naked capitalism

Florida, as the ground zero of the foreclosure crisis, is arguably further along in seeing how some of the uglier aspects of this mess will work themselves out. The foreclosure mill abuses were so bad that even a not terribly venturesome AG, Bill McCollum, went after them, and his Republican successor, Pam Bondi, is reported to be keen to keep the heat up on mortgage arena miscreants.

As the cases against the big foreclosure mills have moved forward, clients have exited, and that is generally a death knell for a law practice. Normally, when law firms get in trouble, partners who have books of business not involved in the scandal plus senior associates capable of handling client relationships grab as much of the old business as possible and reconstitute under another name. But the foreclosure mills were very high leverage operations, with very few partners and much of the work handled by paralegals or junior attorneys. So there is no one to pick up the pieces when a firm like that falls apart.

The imminent closure of the biggest player in Florida, the Law Offices of David Stern, is leaving a lot of cases in the lurch. From the Palm Beach Post Money (hat tip Lisa Epstein):

The status of nearly 9,000 Palm Beach County foreclosure cases is in question following attorney David J. Stern’s announcement that he is closing his foreclosure shop at the end of the month and dropping the files.

Statewide, as many as 100,000 cases need to be officially withdrawn from by Stern attorneys, but with a decimated staff, Stern told judges in a March 4 letter that he simply doesn’t have the manpower to file the correct paperwork….Hundreds of employees were subsequently laid off, leaving the transfer of foreclosure files to new firms in disarray…

“Florida Rules of Civil Procedure require that attorneys file a proper Motion to Withdraw from any case which they no longer plan to represent,” said Eunice Sigler, a spokeswoman for the 11th Judicial Circuit Court in Miami-Dade County. “We are currently researching various options, including any remedies available through the Florida Bar.”

Palm Beach County Chief Judge Peter Blanc said this week he’s also trying to figure out how to proceed.

“Stern has provided notice he will no longer be attorney of record, but the court is unable to recognize it,” Blanc said. “I’m told we’re getting more stipulations of substitute counsel but not anywhere near the number we should have.”

Blanc said he’s never seen a move like Stern’s before – sending a letter to judges that says “treat the pending cases as you deem appropriate.”….

Foreclosure defense attorney Tom Ice, of Ice Legal in Royal Palm Beach, has about 100 former Stern foreclosure cases.

He said chief judges shouldn’t get involved in what to do with them.

“It’s entirely improper for Stern to be communicating with the chief judge and asking him to decide what to do with my cases behind my back,” Ice said.

The Stern firm, by all accounts, was way out of compliance with professional standards. The state bar association failed to take any interest in numerous complaints made about foreclosure mills until the state AG and legislators took interest. Even then, its posture was largely obstructionist (as in insisting that the matter was one to be handled by the bar and the judiciary, which is technically correct, but given the obvious lack of interest in taking up the case, hardly reassuring).

Now the bar is going to look, after the horse has left the barn and is in the next county, into what to do about Stern now that he has dumped a ton of untransferred cases on the court system? The math for him looks awfully easy. Assume $20 per case to transfer it properly (I’m sure this is low, but even this estimate makes the point). Wrapping up things properly would cost him at least $2 million. With at least that much at stake, he can afford to have the bar throw him out of the legal profession and have fun trying to fine him.

I can only hope this proves to be such a large scale embarrassment that it forces the Florida and other state bar associations to be more vigilant, but I am probably being way too optimistic.