Indiana Supreme Court: No law firm exemption available under four consumer-protection laws

By Thomas G. Wolfe, J.D.

The Indiana Supreme Court recently addressed whether law firms are entitled to an exemption under four state consumer-protection laws, regardless of whether an attorney exemption is available. In rejecting arguments raised by two defendant law firms and their principal on appeal in Consumer Attorney Services, P.A. v. State of Indiana, the court determined that Indiana’s Credit Services Organizations Act, Mortgage Rescue Protection Fraud Act, Home Loan Practices Act, and Deceptive Consumer Sales Act, do not provide law firms with any express or implied exemption from liability. The Indiana high court's March 21, 2017, decision stemmed from a lawsuit by the State of Indiana against Consumer Attorney Services, P.A., The McCann Law Group, LLP, and Brenda McCann—individually and in her capacity as owner or officer of the two law firms. After Indiana homeowners registered complaints with the Indiana Attorney General's Office about the defendants’ treatment of the homeowners’ loan-modification matters or foreclosures, the Indiana Attorney General claimed that the law firms and McCann violated the four state consumer-protection laws.

According to the court’s opinion, Consumer Attorney Services, P.A. (CAS) is a Florida corporation “that purports to specialize in foreclosure- and mortgage-related legal defense work, requiring non-refundable retainers and monthly fees up front to be automatically deducted from bank accounts.” McCann was an attorney licensed in Florida “who acted as CAS’s manager.” CAS entered into various “Partnership,” “Associate,” and “Of Counsel” agreements with several Indiana attorneys to handle Indiana cases, and all of these agreements “were entered into before CAS registered as a foreign entity authorized to do business in Indiana.”

Investigation, complaint. After Indiana homeowners complained, the Indiana Attorney General investigated CAS’s practices. Among other things, the Indiana AG’s investigation revealed that the majority of pertinent Indiana homeowners did not have any personal contact with an Indiana-licensed attorney after the attorney’s retention, and the homeowners received “perfunctory” legal services. Moreover, the Indiana AG found no resident homeowners having obtained a successful loan modification.

Based on the investigation, the State of Indiana filed a lawsuit against CAS, McCann, and the McCann Law Group under the four state consumer-protection laws. Eventually, the defendants requested summary judgment in their favor, contending that they were all “statutorily exempted from liability” under the state laws. The Indiana Supreme Court disagreed.

CSOA, MRPFA. The defendants argued that they were exempt from the Indiana Credit Services Organizations Act (CSOA) because; (i) the statute excludes liability for any “person admitted to the practice of law in Indiana if the person is acting within the course and scope of the person’s practice as an attorney;” (ii) the statute defines a “person” as “an individual, a corporation, a partnership, a joint venture, or any other entity;” and (iii) Kansas precedent, addressing similar statutory language in the defendants’ favor, should be found persuasive.

In rejecting the defendants’ contentions, the court pointed out that, unlike the Kansas situation, the Indiana CSOA did not furnish the court with the same clear and convincing legislative history to resolve an ambiguity in the statutory language. Instead, the court emphasized that the CSOA should be interpreted “liberally,” given its broad consumer-protection purposes. Next, the court noted similar “exemption” language in the Indiana Mortgage Rescue Protection Fraud Act (MRPFA) but acknowledged its more limited scope: “an attorney licensed to practice law in Indiana who is representing a mortgagor.”

Against this backdrop, the court determined that the MRPFA “unambiguously exempts attorneys as individuals, not the law firms with which they are affiliated, because only an individual can be ‘licensed to practice law in Indiana’.” The court further determined that, “given the overlap in coverage between the MRPFA and the CSOA, we believe it would be odd indeed to read an expansive exemption into the CSOA which is unavailable under the MRPFA.”

In the court’s view, this interpretation of the CSOA and the MRPFA was also compatible with the judiciary's “disciplinary authority.” The court asserted, “We thus find it reasonable that our General Assembly would choose to exempt attorneys specifically (who are subject to far more extensive disciplinary action by this Court) while not exempting their firms.” Accentuating this point, the court clarified that “although a law firm may qualify as a ‘person’ with respect to other provisions of the CSOA, it does not qualify for an exemption under Indiana Code section 24-5-15-2(b)(6).”

HLPA, DCSA. Next, addressing Indiana’s Home Loan Practices Act (HLPA), and Deceptive Consumer Sales Act (DCSA), the court stressed that neither law “contains an express attorney exemption of any kind, but CAS still sought exemption, on the grounds that the underlying alleged violation of the HLPA and the DCSA falls within the scope of the MRPFA and the CSOA.” The court explained that since it did not find any available law firm exemption under the CSOA or the MRPFA, no law firm exemption could be extended to the ancillary claims under the HLPA and the DCSA.

McCann not exempt. Lastly, the court determined that because Brenda McCann “was never licensed as an attorney in the State of Indiana, she too cannot claim the exemptions contained in the CSOA or the MRPFA, nor can she extend them to the HLPA and the DCSA.”

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