"Take My Wife... Please!"-- Husband's Brief On Creditor Intervention In Divorce.

If there's one thing worse than getting divorced -- I assume; I've never been divorced but I've represented plenty of people in divorce, and it seems pretty bad, even before I send the bill -- it's "getting divorced, and also one of your creditors manages to intervene and sue you, too."

Sounds terrible, right? It doesn't happen much, but it can happen: Your creditors could intervene in a divorce to try to affect how you distribute assets and how the court characterizes debt.

It happened in In re Marriage of Curda-Derickson v. Derickson, 2003 WI App 167. Lynn and Richard were innocently going through their divorce, a divorce that maybe, just maybe, was brought about by Richard's having embezzled $370,000+ from the Sokogon Gaming Enterprise, a division of the Chippewa tribe, and both Linda and Richard being indicted in federal court for that.

After Richard plead guilty, charges against Lynn were dismissed. Richard was ordered to pay restitution, and Lynn agreed to give up her claim to many assets, excluding Lynn certain properties located in Wisconsin.

In 2000, Lynn and Richard were divorcing and Sokaogon moved to intervene in their divorce, asserting a right to have the trial court consider how to classify the restitution order. Sokaogon wanted it to be a marital debt, so that it could pursue certain assets Lynn had.

After testimony, the trial court denied Sokaogon's request, finding that Lynn wasn't involved in the embezzlement and so the debt wasn't a marital debt.

On appeal, Sokaogon argued what could probably be termed the Dark Matter Theory Of Property Division if anyone but me would get that reference:

The Sokaogon then characterizes the restitution order as a type of "negative property" and reasons that because "[s]tolen money is not a gift or an inheritance," the restitution order that requires repayment of stolen money that was acquired during marriage must be presumed to be part of the marital estate. The Sokaogon also contends that Lynn failed to rebut the presumption that all debts incurred during the marriage are marital debts and therefore, the restitution order is a marital debt and subject to division between the parties. In so doing, the Sokaogon attempts to assume the posture of a spouse appealing from a judgment of divorce, rather than a judgment creditor seeking recovery for an obligation incurred by a spouse during the marriage.

The Court of Appeals raised my first question for me, almost indirectly: Why bother intervening in the divorce? A judgment of divorce isn't binding on anyone other than the two parties to the action, and a creditor could use a regular lawsuit to have a court determine the character of a debt or asset received in the divorce.

As you'd expect from someone who not only knew of this case but also has used this maneuver, I have an answer: you want a say in how the property is divided, and you want to be aware of what's going on in the lawsuit, things that you can't otherwise easily get. In a divorce action, you get to question people about finances and such early on, whereas in a lawsuit, most lawyers (including your esteemed blog author) will refuse to turn over financial details unless and until you get a judgment.

(Unless, of course, turning them over is legally required, or helpful to my clients.)

Sokaogon's main argument was that the restitution order stemmed from a debt that benefitted the marital estate -- an argument that threatens to swallow up the classification of marital debt under chapter 766. Lawyers make arguments like this all the time: It's a business debt, they'll tell me of credit card obligations, because your client used his credit card to buy a business suit (That's an actual argument a lawyer once made to me.)

Lynn took a more rational stance on appeal: she said that the restitution order was easily classified as an obligation arising from a tort, the tort being theft, which is conversion, which is clearly a tort.

The Court of Appeals, not willing to say "Lynn's right" and call it a day, went through the usual rigamarole:

WISCONSIN STAT. § 766.55 contains no clear provision for obligations arising from an order for restitution, but we conclude it may be classified as are other obligations incurred during marriage.

That's good -- start off with a low hurdle. Running through the rules of how and why a tort obligation can't be satisfied from the nonincurring spouse's property, the Court got back to where Lynn started, only couldn't quite bring itself to say, in so many words, Lynn's right, let's call it a day:

Accordingly, we conclude that § 766.55(2)(cm) classifies obligations resulting from a spouse's wrongful act during the marriage as an obligation for which only the tortfeasor spouse is personally liable.

See? They didn't come right out and say theft is a tort, but you get the point.

Surprisingly, there's still more decision to come... even though the Sokaogon didn't argue that Lynn was wrong, either:

The Sokaogon does not contest the court's findings or Lynn's assertion that the restitution order resulted from a tort committed solely by Richard during the marriage. A proposition asserted by a respondent on appeal and not disputed by the appellant's reply is taken as admitted. Schlieper v. DNR, 188 Wis. 2d 318, 322, 525 N.W.2d 99, 101 (Ct. App. 1994). Accordingly, for the reasons stated above, we conclude that the circuit court properly classified the restitution order as Richard's individual obligation, according to the provisions of § 766.55(2)(cm).

That's that, right? Wrong. There's three more paragraphs left to go, because the Sokaogon argued public policy. (As my old boss used to say, If you're arguing public policy, you've already lost.)

To refute this conclusion, the Sokaogon argues, on policy grounds, that where a marital estate benefits from a tort committed by a spouse during the marriage, the subsequent restitution order should be a marital debt. The Sokaogon contends that "the State of Wisconsin [should not] shelter their marital estate from financial responsibility to the very members of the public they injured."

The Court said NAY!, noting that the legislative history of the Marital Property law clearly indicated that torts were not to be considered a family purpose debt, and finally called it a day.

Clark Howard Was Wrong, AGAIN! (He should become an acupuncturist.)

This is why entertainers should stick to entertaining, and lawyers should stick to lawyering, or whatever it is I do all day.

This morning, on CNN HLN, Clark Howard had another of his little morsels of pseudoknowledge, talking about debt collectors harassing people on Facebook...

