Linton v. Consumer Protection Division

Crystal Linton, et al. v. Consumer Protection Division, No. 33, September Term, 2019 (1) Individuals who had assigned structured settlement benefits filed a class action against the assignees of those benefits seeking civil damages on the ground that the assignments were the product of fraud on the part of the assignees. (Linton action). Prior to the filing of that action, the Consumer Protection Division of the Attorney General’s Office (CPD) had sued the assignees for violations of the Consumer Protection Act seeking civil penalties, injunctive relief, and disgorgement/restitution. The Federal Consumer Financial Protection Bureau (CFPB) filed a similar action in the U.S. District Court.

(2) While the CPD and CFPB actions were pending, the Linton action parties reached a settlement that would have paid the plaintiffs only about four percent of the economic value of the benefits they assigned and would have not only precluded them from receiving any benefits from the CPD or CFPB actions but assigned anything collected by CPD or CFPB to the defendants who defrauded them and purported to require CPD and CFPB to dismiss their actions. Over CPB’s objection, the Circuit Court confirmed the settlement class and approved the settlement out of concern that the defendants had little in the way of assets, which were being depleted by the litigation. (3) The Court of Special Appeals reversed that judgment on the ground that it was impermissible for private parties in a settlement of their case, to interfere with the ability of CPD or CFPB to pursue statutory remedies in their cases, including disgorgement/restitution. On cross petitions for certiorari, the Court of Appeals agreed that a settlement with those conditions was impermissible.

(4) In its Opinion, the Court of Appeals discussed the difference between civil damages and disgorgement/restitution and held that the latter, which involves stripping the wrongdoer of ill-gotten gains, had a public purpose apart from merely compensating individual victims. The Court directed that the case be remanded to the Circuit Court for further proceedings. Circuit Court for Baltimore City IN THE COURT OF APPEALS Case No. 24-C-16-003894 Argued: January 6, 2020 OF MARYLAND No. 33 September Term, 2019 CRYSTAL LINTON, ET AL. Case No. 419686V Argued 1/7/19 vs. CONSUMER PROTECTION DIVISION Barbera, C.J. McDonald Hotten Getty Booth Battaglia, Lynne A.

(Senior Judge, Specially Assigned) Wilner, Alan M. (Senior Judge, Specially Assigned) Opinion by Wilner, J. Hotten, Getty and Booth, JJ., dissent Filed: March 3, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2020-03-03 15:48-05:00 Suzanne C. Johnson, Clerk 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. 1 In its unreported Opinion in this case, the Court of Special Appeals accurately summarized the evidence regarding this activity as follows ( 2019 WL 1770524 , April 2019): “When people responded to Access’s ads, Access referred them to Charles Smith, a lawyer . . .

In their petitions for approval of the transfers, Access represented that Mr. Smith had provided the transferors with independent professional advice. In fact, Access had paid Mr. Smith for each victim he ‘advised,’ more than $50,000 overall . . .. Mr. Smith also practiced law with Access’s former attorney, Anuj Sud. None of this was disclosed by Access to the targets of the offers.” The Court of Special Appeals also noted that, between 2013 and 2015, Access “obtained judicial approval to acquire 163 structured settlements from 100 victims and obtained $33.8 million in future payment rights (with a present value of $25.5 million) in exchange for $7.7 million in cash.” A fuller exposition of the fraudulent activity alleged on the part of Access is set forth in the Complaint filed in this case.

Access has consistently asserted, including in the Stipulation of Settlement, that it acted properly in all respects. That is not an issue presented in this appeal. 2 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 140 S. Ct. 427 (2019).2 2 The Seila Law case involves a challenge to the constitutionality of CFPB’s appointment structure and not directly to its enforcement powers. 3 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 4 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. 5 (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 not the plaintiffs), in their sole discretion, to terminate the settlement if either CPD or CFPB “does not provide, in writing, its agreement to dismiss its respective lawsuit with prejudice upon a Final Approval Order or either [CPD] or [CFPB] opposes the Court’s Final Approval of the settlement.” (Emphasis added). Dismissal of those lawsuits would preclude not only the pursuit of disgorgement/restitution, but also injunctive relief and civil penalties as well. 3 3 The parties have paid little or no attention to § 10.3. Access has argued throughout that §§ 3.1, 3.2, and 3.3 do not preclude CPD from pursuing its “public” remedies, such as civil penalties and injunctive relief, but omits any mention of Access’s ability to scuttle the settlement if CPD and CFPB refuse to dismiss their actions entirely, which would foreclose those “public” remedies. As we read § 10.3, Access could refuse to pay anything to the 6 In April 2017 – before any hearing on the motion to approve the settlement – CPD moved to intervene in the Linton action and requested a 180-day stay to permit the CPD action to proceed.

CPD noted that what Access was asking was that CPD’s claims be effectively released, something Access had sought through a motion to dismiss in the CPD action without success. CPD also complained that the proposed settlement in Linton would compensate the plaintiffs less than five percent of what they lost through the assignments while diverting $350,000 (later reduced to $330,000) to plaintiff’s attorneys. In contrast, CPD argued that its case, through disgorgement and restitution, offered the plaintiffs a restoration of the full structured settlement benefits that, as the result of extrinsic fraud committed by agents of Access, the plaintiffs had assigned to Access. CPD noted that the Linton plaintiffs had undertaken no discovery, whereas it had conducted an eight-month investigation.

