by Structured Settlement Watchdog
Oral arguments in Crystal Linton, et al. v. Consumer Protection Division are due to be heard in the Maryland Court of Appeals on January 6, 2020. The Linton case stems from an alleged massive scam of Baltimore inner city residents by Access Funding, a former buyer of structured settlement payment rights.
The underlying class action lawsuit arose as the result of an illegal scheme in which victims of lead-paint poisoning and others signed away future structured settlement payments in exchange for a significantly lower lump-sum payout. Suits were also filed by the CFPB and the Maryland Attorney General. Access Funding allegedly steered victims to receive “independent advice” from a sham advisor, Charles E. Smith Jr, an attorney who was actually paid directly by the Access Funding and provided virtually no advice, indicating to consumers that the transactions required little scrutiny. The notorious cast of characters included wonky disbarred lawyer Anuj Sud, who was sentenced to two years in prison in 2018, followed by three years of supervised release and a $50,000 fine, for committing bribery. Sud solicited and accepted bribes in the performance of his official duties on the Prince George’s County Board of License Commissioners (“Liquor Board”).
The plaintiffs' class action against Access Funding was settled for the limits of Access Funding's insurance coverage ($1 million) and the trial court approved the settlement. The Maryland Court of Special Appeals (CSA) reversed the trial court in April 2019.
Issues on the Appeal
- May class members in a class action lawsuit lawfully release and assign to others their right to receive money or property sought for their benefit by Respondents or the Consumer Financial Protection Bureau (“the CFPB”) through those agencies’ separate enforcement actions under the Maryland Consumer Protection Act or the Consumer Financial Protection Act?
- Did the CSA err in reversing the trial court’s final approval order and holding that class members’ right to receive money or property in the class action was not purely personal and private to those members, such that they could not release and assign those rights to others?
- Did the trial court abuse its discretion in approving the class action settlement?
- As a matter of first impression, did a court-approved settlement agreement, in which class members voluntarily forewent and assigned away any benefit Respondent may someday obtain on the restitution claim it asserted in order to obtain a guaranteed financial recovery, interfere with Respondent’s public enforcement authority when Respondent’s restitution theories, if successful and recoverable, would exclusively benefit the class members?
- Does the equitable one satisfaction rule, as discussed in the Court’s recent opinion in Michele Gallagher v. Mercy Medical Center, Inc., 463 Md. 615, 207 A.3d 634 (2019), preclude class members from receiving both financial restitution and common law damages?
- In certifying and approving a class action settlement that compensates class members in an amount equivalent to only about 4% of the financial harm they suffered as a result of their transactions with Access Funding, a Petitioner, did the trial court err in declining to require submission of evidence to support its factual findings, including its findings that defendants-appellees are insolvent?
- In approving a class settlement that purports to “release” Access Funding’s principals, not only from any liability to class members but also from liability to two government agencies with claims pending against them, did the trial court err in holding that it had “no basis” to consider whether the “released” principals have financial resources to satisfy a judgment on, or contribute to a settlement of, the claims from which they were “released”?
- Did the trial court abuse its discretion in approving, through a judicial opinion drafted for it by counsel, a class settlement in which (a) absent class members, more than 70% victims of lead poisoning, receive compensation equivalent to only four cents for each dollar of financial harm they suffered, (b) the amount of the settlement fund is less than available insurance proceeds and the defendants would not make any direct contribution to the settlement fund, and (c) Access Funding would purportedly be “released” from making any restitution through pending lawsuits filed by Respondents and the CFPB?
- Did the trial court err in granting approval to a private class settlement that requires class members to transfer back to Access Funding any payment rights that are restored to them, without compliance with Maryland’s structured settlement transfer law?
- Did the trial court abuse its discretion in awarding attorneys’ fees to class counsel, where counsel sought no discovery and engaged in no litigation adverse to Access Funding after filing plaintiffs’ complaint; admitted that their class claims, had they been adjudicated, likely would have been barred by the defendants’ unanswered petitions to compel arbitration; recovered only $750,000 of the $17.7 million in total financial harm incurred by class members; and obtained this “recovery” principally by “settling” the separate, pending claims of Respondent and the CFPB?
- Did the trial court abuse its discretion in approving a settlement notice that used complex legal jargon and failed to inform absent class members of the implication of the settlement?
CFPB Files Amicus Brief
On November 6, 2019 the CFPB filed an amicus brief with the Court of Appeals of Maryland in a case challenging the class action settlement against a structured settlement company, which purports to “release the Bureau’s claims in a pending federal action, to enjoin class members from receiving benefits from the Bureau’s lawsuit, and to assign any benefits the Bureau might obtain for class members to the class-action defendants.”
In its brief to the Maryland Court of Appeals, the Bureau argues that the Court of Special Appeals decision should be affirmed because the settlement provisions “threaten to interfere with the Bureau’s authority under the [Consumer Financial Protection Act] in two significant ways.” Specifically, the Bureau argues that the settlement (i) could interfere with the Bureau’s statutory mandate to remediate consumers harmed through the Civil Penalty Fund; and (ii) would interfere with the Bureau’s authority to use restitution to remediate consumer harm. The Bureau states that “the risk of windfalls to such wrongdoers could force the Bureau to decline to award Fund payments to victims,” and would “threaten to offend basic principles of equity.” Source: Buckley LLP
Investors in Factored Structured Settlement Payments Remain in Limbo
Investors in factored structured settlement payment streams have had their payments suspended for almost 2 years due to competing claims over the payments they bought which are now pending a decision by the Court of Appeals. Investors were sold the instruments using the scam label "secondary market annuities", when what was sold was neither an annuity, nor an insurance product. Some of the companies who marketed factoring streams to investors have spent hundreds of thousands of dollars in litigation costs. See my April 23, 2019 post Investors in Secondary Market "Annuities" Crushed by MD Court of Special Appeals Reversal of Access Funding Trial Court