IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JOSE NIEVES,
Plaintiff,
v.
ALL STAR TITLE, INC.,
Defendant.
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C.A. No. N10C-03-191 PLA
Submitted: July 12, 2010
Decided: July 27, 2010
ON DEFENDANT’S MOTION TO DISMISS
GRANTED
David E. Matlusky, Esq., and Brett Bendistis, Esq., THE MATLUSKY
FIRM, LLC, Wilmington, Delaware, Attorneys for Plaintiff.
J. Scott Shannon, Esq., and Art C. Aranilla, Esq., MARSHALL,
DENNEHEY, WARNER, COLEMAN, & GOGGIN, Wilmington,
Delaware, and Daniel Griffith, Esq., WHITEFORD, TAYLOR &
PRESTON, LLP, Wilmington, Delaware, Attorneys for Defendant.
ABLEMAN, JUDGE
I. Introduction
Plaintiff Jose Nieves claims that Defendant All Star Title, Inc. (“All
Star”) provides less than stellar settlement services by conducting closings
on loans secured by Delaware real estate without the participation of a
Delaware attorney.
Nieves filed suit both as an individual and as
representative of a putative class of similarly-situated borrowers, seeking to
recover damages for All Star’s practices. Nieves acknowledges that he
cannot raise a private cause of action for All Star’s purported unauthorized
practice of law, but maintains that All Star is liable for consumer fraud,
deceptive trade practices, professional negligence, and breach of contract.
All Star has moved to dismiss Nieves’ suit for failure to state a claim
upon which relief can be granted.
Specifically, All Star contends that
Nieves has not identified any violations of recognized legal duties and has
not pled facts to support that its actions directly caused any harm. All Star
emphasizes that the absence of a Delaware attorney in the settlement process
does not automatically invalidate a mortgage, and that Nieves has not
offered any non-conclusory allegations that the loan was adversely affected
by its conduct.
The Court concludes that dismissal is merited on several alternative
bases.
First, the theories of liability described in the Complaint are
2
essentially claims for the unauthorized practice of law, despite Nieves’
careful attempts to avoid labeling them as such. Furthermore, even if the
Court weighed form over substance to consider Nieves’ claims, each is
legally insufficient on the merits.
Finally, because Nieves’ alleged
“damages” consist solely of fees voluntarily paid to All Star with full
knowledge that it was not providing an attorney’s services, the Court finds
that the voluntary payment rule acts as a bar to his claims.
Thus, for reasons discussed more fully herein, All Star’s Motion to
Dismiss must be granted.
II. Factual & Procedural Background
Nieves instituted this action based upon All Star Title’s failure to
ensure that Delaware attorneys prepared documents and conducted
settlements relating to the refinancing of loans secured by Delaware real
property.
Nieves’s claim derives from In re Mid-Atlantic Settlement
Services, Inc., 1 in which the Delaware Supreme Court adopted a decision of
the Board on the Unauthorized Practice of Law finding that real estate
settlements constitute the practice of law, and that a Delaware attorney must
1
755 A.2d 389, 2000 WL 975062 (Del. May 31, 2000) (TABLE).
3
therefore conduct the closing of a refinancing loan secured by Delaware real
property. 2
Nieves claims that All Star improperly charged “considerable”
amounts for non-attorneys to complete work that must, under Mid-Atlantic,
be performed by a Delaware attorney. Nieves further alleges that he did not
receive a “true and correct” Truth in Lending Act statement or Right of
Rescission notice, and that the loan documents “did not contain the
previously agreed terms between Plaintiff and the lender.” 3 Based upon
these allegations, Nieves filed this proposed class action, claiming that All
Star is liable for unlawful practices under the Delaware Consumer Fraud Act
(Count
I);
deceptive
trade
practices
(Count
II);
professional
malpractice/negligence (Count III); and breach of contract (Count IV). On
May 27, 2010, All Star moved to dismiss Nieves’ Complaint.
III. Parties’ Contentions
All Star contends that Nieves cannot establish that it violated any
legally cognizable duty by failing to provide notice that he should have been
represented by a Delaware attorney or by failing to ensure that he received
2
The Mid-Atlantic decision subjects this general rule to certain exceptions, none of which
appear relevant to Nieves’ loan based upon the information currently before the Court.
