State of Colorado ex rel. Philip J. Weiser, Attorney General; and Jan M. Zavislan, Administrator, Uniform Consumer Credit Code, Plaintiffs-Appellants and Cross-Appellees,
Castle Law Group, LLC; Lawrence E. Castle; and Caren A. Castle, Defendants-Appellees and Cross-Appellants, and Absolute Posting & Process Services, LLC; Ryan J. O'Connell; Kathleen A. Benton; and RE Records Research, LLC, Defendants-Appellees.
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and County of Denver District Court No. 14CV32763. Honorable
Morris B. Hoffman, Judge.
J. Weiser, Attorney General, Alissa H. Gardenswartz, Deputy
Attorney General, Megan Paris Rundlet, Assistant Solicitor
General, Jennifer H. Hunt, First Assistant Attorney General,
Mark L. Boehmer, Assistant Attorney General, Denver,
Colorado, for Plaintiffs-Appellants and Cross-Appellees.
Richards Carrington, LLC, Christopher P. Carrington, Denver,
Colorado; Law Office of Ruth Moore, P.C., Ruth M. Moore,
Conifer, Colorado; Reilly Pozner LLP, Larry Pozner, Denver,
Colorado; Pan American Legal Services, LLC, Phillip A.
Vaglica, Glendale, Colorado, for Defendants-Appellees and
Cross-Appellants Castle Law Group, LLC, Lawrence E. Castle,
and Caren A. Castle.
Goldfarb & Rice, L.L.C., Billy-George Hertzke, Ashley J.
DeVerna, Denver, Colorado, for Defendants-Appellees Absolute
Posting & Process Services, LLC, Ryan J. O'Connell, and
Kathleen A. Benton.
Law, LLC, Daniel J. Vedra, Denver, Colorado, for
Defendant-Appellee RE Records Research, LLC.
Judges: Opinion by CHIEF JUDGE BERNARD.
Hawthorne and Tow, JJ., concur.
[¶ 1] Plaintiffs, the State of Colorado and the
State's Administrator of the Uniform Commercial Code,
brought a civil law enforcement action against defendants (1)
Castle Law Group, LLC and its principals, Lawrence E. Castle
and Caren A. Castle; (2) Absolute Posting & Process Services,
LLC and its principals Ryan J. O'Connell and Kathleen A.
Benton; and (3) RE Records Research, LLC. We will refer to
the plaintiffs collectively as " the State." (The
State also sued a fourth company that is not part of this
[¶ 2] Following a bench trial, the trial
court ruled in favor of defendants on all the claims but one.
The State appeals the trial court's
judgment on its unsuccessful claims. We affirm this part of
[¶ 3] As to the State's one successful
claim, the trial court assessed civil penalties against the
Castle Law Group, LLC and its principals, which we shall call
" the law firm," under the Colorado Consumer
Protection Act, section 6-1-105(1)(l), C.R.S. 2018. The
law firm filed a cross-appeal challenging this ruling. For
the reasons stated below, we reverse this portion of the
trial court's judgment and remand to the trial court to
vacate the judgment against the law firm.
[¶ 4] The allegations in this case arise in
the context of the subprime mortgage crisis that occurred
about a decade ago. During the crisis, homeowners began
defaulting in record numbers on their home loans. When a
homeowner defaulted, the lender could initiate a foreclosure
proceeding through the public trustee. § 38-38-101, C.R.S.
2018. Because of the sheer number of foreclosures during this
period, mortgage servicers, acting on behalf of lenders,
hired foreclosure law firms using comprehensive retainer
agreements. (As is pertinent to this appeal, these mortgage
servicers included two quasi-public entities: (1) the Federal
National Mortgage Association, or " Fannie Mae" ;
and (2) the Federal Home Loan Mortgage Corporation, or "
Freddie Mac." )
[¶ 5] Under the retainer agreements at issue
in this case, the mortgage servicers would agree to pay the
law firm a flat fee for each case, and the law firm would
arrange for all the foreclosure legal work, including posting
of notices and land title research. The law firm would hire
an outside vendor to complete these services. The mortgage
servicers would then reimburse the firm for its "
actual, necessary, and reasonable" costs for these
services, in accordance with Colorado law, section
38-38-107(3)(b), C.R.S. 2018, as well as the homeowners'
loan documents, and the retainer agreements.
