Unauthorized Practice Of Law, "Running & Capping" & "Lawyer Renting" Among The Issues Raised In Recent Loan Mod Lawsuit By California AG

In a recent lawsuit brought by the Office of the California Attorney General against a group peddling loan modification services, allegations of unauthorized practice of law, "running and capping," (ie. the practice of non-attorneys hustling up business for an attorney) and "lawyer renting" (ie. a loan modification firm's use of an attorney or law firm as a "front" for its activities where the attorney does little or no work, and has little or no contact with the financially distressed client desiring a loan modification, typically used to avoid prohibitions against clipping homeowners for upfront fees) have found their way into the complaint filed in this matter.

In People v. Home Relief Services LLC, et al,(1) the California Attorney General makes the following general allegations:

• As many other foreclosure rescue companies have done, in an attempt to avoid statutory prohibitions on collecting fees before any services have been rendered, Defendants have included one or more attorneys in their scheme. Noting the alarming trend in the number of complaints issued against attorneys involved with foreclosure rescue companies, the State Bar has issued an ETHICS ALERT cautioning attorneys from lending their names to loan modification companies when non-lawyers purportedly negotiate with the lenders on the customers’ behalf but actually provide little to no services; meanwhile, the non-lawyers also collect fees from the consumers and provide distressed homeowners with reckless and harmful advice on how to deal with their lenders (see Cal. AG lawsuit, paragraph 2),

***

• Defendants also falsely tell consumers that attorneys affiliated with Defendants review customers’ financial paperwork and also negotiate with the lenders on their behalf. Indeed, as a result of Defendants’ solicitation, some of Defendants’ customers are pressed by Defendants’ representatives to sign or otherwise unwittingly sign contracts with Defendants Diener and Diener Law Firm, believe the contracts are with Defendant HRS or another entity. These contracts obligate consumers to pay Defendants Diener and Diener Law Firm a fee and authorize Defendants Diener and Diener Law Firm to hire the other Defendants, even though the consumer has never spoken with nor ever heard of Defendants Diener and Diener Law Firm. Customers are not given any opportunity to speak with or have any contact with any attorneys affiliated with Defendants about their loans, and neither Defendants Diener and Diener Law Firm nor any other attorneys affiliated with Defendants review customers’ financial documents or negotiate with lenders on their behalf. Moreover, Defendants’ customers are informed by their lenders that the lenders have not been contacted by Defendants Diener and Diener Law Firm, or any of their lawyers, on the customers’ behalf (see Cal. AG lawsuit, paragraph 41).

In connection with the foregoing general allegations, the following violations of law against the non-attorney defendants have been alleged (see Cal. AG lawsuit, paragraph 65(j) and (k)):

• Violating Business and Professions Code sections 6151 and 6152, by engaging in "running and capping," the practice of non-attorneys obtaining business for an attorney,
• Violating Business and Professions Code section 6155, by some Defendants in directly or indirectly referring potential clients to Defendants attorney Christopher Diener and Diener Law Firm without seeking registration as a lawyer referral service by the State Bar, and by Defendants Diener and Diener Law Firm in accepting referrals of such potential clients,

In connection with the foregoing general allegations, the attorney defendants have been alleged to have violated Business and Professions Code section 17200 (relating to prohibitions against unlawful, unfair or fraudulent business acts or practices) by: (a) Violating the fiduciary duty and duties of good faith and fair dealing owed to their clients/customers by failing to review financial documents or negotiate with lenders on their behalf; and (b) Violating California Rules of Professional Conduct (or, in the alternative, try here):

• rule 1-320(A) by directly or indirectly sharing legal fees with a non-lawyer;
• rule 1-320(B) by compensating persons or entities for the purpose of securing employment or as a reward for having made a recommendation resulting in the employment of Defendants Diener and Diener Law Firm by a client;
• rule 1-300(A) by aiding persons or entities in the unauthorized practice of law;
• rule 3-110(A) by intentionally, recklessly, or repeatedly failing to perform legal services with competence; and
• rule 4-200(A) by entering into an agreement for, charge, or collect an illegal or unconscionable fee.

See Cal. AG lawsuit, paragraph 73(a) through(f).

(1) Other defendants: The Diener Law Firm, Golden State Funding, Inc., Payment Relief Services, Inc., Christopher L. Diener, Kathleen Marrero-Davis,Terence Green Sr., Stefano Marrero, Maya Burrell Marrero, Ronald C. Specter, Kenneth Buhler, and Does 1-100). UnauthPractOfLawTheta