O.C. Superior Court Judge Agrees State Bar WRONG on SB 94, But…

 

NOTE: This was written based on a preliminary ruling and today the judge’s final ruling came out, but as I thought would be the case, the final ruling is identical to the preliminary, so what’s written below applies as is.  

 

I’ve written more about California’s law known as SB 94 than anyone else by far.  In case you need a quick refresher, SB 94 was intended to prevent both attorneys and Department of Real Estate (“DRE”) licensees from charging advance fees in connection with providing loan modification services. It was signed by the governor in the fall of 2009.

 

The current controversy surrounding SB 94, however, began in the fall of 2011 when an attorney working for the State Bar, Suzan Anderson, told an audience at the State Bar’s annual meeting that the Bar would now be interpreting SB 94 to prohibit attorneys from being paid until the end of the loan modification process.

 

The problem with this “interpretation” by the Bar was two-fold.  One problem was that it was the first time since the law went into affect in 2009, that the State Bar had said anything like this about SB 94.  The second problem was that the language in the statute simply didn’t say what the State Bar was now claiming it said.

 

(If you’ve been following my coverage of this controversy, then most recently you’ve seen me explain it in painful detail HERE, HERE, HERE, HERE and finally HERE.)

 

The operative language that applies to both attorneys and DRE licensees, is as follows…

 

… it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following:  Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.

 

Does it say, “Claim, demand, charge, collect, or receive any compensation until THE END OF THE LOAN MODIFICATION PROCESS?”  No, it does not.

 

It says, “Claim, demand, charge, collect, or receive any compensation until AFTER THE PERSON HAS FULLY PERFORMED EACH AND EVERY SERVICE THE PERSON CONTRACTED TO PERFORM OR REPRESENTED THAT HE OR SHE WOULD PERFORM.”

 

You don’t have to be a lawyer to play along at home, all you need to be is a READER.

 

As it applies to attorneys that language is found in California Civil Code Section 2944.7.  As it applies to DRE licensees, you’ll find the exact same language in California Business & Professions Code Section 10085.6.

 

But, the legislative committee that drafted SB 94 went a step further as it pertained to DRE licensees by amending Business & Professions Code Section 10026 to read as follows…

 

“Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this section.”

 

Just so you know, Section 10,000 of the Business & Professions Code in its entirety applies specifically and solely to DRE licensees.  The legislative committee that drafted SB 94 did NOT amend the California Civil Code in any corresponding way, so it would seem clear that while SB 94 would prohibit DRE licensees from breaking up fees and/or services into component parts, the law would not prohibit lawyers from doing the same.

 

Any questions?  I would think not.

 

The State Bar, however, no matter how many times I and countless others tried to explain it to them, refused to accept what they were being told, and they continued to bring charges against lawyers based on their so-called “interpretation.”  The effect of the Bar’s strong arm tactics was to chase almost all of the legitimate attorneys away from helping homeowners with loan modifications, so that for the most part only the scammers remained.

 

The scammers, you see, didn’t care about what the law said, which is why we call them scammers.

 

The other impact was that lawyers, since they couldn’t be paid for helping homeowners get their loans modified, started offering to help homeowners file lawsuits, with the goal being to eventually settle with some sort of loan modification.  Obviously, this costs homeowners more, takes more time, clogs up the courts, and in general, is taking the long way around the barn to get a loan modification, but the State Bar didn’t seem to care about any of that.

 

Well, a little over a year ago, one lawyer who I happen to know well, Bob Scurrah, called to tell me that the State Bar was charging him with a violation of SB 94.  I drove down to his office to meet with him and he asked me for my opinion of what he should do.  I said, if it were me, I’d tell the Bar to go f#@k themselves and take the issue to trial… let a judge decide.  And, although I certainly wasn’t the only influence, that’s exactly what Bob decided to do.

 

It’s been over a year now, and the State Bar has continued to postpone Bob’s day in State Bar court… at this point it’s set for sometime this May.  They’ve had a number of settlement conferences, requested by the State Bar by the way, but at each Bob has said the same thing… no, I want my day in court.

 

The thing is that the State Bar judge who has been present at Bob’s settlement conferences has made it clear that he doesn’t think lawyers should be helping homeowners with loan modifications… period.  He made it clear that he doesn’t care about what the statute says, he’s made up his mind and that’s that.

 

In early December, Bob and his legal team filed something called a “declaratory relief” action in Orange County Superior Court, asking that a Superior Court judge rule on what SB 94 allows and doesn’t allow, and asking that the court grant a preliminary injunction.

