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Financial Services Law Insights and Observations

9th Circuit: Law firm owner liable for restitution from mortgage relief scheme

Courts Ninth Circuit Appellate FTC Act Mortgages FTC

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On July 16, the U.S. Court of Appeals for the 9th Circuit affirmed summary judgment in favor of the FTC in an action alleging two attorneys controlled or participated in a mortgage relief scheme, which falsely told consumers they could join “mass joinder” lawsuits that would save them from foreclosure and provide additional financial awards. In September 2017, the district court granted summary judgment against both defendants, concluding that the defendants knowingly deceived consumers when they falsely marketed that consumers could expect to receive $75,000 in damages or “a judicial determination that the mortgage lien alleged to exist against their particular property is null and void ab initio” if they agreed to join mass joinder lawsuits against their mortgagors. The operation resulted in over $18 million in revenue from the participating consumers.

On appeal from one defendant, the 9th Circuit agreed with the district court, determining the FTC provided “sufficient undisputed facts to hold [the defendant] individually liable for injunctive relief at summary judgment.” Specifically, the appellate court agreed that the FTC sufficiently proved three separate legal entities, one of which the defendant was the co-owner and corporate officer, “operate[d] together as a common enterprise,” which violated the FTC Act and Mortgage Assistance Relief Services Rule with their mortgage relief operation. Moreover, the appellate court determined that the defendant was “at least recklessly indifferent to [the other entities’] misrepresentations,” based on his knowledge of previous schemes operated by the other owners and reliance on a non-lawyer’s assurance that the marketing materials had been “legally approved,” making him “jointly and severally liable for restitution for the corporation’s unjust gains in violation of the FTC Act.”

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