Through a Glass Darkly: the State Bar’s Lack of Transparency On Loan Mod Lawyers

/ David Cameron Carr / Leave a comment

Sometimes you know when you have hit a nerve.  The podcast that I did with Martin Andelman discussing the State Bar of California and the loan modification crsis produced an interesting communication to Mr.  Andelman from the State Bar:

FROM THE STATE BAR PRESS OFFICE: (Laura Ernde, Acting Communications Director)
For the record, since February 2009, the Office of Chief Trial Counsel has pursued disciplinary charges related to loan modification services in approximately 1,186 cases involving about 153 licensed California attorneys. Of those, approximately 581 cases have resulted in discipline (involving 69 attorneys) and 18 cases have resulted in disbarment. Approximately 720 cases are still pending before the State Bar Court, with another 291 matters under active investigation.

This was reaction to our discussion about the low numbers of loan modification lawyers disciplined by the State Bar through April 2011.  In a report dated April 26, 2011, former Chief Trial Counsel James Towery reported:

Since 2009, OCTC has filed 15 notices of disciplinary charges against attorneys for loan modification misconduct, some of which relate to the same attorneys against whom section 6007(c) petitions were filed involving the same cases.  The other avenue-and one used by the Bar’s Loan Modification Team-is seeking the attorney’s inactive status based on the threat of public harm, pending the resolution of disciplinary charges. Business & Professions Code section 6007(c) (1) provides “[T]he involuntary inactive enrollment of an attorney may be ordered upon a finding that the attorney’s conduct poses a substantial threat of harm to the interests of the attorney’s clients or to the public….” Because OCTC must file a verified accusation showing that there is a substantial threat of harm to clients or the public, these petitions typically rely on a multitude of investigated complaints. However, some attorneys pose a substantial threat of harm to the public despite only a few pending loan modification misconduct complaints. Since mid-2009, the Loan Modification Team has filed eleven section 6007(c) petitions, ten of which have been granted by the State Bar Court. One matter is currently pending.

Any student of modern public relations will admire the artfulness of Ms. Ernde’s press release. 1,186 cases seems to be an impressive number; as does the number of attorneys involved in those cases, 153.  It almost seems to confirm Howard Miller’s statement in October 2009 about “hundreds, perhaps thousands” of attorneys being  involved in loan modification misconduct until you read on discover that only 69 attorneys have been disciplined, and only 18 disbarred.

Questions then arise:  if 153 lawyers have been “pursued” and 69 disciplined, what has happened to the other 84?  Were cases against them dismissed? Did they resign?  Were some of these lawyers given warning letters or agreements in lieu of discipline (ALD) ?, dispositions typically merited for extremely low level misconduct.  Are there pending disciplinary prosecutions against some of the 84?  How many? The information that 720 cases are pending before the State Bar Court is interesting but we are not told how many attorneys those 720 cases represent.  One could speculate that since 1186 cases resulted in discipline of 69 attorneys, 720 cases may mean pending prosecutions against  41.  If so, what happened to the other 43?  Does that mean that the remaining 291 cases that are pending in investigation represent about 17 attorneys? Also, since we know that recidivism occurs among disciplined attorneys, are any of the 69 disciplined attorneys also among the the unknown number of the 84 that may be the subject of current discipline proceedings?

Part of the problem is the use of the vague term “pursued”.  It seems to mean that a notice of discipline charges (NDC) has been filed in State Bar Court against the attorney.  Is so, why not be precise and say that, as Mr. Towery did in his April 2011 report?  Another is use of the “cases” instead of identifying numbers of attorneys.  720 cases pending in State Bar Court might mean 43 attorneys or it might mean 21, or even less, depending on the number of cases filed against each attorney.  A few attorneys with 40 or 50 cases “cases” could skew the really important number, the number of attorneys involved in this type of misconduct pretty low.  I know of several Respondents with numbers of “cases” in this range.

