This just in and it appears to be a huge bombshell.
They operate in NINE states and own SEVERAL companies. By far the largest foreclosure mill operation in the West.
Northwest Trustee Services operates in Hawaii, Alaska, Washington, Oregon, Idaho, California and elsewhere.
This is the same Northwest Trustee Services that is buying up/starting newspaper companies in the Northwest.
The Bellevue, Wash.-based company and its affiliates have in the past two years bought or started up six weekly newspapers in the Northwest. It could buy as many as 50 more in the Western states, said Rim co-founder Stephen Routh.
Strangely, the moves have more to do with the booming and controversial business of home foreclosures than with journalism.
From the bar complaint below, it appears they got nailed for Falsely Charging Clients Inflated Non-Judicial Foreclosure Publication Costs. What is most interesting about the complaint is it is from an attorney from one of the newspapers they use for publications, in which NTS/FEI
is was? one of their biggest customers.
If this is proven to be widespread, which it appears to be, they could be in real trouble here.
Here is a
quick breakdown of events and the 23 page letter to the state bar.
On January 18, 2012 attorney Michael Dillard files a complaint RE David Fennell with the state bar…
Note; 1/18/12 Rec’d Itr from C concerning fraudulent costs being billed for publication notices for non-judicial foreclosures by company owned by A. A was suspended for one year in 2004 for similar conduct in Washington. That case was handled by SRC. I also spoke with the C, who is the attorney for two central Oregon newspapers that have provided documents supporting the allegations of fraud and dishonesty. Discussed with HMH, who took the C’s call yesterday and agrees that the matter should be referred to DCO pursuant to BR 2.5(b)(2). CLIENT ASSISTANCE OFFICE REFERRAL TO DISCIPLINARY COUNSEL
Then on January 19, 2012 the bar notifies David Fennell of the complaint.
Dear Mr. Fennell:
Enclosed is correspondence from Michael Dillard regarding your conduct. Pursuant to BR 2.5(b)(2), we are referring this matter to Disciplinary Counsel’s Ofﬁce for further consideration.
This referral to Disciplinary Counsel is not, and should not be construed in any way as, a determination that any improper conduct has occurred in this case. Under Bar Rule of Procedure 2.5, CAO determines whether there is sufficient evidence to support a reasonable belief that misconduct may have occurred warranting a referral to Disciplinary Counsel’s Office for further investigation. Misconduct means a violation of the rules of professional conduct and applicable statutes that govern lawyer conduct in Oregon.
Disciplinary Counsel’s Office will conduct a further inquiry to determine whether there is probable cause that a disciplinary violation occurred. You should hear from Disciplinary Counsel’s Office within 14 days and all further correspondence should be directed there.
Please note that the bar maintains a list of Oregon lawyers who have expressed an interest in initially consulting with attorneys regarding disciplinary matters on a pro bono basis to evaluate the issues and determine if defense counsel should be retained. To obtain a copy of this list, please contact Danielle Edwards in the Member Services Department at email@example.com or extension 426.
What comes next is a fascinating 23 page letter detailing the Dishonest and Deceitful Practices of David Fennell and his company NTS Falsely Charging Clients Inﬂated Non-Judicial Foreclosure Publication Costs.
Dear Mr. Mullmann:
Pursuant to my reporting obligation under ORPC Rule 8.3(a), I am submitting this written report to the Oregon State Bar (the “Bar”) about my knowledge of an Oregon lawyer’s professional misconduct. This written report is a follow-up to my phone call to the Bar this afternoon, when I spoke with Helen Hierschbiel, General Counsel.
I obtained the factual information upon which this report is based during the course of my representation of Western Communications, Inc. (“WesCom”), an Oregon company that publishes The Bulletin of Bend, The Redmond Spokesman and ﬁve other newspapers in Oregon and northern California. The information and documents I am providing relate to my representation of WesCom and were obtained during such representation. I have informed my client, WesCom, that all of the information and documents I provide to the Oregon State Bar (the “Bar”), including this letter and its exhibits, will become public records. WesCom has consented to my submittal of this letter and the attached exhibits to the Bar and to my disclosure of the limited information I provided during my telephone conversation this afternoon with Ms. Heirschbiel.
The lawyer who is the subject of this report is David E. Fennell, a member of the Oregon State Bar and the Washington State Bar. Stated succinctly, the facts of professional misconduct I am reporting are facts showing that Mr. Fennell engaged in conduct involving dishonesty, fraud, deceit or misrepresentation that reﬂect adversely on his ﬁtness to practice law, by owning and managing two related companies, Northwest Trustee Services, Inc. (“NTS”) and Foreclosure Expeditors/Initiators, LLC (“FEI”), which together have engaged in the dishonest and deceitful practice of falsely charging their clients inﬂated non-judicial foreclosure publication costs.
Documents obtained during my representation of WesC0m conﬁrm that NTS has billed at least two of its bank clients non-judicial foreclosure publication costs that exceed the actual publication costs incurred. The investigation we conducted revealed that NTS presented deceptive invoices to one bank client which caused that bank to believe it was being billed the actual costs of publication, when in fact the publication costs had been inﬂated and falsely overstated approximately 18% by Mr. Fennell’s companies, NTS and PEI.
In our investigation we obtained NTS’s invoices to bank clients for three non-judicial foreclosure sales in Deschutes County, which show that for each sale NTS billed its client $1,185.85 for publication costs, when in fact the publication costs that NTS and FEI actually paid was only $1,007.97. The investigation revealed that in each of these three Deschutes County non-judicial foreclosures Mr. Fennell’s companies, NTS and FEI, acted together to falsely inﬂate the publication cost by $177.88, thereby secretly increasing their combined net revenues.
