Pa. Supreme Court Takes Another Shot at Attorney-Client Privilege

'Gillard v. AIG' is the latest in a series of worldwide rulings covering attorney-client privilege

An attorney arguing for an insured in a case about attorney-client privilege said the Pennsylvania Supreme Court had its chance in 1998 to take control of whether communications from an attorney to a client were privileged and instead let the legislature re-enact an 1887 statute codifying that the privilege extends only to communications from a client to an attorney.

Now it is that statute that the court must strictly construe in finding AIG should produce documents that were drafted by an attorney for the insurance company client, the attorney for William Gillard argued in Gillard v. AIG Tuesday.

It's the second time this year the court was faced with the privilege issue, but in the first case, Nationwide v. Fleming, only four justices decided the case and they were split, leaving a Superior Court's decision that attorney-client privilege is a one-way street stand. Nationwide also involved an issue of waiver, which Gillard does not, allowing the justices in Gillard to look only at the merits.

All seven justices heard Tuesday's arguments in Gillard, in which the lower courts relied on the Nationwide decision in determining communication from an attorney to the insurance company client is not privileged.

In response to the argument by Gillard's attorney, Claire Neiger of Michael T. Sosnowicz & Associates in Darby, Pa., Chief Justice Ronald D. Castille asked whether this was a matter of practice and procedure that was within complete control of the court and not the legislature. He asked Neiger why the court couldn't simply ignore the codification of the privilege and say the legislature violated separation of powers by regulating something within the court's powers to regulate.

Neiger responded that the court could do that, but it would be going against its prior decisions.

"In 1998, you had the opportunity to pull back and you didn't," Neiger said.

Before Neiger was able to finish her next argument that this issue was better handled under the common law attorney work-product doctrine, Castille asked her whether she would like it if her communications with her clients were made public.

"I would hope I would have the sense to craft it in a way" that it would be protected, Neiger said, adding that attorneys are "clever."

"I don't know why an attorney has to be clever," Justice Joan Orie Melvin said later.

Neiger had argued that some communications from attorneys to clients are protected as long as they reference information the client had previously provided. She said Philadelphia Common Pleas Judge Jacqueline Allen followed that guideline in determining in Gillard that some documents were discoverable and others were not.

The argument for the other side is that attorneys sometimes want to be proactive in writing opinion letters to clients on new legislation or issues facing the company and they argue that should be protected.

The court recognized at the start of argument the slew of amici filers on behalf of AIG, including the Philadelphia, Allegheny and Pennsylvania Bar Associations, the U.S. Chamber of Commerce and the Association of Corporate Counsel.

AIG's attorney, David Rosenberg of Weber Gallagher Simpson Stapleton Fires & Newby in Pittsburgh, said it shouldn't be lost on the court that all of these attorney groups are coming out in favor of privilege being a two-way street.

He said for hundreds of years the court has recognized as privileged communication both from and to the attorney. It was in 1887 that the privilege was initially codified, but only in part. Both then and now the statute reads that an attorney cannot "be competent or permitted to testify to confidential communications made to him by his client."

Rosenberg said this language was not meant to limit hundreds of years of privilege protecting communications from the attorney to the client. He cited a 1900 case, National Bank of West Grove v. Earle, in which the Supreme Court found privilege to be a two-way street even after the 1887 enactment of the statute.

Castille said it seems hard to sort out what communication was from the attorney and what was from the client when some of the attorney communication might include client comments as well.

Rosenberg said the communications are intertwined and a finding that privilege is a one-way street creates too big of a risk to the client that something they say might be revealed. He said the Supreme Court has the power to clarify this issue.

"Attorneys and clients need clarification and direction," Rosenberg said.

Neiger said AIG makes it seem that the court hasn't dealt with this issue since 1900, but she said that was only a one-page opinion that was dicta. She said there are plenty of cases, however, that have followed strict statutory construction. Over time, Neiger said, corollaries to the privilege statute have arisen that allow for the protection of some attorney communication.

Justice Max Baer asked whether Neiger's construction would put an attorney in the position of determining during each conversation with a client whether what she said is discoverable. Neiger responded in the negative, saying those discussions are based on privileged facts from the client, not based on corporate interests of having opinion letters from attorneys be protected.

"All the attorney has to do is write in an opinion letter facts given by the client and it's not discoverable," she said.

Justice Debra Todd said she wanted to "quarrel" with Neiger's repeated comments that the case was about protecting corporate interests, as Neiger said was evidenced by the amici filers. Todd said the associations of attorneys signing on in support of AIG represent both plaintiffs and defendants.

PRIVILEGE IN PA. AND ABROAD

In Nationwide, Justices J. Michael Eakin and Baer wrote to affirm the lower court while Justice Thomas G. Saylor and Castille wrote to overturn it. Justices Seamus P. McCaffery and Todd had to recuse themselves from the case because they sat on the lower court panel. Though the case was argued in March 2008, the court didn't issue a ruling until after interim Justice Jane Cutler Greenspan left the bench in January 2010, leaving only four justices to decide the case. Orie Melvin couldn't rule on the case because her brother represented one of the parties.

The same day the full court heard arguments in Gillard, the European Court of Justice decided in the closely watched Akzo Nobel case that attorney-client privilege does not extend to in-house attorneys in investigations of anti-competitive acts by corporations. Although Gillard didn't deal with in-house counsel, Nationwide did.

The Akzo Nobel ruling raised immediate ire from in-house counsel across the globe, including the ACC, which came out in favor of AIG and Nationwide.

In a statement Tuesday, ACC General Counsel Susan Hackett said the organization was dismayed by the ECJ ruling, which she said ignores the independence of in-house counsel.

"In-house counsel are top legal practitioners who are just as capable as their outside counsel counterparts," Hackett said. "The idea that professional independence stems from the type of office a lawyer works in, rather than from their moral and professional compass, evidences a deep misunderstanding of legal professionalism and lawyers."

Court weighs Bluffton crash blame

Is Bluffton University responsible for the 2007 bus crash that killed seven people, including five of its baseball players, or does blame rest solely with the company whose bus sped over an overpass and landed on the highway below?

The Ohio Supreme Court wrestled with that question yesterday, with the debate coming down to the definition of the word hire.

There's no dispute that Bluffton University paid Ottawa, Ohio-based Executive Coach Luxury Travel to drive its baseball players to a tournament in Florida.

But attorneys for the university's insurance carrier and two of the accident victims clashed over whether the university had "hired" the bus, which would make it liable for the accident. A trial court and the 3rd District Court of Appeals approved dismissal of the lawsuit against the university's insurer, saying there had been no "hire" of the bus.

The driver for Executive Coach apparently mistook a freeway exit ramp as a carpool lane and plunged the bus onto the highway below in the early hours of March 2, 2007. The accident killed five student athletes, as well as the driver and his wife.

Steven R. Smith, the attorney for the estate of one of the accident victims, said that not only had the university hired the bus, but the baseball coach gave "permission" - another catchword in the insurance policy - to the bus driver.

"This court knows that the insurers control every comma and every period of the insurance policy," Smith said.

D. John Travis, the attorney for Federal Insurance Co., one of the university's carriers, said the university had not hired a bus any more than he would hire a taxi to take him to his hotel.

"Somebody's got to maintain control, and here it was Executive Coach, because they're the ones who controlled the methods and the means," Travis said.

The court is expected to issue its decision in several months.

Don't fall for scams: Real mortgage counseling will help secure loan modification for free

 

The foreclosure crisis is bad enough, but in southern New Jersey and elsewhere it is being worsened by illegal and unscrupulous operators scamming distressed homeowners, government-approved counselors say.

With advertised promises of quick and easy mortgage modifications that would let people keep their homes, these mainly out-of-state operators are getting high up-front fees from those who can least afford them and then doing nothing meaningful.

What’s worse, the real help homeowners need from federally approved mortgage counselors is free, supported by state and federal funding.

“Some former mortgage brokers, to make up for the loss of income from selling mortgages when the market was hyperinflated, are resorting to preying on individuals facing foreclosure,” said Russell Graves, executive director of Consumer Credit and Budget Counseling in Marmora, Upper Township.

John Schmidt, vice president of housing for Tri-County Community Action Agency in Bridgeton, said he has seeing a high number of for-profit operations targeting distressed homeowners.

“When a bank files for foreclosure, that’s a public record. They have teams of people searching the records and contacting those people,” Schmidt said. “They’re charging fees of $1,500 to $3,000, and basically they don’t do anything, just gather some information.”

Graves said agencies need a debt adjuster’s license in New Jersey to work on mortgage modifications, and that’s available only to nonprofit organizations.

As a consequence, modification scam operations are usually, but not always, located out of state. Currently, ones in Maryland and New York are advertising heavily online and on radio in southern New Jersey, he said.

Graves, 52, of Upper Township, said he has called one of the services and found it is charging 1 percent of the mortgage amount, which would be about $2,500 on an average loan — ostensibly to provide a service available for free from agencies approved by the Department of Housing and Urban Development.

He said the foreclosure crisis is grim, and it is especially sad when someone in danger of losing their home comes in after wasting a large amount of money on a loan modification scam.

“One situation really bothered me. This family was losing their home and they went to a young lady who was a former mortgage broker in the state and she charged them $800 up front and after five months had done nothing,” Graves said. “By the time we got to them, they were 11 months behind on their mortgage and once they hit 12 months, they’re not eligible for the Federal Housing Agency’s Home Affordable Modification Program.”

Schmidt said one of his clients, an elderly woman, was given a refinancing mortgage with a payment of $1,200 per month, even though her income was only $900 per month.