-- something I talked about way back in September, 2010, and humor website Cracked did an article on in March, 2011, so if you want up-to-the-minute legal news, your first best choice is me and your second best choice is a humor website, making Clark a distant third --

...and he mentioned that a Florida judge had issued a ruling barring a debt collector from doing that, which is true enough: a Pinellas County judge did issue an injunction against a debt collector, Mark One Financial LLC, barring the collector from practices including contacting a debtors friends on Facebook to urge her to call the debt collector.

But Clark then steered people wrong by first suggesting that the ruling had "no impact" outside of Florida. That, too, is true enough: a Pinellas County judge's ruling (which appears to be based on Florida, rather than federal, law) is not binding on any other court in the country, but the Fair Debt Collection Practices Act is, in fact, binding on all debt collectors and all courts, and where it applies, the FDCPA says:

(b) Communication with third parties Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

That's at 15 U.S.C. sec. 1692c(b), and it pretty obviously prohibits contacting others except in very limited circumstances.

I don't know if Mark One Financial LLC was a "debt collector" under the FDCPA -- but I'm pretty sure Clark Howard doesn't know that either, and that Clark doesn't know about 15 U.S.C. 1692c(b), as well, because Clark went on to say that people can stop debt collectors from contacting them through what he calls a "drop dead" letter.

Clark, on CNN HLN, didn't say what a "drop dead" letter was, but he did guarantee that it would prohibit debt collectors from contacting you. To make sure I wasn't being unfair to Clark Howard, Entertainer, I went to his website to find the drop dead letter. It reads:

(Date) To Whom It May Concern: I have been contacted by your company about a debt you allege I owe. I am instructing you not to contact me further in connection with this debt. Under the Fair Debt Collection Practices Act, a federal law, you may not contact me further once I have notified you not to do so. Sincerely, (Name) (Account No.)

Now, I won't get into whether providing a legal form to be used in legal matters is the unauthorized practice of law (it is) because I'm a free-marketeer who believes that anyone should be allowed to give legal advice, because I also believe "you get what you pay for," and so if you go to an acupuncturist to treat your cancer, you're going to die, and if you go to Clark Howard, Entertainer, for legal advice, you're going to lose.

The "drop dead" letter is apparently intended to be a communication to stop contact, and that, too, has a statutory citation:

(c) Ceasing communication

If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except—

(1) to advise the consumer that the debt collector’s further efforts are being terminated;

(2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or

(3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.

If such notice from the consumer is made by mail, notification shall be complete upon receipt.

That's 15 U.S.C. 1692c(c), and the fact that Clark Howard, Entertainer, guaranteed his "drop dead" letter would stop all communications shows he doesn't know about that provision of the law, because a "drop dead" letter (which our office calls a "Crayon Letter") doesn't stop communication.

It limits communication, and that's pretty clear from reading the law, which it's pretty clear Clark Howard, Entertainer, didn't do.

Anyone who writes a "drop dead" letter to a debt collector will be surprised to learn that the debt collector can contact them, at least one more time.

They might be even more surprised to learn that writing such a letter may, in fact, cause the debt collector to sue them -- because that's one of the few things a debt collector can do after receiving such a communication: they can't write you any more (much), so they may just have to sue.

Clark didn't warn people about that. I warn people about that when I advise them to write a crayon letter, but, then, I'm a lawyer, and not an entertainer. Nothing says you can't get legal advice from an Entertainer, but you get what you pay for, and in this case, you'd be better off getting your advice from Jackie Chiles than Clark Howard.



Oh, one other thing Clark didn't get into? Only debt collectors are even affected by "drop dead" (or "Crayon") letters. And not everyone who tries to collect a debt is a debt collector. Weird how an entertainer didn't understand the complexities of a federal law.

You NEED a lawyer. Yep, even for divorce.

There is a growing tide of stories about people who either can't afford to get divorced or who opt to represent themselves (or go to the local general practitioner to get some free advice) in divorce, which means that we're about a year or two away from a spate of stories about how people who represented themselves in divorce are now finding out that it would have been far better to hire experienced lawyers.

Going through a divorce represents one of the most tumultuos periods of anyone's life, and during all that emotional chaos, important decisions have to be made about finances, businesses, property, and, of course, children. Those decisions have a tremendous impact on how people's lives will go after that: placement arrangements that are intended to last a year or two may become permanent. Child support may be insufficient to help one spouse, or become too high and hurt the other. In one case I read the other day, a property division involving the split of a partnership share led an ex-wife to have a $400,000 judgment against her from someone who'd sued her husband.

That kind of situation is why it's NOT okay to handle a divorce on your own, or with someone who's inexperienced. You need a lawyer that has handled not one, or two, but many -- say, fifteen years' worth -- of divorces, like the austin divorce attorney David A. Kazen.

Experienced lawyers can help you determine the proper amount of support to pay -- and can arrange that support to minimize the tax effects of it, in order to keep more of your money between you and your children. Experienced lawyers can avoid having to sell your house in 90 days or less, avoid taking a huge loss or facing foreclosure because they "just did what everyone does", and can help you come to a reasonable determination of what a custodial schedule should look like, letting you stay involved in your kids' lives and avoiding further financial and emotional troubles down the line.

Exemption planners should learn to spell. (Interesting Judicial Comments)

"The trustee has objected to the debtor's exemptions and has also sought to deny the debtor's discharge on the theory that the debtor's pre-filing conduct strayed into that murky realm where overly aggressive asset protection only serves to hinder, delay, or defraud creditors, fresh starts become head starts, and pigs are safe but hogs are slaughtered."