[¶ 6] The law firm was the largest
foreclosure law firm in Colorado during this period. The
State alleged that the law firm exploited this reimbursement
system by engaging in a deceptive scheme with Absolute
Posting & Process Services, which we shall call " the
posting company," and RE Records Research, which we
shall call " the title company."
[¶ 7] The law firm hired the posting company
to provide two posting services pertinent to this case.
First, in 2009, our legislature passed a law that allowed
eligible borrowers to defer a foreclosure and required that
the mortgage servicer give notice of the deferral opportunity
by posting a notice on the property. Ch. 404, sec. 5, §
38-38-802, 2009 Colo. Sess. Laws 2222-23. Second, in 2010,
the legislature passed a bill requiring mortgage servicers to
post a notice of the time and date of a foreclosure hearing
on the property. Ch. 200, sec. 2, § 38-38-105, 2010 Colo.
Sess. Laws 872. The posting company charged $125 for each
[¶ 8] The law firm hired the title company
to do title searches and periodic updates to those searches.
The title company charged the law firm $275 for the title
search and $75 for an update.
[¶ 9] Generally, the agreements between the
law firm and a mortgage servicer allowed the law firm to hire
" affiliated vendors" for posting and title
services. But some agreements required the law firm to
disclose any financial interest in, or other relationship
with, its affiliated vendors. As is relevant to this appeal,
the principals of the law firm held a minority interest in RP
Holdings Group, which we shall call " the holding
company." In 2009, the holding company negotiated an
agreement with the posting company under which the holding
company received 40% of the posting company's net profits
in exchange for cash and stock in the holding company. The
law firm never disclosed this interest to its clients.
[¶ 10] We prepared the following diagram to
help the reader understand the relationships among the
various individuals and businesses that we have just
[¶ 11] In 2014, the State sued the law firm,
the posting company, the title company, and their respective
principals for making " false or misleading statements
of fact concerning the price" of their foreclosure
services under section 6-1-105(1)(l) of the Colorado Consumer
Protection Act. We note that this Act is sometimes called the
CCPA for short, but, to be more descriptive, we shall refer
to it as " the Consumer Act." (The State brought
similar claims under the Colorado Fair Debt Collection
Practices Act, sections 12-14-101 to -136, C.R.S. 2016, but
the trial court found that those claims merely "
duplicate[d]" the claims under the Consumer Act.) The
State also alleged that the law firm had illegally fixed
prices in violation of the Colorado Antitrust Act of 1992,
which we shall call " the Antitrust Act." §
6-4-104, C.R.S. 2018.
[¶ 12] The State contended that the law
firm, the title company, and the posting company engaged in a
conspiracy that went like this: (1) the law firm conspired
with the title company and the posting company to charge a
price for services in excess of the market rate; (2) the law
firm convinced its clients that the price was the "
actual, necessary, and reasonable" cost for those
services; (3) the law firm paid those costs to the title
company and the posting company, and then passed them along
to the servicers, who reimbursed the law firm; and (4) the
title company and the posting company shared a portion of the
inflated costs with the law firm.
[¶ 13] The State alleged that this scheme
also benefitted, in part, from a second conspiracy, in which
the law firm conspired with its largest competitor, Aronowitz
& Mecklenburg, which we shall call " the
competitor," to set the minimum price for one kind of
posting. The allegation continued that, after reaching this
agreement with the competitor, the law firm convinced its
clients that this pre-set minimum price was the market rate.
[¶ 14] In January 2016, about one week
before the trial was scheduled to begin, the trial court
precluded the State from presenting evidence of rates charged
by other vendors. State ex rel. Coffman v. Castle Law
Group, LLC, 375 P.3d 128, 2016 CO 54, ¶ 18 (Castle
I ). The State wanted to present this evidence to
establish a market rate to show that the fees charged by the
title company and the posting company were grossly inflated
above the average market rate. Id. at ¶ 17. By
showing the difference in pricing, the State hoped to prove
that the law firm's charges were not " actual,
necessary, or reasonable." Id. at ¶¶ 9, 17 . If
the price was not " actual, necessary, or
reasonable," then, as the State contended, the law firm,
the title company, and the posting company had engaged
in a deceptive statement about the price of the service,
which was a practice that the Consumer Act prohibited.
[¶ 15] But the trial court believed that the
market rate evidence was irrelevant. Id. at ¶ 16.