And, at risk as being identified as a real nitpicker, how exactly is “loan modification misconduct” defined?  At one end of the spectrum, consider an attorney of 30 years unblemished record in an established real estate practice who takes on the representation of a single client with a pending foreclosure sale, and neglects to take any steps to stop the foreclosure, and his failure to perform doesn’t harm to client because there was no real basis to stop it.  This would probably be resolved with a public reproval (see Standard 2.6(b), Standards for Attorney Sanctions for Professional Misconduct, Title IV, State Bar Rules of Procedure.)  At the other end, an attorney with record of prior discipline who lends his name to non-attorneys who run a loan mod shop and take money from dozens of clients without doing anything.  Certain disbarment.  Both are “loan modification misconduct” but the first example is not what Howard Miller was talking about.  The fact that only 18 lawyers out of the 69 have been disbarred means that the activity that so exorcised Miller was far less widespread than advertised.   As the State Bar has taken aggressive action in the loan modification area in the last year (as a comparison of the press release numbers with the April 2011 numbers shows), it is likely that almost all of the real scammers, the ones that inspired SB94, have already been taken out.

What the State Bar is left with now may largely be attorneys who did some volume of loan modification work, failed in a certain number of cases to obtain the loan modification the client wanted, perhaps because of lender intransigence or client cupidity, and took a fee before the work was “complete”, allegedly in violation of SB 94.  Not the lawyers that SB94 was intended to address but a target nonetheless because of SB 94’s overbroad  and possibly unconstitutional remedy.  Lawyers caught up in the loan mod dragnet.

But the biggest issue is that the State Bar could have produced informative numbers and chose not to.  I was curious as to whether more comprehensive information loan modification misconduct had been provided in any public report to the State Bar Board of Trustees.  So I plumbed the Board meeting archives.  Lots of interesting stuff there but nothing in the Chief Trial Counsel’s public status reports since last July but the tantalizing statistic that there had been 4,451 “allegations” of loan modification misconduct made at the Intake stage in 2011 (OCTC Status Report dated January 25, 2012).  “Allegations”, if anything, is a more opaque category than cases but the number is impressive.  At least until it is compared with the other numbers discussed above and you realize that it is largely sizzle and not steak.

Ms. Ehrde’s artful email confirms that reasons for the State Bar to inflate the threat presented by loan modification attorneys remain in play.  As an organization, the State Bar has been criticized in the past for a lack of transparency in the information that it provides.  This is one tradition that doesn’t seem to have changed.

Now Playing: Discipline Theater

/ David Cameron Carr / Leave a comment

The State Bar’s top  discipline cop, Jayne Kim, has been confirmed to a full four year term by the Senate Rules Committee.  Now “interim” will come off the letterhead and Ms. Kim can take a moment to bask in the warm sunlight  of approval.

The “cop” label is entirely appropriate.   As State Bar Executive Director Joe Dunn told the California Bar Journal: “When we brought Jayne back to the bar last year, we said there was a new discipline sheriff in town.  As everyone can now clearly see, it wasn’t just hyperbole.”

No, not hyperbole.  An accurate descriptor and a significant milestone for a discipline  system that has spent 25 years transforming itself into a full fledged government law enforcement agency.

Some people still don’t seem to get it, though.  In his opening remarks at the State Bar’s  19th Annual Ethics Symposium in San Francisco last month, State Bar President Jon Streeter made a passing reference to lawyer “self regulation.”   For a moment, it made me wonder where he has been for the last 18 months but of course he has been squarely in the middle of the tornado all this time.  He of all people must know we are not in Kansas anymore.  So his reference can’t be read literally but more as a paean to a fading idea.

Consider the recently enacted re-statement of the State Bar of California’s fundamental ethos.  Since 1927, Business and Professions Code section 6031 has  stated that the broad mission of the State Bar as aiding in “all matters pertaining to the advancement of the science of jurisprudence or to the improvement of the administration of justice, including, but not by way of limitation, all matters that may advance the professional interests of the members of the State Bar and such matters as concern the relations of the bar with the public.”  This wonderfully naive language reflects the optimistic philosophy behind the newly integrated State Bar, in keeping with the spirit of the times; jurisprudence was a science that could be advanced if we lawyers all pulled together as a team.  While this section has not been repealed, new section 6001.1 added in 2010 now provides that  “protection of the public shall be the highest priority for the State Bar of California and the board of trustees in exercising their licensing, regulatory, and disciplinary functions.  Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount.”  Now lawyers are no longer members of the team but a suspect class that the public must be protected from.

