Consumer Financial Protection Bureau v. Access Funding, LLC, 281 F.Supp.3d 601

Background

CFPB sued Access Funding, related entities, principals, and attorney Charles Smith under the CFPA for practices in structured-settlement factoring, seeking injunctions, damages, disgorgement, redress, and civil penalties.
Maryland’s Structured Settlement Protection Act (SSPA) requires an independent professional advisor (IPA) to advise consumers on financial, legal, and tax implications before transfers are approved by a court.
CFPB alleged Smith served as the IPA for most Maryland transactions but had close ties to Access Funding and provided cursory telephone ‘advice’ while Access Funding arranged contact and supplied prepaid phones.
The court (Judge Motz) earlier dismissed Counts I–IV against Smith under the CFPA because of the statute’s ‘‘practice of law’’ exclusion, finding Smith’s alleged conduct constituted the practice of law and did not fall within the CFPA exceptions.
CFPB moved for leave to file an amended complaint adding factual allegations (notably that consumers were unaware Smith was an attorney) intended to show consumers did not manifest intent to form an attorney–client relationship.
The court granted leave to amend, holding that the new allegation that consumers did not know Smith was an attorney could defeat the prior conclusion that an attorney–client relationship had been formed and thus the amendment would not be futile.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether proposed amendments would be futile because Smith’s conduct is barred by the CFPA practice-of-law exclusion	Amendments allege consumers never intended to form attorney–client relationships and were unaware Smith was an attorney, so the exclusion’s first exception applies	Earlier ruling: Smith’s alleged legal advice created mutual intent, bringing conduct within the exclusion	The new allegation (consumers unaware Smith was an attorney) could prevent formation of an attorney–client relationship; amendment not futile and leave granted
Whether consumers manifested intent to form an attorney–client relationship with Smith	Consumers did not manifest intent because they didn’t know Smith was an attorney	Consumers’ reliance on Smith and Smith’s provision of legal advice manifested intent	Court concluded it is logically impossible to form such a relationship if consumers did not know Smith was an attorney; factual allegation survives pleading stage
Applicability of the Restatement test for attorney–client relationship under Maryland law	Restatement governs; mutual manifestation of intent required	Same; defendants relied on prior allegations establishing mutual intent	Court applied Restatement but found the amended factual claims alter the mutual-intent analysis
Whether leave to amend should be granted under Rule 15(a)	Leave should be granted; amendment not futile	Opposed; argued amendment would be futile because prior dismissal was correct	Under Rule 15(a), amendment permitted; denial would be abuse of discretion where amendment could survive dismissal

Key Cases Cited

Foman v. Davis, 371 U.S. 178 (1962) (leave to amend should be freely given unless prejudice, bad faith, futility, or other reason warrants denial)
Laber v. Harvey, 438 F.3d 404 (4th Cir. 2006) (standards for permitting amendment under Rule 15)
Edwards v. City of Goldsboro, 178 F.3d 231 (4th Cir. 1999) (factors for denial of leave to amend)
Perkins v. United States, 55 F.3d 910 (4th Cir. 1995) (futility standard for proposed amendments)
Att’y Grievance Comm’n v. Stillwell, 74 A.3d 728 (Md. 2013) (Maryland adopts Restatement approach to attorney–client relationship)
Att’y Grievance Comm’n v. Shaw, 732 A.2d 876 (Md. 1999) (attorney–client relationship may exist absent formal retainer)
Att’y Grievance Comm’n of Maryland v. Shoup, 979 A.2d 120 (Md. 2009) (no formal contract required; facts and circumstances control)
Att’y Grievance Comm’n v. Parker, 506 A.2d 1183 (Md. 1986) (attorney–client relationship can exist even if neither party recognized it)