--The Hon. Thomas Utschig, Judge
Bankruptcy Court, Western District of Wisconsin
(Cirilli v. Bronk, 09-15224-7)

A civil war-era law may trip up mortgage lenders... bringing mortgage litigation closer to the modern era? (Mortgage Issues.)

While ordinary people like my clients, represented by ordinary lawyers like me, have to spend thousands of dollars defending against claims that appear, on their surface, to be at best very shaky and at worst fraudulent, the big guys in their glass offices and European countries have been very little bothered by the fallout from the mortgage crisis.

Until now? Let's hope: The federal government -- which only recently declared that it might kind of force banks to do a little better -- took a bolder step towards "actually addressing the problem" by suing Deutsche Bank for fraud. From Reuters:

The government sued Deutsche Bank AG for more than $1 billion, accusing the German bank of fraud for repeatedly lying to obtain federal guarantees on mortgages it issued.

According to the lawsuit, Deutsche Bank and its MortgageIT Inc unit misled the Federal Housing Administration, the world's largest mortgage insurer, into believing their mortgages qualified for federal insurance, knowing they could make "substantial profits" when the loans were later sold.

In fact, the government said, the loan quality was so poor that nearly one in three mortgages defaulted, a percentage elevated by Deutsche Bank's "dysfunctional" quality control.

....

Deutsche Bank and MortgageIT "indulged in the worst of the industry's reckless lending practices," Manhattan U.S. Attorney Preet Bharara said at a news conference. "They often seemed to treat red flags as though they were green lights."

Leaks of "confidential" memos of audits of JPMorgan, Bank of America, Chase, Wells Fargo, Citigroup, and Ally Financial suggested that referrals for prosecution of violations of a Civil War-era law were going to be made:

The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.

Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company -- the nation’s largest handler of home loans -- failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.

(Source.) Bank of America didn't actually change any practices after their review? A company that claimed to have read 100,000 different foreclosure files in just two weeks, and later defended a lawsuit saying that it didn't matter if they cheated because people were going to lose their homes anyway, then misled the government into thinking it had actually done what it said it was going to do? I'm shocked! Shocked!

In related news, at the same time, the New York AG is said to be contemplating criminal charges against investment firms that played a role in securitizing mortgages, so there's that, too.

So now the New York AG thinks there were criminal actions involved, lenders have been found guilty of reselling mortgages to more than one "investor," the federal government concluded that the mortgage lenders lied to it to get some of that sweet, sweet TARP money... do you think this will lead to circuit court judges working a little harder to make lenders prove their case before forcing homeowners to spend their savings on a lawyer?

Hmmmm....

A simple desultory philippic, or how Justice Scalia Bob Dylan'd other justices into ruling. (Interesting Judicial Comments)

I once wrote a brief in which I cited, in a footnote, to Heisenberg's Uncertainty Principal -- a quantum physics reference in a brief being the high point of legal literature, the way I see it.

Courts around the country are apparently a little more lowbrow, and a lot more Baby Boomer-turned-Victoria's Secret Pitchman:

University of Texas Law professor Alex Long researched the use of 1960s songwriting on the legal profession.

After combing legal databases, court filings, and scholarly publications, he found,

“Dylan cited 186 times, far outpacing the rest of the top 10: the Beatles, 74; Bruce Springsteen, 69; Paul Simon, 59; Woody Guthrie, 43; the Rolling Stones, 39; the Grateful Dead, 32; Simon & Garfunkel, 30; Joni Mitchell, 28; and R.E.M., 27.”

That quote comes from a story on Death + Taxes, and the study didn't waste any taxpayer dollars -- but did note that two current conservative justices are not immune to the lure of Bob Dylan's raspy voice:

Justice Roberts ruled in 2008 that billing firms hired by payphone operators didn’t have standing to sue because they had no claim on the money they collected, slightly misquoting “Like a Rolling Stone,” with, “When you got nothing, you got nothing to lose.”

And Justice Scalia turned the trend on its head, using a famous Dylan lyric to scold his high court colleagues for declining to rule yet on the evolving question of when employees have an expectation of privacy in using company email. “‘The times they are a-changin”’ is a feeble excuse for disregard of duty,” he said.

What really surprises me is not that judges are quoting Dylan and the Rolling Stones, but that they're quoting REM. I wouldn't have bet there's a judge out there that's heard an REM song. I tried to find out which songs were most quoted, but couldn't. Instead, I found links to what is supposed to be a Beatles-heavy sentencing memorandum:

“Mr McCormack, you pled guilty to the charge of Burglary. To aid me in sentencing I review the pre-sentence investigation report. “I read with interest the section containing Defendant’s statement. To the question of ‘Give your recommendation as to what you think the Court should do in this case’, you said, ‘Like the Beetles say Let It Be'.

“While I will not explore the epistemological or ontological overtones of your response, or even the syntactic of symbolic keys of your allusion, I will say Hey Jude, Do You Want to Know a Secret? The greatest band in rock history spelled their name B-e-a-t-l-e-s. I interpret the meaning of your response to suggest that there should be no consequences for your actions and I should Let it Be so you can live in Strawberry Fields Forever. "

"Such reasoning is Here, There and Everywhere. It does not require a Magical Mystery Tour of interpretation to know The Word means leave it alone. I trust we can all Come Together on that meaning. If I were to overlook your actions and Let It Be, I would ignore that Day in the Life on April 21, 2006. Evidently, earlier that night you said to yourself I Feel Fine while drinking beer.

