Third Circuit Appeal-And The Amended Complaint-Class Action Foreclosure

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 10-3431
DENNIS A. RHODES et al, on behalf of themselves and all others
similarly situated,
Plain tiffs-Appellants,
- v.-
ROSEMARY DIAMOND et al,
Defendants-Appellees.
APPEAL FROM AN ORDER OF THE UNITED STATES DISTRICT
COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA,
09-cv-1302
APPELLANTS' OPENING BRIEF
AND APPENDIX VOLUME I (Pages A1-A13)
JOHN G. NARKIN
BHNLAWFIRM
951 Rohrerstown Road, Suite 102
Lancaster, Pennsylvania 17601
(717) 756-0835
Attorneys for Plaintiffs-Appellants
TABLE OF CONTENTS
STATEMENT OF JURISDICTION ...................................................... 1
STATEMENT OF ISSUES ....................................................................................... 1
STATEMENT OF THE CASE ............................................................ 2
STATEMENTOFFACTS ............................................................... 4
Appellees' Foreclosure Practices ...................................................................... .4
Facts Alleged in the PAC ................................................................................... 8
Independent Confirmation of Abusive Foreclosure Practices ......................... 11
SUMMARY OF THE ARGUMENT ..................................................... 15
ARGUMENT ................................................................................ 17
I. THE COURT BELOW ABUSED ITS DISCRETION BY DENYING
THE HOMEOWNERS' MOTION FOR LEAVE TO FILE THE PAC ............ 17
II. THE COURT BELOW ERRONEOUSLY DISMISSED
THE HOMEOWNERS' ORIGINAL COMPLAINT ......................................... 21
A. Bankruptcy Creditors Have A Duty to Amend Inaccurate Claims .......... 21
B. The U.S. Bankruptcy Code Does Not Preclude FDCPA Lawsuits
Brought to Remedy Institutionalized Debt Collection Abuses ............... 21
CONCLUSION .............................................................................. 30
CERTIFICATION REGARDING BAR MEMBERSHIP ............................. 31
CERTIFICATE OF COMPLIANCE ..................................................... 32
CERTIFICATE OF IDENTICALNESS .................................................. 33
CERTIFICATE OF VIRUS CHECK .................................................... 34
TABLE OF CITATIONS
CASES
Adams v. Gould, Inc.,
739 F.2d 858 (3d Cir. 1984) .................................................................................... 18
Azzam v. Echehoyen,
2010 Md. Cir. Ct. LEXIS 2 (Md. App. Mar. 15, 2010) .......................................... 23
Bacelli v. St. Joseph's Hospital, Inc.,
2010 U.S. Dist. LEXIS 75926 (M.D. Fla. July 28, 2010) ..................................... 24
Bagwell v. Portfolio Recovery Associates, LLC,
2009 WL 1708227 (E.D.Ark. June 5, 2009) ........................................................... 24
Bechtel v. Robinson,
886 F .2d 644 (3d Cir.1989) ..................................................................................... 18
Brown v. Card Service Center,
464 F.3d 450, 453 (3d Cir. 2006) ............................................................................ 30
Carcieri v Salazar,
129 S.Ct. 1058 (2009) ............................................................................................. 24
Clark v. Brumbaugh & Quandahl, P.C.,
2010 WL 3190587 (D. Neb. Aug. 12. 201 0) .......................................................... 24
Del Sontro v. Cendant Corp.,
223 F. Supp. 2d 563 (D.N.J. 2002) ......................................................................... 18
Dole v. Area Chemical Co.,
921 F.2d 484 (3d Cir. 1990) .................................................................................... 18
Dougherty v. Wells Fargo Home Loans, Inc.,
425 F .Supp 2d 599 (E.D.Pa. 2006) ......................................................................... 23
ll
Evans v. Midland Funding LLC,
574 F.Supp.2d 808 (S.D. Ohio 2008) ..................................................................... 24
Foman v. Davis,
371 U.S. 178 (1962) ......................................................................................... 15, 19
Franks v. Food Ingredients International, Inc.
2010 WL 3046416 (E.D.Pa., July 30, 2010) ........................................................... 19
Hannon v. Countrywide,
2010 Bankr. LEXIS 3690 (Bankr. M.D. Pa. Oct. 18, 2010) ................ 16, 21, 25, 26
Hannon v. Countrywide,
421 B.R. 728 (Bankr. M.D. Pa. 2009) ....................................................... 16, 21, 26
Harrison Beverage Co. v. Dribeck Importers, Inc.,
133 F.R.D. 463 (D. N.J. 1990) ................................................................................ 21
Heintz v. Jenkins, 514 U.S. 291,292 (1995) ........................................................... 23
Hey! & Patterson Int'l, Inc. v. F.D. Rich Housing,
663 F.2d 419 (3d Cir.1981) ..................................................................................... 18
Hoffmann-La Roche Inc. v. Cobalt Pharmaceuticals, Inc.,
2010 U.S. Dist. LEXIS 79114 (D.N.J. Aug. 5, 2010) ............................................ 18
Holmes v. Mann Bracken LLC,
2009 U.S. Dist. LEXIS 119940 (E.D. Pa. Dec. 22, 2009) ...................................... 30
In re Burlington Coat Factory Sec. Litig.,
114 F.3d 1410 (3d Cir. 1997) ..................................................................... 15, 19, 20
In re Callery,
274 B.R. 51 (Bankr. D. Mass. 2002) ...................................................................... 22
In re Gunter,
334 B.R. 900 (Bankr. S.D.Ohio 2005)) .................................................................. 24
lll
In re Jones,
418 B.R. 687 (Bankr. E.D. La. 2009), affd,
2010 U.S. Dist. Lexis 98127 (E.D. La. Aug. 19, 2010) ........................... 6, 7, 16,28
In re Stewart,
2008 Bankr. LEXIS 3226 (Bankr.E.D.La. Oct. 14 2008) ...................................... 22
In re Stewart,
2009 U.S. Dist. LEXIS 76851 (E.D. La., Aug. 7, 2009) .......................................... 6
In re Stewart, 391 B.R. 327 (Bankr. E.D. La. 2008),
aff'd in part, rev 'din part, 391 B.R. 577 (E.D.La. 2008) ....................................... 6
In re Taylor, 407 B.R. 618 (Bank:r. E.D.Pa .. 2009),
rev'd, 2010 U.S. Dist. LEXIS 16080 (E.D.Pa. Feb. 18, 2010) .................... 6, 16,28
Jerman v. Carlisle, McNellie, Tini, Kramer & Urlich LPA,
130 S. Ct. 1605 (2010) ..................................................................................... 17,30
Joubert v. ABN AMRO Mortgage Group, Inc.,
411 F .3d 452 (3d Cir.2005) ..................................................................................... 26
Kline v. Mortgage Electronic Security Systems, Inc.,
2009 WL 3064660 (S.D. Ohio Sept. 21, 2009) ...................................................... 24
McDermott v. Countrywide Home Loans, Inc.,
Case No. 07-51027, Adv. No. 08-5031 (Bank. N.D. Ohio,
Slip. Op. dated July 31, 2009), rev 'd, 426 B.R. 267 (N.D. Ohio 2010) .......... 17, 28
Ndubizu v. Drexel University,
2009 U.S. Dist. LEXIS 99966 (E.D. Pa.Oct. 26, 2009), ........................................ 20
Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) ......................... 16, 24, 25, 27
Romero v. Allstate Insurance Co.,
2010 WL 2996963 (E.D. Pa. July 28, 2010) .................................................... 19, 20
Rosenau v. Unifund Corp.,
539 F.3d 218 (3d Cir. 2008) .................................................................................... 23
lV
Simmons v. Roundup Funding, LLC,
622 F.3d 93 (2d Cir. 2010) ............................................................................... 23, 24
Walls v. Wells Fargo Bank, N.A.,
276 F.3d 502 (9th Cir. 2002) ........................................................................... 23, 24
Williams v. Asset Acceptance, LLC,
392 B.R. 882 (Bankr. M.D. Fla. 2008); .......................................................... 16, 24
Young v. Wells Fargo,
2009 U.S. Dist. LEXIS 100419 (S.D. Iowa Oct. 27, 2009) .................................... 21
Zen Investments, LLC v. Unbreakable Lock Co.,
276 Fed.Appx. 200 (3d Cir. 2008) .......................................................................... 19
STATUTES
11 U.S.C 105(a) ............................................................................ 26
15 U.S.C. 1692(e) ................................................................................................. 30
15 U.S.C. 1692e(11) ............................................................................................. 23
15 U.S.C. 1692k(a) ............................................................................................... 25
15 U.S.C. 1692(e)(2)(A) and (B), 1692f(l), and 1692(g)(2) ............................ 2, 3
18 U.S.C. _152(4) ................................................................................................... 22
18 U.S.C. 1962(c) .................................................................................................... 2
28 U.S.C. 1291 ........................................................................................................ 1
73 P.S. 201 et seq . ................................................................................................... 3
v
OTHER AUTHORITIES
Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims,
87 Texas L. Rev. 121, 124 (2008) ................................................................... 16, 28
RULES
Fed. R. Civ. P. 12(b) (6) ............................................................................................. 4
Fed. R. Civ. P. 15(a) ........................................................................................ 1, 4, 17
Fed. R. Evid. 201(f) ................................................................................................. 14
Fed. R. Bankr. P. 9011 ...................................................................................... 26, 28
vi
STATEMENT OF SUBJECT MATTER
AND APPELLATE JURISDICTION
The district court had jurisdiction over this case pursuant to 28 U.S.C.
1331, 1332(d)(2) and (6), 1334 and 1337. Based upon the timely filing of a notice
of appeal from a final judgment entered on July 14, 2010, this Court has
jurisdiction pursuant to 28 U.S.C. 1291.
STATEMENT OF ISSUES
I. Whether the court below abused its discretion under Fed. R. Civ. P. 15(a)
by denying, without explanation, Appellants' motion for leave to file an amended
class action complaint alleging that a high-volume mortgage foreclosure law firm
and two of its mortgage servicer clients violated the Racketeer Influenced and
Corruption Act and other laws by inflating or fabricating foreclosure costs and by
filing and prosecuting uninvestigated foreclosure lawsuits on behalf of entities that
have no standing to bring suit.
II. Whether the court below erred as a matter of law by dismissing
Appellants' original complaint with prejudice on the grounds that a creditors' law
firm has no duty to amend inaccurate bankruptcy proofs of claim and that bankrupt
homeowners are precluded from obtaining relief under the Fair Debt Collection
Practices Act even though they, like other non-bankrupt homeowners, have been
harmed by identical institutionalized collection abuses by the creditors' law firm.
STATEMENT OF THE CASE
Appellants are financially distressed homeowners prosecuted in mortgage
foreclosure actions by the Philadelphia-based law firm Phelan Hallinan & Schmeig
("PHS") and two of its national mortgage servicer clients, Countrywide Home
Loans, Inc. ("CHL") and Wells Fargo Bank, N.A. ("WFB").
In their proposed amended complaint filed on January 15, 2010 ("PAC")
(A14-A126), the homeowners allege that PHS worked in concert with CHL and
WFB in systematic schemes to:
( 1) inflate or fabricate foreclosure costs, including misappropriated
sheriffs' deposit refunds; unearned attorneys' fees; and unjustifiable
fees for title searches, appraisals, litigation "support" services, and
property inspection and maintenance services -- often generated
through related-party transactions with affiliates controlled by
defendants themselves (A19-A21; A55-A68); and
(2) file and prosecute uninvestigated foreclosure lawsuits on behalf of
entities that have no ownership interest in homeowners' mortgages
and thus no legal standing to bring suit. A20-A21; A68-A84.
The PAC asserts claims against PHS, CHL and WFB arising under (1) the
Racketeer Influenced and Corruption Act ("RICO"), 18 U.S.C. 1962(c); (2) the
Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692(e)(2)(A) and
2
(B), 1692f(l), and 1692(g)(2)
1
; (3) Pennsylvania's Unfair Trade Practices and
Consumer Protection Law, 73 P.S. 201 et seq. and (4) common law remedies for
fraud, breach of contract, breach of good faith and fair dealing, money had and
received, and negligent misrepresentation.
In addition to damages, the homeowners seek equitable and injunctive
relief, including appointment of an auditor or special master to (1) recommend
business management and accounting procedures that PHS, WFB and CHL must
adopt and implement to avoid future mortgage foreclosure abuses and (2) monitor
compliance by PHS, WFB and CHL with business management or accounting
procedures directed by the court. A21; A93; A124-A125.
This action was initially filed on March 25, 2009, based on more narrowly
circumscribed grounds that were supplemented and essentially superseded by the
expanded allegations of the PAC. Appellants' original complaint ( 1) restricted its
claims to PHS only, (2) invoked the FDCP A and its state law counterparts as the
homeowners' exclusive remedy for damages and (3) was brought on behalf of
bankrupt homeowners based on PHS's filing of false bankruptcy proofs of claim,
which is but one component of PHS's broader institutionalized practice of
misappropriating sheriffs' deposit refunds from defrauded borrowers. A115-A162.
1
FDCPA claims are asserted against PHS only. A115.
3
By Order dated July 14, 2010 (A4n.l), the court below denied the
homeowners' motion under Fed. R. Civ. P. 15(a) for leave to file the PAC. In a
two-line footnote reference to unspecified "reasons" for its dismissal of the
homeowners' original (and fundamentally different) Complaint, the court below
concluded without explanation that the PAC was "moot" and "futile."
The court below also held that the original Complaint failed to state a claim
for relief under Fed. R. Civ. P. 12(b )( 6) based on purely legal grounds having
nothing to do with the many non-bankruptcy-related claims in the PAC.
2
The court
below concluded that ( 1) PHS had "no duty" to amend bankruptcy proofs of claim
(A8-All) and (2) "redress for Plaintiffs' allegations of 'systematic' violations by
Defendants for filing allegedly inflated Proofs of Claim lie solely within the
Bankruptcy Court." A10-Al3.
STATEMENT OF FACTS
Appellees' Foreclosure Practices
PHS is a "premier foreclosure operation" in Pennsylvania and New Jersey
(A54). With a staff of"17 lawyers and 250 support personnel" (ASS), PHS handled
an estimated 24,000 to 26,000 foreclosure cases in Pennsylvania and New Jersey in
2008 alone. A55-A56. This law firm, which is "both Fannie Mae and Freddie Mac
2
Three of the five homeowners named as proposed class representatives in the
PAC, Charles and Diane Giles and Edward H. Wolferd, Jr., assert claims that are
unrelated to the bankruptcy process. A59-A63; A73-A78.
4
designated counsel," has been retained by "almost every maJor lender and
servicer" in the United States (AS4), including CHL and WFB.
To obtain the business of these financial institutions, PHS emphasizes the
"speed and efficiency" with which it prosecutes foreclosure cases. AS4-A56; A85-
86. Speed is allegedly achieved through PHS's ability to "leverage technology" by
"completely computeriz[ing]" its office with "every case management and invoice
reporting syste[m]" used in the foreclosure industry. ASS. PHS also stresses its
ownership and control of the "majority of its vendors to ensure a turnaround time
as quick as humanly possible." ASS.
PHS has no choice but to use mortgage servicers' "client-based web sites,"
which include computerized "default management" programs created and
maintained by Lender Processing Services, Inc. A84-A89, ASS n.1S8. These
programs make initial case referrals to PHS and similar high-volume foreclosure
law firms, which are monitored for their compliance with strict timeline
benchmarks from "referral to resolution" (id. ); acceptable time management
"report cards" generated by these programs are the principal determinant of these
law firms' ability to obtain further business from the servicers (id. ).
Speed is of such paramount concern to servicers and their foreclosure law
firms that, given their compulsory use of "default management" programs,
"outside" lawyers have been discouraged or prohibited from initiating verbal
5
communication with employees of the servicers. A87-A88. Some judges familiar
with practices in this industry believe that lenders and servicers, together with their
high-volume foreclosure law firms, have fostered a corrosive "assembly line"
culture of practicing law. A88 n.174.
3
Uncritical reliance on computer programs dictated by servicer clients is
"essential to the economic structure" of law firms like PHS that employ few
lawyers but have a staggering number of foreclosure cases to prosecute as quickly
as "humanly possible." A55. Loan information provided to PHS comes directly
from its servicer clients via these mandatory "default management" programs. In
the case of CHL and WFB, several federal courts have criticized and sanctioned
PHS's servicer clients for maintaining accounting systems that systematically
produce unreliable and inaccurate information about homeowners' mortgage
accounts, which result in overcharges that "potentially signal billions in improperly
earned revenue." A47-A48, quoting, In re Jones, 418 B.R. 687, 701 n. 59 (Bankr.
E.D.La. 2009), aff'd, 2010 U.S. Dist. Lexis 98127 (E.D. La. Aug. 19, 2010)
4
3
See In re Taylor, 407 B.R. 618, 641 (Bankr. E.D.Pa. 2009), rev'd on other
grounds, 2010 U.S. Dist. LEXIS 16080 (E.D.Pa. Feb. 18, 2010), quoting, In re
Parsley, 384 B.R. 138, 183 (Bankr. S.D.Tex. 2008). The district court's order is
now on appeal to the Third Circuit at Docket No. 10-2154.
4
See also In re Stewart, 2009 U.S. Dist. LEXIS 76851 (E.D. La., Aug. 7, 2009); In
re Stewart, 391 B.R. 327, 340, 342, 351 (Bankr. E.D. La. 2008), aff'd in part,
rev 'd in part on other grounds, 391 B.R. 577 (E.D.La. 2008); In re Haque, 395
6
Motivated by their desire to obtain such revenue through "default service"
fee overcharges, WFB, CHL and their foreclosure law firms also systematically
file and prosecute mortgage foreclosure actions in the absence of any entity with
legal standing to sue. A20-A21; A49-A54; A69-A84.
5
In these instances, WFB,
CHL and PHS willfully fail to undertake time-consuming factual investigations to
determine ownership of borrowers' mortgages; because these mortgages are
frequently bought and sold to investors as collateralized debt obligations
("CDOs"),
6
even a diligent investigation may be insufficient to demonstrate a
proper chain of title to a mortgage from a loan originator to a trustee acting on
behalf of CDO investors.
7
Seizing their chance to make fast profits from
foreclosure cases, WFB, CHL and PHS disregard legal requirements and
B.R. 799, 803, 804, 805 (Bankr. S.D. Fla. 2008). In re Jones, 366 B.R. 584
(Bankr.E.D.La. 2007); In re Jones, 2007 WL 2480494 (Bankr. E.D.La.2007).
5
See, e.g., In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio, Oct. 31,
2007); Wells Fargo v. Janosik, No. GD08-2561 (Pa. C.P. Allegheny Co., Mar. 23,
2009), Slip.Op. at 5, citing, Wells Fargo v. Long, 934 A.2d 76 (Pa. Super. 2007),
aff'd, 970 A.2d 488 (2009); U.S. Bank, NA. et. al. v. Ibanez et. al., No.08 MISC
38675517; LCR 679; 2009 Mass. LCR LEXIS 134, at *61-62 (Mass. Land Court,
Oct. 14, 2009).
6
In re Nosek, 386 B.R. 374, 382 (Bankr. D. Mass 2008), modified, 609 F.3d 6 (1st
Cir, 2010).
7
Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980) (real party in interest is
trustee).
7
manufacture and file false affidavits and mortgage assignments that operate as a
fraud on homeowners and the courts. A20-21; A68-A84.
Facts Alleged in the PAC
The facts alleged in the PAC demonstrate the precise manner in which
appellant-homeowners have been harmed by the above-described pattern of
foreclosure abuses by WFB, CHL and PHS. Acting for the benefit of itself and
servicer clients like WFB and CHL, PHS inflates or manufactures mortgage
foreclosure costs on an institutionalized basis and in virtually identical ways. ASS-
A68.
Homeowners delinquent in paying their mortgages and desiring to stay in
their homes must "cure" their delinquencies and pay what is known as
"arrearages," the actual amount of money overdue on their loans, including the
mortgagees' reasonable costs of foreclosure proceedings. ASO. In calculating
arrearages allegedly due from homeowners who keep their houses through loan
modifications or bankruptcy filings (or the amount deducted from proceeds of
borrowers' houses sold below fair market value in distress sales), PHS, WFB and
CHL systematically "pile on" overstated and manufactured fees, making it more
difficult for struggling families to stay in their homes and out of poverty. A41-
A49; ASS-A68.
There are common ways that PHS, WFB and CHL pile on foreclosure fees.
8
Expanding upon their initial circumscribed Complaint (A127-A169), the
homeowners named as plaintiffs in the PAC detail the fraudulent scheme in which
PHS and/or its clients systematically misappropriate sheriffs' deposit refunds that
are wrongfully included in arrearages charged to bankrupt and non-bankrupt
homeowners alike. The PAC itemizes the precise dates in which PHS obtained
sheriffs' refunds, the exact amount of the refunds improperly withheld from the
homeowners' accounts, and the results of an empirical investigation undertaken by
the homeowners' counsel that demonstrates the existence of an institutionalized
course of unlawful conduct undertaken by PHS and/or its clients. A55-A63.
None of these allegations involving non-bankrupt homeowners were
addressed by the court below.
The PAC also details the manner in which PHS uses owned and controlled
affiliates - misleadingly termed "vendors" - as a vehicle for inflating and
fabricating charges relating to title searches, appraisals, litigation "support"
services, and property inspection and maintenance services. A63-A68. The PAC
further documents how PHS and its clients conceal their piled-on overcharges
through arrearage statements that are, by calculated design, so uninformative and
cryptic they cannot be understood. A66. The PAC also documents the amount and
similar manner in which these overcharges are reflected in appellant-homeowners'
own arrearage statements. A67.
9
None of these allegations were addressed by the court below.
With particularity, the PAC demonstrates that PHS, on behalf ofWFB, filed
foreclosure complaints against appellant Gerald A. Bender in Pennsylvania and
putative class representatives Charles and Diane Giles in New Jersey in the
absence of any entity with legal standing to sue. A69-A79. The PAC alleges that
the foreclosure complaints against these homeowners were accompanied by
certifications by PHS lawyers, who swore falsely under oath that Wachovia Bank
was the proper party to these cases, which were brought by PHS almost two years
after Wachovia divested itself of any interest in the homeowners' mortgages. A69-
A70; A74-A78. To cover up its misrepresentations to the courts, PHS procured and
filed with county land recording agencies bogus mortgage assignments purporting
to show that W achovia was the record owner of the mortgages during the pendency
of the foreclosure proceedings. A71-A72; A75-A76. Even after PHS was informed
by a vice president and assistant general counsel of Wachovia that Wachovia had
no ownership interest in the Giles' mortgage (A77-A78; A335), PHS continued to
represent itself as Wachovia's counsel in subsequent legal proceedings involving
the same pool of mortgages comprising a CDO investment in which Wachovia had
years before relinquished legal interest as trustee. A79-A80; A329-335.
The PAC also identifies a lawsuit entitled Bank of New York v. Ukpe
(Docket No. F-10209-08 (N.J. Ch. Ct. Atlantic County) in which (1) an "in-house
10
notary" for a company owned and controlled by PHS "testified during deposition
that over the previous three years, he falsely acknowledged tens of thousands of
mortgage assignments for [PHS]" (A81-A82); (2) the New Jersey state court judge
adjudicating that litigation called for a "plenary hearing" to "get to the bottom of
what it viewed as a possible systemic problem involving the alleged false
notarization of assignments in which a [PHS] lawyer played a central role in the
process" (A83); and (3) after the state judge alerted other members of the New
Jersey judiciary about falsified mortgage assignments associated with PHS
foreclosure cases, PHS's senior partner sent an ex parte letter to the judge notifying
him that PHS had at its own expense re-executed and re-recorded 2,921 mortgage
assignments notarized by the employee who testified about his employer's false
notarization practices. A83.
None of the foregoing matters were addressed by the court below. In their
motion for leave to file the PAC, the homeowners invited the court below to
review a compendium of 36 exhibits that substantiated their allegations. Al70. The
court below did not review those exhibits.
Independent Confirmation of Abusive Foreclosure Practices
A few months after the homeowners filed their motion for leave to file the
PAC, the identical pattern of foreclosure abuses identified in the PAC began to
receive overdue national attention.
11
On June 7, 2010, the Federal Trade Commission ("FTC") announced that it
filed a Complaint against CHL and entered into a Consent Judgment under which
CHL agreed to pay $108 million to resolve charges that it systematically
imposed false and excessive "default-related fees" upon distressed homeowners, in
part through a "so-called 'vertical integration' strategy" in which CHL used its
own "default services subsidiaries" that "exist[ ed] solely to generate revenue" for
CHL.
8
Al75-A215. (This same "strategy" was used by PHS for the same improper
revenue generation purpose (A63-A66); at least one affiliated company controlled
by PHS functioned as a "vendor" to one of the CHL subsidiaries identified by the
FTC. A66 n.lll. Default-related fees charged to thousands of class member
homeowners were thus unlawfully multiplied by both CHL and PHS).
In a public statement announcing his agency's Consent Judgment, FTC
Chairman Jon Leibowitz characterized CHL 's institutionalized misbehavior as
8
As part of the FTC's Consent Judgment, CHL agreed to make changes to its
flawed accounting systems and to submit to independent oversight of its efforts to
remedy the improprieties identified by the FTC. Al88-Al89. This equitable relief
parallels what the homeowners sought previously in the PAC. A215-A216. Upon
announcement of the FTC settlement, the U.S. Department of Justice's Office of
the United States Trustee discontinued numerous bankruptcy court proceedings
against CHL, some of which were identified in the PAC. A215-A216; A41-A43.
While PHS and WFB are not party to the FTC action, serious questions remain
about the limitations of that settlement and extent to which defrauded homeowners
are compensated for losses caused by CHL' s wrongful conduct.
12
"callous conduct [that] took advantage of consumers already at the end of their
financial rope" (A219). The Chairman explained (A220):
Countrywide took advantage of homeowners in . . . utterly
unprincipled ways. First, when homeowners fell behind in their
payments, Countrywide overcharged them for default-related
services, like property inspections, dramatically marking up the
actual cost of those services. It did this by creating affiliated
companies, companies that it controlled, which in tum hired
third-party vendors to perform the services, and the affiliates
added a big markup, 1 00%, 200%, 400%, sometimes even more
to what the services cost. Countrywide, of course, passed on
those marked-up fees to borrowers. . .. All of this was part of
what Countrywide called its "counter-cyclical diversification
strategy," which really is just a euphemism for a business model
based on deceit, designed to ensure a steady stream of fees over
the entire lifetime of a loan and illegally extract the last dollar
out of the pockets of the most desperate consumers ....
During chapter 13 bankruptcy cases, Countrywide made
inaccurate claims about amounts that homeowners allegedly
owed. Countrywide's outdated computer systems have made the
records incredibly difficult to sort out, but we believe thousands
of consumers in bankruptcy, and maybe more, ended up
overpaying .... That is not only wrong, it is unacceptable."
On June 9, 2010, the homeowners brought the FTC/CHL Complaint and
Consent Judgment and Order to the attention of the court below through the filing
of a Notice (1) asserting that the Consent Judgment and Order are "relevant" both
to the pending motion for leave to amend and to the substantive allegations of the
PAC (which included specific allegations against CHL necessitating its joinder as a
defendant in this litigation) (A171-A172) and (2) invited the court below to
13
compare the allegations in the FTC's Complaint with specifically enumerated
allegations in the earlier-filed PAC. Al72.
In an Order dated June 11, 2010, the court below directed PHS to file a brief
"limited to the issue of what effect, if any, the [Notice] should have on their
pending Motion to Dismiss.'' A235. On July 14, 2010, the court below entered the
Order now under appeal, stating in its memorandum opinion "that the contents of
[the FTC/CHL Consent Judgment and Order] do not affect the findings set forth
herein regarding Defendants' Motion to Dismiss." A13 n.7.
The court below did not address the homeowners' request for consideration
of the direct relevance of the Consent Judgment and Order to their motion for leave
to file the PAC.
Pursuant to Fed. R. Evid. 201 (f), the Court may also take judicial notice that,
m October 2010, following disclosures that mortgage servicers systematically
submitted false affidavits and other documents signed by persons without
knowledge of the facts, law enforcement agencies throughout the United States
have begun investigations into fraudulent practices in the foreclosure industry.
Investigations are now being conducted by ( 1) a coordinated group of 50 state
attorneys general and regulators (A236-A238); (2) the Financial Fraud
Enforcement Task Force and 20 federal agencies led by the U.S. Justice
Department, including the Federal Housing Administration, the Federal Housing
14
Finance Agency and the Office of the Comptroller of the Currency (A239-240);
and (3) the Federal Reserve System and the Federal Deposit Insurance
Corporation. A241-A242.
In the words of Shaun Donovan, U.S. Secretary for Housing and Urban
Development, "shameful" foreclosure practices that have "rightly outraged the
American people" are "issue priority number one" to "the broadest coalition of law
enforcement, investigatory and regulatory agencies ever assembled to combat
fraud." A23 9.
SUMMARY OF ARGUMENT
The court below abused its discretion by denying the homeowners' motion
for leave to file the PAC because, in making only a passing reference to its
"reasons" for dismissing the more circumscribed original Complaint (and by
ignoring the more pervasive unlawful conduct alleged the PAC), the lower court
failed to provide any 'justifying reason" supporting its denial, as was required by
Farnan v. Davis, 371 U.S. 178, 182 (1962) and In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1434 (3d Cir. 1997) (Alito, J.).
In dismissing the homeowners' original Complaint with prejudice, the court
below also erred as a matter of law in concluding that PHS has no legal duty to
amend bankruptcy proofs of claim to ensure that claims against mortgage
borrowers are accurately reported. The lower court failed to recognize, much less
15
consider, legal authority that confirms explicitly that such a duty exists. See
Hannon v. Countrywide, 421 B.R. 728, 733-74 (Bankr. M.D. Pa. 2009), Hannon v.
Countrywide, 2010 Bankr. LEXIS 3690, at *1 (Oct. 28, 2010 Bankr. M.D. Pa.); In
re Stewart, 2008 Bankr. LEXIS 3226, at *9-10, 11 (Bankr.E.D.La. October 14
2008).
The court below also erred as a matter of law in concluding that the
Bankruptcy Code precludes consideration of FDCP A lawsuits by bankrupt
individuals alleging institutionalized debt collection abuses. While there is a split
of authority concerning Bankruptcy Code "preclusion" of FDCP A claims
generally, this Court should adopt the reasoning of the Seventh Circuit in Randolph
v. IMBS, Inc., 368 F.3d 726, 730-33 (7th Cir. 2004). There, the Hon. Frank H.
Easterbrook noted that "operational differences" between the Bankruptcy Code and
FDCP A do not "add up to irreconcilable conflict," but they are instead overlapping
statutes that can be simultaneously enforced.
The Seventh Circuit's reasoning is particularly sound in cases like this
involving systematic debt collection abuses that are not addressed effectively by a
bankruptcy system designed to provide a "simple" way to achieve "claim
resolution" of "very unimpressive amounts" through "reduced judicial labor."
Williams v. Asset Acceptance, LLC, 392 B.R. 882, 883-84 (Bankr. M.D. Fla.
16
2008).
9
Preclusion of such FDCP A claims by the Bankruptcy Code would
undermine the purposes of the FDCP A to "eliminate abusive debt collection
practices, to ensure that debt collectors who abstain from such practices are not
competitively disadvantaged, and to promote consistent state action to protect
consumers." Jerman v. Carlisle, McNellie, Tini, Kramer & Urlich LPA, 130 S. Ct.
1605, 1608 (2010).
ARGUMENT
I. THE COURT BELOW ABUSED ITS DISCRETION BY DENYING
THE HOMEOWNERS' MOTION FOR LEAVE TO FILE THE PAC
In denying the homeowners' motion for leave to amend without addressing
the allegations in the PAC, the court below abused its discretion and abdicated its
judicial responsibilities.
Leave of the court to file amended pleadings must be freely given when
justice requires. Fed. R. Civ. P. 15(a). While district courts have discretion in
considering Rule 15(a) motions, that discretion is limited by an "amendment
philosophy" that is so "liberal" that a "district court may deny leave to amend only
if a plaintiffs delay in seeking amendment is undue, motivated by bad faith, or
9
See, e.g., In re Jones, 418 B.R. 687, 698-99 (Bankr. E.D. La. 2009); McDermott
v. Countrywide Home Loans, Inc., Case No. 07-51027, Adv. No. 08-5031 (Bank.
N.D. Ohio, Slip. Op. dated July 31, 2009) (A341-A350), rev'd, 426 B.R. 267 (N.D.
Ohio 2010); In re Taylor, 407 B.R. 618, 623, 639, 649 and 651 (Bankr. E.D.Pa ..
2009), rev 'd, 2010 U.S. Dist. LEXIS 16080 (E.D.Pa. Feb. 18, 2010); Katherine
Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Texas L.
Rev. 121, 124 (2008).
17
prejudicial to the opposing party" or if the proposed amendment "fails to state a
cause of action." Adams v. Gould, Inc., 739 F.2d 858, 864 (3d Cir. 1984) (and
cases cited therein).
This "strong liberality" has been emphasized by this Court to ensure that
"claim[s] will be decided on the merits rather than on technicalities." Dole v. Area
Chemical Co., 921 F.2d 484, 486-87 (3d Cir. 1990), citing, Bechtel v. Robinson,
886 F.2d 644 (3d Cir.1989) and Heyl & Patterson Int'l, Inc. v. F.D. Rich Housing,
663 F.2d 419, 425 (3d Cir.1981). See also Hoffmann-La Roche Inc. v. Cobalt
Pharmaceuticals, Inc., 2010 U.S. Dist. LEXIS 79114, at *5 (D.N.J. Aug. 5, 2010),
quoting, Del Sontro v. Cendant Corp., 223 F. Supp. 2d 563, 576 (D.N.J. 2002)
("[a] general presumption exists in favor of allowing a party to amend its
pleadings").
In denying appellant homeowners leave to file the PAC, the court below
offered no coherent explanation of its decision, stating instead cryptically (A4):
Subsequent to the conclusion of briefing regarding
Defendants' Motion to Dismiss, Plaintiffs filed a Motion
for Leave to File Amended Complaint (Doc. No. 8) and
Defendants filed an Opposition thereto (Doc. No.9). This
Court has reviewed same and is of the opinion that in
light of the reasons for granting Defendants' Motion to
Dismiss, amendment would be futile.
In reaching this decision, the court below did not consider the homeowners'
proposed 14-page reply brief that directly addressed each argument made by PHS
18
in its 27-page opposition to the filing of the PAC, including charges that the
homeowners' counsel acted in bad faith and with undue delay in asserting claims
unrelated to the bankruptcy issues raised in the original Complaint.
10
A242-A308.
By denying the homeowners leave to file the PAC as "futile" in such an off-
handed and unreflective manner, the court below committed reversible error.
As the Supreme Court held in Foman v. Davis, 371 U.S. 178, 182 (1962),
"outright refusal to grant the leave without any justifying reason appearing for the
denial is not an exercise of discretion; it is merely abuse of that discretion and
inconsistent with the spirit of the Federal Rules." See also Zen Investments, LLC v.
Unbreakable Lock Co., 276 Fed.Appx. 200, 202 (3d Cir. 2008); In re Burlington
Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997) (Alito, J.); Romero v.
Allstate Insurance Co., 2010 WL 2996963, at *3 (E.D. Pa. July 28, 2010).
Two weeks after it summarily denied the homeowners' motion for leave to
file the PAC, the lower court described the same controlling legal standards that it
ignored in this litigation. In Franks v. Food Ingredients International, Inc. 2010
WL 3046416, at *7, *8 (E.D.Pa., July 30, 2010) (Jones, J.), citing, In re Burlington
Coat Factory, 114 F.3d at 1435, the court below said it was "cognizant" of the
10
On February 7, 2010, pursuant to the lower court's chambers policies and
procedures, the homeowners filed a motion requesting permission to file the
proposed reply brief. A312-A337. The court below did not grant the motion,
although it earlier allowed PHS to file a reply brief in further support of its motion
to dismiss. A338.
19
Third Circuit's "mandate" to "clearly articulate its grounds for denying leave to
amend" because of "the need to avoid dismissing a possibly meritorious claim
based on defects in the pleadings, particularly in a fraud case."
The court below paid no attention to that mandate here.
The lower court's failure to more than superficially address the
homeowners' Rule lS(a) motion is especially egregious because its denial of the
motion was predicated on a finding that all claims in the PAC are "futile."
"Futility" means that an amended complaint would fail to state a claim upon which
relief could be granted, an assessment that requires a district court to apply the
same standard of legal sufficiency as applies under Rule 12(b )( 6). In re Burlington
Coat Factory, 114 F.3d at 1434.
Given the liberal standard for the amendment of pleadings, "courts place a
heavy burden on opponents who wish to declare a proposed amendment futile" and
"[i]f a proposed amendment is not clearly futile, then denial of leave to amend is
improper." Romero v. Allstate Insurance Co., 2010 WL 2996963, at *4 (emphasis
in original; citations omitted). Before a district court can deny a motion to amend a
complaint on futility grounds, it must "determine whether the newly asserted
claims 'appear to be sufficiently well grounded in fact or law that it is not a
frivolous pursuit.'" Ndubizu v. Drexel University, 2009 U.S. Dist. LEXIS 99966,
20
at * 10 (E.D. Pa. Oct. 26, 2009), quoting, Harrison Beverage Co. v. Dribeck
Importers, Inc., 133 F.R.D. 463, 468-69 (D. N.J. 1990).
The court below failed to make any determination necessary to a finding of
futility. Because the PAC is not remotely frivolous, ll the lower court should have
granted the homeowners' motion to amend.
II. THE COURT BELOW ERRONEOUSLY DISMISSED
THE HOMEOWNERS' ORIGINAL COMPLAINT
A. Bankruptcy Creditors Have A Duty to Amend Inaccurate Claims
In dismissing the homeowners' original Complaint with prejudice, the
district court erred as a matter of law in concluding that PHS has no legal duty to
amend bankruptcy proofs of claim to ensure that claims against mortgage
borrowers are accurately reported.
While the court below discussed Hannon v. Countrywide, 421 B.R. 728
(Bankr. M.D. Pa. 2009) in its opinion (A1 0-All ), it overlooked the central holding
of that case: A mortgagee does have an affirmative duty to amend a bankruptcy
proof of claim when it receives a sheriffs refund after an initial claim is filed --
"failure to amend the claim in a timely manner merits reference to the local
United States Attorney to determine whether a violation of 18 U.S.C. 152(4)
has occurred." 421 B.R. at 733-34 (emphasis supplied). See also Hannon v.
II See above at 12-15. See also Young v. Wells Fargo, 2009 U.S. Dist. LEXIS
100419 (S.D. Iowa Oct. 27, 2009).
21
Countrywide, 2010 Bankr. LEXIS 3690, at* 5-6 (Bankr. M.D. Pa. Oct. 18, 2010)
("Hannon II) (permitting CHL to withdraw allegedly "unauthorized" stipulation by
outside counsel who, "for reasons unknown," admitted that CHL "had no
procedure to amend proofs of claim after credits were received" -- an admission
that the bankruptcy court deemed to be a concession of "actual reprehensible
conduct" that could be "devastating" to CHL given the potential criminal
consequences of a violation of 18 U.S.C. 152(4)).
While the court below stated that the homeowners "fail[ ed] to provide any
legal basis" in support of their contention that PHS had a duty to amend its proof
of claim (A9-A10), the homeowners not only brought the Hannon decision to the
lower court's attention (A339-A340), but both the PAC and their proposed reply
brief in support of their motion to amend (which the court below did not consider,
see above at 19 and n.1 0) highlight authority that expressly holds that creditors do
have a duty to amend proofs of claim. A61, citing, In re Stewart, 2008 Bankr.
LEXIS 3226, at *9-10, 11 (Bankr.E.D.La. October 14 2008) ("[I]t is incumbent
upon Wells Fargo to correct its error for all affected debtors. To do otherwise is to
ignore its obligation to correct pleadings that are no longer accurate").
12
12
In deciding that creditors have no duty to correct inaccurate bankruptcy claims,
the court below relied inappropriately on In re Callery, 274 B.R. 51, 56 (Bankr. D.
Mass. 2002) (AlO), which held only the Internal Revenue Service could file an
amended proof of claim that increased a debtors' tax obligation after expiration of
the bar date. In re Callery, 274 B.R. at 55-56. The issue in Callery was narrow and
22
B. The U. S. Bankruptcy Code Does Not Preclude FDCPA Lawsuits
Brought to Remedy Institutionalized Debt Collection Abuses
A split of authority exists among the circuits concerning whether the
Bankruptcy Code precludes judicial consideration of FDCP A claims asserted by
bankrupt individuals. Dougherty v. Wells Fargo Home Loans, Inc., 425 F.Supp 2d
599, 604 (E.D.Pa. 2006).
The Ninth and Second Circuits hold that bankruptcy court procedures
provide the sole avenue of relief for bankrupt persons. Walls v. Wells Fargo Bank,
N.A., 276 F.3d 502, 510 (9th Cir. 2002); Simmons v. Roundup Funding, LLC, 622
F.3d 93, 95-96 (2d Cir. 2010).
The Seventh Circuit holds that the Bankruptcy Code has no preclusive
effect on claims asserted by bankrupt debtors under the FDCP A because
precise; the bankruptcy court there did not purport to "effectively summarize[ e] the
law regarding amendment of a Proof of Claim" in any universal sense. A 10.
The court below also misunderstood the significance of a 1996 amendment to 15
U.S.C. 1692e(ll), which exempted legal pleadings from the FDCPA's
requirement that initial communications from debt collectors must disclose their
potential consequences. Azzam v. Echehoyen, 2010 Md. Cir. Ct. LEXIS 2, at *6-7
(Md. App. Mar. 15, 2010) (cited by court below at A9). The lower court concluded
that the 1996 amendment to Section 1692e(11) of the FDCPA "superseded" the
U.S. Supreme Court's holding in Heintz v. Jenkins, 514 U.S. 291, 292 (1995) that
"the term 'debt collector' in [the FDCPA] applies to a lawyer who 'regularly,'
through litigation, tries to collect consumer debts." (emphasis in original). The
1996 amendment did not change application of Heintz in any context beyond
Section 1692e(ll). See Rosenau v. Unifund Corp., 539 F.3d 218, 223 (3d. Cir.
2008).
23
"operational differences" between the bankruptcy code and FDCP A do not "add up
to irreconcilable conflict," but they are instead overlapping statutes that can be
simultaneously enforced. Randolph v. IMBS, Inc., 368 F.3d 726, 730-33 (7th Cir.
2004).
13
As the court below noted, "there is no Third Circuit precedent involving
exactly the same factual scenario that exists herein." A13.
Courts following the approach taken by the Ninth Circuit have concluded
that "[t]he FDCP A is designed to protect defenseless debtors and to give them
remedies against abuse by creditors. There is no need to protect debtors who are
already under the protection of the bankruptcy court ... " Simmons, 622 F .3d at 95-
96 (and cases cited therein). These courts also say that preclusion is necessary to
dissuade debtors from "bypassing" the bankruptcy court's proof of claim process,
which is described as a "simple" way to achieve "claim resolution" of "very
unimpressive amounts" through "reduced judicial labor." Williams v. Asset
Acceptance, LLC, 392 B.R. 882, 883-84 (Bankr. M.D. Fla. 2008); Walls, 276 F.3d
13
See also Bacelli v. St. Joseph's Hospital, Inc., 2010 U.S. Dist. LEXIS 75926, at
*19-22 (M.D. Fla. July 28, 2010); Clarke v. Brumbaugh & Quandahl, P.C., 2010
WL 3190587, at *3-5 (D. Neb. Aug. 12. 2010); Kline v. Mortgage Electronic
Security Systems, Inc., 2009 WL 3064660, at *15-16 (S.D. Ohio Sept. 21, 2009)
(citing Carcieri v Salazar, 129 S.Ct. 1058 (2009), Evans v. Midland Funding LLC,
574 F.Supp.2d 808 (S.D. Ohio 2008) and In re Gunter, 334 B.R. 900 (Bankr.
S.D.Ohio 2005)); Bagwell v. Portfolio Recovery Associates, LLC, 2009 WL
1708227, at *1-2 (June 5, 2009 E.D.Ark.); Price v. America's Servicing Co., 403
B.R. 775, 790 n.14 (Bankr. E.D.Ark. 2009)
24
at 510. The rationale of these courts is that debtors should not use the FDCP A to
"make a mountain out of a molehill" that can be more "efficiently" traversed
through ordinary bankruptcy procedures. Williams, 392 B.R. at 883
The systematic theft of sheriffs refund scheme alleged in the original
Complaint is not a "simple" matter involving an insignificant claim of a single
debtor, nor is there anything simple about the facts underlying the institutionalized
unlawful conduct alleged or the burden assumed by debtors in proving those facts.
See Hannon II, 2010 Bankr. LEXIS 3690, at *5-6 (proof demonstrating
institutionalized failure to maintain "procedures regarding amendment of claims"
containing inaccurate sheriffs deposits is a "burdensome" undertaking).
Appellant homeowners' FDCPA strict-liability cause of action
14
does not
involve the "unimpressive amounts" typically at issue in individual bankruptcy
cases. The homeowners' FDCP A claim in this proposed class action (if established
by evidence obtained through discovery that has been denied by the lower court
(A9)) would subject PHS to statutory damages in the lesser amount of $500,000 or
1% of PHS's net worth, plus attorneys' fees and litigation costs. 15 U.S. C.
1692k(a).
14
Unless a debt collector establishes a bona fide error defense, the FDCP A
"creates a strict-liability rule. Debt collectors may not make false claims, period."
Randolph, 368 F.3d at 730.
25
Ordinary bankruptcy procedures, designed to reduce "judicial labor" in the
administration of crowded bankruptcy dockets, cannot and do not provide an
"efficient" remedy for the same institutionalized pattern of "actual reprehensible
conduct" that so offended the court in Hannon that it took the unusual step of
referring CHL's perceived "failure to maintain a procedure for adequately
identifying and disclosing a credit to a proof of claim" to the Office of U.S.
Attorney for potential criminal prosecution. Hannon II, 2010 Bankr. LEXIS 3690,
at *4-5.
Despite the fact that the district court in Hannon went outside the
bankruptcy system in search of justice for the same misconduct alleged in the
original Complaint, the court below cited Hannon for the proposition that the "sole
remedies" available to appellant-homeowners for PHS's systematic misconduct are
provided by bankruptcy law, in particular Rule 9011 of the Federal Rules of
Bankruptcy Procedure (sanctions for bad faith conduct) and Section 105(a) of the
Bankruptcy Code (bankruptcy judges power to prevent abuse of process). A9.
However, as the court in Hannon observed, Rule 9011 may not be "'up to
the task' of providing sufficient authority to compel a claimant to keep their Proofs
of Claim updated." Hannon, 421 B.R. at 734. At the same time, it is established
jurisprudence in this Circuit that Section 1 05(a) "has a limited scope," "does not
'create substantive rights that would otherwise be unavailable under the
26
Bankruptcy Code''' and "does not afford debtors a private cause of action."
Joubert v. ABN AMRO Mortgage Group, Inc., 411 F.3d 452, 455 (3d Cir.2005).
Nor did the court below have a basis for concluding that appellant
homeowners tried to "bypass" the bankruptcy proof of claim process by filing this
proposed class action in district court. A1 0. The proof of claim process was used in
the homeowners' individual bankruptcy cases through the filing of appropriate
objections to PHS's false claims. A143-146; A57-A61. Only after such objections
were made and/or after this litigation was initiated did PHS belatedly withdraw
those false claims. In doing so, PHS recognized that its individual violations of the
FDCP A had been discovered and that its systematic violations of the FDCP A
would soon be exposed through prosecution of this action. The homeowners did
not bring their FDCP A claims in district court to obtain an adjustment of amounts
owed to their mortgagees, which is the purpose of the proof of claim process.
Instead, they commenced this lawsuit on behalf of a class to serve the different
purpose of asserting a statutory right to redress PHS's institutionalized debt
collection abuses.
As Judge Easterbrook held in Randolph, 368 F .3d at 730, the statutory
purposes of the FDCP A and the Bankruptcy Code can be easily reconciled because
"[i]t is easy to enforce both statutes, and any debt collector can comply with both
simultaneously."
27
For cases involving institutionalized violations of the FDCP A like this one,
the Bankruptcy Code does not provide an effective remedy. In the words of one
court, "debtors simply do not have the personal resources to demand much less
verify the production of a simple accounting for their loans through a (bankruptcy]
litigation process." In re Jones, 418 B.R. 687, 699 (Bankr. E.D.La. 2009). See also
Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87
Texas L. Rev. 121, 124 (2008) (empirical study, funded by the National
Conference of Bankruptcy Judges' Endowment for Education, documenting
"systemic failure of the [bankruptcy] claims process to ensure that mortgage
creditors are collecting only what they are legally owed").
The practical difficulties faced by bankruptcy courts m addressing
institutionalized misconduct are illustrated in McDermott v. Countrywide Home
Loans, Inc., Case No. 07-51027, Adv. No. 08-5031 (Banlc N.D. Ohio, Slip. Op.
dated July 31, 2009) (A341-A350), rev 'd, 426 B.R. 267 (N.D. Ohio 201 0).
15
There,
15
Those same problems and difficulties are echoed in In re Taylor, 407 B.R. 618,
623, 639, 649 and 651 (Bankr. E.D.Pa .. 2009), rev'd, 2010 U.S. Dist. LEXIS
16080 (E.D.Pa. Feb. 18, 2010), where the bankruptcy court held four evidentiary
hearings and wrote a 58-page opinion explaining why sanctions were needed to
deter misconduct of a high-volume foreclosure firm that, on a "systemic" basis,
misrepresented information about borrowers' accounts because of its "slavish
adherence" to its servicer clients' "computer driven models" in a manner that
"offends the integrity of our bankruptcy system." Although the district court noted
that the "frustrations of the Bankruptcy Court are understandable," it believed that
imposition of sanctions was inappropriate. 2010 U.S. Dist. LEXIS, at *8. The
decision is now on appeal to this Court at Docket No. 10-2154.
28
after conducting trials on liability and remedial issues, the bankruptcy court
sanctioned CI-ll- under Rule 9011 for demonstrating repeated "disregard for
diligence and accuracy" through the "filing proofs of claim . . . designed to allow
each actor in the process to act with indifference to the truth." A348.
On appeal, the district court reversed the bankruptcy court's sanction order
because, while the bankruptcy court was "genuinely frustrated with what [it]
perceives as a systemic problem in the entire mortgage servicing industry," the
district court found insufficient evidence to support findings about CHL' s
institutionalized misconduct. 426 B.R at 281. Three months later, however, in an
action filed in the District Court for the Central District of California rather than
bankruptcy court, CHL agreed to a Consent Judgment resolving the FTC's charges
that CHL on an institutionalized basis improperly misused the bankruptcy system
to assert fraudulent claims against bankrupt homeowners (see above at 12-14).
Far from undermining the Bankruptcy Code, the FDCP A provides a vital
complement to it. Some courts say that because one of the FDCPA's goals is to
help consumers "avoid bankruptcy," it follows that the Bankruptcy Code precludes
FDCPA claims. See above at 24-25. However, the more overarching legislative
purposes of the FDCP A suggest the opposite conclusion.
The FDCPA's was enacted to "eliminate abusive debt collection practices,
to ensure that debt collectors who abstain from such practices are not competitively
29
disadvantaged, and to promote consistent state action to protect consumers. 15
U.S.C. 1692(e)." Jerman v. Carlisle, McNellie, Tini, Kramer & Urlich LPA, 130
S. Ct. 1605, 1608 (2010). This law is enforced through private lawsuits. Jerman,
130 S. Ct. at 1609. The "FDCPA is a remedial statute, and courts are to construe its
language broadly to effect its purposes." Holmes v. Mann Bracken LLC, 2009 U.S.
Dist. LEXIS 119940, at *25 (E.D. Pa. Dec. 22, 2009), citing, Brown v. Card
Service Center, 464 F.3d 450, 453 (3d Cir. 2006).
Given the unsuitability of bankruptcy procedures, preclusion of FDCP A
claims in this limited context would deny debtors harmed by institutionalized
misconduct their statutory right to vindicate the public policy of eliminating debt
/ collection abuses. Nothing in the Bankruptcy Code compels this result.
CONCLUSION
For all of the above reasons, appellant homeowners respectfully request this
Court to reverse the lower court's Order dated July 14, 2010 in its entirety.
Dated: December 6, 2010
30
Respectfully submitted,
BHNLAWFIRM
By: Is/John G. Narkin
John G. Narkin
PA Bar No. 36301
Telephone: (717) 756-0835
www.bhn-law.com
CERTIFICATE REGARDING BAR MEMBERSIDP
The undersigned attorney is a member of the bar of the Third Circuit of
Appeals.
Dated: December 6, 20 1 0
31
Is/John G. Narkin
John G. Narkin
CERTIFICATE OF COMPLIANCE
The undersigned attorney respectfully certifies that his brief complies with
the type-volume limitation of Fed. R. App. P. 32(a)(7)(A) because this brief
contains 30 pages.
Dated: December 6, 2010
32
Is/John G. Narlcin
John G. Narkin
CERTIFICATE IDENTICALNESS
The undersigned attorney respectfully certifies that the PDF file and the hard
copies of the OPENING BRIEF OF APPELLANT are identical.
33
Is/John G. Narkin
John G. Narkin
CERTIFICATE OF VIRUS CHECK
The undersigned attorney respectfully certifies that a v1rus check was
performed upon this document on December 6, 2010, with TREND MICRO Office
Scan software.
34
Is/John G. Narkin
John G. Narkin
No.l0-3134
similarly situated,
Plaintiffs-Appellants,
- v.-
CERTIFICATE OF SERVICE
I, John G. Narkin, hereby certify under penalty of perjury that on December
6, 2010, I caused to be filed (electronically,
electronic_briefs@ca3.uscourts.gov and 10 copies by Federal Express) and
served the foregoing
APPELLANT'S OPENING BRIEF
By causing two (2) copies of said document to be mailed, via U.S. Mail, first
class, postage prepaid to:
Daniel S. Bernheim, 3d
Jonathan J. Bart
WILENTZ, GOLDMAN & SPITZER, P.A.
Two Penn Center, Suite 910
Philadelphia, P A 19102
35
No.l0-3134
similarly situated,
Plaintiffs-Appellants,
- v.-
APPEAL FROM AN ORDER OF THE UNITED STATES DISTRICT
COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA,
09-cv-1302
APPELLANTS' APPENDIX VOLUME I
JOHN G. NARKIN
BHNLAWFIRM
(717) 756-0835
Attorneys for Plain tiffs-Appellants
TABLE OF CONTENTS
VOLUME I
Table of Contents ............................................................................. .i
Notice of Appeal. ............................................................................ Al
Order ........................................................................................... A4
Memorandum ................................................................................ A6
VOLUME II
Amended Complaint ...................................................................... Al4
VOLUME III
Amended Complaint (con'td) .......................................................... Al85
Case 5:09-cv-01302-CDJ Document 17 Filed 08/12/1 0 Page 1 of 5
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
DENNIS A. RHODES,
GERALD A. BENDER and
EDWARD H. WOLFERD, JR.,
individually and on behalf of all
others similarly situated,
Plaintiffs,
v.
ROSEMARY DIAMOND, FRANCIS S.
HALLINAN, DANIEL G. SCHMIEG,
LAWRENCE T. PHELAN, JUDITH T.
ROMANO, FRANCIS FEDERMAN,
THOMAS M. FEDERMAN,
PHELAN HALLINAN & SCHMIEG, LLP,
and FEDERMAN & PHELAN, LLP,
Defendants.
Civil Action No. 09-cv-01302-CDJ
JURY TRIAL DEMANDED
NOTICE OF APPEAL TO THE UNITED STATES
COURT OF APPEALS FOR THE THIRD CIRCUIT
Notice is hereby given that plaintiffs Dennis A. Rhodes, Gerald A. Bender and Edward
H. Wolferd, Jr. ("Plaintiffs"), on behalf of themselves and all others similarly situated,
hereby appeal to the United States Court of Appeals for the Third Circuit from the final
order of the District Court for the Eastern District of Pennsylvania, entered on the docket
on July 14, 2010, which (a) dismissed with prejudice Plaintiffs' Complaint filed on
March 25, 2009 (Docket Item No. 1) and (b) denied Plaintiffs' Motion for Leave to
Amend the Complaint filed on January 15, 2010 (Docket Item No. 8). A copy of the
Order appealed from by this Notice (Docket Item No. 16) is attached as Exhibit A.
A-1
Case 5:09-cv-01302-CDJ Document 17 Filed 08/12/1 0 Page 2 of 5
Dated: August 12.2010
Respectfully submitted,
BURKE&HESS
By: lsi Michael D. Hess
Michael D. Hess
Telephone: (717) 391-2911
Facsimile: (717) 391-5808
-and-
BHNLAWFIRM
By: JGNS884
John G. Narlcin
Telephone; (717) 756-0835
Facsimile: (717) 391-5808
Attorneys for Plaintiffs and the Proposed Classes
A-2
Case 5:09-cv-01302-CDJ Document 17 Filed 08/12/10 Page 3 of 5
EXHIBIT A
A-3
Case Document 17 Filed 08/12/10 Page 4 of 5
Case Document 16 Filed 07/14/10 Page 1 of 1
DENNIS A. RHODES; GERALD A.
BENDER; and, EDWARD H. WOLFERD,
JR., individually and on behalf of all others
similarly situated
Plain tiffs,
v.
ROSEMARY DIAMOND; FRANCIS S.
HALLINAN; DANIEL G. SCHMIEG;
LAWRENCE T. PHELAN; JUDITH T.
ROMANO; FRANCIS FEDERMAN;
THOMAS M. FEDERMAN; PHELAN
HALLINAN & SCHMIEG, LLP;
FEDERMAN & PHELAN, LLP
Defendants.
CIVIL NO. 09-1302
ORDER
AND NOW, this 14
11
day of July, 2010, upon consideration of Defendants' Motion to Dismiss (Doc.
No.2), Plaintiffs' Opposition thereto (Doc. No.3), Defendants' Reply (Doc. No.5), Plaintiffs' Notice of
Consent Judgment and Order in the matter of Federal Trade Commission v. Countrywide Home Loans, Inc ..
No. 10-4193(C.D. CaL June 7, 2010) (Doc. No. 12), and Defendants' Supplemental Memorandum ofLaw in
Response thereto (Doc. No. 14), it is hereby ORDERED and DECREED that Defendants' Motion is
GRANTED and Plaintiffs' Complaint is DISMISSED WITH PREJUDICE.
It is further ORDERED and DECREED that Plaintiffs' Motion for Leave to File Amended Complaint
(Doc. No.8) is hereby DENIED AS MOOT.'
BY THE COURT:
/s/ C. Darnell Jones, II J.
1
Subsequent to the conclusion of briefing regarding Defendants' Motion to Dismiss, Plaintiffs filed a
Motion for Leave to File Amended Complaint (Doc. No. 8) and Defendants filed an Opposition thereto (Doc. No.
9). This Court has reviewed same and is of the opinion that in light of the reasons for granting Defendants'
Motion to Dismiss, amendment would be futile.
A-4

