issue in Count V. It has nothing to do with
whether Smith is a "covered person" with respect to the conduct at issue in Counts I-IV.
any extension of credit, or avoiding foreclosure. '" (emphasis added)). Thus, dcfcndant Smith's
argument, although it responds to the complaint, also fails.
Ultimately, the plain mcaning of the statute is sufficient to resolve the question of
whether Smith is a "covered person." Pursuant to
S S481 (I S)(A)(viii),
one who "provides
financial advisory services ... to consumers on individual financial matters" is a "covered
person," regardless of the specific nature of that financial advice. (ECF No. 23, p. 13). By
advising consumers about whether to sell their structured settlements
for an immediate lump sum
payment, Smith undeniably provided those consumers with "financial advisory services"
financial matters." Accordingly,
I find that he is a "covered person" within
the meaning of the CFPA.
of Lmv" Exclusion
Defendants next argue that even if Smith is a "covered person," Counts I-IV of the
complaint should be dismissed because he was an attorney who provided legal advice and whose
conduct is therefore subject to the "practice of law" exclusion to the CFPA. The CFPB argues
that Smith's perfunctory conversations
with consumers did not constitute the practice of law and
therefore are not excluded from CFPA coverage. This is the closest of the issues before the court.
Ultimately, I find that Smith was engaged in the practice of law, and that his conduct does not
fall within either of the exceptions to the "practice of law" exclusion set forth in
S SS 17(e)(2).
Thus, Counts I-IV of the complaint, each of which is premised upon Smith's conduct, must be
The CFPA contains a provision which excludes lawyers from the scope of the statute's
coverage. Under 12 U.S.C.
S 5S 17(c)( I),
"[e]xcept as provided under paragraph (2), the Bureau
may not exercise any supervisory or enforcement
authority with respect to an activity engaged in
by an attorney as part of the practice of law under the laws of the state in which the attorney is
licensed to practice law." Plaintiff acknowledges
that Smith is a Maryland attorney (ECF No. I,
~ 13). In Maryland, to "practice law" means "to engage in any of the following activities: (i)
giving legal advice; (ii) representing
another person before a unit of the State government
or of a
or (iii) performing any other service that the Court of Appeals defines as
practicing law."" Md. Code Ann., Bus. Occ. & Prof.
10-101(h). The Maryland Court of
Appeals has said that:
to determine whether an individual has engaged in the practice of law, the focus
of the inquiry should be on whether the activity in question required legal
knowledge and skill in order to apply legal principles and precedent ... Where
trial work is not involved but the preparation of legal documents,
interpretation, the giving of legal advice, or the application of legal principles to
problems of any complexity, is involved, these activities are still the practice of
Lukas v. Bar Ass 'n of Montgomery County, 35 Md.App. 442, 448, cert. denied, 280 Md. 733
(Md. 1977) (emphasis added).
Accepting each of the allegations
in the complaint as true, it is clear that Smith gave
legal advice and therefore was engaged in the practice of law. First, the complaint
states that, "Charles Smith is a Maryland-based
attorney who providcd purportedly
advice for almost all Maryland consumers who made structured-settlement
to Access Funding." (ECF No. I, ~ 13). Second, the complaint states that "Smith held himself
out as an 'independent
purposes of the structured-settlement
advisor,' and by purporting to provide IPA services for
was therefore obligated to explain the
" The statute further notes that the practice of law specifically includes: "(i) advising in the
administration of probate of estates of decedents in an orphans' court of the State; (ii) preparing
an instrument that affects title to real estate; (iii) preparing or helping in the preparation of any
form or document that is filed in a court or affects a case that is or may be filed in a court; or (iv)
giving advice about a case that is or may be filed in a court." Md. Code Ann., Bus. Occ. & Prof.
financial, legal, and tax implications of the transfers consumers made to Access Funding." (ECF
No. I, ~ 46) (emphasis added).5 Third, the complaint states that, "Smith held himself out as
providing independent professional
advice on the implications of consumers'
transfers. Consumers reasonably relied on Smith to provide independent
took their best interest into account." (ECF No. I, ~ 60). Fourth, the complaint states that, "the
Smith had with consumers implied to consumers that they did not need to
understand anything else about the transfers they were contemplating."