“Later, whether you wanted Money or were just trying to Act Naturally you became the Fool on the Hill on North 27th Street. As Mr Moonlight at 1.30am, you did not Think for Yourself but just focused on I, Me, Mine. Because you didn't ask for Help, Wait for Something else or listen to your conscience saying Honey Don't, the victim later that day was Fixing a Hole in the glass door you broke."

After you stole the 18 pack of Old Milwaukee you decided it was time to Run For Your Life and Carry That Weight. But when the witness said Baby it's You, the police responded I'll Get You and you had to admit that You Really Got a Hold on Me."

"You were not able to Get Back home because of the Chains they put on you. Although you hoped the police would say I Don't Want to Spoil the Party and We Can Work it Out, you were in Misery when they said you were a Bad Boy. When the police took you to jail, you experienced Something New as they said Hello Goodbye and you became a Nowhere Man.

"Later when you thought about what you did you may have said I'll Cry Instead. Now you’re saying Let it Be instead of I'm a Loser. As a result of your Hard Day's Night you are looking at a Ticket to Ride that Long and Winding Road to Deer Lodge. Hopefully you can say both now and When I'm 64 that I Should Have Known Better."

Mortgage companies are modifying mortgages? That's news to me

Slate recently posted an article that is extremely alarming, unless you consider that other news reported elsewhere makes it a good question as to what, exactly, we should be alarmed about, and then consider, too, that the alarm raised by the Slate article existed before lenders began doing the alarming things Slate is upset about.

I'll first let Slate get your dander up. From the story Borrowing Trouble:

A few months ago, Bank of America offered Sergio Cortez of Staten Island, N.Y., the help he desperately needed to stay in his home: a break on his mortgage. Like millions of others, he was facing foreclosure. But there was a catch buried in the fine print. Cortez had to waive any possibility of ever suing the bank for anything relating to the loan.

Cortez isn't alone. While regulators have banned the practice, some banks and others who handle mortgages have still been forcing homeowners into a corner: You want a chance at saving your home? Then you'll have to waive your rights.

The article goes on to interview a variety of people about the lenders' and servicers' practices of entering into short-term forbearance agreements and modifications which include waivers of rights to sue, waivers of defenses, and other clauses designed to limit litigation against the servicers and lenders in the future.

Which is a very alarming practice, unless you (a) know something about the law, and (b) read something other than Slate.

Take a look at the latter, first. Slate, while raising the specter of a tide of mortgage modifications that waive legal rights, links to an article that points out that mortgage modifications are in fact moving slowly, an article which includes a graph captioned "Mortgage servicers are reaching only a small fraction of struggling homeowners." So only a small fraction of homeowners are facing the alarming practice of waiving their legal rights.

All right -- but a "small fraction" of people improperly asked to waive their legal rights is still a problem, if the people shouldn't be asked to do that anyway. And, Slate notes, "regulators have banned the practice," so it shouldn't exist anyway, right?

Well, maybe not. What regulators have banned these practices? Slate quotes Rep. Maxine Waters, and notes that she has "been pushing a bill to ban these waiver clauses since 2008." So Congress hasn't banned these practices.

New York has banned them, as Slate notes, and HAMP modifications can't waive legal rights borrowers might have, either, and other states may have banned the practice, but I wasn't made aware, via that article or any other, of a widespread mass of legislation prohibiting waivers of rights. And, the question, if you know about the law, becomes: are those express waivers even necessary? And the corollary to that question becomes: is prohibiting all waivers of rights a good idea?

Maybe, maybe not -- that's the other point. Not only is this problem possibly not as widespread or alarming as Slate makes it sound, it may be a problem that exists whether or not servicers include express waiver clauses, and it may be a solution that overwhelms the problem.

Servicers do not necessarily need to include express waiver clauses in a modification agreement to get the relief they want. Under various doctrines in Wisconsin, a borrower who enters into an agreement with a lender to modify a loan or for a temporary forbearance might face a claim that he or she has lost various legal rights. Those doctrines include accord and satisfaction, and estoppel, as well as good old common-law waiver.

With accord and satisfaction, parties may settle existing debts and conflicts through a resolution each is in agreement with: so if a borrower thinks he is not in default and the lender thinks he is, and they sign a modification agreement that makes no mention of default or payments, accord and satisfaction may still bar a borrower from later contesting that a default existed before the accord and satisfaction.

Estoppel, on the other hand, occurs when one party induces another to take a stance or take action -- and could arise when a borrower enters into a forbearance agreement with a lender or servicer, again, even without an express clause estopping the borrower from challenging a position later.

And waiver -- the voluntary and intentional relinquishment of a known right, in Wisconsin -- is a well known defense in cases against banks and others. A borrower may waive the right to contest ownership of a loan by entering into an agreement.

Any of those rules might mean that a borrower who gets some temporary relief from a lender has waived rights even without an express waiver clause in the agreement. Or, even without a written agreement. (I once represented a client who was found by a circuit court to have waived objections to a mechanic's bill by paying the mechanic a negotiated amount that was less than the mechanic wanted, but more than the car owner wanted to pay. The only written instrument supporting that accord and satisfaction was a check from my client to the mechanic.)

Laws that prohibit such waivers may in fact limit the effectiveness of an express, or implied, waiver of rights -- but that's not clear, either. I don't profess to know what the New York law might say about estoppel or accord and satisfaction, despite it's apparent prohibition on waiver clauses in loan modifications. So servicers may be right that prohibitions on waiver clauses do not bar them from asking borrowers to agree that they have the right to service the loan, for example.

