Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Consumer Financial Protection Bureau v. Mortgage Law Group, LLP

United States District Court, W.D. Wisconsin

July 20, 2016

CONSUMER FINANCE PROTECTION BUREAU, Plaintiff,
v.
THE MORTGAGE LAW GROUP, LLP, CONSUMER FIRST LEGAL GROUP, LLC, THOMAS G. MACEY, JEFFREY J. ALEMAN, JASON E. SEARNS and HAROLD E. STAFFORD, Defendants.

          OPINION AND ORDER

          BARBARA B. CRABB, District Judge

         Plaintiff Consumer Finance Protection Bureau brought this action against two defunct companies and four lawyers associated with those companies, alleging violations of the Consumer Financial Protection Act of 2010 and 12 C.F.R. part 215, which is commonly called Regulation O. Specifically, plaintiff alleges that while providing mortgage relief services to more than 6, 000 consumers in 39 states, defendants The Mortgage Legal Group, LLP and Consumer First Legal Group, LLC made misrepresentations about their services, in violation of Regulation O and the Consumer Financial Protection Act; failed to make certain disclosures required by Regulation O; and collected advance fees in violation of Regulation O. Plaintiff contends that defendants Thomas G. Macey, Jeffrey J. Aleman, Jason E. Searns and Harold E. Stafford may be held liable because they either participated directly in the illegal acts or had the authority to control the actions of the corporate defendants. Plaintiff and defendants Consumer First Legal Group, LLC, Thomas G. Macey, Jeffrey J. Aleman, Jason E. Searns and Harold E. Stafford have filed cross motions for summary judgment. Dkt. ##83 and 96. (Defendant The Mortgage Law Group, LLC has not filed an answer to the complaint or taken any other action in its defense.)

         Although the court has entered orders on many issues that the parties raised in their motions, including the validity of Regulation O, dkt. #144, and defendants’ qualification for the statutory and regulatory exemption for attorneys, dkt. #187, there are a few remaining issues related to liability and available remedies that are now before the court. Dkt. #190 (order reinstating parties’ motion for summary judgment with respect to these remaining issues). Specifically, plaintiff has moved for summary judgment with respect to defendants’ violations of Regulation O and the Consumer Protection Act, the liability of the individual defendants and available remedies. Defendants have moved for summary judgment with respect to the individual liability of defendants Macey and Stafford.

         Plaintiff’s motion for summary judgment will be granted with respect to certain matters. I conclude that:

1) The initial and monthly retainer fees charged by The Mortgage Law Group and Consumer First Legal Group qualify as advance fees under 12 C.F.R. § 1015.5(a).
2) The companies failed to make the disclosure required under 12 C.F.R. § 1015.4(b)(1) in the manner required under § 1015.4(b)(4) in either their telephonic communications with potential clients or the written retainer agreements sent to newly enrolled clients.
3) The companies implied in their welcome letter that consumers should not communicate with their lenders.
4) The companies’ intake specialists implied that consumers who were current on their mortgage should stop making payments on their mortgage loans.
5) The companies told consumers during intake calls and in retainer agreements and welcome letters that they would receive services from an attorney and legal representation in seeking a loan modification. Consumer First Legal Group also made this representation on its website.
6) The companies’ intake specialists misrepresented the performance of nonprofit housing counselor agencies or programs.
7) Aleman may be held individually liable for any violations of the Act or regulation on the part of The Mortgage Law Group at any time during its operations and of Consumer First Legal Group beginning in July 2012 related to the receipt of advance fees, misrepresentations made by the companies in oral and written communications to consumers (not in advertising) and any failures to disclose a consumer’s right to reject services.
8) Searns may be held individually liable for any violations of the Act or regulation on the part of The Mortgage Law Group at any time during its operations related to the receipt of advance fees, misrepresentations made by the company in oral and written communications to consumers (not in advertising) and any failure to disclose a consumer’s right to reject services.
9) Macey may be held individually liable for any violations of the Act or regulation on the part of The Mortgage Law Group at any time during its operations and of Consumer First Legal Group beginning in July 2012 related to the receipt of advance fees, misrepresentations made in the retainer agreement about consumers’ receipt of legal services and any failures to disclose a consumer’s right to reject services in the retainer agreement.
10) The appropriate measure for restitution or disgorgement in this case is defendants’ net revenues, which includes the amount of advance fees collected from their clients minus any refunds made to those clients. The Mortgage Law Group received total net revenues in the amount of $18, 331, 737 and Consumer First Legal Group received total net revenues in the amount of $2, 992, 296.

