Judge Sticks Sale Leaseback Peddler With Tab For Victim's Interim Attorney's Fee Even Though NJ Consumer Fraud Act Lawsuit Is Still In Discovery

In Newark, New Jersey, the New Jersey Law Journal reports:

• In a case of first impression, an Essex County, N.J., judge has awarded counsel fees during a pending Consumer Fraud Act suit, brought by a couple who claim they were scammed by two foreclosure-rescue companies.

• Superior Court Judge Kenneth Levy made the award after granting preliminary injunctive relief for the plaintiffs, saying "the question is ... can the court award counsel fees at this stage in the proceeding, and there is really no case law that's been presented to me that says I cannot do that."

• In his motion for the pre-judgment fee award, plaintiffs lawyer Abraham Borenstein, who heads a firm in Springfield, N.J., said there is precedent for interim awards in other fee-shifting cases though none under the applicable Consumer Fraud Act section, N.J.S.A. 56:8-19. Ruling on April 23 from the bench, Levy found the preliminary injunction -- based on a probability of success on the merits -- was sufficient to trigger that section, which provides for fees and costs to anyone granted equitable relief under the Act.

• "Although I'm not in a position to order a final judgment, I think that the plaintiffs should be awarded counsel fees for at least the work that they had to do through obtaining the preliminary injunction," the judge said in Pena v. Newell Funding, LLC, ESX-C-16-09.

• The case is still in discovery, but Levy cited strong evidence of fraud already uncovered, which probably will result in the court imposing an equitable mortgage: a remedy that returns title to people who have been defrauded out of their property by an illegal mortgage scheme.(1)

• In the suit, plaintiffs Juan Miguel and Iluminada Pena of Newark, N.J., claim that when they sought help from Newell Funding, a New York mortgage company, to forestall foreclosure of their home, Newell devised a scheme that purported to give them a $125,000 mortgage loan but actually had them execute a deed to a newly formed company, 376 Broad Street LLC, for little or no consideration. The suit charges Newell and other defendants -- including another mortgage company, Multi Solutions LLC -- used confusing documents to turn the loan into a sale without the plaintiffs' knowledge.

• In January of this year, Levy entered a temporary restraining order barring the defendants from selling, encumbering or transferring the home, and in March he granted the preliminary injunction.

• Levy awarded fees incurred from the outset of the case, filed in August 2008, to the entry of the injunction in March 2009. The award was made jointly and severally against the two mortgage company defendants and five other defendants. Borenstein calls the fee award "groundbreaking" and says it means that "litigants -- who previously could not afford to initiate a lawsuit -- are now empowered to fight and expose mortgage fraudsters."

• Borenstein is preparing his certification of time spent on the case, saying he will seek his customary hourly rate of $500 and will renew his fee application periodically as the case proceeds. "The right to attorneys' fees, in my estimation, is not dependent on winning the entire case," he says. "It's dependent on winning relief. We have won relief already."

• Newell was represented by Raphael Jacobs, of Jacobs & Bell in Tenafly, N.J., but on April 23, Levy approved a plaintiff's motion to disqualify him and add him as a defendant, says Borenstein's associate, Massimo D'Angelo. Jacobs declines to comment. The attorney for Multi Solutions, Scotch Plains, N.J., solo Richard Friedman, says, "I don't believe there's any support for the award of attorney's fees." He adds that the allegations against his client are "without foundation."

Source: Interim Attorney Fees Awarded in Consumer Fraud Suit Over Mortgage.

(1) In another recent New Jersey case in which, among other things, the attorney for the victim of another sale leaseback, foreclosure rescue equity stripping ripoff reportedly filed a request with the court to order the scammer to pick up the bill for his attorney's fees, see:

• Foreclosure Rescue Operator, Closing Attorney Found Jointly Liable For $690K+ In Bogus Sale Leaseback, Equity Stripping Ripoff,
• Bankruptcy Judge Disregards Terms In Sale Leaseback Docs In Home Sale; Recharacterized Equity Stripping F'closure Rescue Scam As An Equitable Mortgage.

The underlying story in these posts, originally reported in the New Jersey Law Journal (see Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam) contained the following excerpt in this regard:

• [Gabriel] Halpern, of PinilisHalpern in Morristown, N.J., has already filed an application for $33,932 in fees and asked U.S. Bankruptcy Judge Raymond Lyons Jr. to multiply the amount by three, for an enhanced fee of $101,797.

(By the way, the appication of a "lodestar multiplier" in calculating the amount of enhanced plaintiff's attorney fees a court will impose on a losing defendant is not unheard of in foreclosure rescue scam cases. For example, in affirming a lower court judgment against a foreclosure rescue operator for violations of the state's Consumer Protection Act in operating a sale leaseback scam, the Nebraska Supreme Court in Eicher v. Mid America Financial Investment Corp., 270 Neb. 370, 702 N.W.2d 792 (2005) ok'd use of a multiplier of 1.3 in calculating the total tab of $375,000+ for plaintiff's attorney's fees that the operator was responsible for paying. Plaintiffs’ lead counsel requested fees based on 2,589 hours of billable time by various persons in his law firm. The lawsuit was brought by approximately a dozen victimized homeowners.)