I also don't profess to know whether there are circumstances under which waivers would be acceptable. Some Wisconsin laws, like the Wisconsin Consumer Act, prohibit waivers of rights -- unless that waiver is done under certain circumstances... like settling a legal claim.

That's yet another problem a blanket prohibition on a waiver of rights presents: Suppose my client wants to waive legal rights to settle her case? Suppose I represent a client in foreclosure who wants to settle the case, but in doing so would have to agree not to sue the lender any more. If the law prohibits that waiver with no exceptions, I can't settle that case, and the parties are locked into litigation like two scorpions in a jar.

Slate's alarm over waivers of rights doesn't account for the fact that sometimes waivers are not only implied in a settlement, but are a good thing. People can waive their right to a trial by jury in a capital murder case, but can't waive their right to contest who owns their house? That makes no sense.

As with other laws -- like the credit card reform -- it's not enough to simply say corporations bad, debtors good. There might be servicers who are exacting waivers of rights when they should not, or when the bargain is an unfair one (an unfair bargain can, in most jurisdictions, be invalidated as unconscionable or the product of economic duress, though...), but there are good reasons to let lenders and borrowers make agreements to resolve their disputes short of litigation, too. The Slate article doesn't address those, at all, opting instead to raise the warning flag of Improper Waivers, manufacturing a crisis where one doesn't necessarily exist.

As a side note to all of this, a larger problem exists that Slate doesn't comment on: these borrowers, and the servicers, are engaging in complicated legal transactions with limited or no help from lawyers. Borrowers who deal with servicers and sign contracts affecting legal issues, without consulting a lawyer, may be asking for further trouble. Many borrowers will say that they can't afford an attorney -- but lawyers charge from $100-$500 per hour in most jurisdictions ($300 an hour is common in Wisconsin), and it would take 1-2 hours for a competent lawyer to review the facts of a client's case and give her advice on a mortgage modification's effects... so borrowers are opting to enter into a transaction where they commit to paying thousands, if not hundreds of thousands, of dollars, but they don't want to spend an extra $300-$1,000 to see whether that's a good idea.

On the other hand, servicers are leaving themselves open to claims of unconscionability, bad faith, and economic duress by not insisting that borrowers consult with a lawyer; I can't think of a single agreement negotiated among counsel that subsequently was set aside by a court as void or voidable; maybe one exists but I haven't come across it in 13+ years of litigation. But common law principals make it possible to attack almost any agreement between borrowers and a massive lending corporation, at least in Wisconsin, and to expect to have some traction in such an attack.

So a bigger crisis is that we have a society made up of people who don't really understand the legal rights implicated by the complex transactions they are entering into, but who don't believe they need to consult with someone who does understand that -- resulting in a larger, more tangled mess for courts and businesses to resolve, and higher costs for everyone.

But that article might not get as many hits on Slate, because more people are Googling phrases like "servicing waiver rights" than phrases like "Why hiring an attorney is a good idea."

Sorry about all that "suing you for things you didn't owe" stuff. No hard feelings, right? (Consumer Law Matters.)

Is it unconscionable to sue someone for money, lose, appeal, win, then admit on the second round of appellate briefing that you don't even think the person owes the money?

Not according to the 1996 version of the Wisconsin Supreme Court, it's not. In River Bank of De Soto v. Fisher, 202 Wis.2d 245, 550 N.W.2d 429 (Wis. S. Ct. 1996), the Court dealt a death blow to a bank's hopes of getting a divorcee to pay money the bank didn't think it owed -- but also (maybe?) cost the divorcee her attorney's fees defending a case the Bank admitted it shouldn't have brought.

What happened to set that all up was this: Two people, Fisher & Duncan, got divorced. Fisher, the guy, was assigned responsibility for a debt to River Bank, with the secured by some antique cars.

Banks not being bound by divorce decrees, though, River Bank refused to refinance the debt unless Duncan, the gal, signed the renewal. So Duncan cooperated, signing a couple of 1-year renewals of the obligation, but she balked when one year Fisher moved to Texas. Rather than signing, Duncan asked the Bank to call the loan and warned that Fisher might try to abscond with the collateral.

The Bank, not knowing Fisher the way Duncan knew Fisher, ignored her and renewed the note -- and also sent Fisher the car titles, for good measure. Then -- surprise! -- Fisher didn't pay and took the cars to Mexico.

So River Bank sued Fisher and Duncan, but Duncan claimed that the Bank's actions were unconscionable, and the circuit court agreed, refusing to allow the Bank to enforce the claim against Duncan and awarding her some nominal damages.

The Bank appealed, and the Court of Appeals reversed, finding that Duncan hadn't had a "meaningful choice" about what to do with Fisher's loan in the first place; since denying a consumer a "meaningful choice" is a way to be unconscionable, the Court of Appeals ruled that absent a meaningful choice on Duncan's part, the Bank hadn't done anything wrong.

So Duncan appealed that, and the Supreme Court of Wisconsin took up the case -- but first had to rule on a procedural question, the procedural question being "If the Bank admitted that it doesn't think Duncan owes the money, should we be bothering with this at all?"

That's a heckuva procedural question, Brownie.

That issue arose because the Bank admitted in a brief that it didn't think Duncan was responsible, and Duncan then said that she shouldn't be held responsible. The Court then reviewed the law of renewals in Wisconsin (put simply: renewals don't extinguish the debt) and reviewed what had happened here, finding that the significant changes in material terms -- namely, who applied for the loan, and some provisions dealing with collateral -- meant this wasn't a renewal, but a new agreement.

With that, the Court said Duncan wasn't liable -- but found that River Bank's practices weren't unconscionable, so Duncan couldn't get her fees.