Both sides in Linton opposed CPD’s motion, challenging some of its factual assertions and its claims of what it would be able to achieve through the CPD action. In particular, they denied that CPD could achieve through restitution or disgorgement restoration of the structured settlement benefits on the allegation that the judgments approving the assignments were void.4 plaintiffs unless all action by CPD and CFPB was terminated. It has not yet attempted to exercise that authority, but, so long as § 10.3 remains part of the settlement, it can do so. 4 CPD appeared to be relying on CL § 13-406, which permits a court, in an enforcement action by CPD, to “restore to a person any money or real or personal property acquired from him [or her] by means of any prohibited practice.” Because CPD regarded the assignments to have been the product of extrinsic fraud, it regarded them as void and allowed the court to restore to the assignors the stream of benefits that otherwise would 7 In June 2017, the court granted CPD’s motion to intervene but deferred action on its motion to stay. That was dealt with after another hearing in July, at which time it was denied.

In both the June and July hearings, the court expressed its annoyance with CPD for not proceeding with greater expedition in the CPD action. CPD argued, among other things, that the proposed settlement of the Linton action was premature – that no discovery of available Access assets by the Linton plaintiffs had been conducted and that its own effort to discover assets of Access principals had been thwarted by Access – and that it wanted six months to take depositions and develop relevant information in its own case. The court responded that CPD had that opportunity and that it was unfair to delay a settlement in the Linton action, given the effort that had gone into negotiating it. The court denied the stay, essentially for two reasons.

First, it accepted, without any evidence other than counsel’s assertions, that Access had sold most of the assignments, that neither it nor its principals had anything more than de minimis assets, that the only source of funds for the plaintiffs were insurance policies, and that the amounts available under those policies were dwindling each day as the cases progressed and legal expenses were incurred. Second, the court noted that CPD’s argument went to the fairness of the settlement, which was not then before the court, and that CPD would have an opportunity to object to that after the notice of the proposed settlement was sent to the settlement class continue to flow to Access. That is an issue in the CPD action and is not directly before us in this case. 8 and opt-out responses were received. Any discovery that it needed could be obtained in the interim.

The last issue raised at the July hearing was the form of Notice that would be sent to the settlement class members. It was agreed that the Attorney General’s Office would be consulted with respect to the Notice, particularly with respect to its advisement of the CPD action. That became the next contested matter. The Linton parties proposed a form, to which CPD objected as inadequate.

Some changes were made, but, in its Preliminary Approval Order entered on September 28, 2017, the court approved a form to which CPD continued to object. That Order also preliminarily certified the settlement class, appointed Crystal Linton and Dimeca Johnson (the named plaintiffs) as class representatives, and set a hearing for the following February to consider final approval. That hearing occurred on February 2, 2018. During the interim, class counsel applied for a counsel fee award of $330,000 and filed a proposed Final Approval Order.

CPD filed an opposition to certification of the settlement class and to the settlement agreement. In the CPD action, it filed a motion for partial summary judgment that many of the assignments at issue were void ab initio. The court signed the proposed final order on February 9. It was docketed four days later.

In that Order, the court made extensive findings and stated its reasons for certifying the class and approving the settlement. It noted that, in June 2015 – 11 months before CPD filed the CPD action – some of the attorneys in the Linton action had filed an action on behalf of another assignor, Maryalice Rose, against Access and two of its attorneys for the 9 same misconduct alleged in the Linton action. See Rose v. Smith, Circ. Ct. Balt.

City, No. 24-C-15-002960. That action was dismissed with prejudice, by stipulation, in August 2016. It is not clear whether Ms. Rose received any compensation or, if so, how much. The relevance of that action appeared to be to show that both sides in the Linton case had done a good bit of work on the issues prior to filing the complaint in Linton.

The court also noted that CPD and CFPB had been invited to participate in mediation in Linton but had declined. More to the point in terms of the court’s decision, the court relied on plaintiffs’ counsel’s assertions, based on defense counsels’ assertions but no documentary evidence, that the only source of funds to pay damages were one or more insurance policies, which were limited in amount. That led the court to give weight to class counsel’s belief that “[b]ased on the risks of going forward with the litigation and the realization that the insurance policies will most likely be depleted long before all the lawsuits are resolved.” Notwithstanding that Access had participated in the litigation for a year-and-a-half, filing motions and responses, attending hearings, engaging in mediation, and negotiating and vigorously defending a global settlement, the court declared that there remained a risk that it might grant Access’s still-pending motion to dismiss the case and compel arbitration and that an arbitrator might find that the plaintiffs had waived certification of class action arbitration. In describing the terms of the settlement, the court mentioned the release and waiver provisions contained in §§ 3.1, 3.2, and 3.3 of the Stipulation but made no mention 10 of §§ 10.1 and 10.3 which, as noted, permitted Access to scuttle the settlement and pay nothing if CPD and CFPB refused to dismiss their respective actions.

On December 22, 2017, CPD filed an opposition to the class certification, objections to the proposed settlement, to which it attached materials that had been produced and filed in the CPD action, including its motion for partial summary judgment that asserted that most of the assignments challenged in the case were void ab initio. CPD argued that the court lacked jurisdiction to approve a settlement that purported to release claims by the CPD in its case against Access without its consent, that the settlement fund was inadequate for a variety of reasons, including that it provided compensation for only four percent of the damage suffered by the plaintiffs, that it provided excessive fees for class counsel, that the settlement process was not fair, and that the settlement was premature. The judge acknowledged that she had not read the motion for summary judgment, although she allowed counsel briefly to explain it. In their submission, CPD offered discovery responses from Access principals, in which they refused to disclose their finances, which the court declined to consider.

