Linton v. Consumer Prot. Div.

467 Md. 502

225 A.3d 456

Crystal LINTON, et al.

v.CONSUMER PROTECTION DIVISION

No. 33, Sept. Term, 2019

Court of Appeals of Maryland.

March 3, 2020

Argued by Raymond L. Marshall (Chason, Rosner, Leary & Marshall, LLC, Towson, MD; Brian S. Brown, Leah Barron and Eleanor Chung, Brown & Barron LLC, Baltimore, MD; Byron B. Warnken, Warnken, LLC, Pikesville, MD) and Charles Sims (Alison Duffy, O'Hagan Meyer, PLLC, Richmond, VA; Matthew Berkowitz and Brian M. O'Shea, Carr Maloney, P.C., Washington, DC; Gregg E. Viola, Eccleston & Wolf, P.C., Hanover, MD), on briefs, for Petitioners/Cross-Respondents.

Argued by Joshua N. Auerbach, Asst. Atty. Gen. (Christopher J. Madaio, Asst. Atty. Gen., William D. Gruhn, Chief, Consumer Protection Division and Brian E. Frosh, Attorney General of Maryland, Baltimore, MD), on brief, for Respondents/Cross-Petitioners.

Tonya Kelly Cronin, Esquire, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, 100 Light Street, Baltimore, MD 21202, Amicus Curiae National Association of Settlement Purchasers in Support of Petitioners/Cross-Respondents.

Dena Elizabeth Robinson, Murnaghan Appellate Advocacy Fellow, Public Justice Center, One North Charles Street, Suite 200, Baltimore, MD 21201, Amicus Curiae Public Justice Center in Support of Respondent/Cross-Petitioner.

Thomas McCray-Worrall, Senior Counsel, Mary McLeod, General Counsel, John R. Coleman, Deputy General Counsel, Steven Y. Bressler, Assistant General Counsel, Consumer Financial Protection Bureau, 1700 G Street, NW, Washington, DC 20552, Amicus Curiae Consumer Financial Protection Bureau in Support of Respondent/Cross-Petitioner.

Barbera, C.J., McDonald, Hotten, Getty, Booth, Lynne A. Battaglia (Senior Judge, Specially Assigned), Alan M. Wilner, (Senior Judge, Specially Assigned)

Wilner, J.

This is a class-action lawsuit filed on behalf of 100 individuals who had assigned structured settlement annuity benefits they were entitled to receive from various tortfeasors to petitioner Access Funding, LLC or its affiliates or designees (collectively "Access"). The lawsuit, which we shall refer to as the Linton action, was filed in July 2016 in the Circuit Court for Baltimore City and is based on allegations that the assignments were the product of fraud on the part of Access.

There were several strains to the claim of fraud, but, most prominently, it was based on evidence of a modus operandi in which (1) most of the assignors were young victims of lead paint poisoning whose ability to understand the economic impact of the assignment was severely limited; (2) those individuals were actively solicited by Access; (3) as a condition to implementing an assignment of structured settlement benefits, Maryland law requires approval of the proposed assignment by a Circuit Court but prohibits a court from approving an assignment unless the assignor has received "independent professional advice regarding the legal, tax, and financial implications of the transfer" (Md. Code, § 5-1102 of the Cts. &Jud. Proc. Article (CJP)); (4) independent professional advice means advice from a licensed professional adviser who is engaged by the assignor and is not affiliated with or compensated by the assignee (CJP § 5-1101(d)); (5) most of the assignments at issue involved an Access agent posing as an independent professional adviser who gave no (or wholly inadequate) independent advice to the assignors; and (6) the amount paid for the assignment of benefits was unconscionably inadequate.¹

The ultimate issue before us is whether the Circuit Court erred in certifying a settlement class and approving a settlement reached by the parties with respect to that class. Resolving that issue requires consideration of several sub-issues arising in large part from the fact that there were two other actions pending against Access by Government regulatory agencies for the same alleged misconduct, one by the Consumer Protection Division of the Maryland Attorney General's Office (CPD), and one by the Federal Consumer Financial Protection Bureau (CFPB). In the end, we shall conclude, as did the Court of Special Appeals, that the Circuit Court erred in approving the proposed settlement and shall direct that the case be remanded to the Circuit Court for further proceedings in accordance with this Opinion.

