The new Board of Trustees of the State Bar of California held its first meeting of the new Board year on October 11, 2015 at the State Bar Annual Meeting, just down the road from the home of Mickey Mouse.  Almost immediately, one very first agenda item, the Board ran into a buzzsaw of controversy .  Some things don’t change.

The issue is appointments to chair Board Committees, a perogative of the State Bar President.   Some Board members accused incoming President David Pasternak of stacking appointments to Board Committees in favor of Board members who voted for his election against competing candidate Heather Rosing, including appointments to the powerful Board Executive Committee.   That election was close, so close that outgoing  President Craig Holden cast the tiebreaking vote that elected Mr.  Pasternak.  Six of his eight proposed appointments to the Ex Comm have gone went to lawyers who voted for his election.  His propsed appointments of all seven Board subcommittees are to Trustees who voted

Bad feelings still exist.   Part of the controversy is the impact of the recently signed fee bill that imposes the requirement of compliance with the Bagley Keene open meeting acts.   Public member Dennis Mangers accused  Mr. Pasternak of using Bagley Keene to avoid inclusion.   He just threatened to resign and the tone of meeting is turning very ugly.

Updates to follow.

The State Bar’s Governance in the Public Interest Task Force (GITPITF, according to State Bar President Holden) is meeting now and an interesting dialog is occuring between Ed Howard, an attoney with the Center for Public Interest Law (CPIL) and the Task Force members, chiefly public member Dennis Mangers.   Mr. Howard’s comments are unequivocal that it is the structure of the unified bar that consumer advocates consider offensive, not any slackness in the disciplinary system.  Indeed, Mr. Howard could point to no specific evidence that the current discipline system is slack because it is operated by an unified bar.   In response to Deputy Executive Director Roberg Hawley’s direct question as to the whether the unified bar was a fatally flawed structure,  Mr.  Howard argued that we must start the “state of nature” which simply can’t abide the mixing of  the regulated and the regulators, something as apparently unnatural as a the lamb lying down with the lion.   His metaphor is the Public Utilities Commission;  we wouldn’t allow the executives of the largest utility companies to sit on that board, would we?  Disconnection between the trade association side and the government regulation side is absolutely necessary.  Then we can talk about what bridges (or “tunnels” as Mr. Howard to them, an interesting metaphor) for cooperation between the two sides.

Mr. Howard’s comments support this Big Truth:  the lawyer regulation system  bar is never going to be trusted as as long as it is perceived as a system where the regulated regulate the regulated, a point seemingly echoed in new Executive Director Elizabeth Parker’s comment about public perception.   This is very difficult for lawyers to understand, because, in fact, as noted by public board member Dennis Mangers, some of the most ardent public protection zealots are the lawyers on the Board of Trustees!  The irony is that the unified bar tilts the scale toward overzealous prosecution of lawyers, not toward leniency, a fact that might be ideologically difficult for the consumer advocacy side to accept, historically invested as they are in the “fox guarding  the henhouse theory.”

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Senate Bill 387, the dues bill which gives the State Bar the ability to collect the money it operates on, has been amended to subject to the State Bar to the Bagley-Keene Open Meeting Act and to the California Public Records Act.   Among other changes, Government Code section 6254 would be amended to read:  ” (1)  “State agency” means every state office, officer, department, division, bureau, board, and commission or other state  body or agency, except those agencies provided for in Article IV  (except Section 20 thereof) or Article VI of the California Constitution. (2)  Notwithstanding paragraph (1) or any other law, “state lagency” shall also mean the State Bar of California, as described in Section 6001 of the Business and Professions Code.”  Emphasis added.

The State Bar is an agency provided for in Article VI of the California Constitution, but it is now literally definied as a “state agency” for the purposes of public disclosure under the California Public Records Act but the California Supreme Court, which is explicitly exempt from the CPRA, has described the State Bar as its “administrative arm” for discipline and admissions purposes.  Assuming these changes go forward, what must the State Bar disclose about the direction it receives from the Supreme Court in the discharge of its duties as the Court’s administrative arm?

Among the more intriguing allegations made in the Dunn Fiasco was the allegation that Senator Dunn misrepresented information from the Chief Justice regarding the Supreme Court’s position on moving the State Bar to Sacramento and, that Beth Jay, former principal attorney to the Chief Justice, played in a role in the decision by the Board of Trustees to fire Senator Dunn.  Beth Jay is a defendant in Senator Dunn’s lawsuit.