Case 5:09-cv-01302-COJ Document 17 Filed 08/12110 Page 5 of 5
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on this 12th day of August 2010, a true and
correct copy of Plaintiffs' Notice of Appeal was served upon all counsel of record via the
Court's ECF system.
lsi Michael D. Hess
A-5
DENNIS A. RHODES; GERALD A.
BENDER; and, EDWARD H. WOLFERD,
JR., individually and on behalf of all others
similarly situated
Plaintiffs,
v.
ROSEMARY DIAMOND; FRANCIS S.
HALLINAN; DANIEL G. SCHMIEG;
LAWRENCE T. PHELAN; WDITH T.
ROMANO; FRANCIS FEDERMAN;
THOMAS M. FEDERMAN; PHELAN
HALLINAN & SCHMIEG, LLP;
FEDERMAN & PHELAN, LLP
Defendants.
CIVIL NO. 09-1302
MEMORANDUM
Jones, J.
I. Introduction
July 14, 2010
Plaintiffs in the above-captioned matter are homeowners who defaulted on their
mortgages and subsequently filed Petitions for relief under Chapter 13 of the Bankruptcy Code.
Defendants herein are individual attorneys and their law firms, who represent the lenders and are
accused of filing inflated Proofs of Claims in Bankruptcy Court. Plaintiffs allege that said Proofs
of Claims did not reflect refunds of fees paid for Sheriff's Sales on the foreclosed properties that
were postponed by reason of the bankruptcy filings. As such, Plaintiffs - individually and on
behalf of all others similarly situated - have filed a Complaint in this court, asserting violations of
A-6
the Fair Debt Collection Practices Act (''FDCPA"), 15 U.S.C. 1692 et seq.; Pennsylvania's Fair
Credit Extension Uniformity Act (''FCEUA''), 73 P.S. 2270 et seq.; (3) Pennsylvania's Unfair
Trade Practices and Consumer Protection Law ("UTPCPL''), 73 P.S. 201 et seq.; and, (4)
common law claims of Tortious Interference with Contractual Relations.
In response to said Complaint, Defendants have filed the instant Motion to Dismiss
pursuant to Fed.RCiv.P. 12(b)(6)(Doc. No.2), asserting in pertinent part that any issues
Plaintiffs may have with the Proofs of Claims that were filed, are issues that must be pursued in
Bankruptcy Court by means of Objections to said Proofs, or Motions for Sanctions. Plaintiffs
oppose said Motion (Doc. No. 3), maintaining that they have pled sufficient facts to sustain their
cause of action in this court.
1
For the reasons set forth hereinbelow, Defendants' Motion will be
granted.
II. Standard of Review
In deciding a motion to dismiss pursuant to Rule 12(b)(6), courts must "accept all factual
allegations as true, construe the complaint in the light most favorable to the plaintiff, and
determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled
to relief." Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (internal quotation
and citation omitted). After the Supreme Court's decision in Bell Atl. Corp. v. Twombly,
"[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice." Ashcroft v. Iqbal,- U.S.-, 129 S.Ct. 1937, 1949 (2009) (citing
1
Leave was also granted for Defendants to file a Reply Brief (Doc. No. 5). Additionally,
on June 9, 2010, Plaintiffs provided this Court with a Notice of Consent Judgment and Order
filed on June 7, 2010 in the matter of Federal Trade Commission v. Countrywide Home Loans,
Inc., No. 10-4193(C.D. Cal. June 7, 2010) (Doc. No. 12) and pursuant to Order of this Court,
Defendants filed a Supplemental Memorandum of Law in Response (Doc. No. 14).
2
A-7
Twombly, 550 U.S. 544, 555 (2007)). "A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556). This
standard, which applies to all civil cases, "asks for more than a sheer possibility that a defendant
has acted unlawfully." Id. Accord Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211 (3d Cir.
2009) ("All civil complaints must contain more than an unadorned, the - defendant - unlawfully -
harmed- me accusation.") (internal quotation omitted).
Although Plaintiffs herein have provided this Court with an extensive dissertation
regarding their perceived victimization of mortgagees throughout the economic downturn ofthe
past several years, their allegations cannot entitle them to relief in this court.
ill. Discussion
As Defendants properly point out in their Motion to Dismiss, creditors are only required
to file a Proof of Claim which states the amount owed "as of the date of the filing of the
petition." (Defs. Mot. Dismiss 8-11, citing 11 U.S.C. 501(b).) Plaintiffs do not dispute this
statement of bankruptcy law. (Pls. Opp'n Mem. 12.) Plaintiffs' Complaint fails to allege that
Defendants did not file the Proofs of Claims using totals known as of the date of the filing of the
petition - which included initial Sheriff's fees - or that pertinent bankruptcy law required
Defendants to amend the Proofs of Claims. Instead, Plaintiffs claim in pertinent part that
Defendants' failure to timely amend the Proofs in accordance with a representation that they
would do so, was unlawful and entitles Plaintiffs to relief. (Pls. Compl. W59-60.) Despite
Plaintiffs' arguments to the contrary, it is this failure to promptly amend that forms the basis for
all of their claims.
3
A-8
Plaintiffs expend much time and energy focusing not only their Complaint, but their
Opposition to Defendants' Motion to Dismiss, on the premise that homeowners all over the
country are being victimized by attorneys such as Defendants, in a systematic scheme to
overcharge debts in bankruptcy proceedings.
2
However, Plaintiffs fail to provide any legal basis
for the one critical component necessary to sustain the particular claims alleged in their
Complaint: the existence of a duty to amend a Proof of Claim. Although Plaintiffs note that
discovery would be helpful regarding the merits of their claims, discovery cannot provide a duty
that does not exist by law. Plaintiffs argue that the authority cited in support of Defendants'
contention that no such duty exists is inapposite to the case at bar, inasmuch as it involves post-
petition payments by a debtor, as opposed to a creditor's claim for debt incurred pre-petition.
2
Plaintiffs cite to the case of Heintz v. Jenkins, 514 U.S. 291, 299 (1995) for the
proposition that the Fair Debt Collection Practices Act "applies to attorneys who 'regularly'
engage in consumer-debt collection activity." (Pls. Compl. ,63.) The Heintz case dealt with the
nature of specific written communications by counsel engaged in debt collections and was
subsequently superseded to the following extent:
In Heintz v. Jenkins, the U.S. Supreme Court held that the term "debt collector"
within the FDCP A applies to lawyers who regularly collect consumer debts
through litigation. One year later, Congress amended FDCPA 1692e(11) to
provide protection to attorneys by exempting any "formal pleading made in
connection with a legal action." 15 U.S.C. 1692e(ll), as amended Pub. L.
104-208, 2305(a), 110 Stat. 3009, 3009-425 (1996). Upon amendment, the
FDCPA now states: The failure to disclose in the initial written communication
with the consumer and, in addition, if the initial communication with the
consumer is oral, that initial oral communication, that the debt collector is
attempting to collect a debt and that any information obtained will be used for that
purpose, and the failure to disclose in subsequent communications that the
communication is from a debt collector, except that this paragraph shall not apply
to a formal pleading made in connection with a legal action (emphasis added).
Azzam v. Echehoyen, 2010 Md. Cir. Ct LEXIS 2, at **6-7 (Md. Cir. Ct. 2010).
4
A-9
(Pls. Opp'n Mem. 13 n. 12.) However, Plaintiffs provide no authority in support of their claim.
The Bankruptcy Court for the District of Massachusetts has effectively summarized the
law regarding amendment of a Proof of Claim as it existed in 2002 and still exists today ...
Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure
address amendments to proofs of claim. Clamp-All Corp. v. Foresta (In re
Clamp-All Corp.), 235 B.R. 137, 140 (BAP 1st Cir. 1999), citing 9 Lawrence P.
King, et al., Collier on Bankruptcy P 3001.01(1] (15th ed. rev. 1999). Prior to the
bar date, amendments to filed proofs of claim are permissible. !d. Amendments to
timely filed defective proofs of claim may be made after the bar date has expired.
Hutchinson v. Otis, Wilcox & Co., 190 U.S. 552, 47 L. Ed. 1179, 23 S. Ct. 778
(1903); In re Stylerite, Inc., 120 F. Supp. 485 (D.N.H. 1954). However, post-bar
date amendments should not be allowed if it is in actuality a new claim against the
estate. In re Clamp-All Corp., 235 B.R. at 140, citing In re Int'l Horizons, 751
F.2d 1213, 1216 (11th Cir. 1985).
In re Callery, 274 B.R. 51, 56 (Bankr. D. Mass. 2002).
Amendment of a Proof of Claim is not mandatory, therefore Defendants' failure to do so -
timely or otherwise - cannot constitute a basis for wrongdoing that would afford Plaintiffs relief
under the FDCRA or any of the other statutory/common law provisions
3
they contend Defendants
have violated. Plaintiffs had an opportunity to object to the disputed Proofs of Claims and their
assertion that doing so would impose an undue burden on them that the filing and litigation of the
instant lawsuit would not, is unfounded.
Even in the event Plaintiffs did not wish to utilize the objection procedure, other options
existed within the appropriate jurisdiction of the Bankruptcy Court which could have served to
remedy their allegations of "inflated" Proofs of Claims. In fact, one such option was discussed in
a decision issued by the United States Bankruptcy Court for the Middle District of Pennsylvania,
3
Plaintiffs' note that "Defendants recognize the interdependence of Plaintiffs' state law
claims with Plaintiffs' claims under the FDCPA." (Pls. Opp'n Mem. 14 n.14.)
5
A-10
which Plaintiffs submitted to this Court on March 22, 2010 when they filed a Notice ofRelevant
Authority (Doc. No. 11 ). Similar to the case at bar, In re: Hannon, No. 06-51870 (Bankr. M.D.
Pa. Dec. 18, 2009) involved allegations of an allegedly inflated Proof of Claim which had not
been timely amended to reflect a refund of Sheriffs refunds. Said debtor sought sanctions
against the mortgagee pursuant to Ru1e 9011 of the Federal Rules of Bankruptcy Procedure.
Accordingly, the Bankruptcy Court issued a Rule to Show Cause upon the mortgagee and noted
that in the event Rule 9011 ...
Hannon at9.
. . . [i]s not ''up to the task" of providing sufficient authority to compel a claimant
to keep their Proofs of Claim updated so as to allow the Trustee, or Debtor-in-
Possession, to fairly allocate distributions to those filing proofs ... [Section]
1 05( a) provides the judicial authority to compel a claimant to timely amend a
claim that ought, in good conscience, be reduced because of circumstances such
as the refund at hand.'"'
In this instant matter, Plaintiffs' inclusion of claims under the FDCPA, FCEUA,
UTPCPL, and for Tortious Interference with Contractual Relations, cannot serve to convert this
bankruptcy matter into one that would be proper before this Court:
One of the fundamental purposes of the bankruptcy system is to adjudicate and
conciliate all competing claims to a debtor's property in one forum. Gray-Mapp v.
Sherman, 100 F.Supp. 2d 810, 813 (N.D. lll. 1999); Holloway v. Household
Automotive Finance Corp., 227 B.R. 501, 507-08 (N.D. TIL 1998); Brandt v ..
4
Section 105(a) reads as follows:
The court may issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title. No provision of this title
providing for the raising of an issue by a party in interest shall be construed to
preclude the court from, sua sponte, taking any action or making any
determination necessary or appropriate to enforce or implement court orders or
rules, or to prevent an abuse of process.
11 U.S.C.S. 105(a).
6
A-ll
Swisstronics, Inc., 135 B.R 707,708 (Bank:r. D. Me. 1992).
We agree with the numerous courts that have concluded that, once a debtor is in
bankruptcy court, the debtor's remedies to attack an allegedly inflated proof of
claim are limited to those provided for in the Bankruptcy Code. Baldwin, 1999
U.S. Dist. LEXIS 6933, 1999 WL 284788 at 4; Gray-Mapp, 100 F.Supp. 2d at
813-14; Holloway, 227 B.R. at 507-08; In re Sims, 278 B.R 457 (Bankr. B.D.
Tenn. 2002); In re Cooper, 253 B.R. 286 (Bankr. N.D. Fla. 2000). Accordingly,
we find that the within Complaint seeking damages under the FDCP A and
Consumer Protection Law must be dismissed.
In re: Abramson, 313 B.R. 195, at** 6-7 (U.S. Bankr. Ct., W. Dist. Pa. 2004).
5
See also,
Angulo v. Emigrant Mortg. Co., 2010 Bankr. LEXIS 1402, at **30-32 (Bankr. E.D. Pa. Apr. 23,
5
In support of their Motion to Dismiss, Defendants have relied in part on the holding set
forth in Williams v. Asset Acceptance, LLC (In re Williams), 392 B.R. 882 (Bankr. M.D. Fla.
2008), which provided another insightful analysis regarding disputed Proofs of Claims:
[T]he facts of this case can be distinguished from cases involving the
applicability of the FDCPA to violations of the automatic stay and
dischargeability issues. In the cases of Turner, Hyman, and Randolph, the
collection agencies sent letters that violated both the Bankruptcy Code and the
FDCP A. Here, Asset did not engage in any wrongful conduct by filing a proof of
claim. To hold otherwise would undermine the rights of creditors in the
bankruptcy process. The creditor's right to file a claim is not impacted by whether
the statute of limitations had run, as the debtor must raise the statute of limitations
issue as an affinnative defense, and even then the court still must determine
whether it has tolled and run. The debtor does not need the FDCP A to protect
itself from improper claims, as the Bankruptcy Code allows the debtor to fde
an objection. If this Court was to apply the FDCP A in this instance, debtors
would be encouraged to file adversary proceedings instead of simply an
objection to the creditor's claim, which is incredibly inefficient and undermines
the process provided by the Bankruptcy Code.
Based on the overwhelming authorities supporting Asset's contentions, that
FDCP A claims are precluded by the Bankruptcy Code, this Court is satisfied that
Asset's request for dismissal with respect to the claims asserted in Counts I
[violation of the FDCPA, 15 U.S.C. 1692()(1)] and II [violation of the FDCPA,
15 U.S.C. 1692(d)] of the Amended Complaint is well taken and, therefore,
should be granted.
I d. at 886 (emphasis added).
7
A-12
201 O)(recognizing the fact that an "an FDCP A claim 'cannot be based on the filing of a proof of
claim, regardless of the ultimate validity of the underlying claim. '")(internal citation omitted).
Inasmuch as there is no Third Circuit precedent involving exactly the same factual
scenario that exists herein, the holdings in Abramson and Williams provide constructive guidance
in this Court's determination that redress for Plaintiffs' allegations of "systematic" violations by
Defendants for filing allegedly inflated Proofs of Claims lie solely within the Bankruptcy
Court.
6
7
IV. Conclusion
For the reasons set forth hereinabove, Plaintiffs' Complaint is hereby dismissed.
An appropriate Order follows.
BY THE COURT:
Is! C. Darnell Jones, II J.
6
With specific regard to Plaintiffs' common law claim of Tortious Interference with
Contractual Relations (Compl. ~ 7 8 - 8 2 ) , said claim is essentially based upon the alleged conduct
discussed hereinabove: Defendants' purported filing of sworn Proofs of Claims containing
"inflated" sums ofSheritrs fees owed. Inasmuch as the amounts provided on the forms were
derived from information known at the time of filing and because Defendants did not have a duty
to amend said Proofs, there can be no "purposeful action" as required by the doctrine.
Accordingly, this claim similarly fails.
7
As referenced in note 1 hereinabove, this Court has reviewed the Notice of Consent
Judgment and Order filed on June 7, 2010 in the matter ofF ederal Trade Commission v.
Countrywide Home Loans, Inc., No. 10-4193(C.D. Cal. June 7, 2010) (Doc. No. 12), as well as
the Supplemental Memorandum of Law (Doc. No. 14) filed by Defendants in response to this
Court's Order dated June 11,2010 (Doc. No. 13). Upon doing so, this Court has determined that
the contents of said Consent Order and Judgment do not affect the findings set forth herein
regarding Defendants' Motion to Dismiss.
8
A-13