After the strenuous efforts of the State Bar over the last 25 years to reform the discipline systems, you can ask why it was necessary to give this statement the force of law.  Standard 1.3 of the Standards for Attorney Sanctions for Professional Misconduct, now part of the State Bar Rules of Procedure says almost the same thing and it has been around since 1986.  Everyone involved in the discipline system on a regular basis understands this.  For what audience is this dramatic pronouncement intended?

Whoever that audience is, Ms. Kim is fully on board.  She has stated that she follows a “zero tolerance” policy toward attorney misconduct.  This platitude is not much different than the statements of past Chief Trial Counsels, but along with the cop metaphor seems intended to imply some dramatic change from the past, when, presumably, the discipline system was winking at attorney misconduct.

Does this now mean that every violation of the Rules of Professional Conduct or State Bar Act, no matter how petty or insignificant, will be prosecuted, regardless of whether it advances the goals of the discipline system?  Almost certainly the answer is “no” but we don’t know.  A few years former Chief Trial Counsel  Scott Drexel imposed a similar mindset on the prosecutor’s office and the result was a huge backlog of cases because nothing was prioritized.

In keeping with the cop metaphor, discipline defense counsel are again seen as the enemy.  During the brief Towery era, the Office of Chief Trial Counsel began distributing Hearing Department discipline decisions and stipulations to members of the Association of Discipline Defense Counsel as a way to keep both sides on the same page and encourage settlement of discipline cases without trial.   Ms. Kim has ended this practice.

More recently, defense counsel have been informed that OCTC will no longer agree to allow lawyers to plead nolo contendere to discipline charges.  The nolo plea (Bus. & Prof. Code section 6086.5) was an innovation enacted 20 years ago, again to encourage the settlement of discipline cases by providing that admissions made in resolving the discipline case may not be used in civil litigation.  It also provided an innocuous face-saving device for lawyers that did not affect the very real and very serious consequences of discipline.

After the terrorist attacks of 9/11, the country embarked on an air travel security regime that knowledgeable observers have described as “security theater“:  countermeasures intended to provide the feeling of improved security while doing little or nothing to actually improve security.  The same thing is going on with the State Bar of California: call it “discipline theater”; measures and rhetoric designed to provide a feeling that the State Bar is really doing something to protect the public that will actually do nothing but increase the expense of the discipline system and increase the already harsh consequences of professional discipline to the attorneys involved.  The opening of this show does indeed mark the arrival of the State Bar as a mature government law enforcement agency un-tethered from any quaint notions of the legal profession as “self regulating.”

Working for the Crack Down: State Bar cracks down on lawyers who lapse on their MCLEs

/ David Cameron Carr / Leave a comment

State Bar cracks down on lawyers who lapse on their MCLEs.

The most interesting aspect of this may be that the State Bar’s own press release uses the words “crack down” and that the press release was released at all.   Not only is the State Bar getting tough in discipline, admissions and other areas, like continuing legal education, but it is telling everybody that it is as often as possible.  The State Bar’s transformation from a bar association to a law enforcement agency has been long but seems nearly complete.

I expect that the State Bar will soon propose increases in the amount of continuing education required of lawyers and perhaps more in-person instruction.   Originally, 36 hours was required; that was reduced to the current 25 after the State Bar shutdown in 1998, prompted in part by complaints from attorneys that the requirement was onerous.  Given the power shift in the State Bar’s governing body, now known as the “Board of Trustees” it isn’t likely that lawyer complaints about MCLE will have much traction.