One of the NTS invoices we obtained during our investigation, which includes the inﬂated publication cost, lists the name “Fennell” as the “Payee Code.” On its face this document suggests that Mr. Fennell is the payee of the inﬂated billing. At a minimum, this document shows that Mr. Fennell is actively involved in the business affairs of NTS and FEI and was likely aware of the dishonest billing of inﬂated publication costs.
We have not determined the full breadth and extent of NTS’s and FEI’s dishonest marking up of non- judicial foreclosure publication costs. However, given the large volume of NTS’s and FEl’s foreclosure servicing business, we suspect that the dishonest overcharging of publication costs is widespread. If it is, NTS’s and FEI’s overcharge of approximately $180 on each foreclosure sale they handle could add up to hundreds of thousands of dollars of secret profits in Central Oregon, and perhaps millions of dollars elsewhere.
Our investigation also revealed that it is likely that in many cases the secretly inﬂated publication costs charged by NTS and FEI are unknowingly passed on by NTS’s bank and loan servicer clients to borrowers who pay to cure their default before the foreclosure sale is held, to foreclosure sale purchasers, and to the state and federal agencies that insure residential mortgages.
Based upon the facts that have become known to me during my representation of WesCom, including knowledge reasonably inferred from such facts, I have concluded that I have knowledge that Mr. Fennell has committed a violation of ORPC Rule 8.4(a) (3) that raises a substantial question as to his honesty, trustworthiness or ﬁtness as a lawyer in other respects. I have also concluded that the knowledge I have, combined with my client’s consent to disclose to the Bar of what I have learned, obligates me, under ORPC 8.3(a), to inform the Oregon State Bar Client Assistance Office (the“CAO”) of this violation.
The attorney then goes into meticulously detailing the The Lawyers, The Law Firm and Businesses Connected With the Reported Misconduct of Mr. Fennell.
He names Routh Crabtree Olsen, a full-service mortgage banking law ﬁrm dedicated solely to the representation of the mortgage banking and default servicing industry, Northwest Trustee Services, Inc., a full-service trustee company providing default services to mortgage lenders in the Western United States, and Foreclosure Expediters/Initiators, LLC, which offers posting, service of process, publication management, trustee auctioneer services with monitoring of bidding services.
The letter then connects all the players together in great detail. (see page 10-12 below)
Initial Discovery That the Fennell/Routh Businesses, FEI and NTS, Are Falsely Up-charging Inﬂated Non-Judicial Foreclosure Publication Costs
For a number of years FEI has been placing legal notice advertisements for non-judicial foreclosure sales with WesCom, for publication in The Redmond Spokesman. WesCom is the publisher of both The Bulletin of Bend and The Redmond Spokesman. In recent years, as the number of real property foreclosures in Deschutes County has risen dramatically due to the recession, the volume of non-judicial foreclosure sale publications placed by FEI in The Redmond Spokesman has increased substantially.
All non-judicial foreclosure sale legal notices placed in The Redmond Spokesman are processed by the Legals staff of the Advertising Department at WesCom ofﬁces in Bend. All advertising publication charges, including those for foreclosure sale legal notices, are invoiced to WesCom’s customers (including FEI) at a published “Net Rate.” As a courtesy to advertising agencies, WesCo1n also publishes a higher “Gross Rate” on its rate card for advertising agencies to use if they want to charge their clients a commission for the advertising orders they place. Publishing a Net Rate and a Gross Rate on a media rate card is common practice in the newspaper advertising industry. Typically the Net Rate is 15% less than the Gross Rate, which is true for WesCom. The Net Rate, not the Gross Rate, is always used in WesCom’s billings, including billings to advertising agencies. The Gross Rate does not appear on WesCom’s invoices. Any commission charged by an advertising agency, when it chooses to bill its client the Gross Rate, is the sole responsibility of the agency and not WesCom. WesCom believes that advertising agencies’ clients, if they are billed by their agency at the Gross Rate, are aware that they are paying the ad agency a commission. But whether or not every such advertising agency client is aware of the commission is a matter of the business dealings between the ad agency and its client, and is not a matter that involves WesCom, which uses only the net rate on its invoices.
Just as it does with its advertising customers, WesCom always charges FEI the Net Rate for its foreclosure legal notice advertisements in The Redmond Spokesman. WesCom invoices FEI monthly at the Net Rate for the foreclosure sale publications FEI placed in The Redmond Spokesman during the preceding month.
For each non-judicial foreclosure sale, Oregon law requires that the notice of sale be published in a qualiﬁed newspaper once a week for four consecutive weeks. Often the four publications and their invoice billings straddle two months. For several years FEI has had a practice of regularly emailing to the Legals staff person in WesCom’s Advertising Department a list of foreclosure sale ﬁle numbers, property owner names and ﬁrst publication dates, and of asking the Legals staff person to ﬁll in the costs of the four publications for each listed non-judicial foreclosure sale. (An example of the email and list sent to the staff person by FEI, dated July 2, 2009, is attached as Exhibit A.) As a service to FEI, a WesCom’s Legals staff person would enter into the FEI list the cost of the four publications for each foreclosure sale and email it back to FEI. The cost entered on the list was the cost billed to FEI, which was at the actual cost Net Rate.
On or about July 9, 2009, Alan Burton, operations supervisor at FEI, contacted WesCom’s Legals staff and spoke to Legals Shawn Antoni. He told Ms. Antoni that he wanted WesCom’s Legals staff to start listing the Gross rate, instead of the Net Rate, on the lists that FEI emailed to Legals Staff each month.