DENNIS A. RHODES, :
GERALD A. BENDER , :
EDWARD H. WOLFERD, JR., :
and DIANE and CHARLES J. GILES, :
individually and on behalf of all :
others similarly situated, : Civil Action No. 5:09-cv-01302-CDJ
:
Plaintiffs, :
v. : JURY TRIAL DEMANDED
:
ROSEMARIE DIAMOND, FRANCIS S. :
HALLINAN, DANIEL G. SCHMIEG, :
LAWRENCE T. PHELAN, JUDITH :
T. ROMANO, PHELAN HALLINAN & :
SCHMIEG, LLP, PHELAN HALLINAN & :
SCHMIEG, P.C., WELLS FARGO & :
COMPANY, WELLS FARGO BANK, N.A., :
COUNTRYWIDE HOME LOANS :
SERVICING LP and COUNTRYWIDE :
HOME LOANS, INC. (both now owned by :
BANK OF AMERICA), :
Defendants. :

AMENDED COMPLAINT - CLASS ACTION

BURKE HESS & NARKIN BURKE & HESS
John G. Narkin Michael D. Hess
3000 Atrium Way, Suite 234 951 Rohrerstown Road
Mount Laurel, NJ 08054 Suite 102
Tel: (856) 222-2913 Lancaster, PA 17601
Fax: (856) 222-2912 Tel: (717) 391-2911
Fax: (717) 391-5808


TABLE OF CONTENTS
Page

I. INTRODUCTION AND OVERVIEW. 1

II. JURISDICTION AND VENUE. 4

III. THE PARTIES 5

A. Plaintiffs.. 5

B. Defendants 6

IV. FACTUAL ALLEGATIONS. 10

A. Pervasive Abuse In The Mortgage Foreclosure Industry. 10

1. Record Numbers of Homeowners are at Risk
of Losing Their Homes. 10

2. Governments Response to the Foreclosure Crisis 13

3. Unscrupulous Mortgage Servicers and Their Attorneys
Systematically Exploit and Profit From the
Mortgage Foreclosure Crisis 19

a. Egregious Mortgage-Related Schemes
Are Known Problems in the Foreclosure Industry19

b. Countrywides Documented History
of Mortgage Servicing Abuse 23

c. Wells Fargos Documented History
of Mortgage Servicing Abuse 26

i
B. PHS Systematically Abuses Distressed Homeowners
and the Legal System.. 36

1. PHS Inflates Foreclosure Costs
on an Institutionalized Basis 37

a. PHS Systematically Misappropriates
Sheriffs Deposit Refunds. 37

b. PHS Systematically Uses Wholly-Owned
Vendorsto Inflate Foreclosure Costs .... 45

2. PHS Systematically Prosecutes Foreclosure Actions
in the Names of Parties Without Legal Standing to Sue51

3. PHSs Wrongful Conduct Is Facilitated
By Its Thoughtless, Mechanical Application
of Client-Mandated Computer Programs. 67

V. CLASS ACTION ALLEGATIONS.73

VI. CLAIMS FOR RELIEF 77

COUNT I: VIOLATIONS OF 18 U.S.C. 1962(c) (RICO)... 77

A. The Phelan Hallihan & Schmeig
Mortgage Foreclosure and Bankruptcy Enterprise78

B. Defendants Use of the U.S. Mails
and Interstate Wire Facilities83
C. Conduct of the RICO Enterprises Affairs. 91
D. Defendants Pattern of Racketeering Activity 96
E. Damages Caused by the Defendants Scheme 96
COUNT II: VIOLATIONS OF 15 U.S.C. 162 et seq. (FDCPA)...97

COUNT III: VIOLATIONS OF 73 P.S. 201-1(UTPCPL) 99
COUNT IV: COMMON LAW FRAUD...101

COUNT V: BREACH OF CONTRACT 102
ii
COUNT VI: BREACH OF DUTY OF GOOD FAITH
AND FAIR DEALING..103

COUNT VII: MONEY HAD AND RECEIVED..104

COUNT VIII: NEGLIGENT MISREPRESENTATION.105

VII. JURY TRIAL DEMAND.106
VIII. PRAYER FOR RELIEF .106

iii
On behalf of themselves and all others similiarly situated, Plaintiffs Dennis A.
Rhodes, Gerald A. Bender, Edward H. Wolferd, Jr., and Diane and Charles J. Giles
(Plaintiffs) bring this action against Defendants for damages and injunctive relief.
Except for allegations concerning their own acts and the wrongful acts of
Defendants that damaged Plaintiffs interests, Plaintiffs allegations are based on
information and belief. Plaintiffs information and belief are derived from an investigation
undertaken by their attorneys, which includes, among other things (1) interviews of
witnesses; (2) review and analysis of court and other public records; and (3) review and
analysis of legal journals, Congressional testimony, news media reports and published
commentaries disseminated by representatives of the Office of the United States Trustee
and other public agencies. Additional evidentiary support confirming the truth of the
allegations in this Complaint will be established through discovery from Defendants and
non-parties with knowledge of the systematic conduct alleged herein.

I. INTRODUCTION AND OVERVIEW

1. This is a proposed class action on behalf of all homeowners who, during
the period from January 15, 2004 through the present (Class Period) (1) resided in the
Commonwealth of Pennsylvania or the State of New Jersey; (2) were defendants in
mortgage foreclosure actions prosecuted by the law firm of Phelan Hallinan & Schmeig,
LLP or Phelan Hallinan & Schmeig, P.C. and their attorneys (collectively PHS); (3)
were forced to pay systematically inflated or fabricated charges imposed by PHS in
mortgage foreclosure actions that did not result in sheriffs sales because of loan
modification agreements, bankruptcy filings or distress sales. These systematically
inflated or fabricated charges include, without limitation (a) misappropriation or theft of
1
sheriffs deposit refunds that were not credited properly to homeowners accounts ( 78-
101, below); (b) unreasonable attorneys fees or attorney fees that were not actually
incurred; (c) excessive real estate title and litigation support costs generated through
inside transactions with affiliated companies owned and controlled by Defendants
Lawrence T. Phelan, Francis S. Hallinan and Daniel G. Schmieg; (d) unessential property
inspection and valuation fees ; and (e) duplicative costs for services already included in
independent charges assessed by PHS. ( 102-110, below)
2. This action is also brought on behalf of Pennsylvania and New Jersey
homeowners who during the Class Period were prosecuted by PHS on behalf of
plaintiffs that did not hold legal title to mortgages or notes relied upon by PHS in filing
its foreclosure actions -- circumstances that at times caused PHS or its agents to record
phony assignments with county land record agencies ( 112-144, below). In disregard of
its duty of candor to the courts, among other professional and legal obligations, PHS has
maintained the pretense of an attorney-client relationship with entities that have no
standing to sue homeowners in foreclosure lawsuits. This contrived representation
continues throughout state court foreclosure proceedings prosecuted by PHS and, in
many instances, it persists through false creditor claims filed by PHS in federal
bankruptcy actions ( 134-135, 175f and n. 182, below). As a direct and intended result
of this artifice, PHS obtains for itself opportunities to reap the inflated or fabricated fees
identified in 1, above.
3. The fraudulent schemes perpetrated by PHS are made possible through the
knowing cooperation of lenders or mortgage servicers that retain PHS to prosecute
foreclosure actions, including Defendants Wells Fargo Bank, N.A., and Countrywide
2
Home Loans, Inc. ( 56-73, below). These clients are aware of PHS systematic
pattern of misconduct, but they encourage, facilitate and turn a blind eye to it. This is
because (1) they benefit financially from PHS wrongdoing, which is aided and abetted
by computerized case management and invoicing systems that such clients require PHS
to use ( 148-159, below); (2) they benefit operationally from their long-term, mutually
profitable relationship with a large-volume law firm that claims to be the regions
premier foreclosure operation, representing almost every major lender and loan servicer
1

( 192-193, below); and (3) they understand that PHSs institutionalized misconduct is
but one local extension of their own established pattern of mortgage foreclosure abuses,
for which they have been excoriated by federal and state judges, academic commentators,
government agencies and respected experts throughout the United States. ( 56-73,
below). In these and other ways, PHS and its clients conduct their business through an
enterprise controlled by them through a pattern of racketeering. ( 175-193, below).
4. Because of Defendants wrongful conduct, Plaintiffs and other Class
members have sustained damages substantially in excess of five million dollars. In
addition, because Defendants persist in their unlawful practices, despite frequent public
exposure and/or judicial condemnation of their misconduct, Plaintiffs and the Classes
request an injunction requiring Defendants to undertake and implement institutionalized
changes to their business and accounting practices, which in their current form exploit
distressed homeowners struggling to survive in the worst financial crisis since the Great
Depression.

1
www.fedphe.com.

3

II. JURISDICTION AND VENUE
5. This action is instituted against Defendants for injuries sustained by
Plaintiffs and Class members resulting from Defendants' violations of the Racketeer
Influenced and Corruption Act (RICO), 18 U.S.C. 1962(c), and the Fair Debt
Collections Practices Act (FDCPA), 15 U.S.C. 1692(e)(2)(A) and (B), 1692f(1),
and 1692(g)(2). To remedy these violations, Plaintiffs seek actual and statutory damages
(including treble damages under RICO), together with costs of suit and reasonable
attorneys fees. Federal question jurisdiction is conferred upon this Court by 18 U.S.C.
1964(c); 15 U.S.C. 1692k(d); and 28 U.S.C. 1331, 1334 and 1337.
6. This action is also instituted against Defendants for injuries sustained by
Plaintiffs and Class members resulting from Defendants' violations of Pennsylvanias
Unfair Trade Practices and Consumer Protection Law (UTPCPL), 73 P.S. 201 et seq.
To remedy Defendants violations of the UTPCPL, Plaintiffs seek actual and statutory
damages (including treble damages), together with costs of suit and reasonable attorneys
fees, as authorized by 73 P.S. 201-9.2.
7. In addition, Plaintiffs and Class members seek damages under common law
remedies under the laws of the Commonwealth of Pennsylvania and the State of New
Jersey. State law causes of action available to redress Defendants systematic misconduct
include common law fraud, breach of contract, breach of good faith and fair dealing,
money had and received, and negligent misrepresentation. In addition to actual and
statutory damages, Plaintiffs and members of the Classes also seek (1) an accounting,
restitution and disgorgement of funds obtained by Defendants as a result of their
4
violations of federal, Pennsylvania and New Jersey law; and (2) appointment of an
auditor or special master to (a) ascertain the amount of money wrongfully taken by
Defendants from Plaintiffs and members of the Classes; (b) recommend specific business
management and accounting procedures that Defendants must adopt and implement to
avoid future repetition of the wrongful conduct documented throughout this Complaint;
and (c) monitor Defendants compliance with any business management or accounting
procedure that may be ordered by the Court in granting injunctive relief in this action.
8. The Court may adjudicate Plaintiffs state law claims under principles of
pendant jurisdiction. Moreover, under the Class Action Fairness Act of 2005, federal
jurisdiction over class actions exists where, as here, any member of a class of plaintiffs is a
citizen of a State different from any Defendant, and the aggregated amount in controversy
exceeds five million dollars. See 28 U.S.C. 1332(d)(2) and (6).
9. This Court has in personam jurisdiction over Defendants, inter alia, because
Defendants live in and/or maintain a principal office, have employees and agents, and
regularly transact business within this District.
10. Venue is proper in this District because many of the events giving rise to
Plaintiffs claims occurred in this District.
III. PARTIES
A. Plaintiffs
11. Plaintiff Dennis A. Rhodes is a homeowner and a consumer within the
meaning of 15 U.S.C. 1692a(3). Plaintiff Rhodes resides within this District in Berks
County, Pennsylvania.

5
12. Plaintiff Gerald A. Bender is a homeowner and consumer within the meaning
of 15 U.S.C. 1692a(3). Plaintiff Bender resides within this District in Berks County,
Pennsylvania.
13. Plaintiff Edward H. Wolferd, Jr. is a homeowner and a consumer within the
meaning of 15 U.S.C. 1692a(3). Plaintiff Wolferd resides within this District in Lancaster
County, Pennsylvania.
14 Plaintiffs Diane and Charles J. Giles, husband and wife, were homeowners
and are consumers within the meaning of 15 U.S.C. 1692a(3). Plaintiff Diane and Charles
Giles reside in Barnegat Township, New Jersey.
B. Defendants
15. Defendant Phellan Hallinan & Schmieg, LLP is a mortgage foreclosure
law firm having its principal place of business at 617 J.F.K. Boulevard, Suite 1400,
Philadelphia, Pennsylvania 19103. PHS is a domestic limited liability general partnership
organized and existing under the laws of the Commonwealth of Pennsylvania.
16. Organized and operating as a professional corporation under the laws of
the State of New Jersey, PHS also maintains an office at 400 Fellowship Road, Suite 100,
Mount Laurel, New Jersey 08054.
17. Defendant Lawrence T. Phelan purports to be the managing partner of
PHS offices in both Pennsylvania and New Jersey.
2
Phelan is admitted to practice law in
the Commonwealth of Pennsylvania. Although he is not licensed to practice law in New
Jersey, Phelan serves as president and majority shareholder of PHSs New Jersey
professional corporation.

2
www.fedphe.com/index.html
6
18. Defendant Francis S. Hallinan is a member of PHS, doing business in the
firm's Philadelphia office. Hallinan is PHSs administrative partner who oversees the
firms practices in both Pennsylvania and New Jersey. PHS describes Hallinan as the
behind the scenes manager who ensures that the job gets done.
3
Hallinan is admitted to
practice law in the Commonwealth of Pennsylvania and serves as vice president of PHSs
New Jersey professional corporation.
19. Defendant Daniel G. Schmieg, a one-time freelance cartoonist from
Texas,
4
is now a member of PHS, doing business in the firm's Philadelphia office.
Schmieg is admitted to practice law in the Commonwealth of Pennsylvania. He serves as
secretary of PHSs New Jersey professional corporation.
20. Defendant Rosemarie Diamond is a member of PHS who, like Defendant
Lawrence Phelan, also purports to be Managing Partner of the New Jersey office of
PHS.
5
Following her admission to practice in Pennsylvania in 1992, Diamond was
admitted to the New Jersey Bar in 1999. Perhaps as a means of qualifying for designation
as a counsel/trustee for Freddie Mac, or for other client recruitment purposes, Diamond is
sometimes held out to others by PHS as a member of Phelan Hallihan Schmieg &
Diamond P.C., an entity that apparently has no legal existence.
6

21. Defendant Judith T. Romano is a member of PHS, doing business in the
firm's Philadelphia office. Romano is PHSs in-house general counsel, who during the
Class Period has had managerial responsibility for the firms bankruptcy practice. She is

3
www.fedphe.com/pages/FSH.htm
4
www.fedphe.com/pages/DGS.htm
5
www.fedphe.com/pages/RD.htm
6
http://www.freddiemac.com/service/msp/pdf/desigcounsel.pdf at 15; http://www.sm-online.com/sm/ar-
AFN08.pdf at 8.

7
admitted to practice law in the Commonwealth of Pennsylvania.
22. Defendant Wells Fargo & Company (WFC) is a diversified financial
services company maintaining its principal executive offices at 420 Montgomery Street,
San Francisco, California 94163. WFC provides retail, commercial and corporate
banking services in 39 states, including Pennsylvania and New Jersey, and in the District
of Columbia. As of December 31, 2008, WFC had assets of $1.3 trillion, loans of $865
billion, deposits of $781 billion and stockholders equity of $99 billion. Based on assets,
WFC is the fourth largest bank holding company in the United States.
23. Defendant Wells Fargo Bank, N.A. (Wells Fargo), WFCs principal
subsidiary, is a national banking association chartered in Sioux Falls, South Dakota, with
principal offices at WFCs headquarters in San Francisco, California. As of December
31, 2008, Wells Fargo had assets of $539 billion, or 41% of WFCs assets. Wells Fargo
provides and services residential mortgages through its division Wells Fargo Home
Mortgage (or through the divisions alternate name, Americas Servicing Company), which
maintains its headquarters at 7000 Vista Dr., West Des Moines, Iowa 50266-93.
24. Defendant Countrywide Financial Corporation (CFC) was a Delaware
Corporation that maintained its principal executive offices at 4500 Park Granada,
Calabasas, California 91302, which originated and serviced residential mortgages
throughout the United States through the wholly owned subsidiaries identified in 25-
26 below. On July 1, 2008, after CFC faced bankruptcy amid payment defaults and
foreclosures tied to sub-prime mortgages, CFC merged with and became a wholly owned
subsidiary of Bank of America Corporation ("Bank of America") in exchange for stock
valued at $ 4.1 billion.
8
25. Defendant Countrywide Home Loans, Inc. was a New York corporation
maintaining its principal executive offices at 4500 Park Granada, Calabasas, California
91302. Countrywide Home Loans, Inc. provided, originated, purchased, securitized, sold,
and serviced home loans. In 2006, Countrywide financed 20 percent of all mortgages in
the United States (at a value of about 3.5 percent of United States Gross Domestic
Product), a proportion greater than any other mortgage company.
26. Defendant Countrywide Home Loans Servicing, LP was a Texas limited
partnership doing business at 7105 Corporate Drive, Plano, Texas 75024. It was owned
directly by Countrywide GP, Inc. and Countrywide LP, Inc., each a Nevada corporation
and a wholly owned subsidiary of Countrywide Home Loans, Inc.
Defendant Countrywide Home Loans Servicing, LP serviced mortgage loans
originated, inter alia, by Defendant Countrywide Home Loans, Inc., Fannie Mae, Freddie
Mac, Ginnie Mae, the U.S. Department of Housing and Urban Development and the U.S.
Veterans Administration. After the July 1, 2008 CFC/Bank of America merger,
Countrywide GP, Inc. and Countrywide LP, Inc. sold their partnership interest in
Defendant Countrywide Home Loans Servicing, LP to a Bank of America holding
company for approximately $19.7 billion. As of June 30, 2008, Countrywide Home Loans
Servicing, LPs assets included approximately $15.3 billion of Mortgage Servicing
Rights and $4.4 billion of reimbursable servicing advances. It now conducts business as
BAC Homes Loans Servicing, LP.
27. Defendant Bank of America is a Delaware Corporation with principal
executive offices at 100 N. Tryon Street, Charlotte, North Carolina 28255. Bank of
Americas acquisition of CFC, Countrywide Home Loans, Inc., Countrywide Home
9
Loans Servicing, LP made it the largest mortgage lender and servicer in the United
States.
28. Throughout this Complaint, CFC, Countrywide Home Loans, Inc.,
Countrywide Home Loans Servicing, LP and Bank of America are collectively referred
to as Countrywide.
IV. FACTUAL ALLEGATIONS
A. Pervasive Abuse In The Mortgage Foreclosure Industry
1. Record Numbers of Homeowners Are at Risk of Losing Their Homes

29. In Pennsylvania, New Jersey and throughout the United States, there is an
epidemic of mortgage foreclosures that the Pew Charitable Trust characterized as
Defaulting on the Dream of homeownership.
7
As the Pew Charitable Trust warned
almost two years ago, [f]oreclosure can have a devastating impact on homeowners and
their families. It can ruin their credit for years, adversely affect their jobs and childrens
schooling, and take away what for many Americans is their principal investment
opportunity and chance to get ahead.
8

30. On November 19, 2009, the Mortgage Bankers Association (MBA)
reported that 14.2 percent (almost one in ten) homeowners with mortgages on their
property were more than 30 days delinquent on their loans as of September 30 2009, the
highest level since 1972, when the MBA first began compiling delinqency data.
9
The
percentage of loans in foreclosure as of September 30, 2009 was 4.47 percent, as

7
Defaulting on the American Dream, PEW CHARITABLE TRUST, April 2009 (Pew Report),
www.pewcenteronthestates.org/uploadedFiles/PCS_DefaultingOnTheDream_Report_FINAL041508_01.pdf
8
Pew Report at 11-12.
9
Press Release, Delinquencies Continue to Climb in Latest MBA National Delinquency Survey,
MORTGAGE BANKERS ASSOCIATION, Nov. 19, 2009,
http://www.mortgagebankers.org/NewsandMedia/PressCenter/71112.htm;
10
compared to 2.7 percent for the same date in 2008, according to the MBA; this translates
into a total of one in seven American mortgageholders now in dire financial straits.
Overall, more than five million households are in jeopardy of losing their homes.
10
31. About a month before the MBA released the above numbers, the
Congressional Oversight Committee, pursuant to Section 125(b)(1) of Title 1 of the
Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343, released a report on
October 9, 2009 entitled An Assessment of Foreclosure Mitigation Efforts after Six
Months" (Congressional Report).
11
The Congressional Report descrbed the gravity of the
nations mortgage foreclosure problem in appropriately stark terms:
The United States is now in the third year of a foreclosure crisis
unprecedented since the Great Depression, with no end in sight. Of
the 75.6 million owner-occupied residential housing units in the
United States, approximately 68 percent (51.6 million) of
homeowners carry a mortgage to finance the purchase of their
homes. Since 2007, 5.4 million of these homes have entered
foreclosure, and 1.9 million have been sold in foreclosure. Absent a
significant upturn in the broader economy and the housing market,
another 3.5 million homes could enter foreclosure by the end of
2010.

Foreclosure rates are now nearly quadruple historic averages (see
Figures 1 and 2). Homeowners avoiding foreclosure, but still
losing their homes in pre-foreclosure sales (short sales) or deeds-in-
lieu (DIL) transactions further add to this crisis.

Congressional Report at 6 (footnotes omitted).

10
David Streitfeld, U.S. Mortgage Delinquencies Reach a Record High, N.Y. TIMES, Nov. 20, 2009
(http://www.nytimes.com/2009/11/20/business/20mortgage.html); Renae Merle, Problem Mortgages Hit New High at
14 Percent, Nov 20, 2009, WASH. POST, Nov. 20, 2009 (http://www.washingtonpost.com/wp-
dyn/content/article/2009/11/19/AR2009111903885.html); E. Scott Richard, Foreclosures Will Keep Rising Through
1010, Report Says, L.A. TIMES, Nov. 20, 2009 (http://www.latimes.com/business/la-fi-mortgage-defaults20-
2009nov20,0,1052221.story); Renae Merle, Foreclosure, Delinquency Rates Spike Amid Growing Unemployment,
WASH.POST,Nov.19,2009,(http://www.washingtonpost.com/wpdyn/content/article/2009/11/19/AR2009111902097.ht
ml); Julie Haviv, One in 7 U.S. Mortgages Foreclosing or Are in Default, REUTERS, Nov. 19, 2009,
(http://www.reuters.com/article/idUSN1937065020091119).
11
A PDF copy of the Congressional Report can be found on a link contained in http://cop.senate.gov/reports/library/report-
100909-cop.cfm
11
32. Charts set forth in the Congressional Report, which reflect information
superceded by the more discouraging MBA November 19, 2009 data, illustrate an
escalating human tragedy that cannot be captured by statistics alone.
12

* * *

12
The statistics alone are chilling: One alarming statistic is the estimate that 2 million children will lose
their homes to foreclosure, which would not only deprive them of a place to live, but destabilize their
educational foundation. See Congressional Report at 7 n.7, citing, FirstFocus, The Impact of the Mortgage
Crisis on Children (Apr. 30, 2008) ( www.firstfocus.net/Download/HousingandChildrenFINAL.pdf) (citing
Russell Rumberger, The Causes and Consequences of Student Mobility, Journal of Negro Education, Vol.
72, No. 1, at 6-21, (2003)). For a real life human story behind the frightening numbers, see Erik Eckholm,
A Surge of Homeless Children Tests School Aid Program, N.Y. TIMES, Sept. 5, 2009
(http://www.nytimes.com/2009/09/06/education/06homeless.html).
12
33. One primary foreclosure driver is peristent unemployment.
13
On
December 4, 2009, the U.S. Department of Labor, Bureau of Labor Statistics, reported
that the unemployment rate stood at a rate of 10 percent of the American workforce, or
approximately 15.4 million people, not including another 861,000 discouraged people
who are no longer actively seeking employment because they believe no jobs are
available.
14
(By contrast, at the start of the recession in December 2007, the number of
unemployed persons was 7.5 million, and the jobless rate was 4.9 percent). Among the
employed, the number of persons working part time who would have preferred full-time
work was 9.2 million.
34. Despite historically low interest rates (as of December 1, 2009, the average
interest rate for a conventional 30-year mortgage was just 4.65 percent),
15
and despite
efforts by federal, state and local governments to contain the still-mushrooming
foreclosure crisis, record numbers of people continue to face the nightmare of losing their
homes.
2. Governments Response to the Mortgage Foreclosure Crisis
35. All levels of government in the United States have recognized and
reacted to the personal catastrophes wrought by the foreclosure crisis, with varying
decrees of success.
36. On March 4, 2009, the U.S. Department of the Treasury issued initial
guidelines for what was called the Making Home Affordable Program, the purpose of

13
See Congressional Report at 103; 5 (Rising unemployment, generally flat or even falling home prices,
and impending mortgage rate resets threaten to cast millions more out of their homes, with devastating
effects on families, local communities, and the broader economy. Ultimately, the American taxpayer will
be forced to stand behind many of these mortgages).
14
Bureau of Labor Statistics, Economic News Release, Dec. 4, 2009(http://www.bls.gov/news.release/empsit.nr0.htm)
15
Press release, ZILLOW MORTG. RATE MONITOR, Dec. 1, 2009 (http://www.prnewswire.com/news-
releases/thirty-year-fixed-mortgage-rate-continues-rapid-fall-lowest-rate-since-zillow-mortgage-
marketplace-launched-in-april-2008-78212772.html)
13
which is to prevent the destructive impact of foreclosures on families, communities and
the national economy.
16
Approved by Congress at a cost to American taxpayers of $75
billion, the Helping Families Stay in Their Homes Act of 2009 was signed into law by
President Barack Obama on May 20, 2009,
17
establishing what is now known as the
Home Affordable Modification Plan (HAMP). As the President said at the time of the
bills signing:
[T]oo many Americans are hurting. They're Americans desperate
to find a job, or unable to make ends meet despite working
multiple jobs; Americans who pay their bills on time but can't keep
their heads above water; Americans living in fear that they're one
illness or one accident away from losing their home -- hardworking
Americans who did all the right things, met all of their
responsibilities, yet still find the American Dream slipping out of
reach.

37. HAMP tries to support loan modifications that will provide sustainable,
affordable mortgage payments for up to 3 to 4 million borrowers by offering pay-for-
success incentives to investors, lenders, servicers, and homeowners.
18
For servicers,
these incentives include receipt of an up-front payment of $1,000 for each successful
modification after completion of the trial period, and "pay for success" fees of up to
$1,000 per year, provided the borrower remains current, as well as other financial
rewards. As of June 17, 2009, Defendant Countrywide, by itself, received $5.2 billion in
federal taxpayer incentives to work with borrowers to avoid foreclosure.
19

16
http://www.treas.gov/press/releases/reports/guidelines_summary.pdf
17
http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-at-Signing-of-the-Helping-
Families-Save-Their-Homes-Act-and-the-Fraud-Enforcement-and-Recovery-Act/
18
See Testimony dated September 9, 2009 by U.S. Treasury Department Assistant Secretary For Financial
Institutions, Michael S. Barr, before the House Financial Services Committee, Subcommittee on Housing and
Community Opportunity. (http://makinghomeaffordable.gov/pr_09092009.html)
19
Martin Crutsinger, Treasury Adds $3.1 Billion to Foreclosure Program, A. P., June 17, 2009
(http://www.boston.com/business/articles/2009/06/17/treasury_adds_31b_to_foreclosure_program/)
14
38. Despite the magnitude of the problem and its expense to American
taxpayers, HAMP has not achieved the success desired by the federal government. This
was apparent on October 10, 2009 with the issuance of the Congressional Report, which
expressed concern about the limited scope and scale of the Making Home Affordable
Program and questioned whether the Treasury Department's strategy will lead to
permanent mortgage modifications for many homeowners.
20
The Congressional Report
singled out for criticism some members of the mortgages servicing industry for failing to
meet the obligations they assumed under HAMP:
A key element to HAMPs success is the degree to which servicers
comply with the Programs guidelines. If borrowers face
incorrectly rejected applications, unreasonably long wait times for
responses to questions and completed applications, lost paperwork,
and incorrect information, HAMP will not reach its full potential.

* * *

Preliminary information suggests some participating servicers
violate HAMP guidelines in a number of serious ways,
including requiring borrowers to waive legal rights, offering non-
compliant loan modifications, refusing to offer HAMP
modifications, charging borrowers a fee for the modification, and
selling homes at foreclosure while the HAMP review is pending.
Others have found such violations as [d]enials of HAMP
modifications for reasons not permitted in the guidelines, such as
insufficient income and too much back-end debt, assertions by
participating servicers that they are not bound by HAMP, and
incorrect claims of investors denying HAMP modifications.