Graves and Schmidt said their agencies have turned the names of modification scam operators over to the state Department of Banking and Insurance and the Attorney General’s Office.

Unfortunately, the state does not have the manpower to go after all of the illegitimate operations, Graves said. Many get warnings, and some are prosecuted to discourage others.

Attorneys are exempt from the requirement for a debt adjuster’s license and can work on mortgage modifications, he said, which gives some out-of-state services an opening.

Agencies fronted by lawyers, which could have one attorney and dozens of sales people, often use direct mail to solicit homeowners in foreclosure, he said.

“I contacted one, and when they found out I didn’t need a loan modification, they sold my name and number to a debt-settlement agency,” Graves said.

Even though New Jersey was only 29th among states for foreclosure filings in August, Consumer Credit and Budget Counseling is getting a few new foreclosure clients a day, he said.

The agency has about 425 active foreclosure clients in Atlantic and Cape May counties, he said, and is just one of several HUD-approved agencies in the region helping those in foreclosure for free.

The agency’s staff has gone from nine to 15 to handle the increased need for debt relief, “and will probably increase going forward,” Graves said.

The principle causes of the foreclosure crisis are well-known — a housing bubble that burst, excessively loose mortgage lending standards and a severe recession — but Schmidt said some clients he sees have helped put themselves in trouble.

“Some homeowners feel that if they pay their car loan and credit cards, it will maintain a higher credit rating, but that’s not the case,” he said. “The previous generation knew to pay the mortgage first, but somewhere that got lost in the mix.”

Those who do not pay their mortgage should be saving as much of the payment as they can afford, he said.

“Lenders really frown on going into mediation on a loan modification if the homeowner has nothing to put down on the table,” Schmidt said.

Graves said banking at least a partial mortgage payment can also pay off if foreclosure cannot be avoided.

“From the first missed payment to the time the sheriff is asking you to leave is more than 24 months right now,” he said. “For clients unable to stay in their homes, that’s good news, because if they save even half of what the mortgage payment was, they can move on with some money in their pocket and continue their lives.”

ill 'hijacked' by amendments from trial lawyers

A bill intended to strengthen the law in favor of first responders hurt in the line of duty has been hijacked according to the sponsor of the bill. But the mother of a murdered police officer said the bill must pass.

The bill is meant to increase penalties for reckless drivers who injure first responders, but an amendment is causing controversy.

"Unfortunately, the bill has been polluted by at least two amendments," said Rep. Will Tallman (R-Adams/York), the bill's sponsor.

Tallman kicked off the more than two hours of testimony before the Senate Banking and Insurance Committee. But criticizing the new amendment, an amendment added to House Bill 2246 by the Trial Lawyers Association, allows attorneys to suggest to the jury how much pain and suffering is worth monetarily in auto-related civil cases.

"To suggest what a pain and suffering amendment would be would not be fact or evidence, rather opinion," said Stuart Setcavage, of State Farm Insurance.

"It's going to affect our bottom line, because of increased insurance costs," said Mark Campbell, of H.F. Campbell & Son, Inc.

Small businesses and insurance companies testified premiums could skyrocket because of an increase in verdicts. Some senators questioned why tack on this type of amendment that would benefit trial lawyers financially and disrupt the bill's original intention.

"Because so many of the states already have this amendment as a law, they're surprised we don't," said Kim Weigand, whose son was killed in the line of duty.

Her son, Sgt. Michael Weigand, died almost one year ago Tuesday as he rode a motorcycle as an escort in a charity bike ride. She is for the bill with the amendment and doesn't want it passing any other way.

Copyright 2010 Newport Television LLC All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Tort Reform Author Joe Nixon Representing Taylor

Tort Reform Author Joe Nixon Representing Taylor

 

If the Larry Taylor-Steve Mostyn battle over windstorm insurance payouts wasn't a proxy war for the tort reformists and the trial lawyers before, it certainly is now. Mostyn, the president of the Texas Trial Lawyers Association, subpoenaed state Rep. Taylor, R-Friendswood, last week for a deposition over what Mostyn believes is a potential abuse of power.

Taylor said yesterday he has hired former lawmaker Joe Nixon to represent him. You may remember Nixon as the architect of 2003's sweeping tort reform law. "He called me and offered to help," Taylor said.

If you're just joining this saga, Taylor requested information from the quasi-public Texas Windstorm Insurance Association, known as TWIA, about how much Mostyn and other attorneys made in settling a multimillion dollar claim on behalf of homeowners earlier this year. Mostyn objected on the grounds Taylor asked for private homeowner information and won a temporary restraining order to keep the information private at least until a hearing next week.

Taylor has maintained that he's only seeking information so he can fix policy. He co-chairs a TWIA oversight board that has a report due Nov. 15, and since the settlement with Mostyn's 2,400 clients was the state's largest this year, Taylor says it's reasonable to be asking how much the state paid out to homeowners and attorneys.

Who's watching the watchdog?

Who's watching the watchdog?

 

Judging by the public and professional outcry, most of Wisconsin seems to have known that the purported actions of Calumet County District Attorney Ken Kratz in trying to spark a relationship with a domestic abuse victim even as he was prosecuting her assailant was wrong.

But somehow that was not the conclusion of the state Office of Lawyer Regulation.

Last week, Gov. Jim Doyle began the process of removing Kratz from office and appointed former Kenosha County District Attorney Bob Jambois to oversee those proceedings.

That's all well and good. A hearing is set for Monday and we hope a final determination comes as soon as practicable.

But the Kratz case shouldn't end there.

It has raised disturbing questions about the processes, secrecy and effectiveness of the Office of Lawyer Regulation itself.

As state Attorney General J.B. Van Hollen told the Green Bay Press-Gazette last week, "I was astounded they (the Office of Lawyer Regulation) dismissed it as out of hand. To think they did nothing. Everybody was very shocked."

After the woman filed the complaint against Kratz with police, the state Justice Department investigated and decided against pursuing criminal charges.

From published reports of the allegations, that makes some sense - the allegations are creepy and outrageous, but may not be criminal.

The Justice Department gave the complaint over to the Office of Lawyer Regulation, as it should have, to assess whether Kratz' actions constituted professional misconduct.

Incredibly, the agency decided that Kratz' smarmy text messages to the domestic abuse victim were inappropriate but "did not appear to involve possible professional misconduct." The office did not even go ahead with a formal investigation and closed the file last March. They never contacted the abuse victim.

Even today, the agency's decision and the reasons for it remain cloaked in secrecy.

On Friday, in the face of mounting criticism, the Office of Lawyer Regulation announced it was reopening its investigation into the Calumet County district attorney because "substantial" new information had been presented that shows "what may be a pattern of conduct." Ah, that would be the three other women who have come forward with similar complaints against Kratz in the past two weeks.

Isn't that the kind of thing the state agency is supposed to ferret out in the first place?

The Office of Laywer Regulation is an arm of the state Supreme Court, and its actions on grievances are done confidentially to protect lawyers and their clients, until there is a referral to the Supreme Court for action or a lawyer agrees to a public reprimand.

In the main, that is probably a reasonable process for most state lawyers. But prosecuting attorneys have substantially more power than other lawyers and that should require special safeguards to prevent abuse of office and professional misconduct.

According to the office's annual report for 2008-09, almost 70 percent of the grievances and complaints filed that year were dismissed for "lack of sufficient information to suggest an allegation of potential ethical misconduct."

The Wisconsin State Journal reported earlier this month that the state Supreme Court has publicly or privately sanctioned just 28 prosecutors in the past 29 years.

We don't know if one sanction a year is something to celebrate or something to wonder about and, given the Kratz case, that "wonder" has turned to worry.

This episode has done no favors to ethical, hard-working district attorneys, either. It has brought a dark cloud over the justice system by raising a question of how often predation has replaced fairness and professionalism in our courthouses.

Such circumstances are not acceptable. The state Supreme Court must clear the air on this case and make sure someone is watching the watchdog. If it takes more openness in proceedings when prosecutors are accused of misdeeds or inappropriate action, then that should be the course we follow to restore confidence in our courts

Four S.D. lawyers focus on medical marijuana law

Four S.D. lawyers focus on medical marijuana law

 

The specialty keeps them busy as legal issues arise over what's allowed

Jeffrey Lake is a veteran lawyer whose law practice focused on real estate, mortgage lending and construction defect cases.

Lance Rogers worked on a variety of criminal cases before finding a niche in one area. Michael Cindrich used to work for the District Attorney’s Office before quitting to start his own practice. And after graduating from law school in 2008, Kimberly Simms set up her new law practice determined to focus on one emerging area of law.

What do these lawyers have in common?

They have become part of an informal medical marijuana bar in San Diego — lawyers who work almost exclusively on civil and criminal cases dealing with the often contentious and complex issues surrounding the legal use of cannabis as medicine.

They do it in a county that has a reputation for taking one of the hardest lines against medical marijuana use in the state. District Attorney Bonnie Dumanis has aggressively pursued cases against members of cooperative or collectives, contending they were illegally engaged in drug sales and not in compliance with the state law that voters approved in 1996 to allow the use of pot with a doctor’s prescription.

The city of San Diego’s code enforcement officers also have been methodically going to medical marijuana outlets and citing them for zoning violations, at the same time that city leaders are fashioning new regulations for the pot dispensaries, Lake said.

He represents more than 70 collectives and cooperatives in the county, assisting them with the civil side of the law: how to legally set up such entities, deal with zoning and leasing issues, and help clients who are trying to navigate different rules from city to city.

Some cities have a moratorium on opening medical marijuana outlets. Other governments, including the county, restrict them to certain areas, Lake said.

