Archive for June 30th, 2010

Conflict of interest, fraud on the court, Motion to DQ Counsel

(1)  Citimortgage admits its own employees signed an assignment of mortgage, conveying a mortgage to itself.  
(2)  Foreclosure Mill Shapiro & Fishman, LLP admits its standard practice is to prepare these assignments for their own clients (not the original mortgagee) to execute and record in the public record. 
 (3)  Shapiro never runs conflict checks prior to filing new lawsuits, leaving it up to their other clients (who may or may not be named as Defendants) to assert a conflict after the case has been filed.
These admissions were made in the course of a 3.5 hour, evidentiary hearing on a Motion to Disqualify Counsel brought by foreclosure defense attorney Mark Stopa on June 18, 2010 before Judge Foster in Tampa. 
I’ve attached the Transcript, DQ Motion, and the Exhibits introduced into evidence, but they’re not going to make sense without some background. (Bear with me, this is fascinating stuff.  To illustrate, even as he denied the motion (incorrectly, in my opinion), Judge Foster openly acknowledged the need for a written opinion from the Florida Supreme Court, comparing the issue to Gideon v. Wainwright, 372 U.S. 335 (1963) and Miranda  v. Arizona, 384 U.S. 436 (1966)).      
Facts (as set forth in DQ Motion,Transcript, and Exhibits):  Shapiro & Fishman represents Citimortgage, Inc. in a foreclosure lawsuit against JPMorgan, MERS, and the homeowners.  The Complaint does not specify how Citimortgage acquired standing to foreclose.  The public records reflect an Assignment of Mortgage, prepared by Shapiro, purporting to assign the mortgage from MERS, as Nominee for First Security Mortgage Services, to Citimortgage.  The assignment was executed the same day Citimortgage filed suit.  Citimortgage’s own employee testified that Nate Blackstun and Jamie Hardcastle, the individuals who signed this assignment (purporting to transfer the mortgage from MERS to Citimortgage) are actually employees of Citimortgage.  Quoting the testimony of a Citimortgage employee:
Q:  Who is Jamie Hardcastle?
A:  She works at Citimortgage in the — well, I’m not quite sure which department she works in. 
Q:  Do you know her?
A:  Yes. 
Q:  Do you work with her? 
A:  No, she works in my building. 
Q:  She’s an employee of Citimortgage, Inc.?
A:  Yes. 
Q:  How about Nate Blackstun?  Do you know him?
A:  Yes. 
Q:  Who is he? 
A:  He’s vice president of Citimortgage. 
Q:  Does he work in your building as well? 
A:  Yes.  …
Q:  Do you know whether Mr. Blackstun obtained the consent of MERS prior to signing an assignment of mortgage in this case? 
A:  He’s an authorized signer for MERS. 
Q:  Even though he’s also the Vice President of Citimortgage? 
A:  Yes. 
Q:  You see any sort of problem with that? 
A:  No. 
Q:  How do you allege that Citimortgage became the owner and holder of this note in this case?
A:  It was assigned to Citimortgage –
Q:  From whom?
A:  from MERS. 
Q:  From whom? 
A:  MERS. 
Q:  On behalf of whom? 
A:  I’m not sure. 
In fact, Shapiro and Fishman’s office manager admitted that Shapiro’s standard practice is to prepare an Assignment of Mortgage, provide it to its own client to sign (on behalf of the original mortgage holder, typically MERS), have its client execute the assignment, and cause the assignment to be recorded
Q:  Do you dispute that Jamie Hardcastle is an employee of Citimortgage, Inc.?
A:  Do I dispute that?  No. 
Q:  Do you dispute that Nate Blackstun is an employee of Citimortgage, Inc.?
A:  No. 
Q:  Yet they are the individuals who signed an assignment of mortgage on October 13, 2009, purporting to convey a mortgage from Mortgage Electronic Registration Systems, Inc. as nominee for First Security Mortgage Services to Citimortgage? 
A:  With authority from MERS to execute the document, yes they did. …
Q:  So all you basically do when you get a new client for a foreclosure case, you cause an assignment of mortgage to be prepared, send it to your client for signature, and knowing that your clients have it own employees signing it and then sending it back to you, true? 
A:  Yes.  However, that assignment is not part of the foreclosure action itself.  It’s a chain of title document which is not part of the foreclosure. 
