Tuesday, September 14, 2010
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C.A.: Suit Accusing Attorney of Capping Can Proceed
By STEVEN M. ELLIS, Staff Writer
The Fourth District Court of Appeal has ruled that a former client can proceed with a suit alleging that Irvine attorney Sean Rutledge, who resigned from the State Bar in November amid accusations of loan modification misconduct, engaged in capping and charged illegal fees.
Reasoning that Cu Phan established a probability of prevailing on his claims, Div. Three on Friday in an unpublished opinion affirmed an order denying Rutledge’s motion to strike Phan’s complaint as a strategic lawsuit against public participation.
Phan filed a class action in September 2009 claiming that Rutledge and his firm, United Law Group Inc., violated state law by using telemarketers to make cold calls to individuals who were in default or faced foreclosure on home loans. Under state law, Phan contended, such conduct constitutes “capping,” a practice sometimes referred to in other contexts as “ambulance chasing.”
He also alleged that Rutledge and the firm required clients to pay purportedly “non-refundable” advance fees.
Rutledge, who was admitted to the State Bar in 2008, tendered his resignation with disciplinary charges pending, and his firm filed for bankruptcy protection following Phan’s suit. He was ordered enrolled as an inactive member earlier that month under Business and Professions Code Sec. 6007 for an alleged pattern of client neglect involving failing to perform, failing to communicate, and/or failing to refund unearned fees in 14 matters.
State Bar Court Judge Richard Honn wrote that Rutledge “promised to help troubled homeowners—many of whom were in arrears or on the brink of foreclosure—modify their home loans and maintain financial stability,” but instead “took their money and time and offered little or nothing in return,” leaving them in a worse position than when they sought his help.
Phan alleged that Rutledge violated the Business and Professions Code by hiring telemarketers as independent contractors; providing a list of homeowners in default or foreclosure and a script to drum up business; and paying telemarketers five to 10 percent of attorney fees paid by a recruited client. He also claimed Rutledge required a $12,000 retainer that was identified as “non-refundable” in fee agreements, and performed only “minimal” legal work, such as sending form letters to banks that were mostly ignored.
Rutledge moved to strike the complaint, countering that the “solicitation and engagement of clients—even if unlawful—has been held to be squarely within the SLAPP statute.” He argued that his firm never used telemarketers and only contacted prospective clients that had already sought its help, including Phan.
The attorney also declared that his firm acted successfully on clients’ behalf and in good faith, and refunded unused portions of retainers. In support, he told Orange Superior Court Judge Ronald L. Bauer that his firm refunded the balance of some $5,833 Phan had paid after subtracting $2,070 for work performed.
Orange Superior Court Judge Ronald L. Bauer, however, denied Rutledge’s motion, and the Court of Appeal affirmed in an opinion by Justice Raymond J. Ikola.
The justice observed that a dispute existed as to whether Rutledge engaged in cold calling. But he said an examination of whether Rutledge’s activities were illegal—and therefore not a protected activity—was unnecessary where Phan showed facts that could sustain a favorable judgment on claims that Rutledge violated the Unfair Competition Law and the Consumer Legal Remedies Act.
Ikola noted that Phan’s allegations of cold-calling were supported by declarations from other clients, as well as alleged copies of Rutledge’s independent contractor agreement, commission statement and solicitation script for telemarketers. The justice also pointed to a statement by a telemarketer that some leads came from public records of borrowers in default; a copy of Phan’s retainer agreement stating that the retainer was nonrefundable; and Phan’s declaration that he paid money to Rutledge’s firm.
Justices William F. Rylaarsdam and William W. Bedsworth joined Ikola in his opinion.
The case is Phan v. Rutledge, G042983.
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