Mr. Burton sent Ms. Antoni an email stating “Per our discussion over the phone we would like to start placing our legals with the gross national rate and receive the 15% commission.” (A copy of Mr. Burton’s 7/9/09 email to Ms. Antoni is attached as Exhibit B.) Ms. Antoni perceived nothing unusual about Mr. Burton’s request to receive the Gross Rate information. As requested by Mr. Burton, beginning in July 2009, WesCom’s Legals staff began entering the Gross Rate for foreclosure sale publications on the FEI lists. Legals staff’s entry of the Gross Rate on the FEI lists did not affect in any way the monthly publication invoices that WesCom sent to FEI, which continued to bill FEI the actual Net Rate cost of the publications. (A copy of the list form that FEI started emailing to WesCom’s Legals staff in July 2009, dated July 10, 2009, is attached as Exhibit C.) The email list from FEI now stated that “A GROSS Publication cost is needed for the following legal notices. ..” whereas, previously the FEI emails stated that “A Publication cost is needed for the following legal notices .. ..”
Attached as Exhibit D is an email dated March ll, 2011, which is an example of a typical email request that FEI sent to WesCom’s Legals staff. Attached as Exhibit E is an email dated April 4, 2011, which Legals staff sent to FEI in response to their March 11, 2011 email. In the responding email, the WesCom Legals staff entered the total Gross Rate for the four publications for each of the trustee foreclosure sales that FEI listed.
The WesCom monthly invoices sent to FEI were computer print-outs prepared by the WesCom billing department. The invoices listed the Publish Date, Ad Number, Name (property owner) and Amount for the foreclosure sale publications being billed. WesCom does not retain printed copies of the actual monthly invoices sent to FEI. However, WesCom retains in its computer records the billed amounts and other information that was included on the invoices and can reprint the invoices if needed. A print-out made in May 201 1, of selected billing information from WesCom’s computer accounting records for foreclosure sale publications billed to FEI in 2010, is attached as Exhibit F. The billed amount for each publication that appears is the actual Net Rate cost that FEI was always billed and which FEI always paid. FEI has never been billed the higlier Gross Rate by WesCom and FEI has never paid the Gross Rate to WesCom for any of the foreclosure sale publications that FEI requested in The Redmond Spokesman.
Sometime in March 2011, Mark Journey, F EI Publications Manager, contacted The Redmond Spokesman and Jay Brandt, WesCom’s Advertising Director, and told them that he wanted to discuss possible ways that FEI could reduce its publication costs for non-judicial foreclosures. Mr. Brandt was concerned by Mr. J ourney’s statement that FEI wanted a discount because the high volume of advertising business that WesCom was receiving from FEI represented a major portion of the advertising revenues of The Redmond Spokesman. Despite his concern, Mr. Brandt agreed to discuss the subject of publication cost reductions with Mr. Journey.
On March 30, 2011, Mr. Brandt and Sean Tate, The Bulletin of Bend Advertising Manager, flew to Seattle and met with Mr. Journey. At the meeting, Mr. Journey told Mr. Brandt a.nd Mr. Tate that he had joined FEI as its Publication Manager in May 2010. Mr. Journey explained that FEI is hired by trustees to format, proof and process foreclosure sale notices and send them to newspapers for publication. The subject turned to publication pricing and cost and Mr. Journey told Mr. Brandt and Mr. Tate that he was supposed to get the cheapest rate he could for publication of foreclosure notices.
He told Mr. Brandt and Mr. Tate that The Redmond Spokesman was one of the most expensive newspapers they do business with, more expensive than 34 of the 43 Oregon papers with which FEI does business.
Mr. Journey discussed with Mr. Brandt and Mr. Tate the creation of Oregon Legal Journal (“OLJ”). He said that they had created OLJ to combat the “higher papers.” He said it was created 2 ‘/2 to 3 years ago to be put in place in markets that weren’t competitive. He told Mr. Brandt and Mr. Tate that their market “isn’t necessarily on the radar.” He said that the OLJ was currently being published in four Oregon counties: Washington, Clackamas, Multnomah and Jackson.
Mr. Journey then requested a 10% discount from Net Rates the FEI was being charged by WesCom for The Redmond Spokesman. Mr. Brandt asked Mr. Journey if the 10% cost reduction would be passed on by FEI to its clients. Mr. Journey’s response was that each bank had its own arrangement. When asked why the 10% discount was needed Mr. Journey said that FEI is trying to increase their bottom line through the 10% discount. He said “his company” meets regularly to brainstorm about how to increase their bottom line in all of their different businesses. When asked what those businesses do, he said that the “parent company” of FEI has created several different businesses that take part in the foreclosure process, from repairing foreclosed homes all the way to conducting auctions to sell foreclosed properties.
Mr. Brandt and Mr. Tate asked Mr. Journey if FEI would consider a contract for its publication business in Deschutes County in exchange for the requested rate concessions. Mr. Journey said he would consider that as a possibility. Mr. Brandt asked Mr. Journey if making the rate concessions would keep them from running their legal notices in the OLJ in the Bulletinl Spokesman market area. Mr. Journey responded that it would keep them off the radar.
Upon their return, Mr. Brandt spoke to WesCom’s Legals staff about previous communication they may have had with FEI regarding the placement of their legal notices for non-judicial foreclosure sales. At this time Mr. Brandt learned for the ﬁrst time of the email sent by Alan Burton of FEI to the Legals staff in July 2009 (Exhibit B), requesting that Legals staff begin providing FEI with a Gross Publication Rate for the FEI placed non-judicial foreclosure sale notices.
At or about this time period Mr. Brandt and Mr. Tate told others in WesCom management, including WesCom President Gordon Black and Editor in Chief John Costa, what was discussed at the March 30, 2011 Seattle meeting and of the emails they had discovered. Mr. Black and Mr. Costa were also told about the recent discovery that FEI was asking WesCom Legals staff to input the Gross Rates on an FEI list of foreclosure publications. Upon learning this information, WesCom’s senior management became concerned about the purpose for which F BI was having the Gross Publication Rate entered by Legals staff onto the FEI email forms.
