Operation Whiteout: Lyin’ Senior Judge Kenneth “Magic” Marra Tosses CFPB Claims
Judge Kenneth A. Marra’s Void Order Granting Ocwen’s Motion for Summary Judgment on 9 out of 10 Claims on the basis of Res Judicata in Consumer Financial Protection Bureau v. Ocwen Financial Corp. Inc., S.D. Fl.
Lyin’ Judge Marra and His Co-Conspirators, Lyin’ Counsel and the Outlaws in Robes at the 11th Circuit Want this Case Buried
Now that the Burkes intervention appeal at the Eleventh Circuit and the Judicial Complaint against Judge Kenneth A. Marra have been disposed, bar a petition for review, Marra feels confident he can release his corrupt opinion and ready himself for his delayed retirement – which should have been on Jan 1, 2021 after his replacement, Judge Aileen M. Cannon was confirmed and placed on the S.D. Fl. District Court.
It’s far from over as far as the Burkes are concerned, despite the mandate issued per the 11th Circuit to the lower court.. The order below is void in law as it’s been issued by a corrupt Judge and lyin’ lawyers.
ORDER GRANTING IN PART AND RESERVING RULING IN PART ON DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AS TO COUNTS 1-9; DENYING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AS TO COUNT 10 OF PLAINTIFF’S AMENDED COMPLAINT [DE 730] AND DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT ON LIABILITY [DE 728]
The Consumer Financial Protection Bureau (“CFPB” or “the Bureau”), a federal agency charged with enforcing federal consumer financial laws, sued Defendants Ocwen Financial Corporation (“OFC”), Ocwen Mortgage Servicing, Inc. (“OMS”), and Ocwen Loan Servicing, LLC (“OLS”) (cumulatively “Ocwen”), alleging that the Ocwen companies violated the Consumer Financial Protection Act (“CFPA”), the Fair Debt Collection Practices Act (“FDCPA”), the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, the Truth in Lending Act (“TILA”) and Regulation Z, and the Homeowners Protection Act of 1998 (“HPA”). The Bureau alleges that since January 2014 Ocwen used inaccurate and incomplete information to service residential mortgage
loans; inputted inaccurate and incomplete loan account information into its system of record; made material misrepresentations to borrowers regarding loan account information and monthly amounts due; mishandled borrowers’ loss mitigation applications, initiated premature foreclosures and other foreclosure-related misconduct; failed to provide accurate periodic statements to borrowers; engaged in improper escrow-related practices; and failed to terminate automatically private mortgage insurance (PMI) on scheduled termination dates. Familiarity with the underlying facts is presumed for the purposes of this Order.1
Currently before the Court is Ocwen’s motion for summary judgment [DE 730] on the ground, among others, that most of the Bureau’s current claims (Counts 1-9) are barred by the preclusive effect of a 2014 Consent Judgment entered by the United States District Court for the District of Columbia. As to the Bureau’s remaining claim (Count 10), Ocwen recognizes that this cause of action does not overlap with the causes of action governed by the 2014 Consent Judgment; however, it contends that the Bureau has failed to adduce sufficient proofs establishing each element of the alleged PMI irregularities, and that summary judgment is appropriately entered against it due to this evidentiary deficiency. As to all claims, Ocwen alternatively argues that the Bureau has failed to adduce individualized case-specific evidence demonstrating the alleged statutory violations as applied to each borrower. Further, it challenges the legal and evidentiary sufficiency of the Bureau’s claims on discrete damage issues and statutory violations.2
Motion for En Banc Rehearing Submitted to 11th Cir., 22 Nov. 2020. It questions why all but one rookie active judge is now eligible for a quorum.
Also before the Court is the Bureau’s motion for partial summary judgment on the issue of liability [DE 728]. Ocwen defends against this motion, in part, with the assertion of its res judicata and related preclusion defenses. For the reasons discussed below, the Court concludes, as a matter of law, that the Bureau’s claims, as set forth in Counts 1-9 of its Amended Complaint, are barred by res judicata to the extent these claims are premised on servicing activity which occurred prior to February 26, 2017, and that partial summary judgment is appropriately entered on this basis as to this discrete category of claims. As to Count 10, the Court concludes that the summary judgment record reveals a genuine issue of material fact on whether all prequalifying conditions for cancellation of PMI existed for all loans underlying the alleged HPA violations, and accordingly shall deny the motion for summary judgment.
Ruling on the remainder of issues raised in the parties’ summary judgment motions shall be reserved pending the submission of a supplemental statement from the Bureau indicating whether, as to Counts 1-9, it intends to pursue claims for alleged loan servicing misconduct occurring after February 26, 2017. In this event, it shall provide a list of the relevant Counts it contends remain viable under this timeline, along with a corresponding index of specific citations to the summary judgment record where supporting evidence may be located. Pending submission of this statement, the Court will reserve ruling on Ocwen’s various alternative arguments advanced in support of summary judgment as they potentially may be mooted, in whole or in part, by the Bureau’s supplemental statement.
A completely new 3-panel of Newsom, Lagoa and Grant dropped this ‘whiteout’ opinion on Monday, 2 Nov. 2020. It’s perversion, pure and simple.
I. BACKGROUND 3
Defendant Ocwen Financial Corporation (“Ocwen Financial” or “OFC”) is a publicly traded corporation headquartered in West Palm Beach, Florida engaged in the business of servicing mortgage loans since 1988. It is one of the largest mortgage servicers in the United States and specializes in servicing the loans of distressed borrowers. Ocwen Financial is the parent corporation of Ocwen Mortgage Servicing, Inc. (“OMS”), which, in turn, is the parent corporation of Ocwen Loan Servicing, LLC (“OLS”). PHH Mortgage Corporation is a successor-by-merger to OLS. All Defendants are cumulatively referenced as “Ocwen.”
A. The 2013 District of Columbia Action
On December 19, 2013, the Bureau, the State of Florida, and 48 other States sued Ocwen Financial and OMS alleging that the Ocwen companies violated federal and state laws by engaging in unlawful and deceptive consumer practices with respect to loan servicing and foreclosure processing. By way of example, the Plaintiffs in the District of Columbia action alleged that the Ocwen companies failed to apply payments timely and accurately; failed to maintain accurate account statements; charged unauthorized fees for default-related services; imposed forced-placed insurance on borrowers who already had sufficient coverage; provided false or misleading account information in response to borrowers’ complaints; provided false or misleading information to borrowers regarding loans transferred from other servicers; failed to provide accurate and timely information to borrowers seeking information about loss mitigation services and loan modifications; provided false or misleading
information to borrowers about the status of foreclosure proceedings in cases where the borrowers in good faith were actively pursuing loss mitigation alternatives; failed to calculate eligibility for loan modification programs properly and failed to process applications for loan modifications properly; and gave false or misleading reasons for the denial of loan modifications and they used false or misleading documents as part of the foreclosure process, including the use of “robo-signed” affidavits in foreclosure proceedings. CFPB v. Ocwen Financial Corp., Case No. 13-2025-RMC (Complaint, DE 1) (D.D.C. Dec. 19, 2013) (“D.C. Complaint”) (DE 731-2).
The D.C. Complaint was divided into four counts: The States alleged violation of state laws prohibiting unfair and deceptive consumer practices with respect to loan servicing and foreclosure processing (Counts 1 and 2, respectively). The Bureau alleged parallel violations of the CFPA with respect to loan servicing generally (alleging unfair and deceptive acts or practices employed in loan servicing conduct) (Count 3) and with respect to foreclosure processing specifically (alleging unfair and deceptive acts or practices employed in foreclosure processing) (Count 4) [DE 731-2, pp. 15-17]. The D.C. Complaint sought monetary relief for past servicing misconduct and injunctive relief to transform Ocwen’s servicing practices going forward. When the Plaintiffs filed the D.C. Complaint, they also entered into a settlement agreement, entitled the National Mortgage Settlement (“NMS”), and filed a proposed consent judgment which incorporated the agreement and its dispute resolution requirements.
On February 26, 2014, the District Court for the District of Columbia entered the Consent Judgment (“NMS C.J.”) [DE 731-3] [Case No. 13-2025-RMC, DE 12], which required Ocwen to
(1) pay $2 billion in relief in the form of principal reduction loan modifications to consumers who met set eligibility criteria over a three-year period; (2) pay $127.3 million in monetary relief to consumers
Letter submitted to 11th Cir. and Ranking Member of the Senate Judiciary Committee on Aug. 6, 2020. The delays acknowledging and processing the Judicial Complaint is obvious. Judge Marra is primed to dismiss the lower court action and resign. Signed, We the People.
who were foreclosed upon by Ocwen (or its predecessors) between January 1, 2009 and December 31, 2012; (3) abide by comprehensive “Servicing Standards” [NMS C.J. ¶ 3 and Ex A] [DE 731-4] and corresponding Metrics [NMS C.J.,¶3 and Ex. D-1 through D-21] [DE 731-7] in its servicing practices going forward over the three-year term of the Judgment (February 26, 2014 to February 26, 2017); (4) pay for ongoing compliance monitoring by an independent monitor (Joseph A. Smith, Jr.) during the three-year term of the Judgment, and (5) submit to specific dispute resolution procedures and enforcement terms to redress compliance failures reported by the Monitor during that term [NMS C.J.
¶¶ 3-5 and Ex. D][DE 731-7]. Ocwen also agreed to maintain accurate records and timely update borrowers’ account information to ensure accuracy and completeness as required by the Servicing Standards.4
In exchange, the Bureau and States agreed to release Ocwen for all claims for past misconduct, and agreed that Ocwen would not be subject to future administrative or judicial enforcement actions for conduct covered by the NMS Servicing Standards and occurring during the term of the Judgment, unless its loan service performance exceeded certain “Threshold Error Rates” and Metrics set by the NMS, and Ocwen failed to bring itself within the threshold after being afforded an opportunity to cure.
The Release executed by the Bureau pursuant to the NMS Consent Judgment provided in
A 2-panel ruling on reconsideration of a single order? Issued by Branch and Jordan, 22 July, 2020. A ruling on a motion, whether entered by a single judge or a panel, is not binding upon the panel to which the appeal is assigned on the merits. FRAP 27.
Subject to the exceptions in Paragraph C (concerning excluded claims) below, the CFPB fully and finally releases the Released Parties from all potential liability that has been or might have been asserted by the CFPB relating to mortgage servicing practices described in the complaint (the “Mortgage Servicing Practices”) that have taken place as of 11:59 m., Eastern Standard Time, on December 18, 2013.
Notwithstanding any other term of this Release, the CFPB specifically reserves and does not release any liability for conduct other than conduct related to the Mortgage Servicing Practices asserted or that might have been asserted in the Furthermore the CFPB specially reserves and does not release any liability arising under any provision of the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, or any other statute or law that prohibits discrimination of persons based on race, color, national origin, gender, disability or any other protected status.
1. Nothing in this Release shall limit the CFPB’s authority with respect to the Released Parties, except to the extent the CFPB has herein expressly released claims.
[NMS C.J. at Ex. E.] [DE 731-8, p. 5]
The Consent Judgment recited Ocwen’s general ongoing obligation to adhere to the requirements of all applicable state and federal laws,5 making it clear that the NMS and its incorporated Service Standards operated to supplement, not supplant, Owen’s obligations under the law going forward.
As a party to the NMS, the Bureau agreed to abide by its dispute resolution procedures for addressing noncompliance issues reported by the Monitor and agreed to the substantive and procedural limitations on enforcement which it prescribed. Under the NMS, the Monitor had sole discretion to determine whether Ocwen followed the Servicing Standards6 and Consumer Relief Requirements imposed by the Consent Judgment. If the Monitor found a potential violation involving a failure rate
that exceeded the prescribed threshold, Ocwen had the right to attempt a cure by proposing and successfully implementing a remedial plan approved by the Monitor. If the potential violation was self-cured in this fashion, the NMS authorized no further remedy. If Ocwen experienced a second error rate above the threshold during the cure, or was unable to cure the initial violation, the NMS allowed the Bureau or States to then pursue an “enforcement action” in the District Court of the District of Colombia seeking equitable relief and a civil penalty of up to $1 million for a first violation [NMS C.J. Ex. D-1, 2 ,3].
The Consent Judgment authorized the Servicer, Monitor or Monitoring Committee to petition the District Court for the District of Columbia for resolution of “any dispute concerning any issue arising under the Consent Judgment, including any dispute or disagreement related to … the exercise of discretion …..,” 7 thus allowing for judicial review of any perceived deficiencies in the exercise of discretion by the Monitor, or compliance by the Servicer, among other matters controlled by the Judgment. The Judgment also authorized the parties to seek modification of its terms – without reference to Rule 60 standards – by joint motion.8
The Consent Judgment mandated that its incorporated Servicing Standards (Ex. A) and Consumer Relief Requirements (Ex. C) “shall be enforced in accordance with the authorities provided in the Enforcement Terms (Ex. D).” [NMS C.J., V. ¶ 6 and Ex. D]. [DE 731-3 p. 11].
The “Enforcement Terms” provided in pertinent part:
Dispute Resolution Procedures. Servicer, the Monitor and the Monitoring Committee will engage in good faith efforts to reach agreement on the proper resolution of any dispute concerning any issue arising under the Consent Judgment, including any dispute or disagreement related to the withholding of consent, the exercise of discretion, or the denial of any application. Subject to Section I, below, in the event that a dispute cannot be resolved, Servicer, the Monitor or the Monitoring Committee may petition the Court for resolution of the dispute. Where a provision of this agreement requires agreement, consent of or approval of any application or action by a Party or the Monitor, such agreement, consent or approval shall not be unreasonably withheld.
Consent Judgment. This Consent Judgment shall be filed in the U.S. District Court for the District of Columbia and shall be enforceable therein. Servicer and the Releasing Parties shall waive their rights to seek judicial review or otherwise challenge or contest in any court the validity or effectiveness of this Consent Judgment. Notwithstanding such waiver any State party may bring an action in that Party’s state court to enforce the Servicer and the Releasing Parties agree not to contest any jurisdictional facts, including the Court’s authority to enter the Consent Judgment
Enforcing Authorities. Servicer’s obligations under this Consent Judgment shall be enforceable in the S. District Court for the District of Columbia or in the state court of any State Party that brings an action to enforce the Judgment. An enforcement action under this Consent Judgment may be brought by any Party to this Consent Judgment or the Monitoring Committee. The Monitor Report(s) and Quarterly Report(s) shall not be admissible into evidence by a Party to this Consent Judgment, except in an action in the court or state court to enforce this Consent Judgment. ….
Enforcement Action. In the event of an action to enforce the obligations of Servicer and to seek remedies for an uncured Potential Violation for which Servicer’s time to cure has expired, the sole relief available in such an action will be:
Equitable Relief. An order directing non-monetary equitable relief, including injunctive relief, directing specific performance under the terms of this Consent Judgment, or other non-monetary corrective
Civil Penalties. The Court or state court may award as civil penalties an amount not more than $1 million per uncured Potential Violation, or in the event of a second uncured Potential Violation of Metrics a., 1.b. or 2.a. (i.e. a Servicer fails the specific Metric in a Quarter, then fails to cure that Potential Violation, and then in subsequent Quarters fails the same Metric again in a Quarter and fails to cure that Potential Violation again in a subsequent Quarter), where the final uncured Potential Violation involves widespread noncompliance with that Metric, the Court or state court may award as civil penalties an amount not more than $5
million for the second uncured Potential Violation.
Nothing in this Section shall limit the availability of remedial compensation to harmed borrowers as provided in Section E. 5.
The Consent Judgment became effective February 26, 2014 and remained in effect until February 26, 2017. The District Court for the District of Columbia retained exclusive jurisdiction over enforcement actions brought by non-State parties [NMS C.J. V., Ex. D at Section I. 2] and retained jurisdiction to enforce any outstanding violations identified in the Monitor’s final Monitor Report that occurred but were not cured during the term of Judgment. [NMS C.J. ¶ 15].
The Bureau was familiar with and actively participated in monitoring Ocwen’s servicing performance under the NMS Consent Judgment. As a member of the “Monitoring Committee” designated by the Judgment, the Bureau was also charged with an obligation to monitor Ocwen’s compliance with its terms. [NMS C.J. V. ¶ 8] [“The Monitoring Committee shall serve as the representative of the Plaintiffs in the administration of all aspects of this Consent Judgment and the monitoring of compliance with it by the Defendant.”]. And, since the Monitor was charged with an obligation to confer with the Monitoring Committee and Servicer before issuance of his quarterly compliance reports, the Bureau was consistently afforded an opportunity to participate actively in ongoing compliance issue discussions with fellow committee members and the Monitor. [NMS C.J. at Ex. D.4]
The Monitor reported that Ocwen almost always met the Servicing Standards during the three- year term of the Consent Judgment. In instances where it did not, Ocwen was generally able to cure the identified issue and come into compliance with the Servicing Standards established by the NMS. [Jenna Evans Affidavit, DE 731-12 at ¶¶ 10-11]. In the one instance where it was it unable to accomplish a cure, involving a single metric in a single quarter, the Monitoring Committee filed an unopposed motion to enforce the NMS Consent Judgment for a first violation in the District Court for the District of Columbia, triggering recovery of a $1 million civil penalty and non-monetary equitable relief as prescribed by the Judgment. Id. [Case 13-2025, DE 45, 46 (D.D.C. Sept 6, 2017)].