On January 12, 2018, plaintiff’s counsel applied for an attorneys’ award of $330,000, claiming that they had spent about 350 hours in travel, drafting, and negotiating. On February 1, 2018, the plaintiffs and defendants submitted to the court a proposed 32- page judicial opinion containing findings of fact and conclusions of law, certifying the class, granting final approval to the settlement, and awarding the requested $330,000 in attorneys’ fees, which the court adopted almost verbatim. The final order, essentially in 11 the form submitted, was entered on February 13, 2018. It had immediate effect on the CPD action.

After approval of the settlement in Linton, the defendants in the CPD action moved for summary judgment, which, six months later, the court granted based on its conclusion that CPD’s claim for restitution was barred by res judicata. The court did allow the claims for injunctive relief and civil penalties to proceed. That case, in its very narrow form, is now awaiting trial. This appeal was noted on February 22.

A second notice and cross appeal were filed on March 8. In an unreported Opinion, over a dissent, the Court of Special Appeals affirmed in part and reversed in part the judgment of the Circuit Court. Addressing a cross-appeal by Access, the Court held that the Circuit Court correctly allowed CPD to intervene in the Linton action and concluded that, overall, the settlement was procedurally fair. It did not rule on whether the settlement was substantively fair.

The Court’s dispositive holding was that the settlement improperly interfered with CPD’s and CFPB’s enforcement authority: “And because the settlement effectively preempted a major portion of the pending claims being pursued by[CPD] and [CFPB] when it assigned any benefit from those actions to Access and the Class Defendants – i.e., the targets of the agencies’ enforcement efforts – the judgment approving the settlement must be reversed.” In reaching that conclusion, the Court found persuasive the decision of the Eleventh Circuit Court of Appeals in Herman v. South Carolina Nat’l Bank, 140 F.3d 1413 (11th Cir. 1998). The effective judgment of the Court of Special Appeals was a remand for further proceedings. 12 In dissent, Judge Berger disagreed with the Majority’s analysis and concluded that, although the settlement did preclude CPD from “extracting greater payments for the personal benefit of the Class Members,” it did not prohibit CPD from protecting the public interest by levying civil and criminal penalties and issuing “a general order of restitution and demand that Access disgorge its rights to future settlement payments.” Neither side was entirely happy with the Court of Special Appeals judgment, and we were presented with cross-petitions for certiorari. We granted Access’s petition to consider the one question raised in it: “May class members lawfully release and assign to others their right to receive money or property sought for their benefit by [CPD] or [CFPB] through those agencies’ separate enforcement actions under the [Maryland Consumer Protection Act] or the [Federal Consumer Financial Protection Act]?” We shall address that question in the context of the facts recited above. We granted CPD’s petition to consider whether the settlement was procedurally and substantively fair.

DISCUSSION The Access Petition The Consumer Protection Act provides an array of options in enforcing the Act, some of them punitive in nature, designed to protect the public at large by punishing the wrongdoer, some designed more particularly to benefit individual victims of statutory violations, some having a dual purpose, depending on the circumstances. In the first category are civil penalties against “merchants” who violate the Act (CL § 13-410) and criminal penalties (CL § 13-411). In the second category is § 13-408, permitting a victim 13 to bring his or her own civil action for damages. That, of course, is what the Linton plaintiffs did, although they did not base their case on the Consumer Protection Act.

As noted, their Complaint alleged only common law actions – negligence, negligent misrepresentation, fraud, and civil conspiracy. In the third category are remedies that CPD may pursue both to protect the public, directly or indirectly, and to provide relief to individual victims. CL § 13-406 permits the Attorney General to sue for an injunction to prohibit persons from continuing to engage in violating the Act, which can aid both the public and one or more individual victims, depending on what is sought to be enjoined. Section 13-406(c) permits the court, in addition to providing injunctive relief, to “restore to a person any money or real or personal property acquired from [the person] by means of a prohibited practice” (Emphasis added).

Although there is an indirect benefit to the public from that provision in terms of inflicting some economic pain on the violator, which, depending on the circumstances, could be substantial, it clearly is designed as well to benefit individual victims. Another option with a similar dual purpose is provided by CL § 13-403(b)(1). Subsection (b)(1)(i) permits CPD, as part of a cease and desist order, to order the violator “to take affirmative action, including the restitution of money or property.” Restitution also is provided for in subsection (b)(1)(ii), which allows the cease and desist order to contain any stipulation or condition listed in § 13-402(b). That section permits an assurance of discontinuance or settlement to include a condition for the violator to “[m]ake 14 restitution to the consumer of money, property, or other thing received from the consumer in connection with a violation or alleged violation” and “to [p]ay economic damages.” The underlying premise of Access’s argument is that all of those remedies that permit CPD to recover money or property for the individual victim are essentially the same, whether designated as damages, restitution, or restoration, and that any money collected by CPD actually belongs to the individual victim.

