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Court of Appeals ruling upholds Consumer Protection Division’s authority to go after companies who cheat people out of compensation for lead poisoning

March 9, 2020: Have you ever seen signs around Baltimore urging recipients of settlement payments for lead poisoning to “GET CASH NOW”? Behind the signs was an industry that targeted Baltimore residents who were exposed to lead paint as children and won compensation in lead poisoning lawsuits. Companies in this industry pressured people, usually between the ages of 18 and 26, to transfer their settlement rights in exchange for “cash now.” The arrangement was a scam — industry “leader” Access Funding provided payments equivalent to approximately only 30% of the value of the settlements in cash to those consumers.

In multiple briefs, the Public Justice Center weighed in on a case related to these settlement transfers, explaining why the court should consider the cognitive impairments and vulnerabilities of plaintiffs when approving settlement agreements in class action lawsuits. The plaintiffs scored a victory in March when the Court of Appeals of Maryland reversed a lower court’s approval of a settlement that had cheated them out of most of their compensation. Importantly, the ruling confirmed the authority of the Maryland Consumer Protection Division (CPD) to hold Access Funding accountable for the scam.

The Court of Appeals’ decision in Linton v. Consumer Protection Division is the latest development in a complicated story of efforts to enforce the rights of people who transferred their lead poisoning settlements to Access Funding. Under Maryland law, consumers must first obtain “independent professional advice” before transferring away their settlements. But Access Funding arranged and paid for Charles Smith, a Montgomery County lawyer, to give the “independent” advice to its customers. In response, the Maryland Consumer Protection Division (CPD) and the federal Consumer Financial Protection Bureau (CFPB) each sued Access Funding in 2016.

The same year, private attorneys brought a third lawsuit on behalf of 100 Maryland tort victims who transferred their settlement rights to Access Funding. The case covered the same transactions as the CPD and CFPB cases. Shortly after filing, the private parties in the third lawsuit negotiated a settlement, requiring Access Funding to give the plaintiffs only 4% of the losses they suffered. The agreement settled the class actions claims, but even worse, the trial judge agreed that it settled the claims in the CPD and CFPB cases as well. The CPD appealed the decision.

This is where the PJC comes in. In briefs filed in the Court of Special Appeals and Court of Appeals  in support of the CPD’s position, Murnaghan Fellows Dena Robinson and Ejaz Baluch, Jr., looked at private and public enforcement of consumers’ rights, the use of class actions in defending those rights, and the vulnerabilities of the class in such cases. The briefs described the PJC’s history of advocating for private attorneys to be able to take on consumers’ class actions. They also discussed the PJC’s role in fighting for the effective use of class actions, including the need to ensure that private class settlements are fair to the class. The briefs then talked about the importance of enforcement by state attorneys general, like the CPD, for effective civil law enforcement. Turning to the facts of the case, the briefs addressed the inherent problems with class actions that settle in the early stages of litigation, like the settlement in this case. Class counsel in such settlements have little leverage at that stage, allowing defendants to unfairly pressure lawyers for the class to settle too cheap. Such cases can also be ripe for collusion between plaintiffs’ counsel and defendants, essentially allowing defendants to choose which plaintiffs’ attorneys will give them the best deal.

Finally, the briefs described the vulnerabilities of the class. Neurological differences in the prefrontal cortex of the adult brain and the youthful brain are responsible for long-term planning and decision-making. Neuroscience indicates that the youthful brain’s prefrontal cortex may not be fully developed until the 30s, which can lead to impulsive decision-making and risk-taking. Childhood lead poisoning further affects brain development, making the class members in this case particularly vulnerable to the bad deals companies offered in exchange for their settlements. The brief filed in the Court of Appeals also described how Baltimore’s socio-historical context of redlining (refusing mortgages in certain neighborhoods based on racial and ethnic composition), racial discrimination, and underfunded schools created the conditions in which low-income children of color can languish in dilapidated homes, putting them at greater risk for lead poisoning.

The Court of Appeals’ March decision reversed the private settlement that had required Access Funding to give the plaintiffs only 4% of the losses they suffered and that had settled the claims in the CPD and CFPB cases. The Court ruled that, under the Consumer Protection Act, the parties in the private case could not preclude the Maryland Consumer Protection Division from pursuing public remedies against Access Funding or direct where the money from those recoveries could go. We are glad that the PJC’s arguments helped vindicate consumers’ rights to both public enforcement and fair and effective use of class actions in getting justice for others.