(ECF No. I, ~ 63). In
other words, the complaint itself alleges that Smith is a Maryland attorney, that he fulfilled a role
whose job description
includes giving legal advice, that consumers believed him to be giving
legal advice, and that consumers relied upon Smith's "implied" recommendation
enter into the transactions.
that they should
Under the plain language of the complaint, Smith offered consumers
legal advice and was therefore engaged in the practice of law.
The CFrB argues that Smith does not fall within the "practice of law" exclusion because
he provided "wholly perfunctory"
services "directed only at consummating
Access Funding sought to complete." (ECF No. 23, p. 15). It argues that Smith
"simply recited the terms of the contracts and asked whether consumers understood them, but
provided no substantive advice or counsel to consumers."
Id. The CFPB points to certain factual
there was no contact before or after brief calls between Smith and the
consumers, that the calls were arranged by Access Funding, that someone from Access Funding
was often on the calls, and that Smith was paid by Access Funding-as
evidence that Smith was
not in fact engaged in the "practice of law." Id. These arguments are unpersuasive.
Pursuant to the Maryland SSPA, only an "attorney, certified public accountant, actuary, or
other licensed professional adviser" could serve in this role. Maryland Structured Settlement
Transfer Act, Md. Code, Cts. & Jud. Proc. S 5-IIOl(c).
assuming the facts alleged by the CFPB to be true, these facts go to the quality of the services
provided by Smith, not to their nature.
There are two exceptions to the practice of law exclusion under which the CFPA may
apply to the conduct of lawyers. 12 U.S.c.
complaint does not fall within either of these exceptions.6
But Smith's conduct as alleged in the
S 55 I 7(e)(2),
the exclusion for
shall not be construed so as to limit the exercise by the Bureau of any supervisory,
enforcement, or other authority regarding the offering or provision of a consumer
financial product or service described in any subparagraph of section 5481 (5) of
this title - (A) that is not offered or provided as part of, or incidental to, the
practice of law, occurring exclusively within the scope of the attorney-client
relationship; or (B) that is otherwise offered or provided by the attorney in
question with respect to any consumer who is not receiving legal advice or
services from the attorney in connection with such financial product or service.
Smith's conduct does not fall within the first exception to the exclusion. Any financial
advice he offered was at least "incidental
to" giving legal advice, and this legal advice "occur[ ed]
exclusively within the scope of the attorney-client
may be found to exist even when the services performed by the attorney are not strictly legal in
character." AI/orney Griemnce Com 'n of Maryland v. Shaw, 354 Md. 636, 651 (Md. 1999). "In
setting fDlth the test for determining
of the Restatement
when the relationship
is formed, we have adopted the
(Third) of the Law Governing Lawyers." AI/orney Grievance
Com 'n of Maryland v. Stillwell, 434 Md. 248, 276-77 (Md. 2013). According to the Third
of client and lawyer arises when ... a person manifests to a lawyer
the person's intent that the lawyer provide legal services for the person ... and ... the lawyer
Because the CFPB argues that Smith was not engaged in the practice of law, it does not contend
that his conduct falls within either of these exceptions.
manifests to the person consent to do so." Jd. When consumers utilized Smith as their IPA and
Smith performed that function for them, both Smith and the consumers manifested the intent
necessary to form an attorney-client
Smith's conduct clearly does not fall within the second exception to the exclusion
because he provided each of the consumers in question both '"legal" and "financial"
Ultimately, the complaint alleges that Smith's advice was biased and erroneous, and that
the consumers to enter into transactions
that were not in their best interest.
Accepting the truth of that allegation, Smith nevertheless
gave that advice and encouragement
his capacity as an attorney. Bad legal advice is still legal advice. By offering such advice, Smith
was engaged in the practice of law. Therefore, his conduct falls within the '"practice of law"
exclusion to the CFPA, set forth in
I dismiss Counts I-IV of the
Count V: Specificity
of the Complaint
Defendants lastly argue that Count V of the complaint must be dismissed because the
CFPB has done nothing more than state broad, sweeping, conclusory allegations in support of its
claim that Access Funding engaged in abusive practices with respect to the advances they offered
consumers. The CFPB argues that it has provided specific enough allegations to warrant
discovery on this claim. I agree with the CFPB.