From that premise, it contends that two things flow, the first of which is that victims have a right to choose which remedy they wish to pursue and have the concomitant right to waive a recovery of any or all of them which, through §§ 3.1, 3.2, and 3.3 of the Stipulation of Settlement, they chose to do. Their second point is even more preclusive – that plaintiffs have no right to double recovery, and, if they choose to accept their pro rata share of what would be left of the $770,000, that is all that they are entitled to by law; they are not permitted to recover more. Access acknowledges, at least in theory, that private parties who seek their own remedy in the form of damages have no authority to preclude CPD from seeking injunctive relief or civil or criminal penalties against violators, although §§ 10.1, 10.2, and 10.3 of the Stipulation of Settlement cast considerable doubt on that concession, but by equating restitution and civil damages, it remains firm in its belief that the plaintiffs have a right not only to preclude CPD from seeking anything resembling compensation for them but to require as well that any restitution or damages recovered by CPD be paid to the violators who defrauded them. 15 There is some merit to aspects of the underlying premise that, under the Consumer Protection Act, money collected or property recovered by CPD in the form of disgorgement/restitution, restoration, or damages ordinarily would be for the benefit of persons who were defrauded by, and suffered loss from, the defendant’s misconduct, and ordinarily the money or property would be paid over or restored to them. That does not carry the day for Access, however.

The Consumer Protection Act does not mention the word “disgorgement,” nor does it define the word “restitution.” The connection between those terms was supplied by this Court in Consumer Protection v. Consumer Pub., 304 Md. 731 (1985) (hereafter Consumer Pub.), in which the Court first explored in any depth the purpose and meaning of the then- relatively new Consumer Protection Act. One issue raised in the case was whether restitution could be ordered by CPD when there was no evidence of reliance by consumers on the company’s misleading advertisements, and it was in that context that the Court looked at what restitution meant and contrasted it with civil damages. In doing so, it aligned itself with the views of Professor Dan B. Dobbs expressed in Dobbs, Law of Remedies § 4.1 at 224 (1973): “The damages recovery is to compensate the plaintiff and it pays him, theoretically, his losses. The restitution claim, on the other hand, is not aimed at compensating the plaintiff but at forcing the defendant to disgorge benefits it would be unjust for him to keep. . .

Restitutionary recoveries often amount to about the same as the plaintiff’s losses, and thus serve many of the compensatory purposes served by a 16 damages recovery. The justification lies, however, in the avoidance of unjust enrichment on the part of the defendant.” 304 Md. at 776 .5 Normally, the Court continued, a plaintiff seeking disgorgement/restitution must show reliance on the misrepresentation. Relying on cases from Idaho, Washington, Louisiana, and Wisconsin, however, the Court concluded that that requirement is relaxed when that remedy is pursued by a governmental consumer protection agency and that CPD “may include a general restitution provision in a cease and desist order without direct proof of consumer reliance.” 304 Md. at 781 . The Court added, however, that some consumers, for whatever reason, may not want or be entitled to any restitution and that, if CPD collected restitution under a general restitution/disgorgement order, it would have to alert individual victims and permit them to disclaim any refund.

Id. at 781 . Through that device, the Court assured that CPD was free to pursue a general disgorgement/restitution remedy and yet preserved the right of an individual beneficiary to decline the benefit. 5 Professor Dobbs later updated his 1973 book. The current version is Dan B. Dobbs and Caprice L. Roberts, Law of Remedies, 3rd ed. (2018).

The authors confirm the difference between restitution and civil damages: “Restitution measures the remedy by defendant’s gain and seeks to force disgorgement of that gain. It differs in its goal or principle from damages, which measures the remedy by plaintiff’s loss and seeks compensation for that loss.” Id. at 374. They give as a simple example the defendant steals [or obtains by fraud] the plaintiff’s watch, which has a value of $30, but which the defendant sells for $40. The plaintiff’s loss and compensatory damage is $30, but a restitution recovery is $40 – the measure of the defendant’s unjust enrichment. 17 This case does not present that situation, or anything close to it.

Every member of the Settlement Class, by his or her own admission, is a victim who suffered significant pecuniary loss as a result of Access’s fraudulent misconduct. None of them will receive anything approaching significant compensation for that loss from the Linton settlement. Thus, there is little or no prospect of a double recovery. Sections 3.1, 3.2, and 3.3 of the Stipulation of Settlement effectively to take away the choice provided for in Consumer Pub. and preclude anything approaching even a single recovery.

The principles enunciated in Consumer Pub. have been confirmed several times by this Court and applied by the Court of Special Appeals and the U.S. Court of Appeals for the Fourth Circuit See Consumer Protection v. Morgan, 387 Md. 125, 164-66 (2005); Luskin’s v. Consumer Protection, 353 Md. 335, 383 (1999); Citaramanis v. Hallowell, 328 Md. 142, 152-53 (1992); State v. Andrews, 73 Md. App. 80, 85-86 (1987); and In re Edmond, 934 F.2d 1304 (4th Cir. 1991). For purposes of this case, the critical holding in Consumer Pub. is the Court’s adoption of Professor Dobbs’s distinction between civil damages and disgorgement/restitution. That distinction has become widely accepted and is directly confirmed by Section 3 of the Restatement (Third) of Restitution and Unjust Enrichment (2011), the text of which states simply that “[a] person is not permitted to profit by his own wrong.” Comment a. to that section notes that that statement “marks one of the cornerstones of the law of restitution and unjust enrichment” and identifies the general principle underlying the disgorgement remedies in restitution, “whereby a claimant 18 potentially recovers more than a provable loss so that the defendant may be stripped of a wrongful gain.” Comment c. to § 3 adds that “[r]estitution requires full disgorgement of profit by a conscious wrongdoer, not just because of the moral judgment implicit in the rule of this section, but because any lesser liability would provide an inadequate incentive to lawful behavior.” See also U.S. v. Gossi, 608 F.3d 574, 581 (9th Cir. 2010) (confirming the view it had expressed in an earlier case that “[t]he purpose of restitution is twofold: (1) to restore the defrauded party to the position he would have had absent the fraud [citation omitted] (2) and to deny the fraudulent party any benefits, whether or not foreseeable, which derive from his wrongful act”). This concept of the dual fundamental purpose and function of disgorgement/restitution, especially in response to willful consumer fraud, belies Access’s argument that it is the mere equivalent of civil damages.