3
Pls.’ Compl., ¶ 18.
4
representation. 4 All Star notes that Mid-Atlantic concerns the unauthorized
practice of law, and that the rules governing unauthorized practice cannot be
enforced via a private cause of action. In addition, All Star contends that the
Complaint does not demonstrate a causal link between its actions and the
supposed defects in the closing, which All Star considers too vague to satisfy
this Court’s notice-pleading standard. 5
In response, Nieves urges that dismissal is inappropriate because his
case “presents issues of statewide consumer protection” that are a matter of
first impression. 6 He denies that he has brought a claim for the unauthorized
practice of law; rather, he contends he is entitled to recovery based upon
consumer protection principles which prevent All Star from “profiting off
predatory lending techniques.” 7 Nieves alleges that All Star caused damages
by charging “excessive fees . . . for services that were bargained for and
required by law, but not provided,” even if the resulting mortgages are valid
despite the absence of a Delaware attorney in the settlement process.
4
Def.’s Mot. to Dismiss 2-3.
5
Id. at 4.
6
Pl.’s Resp. to Def.’s Mot. to Dismiss 1.
7
Id. at 2.
5
IV. Standard of Review
Upon a motion to dismiss, the Court subjects a statement of claim to a
broad test of sufficiency. 8 Dismissal is appropriate only if it is reasonably
certain “that the plaintiff could not prove any set of facts that would entitle
him to relief.” 9 A plaintiff’s claim will not be dismissed unless it clearly
lacks factual or legal merit. 10 When considering a motion to dismiss, the
Court will accept all well-pleaded allegations as true. 11 In addition, every
reasonable factual inference will be drawn in favor of the plaintiff. 12
V. Analysis
A. Plaintiff’s Claims Attempt to Create a Private Cause of Action for
the Unauthorized Practice of Law
Although it will separately address the elements of each count of the
Complaint, the Court finds that all of Nieves’ claims are subject to dismissal
8
C&J Paving, Inc. v. Hickory Commons, LLC, 2006 WL 3898268 (Del. Super. Jan. 3,
2007).
9
Ramunno v. Cawley, 705 A.2d 1029, 1034 (Del. 1998) (citing Spence v. Funk, 396 A.2d
967, 968 (Del. 1978)).
10
Diamond State Tel. Co. v. Univ. of Del., 269 A.2d 52, 58 (Del. 1970).
11
Spence v. Funk, 396 A.2d at 968; Wyoming Concrete Indus. Inc., v. Hickory Commons,
LLC II, 2007 WL 53805, at *1 (Del. Super. Jan. 8, 2007) (citing Ramunno, 705 A.2d at
1036).
12
Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005).
6
as impermissible attempts to craft a private cause of action for the
unauthorized practice of law. Each count of the Complaint is premised upon
All Star’s alleged violations of Mid-Atlantic and In re Member of the Bar of
the Supreme Court. 13 While Nieves attempts to describe his claims under
various other theories of liability, his essential position is that he and the
other members of the proposed class are entitled to relief for All Star’s
alleged unauthorized practice of law. Nieves has not alleged any monetary
damages arising from All Star’s conduct other than its fees. Consistent with
prior case law, the absence of a Delaware attorney from the pre-settlement
process or closing will not invalidate his mortgage unless it deprived him of
the benefit of his loan or resulted in a failure to understand the transaction or
the obligations it created. 14 Nieves’ Complaint conclusorily suggests that
the loan did not contain agreed-upon terms and that he did not receive all
required disclosures, but he has not specified the nature of these defects, nor
indicated that they caused him any monetary loss or denied him the benefit
of the loan.
13
911 A.2d 803, 2006 WL 3169511 (Del. Nov. 1, 2006) (TABLE) (holding that
supervision of disbursal of loan proceeds in a real estate settlement constitutes the
practice of law).
14
Hancock v. Citifinancial, Inc. 878 A.2d 461, 2005 WL 1653775, at *2 (Del. July 6,
2005) (TABLE); see also Manley v. MAS Assocs., LLC, 968 A.2d 492, 2009 WL 378172,
at *3 (Del. Feb. 17, 2009) (TABLE).