B. The 2017 Florida Action
Two months after expiration of the term of the Consent Judgment, on April 20, 2017, the Bureau filed the instant lawsuit alleging that Ocwen violated the CFPA and other federal consumer financial laws9 “in numerous instances since January 2014” as the result of alleged loan servicing failures impacting over two million loans. In its now operative Amended Complaint, filed October 4, 2019 [DE 481], the Bureau claims Ocwen used inaccurate and incomplete loan data in the servicing of loans, the product of its inputting of inaccurate and incomplete account information obtained from other servicers without review and substantiation along with other deficiencies in the operation of its proprietary “system of record” (“SOR” ), all constituting “unfair deceptive acts and practices” in violation of the CFPA (Count 1); made material misrepresentations to borrowers regarding loan terms and status (again allegedly due to its reliance on inaccurate loan data placed into its system of record without substantiation), constituting “unfair deceptive acts and practices” in violation of the CFPA (Count 2); made material misrepresentations to borrowers regarding foreclosures and committed other foreclosure-related misconduct, constituting unfair and deceptive acts and practices in violation of the CFPA (Count 3); failed to provide accurate periodic billing statements to borrowers, constituting unfair
deceptive acts and practices in violation of the CFPA, as well as violations of the Truth in Lending Act (TILA) and Regulation Z (Count 4); used inaccurate and incomplete loan data in servicing of loans, constituting violations of both the CFPA and the Fair Debt Collection Practices Act (“FDCPA”) (Count 5); engaged in deceptive debt collection practices, through material misrepresentations made to borrowers, constituting violations of both the FDCPA and the CFPA (Count 6); failed to pay hazard insurance premiums in a timely manner on behalf of escrowed borrowers and other escrow-related misconduct in violation of the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X (Count 7); failed to maintain adequate servicing policies and procedures reasonably designed to ensure that it provided its personnel with access to the accurate loan information needed to service borrower accounts and respond to consumer complaints properly, constituting violations of the RESPA and Regulation X as well as the CFPA (Count 8); improperly initiated foreclosures when the borrower was on track towards a loan modification and other foreclosure-related misconduct in violation of the RESPA and Regulation X and the CFPA (Count 9); and failed to terminate private mortgage insurance (PMI) automatically in connection with residential mortgage transactions when required to do so (i.e. on the “termination date,” the date on which the principal balance is scheduled to reach 78% of property’s original value), constituting violations of the Homeowner Protection Act (“HPA”) as well as the CFPA (Count 10).
III. STANDARD OF REVIEW
Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Damon v. Fleming Supermarkets of Fla., Inc., 196 F.3d 1354 (11th Cir. 1999). Under this standard, “only disputes over facts that might affect the outcome of the suit under the governing [substantive law] will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is “genuine” in this sense only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.
In evaluating a motion for summary judgment, the Court considers the evidence in the record, “including depositions, documents, electronically stored information, affidavits or declarations, stipulations… admissions, interrogatory answers, or other materials…” Fed. R. Civ. P. 56(c)(1)(A). The Court “must view all the evidence and all factual inferences reasonably drawn from the evidence in the light most favorable to the moving party and must resolve all reasonable doubts about the facts in favor of the non-movant.” Rioux v. City of Atlanta, Ga., 520 F.3d 1269, 1274 (11th Cir. 2008).
A party may seek summary judgment under Rule 56 on res judicata grounds by introducing sufficient information into the record for the court to judge the validity of the defense, including sufficient evidence of the precluding decision and other trial court records from the prior case. North Georgia Electric Membership Corp. v. City of Calhoun, Ga., 989 F.2d 429 (11th Cir. 1993); Jones v. Gann, 703 F. 2d 513, 515 (11th Cir. 1983). The question of the application of res judicata to the facts, viewed in the light most favorable to the nonmoving party, is ultimately a pure question of law properly decided by the Court on a motion for summary judgment. See Kizzire v. Baptist Health System, Inc., 441 F.3d 1306, 1308 (11th Cir. 2006); Plotner v. AT & T Corp., 224 F.3d 1161 (10th Cir. 2000); Israel Discount Bank, Ltd. v. Entin, 951 F.2d 311, 314 (11th Cir. 1992).
The primary thrust of Ocwen’s summary judgment motion poses a pure question of law, i.e. whether the bulk of the Bureau’s current claims are barred by the res judicata effect of the D.C. Consent Judgment.10 Under res judicata, also known as “claim preclusion,” a final judgment on the merits bars the parties to a prior action from re-litigating claims that were raised, or could have been raised, in the prior action. Davila v. Delta Air Lines, Inc., 326 F.3d 1183 1187 (11th Cir. 2003); In re Piper Aircraft Corp., 244 F.3d 1289, 1296 (11th Cir. 2001); Richardson v. Ala. State Bd. of Education, 935 F.2d 1240, 1244 (1991). The doctrine is designed to relieve parties of the cost of multiple lawsuits, conserve judicial resources, promote comity between state and federal courts, and, by preventing inconsistent decisions, encourage reliance on adjudications. See Kremer v. Chemical Construction Co., 456 U.S. 461, 466 n. 6 (1982); Nwosun v. General Mills Restaurants, Inc., 124 F.3d 1255, 1258 (10th Cir. 1997).
In the Eleventh Circuit,11 a defendant asserting res judicata must establish four elements: (1)
a prior decision rendered by a court of competent jurisdiction; (2) constituting a final judgment on the merits; (3) an identity of parties or their privies; and (4) an identity of causes of action. In re Piper Aircraft, 244 F.3d at 1296; Davila, 326 F.3d at 1187; Richardson, 935 F.2d at 1316. It is the defendant’s burden to show that the later-filed suit is barred. In re Piper Aircraft, 244 F.3d at 1296.
Res judicata traditionally precludes not only the specific claims and legal theories brought in a prior complaint, but any other claims that stem “out of the same nucleus of operative fact, or [are] based upon the same factual predicate.” Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235, 1239 (11th Cir. 1999); Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1356-57 (11th Cir. 1998). Thus, in assessing whether an identity of claims exists, the Court appropriately considers a variety of factors, including whether the later claims involve the same statutes, evidence, events or occurrences, parties and witnesses. Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235, 1238 (11th Cir. 1999).12
As a basic tenet, “if a case arises out of the same nucleus of operative fact, or is based upon the same factual predicate, as a former action, the two cases are really the same ‘claim’ or cause of action’ for purposes of res judicata.” Id. After comparing the relevant occurrences giving rise to each action, the Court must determine whether the plaintiff “could, or rather should, have brought the second claim with the first lawsuit.” Trustmark Insurance Co. v. ESLU, Inc., 299 F.3d 1265, 1270 (11th Cir. 2002). If the answer is yes, res judicata bars the second action.
Conversely, res judicata does not operate as a bar to a second action between the same parties or their privies when the second action is brought on a different cause of action for a new wrong.
A new judge and a single order. Did this mean Judge Jill Pryor has recused but just not answered the Burkes’ renewed motion to disqualify her? This unlawful and rules erroneous order was issued by Branch on 25 June, 2020.
Motion to Clarify submitted 28th May, 2020, regarding a lawyer who is representing both sides of the case per the Certificate of Interested Persons (CIP), namely Tony Alexis. The Burkes request clarification if Mr. Anthony ‘Tony’ Alexis has represented CFPB in this case or the lower court proceedings, is currently skipping between both Goodwin and CFPB as “of counsel” or what the legal standing is for this gentleman.
Herendeen v. Champion Intern. Corp., 525 F.2d 130, 133 (2nd Cir. 1975). However, new evidence of injury does not necessarily establish a new wrong, and allegations of a “continuing violation” arising out of the same occurrence or course of conduct do not necessarily avoid a res judicata bar. Supporters to Oppose Pollution, Inc. v. Heritage Group, 973 F.2d 1320, 1326 (7th Cir. 1992) (environmental claims for ongoing pollution from closed waste dump held precluded because existence of ongoing releases was known at time of initial suit); Friends of Milwaukee’s Rivers v. Milwaukee Metropolitan Sewerage District, 382 F.3d 743, 758 (7th Cir. 2000) (post-settlement claims of harm shared identity with those covered by settlement because settlement “was intended to address the underlying cause of the continuing violations”).
There is no dispute as to the existence of first three elements in this case. The District Court which entered the D.C. Consent Judgment had proper jurisdiction based on federal subject matter jurisdiction, and the Consent Judgment which it entered constituted a final judgment on the merits: The parties reached a settlement agreement (NMS), and the District Court entered a Consent Judgment which incorporated that agreement into a final judgment. Even though premised on an agreement of the parties, a consent decree is considered a former adjudication on the merits which is entitled to res judicata effect. Paradise v. Prescott, 767 F.2d 1514, 1525 (11th Cir. 1985), aff’d, 40 U.S. 149 (1987); Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235, 1238 (11th Cir 1999); Citibank, N.A. v. Data Lease Financial Corp., 904 F.2d 1498, 1501-02 (11th Cir. 1990); Arrieta-Gimenez v. Arrieta-Negron, 551 So.2d 1184 (Fla. 1989); Evans v. Deutsche Bank Nat’l Trust Co., 2015 WL 12746108, at *1 (S.D. Fla. 2015). The Bureau does not contend otherwise. There is also an identity of parties: The Bureau was a party to the D.C. Action, and the current Ocwen Defendants or their privies were parties to the D.C. Action.
Thus, the only disputed question is whether the two suits involve the same causes of action.
On this issue, the Bureau recognizes that Ocwen has shown “facial overlap” between the text of the Bureau’s current claims and the Servicing Standards imposed under the NMS Consent Judgment over Ocwen’s servicing performance during the three-year term of the Consent Judgment (February 26, 2014 through February 26, 2017) [DE 740 at p. 6]. However, the Bureau argues that the first and the second actions are different in two primary respects: First, it contends that its current action is different because it focuses primarily on defects in Ocwen’s “system of record,” including its collection and input of inaccurate and incomplete loan data from prior loan servicers into its record without proper review and verification, as well as other systemic failures impairing the reliability of the information generated by that system, while the first action did not test or challenge the accuracy of the underlying loan data but instead focused on Ocwen’s alleged misuse of that data.
Second, the Bureau argues that the “Metrics” used by the Monitor to test Ocwen’s compliance with the NMS Servicing Standards during the term of the Consent Judgment do not precisely cover the claims which it asserts in the second action. As evidence of this incongruity, it notes that the Monitor never identified the servicing misconduct alleged in its current complaint in his quarterly monitor reports. In other words, the Bureau contends that its current claims require assessment under different metrics than those prescribed by the NMS, and for that reason could not have been resolved under the dispute resolution procedures prescribed by NMS.
1. System of Record (SOR) Failures
As to alleged deficiencies in Ocwen’s System of Record (SOR), the purported “new wrongs” underpinning the Bureau’s Florida action, the Bureau notes that the Monitor acknowledged that the NMS Metrics which he used to gauge Ocwen’s performance under the NMS Servicing Standards assumed that the underlying SOR data was correct. It also notes that the Monitor disclaimed any duty on his part to review that data for accuracy.
However, the Monitor also recognized that “[t]he [NMS] Settlement requires that an independent third party periodically review those parts of the SOR that pertain to account information for accuracy and completeness.” [Monitor’s Report for Periods Ending September 30, 2016, December 31, 2016 and March 31, 2017] [DE 731-24, p. 7]. See also NMS C.J. and Ex A, ¶I. B. 9. He also reported in December 2014 that “Servicer [Ocwen] has provided for my review its two most recent independent service auditor’s reports of its system of record and will provide future independent service auditor’s reports of its system of record until the Judgment sunsets.” [DE 754-2, p. 20] [Monitor’s Interim Report Regarding Compliance by Ocwen Loan Servicing LLC, filed in United States v. Bank of America, Case No. 12-0361 (RMC) (D. D. C. Dec 16, 2014), and that he “also charged McGladrey (independent auditor) with additional supplemental work … to assess the reliability of [Ocwen’s] systems of record.” [DE 754-4, p. 17].
Thus, the Bureau’s current allegations regarding SOR deficiencies plainly derive from the same nucleus of operative fact underpinning the D.C. Action, and it is apparent that SOR accuracy issues were specifically addressed in the NMS Servicing Standards and were part of the servicing activity routinely reviewed by the NMS Monitor. Given this overlap, the Bureau’s newly asserted statutory violations based on alleged SOR defects do not establish a “new wrong,” and are barred by traditional res judicata applications. See e.g. Friends of Milwaukee’s Rivers v. Milwaukee Metropolitan Sewerage Dist., 382 F.3d 743 (7th Cir. 2004) (ongoing or continuing violations of Clean Water Act did not constitute separate and distinct cause of action, for res judicata purposes, since violations were related in origin and had same factual basis as pre-stipulation violations and stipulation was intended to address underlying causes of continuing violations by implementing remedial measures over time); Jet, Inc. v. Sewage Aeration Systems, 223 F.3d 1360, 1362 (Fed. Cir. 2000).
2. Gap in NMS Metrics
While the Bureau would not be precluded from alleging a new set of statutory violations based on loan servicing activities separate and apart from the services monitored under the terms of the Consent Judgment, the claims asserted here do not fall in that category. Instead, the new set of alleged statutory violations are based on the same loan servicing activities as those which gave rise to DC Action and which were monitored under the NMS Consent Judgment. Indeed, the Bureau does not dispute that the subject matter of the NMS Servicing Standards overlaps with the loan servicing activity and misconduct alleged in its Florida Complaint.
The Bureau nevertheless contends that its current claims of loan servicing misconduct implicate new wrongs which were not the subject of compliance monitoring under the NMS Consent Judgment, and which could not have been brought under the NMS dispute resolution procedures. It thus maintains that its current claims are distinct from those brought in the first action, and do not impair any rights or interests create by the Consent Judgment. As support for its contention that there is no identity of claims, the Bureau points out that the loan servicing misconduct alleged in its current action was never reported by Monitor in the quarterly reports generated during the term of the Consent Judgment. It also takes the position that the NMS Metrics were not adequate to test for the categories of servicing misconduct alleged in its current action, suggesting that this gap further evinces the existence of a new wrongs arising from a new factual predicate.
In response, Ocwen argues that the existing NMS Metrics are adequate to test the categories of servicing misconduct alleged in the Bureau’s current complaint for compliance with Servicing Standards. Alternatively, it argues that to the extent new metrics are needed for this purpose, the NMS authorized the Monitor to develop and implement additional metrics as needed when presented with evidence of any material departure from the Servicing Standards. The Court finds the latter proposition to be unsupported by the record.13 It finds it unnecessary to address the former because, regardless of the extent of Metric overlap, the first and second actions derive from the same set of transactional facts which, under traditional res judicata applications, triggers claim preclusion.
That the NMS Metrics originally agreed upon as a tool for testing Ocwen’s compliance with the Servicing Standards may have proven insufficient to accomplish that task, as to the statutory violations alleged in the second suit, does not defeat an overlap of claims or causes of action – as seemingly advanced by the Bureau. It simply points to a limitation in the negotiated settlement between
the parties. Having agreed to test compliance with the Servicing Standards under Metrics agreed upon under the Consent Judgment, the Bureau cannot now claim that testing Ocwen’s compliance with those standards under any other set of metrics somehow implicates the existence of a new wrong not covered by the NMS. Furthermore, to the extent the Bureau perceived that the NMS Metrics had proven inadequate to test compliance with the Servicing Standards, it could and should have petitioned the District Court in the District of Columbia for review of the matter, pursuant to its reserved jurisdiction to resolve “any disputes concerning any issue arising under the Consent Judgment” that the parties were unable, in good faith, to resolve by agreement amongst themselves.
1. Identity of Causes of Action
After a careful review of the record in this case, the Court concludes that the Bureau’s attempts to distinguish this case from the D.C. action are artificial and do not avoid the preclusive effect of the Consent Judgment entered in the D.C. action. The Bureau’s claims at Counts 1-9 are the substantially the same as those covered by the NMS Consent Judgment. They stem from the same wrong — Ocwen’s use of incomplete and inaccurate loan account data in the servicing of residential mortgage loans which it acquired from other servicers. While the Consent Judgment was signed in December 2013 and provided monetary compensation to borrowers for servicing violations occurring prior to that time, it also required prospective monitoring of Ocwen’s servicing performance from February 26, 2014 to February 26, 2017 under detailed Servicing Standards designed to prevent the same genre of loan servicing misconduct as that charged by the Bureau in its current suit.
