The defendants who comprised the former Castle Law Group achieved another legal victory last week, with a unanimous Colorado Court of Appeals decision affirming the trial court’s ruling in its favor and overturning a $119,500 fine that had been levied against the group as part of a civil lawsuit. It was the latest step in the protracted legal battle between the Castle defendants and the Colorado Attorney General's office, which "unsuccessfully accused the law firm and two other defendants of reaping millions of dollars in illegitimate profits on the backs of consumers," according to the Denver Post.
Larry Pozner, Partner at Reilly Pozner LLP and lead defense attorney in the case, exclusively told DS News, "This case has enormous significance for the industry. The Colorado Court of Appeals found that a law firm providing legal services to servicer clients is not providing a service that impacts the public—it's a private service under contract. That's important because the state was trying to claim that anything you do that eventually touches the public can be a Consumer Protection Act claim, and that would expand the scope of the Consumer Protection Act to just about everything in life."
Pozner said that the Colorado AG in this case had taken the position that it should be able to dictate to law firms the maximum amount they could pay vendors providing services within the foreclosure silo. "The Castles said, 'We'll hire the vendor we want at the price we think appropriate for the quality of service,'" Pozner explained.
Christopher P. Carrington of Richards Carrington, LLC, whose firm represented the Castles during the appeal, told DS News:
We have been on all sides of mortgage litigation dating back to this country’s economic crisis, but this case really stands out for the way in which the Colorado Attorney General’s office targeted the industry and then refused to accept the 2017 trial verdict that vindicated the Castle Law Group. This ruling slams the book closed on a wasteful government investigation that spanned more than five years, destroyed our clients’ business, and ruined a company that provided hundreds of jobs in Colorado, all based on meritless claims, as demonstrated by the opinions issued by the district court and the Court of Appeals.
This latest legal victory comes almost a year after a Colorado judge awarded Castle Law and two related entities legal fees totaling $1.9 million, but the case and its fallout has dragged on for years. In State of Colorado v. The Castle Law Group, LLC, et al., Colorado Attorney General Cynthia Coffman claimed that the defendants (which included not only the foreclosure law firm but also former partners Larry and Caren Castle) padded billings in order to take in millions in illegitimate profits from the banks they represented, as well as the affected homeowners and real estate investors who later bought the foreclosed houses at auction. In April 2017, Denver District Judge Morris Hoffman ruled against the state, arguing in a 92-page opinion that neither the Castles nor the other defendants took advantage of the position banks were in to move foreclosures quickly during the housing crisis.
“These foreclosure law firms were not Wall Street firms with their own economic power,” Hoffman said at the time. “For the most part they were small, local firms specializing in foreclosures, whose very existence depended on the willingness of their clients to keep referring foreclosures to them. As a result, the lenders and servicers could, and did, dictate the terms they would accept from their foreclosure law firms, with virtually no negotiation.”
The trial case resulted in yet another unusual outcome when, in November 2017, Judge Hoffman ordered the state of Colorado to pay the defendants’ legal fees, criticizing the state’s case and noting, “The evidence, or lack of evidence, at trial, was nothing short of breathtaking, especially compared to the investigative build-up and the serious and pervasive allegations in the complaint. The case Plaintiff put on wasn’t even a sick relative of the robust allegations they made.”