7
The Ohio Supreme Court confronted a nearly identical situation in
Greenspan v. Third Federal Savings & Loan Association, 15 in which a
mortgagor brought common-law claims of unjust enrichment and money had
and received in an attempt to recover fees charged by his lender for
document preparation performed by non-attorney personnel in violation of
the state’s rules against the unauthorized practice of law. The trial court
held that the plaintiff’s claims impermissibly attempted to seek damages for
the unauthorized practice of law, which was not recognized as a private
cause of action in Ohio at the time. 16 Accordingly, the trial court granted
judgment on the pleadings in favor of the mortgagee.
The Ohio Supreme Court affirmed on appeal, concluding that the trial
court had properly refused to invade its exclusive jurisdiction to regulate the
practice of law. The Greenspan Court held that “[t]he fact that [the plaintiff]
creatively framed the action as one for unjust enrichment and money had
and received” could not “alter the essential nature of the action,” which was
to seek recovery for the lender’s purported unauthorized practice of law. 17
Because the “exclusive power to regulate, control, and define the practice of
15
912 N.E.2d 567 (Ohio 2009).
16
Ohio’s legislature enacted a statutory cause of action subsequent to the filing of the
plaintiff’s case. Id. at 569-70.
17
Id. at 570.
8
law in Ohio” rested with the state’s highest court, the plaintiff could not use
this creative framing to avoid the procedures provided by the Ohio Supreme
Court to investigate and adjudicate claims regarding the unauthorized
practice of law. 18 Those procedures included a mechanism by which the
plaintiff could have brought his claims before Ohio’s Board on the
Unauthorized Practice of Law. 19 The alternative the plaintiff pursued in
attempting to bring a common-law claim for the unauthorized practice of
law “would require trial courts to make determinations explicitly reserved”
to Ohio’s Supreme Court. 20
The principles expressed in Greenspan are equally applicable in
Delaware. The Delaware bar adheres to a longstanding tradition of internal
professional regulation. That tradition vests the Delaware Supreme Court
with exclusive responsibility for both the admission of attorneys and the
exclusion of unauthorized persons from practice. 21 In exercising its duty to
maintain and regulate the legal profession, the Supreme Court has the
authority to sanction violations of its “exclusive right to license attorneys at
18
Id. at 571 (quoting Cleveland Bar Ass’n v. CompManagement, Inc., 818 N.E.2d 1181
(Ohio 20004)).
19
Id.
20
Id. at 572.
21
Del. Optometric Corp. v. Sherwood, 128 A.2d 812, 816-17 (Del. 1957).
9
law by [those] presuming to practice law without such license” as
contempt. 22
The Board on the Unauthorized Practice of Law was
established pursuant to the Supreme Court’s authority.
The General
Assembly has not intervened in the Supreme Court’s professional oversight
function by providing criminal sanctions against the unauthorized practice of
law, nor does any cause of action exist under Delaware law by which private
individuals may enforce the state’s rules of professional conduct for lawyers
or its rules regarding unauthorized practice. 23
In respecting the roles of the Delaware Supreme Court and the Board
on the Unauthorized Practice of Law in defining and sanctioning the
unauthorized practice of law, this Court must honor substance over form.
Nieves’ insistence that he is not bringing claims for the unauthorized
practice of law does not dispose of the issue. For Nieves to recover on any
of his claims would require a predicate finding that All Star committed the
unauthorized practice of law—a matter which rests exclusively in the
purview of the Board on the Unauthorized Practice of Law and the Delaware
Supreme Court. Moreover, for this Court to allow Nieves to pursue this
action would be tantamount to creating a vehicle for private enforcement of
22
Id.
23
Id. at 815-18.
10
the rules regarding unauthorized practice of law. Such a cause of action is
not recognized under Delaware law. As in Greenspan, this trial court finds
that permitting the plaintiff to proceed would encroach upon the exclusive
authority of the state’s highest court to define and control of the practice of
law.