Q:  You’ve never seen these assignments of mortgage be attached to a complaint? 
A:  Sure. 
Shapiro represents JPMorgan and MERS in other, pending cases, including at least one case where MERS is adverse to Citimortgage.  Yet Shapiro continues to represent Citimortgage in this case, adverse to JPMorgan and MERS.  (If you don’t think there is anything wrong with that, call The Florida Bar and tell them you represent ABC Corp. against XYZ Corp. and ask The Bar if it’s ok for you to represent XYZ Corp. against ABC Corp. – see what they say.  See if the Bar gives its blessing, even if both entities waive the conflict.)  Shapiro did not perform a “conflict check” prior to representing Citimortgage in this case and, in fact, does not perform conflict checks when taking on new files.  Instead, Shapiro’s standard practice is to file the suit for whichever bank it is representing in that case and presume there is no conflict unless a different bank asserts such a conflict. 
The issues:  (a) Whether Shapiro & Fishman have a conflict of interest under 4-1.7, R.Reg.Fla.Bar, precluding it from acting as counsel for Citimortgage, when it is simultaneously representing JPMorgan and MERS (in other, pending cases and, arguably, the instant case); and (b) whether Citimortgage has used Shapiro’s services to perpetrate a crime or fraud, without agreeing to disclose and rectify the crime or fraud, in violation of 4-1.16, R.Reg.Fla.Bar. 
The law:  Rule 4-1.7(a) precludes a law firm from representing a client if the representation is (1) directly adverse to another client; or (2) there is a substantial risk that the lawyer’s representation will be “materially limited” by the lawyer’s responsibilities to another client, a former client, a third person, or a personal interest of the lawyer.  The only way around this prohibition is compliance with 4-1.7(b), which requires, among other things, that each client gives informed consent, confirmed in writing or clearly stated on the record at a hearing.  See Lincoln Associates & Constr., Inc. v. Wentworth Constr. Co., Inc., 26 So. 3d 638 (Fla. 1st DCA 2010).  Additionally, Rule 4-1.16 precludes a lawyer from representing a client who has used the lawyer’s services to commit a crime or fraud unless the client agrees to disclose and rectify the crime or fraud. 
Analysis:  In the face of the Motion to Disqualify Counsel, Shapiro presented a waiver of conflict, signed by an employee of Citimortgage, dated just one day before the hearing (the first time Shapiro discussed the issue of conflict with Citimortgage).  However, Shapiro presented no such waiver from MERS or JPMorgan, and no witness from MERS or JPMorgan testified or otherwise consented to waive the conflict.  In my opinion, the absence of consent from MERS and JPMorgan required Shapiro’s disqualification.  See Rule 4-1.7 and Wentworth
Throughout the hearing, Judge Foster repeatedly ruled that he “did not see the conflict” and that Citimortgage was “not adverse” to MERS and JPMorgan.  Respectfully, when these entities are on opposite sides of a lawsuit, the adversity is presumed.  They are adverse by definition, one being the Plaintiff and the other the Defendant.   Although Shapiro contends, when these entities are named as Defendants, that it’s merely to ”clear title,” that does not change the adversarial nature of the relationship.  For instance, suppose MERS or JPMorgan or First Security later realized it was the owner and holder of the note and mortgage (or, at minimum, that it had a bona fide claim in that regard) – the judgment in this case would bar such a claim under principles of res judicata and collateral estoppel.  Similarly, suppose a ”junior” lien holder had a bona fide argument that its lien was superior.  Isn’t Shapiro throwing one client under the bus (the defendant) for the sake of another (the plaintiff) without checking if its own client, the defendant, takes the position that it owns and holds the note and mortgage?  Shapiro says the defendant was defaulted, so it isn’t contesting the plaintiff’s position and there is hence no conflict, but isn’t it the lawyer’s job to inquire about the conflict, before filing suit, and not merely to leave it up to the client to figure it out?  Isn’t it Shapiro’s responsibility, under The Rules Regulating The Florida Bar, before filing suit against its own client, to make sure that the client it is suing consents to the relief being requested?  How do we know the client isn’t relying on the law firm (as clients reasonably do)?  I can see the logic now – “Shapiro is filing suit against us for a different bank.  Shapiro represents us.  Shapiro must be right – we must not have an ownership interest in this Note and Mortgage.”  We’ve already established that Shapiro isn’t checking – Shapiro admitted as much at this hearing – so if the bank isn’t checking, either, then who is?