         Plaintiff’s motion will be denied with respect to the following issues, which will be resolved at trial:

1) Whether the companies’ welcome letter failed to make the disclosure required by 12 C.F.R. § 1015.4(b).
2) Whether the television and internet advertisements placed by third parties on behalf of the companies contained misrepresentations that consumers would receive legal services and obtain a loan modification in violation of 12 C.F.R. §§ 1015.3(b)(1) and (8).
3) Whether the companies’ intake specialists told consumers not to communicate with their lenders in violation of 12 C.F.R. § 1015.3(a).
4) Whether the companies’ direct communications with consumers misrepresented their likelihood of obtaining a mortgage loan modification in violation of 12 C.F.R. § 1015.3(b)(1).
5) Whether the companies’ welcome letters misrepresented the amount of time it would take to obtain a loan modification in violation of 12 C.F.R. § 1015.3(b)(2).
6) The individual liability of defendants Aleman and Searns for any misrepresentations made in television and internet advertisements placed by third parties on behalf of the companies.
7) Defendant Macey’s individual liability for any of the companies’ violations involving their telephonic communications with consumers, television or internet advertising (including company websites) or welcome letters.
8) Defendant Stafford’s individual liability.

         Defendants’ motion for summary judgment will be granted with respect to the individual liability of defendant Stafford and plaintiff’s claims against him will be dismissed. Also, defendants’ motion will be granted with respect to Macey’s individual liability for any of the companies’ violations involving their telephonic communications with consumers, television or internet advertising (including company websites) or welcome letters. Defendants’ motion for summary judgment will be denied in all other respects as it relates to the individual liability of defendant Macey.

         In addition to the disputed liability issues that will be resolved at trial, the court must address the parties’ disputes concerning whether defendants qualify for the statutory and regulatory exemption for attorneys engaged in the practice of law. In my April 21, 2016 order, dkt. #187, I determined that to qualify for the exemption, defendants must prove that they were licensed to practice law (or were affiliated legally with licensed attorneys) and provided mortgage relief services as part of the practice of law in every state in which their clients resided. This means that defendants must show that they met the licensing requirements and the definition of the practice of law for each state in which they provided services. The parties dispute the legal standard applicable in some states and the type of services that they provided to consumers. Although the legal standard must be determined on a state-by-state basis, the parties seem to rely on uniform evidence of defendants’ services, such as their general practice of reviewing consumers’ financial information and documents. In light of these disputes and the number of states involved, it will be important to develop a full record in an efficient and organized manner at trial, which is likely to take place in October or November of 2016. It seems that it would be most efficient to develop the evidentiary record on all of the remaining issues related to the attorney exemption, defendants’ liability and damages in one trial before the court. This would allow each witness to exhaust his or testimony on all issues in one appearance versus requiring the witnesses to take the stand in multiple trials. I also anticipate that there are some areas on which the parties may be able to reach an agreement and stipulate to certain facts or applicable legal standard. In addition, because the parties seem to rely on common evidence of defendants’ practices, it may be possible to develop a factual record for all states or at least groups of states. In light of these considerations, I would like some input from the parties before deciding how this case will proceed.

         The parties shall have until August 2, 2016 to meet, confer and submit a proposed trial plan in writing that shall address: (1) whether the parties’ disputes concerning the legal definition of the practice of law in certain states should be resolved in motions in limine before trial or in post trial briefing; (2) the pros and cons of holding one trial versus bifurcating or trifurcating the trial to resolve the attorney exemption issue first and then proceeding on the remaining disputed issues relating to liability and damages if necessary; (3) the amount of time the parties anticipate for presenting evidence on each of the remaining issues in dispute: exemption, liability and damages; (4) whether it is possible to develop one factual record for all states or at least for a group of states with substantially similar legal standards; (5) whether it would be beneficial to use five or six states as a representative example of a particular group of states; (6) evidentiary issues on which the parties can reach agreement; (7) how to proceed against defendant The Mortgage Law Group, which has not appeared in this case; and (8) any other suggestions that the parties may have for structuring the trial in an efficient and organized manner. The parties should highlight areas on which they agree and if necessary submit individual responses to address any issues on which they were unable to reach agreement. The parties should understand, however, that the court will make any final decision on how this case will proceed. The court will schedule a telephonic conference after August 2, 2016 to set deadlines for any additional briefing, Rule 26(a)(3) disclosures, motions in limine, the final pretrial conference and the court trial.

         UNDISPUTED FACTS

         A. Background and Formation of Corporate Defendants

         Defendants Thomas Macey, Jason Searns, Jeffrey Aleman and Harold Stafford are all attorneys with a background in consumer law. At all times relevant to this lawsuit, Macey was licensed to practice law in Illinois, Searns was licensed to practice law in Colorado, Stafford was licensed to practice law in Wisconsin and Aleman was licensed to practice law in Wisconsin and Illinois. In the 1990s, Macey and Aleman worked together at the law firm Legal Helpers, P.C. in Chicago, Illinois, which practiced in the area of consumer bankruptcy. They later operated Legal Helpers Debt Resolution, LLC, which provided debt relief services to consumers. Searns joined Legal Helpers Debt Resolution in 2009. Stafford worked with several national consumer law firms before meeting the other defendants in 2012.