He also is active in the policy issues surrounding medical marijuana.

“It’s legally challenging, because this is a new area of the law,” he said. “There is not very much case law on a lot of these issues yet, and it’s an emerging field.”

That sentiment of working in largely uncharted legal territory was echoed by the other attorneys. Kimberly Simms graduated from law school in San Diego in 2008 and now works exclusively on medical marijuana cases. She said she was drawn to the field because she sees medical marijuana use as a civil-rights issue and was intrigued by the combination of law and politics.

“The political push and pull over medical marijuana, and how that interacts with our laws, is fascinating,” Simms said.

While use of medical marijuana is allowed under California law, it is prohibited under federal law. That conflict is just one of several areas of uncertainty and confusion among patients, caregivers and cooperatives that the lawyers have to grapple with.

Cindrich said the first thing he tells clients in his practice is that marijuana is illegal under federal law. But then he warns them that dealing with cities and the county won’t be easy either.

“My other advice is that the city of San Diego is not currently receptive to new dispensaries opening up, so this most likely will be a headache for you,” he said. “But if you feel strongly about this, and you are in it for the rights reasons — to help patients, and not just to make money — this could be for you.”

Cindrich worked for the District Attorney’s Office in San Diego for a year or so when he graduated from law school in 2006. He did not work on any medical marijuana cases, but when he decided to start his own practice he became intrigued by the issue.

Now he represents patients, caregivers and members of cooperatives who are being targeted by his former employer, who he says is making it unnecessarily difficult for patients.

“The DA’s Office here is taking an extremely narrow view of the medical marijuana law,” he said. “Attorneys in other parts of the state are aware of that and realize how difficult the legal environment is in San Diego for medical marijuana.”

The District Attorney’s Office does not have a special unit or designated prosecutor devoted to medical marijuana cases, said Deputy District Attorney Steve Walter, the assistant chief of the narcotics section. Cases are assigned to a variety of prosecutors.

As for taking a narrow view of the law, Walter said the office pursues cases only when they have determined a law has been broken. “It’s fair to say,” he added, ”our office’s belief is, if you are selling marijuana, that is illegal.”

The medical marijuana law allows possession and cultivation under certain circumstances for qualified patients. State guidelines say collectives or cooperatives should be nonprofit and can’t sell to nonmembers.

Last week, a medical marijuana prosecution began that is being closely watched in San Diego Superior Court. Jovan Jackson, who won an acquittal from a jury last year on charges he was illegally selling the drug from the Answerdam cooperative in Kearny Mesa, is again on trial on charges stemming from a second raid on the cooperative.

Rogers represented Jackson in his first case and is doing so again. His task may be made more difficult because Judge Howard Shore ruled that Jackson could not raise the medical marijuana defense.

Three months ago, Rogers decided to leave the law firm he was working at and open a practice devoted only to medical marijuana cases like Jackson’s. With debate over marijuana use heating up, he said it was important that people who use pot for medicine have lawyers who know the nuances and intricacies of the law.

Another One Of Drew Peterson's Attorneys Quits

Another One Of Drew Peterson's Attorneys Quits

 

Reem Odeh Was Only Woman On Defense Team

Drew Peterson has lost another lady.

Reem Odeh, the only woman among the eight lawyers to defend Peterson against charges he murdered his third wife, has quit the case.

But it's not Peterson's fault, Odeh said. She blamed her exit on Joel Brodsky, the longest serving of Peterson's attorneys.

Odeh's motion to withdraw from the case, which she filed Monday morning, cites "irreconcilable differences with defense counsel Joel Brodsky." Odeh declined to go into detail about the differences and said she fears Brodsky will retaliate if she speaks ill of him. She would not discuss what she suspects Brodsky will do to her but said she "wishes him luck" in his future endeavors.

Brodsky similarly said, "Best of luck," to the departing Odeh, but disputed that she was actually leaving on her own terms.

"I guess it's a case of, 'You're fired.' 'No I quit,'" Brodsky said.

Brodsky went on to say it was Peterson himself who ordered Odeh off the case.

"Drew fired her," Brodsky said, but could not explain why.

"You'll have to ask Drew, and I don't think he's available for comment," he said.

Peterson has been locked up since May 2009 while he waits to go to trial for allegedly murdering third wife Kathleen Savio, who was found drowned in her dry bathtub in March 2004. The police also suspect Peterson had a hand in killing his fourth wife, Stacy Peterson, who vanished in October 2007. Stacy Peterson remains missing, and Peterson has not been charged with any crime related to her disappearance.

In addition to the irreconcilable differences, Odeh's motion to withdraw accused Brodsky of keeping her from visiting Peterson in the county jail. But that didn't stop her from dropping by to see the disgraced former cop and alleged wife killer Monday to let him know she was cutting him loose as a client. She predicted Peterson would be sad to see her go.

"I think he'll be upset," she said. "He respected my opinion. I got along well with his children. I got very close to them in the past few years."

Dissolving Partnership
Odeh and Brodsky were law partners for years before splitting their firm in May. Odeh says things have "been contentious" ever since.

The month before Odeh and Brodsky dissolved their partnership, the two other attorneys representing Peterson jumped ship. George Lenard of Joliet and Andrew Abood of East Lansing, Mich., also cited irreconcilable differences with Brodsky in their motions to withdraw from the case.

After Lenard and Abood left, four attorneys from Chicago signed on to defend Peterson.

Odeh spoke highly of Lenard and Abood, saying, "I think they're great guys. I think they're hard workers and I think they're ethical, competent attorneys."

Missing evidence leads to dropped charges in Houston drug killing

Missing evidence leads to dropped charges in Houston drug killing

 

Key evidence was not provided by police officers against the two defendants

Prosecutors in midtrial Tuesday dropped capital murder charges against two men after it was discovered that investigating Houston police officers did not give prosecutors or defense lawyers evidence in the case, attorneys for the accused said.

State District Judge Mary Lou Keel ruled that taped statements by Joseph Louis Rodriguez, 21, of Houston, and Mario Gomez, 19, of Richmond, were inadmissible after a Houston police officer said defense lawyers hadn't been told about the videotapes.

Defense lawyers Bob Loper and Casey Keirnan had audio, not video, of what their clients told police.

Loper said prosecutors also were surprised to find out Tuesday about the discrepancy.

He blamed three Houston police officers who testified under oath Monday that no videotape had been made in the case. One of the officers found the video in a different file at HPD after he testified it did not exist.

"He came back and told prosecutors, 'Voila, look what I found!' " Loper said. "I think it's all on HPD."

Rodriguez and Gomez faced non-death capital murder charges, accused of killing two men in a drug deal on Sept. 18, 2009. Constitutional prohibition against double jeopardy prevents the men from ever being tried again in connection with that crime. Prosecutors cannot appeal Keel's ruling.

Harris County District Attorney Pat Lykos disagreed with the judge's decision.

"We do not believe that the statute or the case law required the court to exclude all of the defendants' statements," she said in a written statement. "The defense had an adequate opportunity to review the audiotapes and sufficient time to prepare their defense; thus, the purpose of the statute was satisfied."

HPD spokesman Victor Senties deferred to Lykos' statement, saying it was a matter between prosecutors and the individual investigators.

Rodriguez and Gomez were accused of shooting two gang members in an altercation over drug-dealing turf, their lawyers said.

Texas lawyers' proposed 'sex with clients' rule exposes rifts

 

Lawyers and their love lives have made for pretty good television over the years, but the state's real-life failure to regulate sexual relationships between lawyers and their clients is becoming one of Texas' longest-running legal dramas.

For seven years, lawyers working on behalf of the Texas Supreme Court have been drafting new rules of conduct for state-licensed attorneys.

Now, with a draft of those rules finally on the table, the biggest sticking point has been the innocuously named Rule 1.13, or as it is more interestingly known, the "sex with clients" rule.

Unlike the large majority of other state bars, the State Bar of Texas' rules of conduct do not include any prohibitions against an attorney engaging in a sexual relationship with a client – a common restriction for licensed professionals from doctors to social workers to massage therapists.

Such a rule might seem simple to put on the books but, in fact, has been under discussion for decades in some legal circles.

"Right now, we have no such rule at all. It's just been kicked around and kicked around," said Tom Watkins, an attorney who has headed up the task force on disciplinary conduct for the Texas Supreme Court.

At last, a proposed rule has been written. But getting the state's lawyers to agree on it is another story altogether. Before any rules are adopted, the Supreme Court must review them, and they must be approved in a vote of the entire state bar.

A date for the vote has not yet been set, but when it is, approval of the rule is far from certain.

Some lawyers have argued against adopting a rule regulating sex between lawyers and clients, saying it could lead to frivolous malpractice charges.

Others say the lack of a rule opens the door for lawyers to manipulate vulnerable clients into unwanted sexual relationships without fear of reprisal from the bar.

While the bar's proposed rule would largely restrict sexual relationships, it wouldn't preclude them entirely.

As written, the rule states that lawyers (a) won't condition representation on having a client engage in sexual relations, (b) won't solicit sex as payment of fees and (c) won't have sex with someone the lawyer is personally representing unless the sexual relationship is consensual and began before the attorney-client relationship began. It also excepts spouses.

To the layman, that might seem like a fairly straightforward prohibition. But to legal minds on both sides of the issue, the rule is rife with shortcomings and potential abuses.

"It's like the old lawyer's joke that a good settlement of a lawsuit is where everybody is unhappy, so this must be a good rule," Watkins said.

Ginny Agnew, an Austin attorney who has long been concerned about the lack of a rule to protect clients from the sexual advances of their lawyers, isn't laughing.