Suppose this were any other setting, not a foreclosure case, and you represent ABC Corp. against XYZ Corp.  Would you ever file suit for XYZ Corp. against ABC Corp., in a different suit, without asking ABC Corp. if it consented?  Without asking ABC Corp. if it agreed with XYZ Corp’s position in that case?  I highly doubt it.  So why it is okay for Shapiro to do that in these cases, over and over again?  Merely because they are foreclosure cases? 
And what about all of the cases where Shapiro’s “other” client may claim ownership of the Note and Mortgage (e.g. because it is the record owner or prior record owner) but is not named as a defendant in the suit?  Why does Shapiro name these entities as Defendants in some cases but not in others?  If they need to “clear title” in some cases, why not in others?  Is Shapiro intentionally not naming its own client as a defendant to make it easier for its other client, the plaintiff, to win the foreclosure case, while leaving the door open for its other client (not named as a defendant) to file suit on the same Note and Mortgage?  After all, if the bank isn’t named as a defendant, the foreclosure judgment is not binding on it, and nothing stops that bank from filing a different lawsuit for foreclosure.
Meanwhile, in the face of an assignment of mortgage that appears fraudulent (unless you think self-dealing or dual agency is okay), Shapiro asserts Citimortgage’s standing is based on transfer of the note, not the assignment of mortgage.  Of course, Shapiro did not take this position until after the Motion to Disqualify Counsel was filed, which raises the question – why is Shapiro so willing to concede one ground for standing in this case when it asserts that basis for standing in other, similar cases?  We all know there are many cases in which Shapiro has used an assignment of mortgage as a basis for standing; in fact,often the assignment is attached to the Complaint.  Why, then, would it be giving up this argument in this case?  In my opinion, the answer is clear – Shapiro wants to take the spotlight off of itself and its own conduct, even if it means giving up an argument for a client.  “Let’s argue the assignment is irrelevant for purposes of standing, that way our conduct vis a vis the assignment becomes irrelevant, too.”  Maybe standing is, in any given case, based on transfer of the Note.  Respectfully, though, wouldn’t a conflict-free attorney want to argue every possible basis for standing, including the assignment, and not forego an argument for standing because it highlighted that attorney’s own conduct?  In other words, isn’t Shapiro’s representation of Citimortgage “materially limited” by its own self-interest?  See Rule 4-1.7(a)(2).  Notably, upon inquiry from Mr. Stopa, the Citimortgage employee made it clear Shapiro never advised her that it was giving up one basis for standing in the case.  Respectfully, how can a waiver be “informed’ when Citimortgage does not understand the ramifications of its waiver in the pending case? 
Unfortunately, Judge Foster did not seem to get (for lack of a better term) this latter argument, as he sustained an objection that Shapiro’s reliance on an assignment in other cases was irrelevant.  (That’s one purpose of a blog like this – to make judges think about these issues and understand them.  To wit, by no means am I trying to criticize Judge Foster here – I respect and appreciate that he gave me the opportunity to flesh out this evidence.  I just think the issues merit consideration from all of us.)  But Shapiro’s reliance on the assignments in other cases – and refusal to do so in this case – is precisely the point.  If Shapiro is relying on assignments in other cases, but not in this case, merely to take the spotlight off of itself so as to defeat a motion to disqualify, it’s representation is materially limited by its own self-interest, in violation of 4-1.7.  Remember, the rule requires “informed” consent, and if Citimortgage is consenting to the representation without understanding that Shapiro is waiving an argument that a conflict-free attorney would assert, the consent is not “informed.”   Also, how many hundreds or thousands of times has Shapiro relied on these assignments in other foreclosure cases (in which I, or another defense attorney, am not involved)?