Rather, the trial court thought that " [c]harging high
prices is not deceptive or unjust, as long as those prices
are accurately disclosed." Id. at ¶ 18. In the
trial court's opinion, it did not matter what the title
company and the posting company charged for their services;
it only mattered whether the law firm benefitted by getting a
" kickback." Id. The court made it clear
in its order that " the only reason [it] did not knock
out [the Consumer Act claim] on dispositive motion is
because [it] read [the State's] complaint to allege that
some part of these high prices were kicked back to [the law
firm] in a scheme to avoid contractual or regulatory caps on
their attorney fees." Id.
[¶ 16] The State appealed the trial
court's exclusion of the market rate evidence by filing
an original proceeding under C.A.R. 21. Id. at ¶ 19.
The supreme court issued a rule to show cause, and it ordered
the trial court to stay the trial pending resolution of the
Rule 21 proceeding. Id. at ¶ 20. The supreme court
then reversed the trial court.
[¶ 17] In December 2016 and January 2017,
after the trial court's jurisdiction was restored, it
held a bench trial that lasted about three weeks. More than
twenty witnesses testified, and the court received more than
250 exhibits. The court issued its detailed, ninety-two-page
written order in April 2017.
[¶ 18] The State makes two contentions on
appeal. First, it contends that the trial court erred by
misapplying the law of the case because it did not follow
Castle I . Second, the State maintains that the
trial court erred when it did not require two nonparty
witnesses to take the witness stand for purposes of invoking
their Fifth Amendment rights.
of the Case
[¶ 19] The State asserts that the trial
court disregarded the law of the case doctrine, in the form
of Castle I, in determining that the posting and the
title search charges were " actual" and "
reasonable." We disagree.
[¶ 20] The law firm and the title company
assert that the State did not preserve this issue for
appellate review. (The posting company does not contest
[¶ 21] The State contends that it preserved
the issue during its opening statement, argument on its
motion for directed verdict, and its closing argument. The
law firm and the title company counter that the State never
mentioned the supreme court's mandate and that it did not
specifically object to the trial court's orders that it
believed had contradicted the law of the case.
[¶ 22] We conclude that the State did enough
to preserve the issue. In the portions of the record that the
State cites, it tried to express its position on the question
of whether the charges were " actual" or "
reasonable." We do not think that the State had to
mention the mandate to preserve the issue. See
Rael v. People, 395 P.3d 772, 2017 CO 67, ¶ 17
(" We do not require that parties use 'talismanic
language' to preserve an argument for appeal." ).
[¶ 23] We therefore will review any putative
error under the harmless error standard. C.R.C.P. 61. We will
not reverse unless " the error substantially influenced
the verdict or affected the fairness of the trial."
Leiting v. Mutha, 58 P.3d 1049, 1053-54 (Colo.App.
of the Case Doctrine
[¶ 24] The law of the case " doctrine
contains two branches, analyzed differently, depending on
whether the prior 'law' of the case involved a
court's own rulings or the rulings of a higher
court." Hardesty v. Pino, 222 P.3d 336, 339
(Colo.App. 2009). We address the latter in this case, which
is known as the " mandate rule." Id.
[¶ 25] " Conclusions of an appellate
court on issues presented to it as well as rulings logically
necessary to sustain such conclusions become the law of the
case." Super Valu Stores, Inc. v. Dist. Court,
906 P.2d 72, 79 (Colo. 1995). A trial court does not have
discretion to disregard the binding
rulings of an appellate court. Hardesty, 222 P.3d at
Supreme Court's Mandate
[¶ 26] We begin by discussing the supreme
court's " [c]onclusions [in Castle I ] . .
. on [the] issues presented to it as well as rulings
logically necessary to sustain such conclusions."
Super Valu Stores, Inc., 906 P.2d at 79.
[¶ 27] First, the supreme court rejected, as
a matter of law, the trial court's determination that
" charging high prices is not deceptive as long as the
prices are accurately disclosed." Castle I, ¶ 29.
Instead, the supreme court reasoned that disclosure alone
does not cure the false claim if " the prices themselves
are deceptive." Id. Said another way, the deception
— the alleged scheme to inflate prices above the market
rate and then to share in the benefits — occurred
before the law firm invoiced its clients.
[¶ 28] Second, the supreme court concluded
that the market rate evidence was therefore relevant to
determine whether the prices the title company and the
posting company charged were " the actual or reasonable
costs of such services." Id. at ¶ 30. If the
prices the title company and the posting company charged were
not " actual" or " reasonable," then they
could potentially be part of a " false or misleading
statement of fact concerning the price of [that]
service." § 6-1-105(1)(l). So the court indicated that
market rate evidence gave ...