In its Florida Complaint, the Bureau alleges that “in numerous instances” since January 2014, Ocwen violated the CFPA and other consumer financial laws as a result of its reliance on inaccurate and incomplete loan data, collected from prior servicers without proper review and substantiation, in its account servicing and in its communications with borrowers.
At Counts 1 through 9, the Bureau essentially realleges the same misconduct as that alleged in the D.C. Action,
only this time it asserts that the misconduct gave rise not only to CFPA violations (Counts 1-6, 8, 9) but also to violations of the TILA and Regulation Z (Count 4), the FDCPA (Counts 5, 6 ), and the RESPA and Regulation X (Counts 7-9).
As to alleged loan servicing misconduct occurring before February 26, 2017 (the expiration of the three-year term of Consent Judgment), the Bureau does not identify new matters that were not or could not have been subjected to the dispute resolution procedures and enforcement mechanism prescribed by the Judgment, or to judicial review procedures governing enforcement of the terms of the Judgment. The 2014 NMS Consent Judgment included a three-year term of monitoring compliance going forward, as part of the injunctive relief awarded, and tested Ocwen’s compliance with NMS Servicing Standards over that term, subject to the exclusive dispute resolution procedures and enforcement mechanisms prescribed by the Judgment. That the NMS Metrics may have proven inadequate to test compliance with overlapping consumer protections imposed under the TILA, RESPA, and FDCPA, does not defeat an identity of causes of action under traditional res judicata applications.
As to Bureau’s further argument it could not have pursued redress in the first action for violations of regulations which did not take effect until January 2014, the Court is not persuaded that the overlapping consumer protections relayed under these regulations support a showing of a “new wrong” arising from servicing conduct separate and apart from that monitored by the NMS Consent Judgment.
2. Contract Defense
As an alternative and independent basis for avoiding the asserted res judicata bar, the Bureau raises a contractual defense – arguing simply that the language of the NMS Consent Judgment allows it to bring this suit. On this point, it correctly notes that the Release it executed pursuant to the Consent Judgment released liability only for violations up through the date of execution of the NMS (i.e. December 2013), and at the same time specifically reserved the Bureau’s enforcement authority against Ocwen going forward.
However, this contractual reservation does not operate as an exception to the principle of res judicata. There is no language in the Release supporting the ability of the Bureau to bring suit for wrongs covered by the Consent Judgment – which includes wrongs arising during the three-year term of Judgment which are covered by the NMS Servicing Standards and therefore necessarily subject to the Enforcement Terms of the Judgment. The preclusive effect of the 2014 NMS Consent Judgment, as to any such wrong, does not negate the Bureau’s enforcement authority, it simply limits it to the boundaries to which the Bureau itself agreed in the prior action.
3. Prospective Injunctive Relief
Finally, the Bureau contends as a general proposition that res judicata does not operate to preclude claims for new wrongs arising out of activity covered by prospective injunctive relief granted in a prior lawsuit. As support for this premise, it cites Lawlor v. Nat’l Screen Services, 349 U.S. 322, 75 S. Ct. 875, 99 L.Ed. 1122 (1955) and Norfolk Southern Corp. v. Chevron, 371 F.3d 1285 (11th Cir. 2004).
Both Lawlor and Norfolk are distinguishable from the present case. As a threshold matter, neither case involved the imposition of alternative dispute resolution procedures as part of the prospective injunctive relief awarded in the first action (placing both substantive and procedural limitations on any future enforcement activity), as is present in the current case.
In Lawlor, the Supreme Court examined the asserted res judicata impact of a prior judgment of dismissal with prejudice, based on a settlement, in a civil suit involving violations of federal anti- trust laws. The Court noted that the injunctive relief requested in the first suit – if granted – would have prevented the violations complained of in the second suit. However, injunctive relief was not granted in the first suit. Under those facts, the Court found no res judicata bar to the plaintiffs’ pursuit of a second suit based on the same course of wrongful conduct, but alleging new antitrust violations occurring after the entry of the first judgment. In reaching this result, it rejected the defendants’ contention that the plaintiffs’ failure in the first suit to press their demand for injunctive relief should preclude the new claims, commenting that such a result “would in effect confer on [defendants] a partial immunity from civil liability for future violations.” Lawlor, 349 U.S. at 329.
Unlike in Lawlor, in this case the Bureau did successfully press its demand for injunctive relief in the first action, resulting in entry of a Consent Judgment which imposed a detailed schematic of injunctive relief, inclusive of narrowly tailored substantive and procedural limitations on enforcement terms governing future violations of the granted injunctive relief. The preclusion of these newly alleged claims, arising from alleged misconduct falling within that schematic, would not result in a grant of immunity to Ocwen for future violations of consumer protection laws. It simply results in imposition of agreed-upon substantive and procedural limitations on the extent of Ocwen’s liability for future violations.
In Norfolk Southern, the Eleventh Circuit held, in the context of a stipulated voluntary dismissal with prejudice under Fed. R Civ. P. 41, that “a somewhat modified form of res judicata applies to the written settlement agreement upon which such dismissal is predicated, if one exists.” 371 F.3d at 1291. Under this modified res judicata approach, whether a claim is precluded from future litigation is determined by looking at the terms of the settlement agreement itself (as interpreted under traditional principles of contract law), instead of by reference to the claims pled in the original complaint. Id. at 1289. Thus, in Norfolk Southern, the Eleventh Circuit held that the focus, in determining the res judicata effect of a prior order of dismissal based on stipulated settlement, is on parties’ intent as it is reflected in the terms of the settlement agreement itself. Id.
Unlike in Norfolk, this Court is not tasked with interpreting the res judicata effect of a prior Rule 41 dismissal based on a stipulated settlement. Rather, the Court’s res judicata ruling here is based on the preclusive impact of a prior final consent judgment, incorporating a stipulated settlement agreement, which was entered by a sister federal district court. Further, the prior judgment at issue here included, per the parties’ agreement, the mandatory imposition of alternative dispute resolution procedures and an enforcement schematic governing any future instances of noncompliance with the prospective injunctive relief. For these reasons, Norfolk Southern is inapposite.
Moreover, even assuming a modified res judicata analysis similar to that outlined in Norfolk Southern is appropriate here, the Bureau’s current claims (to extent they are based on servicing conduct occurring prior to February 26, 2017) would still be precluded. Based on the express terms of the NMS, the parties intended and agreed that only departures from the Servicing Standards which exceeded the minimal Threshold Error Rates prescribed by the NMS would be actionable, and even then, would be actionable only within the narrow confines of the Enforcement Terms prescribed by the NMS Consent Judgment. This intent is plainly discernible from the face of the NMS.
Contrary to that intent, the Bureau now seeks redress for departures from the Servicing Standards occurring during the term of the Consent Judgment, without regard to the Threshold Error Rates, contending that these departures violated multiple consumer financial laws beyond those which it alleged in the first action.
Because the NMS already established the means by which Ocwen’s noncompliance with federal law would be measured and redressed during the term of Consent Judgment, as to matters controlled by the Servicing Standards, and because the Bureau’s current claims at Counts 1-9 are concededly matters covered by the Servicing Standards, the Bureau’s new claims are precluded, even under the application of the Norfolk Southern modified version of res judicata.
The Bureau’s claims against Ocwen in this case also include the assertion of statutory rights under the CFPA that could have been and were originally brought in the first lawsuit.14 Its attempt to assert new statutory violations (TILA, FDCPA and RESPA) arising out of alleged servicing misconduct occurring during the term of the Judgment which is also covered by the Servicing Standards is barred by res judicata.
Claims Based on Conduct Pre-Dating February 26, 2017
Traditional principles of res judicata preclusion do allow additional litigation if some new wrong occurs after the first action is filed, see Supporters to Oppose Pollution, Inc. v. Heritage Group,
Judicial complaint filed June 9, 2020. The Burkes hold Judge Marra’s assertions to be false, untruthful and for the purposes of this judicial complaint, personal and pervasive bias against these pro se elderly citizens from Texas.
973 F.3d 1320, 1326 (7th Cir. 1992); Pleming, 142 F.3d at 1357, but the Bureau has not alleged new wrongs here. The claims it asserts at Counts 1-9 of its Amended Complaint are based on the same underlying conduct as that giving rise to the first action and are asserted in the nature of continuing violations or wrongs.
Because its current claims at Counts 1-9 are based on activity covered by the Servicing Standards used to monitor Ocwen’s performance during the three-year term of the Judgment, these claims are barred by res judicata. That the Bureau now better understands the cause and ramifications of the servicing misconduct alleged in the D. C. Action and wishes to cast a wider statutory net over it does not avoid a res judicata bar. See e.g. Northern California River Watch v. Humboldt Petroleum, Inc., 162 Fed. Appx 760 (9th Cir. 2006) (unpub) (citing Friends of Milwaukee’s Rivers, 382 F.3d at 758 (continuing violations from same underlying problem did not constitute separate and distinct causes of action from those identified in previous settlement that attempted to remedy underlying problem); Sierra Club v. Two Elk Generation Partners, Ltd., 646 F.3d 1258, 1270 (10th Cir. 2011); Deville v. Specialized Loan Servicing LLC, 2020 WL 7861974 (C.D. Cal. 2020); Levin v. County of Westchester, 2017 WL 3309757 (S.D.N.Y. 2017) (consent decree providing means to seek court intervention in event of continuing violation or failure to comply with consent decree precluded subsequent putative class action alleging violations of Safe Drinking Water Act ). See also Anderson v. Vanguard Car Rental USA Inc., 427 Fed. Appx. 861, 2011 WL 2149486, at *2 (11th Cir. 2011) (citation of two different statutes as the bases for two suits did not prelude operation of res judicata bar on second suit arising from the same “nucleus of operative facts”).
a. Claims Based on Conduct Post-Dating February 26, 2017
To the extent the Bureau’s new claims are based on service activity occurring after the expiration of the term of the 2014 Consent Judgment (Feb 26, 2017), res judicata is not a bar.
In its Amended Complaint, the Bureau simply asserts that each set of new statutory violations alleged is premised on loan servicing activity performed by Ocwen “in numerous instances since January 2014.” It has since maintained that the relevant time period for its current claims is “January 1, 2014 to the present.” [DE 728 p. 3, n. 7]. Whether the Bureau intends to include activity post-dating the expiration of term of Consent Judgment in its current claims is not clear. Ocwen does not address this temporal dichotomy in the presentation of its res judicata defense, and it is not possible to resolve it on the face of the Bureau’s pleadings or current summary judgment record.
For this reason, the Court will reserve ruling on the alternative grounds advanced by Owen in support of motion for summary judgment, as to claims arising from servicing activity conducted after February 26, 2017, pending submission of a supplemental position statement from the Bureau on this point as herein directed by the Court.
A. Count 10: PMI Irregularities
Ocwen has not asserted a res judicata defense as to Count 10.
As to this Count, it contends the Bureau’s failure to adduce evidence establishing each element of the claimed PMI violations warrants the entry of summary judgment in its favor.
The Bureau, in turn, has moved for summary judgment on liability on this Count.
The Bureau relies upon the deposition testimony of Ocwen’s Rule 30(b)(6) witness, Andrew Scott Combs, Vice-President of Servicing Operations for Ocwen Financial [DE 729-38, pp. 197-199], which explained the contents of a spreadsheet of loans produced by Ocwen involving the cancellation of PMI [DE 729-127]. The Bureau contends this testimony establishes that subsequent to January 2014, with regard to 7,771 residential mortgage loans, the PMI was not cancelled timely on the scheduled termination dates.
At Count 10, the Bureau alleges that Ocwen violated Homeowners Protection Act, 12 U.S.C. 4902(b) in each of these cases based on its failure to terminate timely PMI for borrowers who were current on their mortgages in “residential mortgage transactions,” i.e. mortgages involving single family homes operating as the principal residence of the borrower. See 12 U.S.C. §§ 4902(b)(1) and (15).
The parties dispute whether the spreadsheet produced in discovery, in conjunction with the deposition testimony of Mr. Combs, forecloses any dispute on whether the statutory prequalifying conditions for PMI cancellation were met as to each loan.
Ocwen contends that Combs testimony made clear that the “effective cancellation date” noted on the chart meant simply the date on which the transaction was recorded in Ocwen’s records as cancelled, and did not necessarily correspond to the date on which cancellation actually occurred.
Further, Ocwen adduces proof of at least one delinquent loan appearing on this list. The Bureau contends that Combs’ testimony regarding “effective cancellation” dates is speculative, and that one instance of a disqualifying loan cannot be extrapolated to infer the existence of other loans in default.
Following careful review of the Bureau’s evidence on this Claim [DE 729-55, 729-127, 729- 38 and 729-52], the Court finds that the summary judgment record raises a genuine issue of fact on whether the prequalifying conditions for PMI cancellation were met for each loan identified on the PMI cancellation spreadsheet [DE 729-127].
Therefore, as to this Count, the Bureau’s motion for summary judgment, and Ocwen’s motion for summary judgment are both denied.
Based on the foregoing, it is ORDERED AND ADJUDGED:
The Ocwen Defendants’ motion for summary judgment, as to the claims asserted in Counts 1-9 of the Bureau’s Amended Complaint [DE 730] is GRANTED IN PART AND DENIED IN PART as follows:
To the extent the Bureau’s claims are based on alleged servicing misconduct which occurred before expiration of the NMS Consent Judgment (2/26/17), Ocwen’s motion is GRANTED based on res judicata.
To the extent the Bureau’s claims are based on alleged servicing misconduct which occurred after expiration of the NMS Consent Judgment (2/26/17), ruling on the remaining grounds advanced in support of Ocwen’s motion for summary judgment is RESERVED pending the Bureau’s submission of a supplemental position Ruling on the Bureau’s motion for partial summary judgment, as to this category of conduct, is also reserved pending submission of its supplemental position statement.
As to Counts 1-9, the Bureau is directed to submit, within FIFTEEN DAYS from entry of this Order, a supplemental position statement indicating whether it intends to pursue claims for any alleged statutory violations arising out of loan servicing activity occurring after February 26, 2017.
To the extent the Bureau does intend to press any claims falling into this category, it shall provide a list of the relevant Counts it intends to pursue, under this timeline, with a corresponding index of specific citations to the summary judgment record where supporting evidentiary matter on each Count may be located. [Note: In this regard, evidentiary citations shall be made to specific locations in the summary judgment record where the supporting material may be found with a brief description of the subject matter of the material. Citations shall not be made to evidentiary synapses or summaries contained in either parties’ statement of facts]. No additional submissions shall be permitted unless specifically directed by the Court.
Ocwen’s motion for summary judgment as to Count 10 of the Amended Complaint, and the Bureau’s motion for partial summary judgment as to Count 10 of the Amended Complaint [DE 728] are DENIED.
A partial final summary judgment in favor of Ocwen shall be entered accordingly by separate order of the Court pursuant to Rule 58.
DONE and SIGNED in Chambers at West Palm Beach, Florida this 4th day of March, 2021.
KENNETH A. MARRA
United States District Judge
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The Eleventh Circuit Issues Another Glossed Opinion to Dismiss a Pro Se Lawyer’s Appeal
All motions under Rule 60(b) OTHER THAN those based on Rule 60(b)(4) must be made within a reasonable time.
Henry v. City of Mount Dora, No. 21-14120 (11th Cir. Sep. 16, 2022)
REPUBLISHED BY LIT: SEP 17, 2022
Before LUCK, LAGOA, and ANDERSON, Circuit Judges. PER CURIAM:
Marie Henry, proceeding pro se, appeals the district court’s denial of her Federal Rule of Civil Procedure 60(b)(4), (d)(3) motion seeking relief from the court’s order dismissing her federal claims raised pursuant to several federal statutes, and remanding to state court her state law claims raised pursuant to Florida state law.
After filing an ethics complaint against one of the defendants and a pro se motion to disqualify a judge in a predatory lending case, Henry was referred to a Florida Bar grievance committee on two counts of misconduct and, after disciplinary proceedings that she challenged as defective, she was suspended for 6 months.
She originally filed her complaint in Florida state court, but the Florida Bar removed her case to the United States District Court for the Middle District of Florida.
On appeal, she argues, first, that the district court erred by denying her Rule 60 motion as untimely.
Second, she contends that the court abridged her due process right to an impartial tribunal, notice, and an opportunity to be heard by dismissing her federal claims where the defendants did not unanimously consent to removal, the court judicially noticed facts without a hearing, and the judge was a member of an adverse party.