B. Plaintiff Fails to Establish the Elements of His Claims
Even if the Supreme Court’s exclusive jurisdiction over matters
involving the unauthorized practice of law did not bar Nieves’ suit, fatal
defects plague every count of his Complaint. The Court will address each of
Nieves’ claims in turn, as their flaws serve in part to highlight why he would
be better served pursuing a claim for the unauthorized practice of law
through the prescribed channels, rather than searching for a cause of action
in which to shoehorn the facts of his case.
1. Delaware Consumer Fraud Act
The Delaware Consumer Fraud Act (DCFA) is intended “to protect
consumers and legitimate business enterprises from unfair or deceptive
merchandising practices in the conduct of any trade or commerce in part or
wholly within this State.” 24 Section 2513 of the DCFA defines an unlawful
practice, in pertinent part, as follows:
24
6 Del. C. § 2512.
11
The act, use or employment by any person of any deception,
fraud, false pretense, false promise, misrepresentation, or the
concealment, suppression, or omission of any material fact with
intent that others rely upon such concealment, suppression or
omission, in connection with the sale, lease or advertisement of
any merchandise, whether or not any person has in fact been
misled, deceived or damaged thereby, is an unlawful practice. 25
This definition of an “unlawful practice” produces three crucial differences
between a consumer fraud claim under the DCFA and a common-law fraud
claim. First, the plaintiff proceeding under the DCFA need not prove that
the defendant intended to misrepresent, conceal, or omit a material fact; 26 all
that the plaintiff must establish is that the defendant concealed a material
fact with the intent to induce reliance upon the concealment. 27 In other
words, liability may be premised upon a merely negligent misrepresentation
or omission. 28 Second, the DCFA plaintiff does not have to prove that the
defendant intended by its misrepresentation to induce or mislead the plaintiff
to act or to refrain from acting. 29 Finally, the DCFA does not require that
the plaintiff establish that he reasonably relied upon the defendant’s
misrepresentation to his detriment, as is required in a common-law fraud
25
6 Del. C. § 2513(a).
26
Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983); Goldsborough v.
397 Prop., L.L.C., 2000 WL 33110878, at *2 (Del. Super. Sept. 29, 2000).
27
See S&R Assocs., L.P., III v. Shell Oil Co., 725 A.2d 431, 440 (Del. Super. 1998).
28
Stephenson, 462 A.2d at 1074.
29
Id.; Goldsborough, 2000 WL 33110878, at *2.
12
claim. 30
Consumer fraud under § 2513(a) occurs “regardless of actual
reliance by the plaintiff.” 31
Here, Nieves’ DCFA claim fails for a number of reasons. First, the
Complaint fails to set forth facts supporting that the alleged unlawful
practices occurred wholly or partially in Delaware. The statement of the
DCFA’s purpose contained in § 2512 expresses that the Act is meant to
address “unfair or deceptive merchandising practices in the conduct of any
trade or commerce in part or wholly within this State.” 32 Furthermore, the
section of the act that authorizes the Attorney General to institute an
injunctive action against unlawful practices mandates that such actions
“shall be brought in a court of competent jurisdiction in the county in which
the alleged unlawful practice has been, is, or is about to be performed.” 33
These two provisions have been applied to bar any attempt to give
extraterritorial effect to the DCFA. 34 Thus, a DCFA claim is available only
when at least some part of the defendant’s alleged fraudulent conduct
30
Stephenson, 462 A.2d at 1074.
31
Id.
32
6 Del. C. § 2512.
33
6 Del. C. § 2522(a) (emphasis added).
34
Marshall v. Priceline.com Inc., 2006 WL 3175318, at *2 (Del. Super. Oct. 31, 2006).
13
occurred in Delaware. 35
A bare allegation that the defendant “actively
conducts business” in this state is insufficient to establish that the particular
conduct forming the basis of the plaintiff’s claim occurred in Delaware for
purposes of the DCFA. 36
In this case, Nieves’ claims bear some connection to Delaware: he is a
Delaware resident, and the settlement at issue related to real property located
in Delaware. Nevertheless, in determining whether a claim has been stated
under the DCFA, the Court must focus on the location of the transaction and
the defendant’s conduct. Nieves’ allegations of consumer fraud relate to All
Star’s provision of services in Maryland, where All Star is located and where
the settlement occurred. Plaintiff’s Complaint states no facts to support that
All Star provided services or made any misrepresentations or omissions in
Delaware.