Mr. Brandt, Mr. Tate, Mr. Black and Mr. Costa discussed the possibility, in light of statements Mr. Journey had made at the Seattle meeting, that FEI might be up-charging its clients the higher Gross Rate, even though they were only paying the lower Net Rate for publication of the legal notices.
The group became concerned that FEI might be dishonestly inﬂating the publication costs in billings that EBI was presenting to its clients. At this time WesCom management also recognized the possibility that banks and other lenders, and ultimately the purchasers at foreclosure sales or the property owner/borrowers, were being charged secretly inﬂated publication costs that signiﬁcantly exceeded the actual publication costs.
During April 201 1, in the weeks after the March 30″‘ meeting, Mr. Journey telephoned Mr. Brandt and inquired about moving forward with FEl’s request for a 10% discount of publication costs. Mr. Brandt sought to slow down the process by telling Mr. Journey that FEI’s request was being considered by WesCom management. In fact, WesCom management was grappling with their concern that FEI might be up-charging the publication cost to its clients. WesCom management found themselves in a business and ethical dilemma. On the one hand, FEI was a major advertising customer of WesCom and it was in the interest of WesCom to work to retain the FEI business. On the other hand, WesCom management was now concerned that FEI was possibly engaged in dishonest billing of foreclosure publication costs. In this regard WesCom management was concerned that FEI might already be using, or planning to use, the FEI Gross Publication cost list ﬁlled out by WesCom Legals staff to carry out or conceal dishonest or fraudulent billings.
On April 25, 2011, Mr. Journey, FEI’s Publications Manager, sent an email to Mr. Brandt regarding the subject of “Rate Commissions.” In the email Mr. Journey stated the following to Mr. Brandt:
A question has come up ﬂom my acc0unting/ risk management group.
Would it be possible for you folks to gross bill us then allow us to pay you at net?
Gross less any discounts we come to an agreement on?
Mr. Brandt’s receipt of this email from FEI’s Manager of Publications greatly increased WesCom’s concern that FEI was engaged in dishonestly inﬂating legal notice publication costs to its clients, or planning to do so. Under the circumstances, WesCom sought the advice and assistance of legal counsel. That in turn led to my engagement on or about April 28, 2011, as WesCom legal counsel regarding the concerns about FEI and about FEI’s request for a 10% discount and modiﬁed billing practices between WesCom and FEI.
A decision was made to seek to delay the new discount discussions that FEI was seeking. On May 3, 2011, Mr. Brandt sent an email to Mr. Journey, responding to Mr. Journey’s April 25, 2011 email. Mr. Brandt’s May 3″‘ email to Mr. Journey stated the following:
I am just back ﬁrom my grandmother ’s funeral and apologize for the delay. Your new request to bill you at a gross rate is more complicated because of our billing system parameters. We need more time to sort it all out. On the other hand, the additional 10% discount oﬂ the current net rates you have requested doesn ’t pose the same issue.
Please allow us until the June 1, 2011 billing cycle to ﬁgure it out.
On Friday, May 6, 201 1, Mr. Brandt received another email from Mr. Journey asking if Mr. Brandt would have some time the following Monday to talk. When the May 6″‘ email was received by Mr. Brandt, WesCom management, with my assistance, was trying to ﬁnd out if NTS and FEI were already engaged in dishonestly up-charging their clients for non-judicial foreclosure publication costs Under the circumstances, Mr. Brandt again sought to slow down discussions with FEI about the requested 10% discount and new billing practices, to allow time to conﬁrm whether or not NTS and F BI were engaged in dishonest billing practices. On May 6’ 201 1, Mr. Brandt responded to Mr. Journey with an email stating that Mr. Brandt would be available for a call on Monday, but also asking “ What can I get together to be helpful on Monday,” in an attempt to get more speciﬁc information from FEI about the new publication billing and payment process they were requesting.
Mr. Journey emailed back to Mr. Brandt the following:
I just want to get a better understanding on the Gross vs Net billing difficulties. I would like to get the additional 10% in play before June if possible. A while back you said you & your publisher had a proposal based on our net conversations. Can I see that.
The emails that Mr. Brandt received from Mr. Journey on May 3 and May 6, 2011, greatly increased WesCom management’s concern that FEI was dishonestly up-charging foreclosure publication costs to their clients, or was planning to do so. At this point WesCom management recognized that what FEI appeared to be planning to do was to charge their clients inﬂated publication costs at the Gross Rate, while receiving from WesCom a 10% discount off the Net Rate, thereby enabling FEI and NTS to achieve a secret proﬁt margin of almost 30% on the publication cost they charged their bank and loan servicer clients.
Investigation Leading to Documentary Proof That the Fennell/Routh
Businesses, FEI and NTS, Were Falsely Up-Charging Inﬂated Non-Judicial Foreclosure Publication Costs.
As WesCom’s legal counsel regarding their dealings with and concerns about FEI, I believed that it was very important to ﬁnd out if FEI was in fact dishonestly up-charging inﬂated publication costs. I felt that Mr. Journey’s emails and statements to Mr. Brandt were strong circumstantial evidence that FEI was either already doing so, or planning to do so. To ﬁnd out for sure if the up-charging of publication costs was occurring we needed to obtain from a bank or other loan servicer copies of invoices submitted to them for publication costs for Deschutes County non-judicial foreclosure sales, for which FEI had arranged and paid for publication in The Redmond Spokesman. I proceeded with an investigation of FEI’s billing practices and attempted to obtain copies of invoices to reveal whether or not FEI clients were being overcharged publication costs.
