Page 3
Ninth Circuit:
$243 Million Judgment Against Disbarred Attorney Stands
Opinion Rejects Claims That Defendant Is Not Personally Liable for Student-Loan Scam Operated By Companies He Helped to Run, Says Restitution, Civil Penalties Order Was Not Excessive
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday upheld a $243 million judgment against a disbarred California attorney for his role in a student loan debt relief scam in which sales representatives used high-pressure sales tactics to lure consumers to pay hundreds or thousands of dollars in fees for services that were readily available for free elsewhere and falsely represented to some borrowers that they were pre-approved for debt forgiveness.
Rejecting the defendant’s assertion that the restitution and civil penalties were excessive, the court noted that his conduct contributed to direct losses of more than $95 million to over 80,000 struggling borrowers and that other available calculations could have resulted in even higher fines.
Yesterday’s memorandum decision, signed by Circuit Judges Kim McLane Wardlaw, Salvador Mendoza Jr., and Anthony S. Johnstone, upheld an order granting summary judgment against Kaine Wen, a former Irvine-based attorney who served as general counsel, among other roles, for the debt relief companies Consumer Advocacy Center Inc., True Count Staffing Inc., and Prime Consulting LLC (collectively referred to in the opinion as “the Company”).
Wen was suspended by the State Bar in 2018 relating to his role at Consumer Advocacy Center. In those disciplinary proceedings, he admitted to illegally practicing law and collecting legal fees outside of California.
Complaint Filed
In 2019, the U.S. Consumer Financial Protection Bureau (“CFPB”), the attorneys general of Minnesota, North Carolina, and then-Los Angeles City Attorney Michael Feuer, on behalf of the State of California, filed a civil complaint against the debt relief companies, Wen, and other corporate officers.
They asserted claims for violations of the Telemarketing Sales Rule (“TSR”), codified at 16 C.F.R. §§310.3 and 310.4, and the Consumer Financial Protection Act (“CFPA”), found at 12 U.S.C. § 5536(a)(1)(B), alleging numerous deceptive acts and misrepresentations by the defendant companies “since at least 2015.”
A series of settlements was reached with other defendants, but the case against Wen remained pending until 2023 when District Court Judge Michael W. Fitzgerald of the Central District of California granted summary judgment to the plaintiffs. Fitzgerald ruled that Wen was jointly and severally liable with the companies for $243 million in redress and civil penalties.
Of that sum, $95 million is earmarked for the victimized student loan borrowers, $133 million is to be paid to CFPB, and each of North Carolina, Minnesota, and California is due a penalty of $5,000.
In the order for partial summary judgment, Fitzgerald wrote:
“The undisputed evidence demonstrates that Defendant participated in the deceptive acts of the Company or had authority to control them and had knowledge of the Company’s various misrepresentations and related violations of the TSR and CFPA…..[T]he Court determines that the requested civil money penalties, legal restitution, and [other] relief are all appropriate remedies here.”
Personally Liable
Wardlaw, Mendoza, and Johnstone rejected Wen’s contention that Fitzgerald improperly held him personally responsible for the corporate violations, explaining:
“Wen may be held individually liable for the Company’s violations of the CFPA and TSR if ‘(1) he participated directly in the deceptive acts or had the authority to control them and (2) he had knowledge of the misrepresentations, [or] was recklessly indifferent to the truth or falsity of the misrepresentation….’ ”
Applying those principles, the judges pointed out that the defendant held essential positions in the enterprises, including serving as an owner, chief financial officer, and general counsel between November 2015 and July 2017. They wrote:
“In the Fall of 2015, Wen owned 50 percent of [Consumer Advocacy Center] and entered into financial agreements on behalf of the Company. These undisputed facts, taken together, ‘demonstrate that [Wen] had the requisite control over the [Company].’ ”
The panel continued:
“The district court also properly held that Wen was at least recklessly indifferent to the Company’s misrepresentations….Wen was…apprised of the Company’s practice of collecting fees and inflating family size on…applications, both of which are violations of the CFPA and TSR….
“Wen clearly provided more than incidental assistance to the Company, and he was reckless in doing so.”
Penalty Calculations
Addressing the defendant’s objections to the penalty calculations, the jurists remarked:
“[T]he court did not abuse its discretion in ordering Wen jointly and severally liable for $95 million. It is well settled that ‘[i]f two or more defendants jointly cause harm, each defendant is held liable for the entire amount of the harm….’….The district court therefore was not required to conduct an evidentiary hearing or make findings of fact concerning how much restitution had been paid by other defendants.”
As to the penalty amount, they declared that “the district court did not abuse its discretion in imposing second-tier penalties for…reckless violations of the CFPA” as the defendant’s “conduct underlying the liability finding…supports the district court’s determination.”
They added:
“Nor did the district court abuse its discretion by including weekends and holidays in its penalty calculation….The court may impose a penalty ‘for each day during which such violation [of the CFPA] continues.’…It is undisputed that the Company charged consumers fees on weekends. And even if Wen is correct that fees were not charged on holidays, had the district court penalized Wen for every one of the Company’s violations, Wen could be held liable for more than $2.7 billion.”
Rejecting Wen’s assertion that the judgment imposed a constitutionally excessive penalty, they commented:
“Wen does not meaningfully dispute that the nature and extent of the underlying offense and the harm caused is egregious. Wen’s conduct contributed to the direct losses of more than $95 million to over 80,000 struggling borrowers, and he took steps to conceal his conduct. And Wen’s conduct was reckless….[T]here is no dispute that Wen was criminally convicted for conduct ‘relating to his involvement with the [Defendant] Companies.’…And although Wen disputes his ability to pay the penalty, we decline[] the ‘invitation to affirmatively incorporate a means-testing requirement for claims arising under the Eighth Amendment’s Excessive Fines Clause.’ ”
The case is Consumer Financial Protection Bureau v. Wen, 23-55700.
State Bar Discipline
Wen was suspended by the State Bar in 2018 for one year on charges relating to his role at Consumer Advocacy Center. In those disciplinary proceedings, he admitted to illegally practicing law and collecting legal fees outside of California.
He was disbarred in 2021 after he failed to appear at trial on disciplinary charges relating to a drunk driving conviction in Los Angeles Superior Court on March 12, 2014 stemming from an April 16, 2013 injury-collision on Coldwater Canyon Drive in Beverly Hills.
Wen pled no contest on that date to felony drunk driving and was, pursuant to that plea, convicted by Judge Mark T. Zuckman; on April 8, 2015, he was sentenced by Zuckman to two days in jail, with credit for time served; there was a post-conviction lowering of the offense to a misdemeanor, and the conviction was ordered expunged on Aug. 10, 2018, pursuant to Penal Code §1203.4A/1203.4A by Judge Upinder S. Kalra.
Copyright 2025, Metropolitan News Company