It is not. There is merit to the general proposition that a victim on whose behalf money is collected or property is recovered by CPD ordinarily has the right to disclaim any interest in it and that a double recovery of civil damages exceeding the loss suffered ordinarily is not permitted. As the immediately preceding discussion indicates, however, restitution through disgorgement is not in the nature of civil damages, and a plaintiff may recover more than his or her actual loss. Apart from that, because restitution through disgorgement has a punitive element to it, it partakes of a public remedy, not just a personal one, especially when pursued by a government agency authorized by statute to pursue it. 19 It is implicit from the structure and breadth of the Consumer Protection Act, especially as interpreted in Consumer Pub., that, although consumers who have not been harmed by a defendant’s misconduct or who sue in their own right to recover damages for injury suffered have a right to disclaim any recovery on their behalf by CPD, they have no authority, through a private settlement, whether or not approved by a court, to preclude CPD from pursuing its own remedies against those who violate the Consumer Protection Act, including a general request for disgorgement/restitution.

That is what §§ 3.1, 3.2, 3.3, 10.1, 10,2, and 10.3 expressly purport to do and what the court, by holding that CPD’s claim for disgorgement/restitution in the CPD action was barred by res judicata, held that they did do. It follows from these conclusions that §§ 3.1, 3.2, and 3.3, though not necessarily unlawful, are unenforceable. The parties can agree, if they wish, not to accept any compensation from recoveries by CPD, provided there is an adequate disclosure of the prospect that there may be such recoveries through remedies not sought in the Linton action. With respect to recoveries through disgorgement/restitution, however, they cannot preclude CPD from pursuing such remedies or direct that any such recoveries be handed over to Access or anyone else (other than the settling plaintiffs), which would directly contravene the statutory authority of CPD to sanction Access for its wrongful conduct.

Cf. Herman v. South Carolina Nat. Bank, supra, 140 F.3d 1413 (11th Cir. 1998). That alone requires that the Circuit Court’s approval of the Stipulation of Settlement be reversed. 20 CPD’s Petition This case will have to be remanded to the Circuit Court for further proceedings.

If settlement is to be pursued, §§ 3.1, 3.2, 3.3, and 10.3, at least in their current form, must be excised, which may affect whether there will be a settlement at all and, if there is to be a settlement, what its terms may be. The fundamental fairness of the current settlement, which is the nub of CPD’s cross appeal, is therefore moot. The Notice to members of the settlement class will need to be revised to reflect any new settlement proposal, and, in determining whether to approve any new proposal, the court will need to consider the substantive fairness of the new provisions, including any award of attorneys’ fees. If the case reaches that stage, the court will need to consider (1) from evidence, the current financial status of the defendants, (2) the status of the CPD and CFPB actions, including whether the partial summary judgment entered in the CPD case based on res judicata needs to be reconsidered, and what, if anything, the disgorgement/restitution remedies or constructive trusts that may be sought in that case are likely to produce, and (3) whether, by participating in the litigation of this case for three-and-a-half years, most of which was taken up negotiating and defending a settlement of the litigation, Access has waived any right it may have had to arbitration.

See Chas, J. Frank v. Jewish Ch., 294 Md. 443 (1982); Cain v. Midland Funding, 452 Md. 141 (2017). A Response to the Dissent Judge Booth’s dissent is well-written and presents forcefully the arguments found persuasive by the Circuit Court and by Judge Berger in his dissent in the Court of Special 21 Appeals. Those arguments rest essentially on four assumptions: (1) the settlement approved by the Circuit Court was the best the plaintiffs were likely to get, given the conclusion, devoid of any actual evidence, that the only available funding source was $1,100,000 from one or more indemnity policies that were also funding the defense of the action, (2) it is not likely that CPD was going to recover anything more, or, indeed, anything at all, in its action, (3) the settlement in no way inhibited CPD from pursuing its “public” remedies, and (4) the settling plaintiffs had a right to reject any compensation obtained by CPD. The problem is that the first assumption is, at best, shaky, the second is pure speculation, the third is incorrect, and the fourth, though correct, is irrelevant.

The “finding” that there was $1,100,000 from one or more indemnity policies available to fund the settlement was based on the settlement being approved and implemented in February 2018. It was understood that the first call on that $1,100,000 was the cost of defense. We do not know for certain what Access may have spent defending the settlement in the Court of Special Appeals. In this Court, it prepared and filed a 49-page main brief, a 29-page reply brief and appendix to CFPB’s amicus curiae brief, and a 37-page reply brief to CPD’s cross-appellant’s brief.