By mid-May 2011, I succeeded in obtaining copies of NTS’s foreclosure sale publication expense invoices for foreclosure sales in Deschutes County, where FEI had arranged and paid for publication in The Redmond Spokesman. The invoices were billings from NTS to Sterling Savings Bank, a northwest regional bank headquartered in Spokane, WA (“Sterling Bank”). In particular, I obtained copies of NTS’s invoices to Sterling Bank for two non-judicial foreclosure sales, for which NTS was the trustee, which occurred in Deschutes County in early 201 1, and for which the notices of sale were arranged by FEI and published in The Redmond Spokesman.
Attached as Exhibit J and K are copies of the two invoices from NTS to Sterling Bank with the identity and address of the Sterling Bank’s borrowers redacted. The manner in which I obtained these invoices and the source from whom I obtained them, gave me absolute conﬁdence that the unredacted documents I received are true and accurate copies of original invoices that NTS submitted to Sterling Bank.
Exhibit J is an NTS invoice to Sterling Bank, dated January 22, 2011, for the foreclosure sale held on January 18, 2011 of real property in Bend, OR, which secured a loan from Sterling Bank to the Sterling Bank Borrower A. (The name and address of the borrower is redacted and replaced with an assigned code name, “Sterling Bank Borrower A.”) The invoice includes a Trustee Fee of $750 and a list of trustee sale expenses totaling $4,806.93. Included in the list of trustee sale expenses is an expense in the amount of $1,185.85, listed as “Publication Commenced” dated 1 1/ 10/ 10.
Exhibit K is an NTS invoice to Sterling Bank, dated February l 1, 2011, for the foreclosure sale held on February 7, 2011 of real property in Terrebonne, OR, which secured a loan from Sterling Bank to Sterling Bank Borrower B. (The name and address of the borrower is redacted and replaced with an assigned code name, “Sterling Bank Borrower B.”) The invoice includes a Trustee Fee of $750 and a list of trustee sale expenses totaling $2,791.93. Included in the list of trustee sale expenses is an expense in the amount of $1,185.85, for an expense item entitled “Publication Commenced,” dated 10/21/10.
Attached as Exhibit F is the print-out of information from WesCom’s computer accounting system, which includes the total amount of $1,007.97, that FEI was invoiced by WesCom (and the amount that FEI paid to WesCom) for four publications in The Redmond Spokesman for each of the two foreclosure sales that were the subject of the above referenced Exhibit J and K invoices to Sterling Bank. (The borrowers’ names are alsoredacted in Exhibit F and replaced with the same assigned code names used in Exhibits J and K.)
The foreclosure publication costs that NTS billed to its client, Sterling Bank, in each of the two invoices, Exhibits J and K, are for a falsely inﬂated amount, at the Gross Rate of $1,185.85. This amount exceeds the actual publication cost that FEI paid to WesCo1n for the publications for each of these two foreclosure sales conducted by NTS by approximately 18%.
As shown in Exhibit F, the actual publication cost that FEI paid for each of these two NTS foreclosure sales was $1,007.97, which is the Net Rate that WesCom has always charged FEI. Together NTS and FEI inﬂated the publication costs for these two foreclosures to their client, Sterling Bank, without disclosing the hidden proﬁt that they were making from the inﬂated publication cost that was billed. The hidden proﬁt was $177.88 for each foreclosure.
While the up-charge of $177.88 for each foreclosure sale might seem modest, if NTS/FEI has been regularly overcharging that amount in publication costs on their non-judicial foreclosures, the total amount of overcharging and fraudulent proﬁts for NTS/FEI adds up to a very large amount of money.
Just with WesCom, NTS/FEI has arranged foreclosure sale publications for over 2,000 non-judicial foreclosures in the Central Oregon area alone since July 9, 2009, which was when F El ﬁrst asked for reports of Gross-Rate figures from WesCom Legals staff. If the up-charged publication cost averaged$180 for all 2,000 foreclosure sales, NTS’s and/ FEI’s dishonest proﬁt for Central Oregon alone is $360,000.
Even after conﬁrming that NTS and FEI were inﬂating the foreclosure publication costs to at least one of their clients, we also needed to ﬁnd out if FE1’s and NTS’s clients were aware that they were being charged a publication cost greater than the cost charged by the newspaper. Based upon information I received from the same reliable source from whom I had received the NTS invoices to Sterling Bank (Exhibit J and K), I learned that Sterling Bank had been unaware of the fact that NTS was billing it publication costs that were greater than the actual foreclosure publication costs that had been paid.
From the same reliable source I also conﬁrmed that Sterling Bank had never believed or suspected that NTS was billing it a marked-up or inﬂated amount for the publication cost.
Recently we were able to obtain a series of invoice and billing documents conﬁrming that another bank client of FEI and NTS, U.S. Bank Home Mortgage (“U.S. Bank”) was also charged inﬂated publication costs by NTS for a non-judicial foreclosure sale in Deschutes County. The foreclosure sale occurred on or about June 15, 2011, and four Notice of Sale publications were placed in The Redmond Spokesman in March and April 2011. The foreclosure was of a loan made in 2008 to Shane B. and Nicole M. Curtis of Bend for the purchase of a house at 20504 Rolen Avenue, Bend, Oregon.
Attached as Exhibit L is the print-out of WesCom’s invoice to FEI of the billings for the required four publications in The Redmond Spokesman, for the non-judicial foreclosure sale of the Shane B. and Nicole M. Curtis home. The total publication cost billed to FE] and paid by FEI for the Curtis foreclosure sale was $1,007.97. This was the Net Rate amount.