Along with 11 other prominent female attorneys, she drafted a letter protesting the new rule, saying it simply isn't restrictive enough.

"The proposed rule does not prohibit sex with clients – it prohibits only some sex with some clients by some lawyers. In fact, for two-thirds of the Bar, the rule would permit sex with clients. The rule would not adequately protect clients – male or female – from predatory lawyers," the letter states.

Particularly troubling to Agnew is the loophole in the rule that she says would permit an attorney to begin and continue a sexual relationship with a client so long as the client is transferred to another attorney in the same law firm. That provides no protection at all to vulnerable clients, she said.

"When you have a situation where lawyers are the ones who hold the keys to the courthouse for many people ... that is a potential situation of abuse," Agnew said.

Meanwhile, Rich Robins, a Houston attorney, was quoted in Texas Lawyer last month stating that the new rule would lead to a slew of lawsuits from unhappy clients.

"How can a lawyer disprove potential accusations of amorous manipulations and the like unless all prior interactions are elaborately recorded through both audio and video means?" Robins asked in an e-mail to Texas Lawyer.

Efforts to reach Robins were unsuccessful, but Watkins said his concerns are common among the rule's opponents.

Agnew said that the state bar actually needs to adopt a stricter rule that would forbid any sexual relationship between lawyers and clients. It should also prohibit a lawyer from transferring a client to another lawyer in the same firm once a relationship begins, she said.

Linda Eads, a professor at Southern Methodist University's Dedman School of Law, disagreed that the rule isn't strict enough.

The rule "provides notification to the lawyers of Texas that they cannot engage in this behavior and have sex with clients," said Eads, a former chair of the state bar committee on disciplinary rules.

"The only exception is if you are already married or have a pre-existing relationship. ... We don't want people [in existing relationships] to be prevented from helping [a partner] with legal advice," she said.

Eads said the proposed rule is adequate as written, but added she would have no problem if it were amended to prohibit a lawyer who begins a relationship with a client from transferring that client within the same firm.

In many ways, the state bar's proposed rule is similar to the American Bar Association's model rule, which states that a lawyer will not engage in a sexual relationship with a client unless the relationship began before the attorney-client relationship.

Agnew said that the model rule is a good start and that it would be better to adopt it or something close to it than to let the rules be approved without including any prohibition of sex between lawyers and clients.

Despite her concerns over the strength of the proposed rule, it's important to get something in place to protect clients, she said.

"I would like it to be the strongest possible rule, but I would be deeply disappointed if once again we vote down a no-sex-with-clients rule," she said.
AT A GLANCE: LAWYERS AND SEX

Attorneys working on behalf of the Texas Supreme Court and State Bar of Texas have proposed the state's first rule prohibiting lawyers from engaging in sexual relationships with clients.

THE PROPOSED RULE:

• Lawyers won't condition representation on having a client engage in sexual relations.

• Lawyers won't solicit sex as payment of fees.

• Lawyers won't have sex with someone the lawyer is personally representing unless the sexual relationship is consensual and began before the attorney-client relationship began or if the attorney and client are married.

Why it's controversial: Opponents say it could lead to frivolous lawsuits. Proponents say a stricter rule is needed to close loopholes in the proposed rule.

What's next:

The State Bar of Texas board of directors will submit a final draft of the rule to the Supreme Court on Wednesday.

The court will review the proposed rules of conduct for state-licensed attorneys and release them for a vote of the entire state bar on a date to be determined.

Proposed tax break for lawyers would worsen liability mess

 

The AMA and other medical organizations say allowing attorneys to deduct expenses in certain liability cases would encourage lawyers to file more lawsuits

Lawyers don't need more ammunition to file meritless lawsuits against physicians, but that's exactly what a proposed tax deduction would give them.

The American Medical Association and 90 other medical organizations have told the government that the tax change shouldn't occur in a legal system where physicians already face too many unwarranted lawsuits.

At issue is a proposed change to federal tax policy that would let trial lawyers deduct their expenses in gross fee contingency cases on their taxes before a case concludes. The lawyer agrees to pay litigation expenses upfront for a percentage of the judgment or settlement. These types of cases are an alternative to net fee contingency contracts, where the client reimburses the lawyer for costs and gives the lawyer a portion of the award or settlement.

Existing tax rules let lawyers who pay litigation expenses upfront claim deductions on those expenses if there is no award. But the American Assn. for Justice, which represents trial lawyers, argues that costs in all contingency cases are business expenses that should be deductible.

The U.S. Treasury Dept.'s consideration of a tax revision involves a 1995 case decided by the 9th Circuit Court of Appeals in San Francisco. In Boccardo v. Commissioner of Internal Revenue, the court overturned long-standing policy and said an attorney could deduct costs in a gross fee contingency case as a business expense in the year the money was spent.

The Internal Revenue Service in 1997 told staff to allow such deductions in states the 9th Circuit covers. While attorneys in California, Nevada and a handful of other Western states enjoy the perk, trial lawyers want the deduction to apply nationwide.

On Sept. 1, the AMA and 90 other medical organizations sent a letter to U.S. Treasury Secretary Timothy F. Geithner in opposition. Two weeks later, 76 organizations representing state chambers of commerce, businesses and others sent Geithner a letter voicing their concern. The AMA co-signed that letter, too.

Previously, Sen. Chuck Grassley (R, Iowa) and Rep. Dave Camp (R, Mich.) had urged Geithner not to alter tax policy without clear direction from Congress.

In addition to the government losing more than $1.5 billion over 10 years, the AMA and the other organizations say the tax deduction change would encourage lawyers to file scores of meritless lawsuits, proving costly to doctors and the health care system.

An AMA report issued in August shows just how bleak a litigious climate physicians already face: 42.2% of the 5,825 physicians surveyed had been sued. Although 65% of claims are dropped or dismissed, they come with a hefty price tag. Doctors and their insurance companies, on average, still laid out $22,163 in legal costs.

The fear of baseless lawsuits leads to other costs too, namely defensive medicine. A report published in the September Health Affairs found that liability system costs, including defensive medicine, are about $55.6 billion a year -- 2.4% of yearly health care spending.

Meritless lawsuits against physicians already are a problem, and a proposed tax break would encourage even more costly, time-consuming cases. The Treasury Dept. should not give trial lawyers any more ammunition in pursuing meritless lawsuits against physicians. It needs to deny this tax break request.

2 lawyers take new La. ad rules to appeals court

 

Two plaintiffs attorneys asked a federal appeals court Tuesday to rule that some of the Louisiana Supreme Court's new restrictions on lawyer advertising are unconstitutional and can't be enforced.

A three-judge panel from the 5th U.S. Circuit Court of Appeals didn't immediately rule after hearing the appeal filed by attorneys Morris Bart of New Orleans and William Gee III of Lafayette.

U.S. District Judge Martin Feldman ruled last year that the state can freely regulate ads that employ client testimonials, portray a judge or jury, "promise results" for clients or use mottos that imply a lawyer's ability to "obtain results."

The state's attorney disciplinary board says the new rules, which took effect last October, are designed to protect the public from deceptive ads. Barry Ashe, a lawyer for the board, urged the 5th Circuit panel to uphold Feldman's ruling.

"Judge Feldman got it right on the facts and the law," Ashe said.

Bart and Gee, however, say the new rules set overly broad limits on commercial speech.

"In this case, it's not difficult to think of ways the state could have more narrowly tailored its rules," said attorney Greg Beck of Public Citizen Inc., a nonprofit group that joined Bart and Gee in suing and has filed similar suits in New York and Florida.

Not all of the rules adopted by the state Supreme Court survived Feldman's ruling. Feldman said a rule limiting attorneys' use of celebrity endorsements violates the First Amendment. He also struck down two rules governing lawyers' Internet ads, which he said don't account for differences between ads on the Web and those on television.

But the judge upheld several other new rules, including a rule banning mottos and trade names that imply results.

Judge Patrick Higginbotham pressed Ashe to explain what's misleading about ads that refer to a lawyer's past results for clients.

"That doesn't mean you're going to win them all," Higginbotham said.

Ashe said the rule doesn't preclude consumers from getting information about a lawyer's track record through other means, such as on the Internet.

Judge Priscilla Owen asked Ashe how it would be "inherently misleading" for an actor portraying a judge to appear in an ad without saying anything.

"It's the implication that the lawyer, the advertising lawyer, has special influence with a judge ... even if it's a fake judge," Ashe responded.

Beck noted that Feldman's ruling may conflict with a recent decision by the 2nd U.S. Circuit Court of Appeals, which struck down New York rules prohibiting portrayal of a judge in lawyer ads and limiting the use of mottos. One of the cases could be ripe for Supreme Court review if Feldman's ruling stands, Beck added.

"It would be good to get some clarification," he said.

Bart said the rule restricting references to "past results" has deprived him of one of his most effective advertising techniques.

"That resonates with clients," he said after the hearing.

Bart said he has submitted more than 100 ads for the board to review, and "all but a handful" have been rejected.

"The devil is in the enforcement," he added. "The application of the rules has been overly restrictive and burdensome."

Bart said the new rules haven't cost him any clients, but Gee believes the new requirements - including one that says written disclaimers must be as large as the largest print size in an ad - have undermined the effectiveness of his ads.

"It seems like we are getting fewer cases than before," he said.
 

Post-Recession Law Firms: A New Caste System Emerges

Editor's note from The Legal Intelligencer: This is the first in a weekly series examining how law firms adapted during the last two years and where they are headed as the economy recovers

Last year, Eckert Seamans Cherin & Mellott CEO Timothy P. Ryan seemed well ahead of the curve when clients started pushing back on paying for the inexperience of first- and second-year associates on their matters, and law firms, in turn, started hiring fewer, if any, young attorneys.

