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Appeals court finds class settlement interferes with consumer protection case

Judge Douglas R.M. Nazarian xxxxx. (File photo)

Court of Special Appeals Judge Douglas R.M. Nazarian was on the panel that reversed the settlement approval by a 2-1 vote and remanded the case for further proceedings. (File photo)

The Court of Special Appeals reversed a trial judge’s approval of a settlement with victims of an exploitative lead paint settlement scheme, finding the parties could not bargain away the Maryland Consumer Protection Division’s right to seek restitution from the company.

Access Funding LLC acquired 163 structured settlements from 100 victims and obtained $33.8 million in future payments in exchange for $7.7 million, according to the unpublished opinion issued Monday.

But Access improperly referred clients to someone on the Access payroll for “independent professional advice” without disclosing the conflict and in 2016 faced a class-action suit and regulatory actions from the Maryland Office of the Attorney General Consumer Protection Division and the federal Consumer Financial Protection Bureau.

The parties to the class action reached a preliminary settlement in March 2017 after the division and the CFPB declined to participate in a mediation, according to the opinion, creating a $1.1 million settlement fund and paying class attorneys $330,000 of that fund in fees.

The Consumer Protection Division opposed the settlement, which it claimed amounted to only 4% of what the plaintiffs lost, and intervened in the case. The trial court approved the settlement over the division’s objections. The division appealed.

A three-judge panel on Monday reversed the settlement approval by a 2-1 vote and remanded the case for further proceedings.

Raymond L. Marshall, who represented a portion of the class, said he was disappointed with the decision to undo a settlement that the parties and the trial court had spent a great deal of time and effort to reach.

“The people that I’ve spoken with, they are very much aware of the decisions that they had to make,” he said. “They understood the notice, they understand the Consumer Protection Division’s case, they understood our case. They made their informed decision and I’m sure they’re going to be disappointed in the outcome as well.”

Marshall, of Chason, Rosner, Leary & Marshall LLC in Towson, said he needed to speak to his co-counsel at Brown & Barron LLC and Warnken Law LLC in Baltimore but did not see why they would not seek review in the Court of Appeals.

As class counsel, we certainly thought the settlement was in the class members’ best interest,” he said. “We’re very concerned if this case ends up being remanded that the money will be gone and that the individuals that were injured by this and the individuals that everyone is trying to protect on the plaintiffs’ side will not receive anything.”

The Consumer Protection Division argued, and the two-judge majority agreed, that the language of the settlement agreement interfered with the division’s enforcement authority because the class members would agree to assign or transfer any recovery made by regulators back to Access.

This agreement “directly thwarts the Division’s ability to combat unjust enrichment,” Judge Douglas R.M. Nazarian, joined by Judge Timothy E. Meredith, wrote. Judge Stuart Berger dissented.

The Attorney General’s Office is evaluating whether to ask the Court of Special Appeals to report the opinion, allowing it to be cited as precedent.

“The decision is a significant one because it allows us now to seek an order requiring Access Funding and its owners to give back what they took from victims and, in so doing, to meaningfully enforce the law in a case involving egregious misconduct directed at extraordinarily vulnerable people,” a spokeswoman for the Attorney General’s Office said Tuesday.

In his dissent, Berger said he agrees private parties cannot settle a government agency’s pending claim but said the division was seeking a personal remedy for the plaintiffs, not a public one, so they should be permitted to release their right to obtain anything further.

Marshall praised Berger’s opinion and said the consumers protected by the Consumer Protection Division should be allowed to decide what remedy they want.

“We were motivated to obtain the maximum recovery we could for them, which we felt like this settlement represented,” he said.

Attorneys for the class argued that the only funds available to compensate the plaintiffs was a $1 million insurance policy that could be drained by the costs of litigation. Nazarian said the court did not “scuttle this settlement gladly or lightly” and noted that it was unclear if the division would be able to obtain a better result for victims.

Marshall said it was his understanding that the insurance fund is now depleted.

“The biggest problem from the attorney general’s side of things was it never explained how its remedies were going to be achievable and obtain a better result,” he said. “I hope that the plaintiffs ultimately benefit at the conclusion of this litigation, but I fear they won’t.”

The court, however, questioned the assertions by attorneys for Access and its founders that the $1 million insurance policy was the sole asset available to pay settlements or penalties.

“The way Access treated its customers, for its own benefit, provides ample reason to be skeptical of the unsupported representations it might make to the court about its finances,” Nazarian wrote.

The division’s case against Access is expected to be scheduled for trial now that the appeal has been ruled upon, according to the Attorney General’s Office spokeswoman.

Charles M. Sims, partner at O’Hagan Meyer in Richmond and attorney for Access, did not respond to a request for comment Tuesday.

The case is Consumer Protection Division v. Crystal Linton et al., No. 2609, Sept. Term 2017.


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