35
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106, 117 (Del. 2006); Marshall,
2006 WL 3175318, at *2; Goodrich v. E.F. Hutton Group, Inc., 542 A.2d 1200, 1202-03
(Del. Ch. 1988);
36
Goodrich, 542 A.2d at 1203 (“The plaintiff in the present case has not alleged any facts
which, if true, could constitute unfair or deceptive conduct occurring within Delaware.
He alleges only one connection between [the defendant] and Delaware: that [defendant]
‘actively conducts business’ here. . . Because no transaction occurred in Delaware, the
Delaware Consumer Fraud Act cannot apply.”); see also Marshall, 2006 WL 3175318, at
*2 (“[W]hile incorporation may be enough to allow Delaware law to apply to a dispute, it
is not enough to allow the DCFA to apply to fraudulent transactions which did not occur
in Delaware.”).
14
Furthermore, even if the fact that All Star’s services related to
Delaware real property sufficed to establish that its alleged unlawful
practices occurred in the conduct of commerce “within” Delaware, the facts
set forth in the Complaint and attached settlement statement cannot support a
finding that All Star misrepresented or omitted a material fact with the intent
to induce reliance. The settlement statement executed at Nieves’ closing
itemized the charges payable to All Star as follows:
1101. Settlement or closing fee to All Star Title, Inc.
1102. Abstract or title search to All Star Title, Inc.
1103. Title examination to All Star Title, Inc.
1104. Title insurance binder to All Star Title, Inc.
1105. Document Preparation to All Star Title, Inc.
1106. Notary Fees to All Star Title, Inc.
1107. Attorney’s fees
(Includes above items No:
)
100.00
350.00
650.00
50.00
250.00
50.00
Notably, the settlement statement lists no attorney’s fees, and indicates that
none of the All Star charges included amounts attributable to an attorney’s
work. By his Complaint, Nieves does not allege that All Star represented to
him that its services were performed by an attorney, or that All Star
prevented him from obtaining representation by a Delaware lawyer. Rather,
Nieves suggests that All Star represented that the refinancing would be
“completed within the guidelines of Delaware law and statutory
15
guidelines,” 37 failed to inform him of his right to have a Delaware attorney
conduct the closing, and consequently defrauded him by charging fees “for
services that were legally and customarily required to be provided by a
Delaware attorney.” 38
However, Nieves does not allege that he was
operating under the belief that All Star provided an attorney’s services, nor
would such a belief have been reasonable in light of the settlement
statement. The settlement statement precludes any colorable argument that
All Star intended for Nieves to rely upon its providing an attorney to draft
documentation and oversee the closing.
On the facts alleged, it is possible—and perhaps even plausible—that
All Star knowingly engaged in the unauthorized practice of law.
Nonetheless, even assuming this to be the case, All Star’s awareness does
not necessarily imply that it engaged in consumer fraud in the absence of
any allegations that it falsely represented the nature of its services or
negligently misled Nieves to reasonably believe that an attorney’s services
had been provided. While Nieves has alleged that All Star represented that
the closing would be “completed within the guidelines of Delaware law,” 39
37
Pl.’s Compl., ¶ 22.
38
Id. ¶ 25.
39
Id. ¶ 22.
16
such a statement cannot be construed as a misrepresentation of material fact
intended to induce reliance when the services provided by All Star resulted
in a valid mortgage with no prejudice to Nieves’ interests.
Furthermore, the Court must reject the implication in Nieves’
Complaint that All Star was subject to duties to “disclose” the absence of a
Delaware attorney’s participation in its activities or to “ensure” that Nieves
received representation.
Mid-Atlantic requires a Delaware attorney’s
participation in closing and certain drafting and title-related activities, but it
stops short of imposing an obligation on the lender or settlement agent to
ensure that the borrower receives representation or is notified of his rights.
Nieves has not identified, nor has the Court been able to locate, any basis for
enforcing such an obligation upon a non-attorney settlement agent through a
private cause of action. 40 Accordingly, the Court finds that Nieves has not
stated a viable claim under the DCFA.