It is to be expected that the Supreme Court will give direction to its administrative arm.  But the extent of that direction, who gives it, who it is given to, and exactly how it is communicated has always been shrouded from public view.   In the 1990s that direction was minimal; there is the oft told tale of State Bar communications addressed to the Supreme Court that went unanswered for years, such as the recommendation of the Alarcon Commission in 1994 on permanent disbarment. Since the Supreme Court rode to the rescue in late 1998 by ordering a fee assessment on lawyers to revive the discipline system, it has played a much greater role.  We just don’t know how much greater.

Participation in public policy making is not what they want to do.  When Beth Jay was appointed as the Supreme Court’s liaison to the recent Committee that revised the Standards for Attorney Sanctions for Professional Misconduct (SASPM), she did not appear at the first two (public) meetings.  At the third meeting that she did attend, her most trenchant comment was that the revised SASPM not contain too many comments. Understandable that the Court would not want to help make policy that it might later be called upon to adjudicate on.  That is one of reasons for having the State Bar as an administrative arm in the first place.  But there must be some kind of communication and we don’t know what it is, with limited exceptions, the most notable being the Supreme Court’s extrordinary letter to another State Bar commission re-writing the Rules of Professional Conduct asking the Commission to look at a revised rule on prosecutorial misconduct. 

One of the significant reforms in the governance crisis was the appointment of attorney members to the Board of Trustees by the Supreme Court. These appointees appear to be becoming very powerful in State Bar policy making.  One of the first of these appointees, David Pasternak, was elected President of the State Bar in July 2015, defeating Heather Rosing, one of Trustees elected by the members of the State Bar.  It might not be surprising if the next incremental step in the ongoing Governance reform, which was on hiatus during the later part of the Dunn era, will be the elimination of elected attorney representatives.

The State Bar is a lonely planet orbiting two suns, dancing in the ebb and flow from the gravity of each one.  In recent years, the Supreme Court may have had the greater influence but the new open meeting and public records  requirements may push the State Bar more firmly into the Legislature’s orbit.  In the meantime, we will get to see how much trust the latest haunting by Transparency Ghost earns the ever-changing State Bar in the hearts of Sacramento.  And whether the Supreme Court’s fingerprints show up on the new more-transparent-than-ever State Bar.

Update:  The Recorder reported that the Chief Justice contacted a legislator after the amendment  “to commit to transparency—like she has for the branch—and about the best fit for transparency rules for the bar” according to her spokesperson.  The State Bar’s lobbyist had offered amendments to allow the State Bar to draft its own transparency rules for Supreme Court approval but they were not adopted.  Instead amendments to SB 387 were offered to exempt  “(j)oint meetings with agencies provided in Article VI of the California Constitution” e.g. the California Supreme Court.  The Supreme Court, it seems, has skirted the transparency ghost.  On October 8, 2015, Governor Brown signed SB 387.

With the end of the Great Recession, the Loan Mod Wars of 2008-2013 are gradually fading from view.  The numbers of complaints to the State Bar of California have returned to pre-recession levels, even as the Client Security Fund still struggles to pay off a large number of “legacy” claims deriving from the bad old days when lawyers were, according to the official story,  running amuck ripping off desperate homeowners by the millions.  You might think that attorneys would have gotten the message a long time ago but a few are still being hoisted on the twin petards of SB 94 and  extra jurisdictional practice, some years after their transgressions.

It is ancient history how, but its worth recalling that SB 94, the 2009 law that kicked the off the Loan Mod Wars was bottomed on the idea that consumers did not need an expensive lawyer to deal with the banks, so that destroying the ability of lawyers to provide those services by banning advanced fees would work no hardship.   California Civil Code section 2944.6, enacted as part of SB 94 required attorneys entering into such engagements to tell clients exactly that:

   It is not necessary to pay a third party to arrange for a loan
modification or other form of forbearance from your mortgage lender
or servicer. You may call your lender directly to ask for a change in
your loan terms. Nonprofit housing counseling agencies also offer
these and other forms of borrower assistance free of charge. A list
of nonprofit housing counseling agencies approved by the United
States Department of Housing and Urban Development (HUD) is available
from your local HUD office or by visiting www.hud.gov.

