105th Installment. Humiliated California State Bar tries to corrupt the Franchise Tax Board: The search for a sufficiently despicable debt collector

Reeling at exposure of its partnership with debt-collection thugs at Wakefield Associates, the California State Bar now overreaches by trying to fraudulently manipulate tax collection. Rather than, as before, delegating to gray-market criminals the collection of its fake trial, litigation, and investigation costs, the Bar will ask California’s tax collectors to hand over any refunds due these respondent “debtors.” This collection method is used for back taxes and judgments owed state agencies (Gov. Code, § 12419.5), but as the U.S. Supreme Court held, the California State Bar is not a government agency for the purpose of adjudicating members’ federal rights. (Keller v. State Bar of California (1990) 496 U.S. 1, 11.) By treating “costs” as an ordinary judgment owed California, the State Bar treats its unilateral claims for money owed as a real court-judgment’s equal, flagrantly violating lawyers’ federal right to due process.

The illegality of the State Bar’s collection methods can be clearly understood from two legal histories: 1) the changes in methods the Legislature has authorized for collection of the State Bar’s costs and 2) the State Bar’s previous attempt to misappropriate the prerogatives of a “government agency.”

Before 2004, the State Bar could recover costs from lawyers by only a single means: conditioning readmission on payment; but with the passage of Business and Professions Code section 6086.10, the State Bar unconstitutionally acquired the prerogative to enforce its claims through the courts without a real judgment—without even any process for its lawyer victims to contest the State Bar’s invoice. Why did these changes wait until 2004? Because there are decisive legal reasons to deny the State Bar use of coercive collection methods. To allow the State Bar to recover based on its own edict is to deny respondent lawyers their due-process right to an impartial tribunal: constitutionally, the State Bar can’t act as both a respondent’s opponent and as adjudicator of cost claims. (Nor can this role be filled by the California Supreme Court, since it functions as the State Bar’s boss, this role distinguished from its being the state court of last appeal.)

The State Bar’s overreaching raises the same question the U.S. Supreme Court answered in Keller, a case also illustrating how distant from the legal mainstream—how extremist—is the California Supreme Court when it comes to supporting the State Bar’s goonish methods: in Keller, the U.S. Supreme Court rejected the California Supreme Court’s decision unanimously. Keller invalidated the State Bar’s practice of shamelessly using members’ dues for political propaganda. Political use of tax dollars by state agencies is permitted, and the California Supreme Court had held that the State Bar was entitled to its political spending because California law terms it a state agency. (See Keller v. State Bar (1989) 47 Cal.3d 1152 [reversed].)

This false characterization was refuted by a three-member minority of California Supreme Court justices and a unanimous Supreme Court of the United States. The State Bar can be a “government agency” for some state-law purposes, but when members' federal rights are at issue, it should be treated as a private club. Its most important differences from a “government agency” are that the State Bar is run, not by the public, but by its members; and the State Bar is financed, not by taxes, but by members’ dues. Both the U.S. Supreme Court and the California high-court’s minority analogized the State Bar to a labor union. (I think the prohibition on political spending is unfortunate as applied to labor unions, but that’s another question.)

Now, take the labor-union analogy a step further. Imagine that a union tried to levy on debt it unilaterally claimed a union member owed. That’s what the State Bar (with the State Legislature’s connivance) proposes. A “judgment” for "reasonable costs" issued (as a blank check) by the Supreme Court in its Bar-supervisory capacity is as unconstitutional as was the State Bar’s political propaganda.

103rd Installment. California State Bar: Toady to the foreclosing banks

The California State Bar is extending its helping hand to the banks—not protecting consumers—by making it impossible for homeowners to retain a lawyer to resist foreclosure. The State Bar intervened in the mortgage crisis under new bank-instigated legislation (October 2009) making it illegal for lawyers to charge for mortgage-relief services until all contracted services had been completed. (Civ. Code, § 2944.7; Bus. & Prof. Code, § 6106.3.) The law itself has been enthusiastically promoted by the State Bar, which vociferously reported that in each of two years consumer complaints had risen from 1,000 to over 3,000.