Third, she asserts that the court erred by failing to analyze fraud on the court.
Finally, she argues that the court’s denial of an extension to file objections to a magistrate judge’s report and recommendation violated 28 U.S.C. § 2072.
We review de novo the denial of a motion to set aside a judg-ment for voidness under Rule 60(b)(4).
Stansell v. Revolutionary Armed Forces of Colom., 771 F.3d 713, 736 (11th Cir. 2014).
Motions pursuant to Rule 60(b)(4) are not subject to a reasonable timeliness requirement or a typical laches analysis.
Id. at 737-38.
But “Rule 60(b)(4) does not provide a license for litigants to sleep on their rights.”
United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 275 (2010).
When considering whether a movant slept on her rights, we have noted that subject matter jurisdiction cannot be waived and have addressed the merits of the movant’s jurisdictional argument.
See Stansell, 771 F.3d at 737
(holding that movant waived “his right to object to any defects in the service of process or to any denial of his right to be heard” because he “sat on his rights for nine months” but addressing alleged jurisdiction issues).
We may affirm for any reason supported by the record.
Bircoll v. Miami-Dade Cnty., 480 F.3d 1072, 1088 n.21 (11th Cir. 2007).
Here, the district court applied a reasonable time requirement to Henry’s Rule 60(b)(4) motion, but that requirement was inappropriate.
See Stansell, 771 F.3d at 737.
However, Henry sat on her rights by waiting more than 2 years to file her Rule 60(b)(4) motion.
See id. at 737-38.
Thus, we affirm the district court as to any issues raised by Henry that do not relate to subject matter jurisdiction because she slept on her rights for over two years.
Bircoll, 480 F.3d at 1088 n.21.
Like in Stansell, however, we next consider Henry’s arguments that the district court lacked subject matter jurisdiction.
See Stansell, 771 F.3d at 737.
Federal Rule of Civil Procedure 60(b)(4) provides relief from a final judgment or order if the judgment is void.
Fed. R. Civ. P. 60(b)(4).
A judgment is not void under Rule 60(b)(4) merely because it was erroneous.
Espinosa, 559 U.S. at 270.
Generally, it is void solely if it is premised on a jurisdictional error depriving the court of even arguable jurisdiction or on a due process violation that deprived a party of notice or the opportunity to be heard.
See id. at 271.
Federal courts always have jurisdiction to determine their own jurisdiction.
In re Nica Holdings, Inc., 810 F.3d 781, 789 (11th Cir. 2015).
The Rooker-Feldman1 doctrine is a narrow jurisdictional doctrine concerning a court’s subject matter jurisdiction that bars parties who lose a case in state court from appealing their loss in a federal district court.
Behr v. Campbell, 8 F.4th 1206, 1208 (11th Cir. 2021);
Alvarez v. Att’y Gen for Fla., 679 F.3d 1257, 1264 (11th Cir. 2012).
Neither res judicata nor the requirement that all defendants consent to removal is jurisdictional.
See Narey v. Dean, 32 F.3d 1521, 1524-25 (11th Cir. 1994);
In re Bethesda Mem’l Hosp., Inc., 123 F.3d 1407, 1410 n.2 (11th Cir. 1997).
An appellant abandons any argument not briefed before us, made in passing, or raised briefly without supporting arguments or authority.
Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1330 (11th Cir. 2004);
Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d 678, 681 (11th Cir. 2014).
We can consider sua sponte an abandoned issue if a forfeiture exception applies and extraordinary circumstances warrant review.
United States v. Campbell, 26 F.4th 860, 873 (11th Cir. 2022) (en banc), petition for cert. filed (U.S. May 17, 2022) (No. 21-1468).
Here, Henry was not entitled to relief pursuant to her Rule 60(b)(4) motion because she did not identify any jurisdictional defect depriving the district court of arguable jurisdiction.
See Espinosa, 559 U.S. at 271.
The requirement that all defendants consent to removal is not jurisdictional.
See In re Bethesda Mem’l Hosp., Inc., 123 F.3d at 1410 n.2.
Res judicata is not jurisdictional either.
Narey, 32 F.3d at 1524–25.
Moreover, to the extent Henry argues that the district court erred by concluding the Rooker-Feldman doctrine applied, that is an argument over which the court had jurisdiction because a court always has jurisdiction to determine its own jurisdiction.
See In re Nica Holdings, Inc., 810 F.3d at 789.
Moreover, Henry points to no error in the district court’s application of the doctrine, nor to any other possible jurisdictional problem that might have deprived the district court of arguable jurisdiction.
Thus, we affirm the district court’s denial of Henry’s Rule 60(b)(4) motion.
When y’all gonna pass the Judicial Transparency and Ethics Enhancement Act, to bring these Outlaws in Dirty Black Robes, called judges, back into line? Judges are replacing democracy with tyranny, and they have no respect for Congress. https://t.co/L5fbbwJz27 pic.twitter.com/WDFC3oFGN6
— lawsinusa (@lawsinusa) September 16, 2022
We review a district court’s denial of a Rule 60(d)(3) motion for relief from a judgment due to the opposing party’s fraud on the court for abuse of discretion.
See Cox Nuclear Pharm., Inc. v. CTI, Inc., 478 F.3d 1303, 1314 (11th Cir. 2007) (Rule 60(b)(3) motion).
Rule 60 does not limit a court’s power to set aside a judgment for fraud on the court.
Fed. R. Civ. P 60(d)(3).
A movant must prove fraud on the court with clear and convincing evidence.
See Booker v. Dugger, 825 F.2d 281, 283-84 (11th Cir. 1987)
(appealing denial of Rule 60(b) motion after denial of § 2254 petition).
Fraud on the court is limited to exceptional conduct like bribery or evidence falsification involving an attorney.
Rozier v. Ford Motor Co., 573 F.2d 1332, 1338 (5th Cir. 1978) (prior version of Rule 60).
We have held that, in independent actions challenging a judgment for fraud on the court, the alleged fraud must not have been raised in the original litigation, and it must not have been possible for the complaining party to raise the issue through reasonable diligence.
See Travelers Indem. Co. v. Gore, 761 F.2d 1549, 1552 (11th Cir. 1985).
Here, the district court addressed fraud on the court, and it correctly found that Henry failed to show sufficiently egregious conduct.
The conduct Henry points to on appeal, even if true, does not fall within the category of egregious conduct that can constitute fraud on the court, but instead amounts to, at most, arguably erroneous legal arguments, or conduct that occurred before she filed her complaint, neither of which come close to the necessary showing of fraud on the court.
See Rozier, 573 F.2d at 1338.
Furthermore, she does not challenge any conduct that was not raised before her Rule 60 motion or that she could not have raised through reasonable diligence.
See Travelers Indem. Co., 761 F.2d at 1552;
Bircoll, 480 F.3d at 1088 n.21.
Thus, we affirm the denial of her Rule 60(d)(3) motion.
We review a district court’s denial of a motion for extension of time for abuse of discretion.
See Lizarazo v. Miami-Dade Corr. & Rehab. Dep’t, 878 F.3d 1008, 1010-11 (11th Cir. 2017)
(extension of time to file motion for substitution).
A request for an extension should be granted if good cause is shown. Fed. R. Civ. P. 6(b).
Here, Henry arguably has shown good cause for an extension in her motion for an extension to file objections to the magistrate judge’s report and recommendation concerning her Rule 60 motion because she asserted that she did not receive the report and recommendation until after the time for her to file objections had passed and she had been occupied caring for a family member.
We assume arguendo that she showed good cause for an extension.
However, the consequence for failing to object to the magistrate’s report and recommendation is waiver of the right to challenge those issues on appeal.
11th Cir. R. 3-1.
Because we have reviewed Henry’s arguments as if she had not waived them for failing to object, we affirm the denial of her motion for the reasons discussed above.
See R. 3-1; Fed. R. Civ. P. 6(b).
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We’re Circlin’ Back Re the Many Complaints Against Storm Damaged Florida Lawyer Scot Strems
The clients of Strems may have discovered that the insurance company was not denying their claim and they could resolve it themselves without paying 25% of the undisputed amounts to the law firm.
Our sister website, LawsinTexas.com initially followed the Strems cases from 2020 and his surprising loan of over $1.2M from JPMorgan Chase, which we are unable to confirm has been forgiven or not (the lack of detail in this regard makes us believe it HAS been 100% forgiven).
This is galling when you take into account the type of business Strems was conducting and the 25% fee he was charging clients for sums these clients could obtain directly from the insurer without a lawyer, or more importantly the 25% fee.
The complaint below is detailed and very long.
The referee, which is a judge by the name of Dawn Denaro of the 11th Judicial Circuit of Florida is a huge fan of Scot Strems.
So much so, the once available youtube video (via the court’s own channel) of the disciplinary proceedings via zoom re Strems has been taken offline, and is labeled a ‘private video‘, despite all the incessant claims of TRANSPARENCY by the judiciary.
Y’all are lyin’ Outlaws in Dirty Black Robes at the Judiciary, that’s for sure.
Moving on, after reading this complaint, it’s pretty much a copycat of the Allan Campbell complaint we highlighted recently.
LIF is still penning more articles about Campbell’s case, and the rogue legal associates and felons he was involved with.
In that case, the Supreme Court incorrectly sanctioned Campbell to a short 3-year suspension.
We believe his actions warranted disbarment.
Here, like Campbell, Strems has several complaints ongoing, so we’ll see how the judiciary react in due course. However, in our opinion, we agree with the Bar, it should be disbarment for Scot Strems, if justice is to be served.
Suspended attorney Strems at disbarment trial; New Bar petition says he violated suspension order – Again, this time pertainin’ to ‘Sale’ of Business.
Originally Published; Feb 1, 2022 | Republished by LIT; May 31, 2022
NATURE OF THE CASE
The Bar seeks review of the Referee’s report that recommends this Court deny a petition for contempt filed against Mr. Strems.
This Court entered an emergency suspension order on June 9, 2020, in Case No. SC20-808. (ROR p.3).
That case is currently pending on review with the Referee recommending a two-year suspension.
The Bar is seeking disbarment.
Two other subsequent disciplinary cases are also pending in SC20-842 and SC20-1739.
At the time of this suspension, Mr. Strems was the sole stockholder in The Strems Law Firm.
He had 5000 to 7000 clients and more than 100 employees, including about 30 lawyers.
(ROR p.3, T145, 319).
During the thirty-day window provided in the suspension order before he had to cease representing clients, with the help of outside counsel, Mr. Strems changed the name of his law firm to The Property Advocates, P.A.
He had his professional association issue new, additional stock, which was sold on July 9, 2020, to three of his employee-attorneys.
(ROR p. 69).
They became the new officers of the professional association.
Simultaneously, he entered into a stock redemption agreement with the professional association
(ROR p. 70, TFB-Ex. B, p. 84).
Mr. Strems sent a letter to his clients, dated July 1, 2020, describing these events and attaching the suspension order.
The letter did not advise them of their right to seek other counsel, and it provided notice of his suspension in a manner that the Bar maintains was misleading.
The Referee is recommending that the petition for contempt be denied because she concluded that Mr. Strems did not sell his law practice for purposes of Rule 4-1.17 of the Florida Rules of Professional Conduct.
The Bar maintains this is a sale for purposes of the Rules of Professional Conduct, and that the July 1 letter also violated the suspension order and Rules 4-1.4 and 4-8.4(c).
STATEMENT OF THE CASE AND FACTS
The Bar filed a petition for emergency suspension in Case No. SC20- 808 on June 5, 2020.
It alleged that Mr. Strems had violated numerous rules of the Florida Rules of Professional Conduct.
The focus of this first petition was misconduct during litigation by Mr. Strems and his associates.
It alleged several violations of Rule 4-5.1 relating to his duties to supervise the lawyers in his law firm and to take reasonable steps to assure those lawyers conformed to the Rules of Professional Conduct.
The Referee has recommended that Mr. Strems be found guilty of those violations and has recommended a two-year suspension.
That proceeding is still pending on review with Mr. Strems challenging the findings of guilt and with the Bar seeking disbarment.
This Court entered the emergency suspension order on June 9, 2020.
The standard language of this order states that “Respondent is suspended from the practice of law until further order of this Court.”
But the standard language also states that he must “cease representing any clients after thirty days of this Court’s order.”
It requires that he “immediately furnish a copy of Respondent’s suspension order to all clients.”
It is undisputed that Mr. Strems was the sole owner of Strems Law Firm, a professional association.
This firm had expanded rapidly from 2016 to the time of the emergency suspension.
The estimates of the number of clients that needed to be furnished a copy of the suspension order varied between 5000 and 7000.
The professional association employed about 30 lawyers and had a much larger number of unlicensed employees at the time of the suspension.
(ROR p. 3).
These employees worked under Mr. Strems’ supervision in a highly computer-dependent structure of separate teams to on-board clients, handle claims before suit, and handle claims after suit.
Mr. Strems’ standard “contingency fee retainer agreement” defined “attorney” as “The Strems Law Firm, P.A.”
Mr. Strems’ signature was normally the signature on the agreement that was sent to the client by the on-board team because he was the only lawyer who was actually a member of the law firm.
The contract does not specify any lawyer who will handle a matter, and no lawyer was in direct privity with the client under the terms of the contract.
But Mr. Strems recognized that he needed to notify all of these clients of his suspension.
STREMS MARKETING LETTER
1 During the final hearing, the fee agreement that was primarily discussed was the Evans contract, which is actually Respondent’s Exhibit 1 in SC20- 1739.
WAS IT FORGIVEN JPMORGAN/SBA?
When a member of a professional association becomes “legally disqualified to render such professional services,” that member must “sever all employment with, and financial interests in, such corporation.”
See § 621.10, Fla. Stat.
Thus, it is undisputed in this case that Mr. Strems had to sever his ties with the Strems Law Firm to comply fully with this Court’s order.
Mr. Strems and Strems Law Firm hired two professionals to assist in this process.
Mr. Scott K. Tozian, who is an attorney who specializes in representation of attorneys in disciplinary proceedings, was actually hired a month before this Court issued its suspension order.
He recommended that Mr. Strems divest his interest in Strems Law Firm.
He also recommended that Mr. Strems and the Strems Law Firm hire Mr. William Kalish to help with this process because Mr. Kalish is a tax lawyer who also has experience with compliance with the Florida Rules of Professional Conduct.
Mr. Kalish was retained to be the receiver to handle funds in the trust accounts and other accounts that Mr. Strems could no longer handle as a suspended lawyer.
He was also retained to address the need to sever Mr. Strems ties to the Strems Law Firm.
Mr. Kalish recommended that Mr. Strems divest himself of ownership in the professional association, and that the ownership should be placed “simultaneously” with three lawyers who had worked for the firm for at least a few years.
He did not recommend selling Mr. Strems’ stock directly to the three lawyers.
Instead, the full transfer of ownership was structured by having the professional association “redeem” Mr. Strems stock
(T426, TFB-Ex. B p. 84).
(TFB-Ex. B p. 84).
The professional association also issued new shares of stock that were simultaneously delivered to the three new owners of the association so that there would be no gap in ownership, membership, or in the officers required for the corporate entity.
(TFB-Ex. B p. 6-3, 33-35, 70-77, 129-34)
A few days before this transaction, the professional association changed its name to eliminate the reference to Mr. Strems and to substitute the more generic,
To be clear, the Bar is not challenging this structure as a method for Mr. Strems to transfer ownership from himself to the three new owners.
Although in the petition and at the hearing, the Bar questioned the authority of Mr. Strems, as a suspended lawyer, to take actions for Strems Law Firm during the 30-day window in which he could have performed limited representation of his clients, the Referee ruled against the Bar on that issue.
Likewise, the Bar challenged whether “immediate” required faster action on some steps, but the Referee ruled against the Bar on that issue as well.
The Bar is not challenging those rulings in this review.
The Bar is challenging whether this transaction is a “sale of a law practice” for purposes of the requirement to notify clients under Rule 4- 1.17(b).
Mr. Strems did not comply with those requirements.
The Referee considered the conflicting legal opinions of two experts, (ROR pp. 79-106), as well as the conflicting legal arguments of the lawyers, and concluded that this transaction did not qualify as a sale for purposes of Rule 4-1.17.
The Referee found that it was a “mere changing of the guard” that “did not implicate Rule 4-1.17 or constitute a ‘sale of a law firm’ (sic) for purposes of Rule 4-1.17.”
(ROR p. 118)
This issue will be further addressed in the argument section because the facts are not really in dispute and the question is one of law for this Court to decide.
When Mr. Strems received the suspension order, his employees began working to obtain an accurate mailing list for the many clients.