 

So, yesterday, Orange County Superior Court Judge William H. Monroe, at a Case Management Conference, issued a preliminary ruling.  The final ruling became available the next day and is identical to the preliminary.  The judge’s ruling related to SB 94 states the following…

 

  1. Section §2944.7 does not itself prohibit limited retention agreements. On its face it merely prohibits collection of fees prior to completing services the attorney agreed (to complete).
  2. Plaintiff alleges that the State Bar is taking §2944.7 one step further and engrafting onto it an “anti-unbundling” rule similar to that contained in B&P §10026 for non-lawyers. The Legislature intentionally excluded lawyers from the “anti-unbundling” prohibition, and by negative implication permits lawyers to continue using multiple, limited-scope retainer agreements to capture aspects of loan modification servicing.
  3. Plaintiff correctly posits that §2944.7 requires the lawyer to either (1) present a client with dozens of separate retainer agreements for discrete acts or (2) forgo formal “modification” efforts and run instead directly to the courthouse steps to litigate freely.

Well, what do you know about that?

 

Apparently, Orange County Superior Court Judge William H. Monroe is not only a judge and a lawyer, but he’s a READER too!  And one might think that lawyers all over California would be popping open the champagne… or at least I would, after writing an inconceivable amount about this issue over the last few years and now finally being vindicated.  Alas… no.

 

A wrong without a remedy… 

 

Ah, but that’s what would be happening in Common Sense World, and we sure as heck haven’t been living there for quite some time now.  No, today we’re living in Bizzarro World, where down is up and nothing is as it seems.  In today’s world, all we have as a result of Judge Monroe’s ruling is a wrong without a remedy.

 

You see, the State Bar came to court to argue one point… that the Superior Court had no jurisdiction over the State Bar because it is part of the judicial branch and therefore reports to the California Supreme Court alone.  No one else can make them do anything.

 

And Judge Monroe was forced to agree, stating, in reference to his comments about the law’s plain language that…

 

“This is not a mandamus, nor would this Court have any authority to direct the State Bar in its interpretation. Agencies like the State Bar make their own decision, subject of course to review in the California Supreme Court.”

 

Just so we all know what the judge was referring to, a “mandamus,” according to Law.com, is “a writ which orders a public agency or governmental body to perform an act required by law when it has neglected or refused to do so.”

 

And the application for preliminary injunction was denied.

 

Now, to be clear Bob Scurrah’s legal team was expecting this to be the Bar’s argument.

 

And it would seem that Judge Monroe understood the frustration that the lawyers representing Mr. Scurrah were feeling, because in the judge’s closing comments, found at the very end of his preliminary ruling, he said…

 

The burden is on the plaintiff to show “in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading. Is there a different type of claim (interference perhaps) that plaintiff can state? If not, the demurrer will be sustained without leave to amend.

 

“Interference perhaps?”  It would appear that the judge was offering a hint of sorts as to how the attorneys representing Mr. Scurrah might consider amending their complaint so that he, as a Superior Court judge, might feel more comfortable deciding such a case.  “Interference,” as in tortious interference, I would guess, not being a lawyer.  Some type of interfering with a contract… a situation in which someone intentionally harms another’s contractual or business relationship?

 

I mean, the State Bar certainly has done that by using its made up “interpretation” of what SB 94 prohibits to prevent lawyers from representing clients seeking loan modifications.  So, we’ll have to wait and see what happens, but the end game may be the same anyway.

 

By amending their complaint to allege some form of interference, the Superior Court may rule on that issue, and could even conceivably find that Bob Scurrah was damaged by the State Bar’s interference, which could end up with the State Bar owing Bob at least a few bucks.  But, that wouldn’t change the core issue… that the State Bar is allowed to have whatever interpretation of the law that it wants to have and only the California Supreme Court can make them change their interpretation, regardless of how ridiculous or unsupported by the law’s language their interpretation is… or who thinks the Bar is wrong.

 

Judge Monroe, by the way, is not the first judge to rule that SB 94 doesn’t say what the State Bar now says it does.  In March of 2011, the Honorable Richard Seeborg ruling in a lawsuit brought before the United States District Court in the Northern District of California, by a California homeowner, Christopher Duenas, agreed with the interpretations of SB 94 presented to the court by California’s Attorney General Kamala Harris and California’s Governor Edmund Brown, as follows…

 

“… the fee provision of Civil Code section 2944.7 does not even appear to apply to the attorney consultation that plaintiff alleges he wants in his complaint, e.g., (1) evaluation of his mortgage, (2) evaluation of the extent of his rights against his mortgagor, (3) evaluation of consequences of breach of the mortgage contract, and (4) evaluation of need for a loan modification. None of these activities are covered by the challenged law.” (Emphasis added.)

“The legislative history makes it very clear that the ONLY SERVICE SUBJECT TO THE FEE RESTRICTION IN CIVIL CODE SECTION 2944.7 is the actual performance of an agreed mortgage loan modification or other form of mortgage loan forbearance with the borrower’s lender.”  (Emphasis added.)

“Senate Bill 94 prohibits charging of advance fees by persons offering to perform loan modification from‘the institution servicing that borrower’s residential mortgage loan.’”

