Four lawyers and their
marketing firms
shut down amid fraud accusations
By Nancy McCarthy
Staff Writer
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.