Attached as Exhibit M is an email chain dated March 15, 2011, of emails between “PEI Admin” and WesCom Legals staff, which contains Legals staffs response to FEI’s request for the “Gross Publication cost” for a list of legal notices. (This exhibit is similar to the email exchange shown in Exhibits D & E above.) The ﬁrst legal notice listed in the Exhibit M email is the “Curtis, Shane B. and Nicole M.” non-judicial foreclosure. The Gross Rate of $1,1 85.85 is entered for the Curtis foreclosure.
Attached as Exhibit N is an invoice from FEI to NTS regarding Shane B. and Nicole M. Curtis and property at 20504 Rolen Avenue, Bend, Oregon. Included in this invoice is “Pub.” cost in the amount of $1 ,185.85, an amount that includes a $177.88 up-charge. From this billing document between the two Fennell/Routh companies, FEI and NTS, we see that the inﬂating of the publication costs was done at this stage of the billing process. This invoice gave NTS a document that NTS could use to show that the “publication cost” it paid was the $1,185.85 amount that it then would charge its bank client. This invoice from PEI to NTS appears to be a record the Fennell/Routh companies created for
NTS to use in the event of an audit of its records concerning the foreclosure costs it billed its clients. Attached as Exhibit O is a NTS invoice addressed to U.S. Bank, dated June 15, 2011, for a “Non-Jud Forec1osure/ FHA” for “Borrower: Curtis, Shane 20504 Rolen Avenue Bend, OR.” The invoice includes a Trustee Fee of $675 and a list of trustee sale expenses totaling $3,000.11. Included in the list of trustee sale expenses is an expense in the inﬂated amount of $1,1 85.85, listed as “Publication Commenced” dated 3/16/10. This invoice is similar in format and appearance to the Exhibits] and K NTS invoices to Sterling Savings Bank.
Attached as Exhibit P is another NTS invoice, for the Curtis foreclosure, addressed to U.S. Bank in Owensboro, KY, entitled “Foreclosure — Foreclosure Services — Non-Judicial —- INVOICE,” dated June 15, 201 1. This invoice, which differs in format from the Exhibit N invoice, includes a billing on page 2 of $1,185.85 for “Service Costs —Publication” dated March 16, 2011. A hand-written notation on page 1 of this invoice states “Pd 8/22/11.” On page l of this invoice it states “Payee Code: Fennell.”
As the series of Exhibits L through P shows, for the Curtis non-judicial foreclosure sale, FEI and NTS falsely inﬂated by 18% the foreclosure publication cost they charged U.S. Bank, in the identical way that they did the publication costs they billed Sterling Bank for the Sterling Borrower A and Sterling Borrower B foreclosures (as discussed above). However, with the Curtis foreclosure, the trail of the inﬂated publication cost extends beyond FEI’s and NTS’s the client, U.S. Bank. Our investigation revealed that for the Curtis foreclosure, the falsely inﬂated publication cost was passed forward to an agency of the State of Oregon, the Oregon Housing and Community Services Department (“Oregon Housing”), and then to a U.S. government agency, FHA of the U.S. Housing & Urban Development Agency (“FHA/HUD”).
Attached as Exhibit Q is a Claim Form for the Curtis foreclosure, which we understand was presented by U.S. Bank to Oregon Housing, seeking payment for the foreclosure costs for the Curtis foreclosure. The Claim Form lists $3,000.11 as foreclosure costs (identiﬁed as “Attorney Costs (FC)”). As shown in the NTS Curtis foreclosure invoices to U.S. Bank (Exhibits O & P above), the $3,000.] 1 amount includes the falsely inﬂated publication costs amount of $1,185.85.
Recorded deeds for the Curtis property, following the June 14, 2011 foreclosure sale, show that the property was deeded on June 15 , 2011 by the Trustee, NTS, to Oregon Housing (see Trustee’s Deed attached as Exhibit R.) Then, on July 13, 2011, it was deeded by the Oregon Housing to FHA/HUD.
(See Warranty Deed attached as Exhibit S.) With regards to the Claim for payment of the Curtis foreclosure costs that U.S. Bank made to Oregon Housing and FHA/HUD, which included the inﬂated publication cost, we understand that in November 2011 FHA/HUD reimbursed U.S. Bank approximately 75% of the total claim and that Oregon Housing is likely to pay U.S. Bank the remaining portion, but has not yet done so.
The ﬁnal outcome of the Curtis foreclosure was a sale of the Curtis property on November 11, 2011 from F HA/HUD to a private buyer. (See Special Warranty Deed attached as Exhibit T.) According to the November 4″‘ deed, the consideration paid by the buyer was $126,659. According to the July 13, 2011 warranty deed (Exhibit S), through which FHA/HUD obtained title from Oregon Housing, the consideration that FHA/HUD paid to Oregon Housing was $219,815. And according to the June 15, 2011 trustee’s deed (Exhibit R), through which Oregon Housing obtained title from the foreclosure sale, the consideration for the foreclosure sale was $24O,3 78 (which most likely was the total amount of the debt owed on the property at that time, including the foreclosure costs).
With regards to who actually ended up paying the inﬂated publication costs that FEI and NTS falsely up-charged for the Curtis foreclosure sale, the end result of the chain of events, including the successively lower consideration paid, is that the inﬂated foreclosure costs will be borne by the two government agencies, approximately 7 5% by FHA/HUD and the rest by Oregon Housing. What that ultimately means is that a portion of the inﬂated charge will be paid by all of the U.S. homeowners who paid FHA mortgage insurance as part of their FHA loans and the other portion will be paid by the funding sources for Oregon Housing.