Ryan had made the decision more than five years ago to stop hiring first-year associates and instead just recruit third- and fourth-year lawyers from other law firms once they were already trained. The economics of paying the younger attorneys $130,000 a year or more just didn't make sense to him. But true to his caveat last year, Ryan now says he is focused on hiring first-year associates in the next three years after salaries have dropped in certain markets, because even if he can't yet charge their time to clients, the firm isn't taking on as much of a cost. The other factor is that there are more talented first-years out there because the larger firms are hiring significantly fewer first-years.

In Pennsylvania, salaries have decreased at the bulk of large firms, including some of the Am Law 200 firms like Reed Smith, Drinker Biddle & Reath, Blank Rome, Pepper Hamilton, Ballard Spahr and Buchanan Ingersoll & Rooney. But firms like Duane Morris and Dechert have held tight to the $145,000 salary for new lawyers. While associate hiring may be more economical for some firms, the bulk seem to be reducing hiring.

Ryan said the coastal firms with an emphasis on financial markets have decided to maintain salaries while those at the bottom half of the Am Law 200 have largely reduced salaries.

WORKING HARDER, GETTING LESS

Surveys have shown that across the country's largest firms, associate salaries have held steady around $145,000 or $160,000 and most firms are hiring significantly fewer summer and first-year associates. Perhaps the biggest trend to come out of the promised paradigm shifts of the "Great Recession" is the concept of doing more with less.

Law firms are substantially smaller, but even as demand for legal work starts to creep up, the level of hiring isn't expected to match.

"Everywhere I go people are basically doing more with less and it's OK," Altman Weil's Tom Clay said, adding later, "Now that lawyers found out they can do just fine, I don't think you will see staffing levels return soon."

That has started to speed up, albeit not at great levels, the push for greater efficiency through the way matters are staffed and processed, he said.

In taking the old "finders, minders and grinders" analogy of law firm hierarchy, New York-based consultant Jerome Kowalski said even the finders, or business producers, who were given carte blanche to spend hours of unbilled time bringing clients in the door are expected to be billing time. The minders, who were the client relationship partners and spent a good chunk of their time making sure the clients were happy, are also now expected to bill more hours, he said.

This has created a hoarding phenomenon in which attorneys are keeping work rather than passing it down to service partners or associates, making it more and more difficult for less senior attorneys to find hours to bill, Kowalski said.

"So what we are seeing in terms of a changed model is really an inverted pyramid with the premium placed on lawyers who are well trained and know how to get stuff done and know how to get it done efficiently," he said, stating earlier, "Across the board, everyone at every level, they've never worked harder and had less to show for it."

And with clients paying less for the same work through either alternative fee arrangements or a straight rate discount, firms could potentially bring in lower profits if they don't properly staff and manage matters. Clay said firms are just now beginning to think about how to implement process management. On the whole, he said, profits are expected to hold steady this year and next, so partners won't suddenly be finding themselves below the poverty line. But one way the profits might hold is through shrinking the number of equity partners taking a piece of the pie.

A certain subset of partners are finding themselves in a precarious position. The service partner -- one without a book of business of his own who works on the matters brought in by rainmakers -- can no longer get by on just being a great lawyer.

"We're seeing partners who aren't adding the value they should being counseled out of firms," Clay said. "The service partner that doesn't bring anything else to the table, they're in jeopardy, they just are."

In some ways, law firms are going back to the old days of the "up or out" model of attorneys either making partner or being asked to leave. For years firms have used the non-equity partner tier as a dumping ground for associates not yet ready for partnership rather than a breeding ground for associates firms thought really had the potential to be a partner in the near future.

One solution is the increased use of contract or staff attorneys to handle the work the service partner or senior associate might have done. These attorneys are paid less, don't have as high of a billable hour requirement and have no expectation of making partner. Clay said firms, and attorneys, are increasingly open to the idea of using this tier.

And that is where a new caste system has developed.

THE ASSOCIATE CASTE SYSTEM

The leverage model of several associates supporting one partner has virtually disappeared, Kowalski said. In its place a three-tiered "caste system" of attorneys has developed.

An Am Law 100 law firm in 2007 may have hired 150 summer associates and given offers for full-time employment to the bulk of them. Now, those same firms are hiring fewer than 20 summer associates and the offer rates are often lower.

For that select group, the $160,000 salary is still up for grabs.

"They're the showcase pieces," Kowalski said, adding those are the well-schooled, top-of-their-class attorneys firms can tell clients they were able to hire.

"Then there's a vast underbelly of people who are being hired at these same large firms at substantially reduced" salaries, he said.

These are the staff lawyers who are not on partner track and, Kowalski said, at the high end are being paid around $90,000 and, at the low end, around $65,000. They do the same work the $160,000 associates are doing, but with less expectations from the firm, he said.

The third group of associates are the contract or temporary lawyers who work per diem on a set project with no benefits and no promise of work beyond the one project.

"I compare [them to] those guys who hang around in front of Home Depot waiting for some contractor to show up with a truck," Kowalski said.

When demand starts to pick up for legal services, the latter two groups of associates can fill in for the work traditionally done by more expensive partner-track associates, making the need for traditional associates significantly reduced for the foreseeable future.

"It's very probable that we won't be hiring the traditional lawyers that were produced from law schools," Clay said, adding that new graduates can't do much that couldn't be done through cheaper options like document review attorneys and legal process outsourcing.

"The things they used to cut their teeth on are rapidly deteriorating or going away," he said.

Clay has been advising law school deans on how to produce graduates with different competency levels.

Associate training programs, like the ones instituted by Drinker Biddle & Reath and Reed Smith, aren't likely to catch on, Clay said. Although the programs, which put first-year attorneys in training classes rather than bill their time to clients in an effort to make them more sellable, were touted as a great solution to client push back on the use of young lawyers, they haven't been replicated in many other firms. Clay said studies have shown that while associates in training programs may become more valuable more quickly, the programs decrease the profitability of the attorney "dramatically" over the course of his associate life.

The switch many firms made during the recession to competency-based advancement models rather than lockstep promotion of attorneys based on a year's more experience has a better chance of sticking, Clay said. He added, however, that only the larger firms have the staff and resources to implement such programs.

So are law firms vastly different than they once were? Changing service and leverage models are new but tougher standards for partnership entry are a return to old practices. No longer is being a good or even great attorney enough. The ones who will advance are those with business savvy and an understanding of process management, most experts say. Entering and succeeding in a law firm is getting harder.

Fort Hood suspect's lawyer used to abuse

 

The lawyer for the mass killing suspect at Fort Hood, Texas, isn't a stranger to controversy, other lawyers say.

John Galligan is the attorney for Maj. Nidal Hasan, accused of killing 13 people at Fort Hood Nov. 5 in the worst non-combat mass killing at a U.S. military installation. Galligan begins his defense of Hasan Tuesday with an Article 32 pretrial hearing to determine whether Hasan should face a court-martial and potentially the death penalty, the Austin (Texas) American-Statesman said.

The newspaper said Galligan has gotten used to abuse left on his answering machine and e-mail.

Even before the Hasan case, Galligan has a controversial figure in Bell County, Texas, the report said.

"He's not afraid -- that's for sure -- about what other people might think about him," Temple defense attorney David Fernandez told the newspaper. "Especially in Bell County, a lot of lawyers would not have taken that case."

A Belton criminal defense lawyer, Jeff Parker, said Galligan has made a habit of challenging authority.

"He likes to poke the lion with a stick," Parker told the American-Statesman. "He's fighting every battle. But if he has a flaw, it's that he thinks 15 minutes of fame can last forever."

Lawyers unsure if arrested Ampatuan 'suspect' would testify

 

While the relatives of the Ampatuan massacre victims welcomed the arrest of another suspect, prosecution lawyers are unsure if he can be a state witness.

Police arrested Mochtar Daud, a former driver of the Ampatuan clan blamed for orchestrating the massacre in November 2009, before dawn in Pasay City on Sunday.

“So far wala pa kaming balita kung magte-testify siya o hindi. Mahirap, meron kaming pinoprosesong ibang witnesses...may motion to discharge para maging state witness, masasabi niya sino mga driver at kasama," lawyer Nena Santos said in an interview on dwIZ radio.

(So far we have no idea if Daud will testify or not. It is hard to say if he can be made a state
witness. We are preparing other potential state witnesses...We are focusing on a motion to discharge that policeman as an accused so he can say who were the drivers and who else were with them.)

Santos said the arrest of Daud complements other developments such as the holding of two hearings a week starting November.

She said “Tuloy-tuloy na ang hearing, masaya ang pamilya at natutuwa na tuloy-tuloy ang pagdinig sa kaso (The hearings are ongoing. The families are glad that the case is rolling.)

She also said that while the case is not going as quickly as they would have liked, at least the wheels of justice have started rolling.

“Di pa natin masabing malapit na, pero at least naumpisahan nating gumulong ang gulong ng hustisya (We cannot say we are very close to justice at this stage. But at least the wheels of justice have started rolling)," she said.


Intelligence operatives arrested Daud after midnight Saturday while he was watching an illegal motorcycle race in Pasay City. Daud denied involvement in the massacre.

At least 57 people were killed, 32 of them journalists, when armed men abducted and murdered them in Ampatuan town in Maguindanao on November 23 last year.

When asked if the victims’ families consider Daud’s arrest a good development even if his being a state witness is not yet sure, Santos said they do.

“Opo kasi marami pa silang nasa labas pa, di pa nahuli (They consider his arrest a good development because there are still so many suspects still at large)," Santos said.