Congressional Report at 106-07 (footnote omitted).

39. Uncertainty over the possibility that HAMP is foundering became even
more pronounced on November 28, 2009, when The New York Times quoted Assistant
Treasury Secretary Thomas Barr as stating that the banks are not doing a good enough

20
See Congressional Report at 6-7 (link available at http://cop.senate.gov/reports/library/report-100909-
cop.cfm).
15
job. Some of the firms ought to be embarrassed, and they will be.
21
While Secretary
Barr promises that recalcitrant mortgage servicers
22
will be made to suffer the
consequences, some observers think these may be empty threats because Treasury
relies on voluntary agreements and cash incentives to get servicers to help
homeowners.
23

40. Both the Philadelphia Court of Common Pleas and the State of New Jersey
have been in the vanguard of state and local efforts to lessen the pain of everyday citizens
facing loss of their homes through foreclosure. Both of these programs are mandatory.
Citing an unprecedented increase in mortgage foreclosures (and the accompanying
social dislocation, declining housing values, neighborhood blight, homelessness, and a
general decline in neighborhood morale and safety), New Jerseys Administrative Office
of the Courts in January 2009 implemented a mandatory program under which mortgage
lenders or servicers are required to submit to mediation requested by homeowners.
24
41. Months before the foreclosure crisis gave rise to the federal HAMP program
and the New Jersey mediation program, on April 16, 2008, the First Judicial District of

21
Peter S. Goodman, U.S. Will Push More Firms to Reduce More Loan Payments, N.Y. TIMES, Nov. 28,
2009 (http://www.nytimes.com/2009/11/29/business/economy/29modify.html). One real-life example of
intransigent conduct by Bank of America (as successor to Countrywide) and its law firm, PHS, is described
in an article written by Barry Carter, Fearing the Approach of the Sheriffs Officer, NEWARK STAR
LEDGER, Dec. 30, 2009 (http://www.nj.com/news/ledger/jersey/index.ssf?/base/news-
15/1262139307228080.xml&coll=1).

22
Both Bank of America and Wells Fargo have been singled out as institutions that have lagged behind
other servicers in responding to the federal governments mortgage relief initiative. See Darrell Delamonte,
BofA/Countrywide Lags Other Lenders in HAMP Loan Modifications, DSNEWS.COM, Oct. 15, 2009
(http://www.dsnews.com/articles/bofa-countrywide-lags-other-lenders-in-hamp-loan-modifications-2009-
10-15); Alan Zibel, Two Big Banks Lag in Mortgage Aid Program, A.P., Aug. 4, 2009
(http://www.dailybreeze.com/ci_12989252); Alan Zibel, Foreclosure Wave Feared As Mortgage Aid Lags
Behind Goal, A.P., Dec. 11, 2009 (http://www.boston.com/business/articles/2009/12/11/foreclosure_wave_feared_as_mortgage_aid_lags_behind_goal/ )
See also http://makinghomeaffordable.gov/docs/MHA%20Public%20111009%20FINAL.PDF at 4-5.

23
Theo Francis, Treasurys Mortgage Modification: Empty Threats?, BUS. WEEK, Dec. 2, 2009
(http://www.businessweek.com/bwdaily/dnflash/content/dec2009/db2009121_237976.htm)
24
Press Release, Statewide Mortgage Foreclosure Mediation Program Launched, OFFICE OF N.J.
ATTY. GEN, Jan. 9, 2009 (http://www.nj.gov/oag/newsreleases09/pr20090109a.html).
16
Pennsylvania, Philadelphia Court of Common Pleas, established a Residential Mortgage
Foreclosure Diversion Pilot Program under which [o]wner-occupied residential
properties which are subject to execution to enforce a residential mortgage cannot
proceed to Sheriff Sale unless a conciliation conference is held.
25
42. Philadelphias program is viewed as a national model to keep people in
their homes.
26
As the New York Times reported on November 17, 2009, In a nation
confronting a still-gathering crisis of foreclosure, Philadelphias program has emerged as
a model that has enabled hundreds of troubled borrowers to retain their homes. Other
cities, from Pittsburgh to Chicago to Louisville, have examined the program and adopted
similar efforts.
27
From the Programs inception in April 2009 through September 2009,
6,300 conferences have been scheduled with approximately 1,600 homes saved from
sheriffs sale, not including another 3,000 cases that may be resolved as the parties
continue to negotiate.
28
43. While the Philadelphia program accomplishes what it can, homeowner
advocates and foreclosure lawyers alike are mindful of the programs limitations. For
example, at a hearing on foreclosure mitigation held by the Congressional Oversight
Panel on September 24, 2009, Irwin Trauss, supervising attorney with the Consumer
Housing Unit at Philadelphia Legal Assistance, testified:

25
First Judicial District of Pennsylvania, Philadelphia Court of Common Pleas, Joint General Court
Regulation No. 2008-01, April 16, 2009 (http://fjd.phila.gov/pdf/regs/2008/cpjgcr-2008-01.pdf).
26
Jon Hurdle, Philadelphia Program is Model in U.S. Housing Crisis, REUTERS, Sept. 26, 2009
(http://www.reuters.com/article/gc03/idUSTRE48P58I20080926)
27
Peter S. Goodman, Philadelphia Gives Homeowners a Chance to Stay Put, N.Y. TIMES, Nov. 17, 2009
(http://www.nytimes.com/2009/11/18/business/18philly.html?_r=1).
28
Testimony of Hon. Annette M. Rizzo, Judge of the Court of Common Pleas for the First Judicial
District of Philadelphia County, at Hearing on Foreclosure Mitigation Efforts Under TARP Before the
Congressional Oversight Panel, Sept. 24, 2009 (COP Hearing), at 8. See also Testimony of Irwin Trauss
at COP Hearing at 6. PDF copies of the COP Hearing testimony can be found on a link located in
http://cop.senate.gov/hearings/library/hearing-092409-philadelphia.cfm.

17
[V]oluntary modifications resulting from programs such as the
[Philadelphia] Diversion Program and [federal] MHA will not
enable families to save their homes in the vast numbers required to
significantly stem the tide of foreclosures. Voluntary
modifications, while helpful to some people, in my experience,
only help at the margins. Preventing foreclosures in the numbers
necessary to have a significant impact on the continued erosion of
the housing market and the mass dislocation of people from their
homes requires something more. We are faced now with loans that
are defaulting for a combination of reasons. In addition to the
millions of loans that are in default because they were unaffordable
and unsustainable when they were made, we now have millions of
defaults that are the result of the rising tide of unemployment. To
address this situation we need a multi-pronged approach that is not
dependent on the willingness of the mortgage servicers to agree to
the solution and is not dependent on the lenders determining for
themselves whether they have complied with the requirements of
the program.
29

44. PHS partner Rosemarie Diamond, identified above at 20, co-wrote an
article circulated to her colleagues at the USFN, a foreclosure industry group that refers
to itself by the registered trademark, Americas Mortgage Banking Attorneys.
30
This
article, published on February 12, 2009, asserts that the Philadelphia program has
produced near chaos and little success, yielding mostly failed mediations that waste
valuable judicial resources and create delay as an unproductive by-product. Diamond,
the only author of the article whose firm practices in Philadelphia, wrote:
Thus far, Philadelphia County has spent nearly $1 million
promoting and managing the program. Of the 686 mandatory
conciliation conferences attended by this authors firm on behalf of
its clients, only 31 matters were settled as a result of the
conferences. During that same time period, direct loss mitigation
efforts between the lenders and borrowers resolved 103 of the
pending actions. In essence, the direct efforts of the parties are

29
http://cop.senate.gov/hearings/library/hearing-092409-philadelphia.cfm
30
Peter Mehler, Rosemarie Diamond and Michele Sensale, Mediation: Views from OH, PA, NJ, and CT,
USFN, Feb 12, 2009
(http://www.usfn.org/AM/Template.cfm?Section=Home&CONTENTID=11901&TEMPLATE=/CM/HTMLDisplay.cf
m&SECTION=Article_Library).

18
three times more successful than the court-sponsored mediation
program.

If Defendant Diamonds statement is true, it is an indictment of PHS refusal to
participate in good faith in Philadelphias Residential Mortgage Foreclosure Diversion
Pilot Program more than it is a bona fide criticism of the program itself.
45. As demonstrated below, the institutionalized practices of some mortgage
servicers and their attorneys (PHS prominently among them) have exacerbated the toxic
explosion of residential mortgage foreclosures that has eluded solution by federal, state
and local government. Whether a solution can be found is uncertain, but judicial authority
can and should be exercised to require mortgage servicers and their lawyers to follow
established legal rules, and to punish them severely when they dont.
3. Unscrupulous Mortgage Servicers and Their Attorneys
Systematically Exploit and Profit From the Mortgage Foreclosure Crisis

a. Egregious Mortgage-Related Schemes
Are Known Problems in the Foreclosure Industry

46. While the lives of millions of homeowners and their families have been
turned upside down by the foreclosure crisis, painful times have presented unprecedented
opportunities for profit to servicers and law firms like PHS that specialize in the
prosecution of residential foreclosure actions and related bankruptcy matters. They have
cashed in on these opportunities in ways that are both morally bankrupt and unlawful.
47. In a March 30, 2008 article, the New York Times identified several cases in
which homeowners forced into bankruptcy under threat of losing their homes to
foreclosure have been victimized by improper fees charged by mortgage servicers and
their lawyers. As the Times reported:
19
[A] small army of law firms and default servicing companies, who
represent mortgage lenders, have been raking in mounting profits.
These little-known firms assess legal fees and a host of other charges,
calculate what the borrowers owe and draw up the documents required
to remove them from their homes. As the subprime mortgage crisis has
spread, the volume of the business has soared, and firms that handle
loan defaults have been the primary beneficiaries. Law firms, paid by
the number of motions filed in foreclosure cases, have sometimes
issued a flurry of claims without regard for the requirements of
bankruptcy law, several judges say.
31

48. Institutionalized exploitation of financially distressed homeowners and
abuse of the nations system of justice has become so prevalent among mortgage
servicers and their law firms that the Office of the United States Trustee (UST), part of
the U.S. Department of Justice, has made it a priority to identify and punish creditors and
counsel that file false or inaccurate claims in foreclosure-related bankruptcy cases.
32
49. On May 6, 2008, a subcommittee of the United States Senates Committee
on the Judiciary convened a hearing on the topic Policing Lenders and Protecting
Homeowners: Is Misconduct In Bankruptcy Fueling the Foreclosure Crisis? Testimony
provided at the hearing by Clifford J. White III, Executive Director of the UST, leaves no
doubt that the answer is yes. Director White testified:
Protecting consumer debtors is one of the most important objectives of
the [UST]s enforcement efforts. One of the basic principles of our
bankruptcy system is that the honest but unfortunate debtor deserves a

31
Gretchen Morgenson and Jonathan D. Glaser, Foreclosure Machine Thrives on Woes, N.Y.TIMES, Mar.
30, 2008 (http://www.nytimes.com/2008/03/30/business/30mills.html?_r=1&sq=morgenson&st=nyt&scp=8&pagewanted=all.)
See also Ray Glier, Legal Eagles Swooping in on Foreclosure Work, ATLANTA BUS. CHRON., Oct. 24,
2008 (Glier) (Not only do the law firms get a set fee from the banks, but some also tack on their own
fees to the foreclosure process, such as fax fees, auction fees and sheriff fees, among other charges),
www.bizjournals.com/atlanta/stories/2008/10/27/focus5.html?b=1225080000%5E1720032&brthrs=1
32
Pamela A. MacLean, Mortgage Industry Probes Grow, NATL. L.J., July 28, 2008 (Allegations of
shoddy accounting and padded bankruptcy claims have grown to such a pitch against the mortgage loan
servicing industry and its lawyers that investigations have been launched by the Executive Office for U.S.
Trustees and the Federal Trade Commission) (http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202423359052).
See also Glier (The UST says business is too good for some law firms that handle actual foreclosures. The
government and its judges in some states -- particularly Texas, Florida, Ohio, Nevada, and one case in
Georgia -- are investigating lenders and their lawyers for tacking on fees to distressed homeowners and
running up their mortgage payments).
20
fresh start. Those who prey upon debtors for their own financial gain
undermine that basic principle.

Among the more egregious mortgage-related schemes that we
encounter are those perpetrated upon consumers facing foreclosures on
their loan [We] have been involved in significant litigation
involving national mortgage servicing firms. Most of these cases
involve homeowners who are behind in their mortgage payments and
file for relief under chapter 13 of the Bankruptcy Code. To date, we
have commenced actions or intervened in 16 pending cases involving
mortgage servicers in eight judicial districts around the country. In
addition, we are actively reviewing more than 30 cases in which we
have not yet filed court papers.

The US[T] has investigated complaints that some mortgage servicers
were filing inaccurate papers in court claiming that debtors owe more
money than they actually owe. We also investigated complaints that
some mortgage servicers were tacking on charges that were
undisclosed and impermissible under the terms of the loan contract or
other applicable law.
33

50. Director White explained in his Senate testimony that in response to an
increasing number of complaints about the accuracy of bankruptcy court filings, the
UST established a working group to review the complaints and devise a coordinated
approach for addressing the problem.
51. During 2008, the UST initiated 68 actions against systematic abuses by
mortgage servicers, including Defendant Countrywide, which has been the subject of
litigation by UST in at least six states.
34
The USTs effort to uncover and punish abuses
by mortgage servicers and their lawyers has continued into 2009, resulting in thoughtful
judicial opinions that have shed light on improper practices that are a systemic blight on

33
Statement of Clifford J. White Before the Committee on the Judiciary, Subcommittee on Administrative
Oversight and the Courts, United States Senate, May 6, 2008 (White Testimony) at 2; 5-6
(http://www.justice.gov/ust/eo/public_affairs/testimony/docs/testimony20080506.pdf)
34
United States Trustee Program, Annual Report for Fiscal Year 2008, at 9-10
(http://www.justice.gov/ust/eo/public_affairs/annualreport/docs/ar2008.pdf); United States Trustee
Program, FY 2010 Budget Request at 25-26 (http://www.justice.gov/jmd/2010justification/pdf/fy10-
ustp.pdf); Kathy M. Kristof, U.S. Investigates Countrywide Fees, L.A. TIMES, Nov. 29, 2007
(http://www.latimes.com/business/la-fi-countrywide29nov29,1,4192234.story.)
21
the residential mortgage foreclosure industry (see 56-73, below).
52. Despite the USTs effort to protect homeowners from lenders who
improperly inflate their claims or who seek to foreclose on property without a proper
showing of arrearages,
35
the magnitude of the institutionalized problem of mortgage
servicing abuse remains of scandalous proportions, and the ability of the UST to address
the problem effectively is limited by budgetary and human resource constraints, as well
as by confinement of the USTs jurisdictional mandate to cases arising under the United
States Bankruptcy Code.
53. The seriousness of this issue has been underscored by an empirical study
of 1,700 foreclosure-related Chapter 13 cases conducted by University of Iowa College
of Law Professor Katherine M. Porter (funded by the National Conference of Bankruptcy
Judges Endowment for Education). Professor Porter found that questionable fees were
added to borrowers bills in nearly half of the mortgage loans she examined.
36
The data
complied and analyzed by Professor Porter support her conclusion that flawed mortgage
servicing practices are a key contributor to the current crisis in the home mortgage market.
37
54. While abusive mortgage servicing practices are often pronounced in
bankruptcy proceedings, they harm non-bankrupt homeowners in a no less of an insidious
way. Professor Porter observed that [t]he misbehavior and mistakes of mortgage
servicers [identified] in the bankruptcy data are not specific to the bankruptcy process.
Indeed, the reliability of mortgage servicing may be worse for ordinary, nonbankrupt

35
Doreen Soloman, Collaborative Efforts Help Protect Debtors From Unscrupulous Mortgage Schemes,
EXECUTIVE OFFICE OF U.S. TRUSEES,
http://www.usdoj.gov/ust/eo/public_affairs/articles/docs/2008/nac_200812.pdf
36
Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Texas L.Rev. 121, 124
(2008) (Porter Study) (http://www.utexas.edu/law/journals/tlr/assets/archive/v87/issue1/porter.pdf).
See also Gretchen Morgenson, Dubious Fees Hit Borrowers in Foreclosure, Nov. 6, 2007
(http://www.nytimes.com/2007/11/06/business/06mortgage.html?fta=y&pagewanted=all)
37
Porter Study at 124.
22
Americans.
38
55. As Professor Porter testified at the May 6, 2008 Senate Judiciary
Subcommittee hearing on misconduct in the mortgage servicing industry:
While bankruptcy is supposed to offer families one last chance to save
their homes from foreclosure, the reality is that bankruptcy gives
mortgage servicers new opportunities to engage in abusive practices.
My study of 1700 bankruptcy cases showed that mortgage lenders
routinely disobey clear rules of bankruptcy law and attempt to collect
thousands more dollars than consumers believe is owed. These
findings, along with dozens of published cases from bankruptcy
courts, highlight how mortgage servicers current practices permit
them to impose unwarranted fees without scrutiny or sanction.

The existing system does not ensure that borrowers pay only what is
due under the terms of their mortgage notes. Instead, mortgage
servicers can and do take advantage of struggling homeowners. Such
misbehavior can cripple a familys efforts at homeownership. Without
improved laws and enforcement activity, homeowners in financial
trouble -- both inside and outside bankruptcy -- remain vulnerable
to mortgage servicers misbehaviors and mistakes. The costs of such
abuse are devastating: families wrongfully lose their homes, the
number of foreclosures is driven upward, and the integrity of the legal
system is undermined.
39

b. Countrywides Documented History of Mortgage Servicing Abuse

56. After a trial in an adversary proceeding initiated by the UST, on July 31,
2009, Chief Judge Marilyn Shea-Stonum of the United States Bankruptcy Court for the
Northern District of Ohio (citing Professor Porter as one of the most deservedly
respected scholars working to shed light on bankruptcy practices across the country)
imposed sanctions against Defendant Countrywide for systematic mortgage servicing

38
Id. (emphasis supplied). See also Written Testimony of Katherine Porter Before the Committee on the
Judiciary, Subcommittee on Administrative Oversight and the Courts, United States Senate, May 6, 2008
(Porter Testimony) at 2 (http://judiciary.senate.gov/pdf/08-05-06Porter_Testimony.pdf), citing, Federal
Trade Commission, Mortgage Servicing: Making Sure Your Payments Count
(http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm).(Any homebuyer can be a victim of
abusive or illegal mortgage servicing. The documented instances of misbehavior are not limited to
situations when a family files bankruptcy.)
39
Porter Testimony at 1-2 (emphasis supplied).
23
practices determined to be not reasonable, reckless, an abuse of process and a
known problem that Countrywide failed to correct despite firm warnings from
bankruptcy courts throughout the country.
40
Among other things, Judge Shea-Stonum
found that:
(1) Countrywides system for filing proofs of claim was
designed to allow each actor in the process to act with
indifference to the truth,
41
which evidences
Countrywides disregard for diligence and accuracy.
42

(2) Although Countrywide claimed to have made
improvements to its discredited procedures, none of
them have sufficiently altered the nature of Countrywides
business model to prevent the same type of error and abuse
from taking place in other cases
43

(3) One problem with relying on the mortgage servicing
industry to voluntarily improve its practices is the
industrys incentives to increase costs. Its interests are not
aligned with the borrower, nor even in some circumstances
with its investor.
44

40
McDermott v. Countrywide Home Loans, Inc., Case No. 07-51027, Adv. No. 08-5031 (Bank. N.D. Ohio,
July 31, 2009), Slip. Op. at 2, 3-4, 9. A copy of Judge Shea-Stonums July 31, 2009 Opinion is attached as
Exhibit A in the accompanying submission entitled Compendium of Exhibits to Amended Class Action
Complant, which is filed contemporaneously with this Amended Complaint. Documents included in this
compendium are hereinafter identified as Ex. __.
41
Id. at 8.
42
McDermott v. Countrywide Home Loans, Inc., 2009 Bankr. LEXIS 2666, at *30-31 (Bank. N.D. Ohio,
May 1, 2009).
43
Ex. A at 8-9.
44
Id. at 7-8, quoting Porter Study at 126-27. As a paper written by the Federal Reserve Bank of Boston
concluded, [t]he rules by which servicers are reimbursed for expenses may provide a perverse incentive to
foreclose rather than modify delinquent loans. Peter S. Goodman, Mortgage Lenders Have Little Incentive
to Help Homeowners, N.Y. TIMES, July 30, 2009 (http://www.nytimes.com/2009/07/30/business/30services.html).
Rich Miller, who oversaw training programs at Countrywide and worked as a project manager at Bank of
America, told the New York Times that Bank of Americas short-term strategy was to respond reluctantly
to loan modification requests because there was greater profit to be made by waiting and hoping the
economy will improve and delinquent customers will resume making payments. Id. David Dickey, a former
Countrywide/Bank of America mortgage sales team leader, likewise told the Times that [i]f they do a loan
modification, they get a few shekels from the government, but [t]heres all sorts of things behind the
scenes when it comes to the fee-generating rewards of foreclosures. Id. The dismal record of loan
modifications compiled by Bank of America (see above at 39 n. 21 and 22) is eloquent testimony to its
appreciation of the perverse incentive to foreclose rather than modify troubled homeowners loan
obligations.
24
57. In addition to the firm warnings from bankruptcy courts throughout the
country mentioned by Judge Shea-Stonum,
45
Countrywides mortgage abuses have also
been the subject of investigation by the federal government, not only by the UST, but by
the Federal Trade Commission and the Federal Bureau of Investigation.
46
This on top of
civil actions brought by the Attorneys General of California and 10 other states, who
obtained a settlement valued at $8.6 billion as a remedy for Countrywides
institutionalized lending practices [that] turned the American dream into a nightmare for
tens of thousands of families by putting them into loans they couldn't understand and

45
See, e.g., Walton v. Countrywide Home Loans, Inc., 2009 WL 1905035, at *9 (S.D. Fla. June 9, 2009)
(rejecting bankruptcy court conclusion that UST failed to state a claim for injunctive relief based on allegations
that Countrywide is a major national lender and servicer of secured loans that frequently seeks the payment of
money from bankruptcy estates or the foreclosure of consumer mortgages. Countrywide has in the past
repeatedly failed to ensure the accuracy of its motions and pleadings when seeking relief from bankruptcy courts,
which has abused the bankruptcy process and prejudiced parties in interest. Further, Countrywide's practices and
conduct are likely to continue.); In re Countrywide Home Loans, Inc., 387 B.R. 467, 399 (Bankr. W.D.Pa.
2008) (cases appear to reflect a common pattern, thread, or theme that runs through them involving the manner
in which Countrywide, generally, calculates and determines the extent of its bankruptcy claims.); In re Parsley,
384 B.R. 138, 184 (Bankr. S.D. Tex. 2008) (criticizing Countrywide's corporate culture that condones
blockading personnel from communicating with outside counsel, discourages the checking of outside counsel's
work, and promotes payment histories that are so confusing to the vast majority of persons, including attorneys
and judges not to mention borrowers that it becomes necessary for legal assistants to simplify them
leading to more errors and confusion; court called upon Countrywide to reevaluate its policies and procedures
to ensure that its actions do not undermine the integrity of the bankruptcy system); Hill v. Countrywide (No.
01-22574, Show Cause Order, Hearing Transcript (Bankr. W.D. Pa. Dec. 20-21, 2007) (Countrywide recreated
escrow letters produced in post-discharge dispute, which the presiding judge described as a smoking gun that
something is not right in Denmark; settlement required Countrywide to pay $100,000 to debtor in damages)
(see also Gretchen Mortgenson, Lender Tells Judge It Recreated Letters, N.Y. TIMES, Jan. 8, 2008,
(http://www.nytimes.com/2008/01/08/business/08lend.html?_r=2&pagewanted=all)).

46
See Countrywide Form 10-Q filed with the U.S. Securities and Exchange Commission for the period
ended June 30, 2008, Note 26 to Consolidated Financial Statements at 52-53
(http://sec.gov/Archives/edgar/data/25191/000104746908009150/a2187147z10-q.htm); Jonathan Stempel,
Countrywide Faces FTC Probe Over Loan Serving, REUTERS, Aug. 11, 2008
(http://www.reuters.com/article/idUSN1140200320080811);
See also http://www.ftc.gov/foia/frequentrequest.shtm (link for PDF copy of FTCs response to Freedom
of Information Act request for consumer complaints against Countrywide; 1,269 complaints were received
by FTC during the period from October 2005 through April 27, 2009).
25
ultimately couldn't afford, which in turn caused catastrophic damage to victimized
homeowners.
47
c. Wells Fargos Documented History of Mortgage Servicing Abuse
58. Defendant Wells Fargos record of institutionalized mortgage servicing
abuse appears to be even worse than that of Defendant Countrywide. For example, on
April 10, 2008, the Hon. Elizabeth W. Magner of the United States Bankruptcy Court for
the District of Louisiana sanctioned Wells Fargo for a systematic policy and corporate
practice that fails to notify borrowers of the assessment of fees, costs, or charges
[including sheriffs fee refunds] at the time they are incurred, a practice that exists
during all stages of [Wells Fargos] loan's administration and is not peculiar to loans
involved in a bankruptcy.
48
Describing Wells Fargos conduct as duplicitous and
misleading, Judge Manger observed:
Although Wells Fargo was specifically asked to reconcile the
amounts reflected on its prior proofs of claim with the amounts
claimed on its account history, it did not. A review by the Court
revealed why: the proofs of claim filed in the 2004 and 2007
Bankruptcies were so significantly erroneous that a reconciliation
was not possible. Charges for NSF fees, tax searches, property
preservation fees, and unapproved bankruptcy fees appeared on the
proofs of claim filed in this and previous cases without explanation
or substantiation.

* * *
The Court finds that Wells Fargo was negligent in its practices and
took insufficient remedial action following this Court's rulings in
Jones v. Wells Fargo to remedy problems with its accounting. The

47
News Release, Attorney General Brown Announces Landmark $8.68 Billion Settlement with Countrywide, OFFICE
OF CALIF. ATTY. GEN., Oct. 8, 2008 (http://www.ag.ca.gov/newsalerts/release.php?id=1618). See also Issue Paper,
Unfair and Unsafe: How Countrywides Irresponsible Practices Have Harmed Borrowers and Shareholders, CENTER
FOR RESPONSIBLE LENDING, Feb. 7, 2008 (http://www.responsiblelending.org/mortgage-lending/research-
analysis/unfair-and-unsafe-countrywide-white-paper.pdf).
48
In re Stewart, 391 B.R. 327, 340, 342, 351 (Bankr. E,D. La. 2008), affd in part, revd in part on other
grounds, 391 B.R. 577 (E.D.La. 2008). See also In re Jones, 366 B.R. 584 (Bankr.E.D.La. 2007) and In re
Jones, 2007 WL 2480494 (Bankr.E.D.La.2007).
26
Court will assess damages in the amount of $10,000.00, plus
$12,350.00 in legal fees, for the abusive imposition of unwarranted
fees and charges.
49

59. Judge Mangers decision was affirmed on appeal by the District Court, but
it remanded for further consideration part of her ruling that granted injunctive relief. On
remand, Judge Magner again granted injunctive relief, which required Wells Fargo to
conduct an audit of all proofs of claim filed on its behalf in this District in cases pending
on, or filed after, April 13, 2007, and to provide a complete loan history on every
account.
50
In an opinion dated October 14. 2008, the Judge Manger explained:
Given the admitted misapplication of payments systematically
practiced by Wells Fargo, it is likely that trustees and debtors are
paying on proofs of claim that are clearly erroneous. This Court
can only assume that a review of the loans in question will
necessitate amendments to proofs of claim.

* * *
Wells Fargo maintains that it can flaunt this Court's rulings and its
own contractual responsibilities and force every debtor to "prove"
that it has misapplied payments. This is a ridiculous waste of
judicial resources and an unacceptable burden on the trustees and
debtors of the District. Having admitted to a systematic error in the
administration of its loans, it is incumbent upon Wells Fargo to
correct its error for all affected debtors. To do otherwise is to
ignore its obligation to correct pleadings that are no longer
accurate.
51
* * *

The imposition of monetary sanctions to reimburse Debtor for
costs and legal fees incurred will not, in this Court's opinion, deter
Wells Fargo from future objectionable conduct. Wells Fargo is a
national lender, listed on the New York Stock Exchange, with

49
In re Stewart, 391 B.R. at 356-57.
50
In re Stewart, 2008 Bankr. LEXIS 3226, at *9-10 (Bankr.E.D.La. October 14 2008) (Stewart II). One
year later, these audits were still ongoing, but Judge Manger found that audits of the first fifty (50)
accounts revealed discrepancies, in all but two cases, between the proper amortization of Wells Fargo loans
and the proofs of claims on file. In re Jones, 2009 Bankr. LEXIS 3317, at *1, 2 (Bankr. E.D.La. Oct. 1,
2009).
51
Stewart II at 11.
27
considerable financial resources. The imposition of a $67,202.45
damage award is de minimis, and insufficient to act as a deterrent
to future misconduct.
52

60. Although she found as a matter of adjudicated fact that Wells Fargo has
demonstrated a pattern of overcharging borrowers and misapplying payments,
53
Judge
Manger hoped that her previous orders had secured Wells Fargo's attention and that
[Wells Fargos] offer to amend its practices is real.
54
However, as Judge Manger came
to realize, the Court's belief that Wells Fargo would correct its previously flawed
accountings was not confirmed and injunctive relief was necessary to enforce Wells
Fargo's obligation to do so.
55
61. A full year after Judge Manger arrived at this understanding, she wrote
another opinion, this one dated October 1, 2009, which involved a different case where,
after trial, the Court (1) found that Wells Fargo willfully and egregiously collected
undisclosed, unapproved fees and costs during bankruptcy proceedings;
56
and (2)
ordered the payment of damages, attorneys fees and costs by Wells Fargo, and (with
consent given in open court by Wells Fargos counsel and its vice president for
bankruptcy operations), ordered injunctive relief in the form of remedial accounting
procedures to be adopted by Wells Fargo.
57
Wells Fargo appealed Judge Mangers orders,
inter alia, by making a disingenuous claim that it did not consent to injunctive relief.
58

On appeal, the District Court affirmed all findings of fact and the majority of the

52
Stewart II at 12-13, quoting, In re Jones, 2007 Bankr. LEXIS 2984, 2007 WL 2480494, at * 5 (Bankr.
E.D.La. 2007). The United States District Court for the Eastern District of Louisiana affirmed Judge
Magners determinations in In re Stewart, 2009 U.S. Dist. LEXIS 76851 (E.D. La., Aug. 7, 2009).
53
Stewart II at 43.
54
Stewart II at 39, quoting, In re Jones, 2007 Bankr. LEXIS 2984, 2007 WL 2480494, at *7.
55
Stewart II at 39-40
56
In re Jones, 2009 Bankr. LEXIS 3317, at *1, 2 (Bankr. E.D.La. Oct. 1, 2009).
57
Id., at *4.
58
Id., at *4-5, quoting, Jones v. Wells Fargo, 391 B.R. 577, 611 (E.D.La. 2008).
28
rulings by the Bankruptcy Court, but it remanded for further consideration the question
of injunctive relief in light of the subsequent and substantial change in Wells Fargo's
position on appeal.
59
62. In her October 1, 2009 opinion, Judge Manger again explained the
necessity of injunctive relief as a means of addressing Wells Fargos persistent failure to
correct known deficiencies in its accounting systems (and its arrogant defiance of
federal law),
60
all which involve transgressions that affect most likely every debtor
with a Wells Fargo loan
61
:
Wells Fargo has, on more than one occasion, distorted the facts,
record and law. While parties have every right to fully litigate their
position, the sheer number and magnitude of the post-trial
pleadings filed in this and the appellate courts and the lapses in
professionalism practiced, convince this Court that Wells Fargo
has no interest in voluntarily correcting its mistakes.
62

* * *

Wells Fargo asserts that every debtor in the district should be made
to challenge, by separate suit, the proofs of claim or motions for
relief from the automatic stay filed by Wells Fargo. It has
steadfastly refused to audit the pleadings or proofs of claim on file
in the district for errors and has refused to voluntarily correct any
errors that come to light except through threat of litigation.
Although its own representatives have admitted that it routinely
misapplied payments on loans and improperly charged fees, they
have refused to correct past errors. They stubbornly insist on
limiting any change in their conduct prospectively, even as they
seek to collect on loans in other cases for amounts owed in error.
63

63. As Judge Manger observed, Wells Fargo administers over 7.7 million loans
nationwide. Just one improper fee or interest accrual of $ 10.00 per loan in any given year

59
Id., at *5, 8.
60
Id., at *32.
61
Id., at *22
62
Id., at *21-22.
63
Id., at *23-24.
29
amounts to $ 77 million in revenue, which could potentially signal billions in
improperly earned revenue.
64
The alternative to injunctive relief individual litigation
by financially hardpressed homeowners is no solution to a problem of this size and
scope. Again, according to Judge Manger:
Because litigation with Wells Fargo has already cost this and other
plaintiffs considerable time and expense, the Court can only
assume that others who challenge Wells Fargo's claims will meet a
similar fate. Over eighty (80%) of the chapter 13 debtors in this
district have incomes of less than $ 40,000.00 per year. The burden
of extensive discovery and delay is particularly acute to their
interests. In this Court's experience, it takes four to six months for
Wells Fargo to produce a simple accounting of a loan's history and
over four court hearings. These debtors simply do not have the
personal resources to demand much less verify the production of a
simple accounting for their loans through a litigation process.
65

64. Given their own personal encounters with Wells Fargos institutionalized
misconduct, other judges have expressed similar frustration. For example, on June 8,
2009, the Hon. Marvin Isgur of the United States Bankruptcy Court for the Southern
District of Texas held that Wells Fargo and its counsel continued to file intentionally
inaccurate proofs of claim, which led the Court, like Judge Manger, to caution them
that immediate corrective actions should be taken to avoid similar actions in the
future.
66
Likewise, the Hon. Audrey R. Evans of the United States Bankruptcy Court for
the Eastern District of Arkansas granted an injunction against Americas Servicing
Company (an alternate name for the Wells Fargos mortgage servicing division) in an
effort to correct Wells Fargos servicing procedures that are not organized to ensure
accuracy and accountability.
67