By July 1, 2020, Mr. Strems had drafted a letter to send to the list of clients along with this Court’s order.
(TFB-Ex. C Contempt).
The one-page letter is an exhibit in evidence and in this brief’s appendix, but it is copied here as well:
Mr. Kalish testified that he had no role in creating this letter.
He explained that, while he did not think it was compelled by the rules, he probably would have added language about the possibility of a client changing firms.
He believed the clients “should know what’s going on.”
As he explained:
But the proper way would be that the clients would also assent to any arrangements of the various lawyer too, I believe.
Mr. Tozian testified that he did not believe his office drafted this letter, but he was relatively certain that he saw it before it went out.
He did not think the letter was an issue.
But, suffice it to say, the letter was not a plain, simple statement:
I regret to inform you that I was suspended from the practice of law on June 9, 2020. To comply with the Florida Supreme Court’s order, attached to this letter is a copy of that suspension order.
Although I can no longer represent you and will no longer be a member of this law firm after July 9, efforts are being taken so that the lawyers who work for this law firm can continue to represent you. They will contact you in the very near future. You, of course, also have the right to retain other counsel if you choose to do so.
The Bar maintains that Mr. Strems’ letter was not full compliance with this Court’s order and that it provided misleading and incomplete information to the clients in an effort to keep them with the reconstituted law firm that was obligated to make payments to Mr. Strems for a decade.
The Referee rejected the Bar’s position and ultimately is recommending that this Court find Mr. Strems not guilty of contempt and not guilty of the several violations of the Rules of Professional Conduct that are inherent in the conduct alleged in the petition for contempt.
The Referee recommends that each party bear their own costs.
Similar to the Reports of Referee in SC20-842 and SC20-1739, the Referee’s lengthy report in this case ends with a hypothetical recommendation for a penalty if this Court rejects the Referee’s recommendation of not guilty.
That recommendation is either an admonishment or a public reprimand, “concurrent with the previously recommended sanctions,” and the payment of costs.
The Bar maintained in the petition and at the hearing that Mr. Strems violated this order because he did not file a motion to withdraw in any of the cases filed by his law firm.
Instead, the reconstituted law firm filed a “notice of change of firm name and email addresses” that included the sentence:
“Any other Attorneys of Record should be removed as counsel of record on behalf of Plaintiff.”
(TFB-Ex. H Contempt).
Although this notice and the response of defense counsel resulted in stays and delays of litigation, these events occurred after Mr. Strems had withdrawn from the firm.
There is evidence of at least two cases that remained pending with Mr. Strems listed as counsel of record,
(T176, TFB-Ex-K & L Contempt).2
The Referee rejected the Bar’s position on this issue, and the Bar has chosen not to seek review of that decision.
It wishes to focus this review on the two issue that can arise in other emergency suspensions: whether such a transfer of a one-lawyer professional association is a sale for purposes of Rule 4.1-17, and whether the letter providing the suspension order complied with the suspension order and the Rules of Professional Conduct.
2 One case is Eduardo Mora v. United Property & Casualty Ins. Co., Case No. 17-010198 CA 13 in the 11th Circuit.
Judge Bokor held a hearing in that case on August 12, 2020.
The transcript on page 29 reflects that the judge was concerned that Mr. Strems was still counsel of record.
The transcript was used here in cross-examination, but is filed in SC20-806 as a portion of Composite Ex F.
SUMMARY OF THE ARGUMENT
Mr. Strems did not choose to build a law firm with a hierarchy of partners with years of experience working with younger associates on matters that had come into those partners due to their own professional experience.
He did not build a firm where clients often came to the firm because of the firm’s reputation but were then introduced to a partner who they agreed would represent them with the help of his or her associates and paralegals.
Instead, he built a one-man professional association with a maze of employees who handled matters for thousands of clients who had received an engagement letter signed by the only actual member of the law firm – Mr. Strems.
His was the only name in Strems Law Firm and his extensive marketing was based on that name. His clients were simply distributed among his pre-litigation teams and his litigation teams.
Thus, when he received his emergency suspension on June 9, 2020, he was faced with a serious problem. He had to leave the law firm immediately, no later than July 9. But the professional association was simply the corporate manifestation of Mr. Strems.
If he removed himself from the professional association, it ceased to exist.
He knew that if he sold his practice to another lawyer or law firm that Rule 4-1.17 would require that he notify his clients and give them the option to find another lawyer who was not burdened with the problems he had created for himself and his employees; a lawyer who actually had her practice organized so that she could talk to clients in person when needed.
That could dramatically reduce the value of the law practice he wanted to sell.
So instead of a direct sale, he accomplished precisely the same thing by issuing new stock for the three purchasers of his law practice, and then entering into a redemption agreement with the professional association so that the payments to him would be channeled through the law firm and not paid directly by the three lawyers.
By technically selling the stock in the professional association, the legal vessel that held the contracts with his clients, he claimed that the client’s professional relationship was unchanged with the professional association.
While the business relationship created by the thousands of contingency retainer agreements may have remained with the professional association, the clients ceased to have a professional relationship with Mr. Strems and that professional relationship was transferred to the three new members of the professional association.
The Florida Rules of Professional Conduct regulate the conduct of lawyers, not professional associations.
The redemption agreement may have been important to the IRS for tax purposes, but to fulfill his duties to his clients, he still needed to comply with Rule 4- 1.17.
But he did not comply with that rule.
Instead, in order to notify his clients of his suspension order, he sent them a letter, primarily in the third- person, telling them about the change in ownership and explaining that this change was why he would no longer be involved at the firm.
The Bar submits this letter is deceptive, a failure to communicate the information needed for informed consent, and a violation on the emergency suspension order.
Mr. Strems has argued that his actions are protected by advice of counsel. But this Court has clearly explained that this defense does not apply to compliance with the Florida Rules of Professional Conduct, as contrasted with some underlying legal issue with which a respondent is unversed.
In any event, the evidence in this record does not support this defense.
Because the Referee misunderstood the applicable law, this Court should reject the Referee’s recommendations and find Mr. Strems guilty of violating Rule 4-1.17, Rule 4-1-4, and Rule 4-8.4(c), and find him in contempt of the suspension order.
The sanction for these violations should be imposed with the other pending cases. Mr. Strems should be disbarred.
THE DECISION-MAKING PROCESS IN A DISCIPLINARY PROCEEDING AND THE STANDARD OF REVIEW
“This Court’s standard of review in a contempt case is the same as that applicable to attorney discipline cases in general.”
The Florida Bar v. Bitterman, 33 So. 3d 686, 687 (Fla. 2010).
1. Issues of Law.
This Court reviews issue of law de novo when the only disagreement is whether the material facts constitute unethical conduct.
The Florida Bar v. Brownstein, 953 So. 2d 502, 510 (Fla. 2007);
The Florida Bar v. Pape, 918 So. 2d 240, 243 (Fla. 2005).
2. Findings of Fact
As this Court explained in The Florida Bar v. Picon, 205 So. 3d 759, 764 (Fla. 2016):
“This Court’s review of a referee’s findings of fact is limited.
If a referee’s findings of fact are supported by competent, substantial evidence in the record, this Court will not reweigh the evidence and substitute its judgment for that of the referee.
The Florida Bar v. Frederick, 756 So. 2d 79, 86 (Fla. 2000).”
See also The Florida Bar v. Schwartz, 284 So. 3d 393, 396 (Fla. 2019);
The Florida Bar v. Parrish, 241 So. 3d 66, 72 (Fla. 2018);
The Florida Bar v. Vining, 721 So. 2d 1164, 1167 (Fla. 1998);
The Florida Bar v. Jordan, 705 So. 2d 1387, 1390 (Fla. 1998);
The Florida Bar v. Spann, 682 So. 2d 1070, 1073 (Fla. 1996).
3. Recommendation of Discipline
The Referee’s recommendation of discipline is subjected to greater review by this Court because of this Court’s ultimate responsibility to make that decision:
In reviewing a referee’s recommended discipline, this Court’s scope of review is broader than that afforded to the referee’s findings of fact because, ultimately, it is the Court’s responsibility to order the appropriate sanction.
See The Florida Bar v. Picon, 205 So. 3d 759, 765 (Fla. 2016) (citing The Florida Bar v. Anderson, 538 So. 2d 852, 854 (Fla. 1989)).
At the same time, this Court will generally not second-guess the referee’s recommended discipline, as long as it has a reasonable basis in existing case law and the standards.
See The Florida Bar v. Alters, 260 So. 3d 72, 83 (Fla. 2018);
The Florida Bar v. De La Torre, 994 So. 2d 1032 (Fla. 2008).
The Florida Bar v. Altman, 294 So. 3d 844, 847 (Fla. 2020).
It is also important to consider that this Court has given notice to the members of the Bar that it is moving toward harsher sanctions than in the past.
See The Florida Bar v. Rosenberg, 169 So. 3d 1155, 1162 (Fla. 2015).
In Rosenberg, this Court explained that since the decision in The Florida Bar v. Bloom, 632 So. 2d 1016 (Fla. 1994), the Court has moved toward imposing stricter sanctions for unethical and unprofessional conduct.
See also Altman at 847. As a result, case law prior to 2015 needs to be examined carefully to make certain that the application of sanctions in these earlier cases comports with current standards.
Liar Lawyer Catalina Azuero of https://t.co/T7RLHkNQUz response to the @TheFlaBar is finally here https://t.co/aEYD0WQ4jz and it’s nonsensical. @goodwinlaw @Law360 @reason @MotherJones @BLaw @ReutersLegal @WSJLawNews @DailyMail @chicagotribune @washingtonpost @MiamiHerald @ABC pic.twitter.com/NkpldvNNlH
— LawsInTexas (@lawsintexasusa) October 16, 2020
The complete transfer of ownership of Strems Law Firm from Mr. Strems to three other attorneys is a “sale of law practice” under Rule 4-1.17 of the Florida Rules of Professional Conduct for which the clients were entitled to notice.
A. The central legal question within this issue, and the holding the Bar requests from this Court.
Until about forty years ago, a lawyer could sell the building from which she practiced, and the furniture and the law books connected to the practice, but the practice itself was regarded as a professional relationship that could not be sold.
In 1992, Florida adopted Rule 4-1.17, which was based on the recently developed ABA Model Rule 1.17.
See In re Amendment to Rules Regulating The Florida Bar, 605 So. 2d 252, 253 (Fla. 1992). It allowed a lawyer to sell an entire practice to one lawyer.
The rule conditioned this new ability to sell a practice on requirements that the clients be notified and be given an opportunity to consent to the substitution of counsel or to terminate the representation.
Then, as now, the comments began with the explanation that “[t]he practice of law is a profession, not merely a business,” and “clients are not commodities that can be purchased and sold at will.”
In 2006, the rule was amended to permit a sale of the entire practice or an entire area of a practice to one or more lawyers.
See In re Amendments to the Rules Regulating The Florida Bar, 933 So. 2d 417, 457 (Fla. 2006).
Although in the first sentence of the rule, this Court made clear that the item sold is a “law practice,” and a not “law firm,” because either a “lawyer” or a “law firm” could sell a “law practice,” the rule has never defined exactly what a “sale” entails when one is selling a law practice. There is no case law defining “sale” in this context.
It is not a rare occurrence that a one-lawyer law practice is organized and doing business as a professional association or other form of legal association authorized to practice law.
If Lawyer A is practicing without the use of such a separate legal entity, and she wishes to sell either the entire practice or an area of practice to another lawyer or to some other professional association, there is no question that Rule 4-1.17 applies.
Lawyer A’s “practice” is to the largest extent a collection of existing relationships with clients and the goodwill created by past and present clients.
Before Lawyer A sells her practice to Lawyer B or to “Lawyer B, P.A,” she must give notice to her clients because the clients are not “commodities.”
But Mr. Strems successfully argued to the Referee that he did not sell a practice;
the corporation merely redeemed his stock in the corporation
Because the corporation did not cease to exist and it continued to own the legal contracts with the clients that created the business relationship, he claimed he had no duty to communicate with his clients to give them notice of the total 100% transfer in ownership of the professional association and their right to retain new counsel.
But it is the complete transfer of his professional relationships with his clients to the new owners of the professional association that invokes Rule 4-1.17 of the Florida Rules of Professional Conduct.
The Bar submits that Rule 4-1.17(b) exists to protect the client’s rights.
It was not created by this Court to protect the commercial rights of a professional corporation.
The argument presented to, and accepted by, the Referee in this case would dramatically reduce the client’s right to be represented by a licensed lawyer of his or her choice, and to understand that he or she had that right.
No matter what legal entities are involved, when 100% of the control of a “legal practice” is transferred from one lawyer to another lawyer or group of lawyers, this is a sale of a “law practice” that invokes the right of the clients to be informed under Rule 4-1.17.
In this case, the Bar is asking this Court to hold that when a lawyer facing an emergency suspension transfers his entire practice for consideration to other lawyers, either directly from lawyer to lawyer, or indirectly through a transaction involving a transfer of a professional association that is used as the legal vessel containing the lawyer’s professional relationships with his clients, that transaction for consideration is a “sale of law practice,” requiring compliance with Rule 4-1.17(b).
B. Rule 4-1.17 governs the sale of a law practice, not the sale of a law firm.
Rule 4-1.17 plainly states that it applies to the sale of a law practice and not the sale of a law firm.
Its first three subsections state:
A lawyer or a law firm may sell or purchase a law practice, or an area of practice, including good will, provided that:
a) Sale of Practice or Area of Practice as an Entirety. The entire practice, or the entire area of practice, is sold to 1 or more lawyers or law firms authorized to practice law in Florida.
b) Notice to Clients. Written notice is served by certified mail, return receipt requested, on each of the seller’s clients of:
1) The proposed sale
2) The client’s right to retain counsel;
3) The fact that the client’s consent to the substitution of counsel will be presumed if the client does not object within 30 days after being served with notice.
The “practice” in this context includes the professional relationship with the clients and the good will that has been created over the life of the practice.
The purchaser may keep some or all of the employees of the predecessor lawyer and may be purchasing physical or computer files and programs that help service the clients.
But the “practice” has little value without the ongoing professional relationship with the clients.
The adoption of this rule ended the complete prohibition on selling a practice, but the compromise requires the lawyer benefiting from the sale to take very specific steps to protect the clients.
Admittedly, a practice is normally sold in a more direct sale of the business relationship than occurred in this case. But this is not a rule about the taxation of the sale or the basis for a new asset.
The clients had an established attorney-client relationship with Mr. Strems.
He was the only lawyer who was an actual member of the law firm, and he was also the lawyer signing the contracts and making first communication with the clients.
It was his credentials in all the advertising that gave them assurance (albeit inaccurately) that their claims would be carefully supervised by a very experienced lawyer.
It is lawyers who must obey the Rules of Professional Responsibility, not professional associations.
It is the lawyer who has skill as an advocate, not the professional association. The lawyer may delegate some of the work on a matter to an employed associate or even a paralegal, especially with the client’s knowledge and consent, but the lawyer is still the responsible supervisor.
The corporation cannot assume that professional function.
By the entire transfer of his practice to the three new owners, Mr. Strems was attempting to transfer that attorney-client relationship without providing the notice required by Rule 4-1.17(b).
He was not telling his clients that they had the right to find another lawyer under these circumstances.
C. The Referee misunderstood the concept of a sale of the legal practice, in part, because of the language of Mr. Strems’ standard “Contingency Fee Retainer Agreement.”
As Rule 4-5.8(a) explains, “the contract for legal services creates a legal relationship between the client and law firm and between the client and individual members of the law firm. . . .”
It further explains that “[n]othing in these rules creates or defines those relationships.”
In other words, the Florida Rules of Professional Conduct address the professional relationship between a lawyer and a client – not the business relationship between the client and the law firm.
Admittedly, there is some overlap between those relationships, especially in the area of reasonable fees. But the Florida Rules of Professional Conduct exist to protect clients and to protect the reputation of the profession of law and the courts that profession serves.
They are not trumped by the business interests of the lawyer or the law firm.
The standard “Contingency Fee Retainer Agreement” utilized by Mr. Strems was odd in a number of respects.3
But for purposes of this review, the major oddity is its use of the word “Attorney” as the shorthand reference for “The Strems Law Firm P.A.” (A. 4-7).
The contract’s heading does not reference the law firm, but the first line of the contract explains that the client is retaining and employing THE STREMS LAW FIRM, P.A. (hereinafter “Attorney”).
Mr. Strems signs the contract on the line for “Attorney” to sign.
The word “Attorney” occurs throughout the document.
This retainer agreement does not retain “Lawyer X and Lawyer X, P.A.’ In fact the body of the contract contains no reference to “lawyer” or to the word “Attorney” meaning anything except the professional association.