"Culture of fear" prompts immigrants to seek US immigration legal advice

 

Undocumented US residents, concerned about the crackdown on illegal immigrants, are consulting lawyers to draw up legal documents in case they are deported

According to a report by USA Today, attorneys in New Mexico, Arizona and Texas say they are being approached by illegal immigrants to create documents detailing what should happen to their families and belongings if they are deported.

"There's a culture of fear out there," said Jason Mills, a Fort Worth immigration attorney. Mills said such inquiries had only started this year since the introduction of tougher US immigration laws.

Children being stranded at school when parents were arrested at work, and wives unable to access a deported husband’s bank account, were two examples of why the legal documents were necessary.

The recent “culture of fear” has grown in the past 12 months since US immigration officials increased deportations to a record 392,000.

Creating the most concern have been recent Arizona laws, allowing police to check the immigration status of anyone they suspected of being illegal. Reports suggest more than a dozen other states are considering similar laws.

Fight over who has legal right to foreclose makes mess worse

 

When Randy Persten's mortgage was foreclosed in 2008, he looked at the paperwork and found a mystery. A company he'd never heard of — called Mortgage Electronic Registration Systems, or MERS — was bringing the foreclosure action against him.

Something didn't seem right. So he got a lawyer and fought the foreclosure, arguing that MERS couldn't foreclose because it didn't own the mortgage note he'd signed promising to pay.

Persten ultimately succeeded in getting the action dropped, only to see a new action brought by a different company that says it is the true owner of his mortgage note. Persten still isn't sure who owns his mortgage.

"Who was this MERS? Now we have no idea who owns the paperwork," says Persten, an appliance salesman in West Palm Beach, Fla. "If I won the lotto, I'd pay off my mortgage, but I don't know who to pay."

Persten's confusion is shared by other homeowners who are fighting foreclosure by challenging the legal powers of MERS, a company set up by the mortgage industry that is behind scores of foreclosures. Some homeowners are crying foul in lawsuits alleging MERS lacks the legal right to pursue foreclosures and in some cases they allege MERS has filed flawed documents to show it has the right to take a house.

The disputes over MERS are erupting into a second battleground over the mortgage industry's business practices, just as states and the federal government are opening examinations into whether mortgage servicers failed to properly verify and notarize legal papers to get court approvals of foreclosures in some states. Dozens of state attorneys general are expected to announce this week a joint investigation into alleged paperwork deficiencies, Ohio Attorney General Richard Cordray said Sunday.

The coming investigations and reviews threaten to extend the nation's foreclosure crisis, delaying the completion of many foreclosures against delinquent homeowners whether or not they win in the end. GMAC Mortgage said last week that even if "procedural mistakes" occurred, there was no disputing that borrowers had defaulted and it has the right to foreclose. JPMorgan Chase and GMAC Mortgage have suspended foreclosures in 23 states while they review their procedures, and on Friday, Bank of America widened its suspension from those 23 to all 50 states.

The MERS challenges are turning into a pitched legal battle playing out in the courts.

MERS was set up in 1997 by the country's largest banks to electronically register mortgage title transfers rather than filing them in county offices. The Reston, Va.-based company tracks more than 64 million mortgages, and 60% of all new mortgages.

MERS may not be well known to homeowners, but its name turns up on the papers that most borrowers sign at closing.

At that closing, two documents are created. One is the promissory note explaining the terms of the loan. The second is the mortgage showing there's a lien on the property and who holds it.

In the past, when a mortgage was sold, the new owner filed mortgage documents with county offices showing it now held the lien and paid recording fees.

But as the volume of refinanced mortgages grew in the late 1990s, the mortgage industry sought to reduce its fee expenses and speed up the process of re-assigning mortgage liens as mortgages were being rapidly bought and sold.

By having MERS hold mortgage liens for the owners, MERS eliminated the need for servicers to file paper documents reporting a lien holder change each time a mortgage was sold. MERS gives loans identification numbers, which are used to track changes in loans' servicers and owners.

"Without MERS the current mortgage crisis would be even worse," MERS said in a statement.

But critics, like North Carolina bankruptcy lawyer O. Max Gardner, say the MERS database isn't always up to date, leading to uncertainty about the lien holder's identity. "Sometimes MERS members enter the information, and sometimes they don't."

MERS says it has the legal right to foreclose when the owner of the loan chooses to make MERS the holder of the promissory note and gives it the right to enforce the mortgage if it goes into default. But lawyers representing homeowners disagree, saying MERS doesn't have the legal right to foreclose because it doesn't actually own the mortgage loan.

'It's a mess'

It could become a major entanglement for the housing industry. If judges rule that MERS has no legal grounds to foreclose on homeowners because it doesn't own the mortgage, homeowners could start challenging current foreclosures or past ones.

"This will be resolved legally. Will it take years? I don't know," says Guy Cecala, of Inside Mortgage Finance. "Like everything else, it's a mess."

Some state court judges have ruled that MERS can't foreclose on homeowners because it doesn't own the loans. In August, for example, an appellate court judge in Maine ruled MERS could not bring a foreclosure action because it lacked legal standing to do so. The judge found the borrower had never assigned the mortgage note to MERS and that MERS had not been harmed when the borrower didn't make payments.

MERS says that because it acts on behalf of the servicer that collects on loans, it has the authority to bring foreclosures.

MERS' position has found legal support in some states. Minnesota has a law upholding MERS' right to bring foreclosure actions. In Arizona, a state judge this year dismissed a class action by homeowners, ruling that the MERS system was not fraudulent.

MERS says the new lawsuits are baseless and that it's not true that banks that use MERS make it more difficult to find out who owns mortgages. MERS makes mortgage data more accurate and title information more reliable, it says. "The assertions involving MERS are false and utterly without merit. We will vigorously defend against these accusations and are confident that we will prevail," MERS said in a statement.

MERS' holding of mortgages isn't the only contentious issue against the company. Charges about faulty foreclosure papers that have been leveled against mortgage servicers have also been made about MERS.

In March, a Florida judge dismissed a foreclosure case after reviewing documents signed by a MERS agent. The Pasco County judge found the paperwork was fraudulently backdated in an intentional effort to mislead the court.

In Ohio, Secretary of State Jennifer Brunner is asking a federal prosecutor to look into whether officials who signed foreclosure documents on behalf of MERS were really authorized to do so.

"We're talking about people losing their homes," Brunner says. "This is serious."

New lawsuit in Kentucky

This month, homeowners in Kentucky filed a civil-racketeering class action against MERS, saying it conspired with Ally Financial's GMAC Mortgage unit, Citigroup and other banks to illegally foreclose on them. They say the banks are wrongly foreclosing on homes through MERS, which lacks titles to the houses.

"Their entire reason for existing was and still is — until they are shut down — to hide from the public record, creditors and the homeowners, the identity of the parties who could claim an interest in the mortgage loans recorded in their name," says Heather Boone McKeever, a lawyer in Lexington representing the Kentucky homeowners.

With lawsuits against MERS seeking class-action status in Arizona, California and Nevada, judges' rulings could have major ramifications for the housing industry. If they rule against MERS, foreclosures across the country could be challenged.

Fannie Mae changed its policy in May, stating that MERS must not be named as a plaintiff in any foreclosure action on a mortgage loan owned or securitized by Fannie. Its policy is that the loan's servicer should foreclose, according to MERS.

Meanwhile, homeowners who'd never heard of MERS until they were foreclosed on are raising questions.

Luis Fitzgerald, 58, of Orlando, has been fighting JPMorgan in a foreclosure since 2008. His mortgage is held by MERS. Since he was foreclosed on, he's been living in hotels. The home he had owned is vacant. He says the battle has left him with tension headaches, and he prays each night for help.

"MERS broke the old system and has fooled the courts into believing they have the right to foreclose and have the note," says Fitzgerald, who makes art for greeting cards. "It's not right."

DAs, defense lawyers argue their case on funding priorities

 

This brought prosecution versus defense to a whole new level.

District attorneys from across Massachusetts gathered at the State House yesterday to hold a press conference at which they planned to attack what they called a broken system that gives court-appointed defense lawyers more funding than prosecutors.

But some of the state’s top criminal defense attorneys crashed the event, accusing the district attorneys of misrepresenting numbers and threatening the fair trial rights of defendants.

At issue is a boost in funding over eight years for the state Committee for Public Counsel Services, which oversees the defense of indigent people.

The Massachusetts District Attorneys Association sent a letter last week to candidates for state office, complaining that last year Massachusetts spent $92 million for district attorneys to prosecute close to 300,000 cases, and $168 million to finance public defenders in two-thirds of those cases.

“The system is broken,’’ Plymouth District Attorney Timothy J. Cruz said yesterday. “The funding for defending criminals is out of control, while the district attorneys are starving for dollars.’’

But defense attorneys strongly disagreed. Representatives of the Committee for Public Counsel Services, as well as the Massachusetts Bar Association and the Massachusetts Association of Criminal Defense Lawyers, attended the event, with many defense lawyers sitting in the back of the room, arms folded, as the prosecutors talked.

“Your numbers are disingenuous,’’ said Rosemary C. Scapicchio, a Boston criminal defense attorney.

The defense lawyers argued that the boost in their funding occurred because court-appointed lawyers were at the time among the worst paid in the country. They also argued that the funding has helped to establish a good defense system for indigent people, making Massachusetts one of the best states at providing constitutionally protected legal counsel.

The defense lawyers also said the prosecutors’ numbers do not reflect the millions of dollars prosecutors receive in federal grants and from drug forfeitures, as well as contributions from investigative agencies such as local and State Police, state crime laboratories, and the state medical examiner’s office.