64
Id., at *31 and n.59.
65
Id., at *24.
66
In re Collins, 2009 WL 1607737, at *1, 2, 3, 7 (Bankr. S.D. Tex, June 8, 2009).
67
In re Moffitt, 390 B.R. 368, 388 (Bankr. E.D. Ark. 2008).
30
65. In similar circumstances, the Hon. John K. Olson of the United States
Bankruptcy Court for the Southern District of Florida imposed more than $95,000 in
sanctions against Wells Fargo and its foreclosure counsel for filing 45 false affidavits
claiming that debtors owed penalty interest. Judge Olson concluded that this conduct
resulted from Wells Fargos wayward accounting, which was not unique to this case,
and which resulted in a systematic process of turning out unexamined and form
pleadings -- an abuse of process that required sanctions to deter the continued
recklessness of Wells Fargo and its foreclosure lawyers.
68
Although his comment might
be considered offensive by those who labor hard and honestly in the meat processing
industry, Judge Olson observed that Wells Fargo and its counsel systematically churn
out unrefined and unexamined legal documents with all of the diligence and attention
that goes into sausage making.
69

66. As reckless and recalcitrant as Wells Fargo has been in continuing its
systematic policy of saddling struggling homeowners with overstated and, in some cases,
fabricated fees, Wells Fargo is no less defiant in pursuing its institutionalized practice of
initiating mortgage foreclosure actions in the absence of any legal standing to do so.
70
67. In several recent cases from jurisdictions throughout the United States,
courts have identified repeated instances where Wells Fargo and its lawyers have raced to

68
In re Haque, 395 B.R. 799, 803, 804, 805 (Bankr. S.D. Fla. 2008).
69
Id at 805.
70
Wells Fargos related institutionalized practice of targeting neighborhoods populated by racial and
ethnic minorities for deceptive marketing of expensive sub-prime mortgages that ended in foreclosure has
also prompted the City of Baltimore, the State of Illinois and the NAACP to file lawsuits on behalf of
homeowners against Wells Fargo. See Michael Powell, Bank Accused of Pushing Mortgage Deals on
Blacks, N.Y.TIMES, June 6, 2009
(http://www.nytimes.com/2009/06/07/us/07baltimore.html?_r=2&hp=&adxnnl=1&adxnnlx=1259241059-
V/SvPvNoOfWVA9zwqlXeAA);
Press Release, Madigan Sues Wells Fargo For Discriminatory and Deceptive Mortgage Lending Practices, ILL.
ATTY. GEN., July 31, 2009 (http://www.illinoisattorneygeneral.gov/pressroom/2009_07/20090731.html); Press
Release, NAACP Files Landmark Lawsuit Against Wells Fargo and HSBC, March 13, 2009, NAACP
(http://www.naacp.org/news/press/2009-03-13/index.htm).
31
the courthouse to file legal actions to remove families from their homes, without
bothering to satisfy the fundamental requirement that creditors must hold legal title to or
an equitable interest in mortgages on homeowners property at the time foreclosure
actions are filed.
71
68. Observing that Wells Fargo is no stranger to the improper practice of
bringing foreclosure actions on the basis of anticipatory assignments that may or may
not be recorded after legal proceedings have begun against homeowners, the Hon.
Timothy Patrick OReilly of the Court of Common Pleas for Allegheny County,
Pennsylvania granted summary judgment in favor of homeowners and struck
assignments that Wells Fargo recorded after its foreclosure action commenced.
72
69. In similar fashion, by order and memorandum dated October 14, 2009, the
Hon. Keith C. Long of the Commonwealth of Massachusetts Land Court invalidated a
mortgage foreclosure judgment obtained by Wells Fargo because (despite Wells Fargos
incorrect representation to the court) Wells Fargo was not the owner of a mortgage at
the time of its notice of sale of a familys home.
73
Judge Long explained:
The issues in this case are not merely problems with paperwork or
a matter of dotting is and crossing ts. Instead, they lie at the heart
of the protections given to homeowners and borrowers by the
Massachusetts legislature. To accept the plaintiffs arguments is to
allow them to take someones home without any demonstrable
right to do so, based upon the assumption that they ultimately will

71
See, e.g., Wells Fargo v. Jordan, 2009 Ohio 1092; 2009 Ohio App. LEXIS 881, at *11, 12 (Ohio App.,
Eighth Jud. Dist., Mar. 12, 2009), app. den., 123 Ohio St. 3d 1407; 2009 Ohio 5031; 914 N.E.2d 204; 2009
Ohio LEXIS 2730 (Sept. 30, 2009) (citing, In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio, Oct.
31, 2007) (Boyko, J.); In re Foreclosure Cases, 521 F. Supp.2d 650 (S.D. Ohio 2007) (Rose, J.) and Wells
Fargo Bank, N.A. v. Byrd, 178 Ohio App.3d 285, 2008-Ohio-4603, 897 N.E.2d 722 (Sep. 12, 2008).
72
Wells Fargo v. Janosik, No. GD08-2561 (Pa. C.P. Allegheny Co., Mar. 23, 2009), Slip.Op. at 5 (Ex. B),
citing, Wells Fargo v. Long, 934 A.2d 76 (Pa. Super. 2007), affd, 970 A.2d 488 (Table) (Pa. Superior
2009); Wells Fargo v. Janosik, Order to Strike Recorded Assignments of Mortgage, entered April 3, 2009
(Ex. C).
73
U.S. Bank, N.A. et. al. v. Ibanez et. al., No.08 MISC 38675517; LCR 679; 2009 Mass. LCR LEXIS 134,
at *61-62 (Mass. Land Court, Oct. 14, 2009).
32
be able to show that they have that right and the further assumption
that potential bidders will be undeterred by the lack of a
demonstrable legal foundation for the sale and will nonetheless bid
full value in the expectation that that foundation will ultimately be
produced, even if it takes a year or more. The law recognizes the
troubling nature of these assumptions, the harm caused if those
assumptions prove erroneous, and commands otherwise.

70. The Hon. Arthur M. Schack of the New York Supreme Court for Kings
County is a prominent critic of mortgage industry members like Wells Fargo that file
foreclosure actions without legal standing.
74
In one case, Judge Schack voided bogus
after-the-fact assignments relied upon by Wells Fargo and its counsel in their attempt to
remove people from their homes through foreclosures.
75
In another case, Judge Schack
found that Wells Fargo lacks standing to prosecute this matter because it does not
now, and has never owned the subject mortgage, and he ordered Wells Fargos
foreclosure lawyer to appear at a hearing and show cause why she and her law firm
should not be sanctioned for filing a frivolous complaint that asserts material factual
statements that are false.
76
Responding to a suggestion by CBS News correspondent
Seth Doane that he was throwing foreclosure cases out of court on the basis of a small

74
Michael Powell, As a Foreclosure Judge, Arthur Schack Tosses Out Cases, Brooklyn Style, N.Y.
TIMES, Aug. 30, 2009 (http://www.nytimes.com/2009/08/31/nyregion/31judge.html?_r=5&emc=eta1);
Amir Efrati, Some Judges Stiffen Foreclosure Standards, WALL ST. J, July 26, 2008
(http://meetings.abanet.org/webupload/commupload/RP282000/sitesofinterest_files/WSJjudgesstiffenforecl
osures072608.com.pdf); Deborah Cassens Weiss, Meet Judge Arthur Schack, Foreclosure Watchdog, ABA
J., July 28, 2008
(http://www.abajournal.com/news/article/meet_judge_arthur_schack_foreclosure_watchdog/);
75
Wells Fargo v. Farmer, 19 Misc.3d 1141(A), 2008 WL 2309006 (N.Y.Sup. June 5, 2008). This invalid
assignments at issue in this case were made by Argent Mortgage Company, LLC and Ameriquest Mortgage
Company, both of which were owned by ACC Capital Holdings, a company that in 2006 agreed to pay
$325 million to settle federal and state regulators claims of deceptive lending practices before being
acquired by Citigroup on August 31, 2007. 2008 WL 2309006, at *3, citing, Eric Dash, Citigroup Buys
Parts of a Troubled Mortgage Lender, N.Y.TIMES, September 1, 2007
(http://query.nytimes.com/gst/fullpage.html?res=9C04E4D61430F932A3575AC0A9619C8B63). Both
Argent and Ameriquest also executed the bogus assignments relied upon by PHS in asserting a right to
prosecute mortgage foreclosure actions against Plaintiffs Gerald Bender and Diane and Charles Giles in
this case, assignments recorded months after PHS filed its foreclosure complaints. See ( 112-143,
below).
76
Wells Fargo v. Reyes, 20 Misc.3d 1104(A), 2008 WL 2466257, at * 1, 6 (N.Y. Sup. June 18, 2008).
33
procedural issue, Judge Schack stated, I don't think it's a small issue when somebody
lives in a house and you're going to disrupt their lives and take away their home.
77

71. Together with Judge OReilly in Pittsburgh and Judge Long in Boston,
other courts concur with Judge Schacks reasoning, and they have taken comparable
remedial action.
78

72. In ruling that foreclosure plaintiffs must demonstrate that they are the
holder and owner of a Note and Mortgage as of the date the Complaint was filed
because it is a jurisdictional prerequisite for standing under Article III of the United
States Constitution, the Hon. Christopher A. Boyko of the United States District Court for
the Northern District of Ohio dismissed 14 foreclosures brought on behalf of investors in
mortgage-backed securities.
79
In the process, Judge Boyko delivered a blistering
admonishment to plaintiffs who ignored this centuries-old requirement of American
jurisprudence:
Plaintiffs, Judge, you just dont understand how things work,
argument reveals a condescending mindset and quasi-monopolistic
system where financial institutions have traditionally controlled,
and still control, the foreclosure process. Typically, the
homeowner who finds himself/herself in financial straits fails to
make the required mortgage payments and faces a foreclosure suit,
is not interested in testing state or federal jurisdictional

77
Seth Doane, N.Y. Judge Takes On Foreclosures, CBS EVENING NEWS.COM, Sept. 12, 2009 (See
http://www.cbsnews.com/stories/2009/09/12/eveningnews/main5306009.shtml and video clip therein).
78
See, e.g., In re Parades, 2009 WL 3571536 (Bankr. S.D.N.Y., Oct. 9, 2009) (Hon. Robert D. Drain
disallowed and expunged proof of claim filed erroneously in the name of servicer of mortgage that held no
ownership interest); In re Wells, No. 08-17639, 2009 WL 1872401 (Bankr. N.D. Ohio June 19, 2009)
(disallowing claim because purported creditor did not show the note was negotiated to claimant bank); In re
Mitchell, No. 07-16226-LBR, 2009 WL 1044368 (Bankr. D. Nev. March 31, 2009) (holding that MERS
lacked standing to pursue stay relief when it could not show that it was either holder of the mortgage note
or a transferee in possession of the note); In re Jacobsen, 2009 WL 567188 (Bankr. W.D. Wash. 2009)
(denying motion for stay relief because movant had not established either identity of holder of note or
movants authority to act on behalf of that party); In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008)
(denying motion for relief from stay when mortgagee failed to show proper chain of title from loan
originator). See also Landmark National Bank v. Kesler, 216 P.3d 158 (Kan. Sup. Ct. 2009) (MERS has no
right or standing to bring an action for foreclosure).
79
In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio, Oct. 31, 2007) (emphasis in original).
34
requirements, either pro se or through counsel. Their focus is
either, how do I save my home, or if I have to give it up, Ill
simply leave and find somewhere else to live.

In the meantime, the financial institutions or successors/assignees
rush to foreclose, obtain a default judgment and then sit on the
deed, avoiding responsibility for maintaining the property while
reaping the financial benefits of interest running on a judgment.
The financial institutions know the law charges the one with title
(still the homeowner) with maintaining the property. There is no
doubt every decision made by a financial institution in the
foreclosure process is driven by money. And the legal work which
flows from winning the financial institutions favor is highly
lucrative. There is nothing improper or wrong with financial
institutions or law firms making a profit to the contrary, they
should be rewarded for sound business and legal practices.
However, unchallenged by underfinanced opponents, the
institutions worry less about jurisdictional requirements and more
about maximizing returns. Unlike the focus of financial
institutions, the federal courts must act as gatekeepers, assuring
that only those who meet diversity and standing requirements are
allowed to pass through. Counsel for the institutions are not
without legal argument to support their position, but their
arguments fall woefully short of justifying their premature filings,
and utterly fail to satisfy their standing and jurisdictional burdens.
The institutions seem to adopt the attitude that since they have
been doing this for so long, unchallenged, this practice equates
with legal compliance. Finally put to the test, their weak legal
arguments compel the Court to stop them at the gate.

The Court will illustrate in simple terms its decision: Fluidity of
the market X dollars, contractual arrangements between
institutions and counsel X dollars, purchasing mortgages in
bulk and securitizing X dollars, rush to file, slow to record
after judgment X dollars, the jurisdictional integrity of
United States District Court Priceless.
80

73. As alleged in further detail below, Defendants Countrywide and Wells
Fargo are incorrigible recidivists that have victimized Plaintiffs and members of the
Classes in a manner consistent with their systematic pattern of foreclosure abuses
nationwide, all as documented by the many judges identified in the paragraphs above. In

80
Id. at 3 n.3

35
the instance of the Pennsylvania and New Jersey homeowners who comprise the Classes
in this litigation, the instrument of these abuses is PHS, whose activities benefit that law
firm and its clients in ways both dishonest and illegal.
B. PHS Systematically Abuses Distressed Homeowners and the Legal System
74. Mortgage servicers like Defendants Countrywide and Wells Fargo depend
upon accommodating foreclosure and bankruptcy counsel like PHS to aggressively
prosecute distressed homeowners on a large-volume basis. Without such law firms,
widespread mortgage servicing abuse could not take place.
75. By its own description, PHS is the premier foreclosure operation in the
region, one of the few firms to handle foreclosures, bankruptcies and asset recoveries
for the entire states of New Jersey and Pennsylvania.
81
[R]epresenting almost every
major lender and servicer in the United States, PHS claims that it is the largest
residential mortgage foreclosure firm in Pennsylvania and the only such firm in
Pennsylvania to be both Fannie Mae and Freddie Mac designated counsel.
82
In the City
of Philadelphia alone, PHS has prosecuted thousands of foreclosure actions annually
since 2004,
83
a number that has grown exponentially with the foreclosure crisis that
caused the Philadelphia Court of Common Pleas to implement its Residential Mortgage
Foreclosure Diversion Pilot Program in April 2008. According to sworn deposition
testimony given by Defendant Hallinan in another case, PHS handled an estimated
24,000 to 26,000 foreclosure prosecutions in Pennsylvania and New Jersey during 2008

81
http://www.fedphe.com/
82
Id.
83
Jane M. Von Bergen, Philadelphia Law Firm to Lower Foreclosure Fees, PHILA. INQUIRER, July 18,
2004 (Describing PHSs predecessor, Federman & Phelan LLP, as the main Philadelphia law firm that
handles thousands of mortgage foreclosures a year in the city).
36
alone.
84
PHS says that it handles its enormous volume of work with a mere 17 attorneys
and over 250 support personnel.
85
76. PHS claims that it is able to obtain a supernatural level of speed and
efficiency through two principal means: (1) its ability to leverage technology by
completely computeriz[ing] its two offices with every case management and invoice
reporting systems [sic] used by the residential mortgage foreclosure industry, including
LenStar, VendorScape, NewTrak, iClear, Alltel and NewInvoice, all of which are client-
based web sites
86
; and (2) its ownership and control of the majority of its vendors to
ensure a turnaround time as quick as humanly possible.
87
77. While the speed with which PHS prosecutes its foreclosure actions
serves the interest of clients like Defendants Countrywide and Wells Fargo, it is also the
means by which PHS prosecutes far more foreclosure and bankruptcy cases than any
comparably staffed law firm could possibly handle in a professionally responsible
manner. As an accompanying benefit, such speed also ensures that PHS is in an
optimal position to extract as much fees as humanly possible from financially strapped
homeowners.
1. PHS Inflates Foreclosure Costs On An Institutionalized Basis

a. PHS Systematically Misappropriates Sheriffs Deposit Refunds
78. After it obtains foreclosure judgments against defaulted borrowers, PHS
sets in motion a process by which borrowers homes are scheduled for auction at a

84
Transcript of Deposition Testimony of Francis S. Hallinan on March 17, 2009 (Hallinan Transcript) in
the matter entitled Bank of New York v. Ukpe, Docket No. F-10209-08 (Superior Court of New Jersey,
Chancery Division, Atlantic County) at 51-52, 61-62. (Ex. D).
85
86
http://www.fedphe.com/. See also PHS listings in 2006 USFN Membership Directory at 11, 14
(http://www.zp-production.com/sm/pdf/ar-USFN06.pdf)
87
http://www.fedphe.com/.
37
sheriffs sale. As part of this process, county sheriffs require upfront deposits for
payment of their fees, which include costs of providing public notice of sale, as well as
other administrative functions required by law. To proceed with its mission of displacing
families from their homes, PHS advances the payment of these fees to county sheriffs.
79. Sheriffs sales are often cancelled as a result of (1) loan modifications; (2)
the filing by borrowers of bankruptcy petitions; or (3) distress sales of homeowners
properties. When a sheriffs sale is cancelled, sheriffs refund to PHS the unused portion
of the deposit, which represents fees not actually incurred by the sheriffs. Under a loan
modification, a Chapter 13 repayment plan or a distress sale, borrowers must pay the
actual amount of money overdue on their loan accounts, including reasonable costs of
foreclosure proceedings brought by PHS. This sum is known as arrearages. In
calculating the proper amount of arrearages, refunds issued by sheriffs to PHS are not
properly included (or, if they are included, a corresponding credit must be subsequently
issued to the borrowers accounts).
80. In violation of its legal and professional duties, and as a matter of
institutionalized practice (1) PHS does include the total amount of sheriffs fee deposits
in arrearages charged to homeowners, without deducting refunds received by PHS; (2)
PHS does not take affirmative steps to credit homeowners accounts for those refunds;
and (3) PHS misappropriates and converts money from those refunds to its own use
and/or that of its clients -- unless a specific demand for a refund credit is proactively
pressed by counsel for the homeowners, a demand that PHS knows is seldom made.
88

PHS and/or its clients thereby obtain millions of dollars in unearned profits, presumably

88
See Porter Study at 147 (The vast majority of all claims (96%) pass undisturbed through the bankruptcy
system without objection. Attorneys do not aggressively enforce their clients rights against mortgage companies
because the costs are too high and the incentives are too low).
38
none of which is reported to the Internal Revenue Service as taxable income, despite the
penalties provided under 26 U.S.C. 7201.
81. Plaintiffs and class members in this action are victims of PHSs theft of
sheriffs deposit refund scheme.
Plaintiff Dennis A. Rhodes
82. PHS initiated and prosecuted a foreclosure action against Plaintiff Dennis
A. Rhodes on behalf of Bank of New York, as trustee for investors of securities backed
by a pool of mortgages serviced by Defendant Countrywide. After it obtained a
foreclosure judgment against Plaintiff Rhodes, PHS paid a $2,000 deposit to the Sheriff
for Berks County, Pennsylvania in connection with a sheriffs sale of the Rhodes family
residence scheduled for January 11, 2008.
83. On January 10, 2008, Plaintiff Rhodes filed a bankruptcy petition and
thereby averted loss of his home through sheriffs sale. On January 28, 2008, PHS,
purportedly on behalf of Bank of New York, executed and filed a proof of claim in
bankruptcy court, seeking payment of the full $2,000 sheriffs deposit purportedly owed
by Plaintiff Rhodes as part of his arrearages. This legal document, signed by PHS lawyer
Jay B. Jones,
89
falsely represented that PHS would amend its claim upon receipt of the
most recent Sheriff's Refund, which is unavailable at the present time.
84. On May 8, 2008, the Berks County Sheriff refunded to PHS $909.08 out of
$2,000 deposited in connection with the stayed sheriffs sale of Plaintiff Rhodes home.
Rather than make good on the promise to amend its proof of claim upon receipt of the
sheriffs refund, PHS instead misappropriated and converted $909.08 to its own use
and/or that of Countrywide.

89
Ex. E.
39
85. On March 25, 2009, Plaintiff Rhodes and his co-plaintiffs filed their initial
Complaint in this action (Initial Complaint), which exposed PHSs unlawful
institutionalized practice of misappropriating and converting sheriffs refunds.
86. Just days after the filing of the Initial Complaint, PHS filed an amended
proof of claim dated April 7, 2009, which at last identified the sheriffs deposit refund
that PHS received on Plaintiff Rhodes account eleven months before.
90
As Judge Shea-
Stonum observed, Defendant Countrywides system for filing proofs of claim was
designed to allow each actor in the process to act with indifference to the truth and a
disregard for diligence and accuracy.
91
In this respect, PHS and/or Countrywide
obtained an interest-free loan through their false proof of claim, money that would have
otherwise been stolen outright by PHS and/or Countrywide but for the filing of this
lawsuit.
Plaintiff Gerald A. Bender

87. PHS initiated and prosecuted a foreclosure action against Gerald A.
Bender, purportedly on behalf of Wachovia Bank, N.A., as trustee for investors of
securities backed by a pool of mortgages serviced by Americas Servicing Company, part
of Defendant Wells Fargo, N.A.
92
After it obtained a foreclosure judgment against
Plaintiff Bender, PHS paid a $2,000 deposit to the Sheriff for Berks County,
Pennsylvania in connection with a sheriffs sale of the Bender family residence scheduled
for June 6, 2008.

90
Ex. F. At the same time, PHS lawyer Andrew L. Spivack also filed a Mortgage Analysis for Payment
Change on Plaintiff Rhodes account, which was improperly submitted by PHS on behalf of Countrywide,
the mortgage servicer, which Spivack misidentified as Plaintiff Rhodes secured creditor. (Ex. G).
91
See above at 56.
92
As documented below at 112-120, two years before PHS brought its foreclosure action against
Plaintiff Bender, ostensibly on behalf of Wachovia, U.S. Bank, N.A. had already succeeded to
Wachovias position as trustee for investors owning this pool of mortgages. Neither PHS nor an
apparently unaware Wachovia had any authority to bring this foreclosure lawsuit.
40
88. On June 4, 2008, Plaintiff Bender filed a bankruptcy petition and thereby
averted loss of his home through sheriffs sale. On July 3, 2008, PHS, purportedly on
behalf of Wachovia, executed and filed a proof of claim in bankruptcy court, seeking
payment of the full $2,000 sheriffs deposit purportedly owed by Plaintiff Bender to
Wachovia as part of his arrearages. This legal document, signed by PHS lawyer Jay B.
Jones,
93
stated that the [m]ost recent Sheriff's Refund is unavailable at the present time.
89. On October 9, 2008, the Berks County Sheriff refunded to PHS $601.13
out of $2,000 deposited with the Sheriff in connection with stayed sheriffs sale of
Plaintiff Benders home. PHS misappropriated and converted $601.13 to its own use
and/or that of Wells Fargo.
90. Just days after his filing of the Initial Complaint on March 25, 2009, PHS
filed an amended proof of claim dated April 7, 2009, which at last identified the sheriffs
deposit refund that PHS received on Plaintiff Benders account six months before.
94
In
this respect, PHS and/or Wells Fargo obtained an interest-free loan of funds that
belonged to Plaintiff Bender, money that would have otherwise been stolen outright by
PHS and/or Wells Fargo but for the filing of this lawsuit.
Plaintiff Edward H. Wolferd, Jr.
91. PHS initiated and prosecuted a foreclosure action against Plaintiff Edward
H. Wolferd, Jr. on behalf of Defendant Wells Fargo. After it obtained a foreclosure
judgment against Plaintiff Wolferd, PHS paid a $2,500 deposit to the Sheriff for

93
Ex. H. PHS, having improperly brought a foreclosure action against Plaintiff Bender in the name of
Wachovia (which had no legal interest to assert against Plaintiff Bender) compounded its transgression in
bankruptcy court by filing a false proof of claim on behalf of a purported creditor identified as Wachovia
Bank, N.A., as Trustee, Pooling and Serving Agreement dated as of November [sic]. The false proof of
claims signed by PHS lawyers in this case state on their face that the penalty under 11 U.S.C. 152 and
3571 for presenting fraudulent claims is a fine of up to $500,000 or imprisonment for up to five years, or
both.
94
Ex. I.
41
Lancaster County, Pennsylvania in connection with a sheriffs sale of Plaintiff Wolferds
residence scheduled for August 3, 2005.
92. On August 1, 2005, Plaintiff Wolferd filed a bankruptcy petition and
thereby averted loss of his home through sheriffs sale. On September 14, 2005, PHS, on
behalf of Defendant Wells Fargo, executed and filed a proof of claim in bankruptcy court,
seeking payment in the full of the $2,500 sheriffs deposit purportedly owed by Plaintiff
Wolferd as part of his arrearages. This legal document, signed by PHS lawyer Jay B.
Jones,
95
falsely represented that PHS would amend its claim upon receipt of the most
recent Sheriff's Refund, which is unavailable at the present time.
93. On October 31, 2005, the Lancaster County Sheriff refunded to PHS
$849.84 out of the sum of $2,500 deposited with the Sheriff in connection with the stayed
sheriffs sale. On or about November 22, 2005, counsel for Plaintiff Wolferd incurred the
time and expense of communicating with PHS to demand a proper credit for the returned
sheriffs deposit. Only then did PHS withdraw its overstated claim for sheriffs fees by
filing an amended proof of claim dated November 22, 2005.
96
94. Independent of the false bankruptcy claims asserted by PHS against
Plaintiffs Rhodes, Bender and Wolferd, before they filed the Initial Complaint, counsel
for the proposed Classes reviewed and analyzed a randomly selected sample of 300
proofs of claim filed by a cross-section of PHS lawyers in Chapter 13 actions pending in
the United States Bankruptcy Courts for the Eastern, Middle and Western Districts of
Pennsylvania and the District of New Jersey, with that sample limited to filings in which
PHS asserted a claim for the full amount of a sheriffs deposit. In 261 (or 87 percent) of

95
Ex. J.
96
Ex. K.
42
these 300 cases, PHS failed to correct its overstated proofs of claim to properly account
for deposits refunded by county sheriffs.
95. While homeowners who have not filed for bankruptcy are more vulnerable
to mortgage servicing abuse than those who have availed themselves of that legal
protection,
97
PHS operates in every case on the premise that it can charge whatever it
pleases to homeowners as long as debtors counsel, as in an estimated 96 percent of
bankruptcy cases,
98
do not affirmatively step up to resist PHSs systematic exploitation of
their clients. This disregard of its legal obligations is without justification.
96. As Judge Elizabeth Manger remarked in one of several published opinions
rebuking Defendant Wells Fargo for its institutionalized practice of filing inaccurate
bankruptcy claims: [I]t is likely that trustees and debtors are paying on proofs of claim
that are clearly erroneous. Wells Fargo maintains that it can flaunt this Court's rulings
and its own contractual responsibilities and force every debtor to prove that it has
misapplied payments. This is a ridiculous waste of judicial resources and an unacceptable
burden on the trustees and debtors of the District
99
. It is incumbent upon Wells Fargo
to correct its error for all affected debtors. To do otherwise is to ignore its obligation to
correct pleadings that are no longer accurate.
100

97. Judge Manger recognized that, whenever Wells Fargo forces homeowners
and their counsel to act affirmatively to fix one of Wells Fargos inaccurate claims, it

97
See Porter Testimony at 2, citing Federal Trade Commission, Mortgage Servicing: Making Sure Your
Payment Counts.)
98
See Porter Study at 147.
99
Contrast with Defendants Memorandum of Law in Support of their Motion to Dismiss the [Initial]
Complaint Pursuant to F.R.C.P 12b(6), at 10-11 (Docket Item 2-2) ("It is the duty of debtors' counsel on
behalf of their clients to ensure that sums are properly credited to their client[s'] post-petition account --
something usually accomplished in a phone call and[,] if that fails, by motion to the Bankruptcy Court").
100
See 59 above, quoting, 2008 Bankr. LEXIS 3226, at *11 (Bankr.E.D.La. October 14 2008)
43
causes quantifiable damage in the form of costs and fees incurred,
101
independent of other
forms of damages sustained. Judge Marilyn Shea-Stonum reached the same conclusion
concerning Defendant Countrywides systematic assertion of bogus foreclosure fee
claims:
[T]he reality is that the typical consumer bankruptcy practitioner
deals with extensive information gathering and documentation
requirements for very modest compensation; against that busy
backdrop few practitioners undertake a careful review of every
mortgage claim. [ ] Those that do often find themselves dealing
with initial information from the mortgage claimant that sometimes
appears designed to be deliberately impenetrable. The cryptic
presentation of the information by mortgage holders or those
charged with servicing the mortgage holders contract with the
mortgagor can have the effect of visiting upon the mortgagor
significant cost in getting the most basic information about the
mortgage status as perceived by the mortgagee. This may or may
not be part of an actual design to discourage mortgagors from
asserting their rights. Whether that is an intended consequence of
the mortgagees agents behavior, it is often the effect of that
behavior.
102

98. Plaintiff Wolferd had the misfortune of being victimized by PHSs theft of
sheriffs deposit refund scheme both in a capacity of bankrupt individual and as a non-
bankrupt homeowner attempting to reach a loan modification agreement with Wells
Fargo.
99. After more than three years of post-petition payments under Plaintiff
Wolferds Chapter 13 plan, Wells Fargo obtained an order granting it relief from the
Bankruptcy Codes automatic stay on January 6, 2009.
103
On February 10, 2009, PHS
filed a praecipe for a writ of execution of its earlier foreclosure judgment against Plaintiff

101
Id. See also 62-63, quoting, In re Jones, 2009 Bankr. LEXIS 3317, at *23-24; 31 and n.59 (Bankr.
E.D.La. Oct. 1, 2009).
102
McDermott v. Countrywide Home Loans, Inc., Adv. No. 08-5031 (Bank. N.D. Ohio, July 31, 2009) (Ex.
A) at 3-4, citing Porter Study at 121, 168.
103
Plaintiff Wolferds bankruptcy case was dismissed on May 14, 2009.
44
Wolferd, accompanied by a check payable to the Lancaster County Sheriff in the amount
of $ 2,500.
100. A sheriffs sale of Plaintiff Wolferds home was scheduled and continued
several times while Plaintiff Wolferd and Defendant Wells Fargo discussed a possible
loan modification. Plaintiff Wolferd executed such an agreement on September 11, 2009,
despite its requirement that he pay arrearages comprised in part of inflated,
undocumented and unexplained mortgage foreclosure costs.
104
His assistant having
been told by a Wells Fargo representative that these charges were non-negotiable and that
the [foreclosure] lawyer always keeps that money as its fees, Plaintiff Wolferd
surrendered to Wells Fargos demands rather than accept the alternative of losing his
home to foreclosure. The sheriffs sale of Plaintiff Wolferds home was cancelled again.
101. Plaintiff Wolferd is currently making the payments required under Wells
Fargos non-negotiable loan modification. On November 3, 2009, PHS received a refund
in the amount of $503.32 from the Lancaster County Sheriff. As of the date of this
Amended Complaint (notwithstanding the allegations about misappropriation of sheriffs
deposit refunds first made in the Initial Complaint on March 25, 2009), PHS and Wells
Fargo have taken no steps to credit this sheriffs refund to Plaintiff Wolferds account.
b. PHS Systematically Uses Wholly-Owned Vendors to Inflate Foreclosure Costs
102. While PHS portrays its ownership and control of the majority of its
vendors as a benign timesaving device,
105
it is more accurately the means by which PHS
multiplies its already profitable fees in foreclosure cases. It is also the means by which
PHS ignores or evades legal obstacles (such as the absence of a would-be plaintiffs legal

104
See Ex. L.
105
See http://www.fedphe.com/
45
title) that could otherwise eliminate the money-making potential of the automated case
referrals it receives via client-based software programs required by mortgage servicers
like Defendants Countrywide and Wells Fargo. (See 148-158, below).
103. Defendants Lawrence Phelan, Francis Hallinan and Daniel Schmieg are
owners of a company named Full Spectrum Holdings, which is comprised of Full
Spectrum Legal Services, Inc. (Full Spectrum) and Land Title Services of New Jersey,
Inc. (Land Title),
106
which in turn owns Land Title Services of Pennsylvania. All of
these entities are located on the second floor (PHS occupies the first) of an office
building located at 400 Fellowship Road, Mt. Laurel, New Jersey 08054, a multi-million
dollar facility owned by a company called Camelot Enterprises, LLC, which is owned by
Defendant Phelan.
104. Defendant Hallinan is president of Full Spectrum, a New Jersey domestic
corporation that, among other things, claims to provide title services both in New Jersey
and Pennsylvania, where it purportedly employs a team of qualified courthouse
searchers [who] provide detailed property searches, copies of recorded documents,
and can act as liaisons for the county offices.
107

105. At various times and in a manner that parallels the conflicting
representations made by PHS with respect to the identity of its managing partner in
New Jersey and the different variations on name used by the law firms New Jersey
office,
108
Defendant Phelan and an individual named Eugene L. Terzano, Jr. have both
been identified as president of Land Title. Terzano, licensed as a resident producer by
the New Jersey Department of Banking and Insurance, appears to have been placed in

106
See Bank of New York v. Upke, 2009 WL 4895253, at *3 (D.N.J. Dec. 9, 2009).
107
See http://www.fullspectrumlegal.com/Services.html
108
See 17, 20, above.
46
this position by PHS in an effort to circumvent Opinion No. 688, issued by the Advisory
Committee on Professional Ethics of the New Jersey Supreme Court, which held that
principals of a law firm may [not] establish a separate title abstract company, in the form
of a limited liability company, to provide title reports for their law firms clients.
109

106. As the Advisory Committee explained:
[L]awyers should not be able to freely refer a client in need of a
service related to the legal representation or its subject matter to
any business enterprise in which they maintain an ownership or
controlling interest, or from which they drive income or profit.

It is clear that a client has a special trust in, and is frequently
dependent upon, the independent judgment of the lawyer, which is
always to be exercised in the client's best interests, free from any
outside influences. The possibility of referral of legal clients to
another business of the lawyer introduces an extraneous and
potentially conflicting motive, which can threaten or interfere with
the lawyer's independence of judgment. At the same time, because
of the trust and dependence that the client must place on the
lawyer, a client's ability to independently evaluate the desirability
or necessity of following through on such a referral is
presumptively impaired. The situation is inherently coercive,
rendering even the standard approach of full disclosure and
informed consent suspect.