Meanwhile, Judge Foster seemed to accept that a fraud was not being committed upon the Court (given how Shapiro distanced itself from the assignment of mortgage), but Rule 4-1.16 doesn’t require that the fraud be committed in that case.  The Rule requires that a lawyer withdraw from representation if “the client has used the lawyer’s services to perpetrate a crime or fraud, unless the client agrees to disclose and rectify the crime or fraud.”  Here, isn’t an assignment of mortgage, filed in the public records, purporting to convey an assignment from MERS to Citimortgage, but which is actually signed by employees of Citimortgage, a fraud?  As I’ve presented this argument, judges seem to be taking the position that it’s OK for an employee of Citimortgage to execute an assignment from MERS to itself as long as MERS consents, but how is that not self-dealing?  And why is it ok?  I know I’m not the only person who thinks it’s wrong.  See HSBC Bank USA, N.A. v. Vazquez, 2009 N.Y. Slip Op. 51814 (N.Y. 2009); Bank of New York v. Mulligan, 2008 N.Y. Slip. Op 31501 (N.Y. 2008) (“The Court is concerned that Mr. Harless might be engaged in a subterfuge, wearing various corporate hats.  Before granting an application for an order of reference, the Court requires an affidavit from Mr. Harless describing his employment history for the past three years.”); Bank of New York v. Orosco, 2007 N.Y. Slip Op 33818 (N.Y. 2007); Deutsche Bank Nat’l Trust Co. v. Castellanos, 2008 N.Y. Slip. Op. 50033 (N.Y. 2008) (“Did Mr. Rivas somehow change employers on July 21, 2006 or is he concurrently a Vice President of both assignor Argent Mortgage Company, LLC and assignee Deutsche Bank?  If he is a Vice President of both the assignor and the assignee, this would create a conflict of interest and render the July 21, 2006 assignment void. … The court is concerned that there may be fraud on the part of Deutsche Bank, Argent Mortgage Company, LLC, and/or MTGLQ Investors, L.P., or at least malfeasance.”). 
In comments made as the hearing began (which are unfortunately not in the transcript), Judge Foster made it clear that he didn’t want to require disqualification and upset the entire banking industry.  In a way, that’s exactly what this motion is doing – arguing that the manner in which these assignments have been completed (and, in essence, the entire MERS system) is a fraud.  Respectfully, though, why should the fact that the fraud is pervasive – and would upset the way banks litigate foreclosure cases – make this problem less worthy of attention?  Shouldn’t the fact that these assignments are being prepared fraudulently in virtually every case make judges more likely to fix the problem, not less? 
Shapiro argued extensively that my clients lack standing to argue this issue.  However, the Comment to 4-1.7 provides: “Where the conflict is such as clearly to call into question the fair or efficient administration of justice, opposing counsel may properly raise the question.”  This is where we need to educate judges about the widespread ramifications of “pushing through” foreclosure cases.  For instance, in these cases where the wrong Plaintiff is suing, what will happen when the actual owner of the Note and Mortgage emerges, after the foreclosure is granted?  What will happen to the homeowner, who has already been foreclosed upon by the wrong bank (but faces another lawsuit by the correct one)?  What will happen to the then-owner of the property, who purchased the property either at the courthouse auction or from such a purchaser?  What about the title company that issued title insurance based on that sale?  Particularly in lawsuits where the Note is lost, or where the original mortgage holder went into bankruptcy (and subsequent transfers or assignments were unauthorized as a matter of law) we must safeguard against these problems.  That’s why addressing these conflict issues is so important – it forces banks and their lawyers to take a hard look at the interests of all parties involved before a foreclosure case gets “pushed through.” 
Many Florida cases on the issue of disqualification talk about the appearance of impropriety and the public’s perception of our conduct as lawyers.  See Wentworth, Campbell v. American Pioneer Savings Bank, 565 So. 2d 417 (Fla. 4th DCA 1990); Andrews v. Allstate Ins. Co., 366 So. 2d 462 (Fla. 4th DCA 1978).   For the life of me, I can’t see how anyone can dispute the unseemliness of these events.  Perhaps that’s why at least one judge has questioned the conflict of interest in these situations.  See HSBC Bank USA, N.C. v. Vazquez, 2009 N.Y. Slip. Op 51814 (N.Y. 2009) (“Even if Plaintiff HSBC is able to cure the assignment defect, plaintiff’s counsel then has to adderess the conflict of interest that exists with his representation of both the assignor of the instant mortgage, MERS as Nominee for HSCB Mortgage, and the assignee of the instant mortgage, HSBC.”).  I urge more attorneys and judges in our great state to give careful consideration to these issues

Posted in Main | 25 Comments »