The district attorneys raised other arguments: Even with the boost in funding, the Committee for Public Counsel Services has routinely overspent its budget: Earlier this year, the Legislature approved an additional $33 million in funding because of budget overruns, according to the district attorneys.

The district attorneys argued that the system has encouraged some attorneys and court experts to depend on income from the state. In 2008 and 2009, for instance, the Public Counsel Committee paid more than $1 million to two psychologists who testify for indigent defendants in sexually dangerous person cases, according to the prosecutors.

The prosecutors also said the average assistant district attorney handles more than 400 cases a year, while the average criminal staff attorney for the Committee for Public Counsel Services handles about 100 cases.

The prosecutors’ group called for an equal distribution of funding to both prosecutors and public defenders, saying “the state’s budget priorities and values are out of synch with the public, and it is the public that is clearly paying as a consequence.’’

Suffolk District Attorney Daniel F. Conley, in a heated exchange with defense lawyers, invited them to a symposium in November at Suffolk University to debate the arguments.

“Let’s have a civil debate . . . instead of a shouting match in these hallowed halls,’’ Conley said, while a crowd of lawyers, legal representatives, and prosecutors watched what had become a donnybrook at Nurses Hall in the State House. “We welcome a civil, a civil constructive debate on this issue. And we can do that better.’’

Even that proposal started an argument. “Why can’t we do it now?’’ Scapicchio asked.

State courts committee to consider new foreclosure rules for lawyers

 

A committee that sets rules for Maryland's courts is scheduled to meet Friday to debate whether lawyers who filed legal documents in foreclosure cases without actually having signed the papers themselves should be required to defend their work in court or risk having the cases dismissed.

At issue are hundreds of foreclosure cases in which "corrective affidavits" were filed by two attorneys who apparently allowed others to sign their names to court documents.

Improperly signed affidavits could call into question the validity of the foreclosure process as well as the integrity of deeds on homes taken back by lenders or sold at auction.

Judge Alan M. Wilner, who chairs the Maryland Court of Appeals Special Committee on Rules of Practice and Procedure, wrote Thursday in a memo to committee members that "preliminary audits have shown that hundreds of such bogus affidavits have been filed in Maryland circuit courts. The judges are alarmed at this development."

Wilner and other judges crafted a proposed rule that would allow a court to order an attorney who had filed a corrective affidavit to appear before the court to attest to the facts in the case under penalty of perjury. Borrowers and homeowners would have an opportunity to question the attorney.

Several borrowers have teamed up to file a class-action lawsuit against one of the lawyers, Jacob Geesing, and his Bethesda-based firm. Geesing and the second attorney, Hunt Valley-based Thomas P. Dore, filed corrective affidavits to remedy paperwork that was apparently signed by others in the lawyers' stead.

Montgomery County Circuit Court's administrative judge, John W. Debelius III, who helped draft the proposed rule, said in an interview Thursday that about 400 of the court's 6,000 pending foreclosure cases involved corrective affidavits filed by the two attorneys.

Debelius said he did not know yet whether other lawyers had also filed similar affidavits, but he added, "You're talking about, potentially, a problem on a very large scale."

The number of foreclosures in Montgomery County has jumped in recent years — so much so that the court's civil division is overwhelmed with cases, Debelius said, adding, "It's a monster that's taken over the courthouses."

Prince George's County has undertaken a review of 14,500 pending foreclosure cases to see whether corrective affidavits have been filed in them, The Washington Post reported Thursday.

After the rules committee meets and discusses the proposed rule, the measure goes to the Court of Appeals for consideration.

The court could accept the proposed rule or make changes before accepting it, or it could deny the rule.

New Court Rule Says Attorneys Must Verify Foreclosure Papers

Amid mounting national concern over the accuracy of court documents in foreclosure cases, the New York State court system yesterday directed lawyers for lenders to file an affirmation that they have taken reasonable steps to verify the accuracy of papers they file to support residential foreclosures.

"We feel we have an obligation to make sure the attorneys do their due diligence and come to us with credible papers because the consequences [of wrongful foreclosures] are so great," Chief Judge Jonathan Lippman said in an interview, adding that the new filing requirement is the first in the nation.

Attorneys must now certify, "under the penalties of perjury," that they have communicated with a representative of the plaintiff bank or lender and that they have personally reviewed all documents and records related to the case.

After making this review and "other diligent inquiry," they must attest that "to the best of my knowledge information and belief, the Summons and Complaint and all other documents filed in support of this action for foreclosure are complete and accurate in all relevant respects."

The court system's affirmation form notes that foreclosure filings in various courts around the nation have been subject to a variety of defects, including the failure of counsel to review documents and establish standings, bogus notarized affidavits and the "robosignature" of piles of documents by parties and their counsel.

"The wrongful filing and prosecution of foreclosure proceedings which are discovered to suffer from these defects may be cause for disciplinary and other sanctions upon participating counsel," the court system warns.

"I think this makes clear to everybody the court system's absolute commitment that we are not going to allow anything to interfere with the integrity of the court process," said Judge Lippman.

Attorneys general in all 50 states and the District of Columbia are jointly investigating whether mortgage companies have violated state laws. In Maryland, an emergency measure approved this week by the state's highest court outlines how state judges can review foreclosures and stop them if documents are invalid.

In New York, attorneys already have an obligation to ensure that the documents they present to the court are valid. For example, Rule 3.3 of the Rules of Professional Conduct states that lawyers should not knowingly "make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the lawyer."

However, Judge Lippman told the Associated Press that forcing lawyers to sign something to certify that all papers have gotten a proper review will hold them accountable like never before.

"We want to make sure that everyone is focusing like a laser on these particular types of proceedings," he said. "It puts them on notice. That's what this is all about. We all have to make doubly sure that we are doing what we should be doing in the first place."

Some New York judges have complained loudly about rampant errors of varying severity in legal filings by banks seeking to foreclose on record numbers of homeowners (NYLJ, Oct. 14).

Brooklyn Supreme Court Justice Arthur M. Schack, one of the judges who have pressed lenders to submit accurate paperwork, said the new Lippman rules are a "great idea," which he hopes will allow defendants and judges to "get to the bottom of this mess."

He said some lawyers appearing before him have admitted to signing documents at a rate of "hundreds a week and thousands a month, and the notary wasn't even in the room." The new rule may reduce inaccuracies, he said.

"I don't know if it is unfair," Justice Schack said. "You want to use the court system for relief, you have the burden of trying to have accurate paperwork and, based on your diligent inquiry, that it is true."

Chief Administrative Judge Ann Pfau said she had judges with cases in which they refused to sign foreclosure orders without more documentation.

"There are particular issues in the foreclosure process that require us to be particularly diligent," she said.

Judge Lippman said in a press release that "we cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process."

The New York State Bar Association welcomed the new requirement. Its president, Stephen P. Younger, said in a statement that "the chief judge has taken swift steps to address a nationwide problem in foreclosure actions. The New York State Bar Association applauds any effort to preserve and maintain the integrity of the foreclosure process."

Mr. Younger said the affirmation form would be printed on the state bar's Web site at www.nysba.org/foreclosureaffirmation.

Robbie L. Vaughn of Vaughn & Weber in Mineola, who represents homeowners in foreclosure matters, said that "anything that would help the veracity of the paperwork would help. We find so many problems, it's a shame."

Gale D. Berg is a solo practitioner who is also the director of Pro Bono Attorney Activities for the Nassau County Bar Association, which runs a monthly foreclosure clinic. Speaking personally, she said the new requirement could prove difficult for some attorneys hired by the banks. Such counsel sometimes are hired on a per diem basis and first learn of the specific cases they are to handle only on the day they are to appear.

Anthony A. Capetola, a Williston Park-based attorney, has been court referee in Nassau and Suffolk County foreclosure matters for about 35 years. He noted that many homeowners facing foreclosure cannot afford to hire a lawyer. Without someone to advocate for the homeowner, the new requirement was the court's effort to "try to put somebody's neck on the line," he said.

"The merits of this rule are going to be in the details," said Joshua Stein, a Manhattan commercial real estate attorney who watches the residential market. Mr. Stein said it might make sense to ask a lawyer to make reasonable efforts to assess the facts, but attorneys could not be expected to become a "guarantor" of those facts.

"Is this imposing some higher standard and if it does, what will the unintended consequences be?" said Mr. Stein, who is the chair of the education committee for the state Mortgage Bankers Association but was speaking for himself. He added that slowing down the foreclosure process was not a good idea. "It's a slow enough process already," he said.

Michael P. Smith, the president of the state bankers' group, said his members have long worked with court administrators to bring a "fair and timely resolution to foreclosure proceedings."

"While we have not yet analyzed the new rules, we reaffirm our support for efforts to provide further clarity to a process which already is subject to stringent state laws," Mr. Smith said in a statement.

New York is one of 23 states that requires judicial approval of foreclosures. JPMorgan Chase has estimated that its average foreclosure takes 792 days, one of the longest rates in the nation.

JPMorgan was one of a few major banks that froze all foreclosures nationwide while they reviewed their filings for problems. Two of the biggest, Bank of America and GMAC Mortgage, resumed proceedings this week.

The rule requiring a signed affirmation applies to both new cases and the 78,000 foreclosure actions already under way in New York courts. (See Foreclosure Figures for New York State: 2010 Year-to-Date Foreclosures Filed and Pending by County, 2009 Foreclosures Filed and Pending by County and Number of Filings by County 2005-2009.)