. [A lawyer may only refer a legal client to a business the lawyer
owns, operates, controls, or will profit from, if the lawyer has (1)
disclosed to the client in writing, acknowledged by the client, the
precise interest of the lawyer in the business, and that the same
services may be obtained from other providers, and (2) advised the
client, orally and in writing, of the desirability of seeking and is
given a reasonable opportunity to seek the advice of independent
counsel of the client's choice as to whether utilization of the
business in question is in the client's interest.
110

109
N.J. Advisory Committee on Professional Ethics, Opinion 688 (Mar. 13, 2000), Ex. M.
110
Id., at 2.
47
107. Given the systematic disregard of their own rights by PHS and its clients,
Plaintiffs do not care whether PHS honors the duty of professional responsibility that it
owes to its clients. While PHS or its clients are reimbursed for costs charged by Full
Spectrum, Land Title and other entities owned and controlled by the principals of PHS, it
is the foreclosed-upon homeowners who actually pay their inflated or fabricated costs.
In this respect, both PHS and its clients have a common rather than conflicting motive
to maximize payment of costs recovered from people against whom they bring
foreclosure actions.
111

108. Proofs of claim that PHS files in bankruptcy court with or without
authorization from clients with proper legal standing demonstrate a lack of intelligible
basis supporting many of the charges for which PHS seeks reimbursement from debtors.
PHSs proofs of claim routinely reflect higher fees for title work than do the claims of
other mortgage foreclosure law firms practicing in Pennsylvania and New Jersey --
precisely because PHSs principal lawyers themselves profit from those higher charges.
To obscure the true extent and nature of those fees, PHS presents its claims, in the apt
words of Judge Shea-Stonum, in ways that are both impenetrable and cryptic.
112

111
For example, Defendant Hallinan testified that Full Spectrum Legal Services is a vendor for LandSafe
Title Company and that Full Spectrum does the courthouse abstracting on behalf of LandSafe Title in
some instances. See Hallinan Transcript at 27-28 (Ex. N). LandSafe Title Company, now a wholly owned
subsidiary of Bank of America, was part of Countrywides LandSafe, Inc. subsidiary, based in Plano Texas
along with Defendant Countrywide Home Loans Servicing, LP. LandSafe, Inc. was a conglomeration of
Countrywide subsidiaries that included LandSafe Appraisal Services Inc., LandSafe Title Agency Inc.,
LandSafe Credit Services Inc. and LandSafe Flood Determination Inc. See Steve Bergsman, The LandSafe
Story, MORTGAGE BANKING, Aug. 3, 2003 (http://www.allbusiness.com/finance/3595413-1.html). The
LandSafe subsidiaries enabled Countrywide to engage in the predatory lending practices that led to the $8.6
billion settlement obtained by state attorneys general throughout the United States. See above at 57.
112
See 97, above, quoting, McDermott v. Countrywide Home Loans, Inc., Adv. No. 08-5031 (Bank. N.D.
Ohio, July 31, 2009) (Ex. A) at 3-4.
48
109. Examples of its practice of obscuring costs beyond understanding are
evident from charges asserted by PHS against Plaintiffs:
(a) Rhodes Proof of Claim dated January 28, 2008 (Ex. E) (claiming
$525 for undocumented and unexplained services described as title bringdown,
property search/divorce check and record owner lien certificate/title report);
(b) Bender Proof of Claim dated July 2, 2008 (Ex. H) (claiming
$1,105.51 for undocumented and unexplained services described as BPO fees,
property preservation, due diligent [sic] inquiry, Freedom of Information Act
letters, record owner lien certificate, property search, and title bringdown);
(c) Wolferd Proof of Claim dated September 6, 2005 (Ex. J) (claiming
$615 for undocumented and unexplained services described as property preservation,
title bringdown, record owner lien certificate and notice of sale); and
(d) Wolferd Loan Modification form (Ex. L) (claiming $3,015.50 for
undocumented and unexplained services described as Corp Recov/Title/Mod
Fees/Atty/FC/BPO/Appraisal);
Perhaps most egregiously, after counsel for Plaintiffs Diane and Charles Giles
discovered that PHS brought its foreclosure lawsuit without authorization on behalf of a
party without legal standing to sue (see 121-133) and after Mr. and Mrs. Giles found a
buyer willing to purchase their home at price far below its true market value, PHS had the
audacity to demand that Mr. and Mrs. Giles pay $7,817.50 for legal fees and costs of a
lawsuit that PHS had no right to bring in the first place.
113
Only because counsel for Mr.
and Mrs. Giles resisted PHSs attempt to plunder the dwindling financial resources of his

113
See Letter dated December 10, 2007 from Phelan Hallinan & Schmieg, PC to Jerry J. Dasti (Ex. NN).
49
clients did Wells Fargo recognize the illegitimacy of PHSs claim for legal fees and
costs, which was quietly removed from Wells Fargos final payoff statement.
114

110. While a few of the above examples involve amounts of money may be
modest to more fortunate Americans, these charges represent substantial, life-sustaining
sums to families struggling to stay in their home, when literally every nickel counts. But,
for the lawyers of PHS and their clients, each overcharge, multiplied by thousands of
homeowners, represents a pot of gold unlawfully obtained.
115
111. Beyond the overstated, fabricated and obfuscated foreclosure costs
systematically claimed by PHS, in some cases Full Spectrum, Land Title or other PHS-
controlled entities fail altogether to perform the services for which homeowners are
charged, or such services are performed so incompetently that they are worthless or
actually have a negative value. As shown below, title searches purportedly obtained by
PHS through its wholly owned companies fail to properly identify record owners of
properties upon which PHS seeks to foreclose, resulting in unauthorized lawsuits that
produce foreclosure judgments that are null and void as a matter of law. Even more
disturbing, there is compelling evidence that Full Spectrum and other companies owned
by Lawrence Phelan, Francis Hallinan and Daniel Schmieg help PHS fraudulently
manufacture legal standing for one of its biggest mortgage servicer clients, Defendant
Wells Fargo.

114
See Statement dated January 9, 2008 from Americas Servicing Company to Plaintiff Diane Giles (Ex.
NN).
115
See, e,g., above at 63 and n. 64 (Hon. Elizabeth W. Magner fears that false proofs of claim filed by
Wells Fargo alone could potentially signal billions in improperly earned revenue).
50

2. PHS Systematically Prosecutes Foreclosure Actions
in the Name of Parties Without Legal Standing To Sue

112. By Complaint dated June 22, 2007, signed by Defendant Hallinan, PHS
brought a mortgage foreclosure action against Plaintiff Gerald A. Bender in the Court of
Common Pleas for Berks County, Pennsylvania, Case No. C1-04-11635. The Plaintiff in
this lawsuit was identified as Wachovia Bank, N.A., Trustee for the Pooling and
Servicing Agreement dated as of November 1, 2004, Asset-Backed Pass-Through
Certificate Series 2004-WWF1 [Series 2004-WWF1 PSA]
116
The servicer of the
mortgages owned by the investors of the Series 2004-WWF1 PSA certificates -- PHSs
actual client -- was Defendant Wells Fargo,
117
an entity that the Hon. Timothy Patrick
OReilly of the Court of Common Pleas for Allegheny County said is no stranger to the
improper practice of bringing foreclosure actions on the basis of anticipatory
assignments that may or may be real.
118

113. In connection with the filing of his Complaint against Plaintiff Bender,
Defendant Hallinan executed a verification attesting that (1) he was attorney for
Wachovia in the foreclosure action against Plaintiff Bender; (2) he was authorized by
Wachovia to make a verification on Wachovias behalf pursuant to Pa.R.C.P. 1024;
(3) the statements made in the Complaint were based on information provided by
Wachovia, which Hallinan purportedly believed to be true and correct to the best of its
knowledge, information and belief; (4) he intended to substitute a verification from

116
See Ex. O.
117
See Bender Proof of Claim dated July 2, 2008 (Ex. H).
118
See 68, above, quoting, Wells Fargo v. Janosik, No. GD08-2561 (Pa. C.P. Allegheny Co., Mar. 23,
2009), Slip.Op. at 5, affd, 970 A.2d 488 (Table) (Pa. Superior 2009) (Ex. B) (citing, Wells Fargo v. Long,
934 A.2d 76 (Pa. Super. 2007)). See also 66-71, above (and cases cited therein).
51
Wachovia upon receipt and (5) he understood that his verification was made subject to
the penalties of 18 Pa.C.S. Sec. 4904 relating to unsworn falsifications to authorities, a
second degree misdemeanor requiring a fine of at least $1000. With the possible
exception of the final part of his verification, all of Hallinans statements were false.
114. In paragraph 3 of the Complaint that he signed and verified, Defendant
Hallinan also alleged falsely that:
On 09/24/2004 mortgagor(s) made, executed and delivered a
mortgage upon the premises hereinafter described to ARGENT
MORTGAGE COMPANY, LLC [Argent] which mortgage is
recorded in the Office of the Recorder of BERKS County, in Book
4157, Page: 265. PLAINTIFF [i.e., Wachovia Bank, N.A.,
Trustee for the Series 2004-WWF1 PSA] is now the legal
owner of the mortgage and is in the process of formalizing an
assignment of same. The mortgage and assignment(s), if any, are
matters of public record and are incorporated by reference in
accordance with Pa.C.C.P. 1019(g); which rule relieves the
Plaintiff from its obligation to attach documents to pleadings if
those documents are of public record.

115. When Defendant Hallinan caused this Complaint to be filed on June 22,
2007, Wachovia was no longer trustee for the Series 2004-WWF1 PSA, having been long
ago been displaced as trustee by U.S. Bank, N.A. as a result of Wachovias sale of its
entire corporate trust and institutional custody businesses to U.S. Bank, N.A. on
December 30, 2005.
119

119
Press Release, Wachovia Announces Sale of its Corporate Trust and Institutional Custody Businesses,
WACHOVIA, Nov. 28, 2005
(https://www.wachovia.com/foundation/v/index.jsp?vgnextoid=f3082e3d3471f110VgnVCM200000627d6f
a2RCRD&vgnextfmt=default&key_guid=4dc7948df51eb110VgnVCM100000ca0d1872RCRD);
Press Release, U.S. Bank Completes Acquisition of the Corporate Trust and Institutional Custody
Businesses of Wachovia, U.S. BANCORP, Jan. 9, 2006
(http://phx.corporate-ir.net/phoenix.zhtml?c=117565&p=irol-newsArticle&ID=802061&highlight=);
Internal Corporate Publication, Welcome From the U.S. Bank Corporate Trust Services President, U.S.
BANK CORPORATE TRUST CONNECTION, Spring 2006
(http://www.usbank.com/commercial_business/products_and_services/corp_trust/pdf/CorpTrustSpr06.pdf
52
116. On October 11, 2007, four months after PHS filed its false and misleading
foreclosure complaint against Plaintiff Bender, PHSs employees or agents
simultaneously recorded two purported assignments of Plaintiff Benders mortgage with
the Recorder of Deeds for Berks County, Pennsylvania:
a. An assignment from Argent to Ameriquest Mortgage
Company (Ameriquest), purportedly executed on September
20, 2004 by Tracy Phanzy and John Grudzien, both
purportedly authorized officers of Argent, and notarized by
Janice M. Baker, an agent of Argent, whose notary
commission expired on May 19, 2007;
120

b. An assignment from Ameriquest to Wachovia, as Trustee for
the Series 2004-WWF1 PSA, also purportedly executed on
September 20, 2004 by Tracy Phanzy and John Grudzien, both
purportedly authorized officers of Ameriquest, and notarized
by Janice M. Baker, an agent of Ameriquest, whose notary
commission expired on May 19, 2007.
121
The Argent-to-
Ameriquest assignment is identical to the purported
Ameriquest-to-Wachovia assignment, except that a line
intended for the purported assignee was apparently whited
out before the addition of a handwritten entry identifying
Wachovia as purported assignee.

117. By the time that PHSs employees or agents recorded these
assignments on October 11, 2007, both Ameriquest and Argent had permanently shut
their doors. On August 30, 2007, Citigroup acquired the remaining assets of ACC Capital
Holdings, owner of Ameriquest and Argent, both of which were effectively out of
business for at least a year after ACC Capital Holdings agreed in 2006 to pay $325
million to settle federal and state regulators claims of deceptive lending practices.
122

120
See Ex. P.
121
See Ex. Q.
122
Eric Dash, Citigroup Buys Parts of a Troubled Mortgage Lender, N.Y.TIMES, September 1,
2007(http://query.nytimes.com/gst/fullpage.html?res=9C04E4D61430F932A3575AC0A9619C8B63), cited
in Wells Fargo v. Farmer, 19 Misc.3d 1141(A), 2008 WL 2309006, at *3 (N.Y.Sup. June 5, 2008).
53
118. In other words, the assignments that PHSs representatives filed with the
Recorder of Deeds for Berks County, Pennsylvania on October 11, 2007 purported to
convey a legal interest in Plaintiff Benders mortgage from (1) two mortgage companies
that no longer existed to (2) a bank that two years before relinquished its duties as trustee
for investors that owned Plaintiff Benders mortgage.
119. In addition, the assignments of the Bender mortgage, which were
purportedly executed on September 20, 2004, predated the legal existence of the Series
2004-WWF1 PSA, which by its express terms is dated as of November 1, 2004.
According to a Supplemental Prospectus filed with the U.S. Securities and Exchange
Commission by Park Place Securities, Inc. (Park Place, a direct and wholly owned
subsidiary of Ameriquest, an affiliate of Argent and the Depositor under the Series
2004-WWF1 certificates), selection of the mortgage loan collateral deposited into this
investment trust was not to occur until October 1, 2004, with the closing date of the entire
transaction not scheduled until November 12, 2004.
123
120. The Supplemental Prospectus filed in connection with the Series 2004-
WWF1 certificates also expressly states that Park Place, as the Depositor of the
investment trust, was required to deliver to Deutsche Bank National Trust Company, as
Custodian, an assignment of [each] mortgage in recordable form endorsed in blank
without recourse, reflecting [a] transfer of the Mortgage Loan.
124
Use of blank
assignments facilitates fraudulent assignments of the type manipulated by PHSs
vendors to manufacture legal standing in mortgage foreclosure actions like the one

123
See Summary of Prospectus Supplement for 2004-WWF1 asset backed, pass-through certificates
(Prospectus Summary) at S-2, obtained and excerpted from EDGAR service provided at www.sec.gov
(Ex. R).
124
Prospectus Summary at S-80.
54
against Plaintiff Bender. A blank assignment is, as the Hon. Keith C. Long of
Massachusetts held, mere bearer paper negotiable by whichever entity possessed it,
which is an ineffective means of transferring legal title to a mortgage because they are
not themselves an assignment and they are certainly not in recordable form.
125
121. At about the same time that PHS and Hallinan committed fraud against
Plaintiff Bender and the civil justice system in Berks County, Pennsylvania, almost 100
miles and another state away, PHS and Defendant Rosemarie Diamond were committing
a virtually identical fraud against Plaintiffs Diane and Charles J. Giles and the civil
justice system in Ocean County, New Jersey.
122. On September 11, 2001, Plaintiff Charles Giles, a certified emergency
medical technician supervisor working in New York City, was among the first responders
to put his life on the line attempting to save people trapped in the burning ruins of the
World Trade Center. Although he needed the assistance of a Port Authority police officer
to save his own life after the second tower fell, sustaining injuries that required his
admission to the Jacobi Medical Center in the Bronx, Mr. Giles returned to the rubble of
Ground Zero to join the search for missing survivors. His lungs contaminated by dust and
debris, Plaintiff Charles Giles was diagnosed in 2002 with disabling health problems that
threaten his life today.
123. After 9/11, Plaintiff Charles Giles moved to a home at the Jersey shore in
Barnegat Township, where he lived with his wife, Diane, and two daughters, Kaitlin and
Clarissa. Plaintiff Giles lung, heart and other health problems worsened, putting him in
the hospital on 13 separate occasions and leaving him unable to work. His medical bills

125
U.S. Bank, N.A. et. al. v. Ibanez et. al., No.08 MISC 38675517; LCR 679; 2009 Mass. LCR LEXIS
134, at *28-29 (Mass. Land Court, Oct. 14, 2009).

55
skyrocketed past $200,000 as bureaucratic delays held up benefit payments from the New
York State government.
124. When Plaintiffs Diane and Charles Giles fell behind on their mortgage,
PHS and Defendant Diamond brought a foreclosure action against them on February 23,
2007.
126
As with Plaintiff Bender, PHS and Diamond brought this action against Mr. and
Mrs. Giles in the name of Wachovia Bank, N.A., Trustee for the Series 2004-WWF1
PSA -- despite Wachovia Banks divestiture of its corporate trust and institutional
custody businesses on December 30, 2005.
127
As with Plaintiff Bender, the servicer on
Plaintiff Giles mortgage was Defendant Wells Fargo, operating under its Americas
Servicing Company pseudonym.
125. According to the Complaint that PHS and Diamond filed against Mr. and
Mrs. Giles on February 23, 2007, the holder of the obligation and Mortgage was
Wachovia Bank, N.A., Trustee for the Series 2004-WWF1 PSA, pursuant to a written
assignment from Argent to Wachovia that was about to be recorded.
128
The Complaint
also alleged that, other than the mortgage originated by Argent, the prospective Argent-
to-Wachovia assignment and legal documents evidencing Mr. and Mrs. Giles marriage,
no other instruments appear of record which may affect the premises in which the Giles
lived.
129

126
Ex. S.
127
See 115 and n. 119, above.
128
See Ex. S at 4.
129
See Ex. S at 6.
56
126. In connection with the filing of this Complaint, which contained
misrepresentations of material fact relating to ownership of the Giles mortgage,
Defendant Diamond also executed two false Certifications
130
:
(a) a Certification pursuant to Rule 4:5-1, attesting that all parties who
should be joined in this action have been joined; and
(b) a Certification pursuant to Rule 4-5-1(b)(2), attesting that prior to
filing the within Complaint, [Diamond] caused a title search of the
public record to be made for the purpose of identifying any lien
holders or other persons or entities with an interest in the property that
is the subject of this foreclosure.
127. Two months after PHS and Diamond filed their Complaint against Mr.
and Mrs. Giles, on April 18, 2007, PHSs employees or agents simultaneously recorded
two purported assignments of the Giles mortgage with the County Clerk of Ocean
County, New Jersey:
a. An assignment from Argent to Ameriquest, purportedly
executed on September 28, 2004 by Matt Polansky, a
purported agent of Argent, and notarized by Darline Jean
Charles, whose New York State notary commission expired on
December 3, 2006;
131

b. An assignment from Ameriquest to Wachovia, as Trustee for
the Series 2004-WWF1 PSA, also purportedly executed on
September 28, 2004 by Matt Polansky, a purported agent of
Ameriquest, and notarized by Darline Jean Charles, whose
New York State notary commission expired on December 3,
2006.
132
Except for a different corporate seal and the
addition of a handwritten entry identifying Wachovia as
purported assignee, the Argent-to-Ameriquest assignment is

130
See Ex. S at p. 7, 8.
131
See Ex. T.
132
See Ex. U.
57
identical to the purported Ameriquest-to-Wachovia
assignment.

128. On the basis of the false allegations in the foreclosure Complaint and
Certifications filed by Defendant Diamond in the Superior Court, Chancery Division, for
Ocean County, New Jersey, and based further on the manufactured assignments
identified in the immediately preceding paragraph, PHS, purportedly on behalf of
Wachovia, obtained a default foreclosure judgment against Mr. and Mrs. Giles on June 5,
2007,
133
which was jurisdictionally defective and without legal effect.
129. While PHS, Diamond and representatives of Wells Fargo, on one hand,
and Mr. and Mrs. Giles, on the other hand, were still discussing a possible modification
of the mortgage, PHS and Diamond caused the Ocean County Sheriffs Department to
schedule a public auction of the Giles home for August 21, 2007, after which Mr. and
Mrs. Giles retained the services of a real estate attorney who obtained statutory
adjournments of the sheriffs auction. On September 12, 2007, Plaintiff Charles Giles
himself filed an emergent application for a stay of the sheriffs sale re-scheduled for
September 18, 2007. Over the objection of PHS, the Hon. Frank A. Buczynski of the
Superior Court for Ocean County granted Mr. Giles application and postponed the
sheriffs sale until October 30, 2007 (not coincidently, only 19 days after PHS recorded
its nearly identical bogus assignments of Plaintiff Benders mortgage with the Recorder
of Deeds in Berks County, Pennsylvania).
130. Friends and supporters of Charles and Diane Giles appealed to Wachovia
Bank for assistance, while the Giles themselves shared their difficult circumstances with
the public through appearances on a nationally syndicated television program hosted by

133
See Ex V.
58
legal reporter Star Jones.
134
Just days before the scheduled sheriffs sale, on October 23,
2007, Mark A. Farmer, senior vice president and assistant general counsel of Wachovia
Bank, sent an e-mail to Jerry Dasti, counsel for Mr. and Mrs. Giles, thanking Mr. Dasti
for providing Wachovia Bank with the name of the Plaintiffs firm in the Giles
foreclosure action (i.e., PHS) and advising Mr. Dasti that Mr. Farmer had contacted the
attorney handling the matter and informed him that Wachovia has not been the Trustee of
the subject Pooling and Servicing Agreement since 12/30/05.
135

131. On October 24, 2007, Mark A. Farmer sent a letter by U.S. mail and e-mail
to Vladimir Palma, a litigation attorney working under the direction of Defendant
Diamond. This verbatim text of this letter to PHS is reproduced below
136
:
Dear Mr. Palma:
This letter is to confirm your voice message to me this morning
and our subsequent conversation wherein you advised that you
were able to reach your client [i.e., Wells Fargo] and verify that
Wachovia Bank, N.A. is not the proper Plaintiff as named in the
referenced foreclosure action. Accordingly, your client has
voluntarily agreed to postpone the sale date to November 19, 2007.
During the interim, it is my understanding that you are awaiting the
name of the proper Plaintiff from your client. Thereafter, you will
file a motion to correct the name of the Plaintiff and ensure that the
County records properly reflect the name of the true holder of the
mortgage.

As you are aware since Wachovia Bank, N.A. is not the Trustee
and not the holder of the subject mortgage we are unable to address
Mr. Charles Giles situation. Thank you for your prompt attention
to this matter and your efforts to correct the public record. I look
forward to receipt of an Order deleting the name Wachovia Bank,
N.A. from the foreclosure action and recorded evidence correcting
the public records.

134
See videoclips at (1) http://vids.myspace.com/index.cfm?fuseaction=vids.individual&VideoID=20841698;
(2) http://vids.myspace.com/index.cfm?fuseaction=vids.individual&VideoID=21158096
135
See e-mail dated October 23, 2005 from Mark J. Farmer to Jerry J. Dasti (Ex. W).
136
See Ex. X.
59
Sincerely,

/s/ Mark A. Farmer

Mark A. Farmer

Senior Vice President & Assistant General Counsel
Wachovia Corporation for its subsidiary Wachovia Bank, N.A.

132. This unusually candid admission resulted only through an outpouring of
local and national support for Mr. and Mrs. Giles that was heard at the highest levels of
Wachovias corporate management. At the community level, on October 27, 2007, a
fundraiser was held at the Pinewoods Estates Volunteer Fire Company in Barnegat, New
Jersey, attended by the townships mayor, council members, about 100 firefighters and
police officers, the Police Benevolent Association and other concerned neighbors.
Through the generosity of these people and others, including students from the Kenneth
R. Middle School in Tabernacle, New Jersey, about $ 5,000 was raised to help Mr. and
Mrs. Giles in their time of need.
133. The compassion of the Giles friends and neighbors was not sufficient to
save his home. To avoid PHSs continued mortgage foreclosure activities, Plaintiff Giles
was forced to sell his home at a price far below its true market value. Even then, PHS
attempted to impose on Mr. and Mrs. Giles a ludicrous charge of $7,817.50 for legal
fees and costs in a lawsuit that PHS never had any legal authority to prosecute (see
109, above, and Ex. NN). Although Plaintiff Charles Giles in February, 2009 received a
long overdue workers compensation award from a New York judge in February, 2009,
he is still haunted by the distress sale of his home in 2007, something that he says hurts
the most among the painful experiences he has suffered since reporting for duty on the
morning of September 11, 2001. See videoclip at http://angelusbell888.bravejournal.com/.
60
134. The fraudulent practice of PHS in fabricating mortgage assignments to file
foreclosure actions systematically harms thousands of vulnerable homeowners like
Plaintiffs Charles and Diane Giles. In the case of Plaintiff Bender, PHS continued its
fictitious representation of Wachovia as the purported Trustee for the Series
2004-WWF1 PSA for more than 20 months after PHS received conclusive
confirmation from Senior Vice President Mark A. Farmer that Wachovia Bank,
N.A. is not the Trustee and not the holder of mortgages bundled into the Series
2004-WWF1 PSA investment instrument.
137
135. When PHS believed it needed the assistance of more substantial legal
brainpower in connection with its assertion of Wachovias claims against Plaintiff
Bender in bankruptcy court, it turned to one of its defense lawyers in this litigation,
Jonathan J. Bart of Wilentz, Spitzer & Goldman, P.A., who on June 24, 2009 entered a
formal appearance on behalf of WACHOVIA BANK, N.A., as Trustee in the Bender
bankruptcy matter.
138
While this unauthorized representation of Wachovia would no
doubt have come as a surprise to Wachovia Senior Vice President Mark Farmer, who in
October 2007 explicitly instructed PHS to correct the public record and desist in its
representation of WACHOVIA BANK, N.A. as Trustee, this was just one of many
instances where Mr. Bart and Wilentz, Spitzer & Goldman, P.A. have served as house
counsel for PHS and other foreclosure law firms defending charges of impropriety by
the UST and distressed homeowners. (see below at 175f and n. 179, 182).

137
See, e.g., Bender Amended Proof of Claim dated April 7, 2009 (Ex. I).
138
See Notice of Appearance and Demand for Service of Papers Pursuant to Section 1109(b) of the
Bankruptcy Code and Rules 1020 and 2002 of the Federal Rules of Bankruptcy Procedure filed by
Jonathan J. Bart of Wilentz, Spitzer & Goldman, P.A. on June 24, 2009 in In re Bender, Bankr. No. 08-
21193 REF (Bankr. E.D.Pa.) (capitalization in original)(Docket Item 55) (Ex. Y).
61
136. Years after Wachovia sold its corporate trust and institutional custody
businesses on December 30, 2005, and long after PHS learned authoritatively that it was
improper for it to initiate foreclosure actions in the name of Wachovia as trustee for
owners of securitized mortgages, PHS nevertheless continued to file and prosecute the
same kind of improper foreclosure actions on behalf of Wachovia, as Trustee. See,
e.g., Lebanon County Sheriff List of Valuable Real Estate to be sold on February 10,
2009, Sale No. 15, pursuant to a writ of execution obtained by PHS in an action entitled
Wachovia Bank, N.A., as Trustee for GSMPS 2005-RP3 v. Douglas A. Schultz.
139
137. Another disturbing case is that of Victor and Enoabasi Ukpe, a self-
employed taxi driver from Nigeria and his homemaker wife who support five children
under 10-years-old.
140
After giving a ride to a passenger who worked as a mortgage
broker, Victor Ukpe and his wife were persuaded to purchase a house and take out a
$224,000 mortgage loan, based upon a household adjusted gross income of just $12,198
(an amount less than half the federal poverty guideline of $25,210 for a family of six).
141
138. The Ukpes were unable to afford their mortgage payments. On March 13,
2008, PHS and Defendant Diamond, purportedly on behalf of Bank of New York as
Trustee for the Certificate Holders of CWABS, Inc., Asset-Backed Certificates Series
2005-AB-3,
142
filed a mortgage foreclosure complaint against the Ukpes in the Superior

139
See Ex. Z at p. 2.
140
See Bank of New York v. Ukpe, (D.N.J. Dec. 9, 2009) (Ukpe Remand Order).
141
See Bank of New York v. Ukpe, 09-cv-01710-JHR-JS (D.N.J.), Excerpts from Brief of Defendant/Third-
Party Plaintiffs Victor and Enoabasi Ukpe in Opposition to Motion to Daniel Bernheim, Esq. Pro Hac Vice
and in Support of Cross-Motion to Disqualify Wilentz, Goldman & Spitzer, P.A., filed on September 8,
2009 (Docket Item 31) (Ex. A1 ) at 3.

62
Court, Chancery Division, for Atlantic County, New Jersey.
143
The action filed by PHS
against the Ukpes was assigned to the Hon. William C. Todd III.
139. With assistance from South Jersey Legal Services, Inc, the Ukpes filed an
answer, affirmative defenses, counterclaims and a third-party complaint against PHS and
other parties with an interest in the Ukpes mortgage, including its servicer, Defendant
herein Countrywide.
144
Among other things, the Ukpes alleged that PHSs foreclosure
complaint was based on a fraudulent assignment of a mortgage note from Mortgage
Electronic Registration Systems, Inc. [MERS] to Plaintiff [Bank of New York]. Based
on these allegations and on supporting evidence presented by counsel for the Ukpes, in
January 2009, Judge Todd denied PHSs motions to strike the Ukpes answer and for
summary judgment.
145
140.With respect to the Ukpes affirmative claims for relief against PHS and its
clients, PHS refused to provide critical discovery requested by the Ukpes counsel.
Nevertheless, the Ukpes counsel were able to obtain testimonial and documentary
evidence to support allegations that (in the words of the Hon. Joseph H. Rodriguez of the
United States District Court for the District of New Jersey):
Francis Hallinan, a partner at the Phelan firm, executed the
assignment in his capacity as a MERS officer, while the Phelan
firm was a vendor to MERS, the assignor; the Phelan firm also
represents the Plaintiff [Bank of New York] in this foreclosure
action, as well as the mortgage servicer, Countrywide Home Loans
Servicing, LP. The three Phelan firm named partners, including
Hallinan, own Full Spectrum Holdings, which is comprised of Full
Spectrum Legal Services, Inc. (FSLS) and Land Title Services.
The in-house notary for FSLS, Thomas Strain, testified during
deposition that over the previous three years, he falsely

143
See Upke Remand Order at 3.
144
Id.
145
Id. at 5.
63
acknowledged tens of thousands of mortgage assignments for
the Phelan firm, including the assignment in this case.
146

141.In a telephone conference on January 16, 2009, Judge Todd called for a
plenary hearing to:
get to the bottom of what it viewed as a possible systemic problem
involving the alleged false notarization of assignments in which a
[PHS] lawyer played a central role in the process.The Court
expressed a great deal of concern about the process by which the
assignment in this and other cases was created, the circumstance
that the lawyer, Mr. Hallinan, signed the assignment representing
one party to the transaction while his law firm represented the
other party. The Court expressed suspicion about the various roles
played by Mr. Hallinan and noted the potential for conflicts. The
major problem the Court had was not with the alleged false
notarization by the notary. Rather the problem was the attorneys
participation in the process. The Court also raised the issue of an
appropriate remedy and recognized that the situation could impact
a host of foreclosure cases. Ultimately, the Court expressed a goal
to get to the bottom of the matter and to make sure everybody
gets it right.
147

142.Judge Todd entered an Order dated January 21, 2009, requiring PHS to
produce Defendant Hallinan and notary Thomas Strain at the plenary hearing,
148
which
was ultimately scheduled for April 20, 2009. Judge Todd also required PHS to produce at
the hearing the original copy of Full Spectrums notarization logs.
143.Having no desire for Judge Todd to learn the true facts or get it right at the
April 20, 2009 hearing, defendants abruptly removed the Ukpes action to federal court in
Camden on April 9, 2009, where it was assigned to Judge Rodriguez. Upon motion by the
Ukpes, Judge Rodriguez remanded the case to New Jersey Chancery Court by Order
dated December 9, 2009.

146
Id. at 6 (emphasis supplied).
147
Letter dated April 11, 2009 to the Hon. William C. Todd, III, P.J.Ch., from Abigail B. Sullivan, counsel
for the Ukpes. (Ex. B1) (emphasis supplied).
148
Ex. C1 at 9.
64
144.In the meantime, Judge Todd did not overlook the evidence presented to him
by counsel for the Ukpes. Judge Todd took the extraordinary initiative of advising other
Chancery Court judges in New Jersey about falsified mortgage assignments associated
with PHSs office.
149
In a furtive attempt to rehabilitate the reputation of his firm,
Defendant Lawrence Phelan sent an ex parte letter to Judge Todd (1) notifying the judge
that PHS had at its own expense re-executed and re-recorded 2,921 mortgage
assignments that were fraudulently notarized by Full Spectrum employee Thomas Strain
at the behest of Defendant Hallinan, described in PHSs web site as the law firms
behind the scenes manager who ensures that the job gets done
150
evidently by any
means necessary; and (2) imploring the judge to circulat[e] PHSs notification of [its]
corrective actions to other Chancery Court judges.
145.As demonstrated throughout this Complaint, the so-called corrective
actions described by Defendant Phelan are far too little and years too late. Even then,
these corrective actions relating to improper land recording practices were
transparently superficial and ineffective because they did not also extend to Pennsylvania
homeowners like Plaintiff Rhodes, who were likewise sued in foreclosure actions by PHS
on the basis of problematic assignments that were (1) executed by Defendant Hallinan,
purportedly as vice president of MERS (2) to Bank of New York as Certificateholders
of [a] CWABS Asset Backed Certificate Series; (3) acknowledged by notary Thomas
Strain; and (4) recorded upon the ostensible authority of PHSs real client, mortgage
servicer Countrywide. In the case of Plaintiff Rhodes mortgage assignment, the precise

149
See Letter dated May 8, 2009 from the Hon. William C. Todd III to Abigail B. Sullivan, Esq. of South
Jersey Legal Services, Inc. and Dashika R. Wellington, Esq. of Wilentz, Goldman & Spitzer (there as here
counsel for PHS), enclosing ex parte letter dated April 29, 2009 from Defendant Lawrence T. Phelan to the
Hon. William C. Todd III. (Ex. D1).
150
www.fedphe.com/pages/FSH.htm
65
address of the named assignee is listed as that of Countrywide rather the assignee
specifically identified in the instrument, Bank of New York.
151

146.Six years ago, PHS spurned an opportunity to undertake real corrective
actions to the wrongful practices that are so out of control today. In Abramson v.
Federman & Phelan, LLP, 313 B.R. 195, 198 (Bank. W.D.Pa. 2004), PHSs predecessor
firm (represented by Daniel Bernheim and Jonathan Bart, the same lawyers now acting as
counsel for PHS in this litigation) persuaded the Hon. Warren W. Bentz of the United
States Bankruptcy Court for the Western District of Pennsylvania to dismiss a proposed
class action alleging that Federman & Phelan violated, inter alia, the FDCPA by virtue of
the law firms filing of bankruptcy proofs of claim which overstated the mortgage
arrears as part of a course of conduct in which mortgage arrears are regularly overstated.
313 B.R. at 196. Without making any determination concerning the truth of plaintiffs
allegations, Judge Wentz felt constrained to limit plaintiffs remedies to those explicitly
enumerated in the Bankruptcy Code, a conclusion not required by statutory or case
law.
152

147.Emboldened by their success before Judge Wentz, PHSs lawyers
proclaimed on a former web site that they are Leader[s] In Protecting Lenders In
Bankruptcy Class Actions.
153
These lawyers boasted that their supposed legal acumen
provides their clients a measure of security against the rapid expansion of class action

151
See Assignment of Plaintiff Rhodes mortgage dated November 17, 2007 (Ex. E1).
152
See Plaintiffs Memorandum of Law in Opposition to Defendants Motion to Dismiss the initial
complaint in this litigation, filed on May 8, 2009 (Docket Item 3) at 14-19. See also Kline v. Mortgage
Electronic Security Systems, Inc., 2009 WL 3064660 (S.D.Ohio Sept. 21, 2009), citing, Randolph v. IMBS,
Inc., 368, 726, 730 (7
th
Cir. 2004) (rejecting magistrates recommendation to dismiss FDCPA allegations
involving the filing of false bankruptcy proof of claims because there is no indication that the Bankruptcy
Code covers the whole subject of the FDCPA and was clearly intended as a substitute).
153
See Ex. F1.
66
litigation claims against lenders."
154
(See below at 175f and n. 179, 182). Rather than
undertake remedial measures to amend the systematic problems brought to Judge Wentz
attention in 2004, as responsible lawyers would have done, PHS was so convinced of its
security against class actions that it continued to conduct its illegal operations with
impunity, an ongoing abuse of struggling homeowners and the judicial system that
reflects neither conscience nor restraint.
155

3. PHSs Wrongful Conduct Is Facilitated
By Its Thoughtless, Mechanical Application
of Client-Mandated Computer Programs

148. In the words of PHSs own litigation counsel, loan administration is
generally automated, so if charges are erroneously inputted, incorrect charges will be
generated.
156
149. By its own account, both of PHSs offices are completely computerized
and equipped with every case management and invoice reporting system[] used by the
mortgage foreclosure industry, including LenStar, VendorScape, NewTrak, iClear, Alltel
and NewInvoice, all of which are client-based web sites.
157
150. As demonstrated above at 56-65, many state and federal judges
throughout the United States have found that accounting systems used by Defendants
Countrywide and Wells Fargo are systematically incapable of generating reliable
financial information about their borrowers mortgages.