         In early 2011, Macey, Searns and Aleman formed defendant The Mortgage Law Group, LLP, a Nevada limited liability partnership with its principal place of business in Chicago, Illinois. (The parties dispute whether the mortgage assistance relief services arm of Legal Helpers Debt Resolution became The Mortgage Law Group.) Macey held a 76 percent interest, Aleman held a 14 percent interest and Searns held a nine percent interest in the company. Aleman served as the managing partner and Searns served as general counsel and ethics counsel. The Mortgage Law Group offered and provided mortgage assistance relief and financial advisory services, including assisting consumers with modifying the terms of an extension of credit. It ceased operations by approximately November 2013, and in March or April 2014, it filed a voluntary Chapter 7 bankruptcy petition. (The parties allege conflicting dates for the filing of the bankruptcy petition.)

         In January 2012, Stafford formed defendant Consumer First Legal Group, LLC, a Wisconsin limited liability company that offered and provided mortgage assistance relief and financial advisory services to consumers. Stafford’s intention was that Consumer First Legal Group would become a nationwide law firm that provided mortgage-related legal services to consumers. Later in 2012, Stafford met Aleman, who proposed that he and Macey buy a majority interest in the company. In July 2012, Macey purchased a 78 percent interest in the company, Aleman purchased a 17 percent interest and Stafford retained a five percent interest. Aleman took over the day-to-day management of the company from a new office in Chicago, Illinois. By July 2013, Consumer First Legal Group ceased operations and did not have any clients.

         B. Role of Individual Defendants

         1. Macey

         As the majority partner of The Mortgage Law Group, Macey had the legal authority to exert control over the company’s policies, procedures and practices and weigh in on decisions for the company. He had final decision-making authority with respect to a number of issues (including financial matters and new ventures), reviewed and negotiated most of the vendor contracts (including the company’s lease and payment processing service) and reviewed and approved some corporate policies, processes and procedures.

         Similarly, as the majority shareholder of Consumer First Legal Group, Macey had the authority to make large decisions for the company. He involved himself in financial matters for the company if there was a dispute between the other shareholders, received weekly financial updates on matters such as the number of enrollments and employee compensation issues and had the authority to get an employee fired (though he never exercised his firing authority).

         2. Aleman

         Aleman managed the day-to-day business and operations for The Mortgage Law Group during its existence and for Consumer First Legal Group after July 2012. Aleman was intimately familiar with the operations of The Mortgage Law Group. All company personnel and local attorneys answered to him on daily matters, issues and policies. He developed and approved The Mortgage Law Group’s mortgage assistance relief services, directed client processing managers and third-party vendors, approved expenditures (including marketing), addressed client matters and created policies and protocols related to client support, processing and document collection. After July 2012, Aleman reviewed and approved Consumer First Legal Group’s processes, procedures, expenditures and resource purchases; approved the contents of the company’s website; hired, fired and managed all company personnel; reviewed and approved the company’s retainer agreements, Class B member agreements and contracts related to the management of the company (including third-party vendors).

         3. Searns

         As the minority shareholder and general counsel of The Mortgage Law Group, Searns oversaw the company’s compliance with regulatory requirements and offered opinions on ethical issues. Among other things, he reviewed the company’s retainer agreement and call scripts for compliance with applicable legal and ethical requirements. Searns also instructed managers in charge of client support, processing, and document collection on company procedures; supervised and audited paralegals and other support staff; and investigated and responded to complaints from consumers and regulatory authorities.

         4. Stafford

         Between January and July 2012, Stafford oversaw the operation of Consumer First Legal Group, managing its day-to-day activities and making all business decisions for the company. After selling most of his ownership interest in the company in July 2012, Stafford’s involvement in the company became more limited. He participated in the recruitment of local attorneys and drafted some written responses to consumer complaints from the Better Business Bureau and state regulators. Stafford received an annual salary of $50, 000. Under the company’s operating agreement, the salary stopped on the first of the following to occur: a period of two years or when the company stopped providing services to consumers.

         For a number of months, Stafford spoke with Aleman for five to 10 minutes once a week about the enrollment process (numbers, forecasting and whether the company was attracting new clients). Stafford also reviewed case notes related to clients who filed a complaint. He visited the Chicago office three times after he sold his ownership interest in the company.