40
Interpretive Guideline (a)(1) to Delaware Lawyers’ Rule of Professional Conduct 1.16
requires an attorney representing a residential property mortgagor upon referral by a
lender or other person with interest in the transaction to provide written notification to the
mortgagor of his right to retain a lawyer of his own choosing to represent him throughout
the settlement process. However, this ethical obligation, like the rules regarding the
unauthorized practice of law, cannot be enforced through a private cause of action, and
moreover does not address the obligations of the mortgagee or settlement agent when the
mortgagor is entirely unrepresented, as Nieves contends occurred in this case.
17
2. Delaware Deceptive Trade Practices Act
Delaware’s Deceptive Trade Practices Act (DTPA), which “prohibits
unreasonable interference with the promotion and conduct of another
person’s business,” protects a different category of wrongs than the DCFA. 41
Consumers lack standing to raise deceptive trade practice claims under the
DTPA, because the Act protects competing business interests against unfair
trade practices. 42
Since Nieves contracted for All Star’s services as a
consumer, he lacks standing to proceed on his claim for deceptive trade
practices. 43
3. Negligence and Breach of Contract
Nieves’ remaining theories of professional malpractice and breach of
contract require him to allege that All Star breached a duty and thereby
caused him recoverable damages. As previously discussed, Nieves has not
identified any basis for imposing a duty upon All Star to ensure that he was
41
Grand Ventures, Inc. v. Whaley, 632 A.2d 63, 66-67, 70 (Del. 1993).
42
Grand Ventures, 632 A.2d at 70 (“[A] litigant has standing under the DTPA only when
such person has a business or trade interest at stake which is the subject of interference by
the unfair or deceptive trade practices of another.”); S&R Assocs., L.P. v. Shell Oil Co.,
725 A.2d 431, 440 (Del. Super. 1998).
43
Cf. MAS Assocs., LLC v. Manley, CA. No. 06L-06-017, at 8 (Del. Super. Mar. 31,
2008), aff’d, 968 A.2d 492 (Del. 2009) (finding no violation of DTPA where mortgage
closing was conducted by a Maryland attorney and a title company retained by the lender,
despite borrower’s allegation that lender affirmatively told him that he did not need to
retain an attorney).
18
represented by a Delaware attorney. In addition, because the lack of a
Delaware attorney did not prejudice Nieves by undermining the validity of
his mortgage or his understanding of the transaction, he has not alleged facts
to support a causal relationship between All Star’s purported breaches and
any damages. All Star’s fees cannot constitute “damages” in this context
because they did not result from the alleged negligence or contractual
breach. Thus, Nieves has not stated a viable claim for negligence or breach
of contract.
C. The Voluntary Payment Rule Bars Plaintiff from Recovering Fees
Finally, the Court concludes that to the extent Nieves’ suit seeks to
recover the fees paid to All Star for its services, he is barred from doing so
by the voluntary payment rule, which provides that “where money has been
voluntarily paid with full knowledge of the facts, it cannot be recovered on
the ground that the payment was made under a misapprehension of the legal
rights and obligations of the person paying.” 44
Although the parties did not directly address the issue, the Court is
persuaded by the thorough opinion of the Supreme Court of Illinois in King
44
53 A.L.R. 949; see also Home Ins. Co. v. Honaker, 480 A.2d 652, 653 (Del. 1983)
(“As a general rule, money paid due to a mistake of law is not recoverable, while money
paid under a mistake of fact may be recovered in equity under an unjust enrichment
theory.”); W. Natural Gas Co. v. Cities Serv. Gas Co., 201 A.2d 164, 169 (Del. 1964)
(“[P]ayment voluntarily made with full knowledge of the facts cannot be recovered, in
the absence of a contract to repay.”).