154
Id.
155
Defendant Rosemarie Diamond of PHS shared her insight into the topic of the FDCPA and Class
Actions as a panelist at a meeting of the USFN trade group at the Grand Hyatt Hotel in Denver on July 19-
20, 2007
(http://www.usfn.org/Content/NavigationMenu/SEMINARSTRAININGEVENTS/USFNSeminarArchive/2007LegalIss
uesSeminar/LegIss07_Brochure_FINAL_06.01.07_Clickable_rev.pdf).
156
Id.
157
http://www.fedphe.com/. See also PHS listings in 2006 USFN Membership Directory at 11, 14
(http://www.zp-production.com/sm/pdf/ar-USFN06.pdf)
67
151. As a condition of its retention by clients like Defendants Wells Fargo and
Countrywide, PHS is required to use whatever case management and invoice reporting
system is dictated by its clients. It is through these systems that PHS (1) receives its
initial case referrals; (2) obtains financial and legal information used to perform its work
assignments; (3) is required to submit periodic status reports; and (4) submits invoices
and receives payments from its clients.
152. These systems also permit PHSs clients to monitor the speed by which PHS
performs its services, which is measured against specific timelines for the completion
of specified tasks during the foreclosure and bankruptcy processes.
158
PHS receives
specific grades from its clients with respect to its performance vis-a-vis required
timeliness. A good grade may translate into more case referrals. Conversely, a bad
grade can result in a significant reduction of work assigned to PHS.
159
Thus, PHSs web
site, which is used by PHS as a marketing tool to both existing and prospective clients,
emphasizes (1) PHSs proficiency in the use of every case management and invoice

158
PHS and Wells Fargo are default management clients of Lender Processing Services, Inc. (LPS),
as was Countrywide until its acquisition by Bank of America. LPS describes itself as the nation's leading
provider of mortgage processing services, settlement services, mortgage performance analytics, and default
solutions, which are used by a majority of the 50 largest U.S. banks that rely on its services.
(http://interchange.lendingsvcs.com/providers.html; (http://interchange.lendingsvcs.com/providers.html.
According to LPSs web site, [w]hen clients refer a loan to local counsel through LPS Foreclosure
Solutions, Inc., the loan timeline is managed until resolution. Clients identify the unique requirements of
their portfolios, and the loans are processed through LPS Foreclosure Solutions, Inc. to ensure the most
efficient outcome. Internal time limitations for key events are set, and active monitoring is conducted to
minimize the overall timeframe from referral to resolution. The loan-level data is reported to LPS partners
on a daily basis using LPS Desktop, a Web-based default management technology).
(http://www.lpsvcs.com/DefaultSolutions/ForeclosureandBankruptcyOutsourcing/Pages/default.aspx).
159
See Solving Foreclosure Management Challenges Series: Foreclosure Timeline Mangement, FREDDIE
MAC at 14 (Refer business to the firms with the best timelines) and at 26 (Communicate our foreclosure
timeline requirements to all your staff and attorneys. Encourage them to actively decrease timelines.
Instruct all of your staff and attorneys to strive for timelines that are less than our published state
foreclosure timelines).
(http://74.125.93.132/search?q=cache:uQ22Vyvaj2kJ:www.freddiemac.com/learn/pdfs/service/sdmcftrec.pdf%20mortgage%20forecl
osure%20counsel%20%20%20timelines&hl=en&gl=us )
68
reporting system in the industry; and (2) PHSs ability to ensure as quick a turnaround
time as humanly possible.
160

153. Given the substantial rewards that PHS receives from its single-minded
devotion to rapid delivery of its services, PHS demonstrates no concern about accurate
billing of foreclosure costs, proper legal standing of its clients to bring foreclosure
actions or the success of programs like Philadelphias Residential Mortgage Foreclosure
Diversion Pilot Program. For lawyers like PHSs Rosemarie Diamond, the cost/benefit
analysis requires no difficult calculation. Delay is unproductive and waste[ful]
161
;
on the other hand, speed is highly profitable and the means by which PHS maintains its
position as the premier mortgage foreclosure law firm in the Pennsylvania-New Jersey
region and the largest such firm in Pennsylvania.
162
Stated another way, there is little
for PHS to gain by doing its job responsibly or by giving distressed homeowners a fair
opportunity to remain in their homes during a time of national financial crisis but, to
quote a well-known phrase, there are millions of unearned dollars to be made by
subscribing to the greed is good philosophy of doing business.
154. On April 15, 2009, the Hon. Diane Weiss Sigmund of the United States
Bankruptcy Court for the Eastern District of Pennsylvania wrote a 58-page opinion
describing improper industry-wide practices of profit-obsessed foreclosure law firms like
PHS.
163

155. In that case, Judge Sigmund granted the USTs request for discovery
concerning use by foreclosure law firms of computerized mortgage default solutions

160
161
See 44, above.
162
http://www.fedphe.com/.
163
In re Taylor, 407 B.R. 618 (Bankr. E.D.Pa. 2009)
69
provided by LPS, including a product called NewTrak,
164
which is also part of PHSs
smorgasbord of client-based computer programs.
165
After four lengthy evidentiary
hearings in which the UST was invited to participate, Judge Sigmund found that one
high-volume Philadelphia-area mortgage foreclosure law firm with a comparable
attorney-to-staff member ratio to PHS,
166
on a systemic basis,
167
demonstrated a
slavish adherence
168
to its clients computer-driven models and communications to
inexpensively traverse the path to foreclosure [that] offends the integrity of our American
bankruptcy system.
169

156. After evaluating the evidence presented during four evidentiary hearings,
Judge Sigmund concluded that:
[M]ortgage lenders upload all or part of the mortgage documents
and loan records of specified borrowers into the NewTrak system.
Attorneys are engaged on a case by case basis through NewTrak to
handle specified tasks. They get their assignments from NewTrak
and report and/or seek further direction by "opening up an issue"
on NewTrak.
170

The manager in charge of the law firms bankruptcy department
relied on the NewTrak system for all factual information about
the loan, without any direct contact with the firms client. The law
firms processors (including paralegals) were instructed to
communicate by NewTrak and could only deviate from this
practice by using [the law firms] "escalation procedures, i.e.,
making a request of an assistant manager and then manager.
Neither the bankruptcy department manager nor anyone that she
supervised was requested to check the accuracy of any of the
NewTrak data
171

164
Id. at 623.
165
See 76, above.
166
While PHS says that it has 17 attorneys and 250 staff members, the foreclosure law firm before Judge
Sigmund has 10 lawyers and 130 staff members. In re Taylor, 407 B.R. at 626.
167
Id. at 639
168
Id. at 649
169
Id. at 651
170
Id. at 623.
171
Id. at 632-33.
70
NewTrak interposes a LPS processor as intermediary between
mortgage lenders or servicers and the law firm that the system
engages from a list pre-approved by the lender or servicer. With
the loan data uploaded to a LPS system by the lender or servicer,
LPS responds to the perceived needs of retained counsel to
perform the assigned task, at times addressing the lender or
servicer electronically for further information. The retained
counsel does not address the client directly.
172

In a brief to the court (written by Messrs. Bernheim and Bart, who
now represent PHS in this litigation), the foreclosure firm
acknowledged that it is one of many law firms that conduct a high
volume foreclosure bankruptcy practice and if a lender requires
that a law firm enter into an agreement with its agent, a servicing
company such as Fidelity [National Information Services, also
known as LPS], [the law firm] has no choice but to participate in
such a program if it wants to do business."
173

157. In this context, Judge Sigmund agreed with an observation by the Hon.
Jeff Bohn of the United States Bankruptcy Court for the Southern District of Texas, who
remarked that mortgage lenders and servicers, together with their high volume
foreclosure law firms, have fostered a corrosive assembly line culture of practicing
law.
174
158. In sanctioning the law firm before her, Judge Sigmund specifically
criticized (1) a senior-level attorney for becoming so enmeshed in the assembly line of
managing the bankruptcy department's volume mortgage lender practice that she has lost
sight of her duty to the court and has compromised her ethical obligations
175
and (2) the
firms sole shareholder (who argued that his firm's reliance on NewTrak and other such
aids [was] essential to the economic structure of the law practice) for fostering a law

172
Id. at 637.
173
Id. at 638. See also, Michael Sasso, Law Firm Gorges On Home Defaults, TAMPA TRIB., January 3,
2010 (Dubbed foreclosure mills by some in the industry, these [law firms] have turned the job into a
factorylike process. Speed is the key to their success) (http://www2.tbo.com/content/2010/jan/03/na-law-
firm-gorges-on-home-defaults/news-breaking/).
174
In re Taylor, 407 B.R. at 641, quoting, In re Parsley, 384 B.R. 138, 183 (Bankr. S.D.Tex. 2008).
175
Id. at 648.
71
firm culture that appears to value production over professionalism, a priority
acceptable for a business but potentially antagonistic to the practice of law.
176
159. Observing that the anomalies she identified are not isolated to this case
or to this residential mortgage lender law firm,
177
Judge Sigmund expressed hope that
her published opinion will lead to systemic changes in the institutionalized practices of
high-volume foreclosure law firms, which (in their ambition to cultivate advantageous
business relationships with [their] mortgage lender client base and to enhance their
own bottom line) abandon their professional responsibilities through rigid adherence
to their clients automated procedures.
178

159. If the past is prologue to the future, PHS and law firms of its dollar-driven
disposition will not serve voluntarily as constructive agents of systemic change in the
foreclosure industry. Systemic change, if it comes at all, must result from judicial

176
Id at 648-49
177
Id at 649. Judge Sigmunds observation is borne out by an agenda distributed at USFNs Fall
Regional Default Servicing Seminar at the Omni Hotel in San Diego on September 20-22, 2006, an event
where Fidelity National Information Services (now LPS) acted as the MVP Sponsor and where PHS was
identified among the foreclosure law firms listed as a Heavy Hitter and a Gold Sponsor. The session
outline of groups meeting on September 21
st
reveals, as Judge Sigmund noted, that timeline
management and report cards, and strictly circumscribed day-to-day communication between attorneys
and their servicer clients are issues of paramount importance to Americas Mortgage Banking Attorneys
and their corporate masters (e.g., Verbal Communication is limited by Contact Matrices, Voice Mail
Polic[ies] and Escalation procedures, while Non-Verbal Communication is reserved for SOS or
Urgent Situations.) See http://www.southlaw.com/USFN.Fall.06.pdf. The session outline of groups
meeting on September 22
nd
also reveals what this group believed to be the Benefits of Standardization and
Automation of Restatement Process: (a) Reduction of Costs; (b) Increase in Speed and (c) and, only
then, as an evident afterthought, Improvement of Accuracy. Id. Among the featured panelists at the
USFNs soire in San Diego was Jeff Niklawski of Defendant Wells Fargo. Id.
178
In re Taylor, 407 B.R. at 649, 645. While Judge Sigmund hopes that foreclosure attorneys will rely less
on technology and more on their professional training, the reality is that the foreclosure industry is working
in the opposite direction toward the objective of having attorneys do all of their work in their case
management system. See
http://www.usfn.org/AM/Template.cfm?Section=Home&CONTENTID=6867&TEMPLATE=/CM/HTMLDisplay.cfm&SECTION=
Article_Library (emphasis supplied) (Automating these critical business processes can provide maximum
return on investment for firms by reducing labor overhead and building resource capacity to handle more
files).

72
enforcement of homeowners legal rights, a fundamental privilege of American
citizenship ignored by PHS and its co-defendants.
V. CLASS ACTION ALLEGATIONS
160. Plaintiffs bring this lawsuit individually and as a class action under Rule
23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure on behalf of all members
of the following Class (PHS Overcharge Class):
All homeowners who, during the period from January 15, 2004
through the present (Class Period), (1) were defendants in mortgage
foreclosure actions prosecuted by Phelan Hallinan & Schmeig, LLP,
Phelan Hallinan & Schmeig, P.C., Phelan Hallinan Schmeig &
Diamond, P.C., their predecessors, affiliates, subsidiaries or attorneys
(PHS); (2) obtained a stay of sheriffs sale proceedings and (3)
sustained damages resulting from inflated or fabricated mortgage
foreclosure costs charged or claimed by PHS.

161. Plaintiffs also bring this lawsuit individually and as a class action under
Rule 23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure on behalf of all
members of the following Class (PHS Improper Representation Class):
All homeowners who, during the period from January 15, 2004
through the present (Class Period), were defendants in mortgage
foreclosure actions (1) prosecuted by Phelan Hallinan & Schmeig,
LLP, Phelan Hallinan & Schmeig, P.C., Phelan Hallinan Schmeig &
Diamond, P.C., their predecessors, affiliates, subsidiaries or attorneys
(PHS); and (2) in which PHS purported to represent a party that
lacked legal standing to bring a mortgage foreclosure action at the time
PHS filed its complaint.

162. The PHS Overcharge Class and the PHS Improper Representation Class
are collectively referred to in this Complaint as the Classes.
163. This litigation is properly maintainable as a class action.
164. The Classes are so numerous and geographically dispersed that joinder of
all members is impracticable. Defendant PHSs web site boasts that it is the largest
73
[residential mortgage foreclosure] firm in Pennsylvania and one of the few law firms to
handle foreclosures, bankruptcies and asset recovery actions for the entire states of New
Jersey and Pennsylvania. According to Defendant Hallinan, PHS handled an estimated
24,000 to 26,000 foreclosure prosecutions in Pennsylvania and New Jersey during 2008
alone, a fraction of the foreclosure actions prosecuted by PHS during the entire Class
Period.
179

165. There are questions of law and fact common to the Classes. These
common questions relate to the existence of the wrongful conduct alleged, and to the type
and common pattern of injury sustained as a result thereof. The questions include but are
not limited to:
a. Whether Defendants as a matter of regular practice overstated or
fabricated the amount of fees due from Plaintiffs and members of the Classes in
connection with foreclosure sales that did not proceed to completion, including, inter
alia, (1) sheriffs deposit refunds; (2) attorneys fees; (3) real estate title and litigation
support costs; (4) property inspection and valuation fees; and (5) duplicative costs for
services already included in independent charges.
b. Whether PHS as a matter of regular practice misappropriated and
converted to its own use (and/or the use of its clients) deposits refunded by county
sheriffs to PHS in connection with foreclosure sales that did not proceed to completion,
the amounts of which should have been credited without delay to the accounts of
Plaintiffs and members of the Classes.
c. Whether PHS as a matter of regular practice filed foreclosure actions

179
See above at 75.

74
against homeowners in the name of clients that lacked proper legal standing to bring
suit.
d. Whether PHS (or its employees or agents) as a matter of regular practice
falsified or caused the falsification of mortgage and note assignments recorded with
public agencies in connection with or after the filing of foreclosure actions prosecuted by
PHS.
e. Whether PHS conducted its illegal practices with the assistance or
knowing acquiescence of Defendants Countrywide and Wells Fargo.
f. The duration, sequence and character of the conduct alleged in this
Complaint, including particular acts performed by Defendants and others that deprived
Plaintiffs and members of the Classes of their legal rights and property.
g. The identity of other co-conspirators (including non-defendant lenders,
mortgage servicers, litigation attorneys, computerized mortgage servicing program
vendors, and mortgage foreclosure industry trade groups), and the extent of the co-
conspirators participation in the conduct complained of herein.
h. Whether the conduct alleged in this Complaint violated RICO.
i. Whether the conduct alleged in this Complaint violated the FDCPA.
j. Whether the conduct alleged in this Complaint violated the UTPCPL.
k. Whether the conduct alleged in this Complaint states a cause of action
for common law fraud, breach of contract, breach of duty of good faith and fair dealing,
money had and received, and/or negligent misrepresentation in violation of the common
laws of the Commonwealth of Pennsylvania and the State of New Jersey.
l. Whether Defendants conduct, as alleged in this Complaint, caused
75
injury to the person and property of Plaintiffs and other members of the Classes.
m. The appropriate measure of damages sustained by Plaintiffs and other
members of the Classes.
n. Whether restitution and disgorgement of profits are appropriate forms
of relief for the wrongful conduct alleged in this Complaint.
o. Whether injunctive relief is warranted to restrain Defendants from
continuing to engage in the wrongful conduct alleged in this Complaint, and
p. Whether an auditor or special master should be appointed to (1)
ascertain the amount of money wrongfully taken by Defendants, which should be
disgorged to Plaintiffs and members of the Classes; (b) recommend specific business
management and accounting procedures that Defendants must adopt and implement to
avoid future repetition of the wrongful conduct documented throughout this Complaint;
and (c) monitor Defendants compliance with all business management or accounting
procedures that may be ordered by the Court in granting injunctive relief in this action.
166. Plaintiffs Bender, Giles (and probably Rhodes) are members of both
Classes. All Plaintiffs are members of the PHS Overcharge Class. Plaintiffs claims are
typical of the claims of other Class members. Plaintiffs will fairly and adequately protect
the interests of the members of the Classes. Plaintiffs interests are aligned with, and not
antagonistic to, those of the other members of the Classes. In addition, competent counsel
experienced in the prosecution of class action litigation represents Plaintiffs.
167. The prosecution of separate actions by individual members of the Classes
would create a risk of inconsistent or varying adjudications, establishing incompatible
standards of conduct for Defendants.
76
168. Defendants have acted, and refused to act, on grounds generally applicable
to the Classes, thereby making appropriate injunctive relief with respect to the Classes as
a whole.
169. The questions of law and fact common to the members of the Classes
predominate over any questions affecting only individual members, including legal and
factual issues relating to liability and damages.
170. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Members of the classes are readily ascertainable, inter
alia, through records maintained in the regular course of business by PHS and other
Defendants. Prosecution as a class action will eliminate the possibility of repetitious
litigation. Treatment as a class action will permit a large number of similarly situated
persons to adjudicate their common claims in a single forum simultaneously, efficiently
and without duplication of effort and expense that numerous individual actions would
engender. Class treatment will also permit the adjudication of relatively small claims by
many class members who otherwise could not afford to litigate substantively complex
issues like those asserted in this Complaint. This class action presents no difficulties of
management that would preclude its maintenance as a class action.
VII. CLAIMS FOR RELIEF
COUNT I
VIOLATIONS OF 18 U.S.C. 1962(c) (RICO)

171. Plaintiffs, on behalf of themselves and all others similarly situated, re-allege
and incorporate by reference each of the allegations in the preceding paragraphs of this
Complaint.
77
172. This cause of action, which alleges violations of Section 1962(c) of RICO,
18 U.S.C. 1962(c), is asserted against all Defendants on behalf of the Classes.
173. Plaintiffs, each member of the Classes, and each Defendant is a person
within the meaning of 18 U.S.C. 1961(3).
174. At all relevant times, in violation of 18 U.S.C. 1962(c), Defendants
conducted the affairs of the association-in-fact enterprises identified below, the affairs of
which affected interstate commerce, through a pattern of racketeering activity.
A. The Enterprise

The PHS Mortgage Foreclosure and Bankruptcy Enterprise
175. The PHS Mortgage Foreclosure and Bankruptcy Enterprise is an association-
in-fact consisting of the following persons and entities:
a. PHS, including defendants Lawrence T. Phelan, Francis S. Hallinan,
Daniel G. Schmieg, Rosemarie Diamond, Judith T. Romano (and non-defendants Jay B.
Jones, Andrew L. Spivack, Vladimir Palma, Peter J. Mulchay, Michelle Bradford, Brian
Blake, Thomas Bodowski, Joseph Schalk and other salaried staff or contract lawyers),
together with PHSs non-defendant managerial personnel, including but not limited to
financial officer John Corporale, accounts receivable team leaders such as Eugene
Jaskiewicz, and administrative officer Susan Hoers.
b. Full Spectrum Services, Inc., Full Spectrum Legal Services, Inc., Full
Spectrum Review Services, Inc., Foreclosure Review Services, Inc., Land Title Services of
New Jersey, Inc., Land Title Services of Pennsylvania, LGI Abstract Agency, Inc.,
Creditors' Services, Inc., Eugene L. Terzano, Jr., Jean Mole, Jay Mullen, Thomas Strain,
and other agents and representatives who provide foreclosure and bankruptcy-related
78
services to PHS in Pennsylvania and/or New Jersey, including, inter alia, property
searches; duplication and filing of recorded mortgages, notes and assignments; notary
public services; and the filing, service or publication of court documents. PHS uses these
entities and individuals to implement its fraudulent foreclosure fee overcharge scheme, as
well as its institutionalized practice of prosecuting legal proceedings on behalf of clients
with no proper legal standing.
c. Mortgage servicers (including but not limited to Defendant Countrywide
and Defendant Wells Fargo) that refer mortgage foreclosure and bankruptcy matters to
PHS for prosecution. While monitoring and grading PHS on the speed of its
performance, these mortgage servicers facilitate and profit from PHSs fraudulent
foreclosure fee overcharge scheme, as well as from its institutionalized practice of
prosecuting legal proceedings on behalf of clients with no proper legal standing. They
accomplish this result, inter alia, through PHSs mandatory use of client-based case
management and invoice reporting systems.
d. Non-defendant manufacturers, marketers and distributors of client-
based case management and invoice reporting systems used throughout the residential
mortgage foreclosure industry, including (1) Loan Processing Services, Inc. (LPS,
formerly known as Fidelity National Information Services, Inc.), a Delaware Corporation
with principal executive offices at 601 Riverside Avenue, Jacksonville, Florida 32204; (2)
The First American Corporation, a California Corporation with principal executive offices
at 1 First American Way, Santa Ana, California 92707; and (3) ISGN Solutions, Inc., a
subsidiary of a corporation owned by Indian company named CFCL Technologies Ltd.,
which maintains its United States headquarters at 3220 Tillman Drive, Suite 301,
79
Bensalem, Pennsylvania 19020. Through its use of the client-based case management
and invoice reporting systems developed and sold by these parties, PHS, Wells Fargo and
Countrywide implement the unlawful schemes identified throughout this Complaint.
e. Non-defendant USFN (also known as Americas Mortgage Banking
Attorneys), a foreclosure industry trade association located at 14471 Chambers Road,
Suite 260, Tustin California 92780, whose members include foreclosure law firms,
mortgage servicers and lenders, and case management and invoice reporting system
providers. Through its membership and leadership position in USFN, PHS cultivates key
business relationships and exchanges inside information with other participants in the
residential mortgage foreclosure industry, some of which are used by PHS to engage in the
unlawful conduct identified in this Complaint. PHS is a founding member of the
USFN.
180

f. Non-defendant lawyers Daniel S. Bernheim 3
d
(Bernheim) and Jonathan
J. Bart (Bart) (both formerly affiliated with a defunct Philadelphia law firm named
Silverman, Bernheim & Vogel, now resident lawyers in the Philadelphia office of New
Jersey-based Wilentz, Goldman & Spitzer, P.A. [Wilentz firm]). Bernheim and Bart
maintain a litigation practice that they claim establishes them as Leader[s] In Protecting
Lenders In Bankruptcy Class Actions, who provide their clients a measure of security
against the rapid expansion of class action litigation claims against lenders."
181
From their
offices at 1500 Market Street, Two Penn Center Plaza, Suite 910, Philadelphia,
Pennsylvania 19102, Bernheim and Bart have become veritable house counsel to PHS.
Bernheim (who graduated with Defendant Lawrence Phelan in Villanova Law Schools

180
181
Id.
80
Class of 1980) and/or Bart have defended PHS in, inter alia, the following actions other
than this one
182
:

In re Bender, Bankr. No. 08-21193 REF (Bankr.
E.D.Pa.)

Abramson v. Federman & Phelan, LLP, 313 B.R. 19
(Bankr. W.D.Pa. 2004)
183

Bank of New York v. Ukpe, 09-cv-01710-JHR-JS
(D.N.J.), and No. F-10209-08 (Sup. Ct, Chan. Div.
N.J.)
184

Dalara v. Phelan, Hallinan& Schmieg,LLP, No. 09-2704
(E.D.Pa.)

Wright v. Phelan, Hallinan & Schmieg, LLP, No. 09-
3538 (E.D.Pa.)

Shivone v. Washington Mutual Bank, N.A., No. 07-1038
(E.D.Pa.)

While representing PHS in this lawsuit, Bart and the Wilentz firm, at the
instigation of PHS, entered a formal appearance in Plaintiff Benders bankruptcy
action, despite the fact that neither PHS nor the Wilentz firm had any legal authority to
represent their illusory mutual client, Wachovia Bank, N.A. an entity with no legal
standing to assert a claim in Plaintiff Benders bankruptcy case. See 135 and n. 138,
above. In actively assisting PHS in its professional misconduct and unlawful activities,
Bart and the Wilentz firm have participated directly in the wrongdoing at issue in this
litigation, thus making Bernheim, Bart and other Wilentz firm employees necessary and

182
Bernheim, Bart and the Wilentz firm have also applied the intimate perspective they gained their frequent
collaborations with PHS to their representation of another high-volume foreclosure law firm, which was
sanctioned for its misconduct in In re Taylor, 407 B.R. 618 (Bankr. E.D.Pa. 2009), now under appeal in No.
09-02479 (E.D.Pa.). See also Fryson v. Udren Law Offices, PC, 07-cv-00164-TON (E.D.Pa.)
183
See 146-147, above.
184
See 137-144, above.
81
important fact witnesses.
185

176. The PHS Mortgage Foreclosure and Bankruptcy Enterprise is an ongoing,
continuing group or unit of persons and entities associated together for the common purpose
of maximizing revenue through the prosecution of residential mortgage foreclosure lawsuits
and related bankruptcy court proceedings. The Enterprise operated continuously throughout
the Class Period.
177. The PHS Mortgage Foreclosure and Bankruptcy Enterprise engages in, and
its activities affect, interstate commerce.
178. While all Defendants participate in and are part of the PHS Mortgage
Foreclosure and Bankruptcy Enterprise, they also have an existence separate and distinct
from the Enterprise.
179. The members of the PHS Mortgage Foreclosure and Bankruptcy Enterprise

185
In the absence of a voluntary withdrawal of the Wilentz firm, Plaintiffs will be required to file a motion
to disqualify Bernheim, Bart and the Wilentz firm from further representation of PHS in this action. It
should be noted that these lawyers and this law firm have also represented PHS in Bank of New York v.
Ukpe under similar conflicts of interest, there simultaneously representing Bank of New York (the
purported mortgage holder), MERS (the purported assignor of the mortgage), Countrywide (the mortgage
servicer), in addition to Thomas Strain (the notary employed by Full Spectrum who testified that he
falsified thousands of mortgage assignment acknowledgements on behalf of PHS, including the fraudulent
assignment to Bank of New York). See 137-144, above. The active participation of Bernheim, Bart and
the Wilentz firm in PHSs unlawful activities (together with their sustained involvement in the legal affairs
of PHS, Full Spectrum and its former employee Thomas Strain) establish that Bernheim, Bart and the
Wilentz firm act in effect as PHSs house counsel, circumstances that should disqualify them from
serving as counsel for PHS in this litigation. See, e.g., United States v. Locasio, 6 F.3d 924, 931-32 (2d.
Cir. 1993), citing the thoughtful and well-reasoned opinion of the Hon. I. Leo Glasser in United States v.
Gotti, 771 F.Supp. 552, 560 (E.D.N.Y.1991), which found that attorney Bruce Cutler, who served as
[John] Gotti's attorney in previous criminal trials in federal court had acted as house counsel to the
Gambino Crime Family by receiving benefactor payments from Gotti to represent others in the criminal
enterprise. Here, there is little doubt that Bernheim and Bart received payments from PHS for their
representation of Mr. Strain as well as for their own unauthorized joint representation of Wachovia).
Moreover, befitting their role as enforcer for the PHS Mortgage Foreclosure and Bankruptcy Enterprise,
Bernheim and Bart attempt to intimidate adversaries through unseemly assaults on their character. See, e.g., In
re Taylor, 407 B.R. at 648 n. 60 (Judge Sigmund criticized the aggressive stance taken on behalf of a
sanctioned foreclosure firm represented by Bernheim and Bart, who failed to acknowledge any
deficiencies in the firms practice, blamed debtors counsel and the court for those deficiencies, and
argued that the problem was everyone but the responsible [sanctioned law firm] attorneys; highlighting
the disservice done to their client, Judge Sigmund said she hoped that the clients posture represented the
overheated advocacy of its counsel rather than that of the client itself).
82
are linked systematically through contractual relationships, financial transactions and
coordinated activities, much of which are executed through electronic case management
and invoice reporting systems utilized by virtually the entire residential mortgage
foreclosure industry.
B. Defendants Use of the U.S. Mails
and Interstate Wire Facilities