         C. Advertising and Enrollment Process

         Consumer First Legal Group’s website described the company as “one of the most sophisticated consumer protection law firms in the country” with more than 100 associate attorneys “insuring the best possible outcome during uncertain times.” Dkt. #41 at 9-10. The website also made representations about the quality of services that Consumer First Legal Group would provide, such as “[w]hile foreclosure scams are rampant, our mortgage relief specialists are some of the highest rated professionals in the field;” and “[our attorneys] have years of experience keeping people in their homes and have a long list of testimonials from people who were on the brink of disaster.” Id.

         The Mortgage Law Group and Consumer First Legal Group did not place or run any television advertisements in their own names or contract with anyone to do so. Instead, they paid marketing companies to provide them with “qualified leads” on consumers. These third-party “lead generators” ran generic advertisements for mortgage loan modification services on television and online websites and for a fee, provided information about consumers who responded to the advertisements to companies like The Mortgage Law Group and Consumer First Legal Group. The Mortgage Law Group always used third-party lead generators, and Consumer First Legal Group began this practice in July 2012.

         The Mortgage Law Group and Consumer First Legal Group employed client intake specialists to field calls from potential consumers, gather information about the consumer and explain the services offered by the companies. (Plaintiff calls these employees “salespeople, ” a characterization to which defendants object.) The companies provided their intake specialists with “scripts” to help them answer questions and resolve any issues that the consumers might have, including what to tell consumers if they wanted to talk with their spouse before enrolling in the program, asked about negotiating with lenders themselves, objected to the cost of the program or wanted to cancel their enrollment. The script contained the following instructions and sample language to aid the intake specialists:

• All clients must be advised that they have “the right to reject any offer from their lender.” Dkt. #103, exh. #1 at TMLG.MO.LIT.000177-78.
• Do not tell a client not to talk with their lender, to stop paying their mortgage or otherwise to breach the contract with their lender. Id. at TMLG.MO.LIT.000152.
• Tell consumers that “[i]f you are able to stay current we would recommend you contact your lender because most programs are hardship based so the clients that retain us are behind on their payments or are in imminent default of doing so.” Id.
• If a consumer is unable to stay current, tell them that “The first thing that I want you to understand is that if you do fall behind on your mortgage it will damage your credit and could lead to foreclosure. That being said if you can't pay you can’t pay. The one thing we ask of people that are current is that they put in the proper amount of effort in working with us to find the proper resolution for you. We find the person who is a year behind is much more helpful that some who is current. Does that make sense? . . . Will you be helpful during this process if we decide to bring you in as a client?” Id.
• If the consumer asks about free mortgage loan modification services: “That makes a lot of sense to me, why pay for something if you don't have to right? How exactly are you planning on getting this service for free? (Let them answer) If things only worked that way in the REAL world! The service you are talking about are non-profits that will tell you what paper work you'll need to gather to submit to your bank to attempt a modification. Heck, I can do that in 30 seconds by sending you a document checklist and I’ll even do it for free, but that isn't going to get the result you're really after, which is mortgage relief. You see, we employ a very definitive strategy in an attempt to achieve the BEST possible outcome for you and that involves lawyers tying up the foreclosure process, holding your lenders feet to the fire, A LOT of back and forth negotiating, and if need be filing a formal complaint to the authorities if we find any wrong doing on the part of your lender. Believe me what you’re talking about getting “for free” and what we're offering are miles apart and at the end of the day I think all you're REALLY after is getting the relief you so desperately need, not necessarily getting someone to work for free for you, am I right? Great! Here's what we need to get you started!!” Id. at TMLG.MO.LIT.000160.

(Although the parties agree that intake specialists followed these scripts during telephone calls with consumers, they dispute whether the intake specialists made additional representations that went “off script.” For example, the parties dispute whether intake specialists expressly told consumers that they would get a mortgage loan modification if they enrolled in the company’s services or that they should stop paying their mortgage.)

         If a consumer expressed interest in defendants’ services, the intake specialist transferred the consumer to an attorney at company headquarters who reviewed defendants’ services with the consumer. The attorneys also worked from a script and read the consumer statements about the program and fees. If the consumer answered yes to these statements, he or she was transferred back to an intake specialist who had the consumer sign a retainer agreement.

         The retainer agreements for both companies stated the following with respect to the consumer’s obligations and right to engage in and terminate defendants’ services:

         IV. Term: The term of this Agreement shall commence on the effective date and continue until the negotiated resolution of a successful mortgage workout disclosed by Client in Exhibit A of this Agreement [which defines what qualifies as a mortgage workout] or until termination of this Agreement as provided in Paragraph XII.

         * * *

         VI. Client Obligations: The Client will perform the following obligations:

         * * *

         f. If a servicer contacts Client, Client will not engage in negotiation or workout discussions with servicer. Rather, Client will inform servicer that Client is represented by CFLG as Client's attorney, provide the servicer with CFLG's contact information, and advise servicer that all future communications shall be directed through CFLG. If the servicer engages in harassing or abusive ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.