19
v. First Capital Financial Services Corp., 45 which applied the voluntary
payment rule to affirm the dismissal of a class action suit brought by
mortgagors against their lenders for using non-attorney employees of a thirdparty document preparation service to prepare loan documents, in
contravention of the state’s rules against the unauthorized practice of law. In
King, the plaintiff mortgagors brought claims against their lenders for
unauthorized practice of law, money had and received, restitution, and
consumer fraud under the Illinois Consumer Fraud and Deceptive Business
Practices Act. 46 The trial court granted a motion to dismiss filed by the
lenders, and the Appellate Court of Illinois affirmed on the grounds that the
voluntary payment doctrine was dispositive as to all of the plaintiffs’
claims. 47
On appeal, the Illinois Supreme Court concluded that the
voluntary payment rule was properly applied:
[T]he lenders fully disclosed that the document preparation fees
were separate from any attorney fees. The closing statements
contain separate places for the itemization of attorney fees and
document preparation fees. . . . Accordingly, plaintiffs could
not have mistakenly believed that the loan documents were
prepared by attorneys. . . . Plaintiffs do not allege in their
complaints or argue in their briefs that the lenders represented
45
828 N.E.2d 1155 (Ill. 2005).
46
Jenkins v. Concorde Acceptance Corp., 802 N.E.2d 1270, 1274-75 (Ill. App. Ct. 2003),
aff’d sub nom. King v. First Fin. Servs. Corp., 828 N.E.2d 1155 (Ill. 2005).
47
Id. at 1276.
20
that attorneys prepared the documents, nor do they allege that
they believed that attorneys prepared the documents. . . .
Further, we note that plaintiffs do not plead any facts in their
complaints that might demonstrate that they were compelled to
either pay the fee or forgo their loan transaction. . . . For
instance, plaintiffs do not allege that they were precluded by the
lenders from having documents prepared by their own
attorneys. Reduced to its essence, plaintiffs’ argument is that
the preparation of loan documents by nonlawyers is illegal.
However, the voluntary payment doctrine applies in the very
circumstance where the payment sought to be recovered was
illegally obtained by the defendant. Plaintiffs cannot avoid
application of the doctrine by merely alleging that defendants
engaged in the unauthorized practice of law. 48
The King Court considered and rejected the plaintiffs’ arguments that public
policy concerns barred the application of the voluntary payment rule to their
case.
The Illinois Supreme Court emphasized that the lenders never
misrepresented the nature of the services provided, and were not attempting
to enforce void mortgages against the plaintiffs.
Because the plaintiffs
sought “to recover payments voluntarily made with full knowledge as to the
nature of the services rendered,” public policy concerns did not render the
voluntary payment rule inapplicable. 49
The Court views this case as indistinguishable from King. Nieves has
not alleged that All Star misrepresented its services such that he believed he
was paying for an attorney to participate in document preparation or
48
King, 828 N.E.2d at 1172-73.
49
Id. at 1174.
21
supervise the closing process. Thus, he was mistaken as to his legal rights to
have a Delaware attorney participate in the settlement, but not as to the facts
regarding the services for which he paid.
Because All Star did not
misrepresent its services, its actions could not have misled Nieves to forego
hiring an attorney on his own behalf, nor has he alleged that All Star
prevented him from doing so.
Although the voluntary payment doctrine is subject to public policy
exceptions, the Court concludes, in accordance with King, that the facts of
this case do not merit an exception. The practice of law is regulated in
Delaware “not so much to protect the public from having to pay fees to
unqualified legal advisors as it is to protect the public against the often
drastic and far-reaching consequences of their inexpert legal advice.” 50
Nieves’ Complaint does not allege any specific, cognizable negative
consequences of All Star’s purported unauthorized practice of law, other
than the fact that he paid a fee for its services. As previously discussed,
Delaware courts have observed that the absence of a Delaware lawyer from
the settlement process does not always prejudice the borrower. 51 Thus, the
mere fact that the allegations in this case involve the unauthorized practice
50
Del. State Bar Ass’n v. Alexander, 386 A.2d 652, 661 (Del. 1978) (quoting In re Baker,
85 A.2d 505, 514 (N.J. 1951)).
51
Manley, 2009 WL 378172, at *3; Hancock, 2005 WL 1653775, at *2.
22
of law does not demand that Nieves’ claims be considered beyond the
purview of the voluntary payment rule.