During May, June and into July 2011, the course of action that WesCom management pursued was to attempt to negotiate a new agreement, including a legitimate and ethical billing process with FEI, that would allow WesCom to continue to receive legal notice advertising business from F El, without providing FEI with invoices that could be used by FEI to mislead or deceive their clients or to conceal from their clients an up-charging of publication costs. Ultimately, the effort to negotiate an agreement with FEI that was acceptable to WesCom, from both a business standpoint and from an ethical standpoint, was unsuccessful.
During the recent months PEI has continued to place non-judicial foreclosure sale advertisements with WesCom for publication in The Redmond Spokesman. WesCom continues to invoice FEI at the Net Rate amount, without the 10% discount PEI had requested. FEI has continued to pay the WesCom invoices at the Net Rate as it has in the past. Also, in light of what had been discovered in our investigation about FEI’s and NTS’s publication cost billing practices, WesCom ceased providing FEI the “Gross Publication Cost” information as FEI previously requested. WesCo1n Legals staff went back to inputting the Net Rate amount into the email lists sent to Legals staff by FEI.
The ﬁrst time that WesCo1n Legals staff sent FEI the lists showing Net Rates for FEI’s non-judicial foreclosure sale publications, instead of Gross Rates, prompted the following December 20, 2011 email from FEI’s Mr. Journey to Mr. Brandt:
Good Morning Jay, Hope all has been going well with you.
A major change was just brought to my attention regarding cost quotes for FE] Legals.
Apparently starting with 11/1/11 we started to receive from your group cost quotes in net dollars opposed to gross quotes as we have always received in the past. N0 notification was given regarding this change in procedure and it was not realized by my group until billing started. This change resulted in us undercharging a large number of our clients which is going to result in losses to FE]. I have attached the November quotes for reﬁzrence, it would have been nice to get a heads up of a change of this sort.
In this email, Mr. Journey, FEI’s Publication Manager, by his own words, conﬁrmed that FEI was in fact engaged in regularly billing its clients, including its partner company NTS, the approximately 18% inﬂated Gross Rate amount, instead of the Net Rate that it was actually paying to WesCom. I believe this email is a “smoking gun” document, which shows that FEI and NTS were regularly engaged in the dishonest scheme of secretly inﬂating non-judicial foreclosure publication costs in order to increase their proﬁts.
Standards for “conduct involving dishonesty, fraud, deceit or misrepresentation” under ORPC Rule 8.4(a)(3).
As part of deciding whether or not I know or believe that David Fennell has committed professional misconduct under ORPC Rule 8.4(a)(3), based on the fact that the two businesses he owns and manages, NTS and PEI, are up-charging their clients for inflated foreclosure sale publication costs, I reviewed Oregon case law regarding what type of conduct qualiﬁes as “conduct involving dishonesty, fraud, deceit or misrepresentation.”
Here are excerpts from the Oregon cases that I found helpful:
“Dishonest conduct,” in the context of an attorney discipline case, is conduct that indicates a disposition to lie, cheat, or defraud; untrustworthiness; or a lack of integrity. In re Conduct of Cobb, 190 P.3d 1217 (2008).
In contrast to what is required to prove an afﬁrmative misrepresentation, the Bar may prove dishonest conduct in an attorney discipline case without proving that the accused knowingly made afﬁrmative false statements. In re Conduct of Cobb, 190 P.3d 1217 (2008).
Although proving that a lawyer acted dishonestly, for purposes of disciplinary rule prohibiting dishonesty, fraud, deceit, and misrepresentation, does not require evidence that the lawyer intended to deceive, it does require a mental state of knowledge, i.e., that the accused lawyer knew that his conduct was culpable in some respect. In re Complaint as to Conduct of Skagen 149 P.3d 1171 (2006).
A lawyer makes a misrepresentation in violation of disciplinary rules either when the lawyer makes an affirmative false statement or when the lawyer remains silent despite having a duty to speak. In re Conduct 0fPhillips, 107 P.3d 615 (2005).
For purposes of rule of professional responsibility prohibiting dishonesty, fraud, deceit, and misrepresentation, dishonesty is a broader concept than deceit or fraud, and does not require the same I level of culpability. In re Complaint as 1’0 Conduct of Carpenter 95 P.3d 203 (2004).
“Dishonesty,” for purposes of Code of Professional Responsibility, is a disposition to lie, cheat or defraud, untrustworthiness, or lack of integrity. In re Conduct of Claussen 14 P.3d 586 (2000).
In my opinion the business conduct of NTS and FEI in question involves dishonesty, deceit and misrepresentation. Public records show that Mr. Femiell appears to be one of only two managing owners of both NTS and FEI. What is not clear from the public records is the extent to which Mr. Fennell is personally involved in, or aware of, the business practices of NTS and FEI, and whether or not he had involvement with, or knowledge of, their dishonest inﬂating of publication costs and its concealment from their clients. Based upon statements that FEI’s Publication Manager made to WesCom managers Mr. Brandt and Mr. Tate, it appears likely that Mr. Fennell was most likely involved in meetings of these related companies at which ways of increasing proﬁts were discussed. Under the facts revealed in our investigation, including the reference to “Payee Code: Fennell” in a NTS foreclosure costs invoice, it is difﬁcult to believe that David Fennell was not aware that NTS was billing at least some of its bank and loan servicer clients foreclosure sale publication costs that were substantially inﬂated above what NTS, through FEI, was billed by newspaper publishers, like WesCom. And from facts learned in our investigation, it appears that the PEI and NTS scheme of secretly inﬂating publication costs likely occurred because the owner managers of the Fennell/Routh companies put pressure on all of the companies to increase proﬁts by reducing costs and not passing the reduced costs on to the clients.