But the New York Times tells us (“A Slack Lifeline for Drowning Homeowners“) that a recent report from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) on the Federal Government’s HAMP program tells a much different story.   At the program’s inception, it was estimated that HAMP would “enable as many as 3 to 4 million at-risk homeowners to modify the terms of their mortgage to avoid foreclosure.”   We, the taxpayers of the United States, agree to pay the mortgage servicers  $29.8 billion as an incentive to modify the loans of homeowners facing foreclosure (SIGTARP report, page 96.) “Although participation in HAMP is voluntary, servicers who agree to participate are required to offer HAMP modifications to all eligible homeowners. The actual execution of HAMP lies in large part with participating mortgage servicers, whose employees are responsible for reviewing homeowner HAMP applications and deciding whether a homeowner gets into HAMP or not.”

The results?  “According to Treasury’s official HAMP database, of the 5.7 million homeowners who applied for HAMP between December 2009 and April 2015, servicers turned down 4 million.  That means that, according to Treasury’s HAMP database, servicers turned down more than 7 out of every 10 homeowners (72%) who applied for HAMP.” (SIGTARP report, at page 100.)  But wait, that’s not all: “The problem may be far worse than that. In a separate survey, participating servicers report that they have denied far more than 4 million homeowners for HAMP. In those surveys, HAMP servicers report denying 5.8 million homeowners for the HAMP program, an additional 1.8 million not captured in the HAMP database during the height of the foreclosure crisis.”

“HAMP’s program guidelines require that servicers report to Treasury the reason the servicer denied each homeowner for HAMP by selecting one of the Treasury-defined denial reasons set out in the HAMP guidelines. The top three reasons servicers report for denying homeowners’ HAMP applications attribute the denial to the fault of the homeowner or to the homeowner falling outside of eligibility standards. These include denials because: the homeowner’s application was “incomplete;” the homeowner withdrew the HAMP application or “failed to accept” an offered HAMP trial; or the homeowner’s income fell outside of HAMP eligibility. While these denials may be appropriate in particular cases, the fact that servicers have reported the same reasons so frequently—in light of known problems at the largest HAMP servicers—raises concerns over whether Treasury is doing enough to ensure that denials of homeowner HAMP applications are accurate and based on the actual conduct and status of the homeowners, rather than on the misconduct of the mortgage servicers.”

As reported by SIGTARP, by the Consumer Finance Protection Bureau, by Treasury in its reviews of the top HAMP servicers, and by homeowners who have filed complaints with Treasury, there are many problems with servicers themselves that can affect each of these three denial reasons.  Persistent problems and errors in the application and income calculation process (servicers calculate a homeowner’s income) have historically plagued homeowners seeking HAMP assistance, and continue to do so.  As a result, eligible homeowners may have been, and may continue to be, denied a chance to get into HAMP through no fault of their own.

While these denials may be appropriate in particular cases, the fact that servicers have reported the same reasons so frequently—in light of known problems at the largest HAMP servicers—raises concerns over whether Treasury is doing enough to ensure that denials of homeowner HAMP applications are accurate and based on the actual conduct and status of the homeowners, rather than on the misconduct of the mortgage servicers….. Persistent problems and errors in the application and income calculation process (servicers calculate a homeowner’s income) have historically plagued homeowners seeking HAMP assistance, and continue to do so. As a result, eligible homeowners may have been, and may continue to be, denied a chance to get into HAMP through no fault of their own.

This is hardly news to we battle hardened veterans of the Loan Mod Wars, those of us who dealt with thousands of State Bar complaints against attorneys seeking to help distressed homeowners.  The Times’s Gretchen Morgenson details a few anecdotes that seem so familiar to us.  The loan servicers were happy to take that sweet TARP cash, but not so eager to follow through on relief for troubled homeowners.  The reason, as related by Jacob Inwald, director of foreclosure prevention at Legal Services NYC, seems pretty obvious: delaying a modification or even wrongfully denying it, means more interest and fees that can be charged to the borrower, increasing the amount of the mortgage.  As quoted in the Times story, Mr. Inwald states that obtaining a modification requires “constant pushback and challenging wrongful denials.”  In other words, a lawyer.

Some of the loan modification attorneys were involved in outright scams; some of them were victims of scammers themselves.  Others were actually achieving good results for their clients while trying to find a way to stay in business in the face of SB 94’s prohibition on upfront fees.  But the indiscriminate scythe of Civil Code section 2944.7, wielded by the State Bar with a special fury after the ascension of our Chief Trial Counsel in 2011, showed no mercy.

The Loan Mod Wars are fading to a close, not with a bang but with a wimper.    Some may deserve medals for their participation.  Others would really, really like to forget that the whole thing ever happened.