It’s the fault of the State Bar—even more than the fault of the Legislature—that foreclosed homeowners can’t get lawyers, for these reasons: the State Bar failed to defend lawyers from unjust accusations and instead helped inflame anti-lawyer sentiment; the State Bar failed to use its discretion to enforce parts of the legislation; and the State Bar denied the law’s ambiguity.

1. The State Bar failed to defend California lawyers against slurs.

The State Bar publicly bewailed the extra consumer complaints and demonized the lawyers complained against, but the number convicted were a small percentage of complaints. It shrunk from the conclusion that the number of complaints mainly resulted not from the greed of lawyers but from the desperation of struggling homeowners. In desperate circumstances, some homeowners used threats of State Bar complaint as extortion against lawyers, a problem the State Bar never addresses.

2. The State Bar self-servingly abused its discretion to prosecute.

The State Bar recognizes its discretion to refrain from enforcing parts of the law, having closed all cases involving payment schedules while it had a backlog, prosecuting similar cases only when the backlog was resolved. The bar had better reasons to refrain from these prosecutions than the self-serving reduction of its backlog. First, legal precedent favored it, as the Bar had previously argued and a U.S. District Court held that the legislation doesn’t apply to all litigation. Second, bundling violations don’t constitute a violation of legal ethics but rather a violation of an administrative rule. The Legislature gave the Bar jurisdiction to discipline violations of the bundling provisions, but it also subjected violators to criminal penalties. Such technical prosecutions should be left to the criminal courts; they don’t bear on the lawyer’s ethical character.

3. The State Bar denied the law’s ambiguity.

In its published case law, the State Bar Review Department denied that the law was ambiguous—despite the contradicting interpretation the state bar’s chief prosecutor had himself urged in federal court and despite the law's patent ambiguity. (In the Matter of Swazi Taylor (2012 WL 5489045); the federal district court case is Duenas v. Brown [unreported].)

The law isn’t clear because the meaning of “each and every service the person contracted to perform or represented that he or she would perform” is ambiguous. (Civ. Code, § 2944.7, subd. (a)(1).) It does not unambiguously state that “unbundling” matters into separate contracts is illegal.

Conclusion

Only the banks benefit from preventing foreclosed homeowners from getting lawyers. Apart from the State Bar’s incompetence and the courts’ pro-bank favoritism (often eliminating every consideration other than “did you pay?”), there is the background moralistic bigotry of the whole national state-bar establishment against debtors.

kanBARoo court predicted the state bars would prevent lawyers from representing debtors against the banks, in State Bar Establishment: Pro Bono for the Banks:

As the economic depression deepens so does political oppression, as the police are the instrument forcing an adverse orderliness on the enraged and impoverished. When banks today mount a collections' offensive against the public that financed their rescue, what role will lawyers play in helping the poor and indebted resist the onslaught? None if the state bars, specialized branches of the police-prosecutor apparatus, have their way. In three jurisdictions, the state bars have already disbarred or denied admission to lawyers for carrying excessive debt. For the state bars, indebtedness is moral turpitude!

102nd Installment. The prosecutor/debt-collector complex

Installment 100, on California State Bar collusion with debt-collection thugs, concluded with this comment about its debt collector, Wakefield Associates:

Some other corrupt judicial organs must use Wakefield Associates’ services, and they succeed in deceiving the legally naïve into fearing that criminal justice is their pursuer. The business model of these gray-market criminals is otherwise inexplicable.

What an understatement! As I only recently discovered, the New York Times broke the scandal last January (reported online by Westword, “In 2013, debt collection is big business—really big,” by Denise Grollmus): district attorneys in more than 300 jurisdictions, including Los Angeles and New York, have privatized debt-collection prosecutions by farming out their power to punish writing bad checks.

Under contract with the district attorneys, illegal collection syndicates threaten citizens who’ve written a bad check—usually caused by ordinary carelessness and thus subject to only small civil penalties—with criminal prosecution if they don't pay to attend special financial-management classes run by the collector, who profits handsomely. The threats of prosecution are almost always empty, pure harassment, as the proportion of uncooperative threat recipients actually prosecuted by the DA is minuscule.