There is one particular email that Mr. Journey, F EI Publications Manager, sent to Mr. Brandt is in my opinion a “smoking gun” document. The email, dated April 25, 2011, is attached as Exhibit G. As discussed above, WesCom always bills FEI at the Net Rate, which is the rate that PEI pays for all publication is places in The Redmond Statesman. In this April 25″‘ email, however, Mr. Journey boldly asks a Mr. Brandt a question which Mr. Journey says originates from FEI’s “accounting / risk management group.” The question is:
Would it be possible for you folks to gross bill us then allow us to pay you at net? Gross less any discounts we come to an agreement on?
Mr. Journey asking this question clearly shows that FEI’s and NTS’s practice of up-charging inﬂated publication costs is the result of an intentional scheme pursued by FEI’s and NTS’s management. Their scheme is the pursuit of low discounted publication rates from newspapers like The Redmond Spokesman, combined with requesting billing practices that facilitate FEI’s and NTS’s secretly charging their clients an inﬂated publication cost. This email shows that FEI and NTS sought from the newspapers they used documents to substantiate the dishonestly inﬂated publication “costs” they billed their clients
It seems obvious from this email that PEI was seeking a billing arrangement that would provide them documents with the higher Gross Rate amounts, so that FEI would have records to show their clients or anyone else if FEI ever needed to substantiate the Gross Rate publication costs that PEI and NTS bills their clients. To accomplish this, Mr. Journey asked WesCom to provide bills to FEI at the Gross Rate, but to accept payment at the discounted Net Rate. This was a bold question for Mr. Journey to ask of Mr. Brandt. Possibly he had succeeded in getting other newspapers to agree to such an arrangement.
The request reveals how far PEI and Mr. Journey were willing to go to carry out FEI’s dishonest scheme to increase proﬁts.
On December 20, 201 1, after the WesCo1n Legal staff ceased providing FEI with the Gross Publication Rate lists, Mr. Journey protested via email. (See Exhibit U and discussion above.). In the email he stated:
This change resulted in us undercharging a large number of our clients which is going to result in losses to FEI.
I believe that the facts we discovered establish that Mr. FeNnell’s companies, FEI and NTS, were engaged in conduct involving dishonesty, fraud, deceit or misrepresentation. I also believe the facts show that Mr. Fennell has a controlling management position in both companies and must have been aware of the dishonest conduct. Even if he was not directly involved in the dishonest billing conduct, he bore responsibility for it and had a moral and ethical duty to stop it. If further investigation by the Bar establishes that Mr. Fennell was completely unaware that NTS and PEI were engaged in up- charging inﬂated publication costs, and Mr. F ennell can establish that he was in no way responsible for such conduct, that could affect the Bar’s ultimate determination of whether or not Mr. Fennell committed professional misconduct under ORPC Rule 8.4(a)(3).
Previous Bar Discipline of David E. Fennell
In the course of my investigation of this matter for my client, WesCom, I learned that Mr. Fennell had been previously disciplined in 2004 by both the Washington Bar and the Oregon Bar for conduct that involved marking up non-judicial foreclosure costs in a manner that constituted conduct involving dishonesty, fraud, deceit or misrepresentation (Washington RPC 8.4(c)). The disciplinary sanction that Mr. Fennell received in 2004 was the relatively severe sanction of a one-year suspension, imposed by both the Washington Bar and by the Oregon Supreme Court.
The lawyer proﬁle for David Edward Fennell contained in the Washington State Bar Association website Lawyer Directory discloses, under the heading Disciplinary History, the Action “Suspension” and a listed date of “05/1 1/2004.” The entry “Suspension” and the date “05/11/2004” both function as click-on links that open up a report regarding a Washington State Bar one-year suspension of David E. Fennell.
Attached hereto as Exhibit V is copy of the Washington State Bar Discipline Notice for David Fennell, obtained from the Washington State Bar Association website.
The listing for David E. Fennell contained in the Oregon State Bar Member Directory contains the following information under the heading “Disciplinary History”
Attached hereto as Exhibit W is a copy the Oregon State Bar announcement of the Oregon Supreme Court’s reciprocal discipline for David E. Fennell copied from the Oregon State Bar website.
Attached hereto as Exhibit X is the copy of the Oregon Supreme Court Order Imposing Reciprocal Discipline for David E. Fennell, dated Sept. 28, 2004.
Although the previous discipline of David Fennell for dishonest conduct involving the billing of foreclosure costs does not in and of itself establish that he must have been aware of NTS and FEI’s somewhat similar current practice of marking up foreclosure costs, the prior discipline makes it very difficult to believe that Mr. Fennell, one of the managing owners of FEI and NTS, would not have been aware that the marking up of publication costs was occurring. In a way, what NTS and FEI are currently doing is just a more elaborate version of the kind of dishonest foreclosure cost up-charging practice that Mr. Fennell was disciplined for in 2004.
I recognize that the professional misconduct report I am making regarding Mr. Fennell is very serious. It is serious because of the particularly egregious nature of the alleged dishonest conduct and because the monetary harm to participants in the non-judicial foreclosure process appears to be substantial. But it is particularly serious because if FEI’s and NTS’s dishonest overcharging of publication costs is as widespread as it appears it may be, its public revelation will likely further diminish the public’s trust in the integrity of the non-judicial foreclosure system, at a time when such trust has already been seriously eroded from other recent revelations of dishonesty and fraud in the foreclosure process.
I have set forth in this letter the pertinent facts and circumstances of which I am aware, from my client WesCom’s dealings with PEI and from the investigation that my client and I have conducted. I have made this report to the Bar because I have an ethical obligation to do so. I now turn this matter over to the Bar for the more extensive investigation that the Bar will be able to conduct and for a determination of whether or not David Fennell has committed professional misconduct under the Oregon Rules of Professional Conduct.
PDF copy of letter below…
Sorry, didn’t get the attachments…