The contract authorizes “Attorney” to file a lawsuit for the client, but there is no discussion of what lawyer, other than Mr. Strems, will represent the client.
In this bulk practice, the client is represented by a pre-litigation team, and if necessary, by a subsequent litigation team. But the contract does not specify the team, much less the lawyers in the team.
The client is given no right to select a particular lawyer.
3 Different portions of the contact create issues addressed in SC20-842 and SC20-1739.
The required “Statement of Client’s Rights” is, of course, appended to the firm’s contract.
It discusses “lawyers.”
It explains in paragraph 3 that the client has the right to know about a “lawyer’s education, training and experience” before hiring a lawyer.
The contract has an auto-fill checkmark explaining that the client understands, but the only lawyer the client typically knows about when entering into the contract is Mr. Strems.
This contract is undoubtedly owned by the professional association.
As a business relationship, it presumably continues to be owned by the professional association when 100% of that entity is transferred from one lawyer to another lawyer or group of lawyers.
But calling the professional association “Attorney” in the contract does not make that association a “lawyer” for purposes of the Florida Rules of Professional Conduct.
The question here is about the professional relationship between the client and the lawyer—and the duty to communicate with a client when the lawyer who signs the retainer agreement can no longer be in the professional relationship with his client because he has sold the law firm that owns the business relationship.
Mr Strems argued, and the Referee concluded, that the unchanged business relationship through the ownership of the contract by the professional association (when the entire practice is transferred from one lawyer to another group of lawyers) prevents the operation of Rule 4-1.17.
Respectfully, that is simply an error of law.
It conflates the business relationship with the professional relationship to the detriment of the client and to the detriment of the judicial system.
D. The fact that the lawyers purchasing the practice were three of the many lawyers employed by the professional association did not alter the requirements of Rule 4-1.17.
The three attorneys who owned all the stock, and thus the “practice” after the simultaneous closing were Orlando Romero, Hunter Patterson, and Christopher Narchet.
Mr. Romero has since died.
Mr. Narchet only became employed by the Strems Law Firm in its Coral Gables office in July 2017.
He never worked on one of the pre-litigation teams.
His first litigation job was as a member of one of the Strems litigation teams.
He was promoted to a team leader on one of the litigation teams prior to purchasing his interest in the law firm.
He explained that the three purchasers “decided that the best course of action for our clients was to obviously maintain the same representation for them.”
He further said:
“Obviously, the choice was left in their (the clients’) hands as well, you know, whether they wished to continue with our services as their counsel or not.”
But he does not claim they reached out to the thousands of clients to discuss this with them.
Thus, Mr. Strems did not provide notice to his clients under Rule 4- 1.17(b) of their rights, and the new owners unilaterally decided the best interest of the clients as well.
But the clients may not have wished to be represented by a lawyer with so little experience as Mr. Narchet.
They also may have discovered that the insurance company was not denying their claim and they could resolve it themselves without paying 25% of the undisputed amounts to the law firm.
Respectfully, keeping the clients with the new owners of the law firm was in the best interests of Mr. Strems and the new owners, but in light of the conditions that brought on the emergency suspension and the methods used to sign up some of the clients, the clients may very well have been better off to select different representation if that option had been presented to them with fair disclosure.
The Bar submits that there is no exception to Rule 4-1.17(b) when the sale is to three lawyers currently employed by the professional association.
Admittedly, at least a few of these clients were involved in litigation in which one of the new owners may have been their lead attorney of record.
But even then, the clients had entered into engagements to be represented by the Strems Law Firm when the only managing and supervising lawyer was Mr. Strems.
The many clients whose files were in pre-litigation would have had no prior contact with the new owners.
Whether the new attorneys in charge of managing and supervising the employees of the law firm had been employees of the firm or had come from outside the law firm, the clients still had a right to be told that they were no longer in privity with Mr. Strems’ law firm, but with a reconstituted law firm with entirely new owners.
Mr. Strems argued to the Referee that the position of the Bar would mean the Rule 4-1.17(b) would need to be invoked every time a partner left a law firm with multiple members.
That really is not a fair reading of the rule.
The rule covers the sale of an “entire practice” or an “entire area of practice.”
When new partners buy their shares in an existing law firm with multiple shareholders or old partners sell their shares, the event is normally not a purchase or sale of even an “area” of the practice.
The Bar is only arguing here that a sale occurs when there is a 100% change in the ownership of the professional association.
The disclosure requirements of Rule 4.1-17 are actually just an extension of the duty to communicate with your client under Rule 4.1-4.
In the remaining thirty days before Mr. Strems could no longer represent a client, he still had a duty to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”
See Rule 4-1.4(b).
As we will see in the next issue, he did not accomplish that requirement.
Mr. Strems’ July 1, 2020, letter was not the notice required by Rule 4-1.17, but rather was a document providing misleading information for Mr. Strems’ benefit.
Mr. Strems did not begin sending out notices of his suspension in June to clients who had an immediate need for this information.
For example, the clients who had just sent in their signed retainers and had not been processed by the on-boarding team were not sent notice of his suspension prior to the completion of that process.
Instead, that team simply continued to send out Mr. Strems’ standard notice of representation to the insurance carriers.
(T803) (TFB-EX- Composite A Contempt) .
When he did provide notice to the clients, Mr. Strems did not send out a personal letter simply informing each client that he had been suspended by the Florida Supreme Court and providing a copy of the suspension order.
Instead, he mailed out a letter about “Your Insurance Claim” to “Dear Client.”
(TFB-Ex. C Contempt).
The letter begins with a one-sentence paragraph:
“Our work continues on your file, but we write this letter to advise of changes at the law firm and matters regarding me.”
Thus, although the letter is going to tell the client about his “matters,” it is carefully crafted as a letter from the whole law firm – from us, not from me.
The next paragraph explains that the “ownership” of the law firm is changing (even though this is not a sale).
It is changing by “advancing three of our present lawyers as shareholders.”
Mr. Strems explains that he will “no longer be the owner of the law firm or involved at the firm because of this change of ownership.”
But the truth is that he will no longer be involved because he has been suspended and he must divest himself of ownership in the firm because he has been suspended.
The next paragraph explains that the clients claim has been handled by a “specifically assigned attorney at the law firm and support staff,” which will not be affected by these changes.
That lawyer is not identified in the letter.
Mr. Strems claims that he had not been “directly responsible for your matter,” even though he had signed the contingency agreement with them and was the only shareholder in the firm.
He was not “directly” involved in the sense that he had delegated the matter to his employees, but he had been suspended because of the evidence that he had mismanaged those employees.
Despite the reasons for his suspension, he assures his clients that “the lawyers responsible for your matter will continue without any change to seek the best settlement or judgment for your case.”
Then, in the middle of the document in a paragraph containing one compound sentence, he states: “I will no longer be involved in the firm and I have been suspended from the practice of law, as per the attached Order.”
The next paragraph explains that the “new name of the firm will be The Property Advocates, P.A. and if you see that name on further papers we send to you there is no reason for your concern.”
Mr. Strems, of course is not part of that “we.”
Instead of telling the client that they may seek to retain other counsel in light of his suspension and the sale of the firm, he tells them “there is no reason for your concern.”
The next paragraph says:
“Again, we greatly value your confidence in us as your attorneys to complete your claim and get the best result for you possible for the damage to your house.”
This letter is signed only by Scot Strems, and it is not signed by him for Strems Law Firm, like the first letter he sent to the clients.
But he will not be completing their claims and negotiating the final settlement amounts.
Then the next two paragraphs state:
“We will stay in touch over the next few weeks and bring you up to date on our continuing efforts on your behalf.”
“Please feel free to contact our office with any questions you may have.”
Of course, Mr. Strems will not and cannot stay in touch with them.
And one of the reasons that Mr. Strems was suspended was because it was so difficult to get through to a lawyer if you contacted the office.
Ms. Mendizabal, who had worked with the firm since 2017 and was the managing attorney in the Miami office, explained that the firm had the same protocol for communicating with clients after this letter was sent out as before.
(T61, 64, 84).
They had a separate “team” that answered the telephones and a call center to handle overflows.
Mr. Strems knew when he signed this letter that the firm was not structured to allow these clients to call the unidentified lawyer “specifically assigned” to their case to obtain the information needed to make an informed decision about staying with the law firm.
The Bar maintains that, once Mr. Strems decided not to send a simple letter notifying his clients of his suspension, but rather decided to send a firm letter announcing the complete change in ownership of the law practice, he needed to comply with Rule 4-1.17(b).
He needed to tell his clients that they had a right to retain other counsel.
Instead, he used the letter as a marketing tool for the new owners to assure that they would be able to keep those clients and receive the contingency fees needed to fund his buy-out.
Once Mr. Strems decided to inform his clients of the status of representation, under Rule 4-1.4(a), entitled “Informing Client of Status of Representation,” he needed to provide the clients with accurate information needed for the client to make an informed decision.
Under Rule 4-1.4(b), he needed to “explain [the] matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”
He knowingly sent out a letter that did not fulfill these requirements. He intentionally avoided providing a full disclosure for his own self-interest.
Instead of recognizing the problems within the firm and sharing with the clients that he had allowed the firm to grow too quickly, that the firm had problems communicating with its clients, and that it had difficulty timely complying with discovery rules and court orders—and perhaps explaining how the new owners planned to address these problems – he told them that things would go on “without any change” and that there was “no reason for your concern.”
Under Rule 4-8.4(c), a lawyer has an obligation not to engage in conduct involving dishonesty, deceit, or misrepresentation.
This letter is not honest with his clients.
It misrepresented why he would no longer be the owner of the law firm or involved at the firm.
It misrepresented many things by omission that he needed to explain once he decided to send the content of this letter to his clients.
He did this in an effort to assure that the clients stayed with the new lawyers who now owned the law practice.
There is no factual dispute about the content of this letter or the facts surrounding the sending of this letter.
And Mr. Kalish and Mr. Tozian did not write this letter or provide any advance opinion that this was an appropriate letter – even assuming that “advice of counsel” has become a defense for this type of violation.
But the Referee nevertheless concluded that these facts did not violate these rules.
The Bar submits that the Referee made an error in law when she concluded that these facts violate none of the applicable rules.
“Advice of Counsel” should not be a defense when the advice concerns the Rules themselves and not some underlying area of law with which the lawyer is unfamiliar.
Mr. Strems repeatedly emphasized to the Referee that he had relied upon the advice of the two lawyers he hired to assist with the suspension order.
Just like he wished to blame his mismanagement on his associates in Case No. SC20-808, he seeks to shift responsibility for complying with the Florida Rules of Professional Conduct to his lawyers.
He is seeking to expand the scope of this Court’s recent decision in The Florida Bar v. Herman, 297 So. 3d 516 (Fla. 2020), which recognized a very limited version of the advice of counsel defense.
In Herman, the issue concerned the truthfulness of Mr. Herman’s financial disclosures in his bankruptcy filings.
Mr. Herman was not a bankruptcy lawyer, and he had experienced bankruptcy counsel representing him in that proceeding.
His disclosures had been thoroughly discussed with his lawyer and the information Mr. Herman provided to his lawyer was accurate and sufficient for his lawyer to make a legal decision for his client.
The bankruptcy court found that the filings were so inaccurate as to warrant a denial of discharge, but this Court explained:
“To establish that Herman is guilty of misconduct, the Bar would have to prove by clear and convincing evidence not only that Herman’s bankruptcy disclosures were false or misleading, but also that Herman knew that they were false or misleading.”
Id. at 520.
This Court decided that it was the advice of his counsel about bankruptcy law that kept Mr. Herman from knowing his answers were misleading.
But in Herman this Court explained:
The reason an advice of counsel defense is usually unavailable in Bar discipline proceedings is that the Bar rules themselves charge Florida lawyers with knowledge of the rules and of “the standards of ethical and professional conduct prescribed by this court.”
R. Regulating Fla. Bar 3-4.1.
But here, Herman does not claim that he relied on the advice of counsel as to the meaning and requirements of any Bar rule.
Nor does this case have anything to do with Herman’s work as an attorney serving clients
Id. at 520.
Thus, Herman is not precedent for the proposition that Mr. Strems can hire lawyers to handle his suspension order and wash his hands of his own need to comply with the order and the rules.
Expanding Herman to this context would create the most slippery of slopes.
The responsibility for each lawyer in Florida to comply with the Florida Rules of Professional Conduct must not be a delegable duty.
The Bar recognizes that reliance upon the formal opinion of a lawyer who specializes in Bar matters, after complete and accurate disclosure, might very well be a mitigating factor for conduct committed in reliance upon that opinion.
See The Florida Bar v. St. Louis, 967 So. 2d 108, 118 (Fla. 2007)
(“Thus, a defense based on advice of counsel is not available to respondents in Florida Bar discipline cases unless specifically provided for in a rule or considered as a matter in mitigation.”).
But the notion that a lawyer can be exempt from the rules because he may have discussed aspects of the rules with the counsel selling his practice to other lawyers by means of a sophisticated corporate transaction is a dangerous and unwarranted expansion of Herman.
Even if advice of counsel were expanded to these circumstances, Mr. Strems did not establish this defense.
The evidence related to this issue is summarized in the following paragraphs.
Mr. Strems retained Mr. Tozian, an experienced lawyer who regularly defends lawyers in disciplinary proceedings, to assist him about a month before this Court entered the emergency suspension order.
Because Mr. Tozian was concerned about performing the transfer of the law firm correctly, Mr. Tozian advised Mr. Strems to retain a second lawyer, Mr. Kalish, who is a tax and transaction lawyer.
Mr. Tozian explained that he recommended this, in part, because had had a prior case where the Bar had questioned the method by which the transfer occurred.
Mr. Tozian contended in his testimony that Rule 4-1.17(b) did not apply in this case.
He did not recall if he specifically discussed Rule 4- 1.17(b) with Mr. Strems.
But he thought it was discussed that this was equivalent to the death of a lawyer.4
“We looked at it as one person in the firm is gone, and the rest of the firm was going to soldier on.”
(T378). He did not see the transaction they created to be a “traditional sale.”
(T378). Instead, he explained:
“I mean, if you’ve got a firm with 30
4 The comments to Rule 4-1.17 explain that “[t]his rules applies, among other situations, to the sale of a law practice by representatives of a lawyer who is deceased.”
people and one person is out of the mix, whether they die or they’re suspended or they decide that selling shoes at Nordstrom’s would be a better vocation, it doesn’t really matter how the person left the firm.”
He did not seem to take into consideration that only one lawyer in this case owned the firm.
He saw the transaction as “a much more efficient way to divest Mr. Strems of his interest – and , you know, a client can fire you at any time.”
He personally thought the only time a lawyer has a duty to disclose to a client that they have the right to retain another lawyer was when the client was “unhappy with the decision-making” or “unhappy with the results.”
On redirect, in a series of leading questions, Mr. Tozian testified that he approved of the transaction as fashioned by Mr. Kalish “[t]o the extent that I understood it and to the extent to which the Rules Regulating the Florida Bar applied.”
He confirmed that he had advised Mr. Strems that “the notification was done in compliance with the Supreme Court’s order.”
Mr. William Kalish testified that he was retained by Mr. Strems and the Strems Law Firm in June 2020.
One of his roles was to serve as the receiver for the trust account issues.
That role is not significant to this review.
He also provided advice to Mr. Strems and Strems Law Firm concerning compliance with the suspension order.
The three employed attorneys who purchased the stock for the reconstituted law firm were not represented by him.
He has experience providing tax and transactional advice to clients, especially lawyers and law firms.
He was the main person involved in deciding to use the device of the redemption agreement and the newly issued stock for this transfer because, in his opinion, it avoided issues of quantum meruit if a new law firm took over from Strems Law Firm.
Even though Mr. Strems claimed not to have been directly involved in these cases, Mr. Kalish was concerned that other approaches would involve 7500 quantum meruit decisions, which the redemption agreement avoided by buying Mr. Strems’ stock for a fair market value of
He testified that Mr. Strems was following his advice.
In his opinion, every part of his advice to Mr. Strems was in the best interests of the clients.
He understood that Rule 4-1.17 would require giving notice to the clients that they were free to get another lawyer, but he believed “that could cause a disruption.”
He believed his solution to the transfer of ownership was not a “sale” and that it did not require compliance with Rule 4-1.17.
He reasoned that, as a matter of corporate law, the law firm was not sold;
it was renamed and the stockholders were traded out.
He opined that a redemption was not a sale.
His opinion appears to be influenced by his training as a tax lawyer, and he was not asked whether the transaction was a sale of a “law practice” for purposes of considering the interests of the clients.
In answer to a question by the Referee, he admitted that “it is conceivable if read as a sale, that it would be governed by Rule 1.17.”
But he seemed to believe, if that were true, it would apply every time that Mr. Strems hired a new lawyer as an employee.