The CFPB alleges in Count V that Access Funding engaged in abusive acts or practices
relating to the advances they allegedly gave consumers,
in violation of
SS 5531 (d)(2)(A)
5536(a)( I)(B). Section 5531 (d)(2)(A) provides:
The Bureau shall have no authority under this section to declare an act or practice
abusive in connection with the provision of a consumer financial product or
service, unless the act or practice takes unreasonable advantage of a lack of
on the part of the consumer of the matcria! risks, costs, or
conditions of the product or service.
And as stated above, under
"it shall be unlawful for any covered person or
service provider to engage in any unfair, deceptive, or abusive act or practice."
The complaint alleges that Access Funding provided consumers with advances while the
consumers waited to complete their paperwork and finalize their structured settlement transfers.
(ECF No. I, ~ 41). These advances allegedly consisted of $500 for signing a contract, $1,000
when a court date was set, and $1,000 when ajudge
approved the sale. (ECF No. I, ~41). Count
V of the complaint alleges that the Access Funding Defendants abused customers with respect to
these advances. Specifically,
it alleges that the company encouraged consumers who had an
immediate need for cash to take advances to meet that need and alleges that consumers were
bound to either pay back their advances or complete the transfers. (ECF No. I, ~ ~ 77-78).
Access Funding argues that having to pay back an advance is not unfair, and in fact is "true with
any advance payment of a purchase price." (ECF No. 13, p. 31).
But the CFPB alleges something further. Specifically,
the complaint alleges that
who could not otherwise repay the advances were told that they were obligated to go
Corward with the transfer even if they realized it was not in their best interest" and that
did not understand the risks or conditions of the advances, including that the
advances did not bind them to complete the transactions."
(ECF No. I, ~ ~ 79-80). These
if true, are sufficient to state a claim upon which relief could be granted. Indeed, if
to the consumers the nature oCthe advances and the obligations that
were incurred once an advance was accepted, that would constitute "taking unreasonable
advantage of consumers'
lack of understanding
product or service." Accordingly,
of the material risks, costs, or conditions of [a]
it would fall squarely under ~ 5531 (d)(2)(A).
Defendants argue that the complaint is deficient because it fails to identify any particular
consumers who were the subject of abusive acts or practices with respect to advances. (ECF No.
13, p. 31-32; ECF No. 16, p. 10). At this stage, the CFPB is not required to do so. It is sufficient
that it alleges that defendants engaged in such acts or practices in their dealings with consumers.
Discovery may reveal that defendants were pressuring certain vulnerable individuals by offering
them free money and then misrepresenting
what accepting that money obligated them to do
going forward. It may instead reveal that defendants apprised all consumers of their precise legal
rights and obligations.
Regardless, the CFPB's inability to identify specific consumers at this
stage is no reason to dismiss the claim.
Defendants also argue that the complaint is deficient because the CFPB fails to
"( I) how the [allegedly abusive] act causes substantial injury to consumers, or (2)
how any purported substantial
injury is not outweighed by the benefits to consumers."
26, p. 14). That argument is unavailing. Although ~ 5531 (c) requires that a plaintiff prove these
elements in order to make out a claim for "unfair" acts or practices, ~ 553 I (d)-the
issue in Count V-does
not require the CFPB to prove these elements in order to make out its
claim for "abusive" acts or practices.
I deny defendants'
allow the CFPB the opportunity
motion to dismiss Count V, and order discovery in order to
to prove that consumers who could not otherwise repay the
advances were told that they were obligated to go forward with the transactions
even if they
realized it was not in their best interest and that consumers did not understand the risks or
conditions of the advances, including that the advances did not bind them to complete the
For the foregoing reasons, defendants' motions for Burford abstention and a stay are
denied. Defendants' motions to dismiss Counts I-IV are granted. Defendants' motions to dismiss
Count V are denied. Counts I through IV of the CFPB's complaint are hereby dismissed.
J. Frederic Motz
United St tes District Judge
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