Presumably, they are being paid for those efforts and for any appearances they made in this Court or the Court of Special Appeals, and based on what was asserted in the Circuit Court and this Court, we presume as well that the funds for that have been or will be taken from the $1,100,000. Apart from that, class counsel 22 filed a 44-page brief and a 117-page appendix in this Court, and we presume they will be seeking additional fees for that effort and their efforts in the Court of Special Appeals. Even if the Circuit Court judgment were to be affirmed, what, if anything, will be left out of the $1,100,000 for the settlement class members is most uncertain. With respect to what CPD may recover, although it is true that the Division, relying on the Court of Special Appeals erroneous holding in LVNV, was pursuing the prospect of the court declaring the judgments approving the structured settlement assignments void, as we made clear in our Opinion in LVNV, that is not a necessary predicate to success in obtaining other forms of statutory relief (LVNV Funding v. Finch, 463 Md. 586, 612 (2019)) which, in this case, may include disgorgement or the establishment of constructive trusts with respect to assignees or principals of Access.

Given the lack of any real evidence of what resources were available and the massive fraud that permeated Access’s business operation, we are unwilling to simply assume that those assignees were, in fact, innocent bona fide purchasers or that Access’s principals do not have assets that can be reached. Those things need to be shown by evidence. We cannot predict that CPD will be successful in its efforts, but neither can the dissent reliably predict failure. The third assumption overlooks §§ 10.1 through 10.3 of the settlement agreement, which effectively condition the settlement on CPD and CFPB dismissing their actions – dismissing them entirely, including their “public” remedies.

That is not just a rejection of further benefits by the settling plaintiffs but a requirement that all action against the defendants cease. 23 JUDGMENT OF COURT OF SPECIAL APPEALS VACATED; CASE REMANDED TO THAT COURT WITH INSTRUCTIONS TO REVERSE THE JUDGMENT OF THE CIRCUIT COURT FOR BALTIMORE CITY AND TO REMAND THE CASE TO THAT COURT FOR FURTHER PROCEEDINGS IN ACCORDANCE WITH THIS OPINION; COSTS IN THIS COURT AND COURT OF SPECIAL APPEALS TO BE PAID BY PETITIONERS/CROSS RESPONDENTS. 24 Circuit Court for Baltimore City Case No.: 24-C-16-003894 Argued: January 6, 2020 IN THE COURT OF APPEALS OF MARYLAND No. 33 September Term, 2019 CRYSTAL LINTON, ET AL. v. CONSUMER PROTECTION DIVISION Barbera, C.J. McDonald Hotten Getty Booth Battaglia, Lynne A. (Senior Judge, Specially Assigned) Wilner, Alan M. (Senior Judge, Specially Assigned) JJ. Dissenting Opinion by Booth, J., which Hotten and Getty, JJ., join.

Filed: March 3, 2020 I, respectfully, dissent. The terms of the Settlement Agreement, which were negotiated by private counsel after a 10-hour mediation with a senior judge and approved by a circuit court judge after a hearing, did not interfere with the Consumer Protection Division’s (hereafter the “Division”) enforcement authority. There is nothing in the Settlement Agreement which interferes with the Division’s ability to enforce violations of the Consumer Protection Act (“CPA”), Maryland Code (1975, 2013 Repl. Vol., 2019 Supp.), Commercial Law Article (CL), Title 13, against the defendants named in the case of Consumer Protection Division v. Access Funding, LLC, No. 24-C-16-002855 (referred to as “CPD v. Access Funding”).

My concern is that the Majority’s holding puts the Office of the Attorney General in charge of settling private litigation between private parties in any case where it believes that it can “do better” for the victim under a public restitution theory in connection with a CPA public enforcement action. I would hold that the Settlement Agreement is enforceable. In addition, I would hold that the circuit court correctly applied the law and did not abuse its discretion in certifying the class or approving the class action settlement. Because I would reach and address all of the issues set forth in the Division’s cross-petition, and I would affirm the judgment of the circuit court, I have set forth additional background below.

ADDITIONAL BACKGROUND The devastating effects of lead paint injuries on children are well-known. These injuries often affect the most vulnerable segment of our population. The plaintiffs are individuals who obtained compensation for their lead paint injuries as children. Many parents and guardians of the children who obtained compensation elected for a structured settlement, so that the funds would be available to meet their children’s future needs.

A structured settlement is a form of annuity—providing for tax-free, periodic payments. One rationale behind structured settlements is to prevent those with little financial acumen from squandering a lump sum settlement. In the late 1990s, factoring companies began to target structured settlement recipients by convincing them to enter into agreements to purchase their annuity payment stream for a lump sum amount at a dramatically discounted amount. Richard B. Risk, Jr., Comment, Structured Settlements: The Ongoing Evolution from a Liability Insurer’s Ploy to an Injury Victim’s Boon, 36 Tulsa L.J. 865 , 883 (2001).

To protect consumers from this practice, the General Assembly enacted the Maryland Structured Settlement Protection Act in 2000. Md. Code (1974, 2013 Repl. Vol. 2019 Cum. Supp.), Courts and Judicial Proceedings Article (“CJ”), § 5-1101, et seq.

Under the Structured Settlement Protection Act, structured settlement payments cannot be transferred without court approval. CJ § 5-1102. Among other things, the court must find that the transferor “received independent professional advice concerning the proposed transfer[.]” CJ § 5-1102(b)(3). But an adviser is not “independent” if they are, among other things, “affiliated with or compensated by the transferee[.]” CJ § 5-1101(d)(2).