Mr. Kalish reasoned that, if the sale of stock and the redemption were simultaneous, there was no disruption in the professional association, and since the clients probably regarded the employed lawyer who was currently the team leader assigned to their case as their lawyer, it was not a sale that required notice to the clients of their right to retain alternate counsel.
He seemed to equate this with a situation where existing shareholders invite a practicing lawyer to join the firm.
He read from his affidavit explaining that Rule 4-1.17 did not apply because this did not involve “two separate entities engaged in a transfer of clients.”
(T452, R-Ex. 12).
As explained earlier in the Statement of Facts, Mr. Kalish testified that he had no role in creating the July 1 letter.
He explained that, while he did not think it was compelled by the rules, he probably would have added language about the possibility of changing firms.
He believed the clients “should know what’s going on.”
As he explained:
But the proper way would be that the clients would also assent to any arrangements of the various lawyer too, I believe.
It is clear that Mr. Strems never asked either lawyer for a formal opinion on this. Mr. Tozian did not fully appreciate the fact that Mr. Strems was the only member of the professional association, and he equated this situation with a more typical law firm with multiple partners or shareholders.
Mr. Kalish would have advised Mr. Strems to explain the arrangement to the clients in the July 1 letter, if asked.
Thus, the evidence on advice of counsel is not a basis to find that Mr. Strems did not violate the specific rules of conduct and the suspension order in this proceeding.
The evidence may not even support a mitigating factor when determining the sanction.
A Comment on the two experts
It is not uncommon in Bar proceedings for lawyers to provide expert testimony that includes explanations of some area of specialized law.
For example, in the Herman case both sides presented experts on bankruptcy law.
This type of testimony would usually be inadmissible under the formal rules of evidence in a typical trial.
See Lee Cnty. v. Barnett Banks, Inc., 711 So. 2d 34, 34 (Fla. 2d DCA 1997)
(“Expert testimony is not admissible concerning a question of law. Statutory construction is a legal determination to be made by the trial judge, with the assistance of counsels’ legal arguments, not by way of ‘expert opinion.’”).
Predictably, Professor Chinaris provided expert opinions on these rules that helped Mr. Strems, and Professor Alfieri provided opinions that helped the Bar.
Professor Chinaris believed that Rule 4-1.17 applied only to transfers for consideration to lawyers “outside” the firm, and he concluded that the three employed associates were inside the firm such that a 100% transfer to them did not invoke the rule.
(R-Ex-9, p. 4).
He supported his interpretation not with the text of the rule, but with a comment discussing the fact that attorney-client privilege did not bar preliminary discussions involved in such a transaction with an outside lawyer.
The Referee adopted this legal reasoning.
But the comment does not suggest that the rule applies only when there might be an attorney-client privilege issue.
Instead, the rule is drafted to protect the client and to make sure the client is not treated like a “commodity.”
Professor Chinaris’s opinion as a forensic expert does not seem to give the clients their due.
Professor Alfieri had a longer report and a longer explanation as to why he believed that Rule 4-1.17 did apply in this context.
(TFB-Ex. 1 p. 27).
But the Florida Rules of Professional Conduct are simply a subset of rules of law.
Lawyers are called upon to read them carefully and obey them.
This Court reviews the rules de novo to determine whether they apply to a set of facts or not.
See The Florida Bar v. Brownstein, 953 So. 2d 502, 510 (Fla. 2007).
The undersigned frankly questions whether this “testimony” by experts, not addressing issues of fact, but rather addressing legal conclusions that are reviewed de novo by this Court, is a proper subject for testimony.
It reads more like closing arguments from the witness stand than evidence.
It might be better for this Court simply to indicate that such testimony is not a necessary or proper part of a disciplinary proceeding.
Mr. Strems should be found guilty of contempt and of violations of the Florida Rules of Professional Conduct.
This Court has inherent contempt powers that, in this context, are expressly incorporated into the general rules of procedure for disciplinary proceedings.
See The Florida Bar v. Ross, 732 So. 2d 1037, 1041 (Fla. 1998); Rule 3-7.11(f).
The Bar recognizes that a finding of guilt in this contempt proceeding requires proof that Mr. Strems “intentionally and willfully” violated the terms of the order.
See The Florida Bar v. Forrester, 916 So.2d 647, 650 (Fla. 2005).
A violation does not require Mr. Strems to admit his guilt, and it can be established by circumstantial evidence.
Id. at 652.
The standard emergency suspension order entered by this Court on June 9, 2020, required Mr. Strems “to immediately furnish a copy of Respondent’s suspension order to all clients.”
The Referee found that the delay until July 1, 2020, to send out a copy of the order was not such a long delay as to violate the requirement of immediacy, and the Bar is not challenging that ruling in this review.
The Referee seemed to believe that the actual content of Mr. Strems’ letter sending a copy of suspension order to his clients would be of no concern to this Court so long as it attached a copy of his suspension order.
But the Bar submits that any licensed lawyer would know that an emergency suspension order is an exceptional and very serious matter.
The order to furnish a copy of the suspension order to clients does not mandate the precise method by which the order is delivered, but any lawyer would know that it must be provided in a manner that is not deceptive.
Given the requirements of Rule 4-1.4 that a lawyer “shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation,” the requirement to furnish a copy of the suspension order to a client normally includes a concomitant duty to accurately explain to the client the legal effect of this order.
But Mr. Strems sandwiched his statement revealing his suspension to his clients in the middle of a marketing letter for the reconstituted law firm, written mostly in the third person, assuring them that another lawyer would continue for them ”without any change.”
He told his clients they had no reason for concern, despite the concerns that caused this Court to enter the emergency suspension.
He intermingled the notice of his suspension with the law firm’s explanation, in the third person, of the total transfer of ownership to three unnamed attorneys.
The Bar submits that the undisputed facts in this case demonstrate an intentional and willful disregard for this Court’s order to provide the order to the client.
That intentional disregard was designed to protect Mr. Strems’ buy-out.
Even if this Court concludes that the conduct is not violative of its order, as explained earlier, the evidence clearly demonstrates a violation of Rule 4-1.4 (communication), Rule 4-1.17(b) (failure to provide the proper notice of the sale), and Rule 4-8.4(c) (misrepresentation to client).
The Petition expressly discussed the violation of Rule 4-1.17.
Rule 4-1.4 and Rule 4-8.4 were not expressly discussed in the petition.
But the failures to communicate with the clients and the misrepresentations to the client were directly related to what was and was not communicated to clients as a result of the suspension order.
They were discussed in Professor Alfieri’s report, which was disclosed prior to the final hearing.
Professor Chinaris discussed both of these violations in his direct examination prior to Professor Alfieri’s testimony.
Thus, the two additional violations were “within the scope of the conduct and rule violations specifically charged.”
The Florida Bar v. Fredericks, 731 So. 2d 1249, 1254 (Fla. 1999).
For purposes of due process, Mr. Strems had notice and had an opportunity to be heard. Paraphrasing Fredericks, “because [Mr. Strems] was made aware of the conduct alleged by the Bar to be unethical and had the opportunity to be heard as to this conduct, there was no violation of due process.”
Id. at 1254.
The Referee’s recommendations on these violations were based primarily on her legal determination that the transaction was not a sale.
The facts of what was and was not communicated to the clients in the letter are undisputed.
The Bar submits that the letter delivering the suspension order contained misrepresentations designed to secure a client base for the reconstituted law firm, and it failed to communicate both the right to retain other counsel and the circumstances that might warrant the client to consider that option.
Mr. Strems should be found guilty of these three violations.
The Court should either impose the sanction in this case in conjunction with Case No. SC20-806, Case No. SC20-842, and Case No. SC20-1739, or the issue of the proper sanction should be remanded to the Referee for consideration following this Court’s determination of guilt.
The Referee is recommending that the sanction in this case be “concurrent” with the sanction in the other pending cases.
The Bar agrees with this recommendation to the extent that it suggests that this Court should simply impose a single sanction for the conduct in all three cases.
See The Florida Bar v. Inglis, 660 So. 2d 697 (Fla. 1995);
The Florida Bar v. Greenspahn, 396 So. 2d 182, 183 (Fla. 1981)
(“Under the peculiar facts of this matter, however, we determine the appropriate discipline from the totality of the conduct as though all of the charges had been presented to us in one proceeding.”).
The Bar is already recommending disbarment in those three cases. These violations would add incrementally to the sanction for those cases.
The four proceedings collectively demonstrate a lawyer who devised improper methods to obtain homeowners’ signatures on 25% contingency fee contracts without any direct discussions with the client about a need for representation and often before the homeowners had an objective reason to believe they needed an attorney to handle their insurance claims.
Then he created a law firm structure that did not adequately communicate with the clients and could not handle the onslaught of lawsuits that he filed, leading to sanctions and Kozel orders against the lawyers he employed.
When it came time for settlement, relying on the improper language of his contract, he negotiated global settlements that maximized his payment, and minimized the clients’ returns.
And when this Court entered its emergency suspension, rather than sending his clients a straight-forward letter explaining his suspension, he sent a letter from the law firm explaining that there should be no reason for them to be concerned, and that he would no longer be involved at the firm because other lawyers had become its shareholders.
He did not tell the clients the whole story or tell them they had a right to retain new counsel.
He did not tell them this information because then there could be insufficient money to pay his buy-out from the firm.
Mr. Strems’ numerous, strategic violations of the Florida Rules of Professional Conduct warrant permanent disbarment.
However, if the Court decides that a separate sanction is appropriate in this case, this Court should not rely upon the Referee’s hypothetical evaluation and should remand for a proper sanction hearing.
The Bar submits that there is a dishonest or selfish motive associated with the misconduct in this proceeding that would warrant more than a public reprimand – especially if the three pending cases were treated as prior disciplinary offenses.
See §3.2(b) (1) & (2), Florida’s Standards for Imposing Lawyer Sanctions;
The Florida Bar v. Patterson, SC19-2070, 2021 WL 5832861, at *6 (Fla. 2021) (overlapping prior discipline);
The Florida Bar v. Koepke, 327 So.3d 788, 789 (Fla. 2021) (disbarment for first disciplinary violation).
This Court should reject the Referee’s recommendation for findings of not guilty on the charge of contempt for the reasons explained in this brief.
It should find Mr. Strems guilty of contempt, as well as guilty of violations of Rules 4-1.4, 4-1.17, and 4-8.4(c).
It should impose a combined sanction in this proceeding and the three pending proceedings of permanent disbarment.
It should award the Bar its costs.
/s/ Chris W. Altenbernd
Chris W. Altenbernd, Esq.
Florida Bar No: 197394
BANKER LOPEZ GASSLER P.A.
501 E. Kennedy Blvd., Suite 1700
Tampa, FL 33602
(813) 221-1500; Fax No: (813) 222-3066
Constance Daniels, Student of Hard Knocks, Admonished Florida Lawyer and Friend of The Eleventh Circuit
LIF cannot comprehend how the People of Florida and the United States of America are so accepting of Brazen Corruption.
OCT 26, 2022
Five months after the 11th Circuit saved a colleague and lawyer from foreclosure, the mandate issued (without en banc hearing) and as instructed (reversed and remanded) the lower court has reopened the case.
LIT will be tracking this case closely, stay tuned.
The article below starts with Constance Daniels failure to pay for her law school tuition loan issued in 2003. She defaulted in 2005 per the complaint. The USA won a judgment of $164k+ in 2011.
In 2010, Wells Fargo commenced foreclosure proceedings in state court, Hillsborough County.
While all this was going on, Ms Daniels, a Republican, was attempting to become a State judge in 2014, which failed.
In late November of 2017 a settlement was reached, dismissing the Wells Fargo foreclosure complaint.
In 2017-2018, lawyer Daniels was failing to look after her client(s). Many moons later, in 2021, that would result in a slap on the wrist by the referee, Hon. Daniel D. Diskey for Fl. Bar.
The court, via one of the Moody clan of judges, sided with Select Portfolio Servicing, LLC and this formed the appeal which was decided this week by the 11th Circuit.
In Nov. 2020, Wells Fargo filed a renewed foreclosure complaint against Daniels and her homestead in State court. In Sept 2021, Wells Fargo voluntarily dismissed the case and terminated the lis pendens ‘due to loan modification’.
The issue for LIF in this case is quite clear. Who the 11th Circuit has chosen to upend it’s prior stance that mortgage servicers can do no wrong under the FDCPA, despite irrefutable facts confirming otherwise.
For example, LIF refers to the case we highlighted regarding a deficiency judgment (State case, March 2022):
In that case, LIF investigated beyond the court opinions to discover the wife is a Florida Lawyer and her husband, Laurence Schneider is owner of S&A Capital, Inc., a mortgage investment company, has built a national portfolio of performing mortgages that have been written off by other financial institutions.
Our angst is clear. Lawyers are being treated preferentially by the courts over regular citizens and homeowners.
In the case of Daniels, whilst she may have legitimate arguments, there have been many citizens who have failed before her by the wordsmithing by the Federal and Appellate Court(s), which has refused to apply the correct legal interpretation of the FDCPA, or clarify the question(s) with the federal consumer agency, the CFPB.
Whilst LIF is unhappy with the anti-consumer watchdog, the Consumer Financial Protection Bureau (CFPB) which is a revolving door for staff to leave the Bureau and go work for a creditor rights law firm without any restriction or time limit (non-compete), the Daniels case should have been referred to the CFPB for interpretation about the matters of ‘first impression’.
The Second Circuit recently did so for a RESPA question in Naimoli v Ocwen and we highlighted the case on our sister website, LawsInTexas.com (Laws In Texas). Instead of doing so in Daniels, there is a dissenting opinion by Judge Lagoa, who’s father in law is a senior judge in SD Florida (Paul C. Huck) and her hubby is a Jones Day Partner and apparently the leader of the Miami Chapter of the Federalist Society. Lagoa herself is a former Florida Supreme Court justice appointed by Gov DeSantis who ‘ensured he puts conservatives on the bench so that anyone coming to court knows how the court will rule’.
LIF anticipates the Daniels case will be subject to a rehearing petition and presented to the full en banc court for reconsideration. The opinion here is similar to the recent Newsom FDCPA opinion, which was too negative towards Wall St and the financial banking services community. As such, it was vacated by the en banc panel while they reconsider. The courts’ decision is currently pending.
In this case, there is still time for the 11th Circuit to correctly ask the CFPB to provide its opinion on the underlying facts raised on appeal and decided by the 3-panel.
However, what the judiciary won’t do is apply this retroactively to the thousands of cases which have been incorrectly tossed in the last 14 years, resulting in homeowners losing their homes to wrongful foreclosures.
USA Motion for Summary Judgment with Exhibits, Doc. 13, Aug 17, 2011
ORDER granting Motion for summary judgment in favor of the Plaintiff and against the defendant in the amount of $109,813.74,
together with accrued interest in the amount of $54,097.10 as of February 28, 2011,
plus interested at the rate of 8.25 percent per annum and a daily rate of $24.80, until the date of judgment;
for post-judgment interest, at the legal rate, from the entry of final judgment until the date of payment;
and for such other costs of litigation otherwise allowed by law.
The Clerk of Court is directed to close the case.
Signed by Judge Elizabeth A. Kovachevich on 9/22/2011.
