California Bar Releases Statement on Mass Joinder Raids

The State Bar of California and Attorney General Kamala Harris announced today they have shut down the operations of several lawyers and marketing firms that have targeted distressed homeowners, urging them through false advertising to sue their mortgage lenders. The bar and the Department of Justice won court orders earlier this week either assuming jurisdiction over several lawyers’ practices or imposing temporary injunctions against the marketing companies.

In a collaborative effort, both agencies petitioned superior courts in Los Angeles and Orange counties to shutter the foreclosure litigation operations. The bar assumed jurisdiction over the practices of four southern California lawyers, alleging they abdicated their professional responsibilities by using non-lawyers to bring in clients, set fees, provide legal advice and evaluate cases. Harris’ office sued the attorneys and several marketing firms affiliated with them that have sent an estimated 2 million mailers to potential clients throughout the country. The lawsuit charges the defendants with, among other things, false advertising, fraudulent business practices, improper fee splitting and failing to register with the Department of Justice as a telephonic seller.

The State Bar and Harris acted after the bar received complaints from several victims, developed evidence about widespread fraudulent advertising and marketing practices and took the evidence to the Department of Justice. The bar and the attorney general worked hand in hand to put an end to scams perpetrated by lawyers and others that injure the public, particularly distressed homeowners facing possible foreclosure.

State Bar President William Hebert said the bar believes the attorneys represented hundreds of clients and collected millions of dollars in fees. “The number of lawyers who have tried to take advantage of distressed homeowners in these tough economic times is nothing short of shocking,” Hebert said. “By taking over the practices of these four attorneys, the State Bar can put a stop to their deplorable conduct as part of our ongoing effort to protect the public.”

“The defendants in this case fraudulently promised to win prompt mortgage relief for millions of vulnerable homeowners across the country,” said Attorney General Harris. “Innocent people, already battered by the housing crisis, were targeted for fraud in their moment of distress.”

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The State Bar took over the practices of:

Philip A. Kramer (bar number 113969), 52, of Calabasas;
Christopher Van Son (bar number 133440), 49, of Oak View;
Mitchell Stein (bar number 121750), 53, of Agoura Hills; and
Paul W. Petersen (bar number 170922), 51, of Irvine.

The lawyers were loosely affiliated and hired more than 100 marketers to send mass mailings nationwide. The mailers, which looked like an official government notice, routinely indicated that they were a “legal settlement notification” and that the recipients “would become a named plaintiff.” They gave the impression that a settlement was imminent, the recipient should act quickly or lose out, and often outlined goals such as a $75,000 settlement, loan forgiveness or a 90 percent chance of winning.

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Kramer, Van Son, Stein and Petersen joined forces to file “mass joinder” lawsuits, a way for individual plaintiffs with separate but somewhat similar causes of action to participate in a single suit. The actions, with hundreds of plaintiffs, were filed against mortgage lenders and generally alleged fraud in the lending process. Mass joinder differs from class action suits in that plaintiffs in a class action share a single judgment, and mass joinder plaintiffs can receive individual judgments or settlements.

Clients who signed up as mass joinder plaintiffs paid between $3,500 − $10,000 each. Kramer alone had 19 bank accounts, one with deposits of more than $3 million between December 2010 and March 2011. Petersen and a non-lawyer partner indicated they anticipated “annual sales” of $45 million when they opened a Citibank account.

When clients signed up, however, they rarely if ever met or consulted with a lawyer.

The bar alleges that the attorneys abdicated a key part of their professional responsibilities by relying on unsupervised non-lawyers to handle the intake process and all subsequent communications. As a result, the attorneys are unable to provide an adequate quality of service necessary to protect clients’ interests. In addition, the bar said, the use of deceptive mailers to recruit clients underscores the need for quick action by the court.
Under the California Business & Professions Code, the court can take over the practice of any attorney incapable of devoting the time and attention to his law practice necessary to protect clients.

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The bar was appointed to secure the four lawyers’ files, freeze their bank accounts and notify their clients to seek new counsel. Clients are advised to call the following State Bar phone numbers for additional help: Clients of Christopher Van Son, 213-765-1658; clients of Mitchell Stein, 213-765-1639; clients of Philip Kramer, 213-765-1672; and clients of Paul Petersen, 213-765-1641.

The bar has not filed formal disciplinary charges against any of the attorneys.

The State Bar’s actions are the result of work by a loan modification task force, formed in March 2009 to address thousands of consumer complaints about lawyers who did not deliver on promises to help them avoid foreclosure. Earlier this year, the bar began to receive complaints about the mass joinder lawsuits.

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