The Court did leave open the prospect that another provision of the Wisconsin Consumer Act might allow Duncan to get her fees, and in a subsequent opinion ruled against Duncan on all but one claim she made; the final argument -- that section 427.104(1)(j), Stats., might have been violated -- was remanded to the circuit court.

CCAP shows that there was a court trial held in 1997 -- but then a stipulated dismissal, so, sadly, I can't find on the public records whether Duncan ever got her fees, and the $100 the Vernon County Circuit Court had originally awarded her.

What's My Case Worth (Debt Collection)

A jury has awarded a debtor just over $30,000 in a Fair Debt Collection Practices Act case. In Russell v. Absolute Collection Services, Inc., a North Carolina case, the plaintiff alleged that her husband in June, 2008 had incurred a medical debt that was sold or transferred to defendant ACS, Inc. Russell also claimed that she'd asked the hospital for a forbearance and been given an 80% discount due to financial troubles.

Russell claimed in the Complaint that the hospital had said that another billing entity called "SEP," to which Russell owed money for the medical services, too, would give a similar discount. While the Russells began trying to call SEP, ACS began calling them and dunning them for the bill -- tacking on long-distance charges for those calls to the amount the Russells already owed.

ACS claimed it would "make note" of the Russells' claims that they were trying to work with the original creditor, but kept calling, and the Russells finally paid SEP in full in December, 2008, only to receive a dunning letter in January, 2009, and in February 2009, and March, 2009, with ACS allegedly demanding that the Russells send proof of payment before the letters would stop. (The Russells' complaint alleges that they called ACS after each letter.)

The Russells filed suit in 2009, and ACS fully defended the claims, it appears from the records; the matter went to trial by jury, and the jury on April 11 awarded $1,000 in statutory damages, plus $30,501 in compensatory damages. The case isn't over yet -- the parties have until today to file post-verdict motions.

Update on For-Profit Schools Alleged Fraud.

About 10 months ago, I mentioned the Wisconsin Center for Investigative Journalism's reporting on a suit filed against Westwood College, which came out around the time Good Morning, America did a story on claims that for-profit schools were ripping off students.

Now, a bunch of states are launching a combined investigation:

Top prosecutors in 10 states have convened a joint investigation into potential violations of consumer protection laws by for-profit colleges, Kentucky Attorney General Jack Conway (D), who is leading the multi-state effort, said in an interview with The Huffington Post.

The combined investigation only began within the past two months, but it comes after several state attorneys general launched individual probes of deceptive recruiting practices and possible misrepresentations to recruits regarding federal financial aid dollars.

The multi-state probe is the latest sign that rapidly rising enrollments and an increased reliance on federal student aid dollars by for-profit colleges are attracting greater scrutiny of the industry.

(Source.) It was the states that got Countrywide to settle some mortgage practice claims, and the states are litigating other mortgage claims now, so there's some reason to think they'll be effective in this -- but no reason to think that individual students who may have been ripped off will see any benefits, since no individuals that I know benefited from the state actions in those earlier cases.

The schools include: Kaplan Inc., the University of Phoenix, MedVance Institute, Argosy University, Everest University, while earlier investigations have included law schools.

Sending Flowers Online Easier, Cheaper, than ever.

Ordinarily, lawyers only get to give bad news -- even when we think it's good news. We might say "Hey, I won your case," but the fact that there was a case in the first place means that something bad happened, and even when we win the case, of course... there's the bill.

So I'm glad that today I can give you some great news, without any bad news behind it at all: I've got you a deal on Mothers Day Flower Delivery, thanks to Flower Delivery Deals.com. Using their ProFlowers coupon codes, you can just hop online and order some flowers for that mom in your life, having them delivered right away and surprising Mom with a beautiful bouquet on her special day.

And the flowers are beautiful: I've actually USED this service and these ProFlowers coupons, and I can say that the flowers are great, last a long time, and the delivery is done when they say they will. And it was easy: I once ordered flowers online using my phone during an attorney meeting. (Don't tell my partners.)(They don't read this.)

So, you see? I've given you good news with absolutely no downside or bad part: Just go online today and order your Mother's Day flowers... I...

Hang on. I just glanced at the calendar. Oh, man, why didn't I flip that page last week? Mother's Day was yesterday?

All right. New plan. Order your Mother's Day flowers online today and tell Mom that the delivery truck was delayed but that you're looking into it. And then make sure you bookmark the site so that for the next few holidays and special occasions, you order the flowers before the deadline.

Are law schools luring students into becoming lawyers?

If you believe Gawker.com, law school is only for slackers and idiots, and the only thing keeping law schools in business is that the people who run them are slightly better at law than the people who graduate from them.

Let this article, which Gawker links to and quotes from, explain better:

LIKE a lot of other college seniors, Alexandra Leumer got her introduction to the heady and hazardous world of law school scholarships in the form of a letter bearing very good news. The Golden Gate University School of Law in San Francisco had admitted her, the letter stated, and it had awarded her a merit scholarship of $30,000 a year — enough to cover the full cost of tuition.

To keep her grant, all that Ms. Leumer had to do was maintain a grade-point average of 3.0 or above — a B or better. If she dipped below that number at the end of either the first or the second year, the letter explained, she would lose her scholarship for good.

“I didn’t give it much thought,” she said. “I didn’t think it would be a challenge.”

....