Access Funding’s Structured Settlement Purchasing Scheme Founded in 2012, Access is a structured settlement factoring company that “offer[ed] [] recipients of structured settlements the opportunity to transfer a portion of their future payment streams in exchange for a discounted lump sum.” Consumer Fin. Prot. Bureau v. Access Funding, LLC, 281 F. Supp. 3d 601 , 603 (D. Md. 2017) (quotation marks 2 omitted) (citation omitted). The Class Members are individuals who received structured settlement annuities as the result of lead paint exposure claims and/or cases in Baltimore City.

Subsequent to the resolution of their lead paint claims and cases, the Class Members, many of whom suffer from cognitive deficits and other brain impairments, were lured by Access into selling their structured settlement annuity contracts for grossly unfair and unconscionably low sums. Access specifically targeted the lead paint settlement recipients and engaged in unlawful sales tactics, which included sending unsolicited advertisements by mail, promising vacations, and giving the recipients gifts. From June 2013 through June 2015, Access employed Charles Smith to serve as the “independent professional advisor” in each such transaction. In their petition for approval of the transfers, Access represented that Mr. Smith had provided the transferors with independent professional advice.

In fact, Access paid Mr. Smith for each victim he “advised,” which according to the Division, resulted in overall payments of $50,000. Mr. Smith also practiced law with Access’s former attorney, Anuj Sud.1 Mr. Smith’s relationship with Access was not disclosed to the courts approving the transfers, nor was it disclosed to the transferors. The above-described actions resulted in the Circuit Court for Baltimore City entering over 100 enrolled judgments approving structured settlements that were transferred to Access. Access, in turn, sold the structured settlements as securities to 67 bona fide purchasers for value.

These third-party purchasers are located throughout the country, and include independent investors, investment groups, and trusts located in 17 states. 1 Mr. Sud has since been disbarred. Att’y Grievance Comm’n v. Sud, 457 Md. 395 (2018). 3 The Rose Litigation and its Aftermath In June 2015, Maryalice Rose, a lead poisoning victim, filed a complaint against Mr. Smith and his firm, CES Law Group, LLC, in connection with the sale of her structured settlement to Access. She alleged, inter alia, that Smith failed to give her independent professional advice as required under the Structured Settlement Protection Act. Ms. Rose was represented by Mr. Brown, Ms. Barron, and Mr. Marshall—the same attorneys representing the Class in this case.2 Two months after Ms. Rose’s filing, in August 2015, Access’s and Smith’s tactics received public attention after The Washington Post published an article describing Ms. Rose’s plight and pending litigation.

See Terrence McCoy, How Companies Make Millions Off Lead-Poisoned, Poor Blacks, The Washington Post (Aug. 25, 2015).3 Ms. Rose’s lawsuit, and the media attention that it generated, prompted changes in the Maryland Rules of Procedure and legislation in the General Assembly to create greater protection for transferors in structured settlement transfers.4 2 Class Counsel consists of Raymond L. Marshall and Chason, Rosner, Leary & Marshall, LLC; Leah K. Barron, Brian S. Brown, and Saul E. Kerpelman & Associates; and Byron B. Warnken, Matthew M. Grogan, and Warnken, LLC, Attorneys at Law. 3 https://perma.cc/M2YH-4L78 4 In October 2015, the Standing Committee on Rules of Practice and Procedure cited to The Washington Post article about Ms. Rose and proposed to this Court, among other things, a new chapter to Title 15 of the Maryland Rules—Chapter 1300, captioned “Structured Settlement Transfers.” Standing Comm’n on Rules of Practice and Procedure, 189th Report and Notice of Proposed Rule Changes 2–4, 11 (2015). https://mdcourts.gov/sites/default/files/rules/reports/189th.pdf. Chapter 13 was adopted by this Court and went into effect in January 2016. It requires a more thorough vetting of the “independent professional advisor.” Id. at 2, 24–26; see also Md. Rule 15-1304 (reflecting that the affidavit of the independent advisor must contain specific information about the advisor, seller and the factoring company). 4 The Consumer Protection Division Suit5 After the filing of the Rose litigation and its attendant publicity, the Division initiated an eight-month investigation into Access’s operations.6 In May 2016, the Division The General Assembly enacted legislation to create greater protections for structured settlement sellers. See S.B. 734, 436th Sess.

(Md. 2016) (summarizing the bill’s purpose as addressing the “need to protect payees against deceptive trade practices” by redefining “independent professional advice”); see also CJ §§ 5-1101(b), 5-1101.1 (reflecting the new definition and the General Assembly’s determination that greater protections for structured settlement sellers are necessary). The 2016 legislation revised the Maryland Structured Settlement Protection Act to require that factoring companies register with and be approved by the Office of the Attorney General, and they must provide the transferors with a detailed disclosure statement featuring more information regarding the terms of the sale. CJ §§ 5-1101–5-1112. Additionally, a new section, CJ § 5-1112, authorizes the Attorney General to promulgate regulations to enforce the Act.

This new legislation went into effect on October 1, 2016. 5 The Majority discusses the federal action that was filed by the Consumer Federal Protection Bureau (“CFPB”) against the same defendants for the same misconduct, and seeking essentially the same relief, in the United States District Court for the District Court of Maryland, CFPB v. Access Funding, No. 1:16-cv-03759-ELH (D. Md.). This case was filed six months after the Linton case was filed. I would not consider the CFPB’s position as part of this appeal. The CFPB was invited to participate in the mediation.

It declined to do so. The CFPB was notified of the Settlement Agreement in April 2017. The CFPB did not move to intervene or take any action in this case. It did not file any objections at the fairness hearing, and it did not participate in any capacity when this case was pending before the Court of Special Appeals.