“… the statute is narrowly drawn such that a person of ordinary intelligence will understand the attorney work that is the subject of the fee restriction. A person of ordinary intelligence is surely capable of determining that the statute prohibits an attorney from charging or receiving an advance fee for the performance of a mortgage loan modification or other loan forbearance with a borrower’s lender, and nothing else.

The breadth of the statute is also self-limiting in that it applies to “each and every service the person contracted to perform or represented that he or she would perform.” Civ. Code, § 2944.7(a)(1). Thus, if an attorney contacts to perform a loan modification, that is the scope of work subject to the fee restriction provision of Civil Code section 2944.7. 

… so long as the attorney has not contracted to perform an actual loan modification with the borrower’s lender as part of his representation in the court proceeding, the fee restriction in Civil Code section 2944.7, by its very terms, would not apply. What the statute does explicitly prohibit, however, is the payment of fees to a lawyer hired to perform an actual loan modification service with the borrower’s lender before the service is completed. That is the activity that triggers the fee restriction. This is a common sense and straightforward interpretation of the words of the statute. Therefore, as a matter of law, the statute is not impermissibly vague.”

“Duenas is free to consult with an attorney in all the areas he seeks, and he is free to pay the attorney in advance of receiving the advice if that is the fee arrangement he negotiates.”

 

And you can read all about the Duenas case HERE, but here’s what makes the whole State Bar interpretation thing extra weird.  When the State Bar was responding in the Duenas case in 2011, it agreed with the Attorney General and Governor’s interpretation of SB 94, stating in documents filed with the court that…

 

Despite Civil Code Section 2944.7(a’s) application to ONLY NEGOTIATION, ARRANGEMENT, OR PERFORMANCE of a loan modification, (plaintiff’s) counsel INEXPLICABLY CONCLUDED that Section 2944.7(a) prohibits them from providing Plaintiff with his requested advice. (Emphasis supplied.) (RJN, Ex 7, at 2:7-10).

 

Although plaintiff does not explain his reasoning, it appears he believes that the statute prohibits the payment for ANY mortgage related service, not just the negotiation, arrangement or performance of a loan modification, until ALL such services are complete… Plaintiff’s theory is not supported by the plain language of the statute…”

 

Of course, when the State Bar’s lawyer was asked to explain the Bar’s sudden change in how they are interpreting SB 94… you know, like when the Attorney General and Governor aren’t watching… he basically just says it doesn’t matter.  I’m not quoting him or anything, but that’s the gist of it.  And why bother quoting him… whatever he says won’t matter to anything he says later anyway.  See, I’m learning how this game is played… if you’re the State Bar.

 

Okay, so game over.  The State Bar wins… and everyone else in California loses.

 

Look, I’ve now explained this so many times and in so many ways that this issue has become so pedestrian as to bore me.

 

At this point, essentially anyone should be able to see that the State Bar’s interpretation of SB 94 is on the wrong side of the law, the wrong side of public policy and the wrong side of legitimate and ethical attorneys simply trying to get an answer as to what the law allows and prohibits.  Hiding behind the robes of the California Supreme Court isn’t fooling anyone over the age of nine or ten.

 

It’s also probably worth mentioning that Bob Scurrah’s legal team had previously offered to have his case submitted to the California Supreme Court, but the State Bar refused.

 

The fact is that I’ve personally spoken at length with literally hundreds of attorneys, legal scholars, policy experts, and even the legislative chair responsible for drafting SB 94, and I can’t find anyone, outside those at the State Bar, that agrees with the State Bar’s latest interpretation of SB 94.  And not surprisingly, it’s widely known that within the State Bar there is a division as to what SB 94 permits and disallows, as well.

 

I wonder how Attorney General Kamala Harris feels about how the State Bar’s interpretation jibes with her California Homeowner Bill of Rights that specifically says that homeowners have the right to hire an attorney to help them get their loans modified.  I guess she meant, you can hire one… you just can’t pay one?  Seriously?

 

It also makes me wonder how much this whole ruse is costing the lawyers in California who pay their annual dues to be members of the State Bar?  The State Bar’s outside counsel, who flies down from San Francisco for these appearances looks to me like a $700/hour sort of lawyer.  I don’t know that for sure, however, should anyone care to wager on the matter… I’m your huckleberry.

 

So, I don’t know how much defending this “interpretation” of SB 94 is costing the State Bar, and I’m confident that the costs will never be broken out for all to see.  But, whatever the State Bar’s interpretation is costing the Bar… I can say without question that the costs of the State Bar’s “interpretation” born by California homeowners and the State of California, in terms of allowing for the proliferation of scammers, and homes lost due to loans not modified that could have been had proper legal assistance been available, is easily climbing past the tens of millions into the hundreds of millions… at least.

 

I could provide estimates of those costs, and the assumptions used in their creation.  Not that any of that would change anything.  For that, I guess all we can hope for is that one of the California Supreme Court justices ends up with a relative who loses his or her home after trying in vain to hire a lawyer to help get a loan modification.

 

What?  It could happen.

 

Mandelman out.

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