Lawyers handling pending foreclosure actions will probably need to go back to their clients and verify that all proper steps were followed, Judge Lippman said. The form created by the court requires the lawyers to give the name of the bank employee who affirmed that the records were accurate and the date the conversation took place.

Because the process is so lengthy and there are so many pending foreclosures, attorneys will be allowed to submit their affirmations at one of several points in the process.

For new cases, the affirmation would have to be included for the file to be complete. For pending cases—which can be at any point between the initial filing and the final ruling—the new affirmation is required before the judge's final signature on the decision.

Once an order is signed, the affirmation would be required before an auction sale of the property is held.

One Mess That Can’t Be Papered Over

 

Lawyers representing delinquent homeowners have been shouting for years about documentation problems in residential mortgages. Now that their complaints have gained traction with investors, attorneys general and some state court officials, the question of consequences looms large.

Is the banks’ sloppy paperwork a matter of simple technicalities that are relatively easy to cure, as the banks contend? Or are there more far-reaching consequences for banks and the institutions that bought mortgage-backed securities during the mania?

Oddly enough, the answer to both questions may be yes.

According to real estate lawyers, most banks that have gotten into trouble because they didn’t produce proper proof of ownership in foreclosure proceedings can probably cure these deficiencies. But doing so will be costly and time-consuming, requiring banks to comb through every mortgage assignment and secure proper signatures at each step of the way — and it surely will take much longer than a few weeks, as banks have contended.

Once this has been done appropriately (not by robo-signers, mind you) the missing links in the banks’ chain of ownership can be considered complete and individual foreclosures can proceed legally.

None of this will be easy, however. And it will be especially challenging when one or more of the parties in the chain has gone bankrupt or been acquired, as is the case with so many participants in the mortgage business.

Still, addressing all of these lapses is possible, according to Joshua Stein, a real estate lawyer in New York. “If there are missing links in your chain of title, you go back to your transferor and get the documents you need,” he said in an interview last week. “If the transferor doesn’t exist any more, there are ways to deal with it, though it’s not necessarily easy or cheap. Ultimately, you can go to the judge in the foreclosure action and say: ‘I think I bought this loan but there is one thing missing. Look at the evidence — you should overlook this gap because I am the rightful owner.’ ”

Such an unwieldy process will make it more expensive for banks to overhaul their loan servicing operations to address myriad concerns from judges and regulators, but analysts say it can be done.

ON the other hand, resolving paperwork woes in the world of mortgage-backed securities may be trickier. Experts say that any parties involved in the creation, sale and oversight of the trusts holding the securities may be held responsible for any failings — and if the rules weren’t followed, investors may be able to sue the sponsors to recover their original investments.

Mind you, the market for mortgage-backed securities is huge — some $1.4 trillion of private-label residential mortgage securities were outstanding at the end of June, according to the Securities Industry and Financial Markets Association.

Certainly no one believes that all of these securities have documentation flaws. But if even a small fraction do, that would still amount to a lot of cabbage.

Big investors are already rattling the cage on the issue of inadequate loan documentation. Last week, investors in mortgage securities issued by Countrywide, including the Federal Reserve Bank of New York, sent a letter to Bank of America (which took over Countrywide in 2008) demanding that the bank buy back billions of dollars worth of mortgages that were bundled into the securities. The investors contend that the bank did not sufficiently vet documents relating to loans in these pools.

The letter stated, for example, that Bank of America failed to demand that entities selling loans into the pool “cure deficiencies in mortgage records when deficient loan files and lien records are discovered.” Bank of America has rejected the investors’ argument and said that it would fight their demand to buy back loans.

Mortgage securities, like other instruments that have generated large losses for investors during the crisis, have extremely complex structures. Technically known as Real Estate Mortgage Investment Conduits, or Remics, these instruments provide investors with favorable tax treatment on the income generated by the loans.

When investors — like the New York Fed — contend that strict rules governing these structures aren’t met, they can try to force a company like Bank of America to buy them back.

Which brings us back to the sloppy paperwork that lawyers for delinquent borrowers have uncovered: some of the dubious documentation may undermine the security into which the loans were bundled.

For example, the common practice of transferring a promissory note underlying a property to a trust without identifying it, known as an assignment in blank, may run afoul of rules governing the structure of the security.

“The danger here is that the note would not be considered a qualified mortgage,” said Robert Willens, an authority on tax law, “an obligation which is principally secured by an interest in real property and which is transferred to the Remic on the start-up day.” If, within three months, substantially all the assets of the entity do not consist of qualified mortgages and permitted investments, “the entity would not constitute,” he said.

If such failures increase taxes for investors in the trusts, Mr. Willens said, the courts will have to adjudicate the inevitable conflicts that arise.

What if a loan originator failed to provide documentation substantiating that what’s known as a “true sale” actually occurred when mortgages were transferred into trusts — documentation that is supposed to be provided no longer than 90 days after a trust is closed? Well, in that situation, a true sale may not have legally happened, and that doesn’t appear to be a problem that can be smoothed over by revisiting and revamping the paperwork.

“The issue of bad assignment has many implications,” said Christopher Whalen, editor of the Institutional Risk Analyst. “It does question whether the investor is secured by collateral.”

In other words, were the loans legally transferred into the trust, and, if not, do the trusts lack collateral for investors to claim?

For example, according to a court filing last year by the Florida Bankers Association, it was routine practice among its members to destroy the original note underlying a property when it was converted to an electronic file. This was done “to avoid confusion,” the association said.

But because most securitizations state that a complete loan file must contain the original note, some trust experts wonder whether an electronic image would satisfy that requirement.

All of this suggests that while a paperwork cure may eventually exist for foreclosures, higher hurdles exist when it comes to remedying flaws in mortgage-backed securities. The only way to wrestle with the latter, some analysts say, is in a courtroom.

“The whole essence of this crisis is fraud and unless we restore the rule of law and transparency of disclosure, we are not going to fix this,” said Laurence J. Kotlikoff, an economics professor at Boston University.

Teaching Lawyers How to Fight Foreclosures

 

O. Max Gardner runs a select boot camp for defense attorneys to pass on his strategies

Lawyers have been traveling to a remote 160-acre farm in the mountains of Western North Carolina since 2006 to drink Scotch, network, and prepare for legal combat in foreclosure and bankruptcy cases. Groups of a dozen or so arrive about nine times a year for the four-day "boot camp" where they learn how to protect their clients' assets by exploiting the mistakes of creditors. Their instructor is O. Max Gardner III, a 65-year-old bankruptcy litigator and grandson of a North Carolina governor, who was using flaws in mortgage servicing to stave off lenders years before cases involving shoddy paperwork spurred an investigation by the attorneys general of all 50 states. Gardner charges $7,775 for the program, which includes 3,000 pages of materials, lodging, food, and unlimited wine, beer, and single-malt Scotch.

"My time with Max changed the trajectory of my legal career," says Nick Wooten, a 40-year-old Alabama attorney who shifted his focus from personal injury to bankruptcy and foreclosure after attending the boot camp in 2007. "Knowledge is power, and one thing he is able to give in his boot camp is a tremendous amount of knowledge about how the other side operates," says Wooten.

Attendees, who are admitted only after a background check confirms they don't work for creditors, travel along a gravel road to reach Gardner's farm in the South Mountains. They sleep in cabins and swap stories over meals prepared by Gardner's wife, Victoria, in the family's three-story log-cabin style house on a hill overlooking a pond. Gardner spends 10 to 12 hours each day on topics such as "Max's Favorite Discovery Devices," "Strategy to Trap Opponents in their Own Mistakes," "Mortgage Servicing Litigation: How the Legal Network for Creditors Is Organized," and "The Alphabet Problem, A to D Unlawful Transfer of Mortgages and Notes." Guest speakers at his October boot camp included a forensic accountant, a North Carolina Superior Court judge, and the former general counsel for Saxon Mortgage, now owned by Morgan Stanley (MS).

The heart of Gardner's strategy is to uncover omissions and errors in mortgage securitizations, the process in which thousands of loans are bundled into bonds and sold to investors. Securitizations are plagued by lost promissory notes and missing or inconsistent tracking of changes in ownership of loans, Gardner says during a break at the October session. "One of my primary objectives is to give you enough knowledge so that you can understand more about the business structure and organization of the creditors than their own lawyers know," he tells a class.

He started the boot camp after piecing together evidence that lenders and servicers were relying on teams of workers—what defense lawyers now call "robo-signers"—to process thousands of foreclosure documents a day without the time to verify them. While Gardner and some of his 559 graduates have been winning settlements for years, it wasn't until Sept. 20, when Ally Financial (GJM) said it was halting some evictions, that foreclosure documentation became a national issue. "We had a steep hill to climb to convince the judges that the largest financial institutions in America were engaged in this kind of conduct," Gardner says.

Most foreclosures go unchallenged because homeowners rarely hire attorneys. That changed as judges began questioning whether banks were producing sufficient proof that they had standing to foreclose. Private attorneys working on behalf of homeowners are paid in different ways. Some are paid by clients, many of whom have cash even though they aren't making mortgage payments, says Margery Golant, a Boca Raton (Fla.) attorney who graduated from the boot camp in August 2009. If a bankruptcy court judge believes a mortgage company has submitted false evidence, the court can order the creditor to pay legal fees, she says.

Gardner says the graduates of his program act like a large law firm. Linda Tirelli, a consumer bankruptcy attorney in New York and Connecticut who attended the program in October 2008, says she has the confidence to go up against what Gardner calls "tall-building law firms" because the community of graduates located in 47 states functions as a unit, exchanging documents and discovering patterns of misconduct. "It's a fraternity," she says. "We don't see each other as competition. We want more attorneys to join, because the more we have the better."