PROCEDURAL BACKGROUND

In May 2016, two months before the filing of the Linton action, CPD, alleging the same misconduct, had filed an enforcement action under the State Consumer Protection Act (Md. Code, Commercial Law Article (CL) Title 13), against Access in the same court. CPD's Complaint alleged that, in soliciting and consummating the assignments, Access engaged in unfair or deceptive trade practices in violation of CL § 13-303. In that action, in addition to civil penalties, CPD sought to enjoin Access from continuing their alleged misconduct, to restore to the assignors the future stream of structured settlement payments, and to compensate them, through restitution and disgorgement, for the value of the structured settlement payments that had been assigned and already paid to Access. We shall refer to that as the CPD action.

Six months after the Linton action was filed, the Federal Consumer Financial Protection Bureau (CFPB), chartered by Congress to enforce the Consumer Financial Protection Act of 2010 ( 12 U.S.C. §§ 5511, 5497(d), and 5565 ), filed a similar action against the same defendants, for the same misconduct and seeking essentially the same relief, in the U.S. District Court (CFPB v. Access Funding, No. 1:16-cv-03759-ELH (D.Md.)) We shall refer to that action as the CFPB action. In December 2019, the District Court stayed the CFPB action pending a decision by the United States Supreme Court in CFPB v. Seila Law LLC , 923 F.3d 680 (9th Cir. 2019), cert. granted ––– U.S. ––––, 140 S. Ct. 427, 205 L.Ed.2d 244 (2019).²

Although all three actions seek similar kinds of relief with respect to the victims – compensation for their losses due to the fraudulent activities of the defendants – the bases for seeking that form of relief and the nature and amount of relief sought are not entirely the same. The Linton action is founded on Maryland common law causes of action for civil damages; the CPD and CFPB actions are based on Maryland or Federal consumer protection statutes that permit the recovery of restitution and the disgorgement of funds received by the defendants through their statutory misconduct. They are not common law actions personal to the individual plaintiffs.

Access moved to dismiss the Linton action and to compel arbitration. That was based on the existence of arbitration clauses in each of the assignment transfer agreements. The court took note of that argument, but never directly ruled on the motion. Instead, in September 2016, the parties asked for and received a stay of further proceedings in the Linton case for two months and, without any formal discovery, proceeded during that period to negotiate a settlement, in part with the assistance of mediation. On March 28, 2017, while the CPD and CFPB actions still were pending, the parties in the Linton action filed a joint motion for preliminary approval of a class action settlement.

The settlement class was to consist of all individuals who, between January 1, 2012 and July 6, 2016, transferred structured settlement payment rights obtained in settlement of a personal injury claim to Access. It was estimated that there were 100 such individuals. The total gross payout by Access, taken entirely from indemnity insurance policies, would be $1.1 million, of which $330,000 would be paid to Class Counsel as attorneys' fees. Of the balance, the Class Administrator would receive "the reasonable costs of class notice and administrative expense and taxes," for which no estimate was then given, and each of the two named plaintiffs would receive $500 as a service award. Whatever was left would be distributed to the estimated 100 class members on a pro rata basis set forth in the Stipulation of Settlement.

The Stipulation of Settlement took account of the pending CPD and CFPB actions and effectively precluded the settlement class plaintiffs from receiving any benefit from those actions. It did this through a combination of six provisions:

(1) Section 1.15 defined the term "released claims" as "all claims," (A) whether based on Federal or State law, statutory or common law, or were class or individual in nature, (B) that arose out of or were related to the assignments to Access, (C) that were or could have been asserted in the class action, (D) that arose out of equitable or legal remedies, whether by way of damages, recoupment, disgorgement, or avoidance of the assignments, (E) that may be obtained by CPD or CFPB in their actions. In short, it covered any funds or property that either agency might recover from Access for the benefit of a settlement class member.

(2) Under Section 3.1, each settlement class member who had not opted out of the settlement, including the member's heirs, spouses, successors, and assigns, would forever release and discharge all released claims against all released parties, which include not only the entities named as defendants but the principals in those entities as well.

(3) Section 3.2 provided that the settling plaintiffs would be enjoined from receiving "any benefits" from "any lawsuit" arising out of or related to any of the released claims.

(4) Section 3.3 required each settling class member to "irrevocably sign and transfer to the Defendants [Access] any and all benefits or recoveries, including any recovery based on the equitable remedies of restitution, disgorgement of profits or damages obtained by [CPD or CFPB] for the benefit of each Settlement Class Member."

(5) Section 10.1 of the Stipulation permitted either side to terminate the settlement if any change to the scope of the release or the amount of the Settlement Fund was made by the court.

(6) Section 10.3 permitted each of the defendants (but...