State Ex Rel. Coffman v. Castle Law Group, LLC

2016 CO 54, 375 P.3d 128, 2016 Colo. LEXIS 680, 2016 WL 3667058
CourtSupreme Court of Colorado
DecidedJuly 5, 2016
DocketSupreme Court Case 16SA8
StatusPublished
Cited by2 cases

This text of 2016 CO 54 (State Ex Rel. Coffman v. Castle Law Group, LLC) is published on Counsel Stack Legal Research, covering Supreme Court of Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
State Ex Rel. Coffman v. Castle Law Group, LLC, 2016 CO 54, 375 P.3d 128, 2016 Colo. LEXIS 680, 2016 WL 3667058 (Colo. 2016).

Opinions

JUSTICE MARQUEZ

delivered the Opinion of the Court.

T1 Following a two-year investigation into the Colorado foreclosure industry, the State brought a civil law enforcement action against the foreclogure law firm The Castle Law Group, LLC and its principals, Lawrence Castle and Caren Castle (collectively, "Castle"), as well as Castle's affiliated vendors, Absolute Posting & Processing Services, LLC, Ryan O'Connell, Kathleen Benton (collectively, "Absolute"), RE Records Research, LLC ("RERR"), and Colorado American Title, LLC ("CAT"). Among other things, the State alleges that between 2009 and 2014, the Castle defendants conspired with their affiliated vendors to generate and submit deceptive invoices reflecting systematically inflated costs ineurred for foreclosure-related services, while falsely representing to mortgage servicers that these inflated costs were "actual, necessary, and reasonable." According to the State, Castle submitted the vendors' inflated invoices to the mortgage servicers, and in turn, the mortgage servicers, relying on Castle's false representation that the vendors' charges were "actual, necessary, and reasonable," reimbursed Castle for these costs as part of the foreclosures and ultimately passed the inflated costs on to the public The State contends that all the defendants benefitted from this scheme by collectively reaping millions in inflated profits from homeowners, purchasers of foreclosed homes at auction, and taxpayer-funded investors like Fannie Mae and Freddie Mac. Specifically, it alleges that Castle pocketed some of these overages as kickbacks from the vendors to cireumvent the maximum allowable fees Castle could collect, but also. contends that Castle's affiliated vendors were unjustly enriched by this scheme. The State alleges [130]*130that the defendants' conduct violated the Colorado Consumer Protection Act ("CCPA"), §§ 6-1-101 to 115, C.R.S8. (2015), as well as the Colorado Antitrust Act of 1992, §§ 6-4-101 to -122, C.R.S. (2015), and the Colorado Fair Debt Collection Practices Act, §§ 12-14-101 to -136, C.R.S. (2015). Only the CCPA claim is at issue in this original proceeding pursuant to C.A.R, 21.

T2 Relevant here, the State seeks to demonstrate at trial that the costs for foreclosure-related services charged by Castle's affiliated vendors and claimed by Castle were not, in fact, the "actual, necessary, and reasonable" costs for such services. Specifically, the State seeks to demonstrate that these costs were artificially inflated by comparing the invoiced rates submitted by Castle with the market rates charged by unaffiliated vendors for such services. The State retained an expert witness, Matthew Lausten, to testify, among other things, regarding the "overage" amounts Defendants obtained from their alleged deceptive trade practices as reflected by the difference in the invoiced costs and the "market rate" prices charged by unaffiliated vendors for the same services.

13 On January 7, 2016, approximately a week before the scheduled trial, the district court issued an order granting Castle's motion to limit Lausten's testimony and granting in part Absolute's motion to exclude Lausten's testimony, albeit not based on the CRE 702 reliability and relevance grounds raised in the motions. Instead, the court concluded that the market rates for foreclosure-related services are "irrelevant to Plaintiffs' cognizable claims." The court construed the State's CCPA deceptive trade practice claim to be grounded on the allegation that the Castle defendants exceeded their allowable fees by charging additional fees in the guise of costs for foreclogure-related services. The court reasoned that "[lt doesn't matter whether those charges were over or under 'market' rates; what matters is if any portion of them found their way to the Castle Defendants as disguised attorney fees...."

14 In response to the State's motion for clarification of this order, the court issued another order on January 11, 2016, ruling that "[clharging high prices is not deceptive or unjust, as long as those prices are aceu-rately disclosed. Charging high prices is not unlawful, as long [sic] those prices have not been capped by state price controls and are not the product of an antitrust violation," The court further noted that it read the State's complaint to allege that Castle received some portion of the high prices as kickbacks from the vendors in a scheme to avoid contractual or regulatory caps on their attorney fees. The court ruled that this allegation is the "only strand keeping [the State's non-antitrust] claims alive, and it is the only strand on which I will permit evidence."

5 The State sought review of the district court's January 7 and January 11 Orders pursuant to C.A.R. 21. The State contends that by excluding market rate evidence, the trial court sua sponte dismissed one of the theories that formed the basis of the State's CCPA claim and its disgorgement caleula-tions. We issued a rule to show cause.

6 Consistent with our décision in May Department Stores Co. v. State ex rel. Woodard, 863 P.2d 967 (Colo.1993), we hold that, for purposes of a deceptive trade practices claim under the CCPA, disclosure of a price charged does not automatically insulate a party from claims that the price is deceptive. Here, the State's CCPA claim alleges that 'the Castle defendants engaged in a scheme with the vendors to generate invoices with greatly inflated charges for foreclosure-related services, while Castle falsely represented to mortgage servicers that these charges were the "actual, necessary, and reasonable" costs for such services. That the invoices disclosed the prices charged for foreclosure related services misperceives the alleged deception: namely, that these prices were not, in fact, the "actual, necessary, and reasonable" costs for such services. Evidence of the market rates charged by unaffiliated vendors for such services is directly relevant to establishing whether the costs invoiced by the vendors were the actual or reasonable costs of such services, Market rate evidence is further relevant to the State's allegation that the vendors themselves also benefitted from the common scheme and serves as a benchmark for the State's disgorgement calculations. We therefore conclude that the trial [131]*131court abused its discretion in barring evidence of market rates for foreclosure-related services. Accordingly, we make our rule absolute and remand the matter to. the trial court for further proceedings consistent with this opinion.

I1. Facts and Procedural History

"T7 The State alleges that Castle, in conjunction with its affiliated vendors, systematically misrepresented and inflated the costs for foreclosure-related services in more than 100,000 foreclosures in Colorado. The State's expert witness report estimates that Castle passed on over $25 million in price inflation to mortgage servicers such as Fannie Mae. According to the State, these deceptively inflated costs were then passed on to, and ultimately borne by, investors and insurers of the loan, third-party purchasers acquiring property at auction, and home owners trying to save their homes.

A. The State's Complaint

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Cite This Page — Counsel Stack

Bluebook (online)
2016 CO 54, 375 P.3d 128, 2016 Colo. LEXIS 680, 2016 WL 3667058, Counsel Stack Legal Research, https://law.counselstack.com/opinion/state-ex-rel-coffman-v-castle-law-group-llc-colo-2016.