DAs contracting with these collection thugs commit disciplinable ethics' infractions that the state bars refuse to discipline: aiding and abetting the practice of law by nonlawyers and harassment. The DAs aid and abet illegal law practice because they even allow the collectors to use the official letterhead of the DAs' offices to issue their threats, and in practice, they even allow the collector to determine probable cause. (Credit to Ethics Alarms, “Prosecutor prosecute thyself,” on the illegal practice of law.) The DAs knowingly contract for the thugs to harass citizens. In California, Los Angeles and Riverside DAs employ Corrective Solutions, whose CEO, Mike Wilhelms, has made himself judgment proof by repeatedly declaring  bankruptcy and starting another collection racquet after losing lawsuits for harassment and unfair business practices under the Fair Debt Collection Act. (What irony!)  Most ethics codes proscribe harassment; in California, it falls under moral turpitude.

In Installment 85, I concluded that the California State Bar refrains from prosecuting prosecutorial misconduct because state-bar prosecutors themselves engage in rampant misconduct. There are additional  motives; for example, trial counsels' ambitions to graduate to become real prosecutors. State-bar prosecutors often aspire to be real prosecutors, and what chance would they have after prosecuting them? I discovered from the pattern of views on this blog that Melanie J. Lawrence is applying for a job with the DA's office in Brooklyn, New York, where she is licensed to practice. No doubt she scored points by denying the existence of prosecutorial misconduct, at conferences. But the big reason the California State Bar won't interfere with the with district attorneys’ outrageously illegal privatization of enforcement is that the California State Bar is up to its neck in gray-market crime with the collection thugs at Wakefield Associates.

100th Installment. California State Bar Colludes with Gray-Market Criminals: Nefarious Collection Practices using “Wakefield Associates” on Bogus “Debt”

The State Bar’s collection practices

The California State Bar employs gray-market criminals, illegal collection thugs, to try to recover its unconscionable “costs” from respondents. These collection thugs try to harass respondents into paying the invented sums.

Collections are ineffectually federally regulated under the Fair Debt Collection Act, which makes it illegal to call people to annoy them. (§ 806, subd. 5 [“causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with the intent to annoy … any person at the called number”].) The collector the California State Bar uses—Wakefield Associates, based in Colorado—is one of numerous illegal collections operations, which go unprosecuted because they systematically avoid pursuing supposed debtors in their home states. This is the key to recognizing them: legitimate collection is by writ of execution on a judgment, for which being based in a different state is disadvantageous. These thugs’ motto is “a call a day until you pay.” They will deny they are engaging in harassment, by refusing to admit the obvious: that harassment is the only conceivable definition for calling someone who makes it clear they want you to stop. 

To eliminate the interstate collections thugs would require more than the ineffectual Federal Trade Commission, charged with enforcing the Fair Debt Collection Act: the U.S. Justice Department would need to concern itself, but the Justice Department is fully occupied with providing legal cover for torture at Guantanamo and waging its war against adolescents using birth control.

Dealing with collection thugs

The gray-market collections operations obfuscate three basic legal principles, which suffice for anyone having to confront these criminals:

1. Collectors have rights no greater than their creditor principals.
2. Creditors have rights no greater than any other citizen.
3. No citizen can dictate what another says over the telephone, but anyone can (only) deny permission to phone.

From these principles, it follows that it suffices legally to tell a collector you don’t want to deal with it to compel it to stop calling. But then, collections thugs operate outside the law (their basis of existence consists of illegal practices: badgering weak, ignorant people into paying supposed debts). Realistically, much more is required to deter them: anyone who calls one of these criminals back a few times—or more—should be commended for performing a public service. (Legally, you can call these telephone tough guys back as many times as you like and say what you want: they can hardly complain of harassment—although they’ll threaten—since they initiated communication and insist on continuing it.)

