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On December 23, the U.S. District Court for the District of Maryland granted a motion to stay in an action between the CFPB and parties of a structured-settlement company, pending the U.S. Supreme Court’s decision in CFPB v. Seila Law. According to the court, a decision in Seila Law that the CFPB’s structure violates the Constitution’s separation of powers under Article II may render the CFPB unable prosecute the case. A determination by the Court is expected later this year (previous InfoBytes coverage here).
As previously covered by InfoBytes, the court allowed to move forward the Bureau’s UDAAP claim, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The defendants asked the court to stay the proceedings pending the outcome of two cases: Seila Law and a case pending in the Maryland Court of Appeals involving a different structured settlement company (covered by InfoBytes here). The court determined that a stay is not appropriate based on the Maryland case since it is not known when the case may be decided. The court also disagreed with the defendants’ argument that if the Maryland Court of Appeals upholds the settlement, the Bureau would be precluded from obtaining relief from the defendants. According to the court, “the extent to which the settlement is preclusive is unclear” and the provision that would preclude action by the Bureau is being disputed on appeal. However, the court concluded that a stay pending the outcome in Seila Law is warranted because “one of the Supreme Court’s paths in Seila Law may render the CFPB unable to prosecute this action; the stay would not be lengthy; and the interests of judicial efficiency and potential harm to the movants justify the stay.”
3rd Circuit: District court erred in voiding all cash advance agreements in NFL concussion settlement litigation
On April 26, the U.S. Court of Appeals for the 3rd Circuit, in a consolidated class action, concluded that a district court went “too far” in voiding all of the cash advance arrangements between NFL concussion class members and third party lenders in their entirety. According to the opinion, in December 2017, the district court “issued an order purporting to void in their entirety all assignment agreements” where class members assigned a portion of their settlements from the 2015 NFL concussion injury litigation, concluding that it was “necessary to protect vulnerable class members from predatory funding companies.”
On appeal, the 3rd Circuit addressed the merits in three of the four timely appeals, noting that the fundamental question was whether the district court had the authority to void the agreements. The appellate court held that the district court retained the authority to enforce and administer the settlement because there was an anti-assignment language in the settlement agreement. The appellate court upheld on the district court’s interpretation of the anti-assignment provision, holding that “any true assignments contained within the cash advance agreements—that is, contractual provisions that allowed the lender to step into the shoes of the player and seek funds directly from the settlement fund were void.” However, the appellate court concluded that the district court “went beyond its authority” by purportedly voiding the agreements in their entirety, because there are portions of some of the cash advance agreements that may still be enforceable after the true assignments are voided, such as ones structured as a non-assignment loan agreement. Since the district court’s authority “does not extend to how class members choose to use their settlement proceeds after they are disbursed,” the appellate court reversed in part the December 2017 order, leaving certain cash advance agreements enforceable to the extent rights are retained after the true assignments are voided.
On June 4, the U.S. District Court for the District of Maryland issued a Memorandum to Counsel denying defendants’ dispositive motions in a UDAAP action brought by the CFPB alleging the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, in September 2017, the court allowed the CFPB to move forward with its UDAAP claim against the company, its affiliates, and its officers but dismissed claims related to an attorney, finding that he satisfied the requirements for an exemption under the Maryland Consumer Financial Protection Act (MCFPA) for attorneys engaged in the practice of law. In December 2017, the CFPB filed an amended complaint, arguing that the consumers typically did not know the defendant was an attorney or acting as their attorney. The court agreed, holding that “it is logically impossible for a ‘client’ to form an attorney-client relationship with someone she does not know is an ‘attorney,’” and allowed the CFPB to resume the actions against the attorney.
The attorney again moved to dismiss the amended complaint, or in the alternative for summary judgment on the claims. The court denied the motion to dismiss because it was based on the attorney’s disagreement with the CFPB’s allegation that the consumers were never informed he was an attorney—an inappropriate ground for such a motion. As for the motion for summary judgment, the court agreed with the CFPB that the motion was premature because discovery was ongoing.
On September 13, the U.S. District Court for the District of Maryland allowed a UDAAP claim brought by the CFPB to move forward in which the defendants allegedly employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The court also dismissed several UDAAP claims related to an attorney acting as a financial advisor in the transactions. The 2016 complaint alleged that defendants violated the Maryland Consumer Financial Protection Act (CFPA) by encouraging consumers to take advances on their structured settlements and falsely representing that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” According to the complaint, many of the consumers “’did not understand the risks or conditions of the advances, including that the advances did not bind them to complete the transactions.” The CFPB also alleged several counts based on the conduct of an attorney acting as a financial advisor for the transactions, who allegedly provided “virtually no advice,” and whose services were arranged and directly paid by the structured settlement buyer.
In the order and memorandum, the court rejected several of the defendants’ arguments to dismiss based on procedural grounds and allowed the CFPB’s UDAAP claim against the structured settlement buyer and its officers to proceed. However, the court dismissed the claims related to the financial advisor, finding that he satisfied the requirements for an exemption under the CFPA for attorneys engaged in the practice of law.
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