180. The PHS Mortgage Foreclosure and Bankruptcy
Enterprise necessarily engaged in and affected interstate commerce by virtue of its
members physical locations in many different states throughout the United States: (1) PHS
maintains offices, employees and controlled companies in both Pennsylvania and New
Jersey; (2) Wells Fargo maintains corporate headquarters in California and conducts
mortgage servicing business from offices in Iowa; (3) before its acquisition by Bank of
America, Countrywide maintained corporate headquarters in California and conducted
mortgage servicing business from offices in Texas; (4) Bank of America maintains
corporate headquarters in North Carolina and, like Countrywide before it, conducts
mortgage servicing business from offices in Texas; (5) the major providers of case
management and invoice reporting systems used by the Enterprise are based in Florida,
California and Pennsylvania; (6) the USFN (Americas Mortgage Banking Attorneys) is
based in California and conducts seminars in resort locations throughout the nation; and
(7) PHS house counsel Bernheim and Bart have offices in Pennsylvania, and they are
shareholder and counsel of the New Jersey-based Wilentz firm.
181. During the Class Period, Defendants illegal conduct and wrongful practices
were carried out by an array of legal and mortgage servicing personnel, working across state
boundaries, who necessarily engaged in frequent transfers of correspondence, legal
83
documents, loan data, information, products, invoices, account statements, financial
instruments and currency, in most cases by use of the U.S. mail and interstate wire facilities.
182. For purposes of executing and/or attempting to execute the above-detailed
schemes to inflate or fabricate foreclosure costs and to initiate foreclosure actions in the
name of parties without legal standing to bring them, Defendants, in violation of 18 U.S.C.
1341, (a) placed in United States Post Offices and/or in other authorized repositories matters
or things to be sent or delivered by the United States Postal Service; (b) caused matter and
things to be sent or delivered by the Postal Service; (c) caused matter and things to be
delivered by commercial interstate carriers, and (d) received matter and things delivered by
the Postal Service and/or commercial interstate carriers. The matter and things described
herein include, but are not limited to, correspondence, land records, court filings, legal
agreements, property searches, invoices, reports, financial data, invoices, account
statements, currency and all other documents regularly transmitted during the residential
mortgage foreclosure process.
183. For purposes of executing and/or attempting to execute the above-detailed
schemes to inflate or fabricate foreclosure costs charged to homeowners and to prosecute
foreclosure lawsuits in the name of parties without legal standing to bring them, Defendants,
in violation of 18 U.S.C. 1343, transmitted and received by wire or other electronic means
of communication, matter and things, including, but not limited to, correspondence, land
records, court filings, legal agreements, property searches, invoices, reports, financial data,
invoices, account statements, currency and all other documents regularly transmitted during
the residential mortgage foreclosure process.
184. Many of the precise dates of Defendants uses of the U.S. mails and
84
interstate wire facilities (and corresponding RICO predicate acts of mail and wire fraud)
have been concealed by Defendants and cannot be alleged in complete detail here without
access to Defendants books and records. However, as alleged below, Plaintiffs can identify
specific transactions in which Defendants used the U.S. mail and wire facilities, specific
occasions on which RICO predicate acts of mail fraud and wire fraud occurred, and they
can describe specifically how those acts were in furtherance of Defendants schemes to
inflate or fabricate foreclosure costs charged to homeowners and to prosecute foreclosure
actions in the name of parties without legal standing to bring them.
185. In 2007, Defendant Countrywide sent an electronic transmission to PHS,
requesting PHS to initiate a mortgage foreclosure lawsuit against Plaintiff Rhodes on behalf
of the Bank of New York, as trustee for investors of a mortgage-backed financial
instrument. After it obtained a judgment against Plaintiff Rhodes, PHS used the U.S. mail
and/or wire facilities to request the Sheriff of Berks County, Pennsylvania to conduct a
sheriffs sale of Plaintiff Rhodes home on January 11, 2008, accompanied by the sum of
$2,000 as a deposit for sheriffs fees. After Plaintiff Rhodes filed a bankruptcy petition on
January 10, 2008, PHS received an electronic transmission from Countrywide, instructing
PHS to file a proof of claim against Plaintiff Rhodes on behalf of Bank of New York. To
ascertain the amount of such claim, PHS presumably obtained invoices, reports and
statements from Countrywide and PHSs service providers, whether by mail or by
electronic means. Through the federal court systems electronic filing system, PHS filed the
false proof of claim dated January 28, 2008, identified above at 83, 109. Thereafter, on
or about May 8, 2008, PHS received, either electronically or by U.S. mail, the sum of $ 909
from the Sheriff of Berks County, Pennsylvania, representing the partial return of Plaintiff
85
Rhodes sheriffs deposit to be credited to Plaintiff Rhodes account. However, upon receipt
of this money, PHS (electronically, by U.S. mail or otherwise) instead deposited the $ 909
into an unknown account (either an account of Countrywide or an account owned by PHS
or one of its controlled entities). Either electronically or by U.S. mail, PHS received a
receipt or statements reflecting Plaintiff Rhodes sheriffs refund into the unknown account,
where that money remained or was put to other uses by PHS and/or Countrywide for
eleven months before it was, only after the initiation of this lawsuit, finally credited to
Plaintiff Rhodes account through the electronic filing by PHS of an amended bankruptcy
proof of claim dated April 7, 2009.
186. In the days immediately before June 22, 2007, Defendant Wells Fargo sent
an electronic transmission to PHS, requesting PHS to initiate a mortgage foreclosure lawsuit
against Plaintiff Bender in the name of the Wachovia Bank, N.A, as trustee for the Series
2004-WWF1 PSA, which had no interest in Plaintiff Benders mortgage. On June 22, 2007,
PHS caused to be filed with the Court of Common Pleas for Berks County, Pennsylvania
the false and misleading mortgage foreclosure complaint identified above at 112-115
and Ex. O. Electronically or through the U.S. mail, PHS communicated with Wells Fargo
and its service providers about the necessity of preparing and filing two purported
assignments of Plaintiff Benders mortgage, one from Argent to Ameriquest, the other
from Ameriquest to Wachovia, which were in fact recorded with the Recorder of Deeds for
Berks County, Pennsylvania on October 11, 2007 (see 116 and Ex. P and Q). After PHS
obtained a judgment against Plaintiff Bender, it used the U.S. mail and/or wire facilities to
request the Sheriff of Berks County, Pennsylvania to conduct a sheriffs sale of Plaintiff
Benders home, accompanied by the sum of $2,000 as a deposit for sheriffs fees. After
86
Plaintiff Bender filed a bankruptcy petition on June 4, 2008, PHS received an electronic
transmission from Wells Fargo, instructing PHS to file a proof of claim against Plaintiff
Bender on behalf of Wachovia Bank. To ascertain the amount of such claim, PHS
presumably obtained invoices, reports and statements from Wells Fargo and PHSs
service providers, whether by mail or by electronic means. Through the federal court
systems electronic filing system, PHS filed the false proof of claim dated July 3, 2008,
identified above at 88, 109. Thereafter, on or about October 9, 2008, PHS received,
either electronically or by U.S. mail, the sum of $ 601 from the Sheriff of Berks County,
Pennsylvania, representing the partial return of Plaintiff Benders sheriffs deposit to be
credited to Plaintiff Benders account. However, upon receipt of this money, PHS
(electronically, by U.S. mail or otherwise) instead deposited the $ 601 into an unknown
account (either an account of Wells Fargo or an account owned by PHS or one of its
controlled entities). Either electronically or by U.S. mail, PHS received a receipt or
statements reflecting Plaintiff Benders sheriffs refund into the unknown account, where
that money remained or was put to other uses by PHS and/or Wells Fargo for six months
before it was, only after the initiation of this lawsuit, finally credited to Plaintiff Benders
account through the electronic filing by PHS of an amended bankruptcy proof of claim
dated April 7, 2009. PHS, through electronic means or otherwise, later requested Bart and
the Wilentz firm to enter an appearance in Plaintiff Benders bankruptcy case on behalf of
Wachovia Bank (see 135, 175f, Ex. Y), which was in fact accomplished through the
electronic filing in the United States Bankruptcy Court for the Eastern District of
Pennsylvania of an entry of appearance of Bart and the Wilentz firm on behalf of Wachovia
Bank on June 24, 2009.
87
187. In 2005, Defendant Wells Fargo sent an electronic transmission to PHS,
requesting PHS to initiate a mortgage foreclosure lawsuit against Plaintiff Wolferd. After it
obtained a judgment against Plaintiff Wolferd, PHS used the U.S. mail and/or wire
facilities to request the Sheriff of Lancaster County, Pennsylvania to conduct a sheriffs
sale of Plaintiff Wolferds home, accompanied by the sum of $2,500 as a deposit for
sheriffs fees. After Plaintiff Wolferd filed a bankruptcy petition on August 1, 2005, PHS
received an electronic transmission from Wells Fargo, instructing PHS to file a proof of
claim against Plaintiff Wolferd on its behalf. To ascertain the amount of such claim, PHS
presumably obtained invoices, reports and statements from Wells Fargo and PHSs
service providers, whether by mail or by electronic means. Through the federal court
systems electronic filing system, PHS filed the false proof of claim dated September 14,
2008, identified above at 92, 109. Thereafter, on or about October 31, 2005, PHS
received, either electronically or by U.S. mail, the sum of $ 849.84 from the Sheriff of
Lancaster County, Pennsylvania, representing the partial return of Plaintiff Wolferds
sheriffs deposit to be credited to Plaintiff Wolferds account. Upon receipt of this money,
PHS (electronically, by U.S. mail or otherwise) instead deposited the $ 849.84 into an
unknown account (either an account of Wells Fargo or an account owned by PHS or one of
its controlled entities). Either electronically or by U.S. mail, PHS received a receipt or
statements reflecting Plaintiff Wolferds sheriffs refund into the unknown account, where
that money remained or was put to other uses by PHS and/or Wells Fargo until November
22, 2005 when, PHS, after receiving a telephone call from Plaintiff Wolferds counsel,
credited $ 849.84 to Plaintiff Wolferds account through the electronic filing by PHS of an
amended bankruptcy proof of claim. After Plaintiff Wolferds bankruptcy action was
88
dismissed, in the days immediately before February 10, 2009, Wells Fargo sent an
electronic transmission to PHS, requesting PHS to re-institute its mortgage foreclosure
lawsuit against Plaintiff Wolferd. On February 10, 2009, PHS, electronically, by U.S. mail
or otherwise, filed with the Prothonotary of Lancaster, Pennsylvania a praecipe for a writ of
execution on Plaintiff Wolferds property, and PHS caused to be forwarded to the
Lancaster County Sheriff, by U.S. mail or by electronic means, a check in the amount of
$2,500 for a sheriffs sale deposit. While representatives of Wells Fargo and Plaintiff
Wolferd discussed by telephone Wells Fargos non-negotiable terms for a loan
modification, including retention of mortgage foreclosure costs by PHS (see 98-101), on
July 23, 2009, September 22, 2009 and November 2, 2009, PHS sent facsimile
transmissions to the Lancaster County Sheriff requesting continuations of the sheriffs sale
of Plaintiff Benders property. On or about September 11, 2009, representatives of Wells
Fargo and Plaintiff Wolferd, by electronic means and/or through U.S. mail, exchanged
legal documentation concerning the proposed loan modification. On November 2, 2009, the
Lancaster County Sheriffs Office stayed the writ of execution and, on November 3, 2009,
it mailed a refund check to PHS in an amount of $ 503.32, which has not been credited to
Plaintiff Wolferds mortgage loan account as of the date of this Complaint.
188. In the days immediately before February 23 2007, Defendant Wells Fargo
sent an electronic transmission to PHS, requesting PHS to initiate a mortgage foreclosure
lawsuit against Plaintiffs Diane and Charles Giles in the name of the Wachovia Bank, N.A,
as trustee for the Series 2004-WWF1 PSA, which had no interest in Mr. and Mrs. Giles
mortgage. On February 23, 2007, PHS caused to be filed with the Superior Court,
Chancery Division, for Ocean County, New Jersey the false and misleading mortgage
89
foreclosure complaint identified above at 124-126 and Ex. S. On February 28, 2007,
Ralph P. Schritenthal of Full Spectrum executed an affidavit swearing that PHS complaint
was served on Plaintiff Charles Giles -- Schritenthals signature was notarized by Thomas
P. Strain, the same person who testified in Bank of New York v. Ukpe that he had falsely
acknowledged thousands of mortgage assignments for PHS. Electronically or through the
U.S. mail, PHS communicated with Wells Fargo and its service providers about the
necessity of preparing and filing purported assignments of Mr. and Mrs. Giles mortgage,
which were in fact recorded with the Clerk of Ocean County, New Jersey on April 18,
2007. After PHS obtained a default judgment against Plaintiff Diane and Charles Giles on
June 5, 2007, it used the U.S. mail and/or wire facilities to request the Sheriff of Ocean
County, New Jersey to conduct a sheriffs sale of Plaintiff Giles home. On July 27, 2007,
PHS sent a notice of sheriffs sale to Plaintiffs Diane and Charles Giles by regular and
certified U.S. mail. In the period between July 27, 2007 and October 24, 2007, there were
numerous telephone and e-mail communications between Mr. and Mrs. Giles and attorney
Jerry Dasti, on one hand, and representatives of PHS and Wells Fargo and the other,
relating to (1) the scheduled sheriffs sale of the Giles home (2) a possible loan
modification and (3) a possible distress sale of the Giles home. On or about October 23
and 24, 2007, there were several telephone conversations, e-mails and letters exchanged
between or among Wachovia Banks Senior Vice President Mark A. Farmer, PHS attorney
Vladimir Palma, other attorneys affiliated by PHS and representatives of Wells Fargo
relating to (1) the improper commencement of a foreclosure action on behalf of Wachovia
Bank against Mr. and Mrs. Giles and (2) the identity of the actual trustee of the Series
2004-WWF1 PSA (see 130-131 and Ex. W and X). By letter dated December 10, 2007
90
from PHS to counsel for Mr. and Mrs. Giles, PHS asserted a claim for $7,817.50 for legal
fees and costs in connection with PHSs unauthorized and improper foreclosure lawsuit
(see 109, 133 and Ex. NN). This letter was followed by telephone communications
between and among counsel for Mr. and Mrs. Giles and representatives of PHS and Wells
Fargo relating to the impropriety of that claim, which in turn was followed by a written
payoff statement dated January 9, 2008 sent from Wells Fargos mortgage servicing unit to
Plaintiff Diane Giles, which abandoned PHSs claim for legal fees and costs (see 109
and Ex. NN).
189. Defendants use of the U.S. mail and interstate wire facilities to perpetuate
Defendants schemes to inflate or fabricate foreclosure costs charged to homeowners or to
prosecute foreclosure actions in the name of parties without legal standing to bring them
involved thousands of homeowners like Plaintifs Rhodes, Bender, Wolferd and Giles and
thousands of communications similar to the ones identified specifically above.

C. Conduct of the RICO Enterprises Affairs
190. Throughout the Class Period, Defendants exerted control over the PHS
Mortgage Foreclosure and Bankruptcy Enterprise and, in violation of 18 U.S.C. 1962(c),
Defendants conducted or participated in the conduct of the affairs of the Enterprise by
inflating or fabricating foreclosure costs charged to homeowners or by prosecuting
foreclosure actions in the name of parties without legal standing to bring them.
191. PHS conducted or participated in the conduct of the affairs of the Enterprise,
inter alia, in the following ways:
(a) By soliciting from mortgage servicer clients (including Defendants
Countrywide and Wells Fargo) referrals to prosecute foreclosure actions against
91
homeowners with promises of rapid delivery of its services and rigid adherence to
timelines monitored by clients through mandated automated case management and
invoicing systems. (Because the timeliness of PHSs performance is a primary factor in
determining the volume of work assignments that PHS receives from servicer clients, PHS
strives to compete with other high-volume foreclosure firms by recording even faster
results than required by client timelines);
186

(b) By racing to county courthouses to file thousands of foreclosure actions
in the names of entities identified only by its servicer clients case management systems,
without making any meaningful independent determination that such entities have proper
legal standing to bring them. (Despite this, PHS routinely makes affirmatively false
allegations in its foreclosure complaints that entities named as plaintiffs by PHS are the
legal owners of homeowners mortgages);
(c) By fabricating after-the-fact mortgage assignments filed by PHSs agents
or representatives (many of them affiliated with PHS owned and controlled companies like
Full Spectrum and Land Title Services) with government land recording agencies in an
effort to manufacture legal standing for plaintiffs that lack legal standing at the time that
PHS files its foreclosure complaints;
(d) Together with mortgage servicer clients like Countrywide and Wells
Fargo (and through PHSs use of clients mandated automated case management and
invoicing programs), by systematically misappropriating and converting sheriffs deposit
refunds that should be credited to the accounts of homeowners who avoid loss of their
homes through sheriffs sales;
(e) Through PHSs use of owned and controlled companies like Full

186
See 152 n. 159, above.
92
Spectrum and Land Title Services, by systematically overstating, inflating, fabricating and
obsfuscating foreclosure costs charged to homeowners who avoid loss of their homes
through sheriffs sales;
(f) Through PHSs day-to-day use and promotion of every case management
and invoice reporting system[] used in the residential mortgage foreclosure industry,
187

by advancing the common objective of PHS and vendors of such systems to enable
foreclosure lawyers to do all of their work in their case management system so that high-
volume foreclosure firm like PHS can obtain maximum returns on investment by
reducing labor overhead and building resource capacity to handle more files.
188
(g) Through its founding membership, active participation in, and
financial support of the USFN, by educating (and by obtaining education from) other
members about matters of common interest among participants in the residential
foreclosure industry, including, inter alia, (1) how to satisfy mortgage servicers demand
for rapid and inexpensive legal representation in foreclosure and bankruptcy matters by
means of automated case management programs that limit verbal communication
between servicers and their outside counsel to SOS or Urgent Situations;
189
(2)
avoidance of class actions brought under the FDCPA,
190
and (3) the supposed futility of
mandatory mediation initiatives like Philadelphias Residential Mortgage Foreclosure Pilot
Program
191
(the latter two items being of special interest to Defendant Diamond).

(h) Through PHSs longstanding collaboration with its aggressive
192

187
www.fedphe.com
188
See 158 n.178, above
189
190
191
See 44 and n.30, above.
192
See 175f and n.182, above.
93
house counsel, Bernheim, Bart and the Wilentz firm, by systematically working in concert
to deny the legal rights of homeowners who have been abused by PHSs institutionalized
unlawful conduct.
192. Defendants Wells Fargo and Countrywide conducted or participated in the
conduct of the affairs of the PHS Mortgage Foreclosure and Bankruptcy Enterprise, inter
alia, by:
(a) Indiscriminately filing residential mortgage foreclosure lawsuits, which
are cheaper and faster than loan modifications,
193
and which present special incentives
and opportunities to increase costs charged to homeowners that translate into massive
corporate profits.
194
(b) Cultivating relationships with volume-driven foreclosure firms like
PHS, which are in turn pitted against one another in competition for lucrative work
assignments. As a condition of any work assignment they receive, foreclosure law firms
like PHS are required to use client-based automated case management and invoicing
systems that (1) refer work assignments to such firms; (2) monitor the speed of such

193
Report, Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior:
Servicer Compensation and its Consequences, NATL CONSUMER LAW CENTER, INC., October 2009
(http://www.nclc.org/issues/mortgage_servicing/content/Servicer-Report1009.pdf).
194
Peter S. Goodman, Lucrative Fees May Deter Efforts to Alter Loans, N.Y. TIMES, July 29, 2009
(http://www.nytimes.com/2009/07/30/business/30services.html?pagewanted=all). ([M]any mortgage
companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees
on delinquent loans. Even when borrowers stop paying, mortgage companies that service the loans collect
fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain
delinquent, the greater the opportunities for these mortgage companies to extract revenue fees for
insurance, appraisals, title searches and legal services); McDermott v. Countrywide Home Loans, Inc.,
Adv. No. 08-5031 (Bank. N.D. Ohio, July 31, 2009) at 8, quoting Porter Study at 126-27 (Mortgage
servicers earn revenue in three major ways. First, they receive a fixed fee for each loan. Typical
arrangements pay servicers between 0.25% and 0.50% of the note principal for each loan. Second, servicers
earn float income from interest accrued between when consumers pay and when those funds are remitted
to investors. Third, servicers often are permitted to retain all, or part, of any default fees, such as late
charges, that consumers pay. In this way, a borrower's default can boost a servicer's profits. A significant
fraction of servicers' total revenue comes from retained-fee income. Because of this structure, servicers'
incentives upon default may not align with investors' incentives. Servicers have incentives to make it
difficult for consumers to cure defaults).
94
firms performance through timelines against which they are measured, which results
in specific grades that reward firms like PHS that perform with reckless haste; and (3)
severely restrict the circumstances under which foreclosure law firms are permitted to
communicate directly with their clients in-house mortgage servicing personnel and
counsel, with all but the most problematic issues expected to be resolved by foreclosure
firms themselves through mechanical use of raw data appearing on computer
screens.
195
(c) Uploading into their mandatory automated systems for use by PHS
and other foreclosure firms of financial information that is, as demonstrated above at
56-65, the unreliable byproduct of accounting systems criticized by many courts as being
systematically wayward, not reasonable, reckless, duplicitous and misleading,
so significantly erroneous that reconciliation [is] not possible, and a known
problem that evidences an indifference to the truth and a disregard for diligence and
accuracy.
(d) Ignoring judicial orders and warnings to make systemic changes to
their inaccurate and irresponsible accounting systems.
196

(e) Establishing, mandating and implementing rigid foreclosure and
related bankruptcy processes that have both the purpose and effect of (1) rewarding
foreclosure law firms for their speed and penalizing them for professional diligence that
might ensure accuracy but impede prompt completion of assigned activities; and (2)

195
In re Taylor, 407 B.R. at 638. As Bernheim and Bart wrote in a brief in In re Taylor, their client (here
as there) is one of many law firms that conduct a high volume foreclosure bankruptcy practice and if a
lender requires that a law firm enter into an agreement with its agent, [a provider of case management and
invoice systems], [the law firm] has no choice but to participate in such a program if it wants to do
business." Id. at 638.
196
See 56-65, above.
95
creating an informational vacuum and absence of personal accountability that (i)
precipitates a race to the courthouse that encourages uninvestigated filing of improper
foreclosure lawsuits by overzealous law firms like PHS and (ii) invites the inflation and
fabrication of foreclosure costs charged as arrearages to homeowners who avoid sheriffs
sales through loan modifications, bankruptcy filings and distress sales, which might
otherwise be detected and avoided through responsible human oversight.
193. In foregoing ways and others, PHS and Wells Fargo and Countrywide,
working as attorney and client infrequently and as co-dependent wrongdoers at all
other times, each benefit from their unlawful conduct and participation in the affairs of
the PHS Mortgage Foreclosure and Bankruptcy Enterprise.
D. Defendants Pattern of Racketeering Activity

194. Each Defendant conducted and participated in the affairs of the PHS
Mortgage Foreclosure and Bankruptcy Enterprise through a pattern of racketeering
activity, including acts that are indictable under 18 U.S.C. 1341, relating to mail fraud,
and 18 U.S.C. 1343, relating to wire fraud. Defendants pattern of racketeering
involved thousands of separate instances of use of the U.S. mails and interstate wire
facilities in furtherance of their fraudulent schemes to inflate or fabricate foreclosure
costs charged to homeowners and to prosecute foreclosure actions in the names of parties
without legal standing to sue. Each of these fraudulent mailings and interstate wire
transmissions constitutes a racketeering activity within the meaning of 18 U.S.C.
1961(1)(B). Collectively, these violations constitute a pattern of racketeering activity
within the meaning of 18 U.S.C. 1961(5), in which Defendants intended to defraud
Plaintiffs and members of the Classes.
96
195. Defendants racketeering activities amount to a common course of conduct,
with similar pattern and purpose, intended to inflate or fabricate foreclosure costs charged
to homeowners or to prosecute foreclosure actions in the name of parties without legal
standing to bring them. Each separate use of the U.S. mails and/or interstate wire facilities
employed by Defendants was related, had similar intended purposes, involved similar
participants and methods of execution, and had the same results affecting the same victims
Plaintiffs and members of the Classes. Each Defendant engaged in the pattern of
racketeering activity for the purpose of conducting the ongoing business affairs of the
Enterprises.
E. Damages Caused by the Defendants Scheme
196. Defendants violations of federal law and their pattern of racketeering
activity have directly and proximately caused Plaintiffs and members of the Classes to be
injured in their business or property because Plaintiffs and members of the Classes have
lost substantial money by virtue of Defendants schemes to inflate or fabricate foreclosure
costs charged to homeowners and to prosecute foreclosure actions in the names of parties
without legal standing to sue.
197. Under 18 U.S.C. 1964(c), Defendants are jointly and severally liable to
Plaintiffs and members of the Class for three times the damages that Plaintiffs and the
Class members have sustained, plus the costs of bringing this suit, including reasonable
attorneys fees.
COUNT II

VIOLATIONS OF 15 U.S.C. 1692 et seq. (FDCPA)

97
198. The allegations set forth in each of the preceding paragraphs are
incorporated by reference as if set forth fully herein.
199. The Count is directed to Defendant PHS and its attorneys only.
200. At all times relevant to this Complaint, Plaintiffs and all members of the
Classes were consumers within the meaning of 15 U.S.C. 1692a(3).
201. At all times relevant to this Complaint, PHS and its attorneys have been
debt collectors within the meaning of 15 U.S.C. 1692a(6). See also Heintz v. Jenkins,
514 U.S. 291, 299 (1995) (the Act applies to attorneys who regularly engage in
consumer-debt collection activity).
202. Beginning before March 25, 2008 and continuing through the present,
PHS and its attorneys have committed unfair practices proscribed by 15 U.S.C.
1692(e)(2)(A) and (B) because, in systematically submitting inflated or fabricated claims
against Plaintiffs and members of the Classes, PHS and its individual attorneys made
false, deceptive, or misleading representations in connection with the collection of
mortgage debt, concerning, inter alia, (1) the character, amount, or legal status of any
debt and (2) services rendered or compensation which may be lawfully received by PHS
for the collection of a debt.
PHS and its attorneys have committed unfair practices proscribed by 15 U.S.C. 1692f(1)
because, in systematically submitting inflated or fabricated claims against Plaintiffs and
members of the Classes, the amount of debt that Defendants sought to collect was not
expressly authorized by any agreement creating the debt, and was not otherwise
permitted by law.
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PHS and its attorneys have committed unfair practices proscribed by 15 U.S.C. 1692g(2)
because, in systematically submitting unauthorized bankruptcy claims and lawsuits
against Plaintiffs and members of the Classes on behalf of parties that lacked legal
standing or interest, PHS and its attorneys have routinely misidentified the names of
creditors to whom any debt may have been owed.
205. PHS failed to maintain thorough, ongoing procedures reasonably
calculated to prevent the foregoing violations of the FDCPA.
206. As a direct and proximate result of foregoing violations of the FDCPA by
PHS and its attorneys, Plaintiffs and members of the Classes have sustained actual and
statutory damages for which PHS and the individual defendants are liable, together with
reasonable attorneys fees and the costs of prosecuting this litigation.
COUNT III

VIOLATIONS OF 73 P.S. 201-1 et seq. (UTPCPL)

208. Defendants practices constituted acts of trade or commerce within the
meaning of 73 P.S. 201-2(3).
209. Defendants practices constituted deceptive conduct that created a
likelihood of confusion and/or misunderstanding within the meaning of 73 P.S. 201-
2(4)(xxi).
210. As documented in detail above, Defendants knowingly engaged in
systematic scheme to impose inflated or fabricated foreclosure charges upon homeowners
99
who averted loss of their homes to sheriffs sale, including (1) misappropriation or
conversion of sheriffs deposit refunds that were not credited properly to homeowners
accounts; (2) unreasonable attorneys fees or attorney fees that were not actually
incurred; (3) excessive real estate title and litigation support costs generated through
inside transactions with related companies owned and controlled by Defendants
Lawrence T. Phelan, Francis S. Hallinan and Daniel G. Schmieg; (4) unessential property
inspection and valuation fees; and (5) duplicative costs for services already included in
independent charges assessed by Defendants, all of which Defendants attempted to
conceal through impenetrable and cryptic statements of claims for payment of arrearages.
211. As further documented in detail above, Defendants, in a fraudulent scheme
to generate the aforementioned foreclosure fees, knowingly and systematically filed
mortgage foreclosure actions on behalf of entities that did not have legal standing to bring
them. Among other things, Defendants and their agents (1) recorded phony assignments
with county land record agencies; (2) throughout foreclosure litigation and related
bankruptcy proceedings, maintained the false pretense of an attorney-client relationship
with entities that had not retained or authorized PHS to represent its interests; and (3)
filed false court filings and bankruptcy claims.
212. Plaintiffs and other members of the Classes relied justifiably on
Defendants false and misleading representations, having no reason to suspect that a law
firm whose attorneys owe a duty of candor to the court would, inter alia, (1)
systematically file verified or certified foreclosure complaints that contained
misrepresentations of fact; (2) systematically overcharge or fabricate charges passed on
to homeowners; (3) systematically file false bankruptcy proof of claims in defiance of the
100
severe penalties for such conduct under 11 U.S.C. 152 and 3557; and (4)
systematically commit mail and wire fraud, and engage in the pattern of racketeering
identified above at 175-196.
213.As a direct and proximate result of Defendants fraudulent misrepresentations
of material fact, Plaintiffs and members of the Class have sustained actual and statutory
damages (including treble damages under 73 P.S. 201-9.2) for which Defendants are
liable, together with reasonable attorneys fees and costs of prosecuting this action.
COUNT IV

COMMON LAW FRAUD

215. As documented in detail above, Defendants knowingly made
misrepresentations of material fact relating to the amount of arrearages owed by
homeowners who averted loss of their homes to sheriffs sale, which appeared in loan
modification and loan payoff statements and in bankruptcy proofs of claim. These
misrepresentations concerned inflated or fabricated amounts charged for (1) sheriffs
fees; (2) attorneys fees; (3) real estate title and litigation support costs; (4) property
inspection and valuation fees; and (5) duplicative or non-existent services, the
impropriety of which Defendants attempted to conceal through impenetrable and cryptic
statements of claims for payment of arrearages.
216. As further documented in detail above, Defendants, in a fraudulent scheme
to generate the aforementioned fees, made false and misleading representations of
material fact relating to foreclosure actions on behalf of entities that did not have legal
101
standing to bring them. Among other things, Defendants and their agents (1) filed false
court documents; (2) recorded phony assignments with county land record agencies; (2)
throughout foreclosure litigation and related bankruptcy proceedings, maintained the
false pretense of an attorney-client relationship with entities that had not retained or
authorized PHS to represent its interests; and (3) filed false creditor claims.
217. Plaintiffs and other members of the Classes relied justifiably on
Defendants false and misleading representations, having no reason to suspect that a law
firm whose attorneys owe a duty of candor to the court would, inter alia, (1)
systematically file verified or certified foreclosure complaints that contained
misrepresentations of fact; (2) systematically file false bankruptcy proof of claims in
defiance of the severe penalties for such conduct under 11 U.S.C. 152 and 3557; and
(3) systematically commit mail and wire fraud, and engage in the pattern of racketeering
identified above at 175-196.
218. As a direct and proximate result of Defendants fraudulent conduct,
Plaintiffs and members of the Class have sustained actual damages in an amount to be
determined at trial, in addition to reasonable attorneys fees and the costs of prosecuting
this action.
COUNT V

BREACH OF CONTRACT

220. This Count is directed only to Defendants Countrywide and Wells Fargo.
102
221. Plaintiffs and other members of the Class entered into contracts for
mortgage loans originated by financial institutions that assigned their servicing rights to
Defendants Wells Fargo and Countrywide. None of these contracts permitted Wells
Fargo or Countrywide to charge defaulted borrowers more than costs or expenses actually
incurred for services actually performed in connection with any legal action to enforce
the terms of the mortgages.
197
222. Defendants Wells Fargo and Countrywide breached the mortgage
contracts with Plaintiffs and members of the Classes by causing and/or permitting its
agents, including PHS and its individual lawyers, to charge homeowners for costs, fees
and expenses in connection with foreclosure actions in amounts in excess of those
actually or reasonably incurred by Wells Fargo, Countrywide and PHS.
223. As a result of breaches of the mortgage contracts by Wells Fargo and
Countrywide, Plaintiffs and members of the Classes were damaged by the amount of
costs, fees and expenses that they overpaid in connection with foreclosure proceedings
prosecuted against them by Wells Fargo, Countrywide, PHS and its individual lawyers.
this action.

COUNT VI

BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING


197
See Rhodes Mortgage (Ex. G1) at 9; Bender Mortgage (Ex. H1) at 14; Wolferd Mortgage (Ex.I-1)
at 18;
103
225. This Count is directed only to Defendants Countrywide and Wells Fargo.
226.Each of the mortgage contracts signed by Plaintiffs and other members of the
Classes obligated the mortgages and their assignees, Wells Fargo or Countrywide, to
discharge a duty of good faith and fair dealing toward Plaintiffs and other Class
members. Included within this obligation was the duty to charge no more than its actual
costs, fees and expenses, including attorneys fees, in connection with foreclosure
proceedings.
227. Wells Fargo and Countrywide breached their duty of good faith and fair
dealing by, inter alia, directly or indirectly, retaining PHS to pursue foreclosure
proceedings and, subsequently, to cause, direct and or approve PHSs actions seeking
payment of costs, fees and expenses from homeowners in excess of amounts that were
actually incurred by Wells Fargo, Countrywide and PHS.
228. As a result of breaches of their duty of good faith and fair dealing by
Wells Fargo and Countrywide, Plaintiffs and members of the Classes were damaged by
the amount of costs, fees and expenses that they overpaid in connection with foreclosure
proceedings prosecuted against them by Wells Fargo, Countrywide, PHS and its lawyers.
this action.
COUNT VII

MONEY HAD AND RECEIVED

104
230. As further documented in detail above, Defendants demanded and
collected amounts for sheriffs deposits, attorneys fees, real estate title and litigation
support costs, property inspection and valuation fees, and duplicative costs, which were
in excess of amounts permitted by contract or Pennsylvania and New Jersey law.
231. In the process of charging inflated or fabricated fees to Plaintffs and
members of the Classes, Defendants have come into the possession of money that they
received and had no right to possess, either at law or in equity.
232. It would be inequitable for Defendants to retain any such money or to
exercise the use of money that they had no legal right to demand or collect.
233.Defendants inequitable retention and use of their money has damaged
Plaintiffs and members of the Classes in an amount to be determined at trial. As a result
of the wrongful conduct documented above, Plaintiffs and members of the Classes seek
full disgorgement and restitution of Defendants ill-gotten gains.
COUNT VIII

NEGLIGENT MISREPRESENTATION
235. As documented in detail above, Defendants made misrepresentations of
material fact relating to the amount of arrearages owed by homeowners who averted loss
of their homes to sheriffs sale, which appeared in loan modification and loan payoff
statements and in bankruptcy proofs of claim. These misrepresentations and omissions
concerned inflated or fabricated amounts charged for (1) sheriffs fees; (2) attorneys
105
fees; (3) real estate title and litigation support costs; (4) property inspection and valuation
fees; and (5) duplicative or non-existent services.
236. As further documented in detail above, Defendants made false and
misleading representations of material fact relating to mortgage foreclosure actions on
behalf of entities that did not have legal standing to bring them, under which PHS
purported to establish attorney-client relationships with entities that had neither
retained nor authorized PHS to represent their interests in foreclosure and bankruptcy
proceedings.
237. While the evidence demonstrates overwhelmingly that Defendants made
the foregoing misrepresentations and omissions of material fact with criminal or
fraudulent intent, these misrepresentations and omissions were, at bare minimum,
negligently made.
238. As a direct and proximate cause of Defendants negligence, Plaintiffs and
members of the Classes sustained damages in an amount to be determined at trial.
JURY TRIAL DEMAND
Pursuant to Fed. R. Civ. P. 38(b), plaintiffs demands a trial by jury of all of the
claims asserted in this Complaint so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray that:
A. The Court determine that this action may be maintained as a class action
under Rule 23 of the Federal Rules of Civil Procedure.
B. The conduct of Defendants be determined to have violated the Racketeer
Influenced and Corruption Act, 18 U.S.C. 1962(c).
106
C. The conduct of Defendants be determined to have violated the Fair Debt
Collection Practices Act, 15 U.S.C. 1692 et seq.
D. The conduct of Defendants be determined to have violated Pennsylvania's
Unfair Trade Practices and Consumer Protection Law, 73 P.S. 201-1 et. seq.
E. Defendants be found liable to Plaintiffs and members of the class under
the common laws of the Commonwealth of Pennsylvania and the State of New Jersey for
(1) common law fraud; (2) breach of contract; (3) breach of the duty of good faith and
fair dealing; (4) money had and received; and (5) negligent misrepresentation.
F. Judgment be entered against Defendants for damages sustained by Plaintiffs
and the members Classes to the maximum extent allowed by law, together with the costs
of this action, including reasonable attorneys fees.
G. Judgment be entered ordering an accounting, restitution and disgorgement of
funds obtained by Defendants as a result of their wrongful conduct.
H. Defendants, their affiliates, successors, transferees, assignees, and the
officers, directors, partners, agents and employees thereof, and all other persons acting or
claiming to act on their behalf, be temporarily and permanently enjoined and ordered to:
(1) Establish and implement corrective policies and procedures designed to
eliminate their practices of inflating or fabricating claims the amount of
foreclosure costs, fees or expenses owed by homeowners who have
averted loss of their homes through to sheriffs sales; and
(2) Establish and implement corrective policies and procedures designed to
eliminate their practices of initiating or prosecuting residential mortgage
foreclosure lawsuits and related bankruptcy court claims in the absence
107
of explicit authorization by clients with actual legal standing to sue or
legal interest to protect.
a. The Court order the appointment of an auditor or special master to
(1) Ascertain the amount of money wrongfully taken by Defendants from
Plaintiffs and members of the Classes;
(2) Recommend specific business management and accounting procedures
that Defendants must adopt and implement to avoid future repetition of
the wrongful conduct documented throughout this Complaint; and
(3) Monitor Defendants compliance with any business management or
accounting procedures that may be ordered by the Court in granting
injunctive relief in this action.
J. Plaintiffs and members of the Classes have such other, further and different
relief as the case may require and the Court may deem just and proper under the facts and
circumstances of this case.

Dated: January 15, 2010 Respectfully submitted,

BURKE HESS & NARKIN

By: _/s/ John G. Narkin_____
John G. Narkin
3000 Atrium Way, Suite 234
Mount Laurel, New Jersey 08054
Telephone: (856) 222-2913
Facsimile: (856) 222-2912

-and-

108

BURKE & HESS

By: _/s/ Michael D. Hess___
Michael D. Hess
Telephone: (717) 391-2911
Facsimile: (717) 391-5808


109

Third Circuit Appeal-And The Amended Complaint-Class Action Foreclosure

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