Birds of a feather

Where is the California State Bar in prosecuting the attorneys who advise these gray-market criminals on how to avoid prosecution? The answer is that they aren’t to be seen, where the State Bar colludes with these criminal collections’ operations. The specific collection syndicate used by the California State Bar engages in the usual violations of local anti-harassment and federal statutes but goes a step further. The Fair Debt Collection Act requires that the collector disclose its identity to caller ID, but Wakefield Associates refuses. Even when it identifies itself orally, it refrains from revealing it’s a private collection company, deceptively identifying itself as “the judicial recovery unit.” Although I doubt they would fool any state-bar respondent, some other corrupt judicial organs must use Wakefield Associates’ services, and they succeed in deceiving the legally naïve into fearing that criminal justice is their pursuer. The business model of these gray-market criminals is otherwise inexplicable. For the California State Bar, thuggery is business as usual.

87A Installment. Ohio bar: Collection agency for the banks—The Hassan Jonathan Griffin matter—Part 2. Should all lawyers be narrow-minded moralists?

2nd in Hassan Jonathan Griffin series

While the State of Ohio is inconsistently harsh on lawyers, in its pluto-moralism, Griffin's prudential detractors are psychologically clueless. They pronounce that Griffin's financial incompetence disqualifies him for the law, and his weakness and passivity disenable him from intervention for others. But aggressiveness when fighting for others' rights, meekness and conflict-avoidance when asserting their own—for example, acquiescing to state-bar "discipline"—is emblematic of attorneys' character.

As to financial skill, numerous geniuses have handled their money unwisely, and a lawyer minority handles any; public defender Griffin doesn't. To insist Griffin's financial incompetence should disqualify him for all lawyerly endeavor forces a rigid and narrow template on bar admissions. (But we needn't go that far, as the Ohio bar neither sought nor obtained—besides Griffins failing scores on three state-bar exams—facts bearing on any skill.)

"Savvy businessman" as professional character template, with other narrow-minded attitudes, creates our non-diverse profession. When the state bars exclude candidate lawyers for want of financial skill and business shrewdness, they eliminate professional understanding of the plight of millions of debtor clients. Then, we're stuck with the likes of the Ohio Supreme Court justices, who consider debtors despicable shirkers of their "obligations."

Like the justices, we little understand hardship outside personal experience and much understand it within. A sympathetic rant by a co-editor of the blog Above the Law—the name expressing its mildly cynical anti-lawyerism—illustrates the point. Co-editor Elie Mystal voiced out-of-character sympathy because his suffering—no job prospects, no way to pay his student loan—is direr than Griffin's. When a friend queried how Elie, with his abysmal credit rating, could ever buy a house, Elie replied that landlords reluctantly take him as tenant. Personal experience shaped Elie's attitude toward school-loan debtors, but it touched only that narrow attitude. Since we sympathize with like ordeals, law needs broad diversity of experience, including poverty and debt.

Ethicist Brad Wendel, notably, opposed character and fitness clearances as early as 2007, when he decried them as irrelevant and obsolete, procedures debunked as "the fundamental error of attribution," the folly of explaining others' behavior—but not our own—as caused by stable character traits. Usually pressure of circumstance decides: typically, contrasting personalities behave the same in identical social contexts. The sagas of Elie Mystal and Hassan Jonathan Griffin instantiate the principle: their common "trait," planlessness, results from enduring the same raw deal.

87th Installment. Ohio bar: Collection agency for the banks—The Hassan Jonathan Griffin matter—Part 1. Business debts aren't moral obligations

Question: What official process is still more capricious than a state-bar prosecution? Answer: A bar character and fitness evaluation in the State of Ohio. The Ohio bar denied Hassan Jonathan Griffin’s application because he couldn’t formulate a plan to discharge his $200,000 debt, incurred to finance his education. In California, the vague and open-ended character-and-fitness criteria threaten applicants' due process rights. (See for example, Hightower v. State Bar (1983) 34 Cal.3d 150) But Ohio proves that specificity is no automatic remedy. Ohio law expressly includes a candidate's financial mismanagement as ground for disapproval. (Ohio Gov.Bar R. I(11)(D)(3).) Griffin isn't the first case of the Ohio bar serving as a collection agency. In re Application of Manayan (2004) 102 Ohio St. 3d 109, the candidate's tax arrears contributed to denial. (See also another Ohio tax arrears case, In re Application of Carr-Williams (1992), 63 Ohio St.3d 752.) Ohio is serious about attorneys' personal finances. (In re Application of Dickens (2005) 106 Ohio St.3d 128 [financial responsibility is “critically important for lawyers”]; In re Application of Manayan (2004) 102 Ohio St. 3d 109 [“we expect applicants for admission to the Ohio bar and bar members to scrupulously honor all financial commitments”].)