How hard could a 3.0 be? Really hard, it turned out. That might have been obvious if Golden Gate published a statistic that law schools are loath to share: the number of first-year students who lose their merit scholarships. That figure is not in the literature sent to prospective Golden Gate students or on its Web site

That all leads into a discussion of law schools' grading curves, which guarantee that a certain percentage of people finish below 3.0 -- grading on a curve, remember, means that even if the difference between the best paper and the worst is a mere 1 point, that worst will be given an F -- and finishing below 3.0 means that a law student now is 1/3 of the way through school-- but either pays her own way or drops out:

On the Golden Gate campus recently, a group of first-year students at risk of losing their scholarships were trying to make sense of the system. Most declined to be identified for this article because criticizing the school seemed, at minimum, undiplomatic. But the phrase “bait and switch” came up a lot. Several assumed that they were given what is essentially a discount to get them in the door.
...

The school’s dean, Drucilla Stender Ramey, declined to say exactly how many students would lose their scholarships this year, suggesting that doing so would violate the privacy rights of the students. She acknowledged, though, that lost merit scholarships have been the source of much campus misery.
...
Nobody knows exactly how many law school students nationwide lose scholarships each year — no oversight body tallies that figure — but what’s clear is that American law schools have quietly gone on a giveaway binge in the last decade. In 2009, the most recent year for which the American Bar Association has data, 38,000 of 145,000 law school students — more than one in four — were on merit scholarships. The total tab for all schools in all three years: more than $500 million.

So the law schools are giving away $500 million a year to get people in the door -- knowing that half of all first-years will, at the end of that first year, be below 3.0? Why would they do that? The article goes on:

you have yet to grasp the law school fixation with rankings. ...a lot of schools regard the rankings as their best chance to establish a place in the educational hierarchy, which has implications for the quality of students that apply, the caliber of law firms that come to recruit, and more. Striving for a high U.S. News ranking consumes the bulk of the marketing budget of a vast number of schools.

Which is where scholarships come in.

The algorithm used by U.S. News puts a heavy emphasis on college grade-point averages and Law School Admission Test scores. Together, those two numbers determine about 22 percent of a school’s ranking. The bar passage rate, which correlates strongly with undergraduate G.P.A.’s and LSAT scores, is worth an additional two points in the algorithm. In short, students’ academic credentials determine close to a quarter of a school’s rank — the largest factor that schools can directly control.

The U.S. News rankings, by the way, are pretty much useless, as pointed out by Malcolm Gladwell not long ago, but still enjoy popularity.

The problem for some students occurs when they "curve out," losing scholarships by a little as a tenth of a grade point:

Rachael Welden-Smith, wound up with a 2.9 in the first year, and, with that number, a deep sense of regret. The previous year, she’d been accepted and sent a deposit to a higher-ranked law school, but she chose Golden Gate when it offered to cover half her tuition with a merit grant.

So what, right? She could have been in the top half and gotten a 3.0 and kept the scholarship, right?

Um...

What both women realized too late is that it’s often mathematically impossible for everyone to keep their grants. This year at Golden Gate, for instance, 57 percent of first-year students — more than 150 in a class of 268 — have merit scholarships. But in recent years, only the top third of students at Golden Gate wound up with a 3.0 or better, according to Ms. Ramey, the dean. If past patterns hold, dozens of first-year Golden Gate scholarships are about to vanish.

So Golden Gate gives scholarships to more than half of its 1Ls, only to then ensure via its grading system that 1/3 of the students will get a 3.0 or better. I'm not very good at math (that's why I went to law school!) but it seems to me that Golden Gate knows that at least 60 students in that class were going to lose their scholarships and have no choice but to either drop out, transfer, or commit to paying Golden Gate $60,000 for the next two years' worth of studying. (And transferring, after you get your grades in late spring/early summer, may not be a viable option for the next semester.)

To be fair, most schools do give the students the information they need to ferret out what the odds are that they'll be able to get a 3.0 -- remember, even if every student is just as smart as every other student, grading on a curve guarantees that 1/2 the class falls below a median -- but students have to gather up the information from disparate sources and in one case, use a standard deviation calculator.

Oh, and schools aren't required to grade on a curve. Did you know that? They could give everyone who earns it an A and simply grade on objective, rather than subjective, merit: a student who writes a B test, but who takes that test with a bunch of students who write a C exam, will get an A... not because his work earned an A, but simply because his work is better, at that moment, than the others around him.

(Keep that in mind when your lawyer tells you what his GPA was; you should, if you want to measure that at all, ask him whether he went to school with a bunch of dunderheads.)

Judges: This is why it's important to listen when lawyers tell you that they want to trace the chain of title. (Mortgage Issues.)

"It says that they assigned it to our client," lenders' lawyers are always telling me, and judges, and they point to photocopied assignment stamps in blank signed by Vice Presidents For A Day, and can't produce the original note, and when I and other lawyers say "We want to depose the people who actually signed this and trace it through" we get told, as often as not, "That's wasting time; they've got an assignment on file."

And someone loses their house.

It's getting better -- but it needs to get better-er, and so I'm posting excerpts from the story of a $3 billion fraud case -- that's $3,000,000,000 in fraud-- with some details that point out why it's so important to trace the chain of title.

(Read the whole story here.)

ALEXANDRIA, Va. — Prosecutors told a jury Monday that the owner of what had been one of the nation’s largest private mortgage companies ran one of the largest and longest running fraud schemes in the U.S....

Lee B. Farkas, the former chairman and majority owner of Ocala, Fla.-based Taylor Bean and Whitaker [is alleged to be] the ringleader of a scheme that has already resulted in six guilty pleas to a fraud that totaled nearly $3 billion.... Federal officials have said the case against Farkas is the most significant to develop out of the nation’s financial crisis. ....