Not long ago, I met a new lawyer member of that Board of Trustees.  I asked what district the Trustee represented.  “I don’t represent a district;  I represent the People of the State of California!”  was the reply, evidently a well-schooled one.  The last pretense that California lawyers are self-regulating has fallen away, and appropriately so, as that actually ended many years ago.  The de facto firing of Jim Towery as the discipline chief last year, has to be seen in this light.  Towery was a lawyer’s lawyer but the new State Bar didn’t need a lawyer running discipline but a prosecutor and an aggressive one.

Stranding Astride History Shouting “No”? Ethics 20/20 Commission Suspends Campaign to Draft a Proposal on Nonlawyer Ownership of Law Firms – News – ABA Journal

/ David Cameron Carr / Leave a comment

The ABA Commission on Ethics 20/20 has decided that it will not develop a proposal for consideration by the association\’s policy-making House of Delegates on whether nonlawyers should be allowed to have some form of limited ownership interest in U.S. law firms. In a joint statement released today, co-chairs Jamie S. Gorelick and Michael Traynor confirmed that the commission agreed at its meeting last week in Washington, D.C., to shelve plans to submit a proposal on nonlawyer ownership for consideration by the House in when it convenes during February\’s 2013 ABA Midyear Meeting in Dallas. Gorelick and Traynor indicated that feedback received from other bar associations and individual members of the profession did not suggest a groundswell of support for revising the ABA Model Rules of Professional Conduct to permit a limited form of nonlawyer ownership. The Model Rules, which are the direct basis for professional conduct…

via Ethics 20/20 Commission Suspends Campaign to Draft a Proposal on Nonlawyer Ownership of Law Firms – News – ABA Journal.

It turns out that there is distinct lack of enthusiasm in the profession for rules diluting the “core value” of lawyer control of law firms.  Should we be surprised? Does this and the end of Jacoby & Meyers’ Quixotic assault on New York’s version of Rule 5.4 may mean the United States will remain an exception as non-lawyers become increasingly involved in the provision of legal services?

Ethics 20/20: Straining to Keep Up

/ David Cameron Carr / Leave a comment

Legal Ethics Forum has some useful links to the American Bar Association’s 20/20 ethics proposals.  Just the subject matter areas are a revealing snapshot of what legal ethics is largely about right now:  technology and confidentiality, technology and client development, outsourcing and mobility issues.  By and large the changes are modest and some of them don’t seem very helpful.  For example, the changes in  the comments to Model Rule 5.5 that caution’s that a virtual law office may, at some point, become as “systematic and continuous” so that licensure in the jurisdiction is required.  This not only begs the critical question of when that point is reached but seems an attempt to impose a outdated concept of physical geography that just has little meaning in cyber space.   National licensing would seem to make sense (it did to me twenty years ago) but we apparently can’t change the patchwork of parochial licensing institutions without intruding on some “core value” that eludes me.   Economic and technology issues are moving the profession faster than the ability of rule makers to keep up;  even as 20/20 seems a little quaint, California is moving toward adopting the last century’s state of the ethics art, a version of the Model Rules, at a pace well described as glacial.

Discipline Chief Embraces Structural Reform

/ David Cameron Carr / Leave a comment

The  February  2012 status report submitted to  the State Bar Board of Trustees Committee on Regulation,  Admission and Discipline (RAD) by acting Chief Trial Counsel Jayne Kim describe a much needed structural reform in the Office of Chief Trial Counsel (OCTC):  moving to to a pure vertical prosecution model.  Under this system, the essential facts of the case don’t have to learned by four or more OCTC attorneys under the current model.   This encourages early disposition of cases by investing the attorney responsible for overseeing investigations in the final result.  There is also the positive news that OCTC is instituting a monthly training program for discipline prosecutors.

It is not clear whether approval of what the Chief Trial Counsel by discipline defense counsel is the kiss of death.  Every time I say nice things about them, they seem to lose their job.  I will go out on a limb one more time and state that the acting Chief Trial Counsel is moving OCTC in a direction it should have been moving some time ago.