The state-bar courts may be the only venue where Ohio courts pretend indebtedness creates an "obligation." Outside the bar courts, Ohio judges follow the contemporary attitude toward breach of contract. Like all U.S. jurisdictions but with more fanfare, the Ohio courts refuse to treat breach of contract as a morally offensive disregard for obligations: they refuse punitive damages to express moral opprobrium for contract breach. Ohio courts can be heard to quote Justice Oliver Wendell Holmes, Jr., that “[t]he duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it--and nothing else." (Holmes, The Path of the Law (1897) 10 Harv.L.Rev. 457, 462.) Non-performance of a business contract doesn't create a moral obligation, and repayment of debt is a contractual performance like any other. A loan is one variety of business deal, and like other varieties, it creates no moral obligation to perform.

Also, those rare jurists favoring punitive damages for bad-faith repudiation of a contract would refuse to create a moral obligation from Griffin’s indebtedness. (See for example, Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 774 - 784 [Bird, J., dissenting and concurring].) These morally nuanced judges advocate evaluating the parties' expectations as influenced by the social mores governing the same and similar transactions, and the Ohio Supreme Court considered neither. It ignored the student loans burdening many young lawyers, who have no idea how to repay. It also ignored how the bank bailouts affected our ethical sensibilities. After banks incurred an unsustainable debt with no plan for repayment, no prosecutions or even ignominy followed. Not just the banks. American government indebtedness has shifted ethical sensibilities concerning repaying loans. Having a huge debt with no idea of how to repay it accurately describes today's U.S. government.

Even where the breach is in bad faith, Ohio law, like the laws of all U.S. jurisdictions, doesn't punish—only compensates—breach of contract. Like all U.S. states except a couple (including California), Ohio consistently took this stance long before the sea change in American ethical sensibilities. Griffin’s breach of his student loan agreement, an ordinary business contract, doesn't need sophisticated justification: Griffin was unable to pay his student loan for the best of reasons. A contract, as Justice Holmes held, is only a prediction; who can blame Griffin for failing to predict the near collapse of the U.S. economy, when few economists succeeded. Bad luck, not just for him but also his creditors, who gambled on a better business outlook.

Next Installment. Should all lawyers be narrow-minded moralists?

Interlude 12. State-bar establishment: Pro bono for the banks

As the economic depression deepens so does political oppression, as the police are the instrument forcing an adverse orderliness on the enraged and impoverished. When banks today mount a collections' offensive against the public that financed their rescue, what role will lawyers play in helping the poor and indebted resist the onslaught? None if the state bars, specialized branches of the police-prosecutor apparatus, have their way. In three jurisdictions, the state bars have already disbarred or denied admission to lawyers for carrying excessive debt. For the state bars, indebtedness is moral turpitude!

In New York, appellate judges, who form part of that state's bar establishment, held Robert Bowman ineligible to obtain a law license for reason of moral character, that reason being specifically: "Applicant has not made any substantial payments on the loans. ... Applicant has not presently established the character and general fitness requisite for an attorney and counselor-at-law." Bowman had incurred the typical huge debt to finance law school and then experienced medical adversity, impairing his ability to work and adding much more debt.

In another case, a Texas lawyer was disbarred for defaulting on his student loan; the court opined that Frank Santulli III's nonpayment showed his untrustworthiness to represent clients and raised the specter that "he will harm a client, obstruct administration of justice or violate the disciplinary rules." To make no mistake on where the bar stands on indebtedness, the Texas State Bar had conditioned Santulli's license on paying his debt. A news report informs that the Texas case isn't isolated: Minnesota had already disbarred an attorney for student-loan default.