According to prosecutors, the fraud began in 2002, when Taylor Bean overdrew its main account with Colonial by several million dollars. Mid-level executives at Colonial agreed to transfer money into Taylor Bean’s accounts at the end of each day to avoid generating overdraft notices, a process known as “sweeping.” As the hole grew to well over $100 million, Taylor Bean and a handful of Colonial executives concocted a scheme in which Taylor Bean sold hundreds of millions in worthless mortgages to Colonial, mortgages that had already been sold to other investors.

More than $1 billion in such phony mortgages were eventually sold to Colonial, which listed them on its books and on its quarterly reports as legitimate assets, prosecutors alleged.

In a related scheme, Taylor Bean created a subsidiary called Ocala Funding that sold commercial paper — essentially glorified IOUs — to banks including Deutsche Bank and BNP Paribas. ....

Prosecutors said Farkas exploited the Colonial bankers who first agreed to cover up his overdrafts, knowing they would be in trouble with their bosses if their assistance was discovered. According to testimony, Farkas summed up the Colonial bankers’ problem succinctly in a conversation with then-Taylor Bean President Raymond Bowman, telling him: “If I owe you $100, I have a problem. If I owe you $1 million, you have a problem.”

I highlighted those bolded portions. They're significant, if you practice mortgage lending (or if you are a judge who hears mortgage cases) because more than $1,000,000,000 worth of mortgages were allegedly sold to Colonial Bank after having been sold to some other investor.

So there are one billion dollars: 1,000,000,000 -- in mortgages out there that are purportedly held by at least two people (not to mention the phony "commercial paper").

Oh, AND THE BANKERS HELPED THEM OUT! The bankers lied to the federal government and others TO SAVE THEIR JOBS.

Excuse me for shouting. I don't get to shout in court, so I have to do it here, because sometimes shouting is necessary.

Hopefully, if word of this gets around, I'll not have to stand in court ever again and hear "But there's a stamp on this paper that says it's been assigned to them, so why do you need a deposition from the lender." So pass it on, and save my blood pressure... and a few more homes, and our economy.

I going to start a reality show where the LAWYERS have to fist fight. I'll be a jillionaire! (Consumer Matters.)

Sometimes, I read a case decision and it just leaves me wondering. That was the situation with Duston v. Badger Lease, 182 Wis.2d 512, 514 N.W.2d 879, an unpublished decision of the Court of Appeals back in 1994.

Actually, many times I read a decision and it leaves me wondering, but it's always something different that I end up wondering, and in the Duston case, I wondered two things in particular:

First, was there a fistfight involved?

And, second, did the plaintiff leave some money on the table, figuratively speaking/

In Duston, the dispute arose because Deena Duston leased a car from Badger Lease, promising to pay $50 biweekly until she’d paid $2,100, after which she could buy the car for a mere $4 if she chose.

Midway through the lease, Duston took the car to Badger r some repairs, but later claimed that Badger had repaired the car without her prior authorization, and refused to pay. That led Badger’s owner to keep the car, and to get into an “altercation” with Duston’s boyfriend, and everyone ended up in court instead of on The Jerry Springer Show, which is where we should decide at least some disputes, because it's more fun to focus on the disorderly conduct than it is to focus on consumer leases, which is where courts always end up.

And that's what happened here: Duston sued Badger, Badger countersued, and it all came down to whether or not this was a "consumer lease."

On Badger's side, the claim was no, because the lease said the car would be used for business purposes only.

On Duston's (winning) side, the claim was yeah, it's a consumer lease because Duston told the leasing guy she was going to use the car to drive to visit relatives up North.

Which might be the first time small talk won a court case; the trial court found it was a consumer lease, noting it had Duston's home address on it and that it wasn't titled "Commercial Lease." (It was titled, for some reason, "Equipment Lease.") The Court of Appeals upheld that, and the end result was that Duston got the $1,200 she'd paid, offset by the $55 she owed for repairs, which left me wondering about that money left on the table, because the opinion didn't make any reference to Duston getting to keep the car, too -- that being the reward for wrongful replevin; it's money you paid plus the vehicle.

Plus attorney's fees -- also not mentioned in the circuit court award (but the Court of Appeals did award Duston her fees on appeal.)

That may be an oversight on the part of the opinion drafter -- it's an unpublished opinion, so there's not a lot to it -- but since the Court saw fit to include the trial court's award, why not also mention whether or not the plaintiff sought (and the Court awarded) the actual car, too?

I tried looking the case up on CCAP, but found only a 1993 garnishment action that went to default, with no mention of how much was sought or awarded, so it remains a mystery.



Duston countered that by testifying that she’d told Badger she was going to use the car to go up North and visit relatives, and apparently that the only “business” she used the car for was driving to and from work. The trial court correctly held that the parol evidence rule didn’t prohibit Duston’s testimony, noted that the lease was marked an “Equipment Lease,” but that it had Duston’s home address on it, and that it wasn’t labeled “consumer lease.” The court awarded Duston $1200, offset by the $55repair charge; the Court of Appeals summarily affirmed, finding the factual findings “not clearly erroneous.”

Interesting Judicial Comments: Fairy Tale Edition

“If the beans that the young naive Jack purchased from the crafty old man in the fairy tale 'Jack and the Bean Stalk' had been worthless rather than magical, it would have been only fair to allow Jack to disaffirm the bargain and reclaim his cow.”

--Justice Wilkie, on the law’s presumption that a minor can void a contract not made for necessities. Kiefer v. Fred Howe Motors, Inc., 39 Wis.2d 20, 158 N.W.2d 288 (1968)