JUSTICE MÁRQUEZ delivered the Opinion of the Court.
¶ 1 Following a two-year investigation into the Colorado foreclosure industry, the State brought a civil law enforcement action against the foreclosure law firm The Castle Law Group, LLC and its principals, Lawrence Castle and Caren Castle (collectively, "Castle"), as well as Castle's affiliated vendors, Absolute Posting & Processing Services, LLC, Ryan O'Connell, Kathleen Benton (collectively, "Absolute"), RE Records Research, LLC ("RERR"), and Colorado American Title, LLC ("CAT"). Among other things, the State alleges that between 2009 and 2014, the Castle defendants conspired with their affiliated vendors to generate and submit deceptive invoices reflecting systematically inflated costs incurred for foreclosure-related services, while falsely representing to mortgage servicers that these inflated costs were "actual, necessary, and reasonable." According to the State, Castle submitted the vendors' inflated invoices to the mortgage servicers, and in turn, the mortgage servicers, relying on Castle's false representation that the vendors' charges were "actual, necessary, and reasonable," reimbursed Castle for these costs as part of the foreclosures and ultimately passed the inflated costs on to the public. The State contends that all the defendants benefitted from this scheme by collectively reaping millions in inflated profits from homeowners, purchasers of foreclosed homes at auction, and taxpayer-funded investors like Fannie Mae and Freddie Mac. Specifically, it alleges that Castle pocketed some of these overages as kickbacks from the vendors to circumvent the maximum allowable fees Castle could collect, but also contends that Castle's affiliated vendors were unjustly enriched by this scheme. The State alleges
¶ 2 Relevant here, the State seeks to demonstrate at trial that the costs for foreclosure-related services charged by Castle's affiliated vendors and claimed by Castle were not, in fact, the "actual, necessary, and reasonable" costs for such services. Specifically, the State seeks to demonstrate that these costs were artificially inflated by comparing the invoiced rates submitted by Castle with the market rates charged by unaffiliated vendors for such services. The State retained an expert witness, Matthew Lausten, to testify, among other things, regarding the "overage" amounts Defendants obtained from their alleged deceptive trade practices as reflected by the difference in the invoiced costs and the "market rate" prices charged by unaffiliated vendors for the same services.
¶ 3 On January 7, 2016, approximately a week before the scheduled trial, the district court issued an order granting Castle's motion to limit Lausten's testimony and granting in part Absolute's motion to exclude Lausten's testimony, albeit not based on the CRE 702 reliability and relevance grounds raised in the motions. Instead, the court concluded that the market rates for foreclosure-related services are "irrelevant to Plaintiffs' cognizable claims." The court construed the State's CCPA deceptive trade practice claim to be grounded on the allegation that the Castle defendants exceeded their allowable fees by charging additional fees in the guise of costs for foreclosure-related services. The court reasoned that "[i]t doesn't matter whether those charges were over or under `market' rates; what matters is if any portion of them found their way to the Castle Defendants as disguised attorney fees...."
¶ 4 In response to the State's motion for clarification of this order, the court issued another order on January 11, 2016, ruling that "[c]harging high prices is not deceptive or unjust, as long as those prices are accurately disclosed. Charging high prices is not unlawful, as long [sic] those prices have not been capped by state price controls and are not the product of an antitrust violation." The court further noted that it read the State's complaint to allege that Castle received some portion of the high prices as kickbacks from the vendors in a scheme to avoid contractual or regulatory caps on their attorney fees. The court ruled that this allegation is the "only strand keeping [the State's non-antitrust] claims alive, and it is the only strand on which I will permit evidence."
¶ 5 The State sought review of the district court's January 7 and January 11 Orders pursuant to C.A.R. 21. The State contends that by excluding market rate evidence, the trial court sua sponte dismissed one of the theories that formed the basis of the State's CCPA claim and its disgorgement calculations. We issued a rule to show cause.
¶ 6 Consistent with our decision in
¶ 7 The State alleges that Castle, in conjunction with its affiliated vendors, systematically misrepresented and inflated the costs for foreclosure-related services in more than 100,000 foreclosures in Colorado. The State's expert witness report estimates that Castle passed on over $25 million in price inflation to mortgage servicers such as Fannie Mae. According to the State, these deceptively inflated costs were then passed on to, and ultimately borne by, investors and insurers of the loan, third-party purchasers acquiring the property at auction, and home owners trying to save their homes.
¶ 8 The State's CCPA claim rests on the allegation that Castle, in concert with their affiliated vendors, systematically charged inflated and deceptive costs for posting foreclosure notices, obtaining title products, preparing documents, and providing other foreclosure-related services by using affiliated vendors to create invoices for foreclosure services at costs that are grossly inflated above the actual costs and above what unaffiliated vendors charge for such services (i.e., the "market rate" for such services). Am. Compl. at ¶ 2,
¶ 9 The gravamen of the State's CCPA claim in this case is that the invoiced costs submitted by Castle for reimbursement from the mortgage servicers were not, in fact, actual, necessary, or reasonable, as Castle (falsely) represented.