(SN) (Entered: 09/22/2011)
U.S. District Court
Middle District of Florida (Tampa)
CIVIL DOCKET FOR CASE #: 8:11-cv-01058-EAK-AEP
|USA v. Daniels|
Assigned to: Judge Elizabeth A. Kovachevich
Referred to: Magistrate Judge Anthony E. Porcelli
Cause: 28:1345 Default of Student Loan
|Date Filed: 05/13/2011|
Date Terminated: 09/22/2011
Jury Demand: None
Nature of Suit: 152 Contract: Recovery Student Loan
Jurisdiction: U.S. Government Plaintiff
|USA||represented by||I. Randall Gold|
US Attorney’s Office – FLM
400 N Tampa St
Tampa, FL 33602-4798
ATTORNEY TO BE NOTICED
|Constance Daniels||represented by||Constance Daniels|
PO Box 6219
Brandon, FL 33608
|Date Filed||#||Docket Text|
|05/13/2011||1||COMPLAINT against Constance Daniels filed by USA. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Civil Cover Sheet)(MRH) (Entered: 05/13/2011)|
|05/13/2011||2||Summons issued as to Constance Daniels. (MRH) (Entered: 05/13/2011)|
|05/13/2011||3||ORDER regulating the processing of civil recovery actions. Service must be perfected by 09/10/2011. Signed by Deputy Clerk on 5/13/2011. (MRH) (Entered: 05/13/2011)|
|05/13/2011||4||STANDING ORDER: Filing of documents that exceed twenty-five pages. Signed by Judge Elizabeth A. Kovachevich on 7/15/08. (MRH) (Entered: 05/13/2011)|
|05/19/2011||5||NOTICE of designation under Local Rule 3.05 – track 1 (CLM) (Entered: 05/19/2011)|
|05/20/2011||6||CERTIFICATE OF SERVICE re 3 ORDER regulating the processing of civil recovery actions by USA (Gold, I.) Modified on 5/20/2011 (MRH). (Entered: 05/20/2011)|
|05/25/2011||7||CERTIFICATE OF SERVICE by USA (Notice of Designation Under Local Rule 3.05) (Gold, I.) (Entered: 05/25/2011)|
|07/06/2011||8||RETURN of service executed on 7/5/11 (Marshal 285) by USA as to Constance Daniels. (MRH) (Entered: 07/06/2011)|
|07/27/2011||9||MOTION for default judgment against Constance Daniels by USA. (Gold, I.) Modified on 7/27/2011 (MRH). NOTE: TERMINATED. INCORRECT MOTION RELIEF. ATTORNEY NOTIFIED. ATTORNEY TO REFILE. (Entered: 07/27/2011)|
|07/27/2011||10||MOTION for entry of clerk’s default against Constance Daniels by USA. (Gold, I.) Motions referred to Magistrate Judge Anthony E. Porcelli. (Entered: 07/27/2011)|
|07/28/2011||11||CLERK’S ENTRY OF DEFAULT as to Constance Daniels. (MRH) (Entered: 07/28/2011)|
|07/29/2011||12||ANSWER to 1 Complaint by Constance Daniels.(BES) (Entered: 07/29/2011)|
|08/17/2011||13||MOTION for summary judgment by USA. (Attachments: # 1 Exhibit A, # 2 Exhibit B)(Gold, I.) (Entered: 08/17/2011)|
|09/09/2011||14||ENDORSED ORDER TO SHOW CAUSE as to Constance Daniels.. The plaintiff filed a motion for summary judgment on 8/17/11. The defendant had up to and including 9/3/11 to respond to the motion. To date no response has been filed. Therefore, it is ORDERED that the defendant has up to and including 9/19/11 in which to show cause why the pending motion should not be granted. Signed by Judge Elizabeth A. Kovachevich on 9/9/2011. (SN) (Entered: 09/09/2011)|
|09/22/2011||15||ORDER granting 13 Motion for summary judgment in favor of the Plaintiff and against the defendant in the amount of $109,813.74, together with accrued interest in the amount of $54,097.10 as of February 28, 2011, plus interested at the rate of 8.25 percent per annum and a daily rate of $24.80, until the date of judgment; for post-judgment interest, at the legal rate, from the entry of final judgment until the date of payment; and for such other costs of litigation otherwise allowed by law. The Clerk of Court is directed to close the case.. Signed by Judge Elizabeth A. Kovachevich on 9/22/2011. (SN) (Entered: 09/22/2011)|
|10/12/2011||16||ABSTRACT of judgment as to Constance Daniels. (DMS) (Entered: 10/12/2011)|
Order GRANTING Summary Judgment for $164k Student Loan Debt, Doc. 15, Sep 22, 2011
THIS CAUSE comes before the Court upon Defendant’s Motion to Dismiss Plaintiff’s Second Amended Complaint (Dkt. 24) and Plaintiff’s Response in Opposition (Dkt. 27).
The Court, having reviewed the motion, response, and being otherwise advised in the premises, concludes that Defendant’s motion should be granted.
Specifically, Plaintiff’s second amended complaint will be dismissed with prejudice because any further amendment is futile.
As the Court explained in its prior Order granting Defendant’s motion to dismiss, (see Dkt. 22), Plaintiff Constance Daniels initially filed suit in Florida state court against Defendant Select Portfolio Servicing, Inc. (“SPS”) alleging three Florida claims, which included a claim under Florida’s civil Racketeer Influenced and Corrupt Organizations (“RICO”) Act.
On July 10, 2018, SPS removed the case to this Court based on diversity jurisdiction.
On August 6, 2018, SPS moved to dismiss the entire complaint.
In relevant part, SPS argued that the complaint failed to allege any of the elements of a RICO claim.
On August 27, 2018, Daniels filed an amended complaint, which mooted SPS’s motion to dismiss.
Daniels’ amended complaint alleged two claims: a claim under the Fair Debt Collection Practices Act (“FDCPA”) and a claim under the Florida Consumer Collections Practices Act (“FCCPA”).
Both claims relied on the same allegations.
To summarize, Daniels alleged that SPS had “improperly servic[ed]” her mortgage loan “in reckless disregard” of her consumer rights. (Dkt. 12).
The amended complaint did not attach any mortgage statements.
SPS moved to dismiss Daniels’ amended complaint based on her failure to allege that SPS ever attempted to collect the mortgage balance.
The Court granted SPS’s motion.
The Court noted that the amended complaint did not identify or attach any communication from SPS to Daniels.
The Court also surmised that the dispute was more akin to a dispute about an improper accounting of Daniels’ mortgage.
The Court dismissed the FDCPA and FCCPA claims and provided Daniels a final opportunity to amend her complaint.
Daniels filed a second amended complaint.
The allegations are largely unchanged.
But, significantly, Daniels attaches multiple monthly mortgage statements that SPS sent to her.
She now claims that these mortgage statements constitute debt collection activity under the FDCPA and FCCPA.
SPS’s motion to dismiss argues that the monthly mortgage statements comply with Regulation Z of the Truth in Lending Act (the “TILA”)—they were not communications in connection with the collection of a debt—and therefore do not constitute debt collection activity under the FDCPA and FCCPA.
As explained further below, the Court agrees with SPS’s position based on the Court’s detailed review of the monthly mortgage statements.
Therefore, the second amended complaint will be dismissed with prejudice.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) allows a court to dismiss a complaint when it fails to state a claim upon which relief can be granted.
When reviewing a motion to dismiss, a court must accept all factual allegations contained in the complaint as true.
Erickson v. Pardus, 551 U.S. 89, 94 (2007) (internal citation omitted).
It must also construe those factual allegations in the light most favorable to the plaintiff.
Hunt v. Aimco Properties, L.P., 814 F.3d 1213, 1221 (11th Cir. 2016) (internal citation omitted).
To withstand a motion to dismiss, the complaint must include “enough facts to state a claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
A claim has facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Pleadings that offer only “labels and conclusions,” or a “formulaic recitation of the elements of a cause of action,” will not do.
Twombly, 550 U.S. at 555.
The FDCPA and FCCPA prohibit debt collectors from using a “false, deceptive, or misleading representation or means in connection with the collection of any debt.”
See e.g. 15 U.S.C. § 1692e (emphasis added);
Fla. Stat. § 559.72 (“In collecting debts, no person shall . . .”) (emphasis added).
It is axiomatic then that the “challenged conduct is related to debt collection” to state a claim under either statute.
Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216 (11th Cir. 2012);
see also Garrison v. Caliber Home Loans, Inc., 233 F. Supp. 3d 1282, 1286 (M.D. Fla. 2017) (“the FCCPA is a Florida state analogue to the federal FDCPA.”) (internal citations omitted).
“[T]he Eleventh Circuit has not established a bright-line rule” as to what qualifies as “in connection with the collection of any debt.”
Dyer v. Select Portfolio Servicing, Inc., 108 F. Supp. 3d 1278, 1280 (M.D. Fla. 2015).
“As a general principle, the absence of a demand for payment is not dispositive,” and courts should “instead consider whether the overall communication was intended to induce the debtor to settle the debt.”
Wood v. Citibank, N.A., No. 8:14-cv-2819-T-27EAJ, 2015 WL 3561494, at *3 (M.D. Fla. June 5, 2015) (citations omitted).
The second amended complaint attaches multiple monthly mortgage statements.1
Because the communications at issue here are all monthly mortgage statements, a discussion of the TILA is necessary.
The TILA requires SPS, a servicer, to send monthly mortgage statements.
12 C.F.R. § 1026.41. Specifically, 12 C.F.R. § 1026.41(d) requires that servicers provide debtors with detailed monthly mortgage statements containing, among other things: the “amounts due;” the “payment due date;” “the amount of any late payment fee, and the date that fee will be imposed if payment has not been received;” “an explanation of amount due, including a breakdown showing how much, if any, will be applied to principal, interest, and escrow and, if a mortgage loan has multiple payment options, a breakdown of each of the payment options;” “any payment amount past due;” a breakdown of “the total of all payments received since the last statement” and “since the beginning of the current calendar year;” “a list of all transaction activity that occurred since the last statement;” “partial payment information;” “contact information;” and detailed “account information” and “delinquency information.”
The Consumer Financial Protection Bureau (the “CFPB”) has issued a bulletin providing that a
“servicer acting as a debt collector would not be liable under the FDCPA for complying with [monthly mortgage statement] requirements.”
Implementation Guidance for Certain Mortgage Servicing Rules, 10152013 CFPB GUIDANCE, 2013 WL 9001249 (C.F.P.B. Oct. 15, 2013).
Courts have largely followed this guidance.
See, e.g., Jones v. Select Portfolio Servicing, Inc., No. 18-cv-20389, 2018 WL 2316636, at *3 (S.D. Fla. May 2, 2018) (citing 12 C.F.R. § 1026.41(d));
Brown v. Select Portfolio Servicing, Inc., No. 16-62999-CIV, 2017 WL 1157253 (S.D. Fla. Mar. 24, 2017) (noting the guidance and finding that monthly mortgage statements in compliance with the TILA were not debt collection).
The monthly mortgage statements at issue here were in conformity with the TILA requirements.
Moreover, the subject statements were substantially similar to model form H-30(B) provided by Appendix X to Part 1026 of TILA Regulation Z.
See also Jones, 2018 WL 2316636, at *4 (noting the similarities between a monthly mortgage statement and the model form in concluding no debt collection).
Although the monthly mortgage statements may not be identical to model form H-30(B), the differences are not significant deviations.
Notably, the plaintiff in Brown brought a nearly identical lawsuit against SPS.
The court explained in detail why the plaintiff was unable to state a claim under the FDCPA and FCCPA because the monthly mortgage statement was required to be sent pursuant to the TILA.
The complaint in Brown was dismissed with prejudice because “amendment would be futile” given that the basis for the claims was a monthly mortgage statement that was not actionable as a matter of law.
See 2017 WL 1157253, at *2-*4.
Also, the Jones court discussed in detail the numerous prior decisions addressing this issue, including multiple cases from this district that have held that monthly mortgage statements
“are almost categorically not debt collection communications under the FDCPA.”
2018 WL 2316636, at *5 (citing cases).
The particular monthly mortgage statements before the court in Jones were also sent by SPS and were substantively identical to the statements at issue in this case and in Brown.
Most recently, in Mills v. Select Portfolio Servicing, Inc., No. 18-cv-61012- BLOOM/Valle, 2018 WL 5113001 (S.D. Fla. Oct. 19, 2018), the court “agree[d] with the reasoning in Jones and [concluded] that the Mortgage Statements at issue [were] not communications in connection with a collection of a debt.” Id. at *2.
In conclusion, the substance of the monthly mortgage statements at issue in this case is substantially similar to model form H-30(B).
Any minor discrepancies in the language—when taken in the context of the document as an otherwise carbon copy of form H-30(B)—do not take the statements out of the realm of a monthly mortgage statement and into the realm of debt collection communications.
It is therefore ORDERED AND ADJUDGED that:
1. Defendant’s Motion to Dismiss Plaintiff’s Second Amended Complaint (Dkt.
24) is granted.
2. Plaintiff’s Second Amended Complaint is dismissed with prejudice.
3. The Clerk of Court is directed to close this case and terminate any pending motions as moot.
DONE and ORDERED in Tampa, Florida on December 18, 2018.
Copies furnished to: Counsel/Parties of Record
Judge Bert Jordan’s “Reputation” Warning to New Florida Lawyers
Constance Daniels Admonished by the Florida Bar (2021)
Constance Daniels, P.O. Box 6219, Brandon, admonishment in writing and directed to attend Ethics School effective immediately following a November 24 court order.
(Admitted to practice: 1995)
Daniels failed to act with reasonable diligence and failed to communicate with her client in connection with a dissolution of marriage action.
Daniels also failed to timely respond to the Bar’s formal complaint.
Constance Daniels v. Select Portfolio Servicing, Inc. (2022)
11th Cir., Published Opinion
(19-10204, May 24, 2022)
“A matter of first impression” 14 Years after the great recession and greatest theft of citizens homes in the history of the United States.
It’s quite incredulous how the 11th Circuit selects a Sanctioned Fl. Republican Lawyer, a failed judicial candidate and one who is facing foreclosure, for this ‘landmark’ published opinion in 2022.
Panel Author, Judge Bert Jordan, joined by Judge Brasher with a dissenting opinion by Judge Babs Lagoa
Selective Justice = Ochlocracy and Corruption.
WHY IS THERE NO CHARGES FOR LAWYERS STEALIN’ MILLIONS? https://t.co/gkMkVMboYZ@USAO_NJ @USAO_MDFL @SDFLnews @CityBocaRaton @AGAshleyMoody @flcourts @TheFlaBar @FLBarPresident @SWFLCourts @WSJ @nytimes @reason @MotherJones @ABC
— lawsinusa (@lawsinusa) May 26, 2022
11th Circuit revives FDCPA lawsuit over mortgage statement language
How Westlaw is Summarizing the Latest Eleventh Circuit Opinion
(May 26, 2022)
Resolving an issue of first impression, a divided federal appeals panel has held that mortgage servicers can be liable under the Fair Debt Collection Practices Act for inaccuracies in monthly mortgage statements that contain additional debt-collection language.
Daniels v. Select Portfolio Servicing Inc., No. 19-10204, (11th Cir. May 24, 2022).
In a 2-1 decision, the 11th U.S. Circuit Court of Appeals on May 24 reinstated Constance Daniels’ lawsuit against Select Portfolio Servicing Inc., in which she alleges the company used faulty mortgage statements to try to collect payments she did not owe.
Writing for the panel majority, U.S. Circuit Judge Adalberto J. Jordan acknowledged that Select Portfolio was required to issue the mortgage statements under the Truth in Lending Act, 15 U.S.C.A. § 1638.
However, the mortgage statements fell within the scope of the FDCPA’s prohibition on false or misleading representations, 15 U.S.C.A. § 1692e, because they included additional debt-collection language — “this is an attempt to collect a debt” — the opinion said.
Judge Jordan reasoned that “in determining whether a communication is in connection with the collection of a debt, what could be more relevant than a statement in the communication than ‘this is an attempt to collect a debt’?”
U.S. Circuit Judge Barbara Lagao dissented, saying the majority treated the language like “magic words” that could convert an otherwise routine mortgage statement into a communication covered by the FDCPA.
Judge Lagoa also argued that the decision created a circuit split, although the panel majority insisted that the facts of Daniels’ case distinguished it from others in which federal circuit courts seemed to reach a contrary result.
District Court tosses FDCPA claims
Daniels sued Select Portfolio in the U.S. District Court for the Middle District of Florida in July 2018.
According to the suit, Daniels had prevailed in a state court foreclosure action brought by lender Wells Fargo in 2015, with the judge sanctioning Wells Fargo and enforcing an earlier loan modification agreement between the parties.
But Daniels’ mortgage servicer, Select Portfolio, later issued several monthly mortgage statements misstating the principal balance and amount due, and falsely claiming that her loan was in arrears, the suit says.
At least three of the mortgage statements included the sentence, “This is an attempt to collect a debt,” according to the suit.
Daniels accuses Select Portfolio of using false or misleading representations in connection with the collection of a debt, in violation of the FDCA and the Florida Consumer Collection Practices Act, Fla. Stat. Ann. § 559.72.
Select Portfolio moved to dismiss, saying Daniels was attempting hold it liable for issuing mortgage statements that are required under the Truth in Lending Act.
U.S. District Judge James S. Moody Jr. agreed and dismissed the suit in December 2018. Daniels v. Select Portfolio Servs. Inc., No. 18-cv-1652, (M.D. Fla. Dec. 18, 2018).
Judge Moody said that any discrepancies in language between Select Portfolio’s monthly statements and what is required under TILA “do not take the statements out of the realm of a monthly mortgage statement and into the realm of debt collection communications.”
On appeal, Daniels argued that compliance with TILA does not make a mortgage servicer immune from suit under the FDCPA and, even if it did, the monthly statements at issue included language beyond what is necessary under TILA.
Kaelyn S. Diamond and Michael A. Ziegler of the Law Office of Michael A. Ziegler represented Daniels.
Benjamin B. Brown and Joseph T. Kohn of Quarles & Brady LLP represented Select Portfolio.
By Dave Embree
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