It was not until the Petitioners filed their briefs in this case that CFPB moved to participate in this case as an amicus curiae. In its amicus brief, the CFPB argues for the first time that the settlement “could” interfere with its Civil Penalty Fund. This Court will ordinarily only review issues that have been decided by the trial court and preserved for review. Maryland Rule 8-131(a).

Because this issue was not raised below, I will not consider it here, other than to say that I do not read the Settlement Agreement as interfering with or limiting the CFPB’s ability to continue to pursue its enforcement action. 6 I mention the Rose litigation, the resulting publicity, the passage of reform legislation, and changes to the Maryland Rules, because a suggestion has been made in this case that Class Counsel are “piggybacking” off the Division’s investigations and work. I see nothing in the record to suggest that Class Counsel was riding the Division’s coattails. Class Counsel represented 24 of the 100 lead paint victims in their initial settlements and 5 sued Access, its related entities, Access’s executives, and Mr. Smith. The Division alleges that Access violated the CPA by failing to inform the victims that it was affiliated with Mr. Smith and that Mr. Smith was not an independent adviser.

The Division contends that Access also violated the CPA by converting future rights to payment into cash on grossly unfair terms, and by misleading victims about their rights under Maryland law. The Division asserts three counts against the defendants consisting of: Violations of the Consumer Protection Act (Count One); Request for a Declaratory Judgment (Count Two); and Fraudulent Conveyance (Count Three). In addition to seeking civil penalties and injunctive relief, the Division demands: (1) monetary restitution and restitution of property for the victims; and (2) a declaratory judgment that the transfers were void ab initio because they were procured by fraud. Specifically, the Division is requesting that the circuit court “void each judgment entered by a Maryland court from 2013 to 2015 authorizing a transaction between the Access Funding entities and a Maryland consumer.” In addition to asking the court to set aside over 100 enrolled judgments, the Division requests that the court “restore to each injured Marylander who transferred structured settlement payment rights to the defendants the money and payment rights that were taken through unfair or deceptive trade practices.” Notwithstanding the extremely broad relief sought by the Division, it has only named as interested parties 16 of the 67 third party purchasers of the structured settlements. represented Maryalice Rose prior to filing this class action.

It is clear from the record that they undertook their own investigation into the unlawful practices of Access and Mr. Smith, which were completely separate and independent from the Division’s investigation. 6 As discussed infra, although the Division couches their relief as “restitution,” what the Division is really seeking is a rescission of more than 100 enrolled judgments, and a court order turning the clock back and unravelling Access’s sales of the structured settlement annuities to bona fide third party purchasers. The Division’s efforts on behalf of these victims, while laudable, are extremely unlikely to succeed. The Instant Class Action In July 2016, Crystal Linton and Dimeca Johnson (the “Class Plaintiffs”) filed this suit against Access on behalf of 100 victims who sold their structured settlements. The class complaint alleges claims of common law negligence, misrepresentation, fraud, constructive fraud, and civil conspiracy against Access, Access Holding, LLC; En Cor.

LLC; Reliance Funding, LLC; Mr. Smith; CES Law Group, LLC; Mr. Sud; and Sudlaw, LLC (collectively, the “Class Defendants”). The Class Plaintiffs contend that Access defrauded the victims by representing that Mr. Smith provided independent professional advice, and that Access induced them to sell their structured settlement rights by offering unlawful incentives that were not disclosed in the various circuit court petitions. In August 2016, Access filed petitions to compel arbitration. It argued that each structured settlement transfer agreement contained a mandatory arbitration provision.

The Class Plaintiffs did not oppose the petitions to compel arbitration. Instead, the Class Plaintiffs and the Class Defendants sought a joint stay so that they could engage in settlement discussions. The court issued an order staying the case until November 2016. 7 During the stay, Class Counsel discovered that Smith and Access were insured by declining limits insurance policies.7 Altogether, the available insurance coverage was $1.1 million. Given the prospects of substantial litigation and declining insurance policy limits, Class Counsel discussed with counsel for the Class Defendants a potential mediation to preserve the available insurance coverage.

In December 2016, the parties participated in a 10-hour mediation with a senior judge. Both the Division and the Consumer Federal Protection Bureau (“CFPB”) declined invitations to participate in the mediation. After the mediation, the Class Plaintiffs and Class Defendants reached a settlement in principle. In March 2017, the settling parties filed a Joint Motion for Preliminary Approval of Class Action Settlement.

The proposed settlement provided, among other things, a settlement fund of $1.1 million, from which Class Counsel would receive $330,000 in fees. The proposed settlement bars the Class from “receiving any benefits from any lawsuit or arbitration proceeding arising out of or related to any of the Released Claims,” and requires the Class to “irrevocably assign and transfer . . . any recovery based on the equitable remedies of restitution, disgorgement of profits or damages obtained by [the CFPB or the Division] for the benefit of each Settlement Class Member.” In April 2017, the Division filed a motion to intervene, which the court granted. The Division then filed a motion asking that the court stay the class certification and approval proceedings for 180 days so that the Division could pursue its restitution case. 7 In a declining limits policy, the available “coverage” is reduced by the insured’s litigation attorneys’ fees and expenses. 8 The Class and the Class Defendants opposed the motion in separate filings and argued that a stay would exhaust the $1.1 million declining limits insurance policy. In July 2017, after hearing