In reaching this conclusion, the Court emphasizes that the voluntary
payment rule would not bar claims where conduct constituting the
unauthorized practice of law results in legal damages—for example, the
Court strongly suspects that public policy concerns would deny All Star the
benefit of the voluntary payment rule in a suit for negligence or breach of
contract brought by a plaintiff whose loan preparation or settlement process
was materially affected by its “inexpert” practice of law such that the
borrower suffered damages. Similarly, the voluntary payment rule could not
be applied if a plaintiff presented a viable claim of common-law or
consumer fraud, such that it could not be said that the plaintiff paid for
services with “full knowledge” of the material facts. Moreover, voluntary
payment offers no defense where a defendant has violated a recognized duty
to disclose particular facts or legal rights to consumers. 52 Nevertheless, as
52
See Sobel v. Hertz Corp., __ F. Supp. 2d __, 2010 WL 1006882, at *4 (D. Nev. Mar.
17, 2010) (holding that voluntary payment doctrine was inapplicable on public policy
grounds where defendant’s conduct violated consumer protection statute that required full
disclosure of rates and fees). The Court recognizes that Sobel and other cases have used
broad language in deeming the voluntary payment doctrine inapplicable to the
unauthorized practice of law or to alleged violations of consumer protection statutes.
See, e.g., Eisel v. Midwest BankCentre, 230 S.W.3d 335, 339-340 (Mo. 2007) (finding
that permitting mortgagee to raise voluntary payment defense would be “illogical and
inequitable” where it engaged in the unauthorized practice of law in preparing documents
in violation of both judicial and statutory prohibitions). These holdings do not alter the
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previously discussed, Delaware law has not imposed a disclosure duty
requiring settlement agents to notify unrepresented borrowers of their right
to have a Delaware attorney participate in the settlement process. Plaintiff
clearly sees such a duty as a natural extension of the Mid-Atlantic holding,
but it is not an extension this Court has the authority to enact. Thus, while
the Supreme Court may be able to order disgorgement of fees as a sanction
for the unauthorized practice of law, the voluntary payment doctrine
prevents this Court from permitting Nieves to recover fees paid to All Star as
damages for the legal claims stated in his Complaint.
VI. Conclusion
For the foregoing reasons, All Star is entitled to dismissal of Nieves’
individual and class action claims. However, the Court wishes to dispel the
suggestion raised in Nieves’ response that dismissing his action would leave
consumers with no remedy for violations of their rights under Mid-Atlantic.
Court’s conclusion in this matter, as they arose in distinguishable cases where the
plaintiff has presented at least a material dispute of fact concerning misrepresentations or
omissions that violated non-waivable statutory duties. Because Delaware does not
recognize a private cause of action for the unauthorized practice of law, and because the
rationale for defining and regulating unauthorized practices focuses primarily upon the
quality of services provided to consumers rather than the fees that may be paid for acts
violating the prohibitions on unauthorized practice, the Court considers King a much
closer “fit” to this case and finds no bar to applying the voluntary payment rule on the
facts under consideration, in which there has been no violation of statutory or commonlaw duties and no allegation of resulting harm to the plaintiff.
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To the contrary, in the absence of prejudice to the borrower, the proper
avenue for vindicating a violation of Mid-Atlantic would be the very one
pursued in that case: the filing of a complaint with the Board on the
Unauthorized Practice of Law. The settlement statement which establishes
that All Star did not purport to provide a Delaware attorney’s services may
have relieved it of potential liability for consumer fraud in this action, but it
also strongly suggest that All Star was indeed flouting this state’s rules
against the unauthorized practice of law. In dismissing Nieves’ Complaint,
the Court neither condones All Star’s conduct nor concludes that no redress
exists if Nieves’ allegations are true; however, this Court is simply not the
proper forum for redressing the unauthorized practice of law in the absence
of any viable claim for a breach of statutory or common-law duties.
Therefore, Defendant All Star’s Motion to Dismiss is hereby GRANTED.
IT IS SO ORDERED.
_____________/s/_______________
Peggy L. Ableman, Judge
Original to Prothonotary
cc: David E. Matlusky, Esq.
Brett Bendistis, Esq.
J. Scott Shannon, Esq.
Art C. Aranilla, Esq.
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