From the September 2011 of The California State Bar Journal:
Four lawyers and their marketing firms
shut down amid fraud accusations
By Nancy McCarthy
The State Bar of California and Attorney General Kamala Harris last month shut down the operations of several lawyers and marketing firms that have targeted distressed homeowners, urging them through false advertising to sue their mortgage lenders. The bar and the Department of Justice won court orders either assuming jurisdiction over several lawyers’ practices or imposing temporary injunctions against the marketing companies.
|Attorney General Kamala Harris and State Bar President Bill Hebert|
The bar assumed jurisdiction over the practices of four southern California lawyers, alleging they abdicated their professional responsibilities by using non-lawyers to bring in clients, set fees, provide legal advice and evaluate cases. Harris’ office sued four lawyers, three law firms and 14 other defendants accused of working together to defraud homeowners. Marketing firms affiliated with the lawyers sent an estimated 2 million mailers to potential clients in at least 17 states. The lawsuit charges the defendants with, among other things, false advertising, fraudulent business practices, improper fee splitting and failing to register with the Department of Justice as a telephonic seller.
The State Bar and Harris acted after the bar received complaints from several victims, developed evidence about widespread fraudulent advertising and marketing practices and took the evidence to the Department of Justice. State Bar President Bill Hebert said the bar believes the attorneys represented hundreds of clients and collected millions of dollars in fees. “The number of lawyers who have tried to take advantage of distressed homeowners in these tough economic times is nothing short of shocking,” Hebert said. He delivered a clear message to lawyers who engage in such conduct: “If you think you can take advantage of your clients, you can’t.”
The clients believed they had legal representation,” Harris said. “The fraud artist in this case is a lawyer who under the guise of protecting them from fraud engaged in fraud himself.”
The State Bar took over the practices of:
- Philip A. Kramer (bar number 113969), 52, of Calabasas;
- Christopher Van Son (bar number 133440), 49, of Oak View;
- Mitchell Stein (bar number 121750), 53, of Agoura Hills; and
- Paul W. Petersen (bar number 170922), 51, of Irvine.
The lawyers were loosely affiliated and hired more than 100 marketers to send mass mailings nationwide. The mailers, which looked like an official government notice, routinely indicated that they were a “legal settlement notification” and that the recipients “would become a named plaintiff.” They gave the impression that a settlement was imminent, the recipient should act quickly or lose out, and often outlined goals such as a $75,000 settlement, loan forgiveness, a 2 percent interest rate or a 90 percent chance of winning.
Kramer, Van Son, Stein and Petersen joined forces to file “mass joinder” lawsuits, a way for individual plaintiffs with separate but somewhat similar causes of action to participate in a single suit. The actions, with hundreds of plaintiffs, were filed against mortgage lenders and generally alleged fraud in the lending process. Mass joinder differs from class action suits in that plaintiffs in a class action share a single judgment, and mass joinder plaintiffs can receive individual judgments or settlements.
Clients who signed up as mass joinder plaintiffs paid between $3,500 − $10,000 each. Kramer alone had 19 bank accounts, one with deposits of more than $3 million between December 2010 and March 2011. Petersen and a non-lawyer partner indicated they anticipated “annual sales” of $45 million when they opened a Citibank account. Authorities seized $7.5 million from various bank accounts last month.
When clients signed up, however, they rarely if ever met or consulted with a lawyer. Some consumers lost their homes shortly after paying the retainer fees demanded by defendants. When consumers contacted the defendants, they were given legal advice by sales agents, not attorneys, who made additional deceptive statements and provided often inaccurate legal advice. The defendants unlawfully paid commissions to their sales representatives on a per client sign-up basis, a practice known as “running and capping.”
The bar alleges that the attorneys abdicated a key part of their professional responsibilities by relying on unsupervised non-lawyers to handle the intake process and all subsequent communications. As a result, the attorneys are unable to provide an adequate quality of service necessary to protect clients’ interests. In addition, the bar said, the use of deceptive mailers to recruit clients underscores the need for quick action by the court.
Under the California Business & Professions Code, the court can take over the practice of any attorney incapable of devoting the time and attention to his law practice necessary to protect clients.
Kramer, whom Harris called the ringleader of the mass joinder scam, once wrote an email to a colleague about the fledgling litigation: “Only morons would prefer to ‘sell’ loan mods from this day forward. Let’s see: more money charged, more money retained; better result for clients; NO REFUNDS; better chance that client will either get loan restructured; payment forbearance, or note voided; and did I mention NO REFUNDS??”
Stein calls himself “The Doberman” and “the lawyer who is beyond the Super Lawyer.” A whiteboard in Stein’s operation indicated a goal of signing up 10 million clients between 2012-2014. He sued Harris in bankruptcy court in Florida, accusing her of violating a bankruptcy stay there and participating in “a conspiracy with wrongdoer Bank of America,” the defendant in his mass joinder actions.
Wayne Bell, chief counsel for the Department of Real Estate, called loan modification fraud “heartless, insidious and shameful. Lawyers are supposed to help people,” he said, but the behavior of the targeted lawyers “is disgraceful.”
“There is no shortage of ingenuity and creativity” when it comes to scams, Bell added.
The bar was appointed to secure the four lawyers’ files, freeze their bank accounts and notify their clients to seek new counsel. Clients are advised to call the following State Bar phone numbers for additional help: Clients of Christopher Van Son, 213-765-1658; clients of Mitchell Stein, 213-765-1639; clients of Philip Kramer, 213-765-1672; and clients of Paul Petersen, 213-765-1641. They can also contact a HUD-certified housing counselor for general mortgage related assistance. In many cases, the work promised by the marketing firms can be done for free.
In addition to the lawyers, the DOJ seized the practices of the following non-attorney defendants: Attorneys Processing Center, LLC; Data Management, LLC; Gary DiGirolamo; Bill Stephenson; Mitigation Professionals, LLC; Glen Reneau; Pate Marier & Associates, Inc.; James Pate; Ryan Marier; Home Retention Division; Michael Tapia; Lewis Marketing Corp.; Clarence Butt; and Thomas Phanco. The law firms sued are The Law Offices of Kramer & Kaslow, Mitchell J. Stein & Associates and Mesa Law Group Corp.
Kramer’s firm and other defendants were placed into receivership on Aug. 15 and were enjoined from continuing their operations. Law enforcement, with more than 60 agents, raided 14 locations in Los Angeles and Orange counties and seized 16 bank accounts.
The State Bar’s actions are the result of work by a loan modification task force, formed in March 2009 to address thousands of consumer complaints about lawyers who did not deliver on promises to help them avoid foreclosure. About 20 lawyers either have been disbarred or resigned with charges pending and another 40 have drawn lengthy suspensions. Earlier this year, the bar began to receive complaints about the mass joinder lawsuits.
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