¶ 10 In October 2014, defendants RERR and CAT filed a motion to dismiss under C.R.C.P. 12(b)(5), arguing that the State's complaint failed to state a CCPA claim against them. The motion asserted that the State's complaint alleged only that the defendants charged too high a price for their services, not that the invoices contained fraudulent prices. The State responded that its complaint alleged that the invoiced costs were deceptive because the mortgage servicer relied on Castle's false representation
¶ 11 The trial court denied the motion to dismiss. In its order denying the motion, the court noted that it agreed with the defendants' contention that charging "an amount `above the market price'" is not actionable under the CCPA as long as the amounts charged "were accurately disclosed and billed" and the title work was actually performed. Order at 3,
¶ 12 Indeed, it appears from the record before us that, following the trial court's November 2014 Order, all parties continued with discovery assuming that the State would present evidence of the market rates charged by unaffiliated vendors for foreclosure-related services. For example, in April 2015, Absolute served discovery requests asking the State to identify the vendors from which the State established its market rate data and to produce any documents with their listed prices. In May 2015, Castle served discovery asking the State to identify the vendors that provided foreclosure-related services at the State's alleged market rate. Castle also asked the State to detail its methodology and provide supporting documentation for determining the market rates for foreclosure-related services. In July 2015, both Castle and Absolute served C.R.C.P. 30(b)(6) deposition notices to the State, seeking testimony on the State's market rate allegations.
¶ 13 In November 2015, Absolute filed a motion for summary judgment. In an order dated December 28, 2015, the trial court denied the motion with respect to the State's CCPA claim, concluding that genuine issues of material fact existed as to whether Castle received kickbacks, either directly or indirectly, from Absolute. Relevant here, Absolute argued in its motion that the complaint presented no evidence that the $125 it charged for a foreclosure posting was inflated beyond the market price and that the State's evidence of market price was cherry-picked and not reliable. The court rejected these arguments "for the simple reason that market price is not an issue in this case." Order at 2,
¶ 14 The January 2016 Orders at issue in this case issued a little over a week after the court's ruling on Absolute's motion for summary judgment. These orders addressed Castle's and Absolute's separate motions to limit or exclude the expert testimony of the State's expert witness, Matthew Lausten. The State retained Lausten to testify regarding (1) the relationship between Castle, the affiliated vendors, and a series of entities that the State alleged were used to funnel proceeds of the deceptive costs back to Castle; (2) the monies flowing back to Castle; and (3) the "overage" amounts the defendants obtained through the alleged deceptive trade practice, as reflected by the difference between the invoiced charges and the "market rate" prices that unaffiliated vendors
¶ 15 On December 14, 2015, Absolute and Castle separately moved to strike some or all of Lausten's testimony. The defendants challenged the reliability of Lausten's conclusions under CRE 702 and the relevance of certain aspects of his report; however, neither defendant contended that the market rates for foreclosure-related services were irrelevant to the State's CCPA claim.
¶ 16 In an order dated January 7, 2016, the court granted Castle's motion to limit Lausten's testimony and granted Absolute's motion to exclude Lausten's testimony as to the market rates for foreclosure-related services. Order at ¶¶ 1-2,
¶ 17 The State moved for clarification of the court's order. The State reiterated its allegation that the defendants worked in concert to create deceptive invoices containing inflated charges for foreclosure-related services and that
¶ 18 In an order dated January 11, 2016, the court responded that it was "surprised [this clarification] is necessary at this late date," but that the court would "re-state the rulings [it] ha[s] made throughout this case." Order at 1,
¶ 19 The State then petitioned this court to review the district court's January 7 and January 11 Orders pursuant to C.A.R. 21.
¶ 20 Under C.A.R. 21 we will review a trial court's order "where the trial court has abused its discretion and where appellate remedy would not be adequate."
¶ 21 As described at length above, the State seeks to show that the defendants engaged in a deceptive trade practice in violation of the CCPA by conspiring to generate invoices falsely representing that the costs they charged for foreclosure-related services were actual, necessary, and reasonable, when in fact (the State alleges), those costs bore no reasonable relationship to the defendants' actual costs or to the rates for such services that prevailed in the market at the time. The trial court concluded, as a matter of law, that evidence of the market rates charged by unaffiliated vendors for such services was irrelevant to the State's CCPA claim. We disagree.
¶ 22 The CCPA is a remedial statute intended to deter and punish deceptive trade practices committed by businesses in dealing with the public.
¶ 23 The State's amended complaint alleges that the defendants engaged in an unlawful deceptive trade practice by charging artificially inflated prices for foreclosure-related services while falsely representing that the prices were the "actual, necessary, and reasonable" costs of those services. Importantly, the State's theory is not simply that the defendants charged "high prices." Rather, the alleged deception is that the prices charged were not, in fact, the actual, necessary, or reasonable costs for such services, as the Castle defendants represented. To prove its theory, the State must rely on some reference point by which to measure the actual, necessary, or reasonable cost of a particular foreclosure-related service. The State contends, and we agree, that whether the defendants' invoiced cost for a particular service is the "actual" or "reasonable" cost for such a service is informed at least in part by the market rates for such services. Therefore, evidence of the market rates charged by unaffiliated vendors for such services is directly relevant to the State's CCPA deceptive trade practices claim as alleged in the amended complaint. The trial court's January Orders erroneously prevent the State from introducing evidence tending to show that the costs charged by the defendants were not the actual and reasonable costs for such services because they bore no relation to the market rates charged by unaffiliated vendors for the same services.
¶ 25 The defendants also point to a handful of rulings between the November 2014 Order and the January 2016 Orders that referenced or briefly described the State's allegations that Castle received kickbacks through its scheme with its vendors.
¶ 26 Finally, Absolute and Castle's December 2015 motions seeking to limit the testimony of the State's expert witness — the motions that gave rise to the January 2016 Orders under review here — presupposed the relevance of the market rate testimony. These motions did not contend that market rate evidence was irrelevant to the State's CCPA claim; instead, they largely challenged the reliability of the expert's conclusions. In short, no defendant sought to limit the scope of the State's CCPA claim, and the parties all continued to assume the relevance of market rate evidence despite the court's comments in its November 2014 ruling.
¶ 27 To the extent that the court held in its January 11 Order that "[c]harging high prices is not deceptive or unjust, as long as those prices are accurately disclosed," this was error. In
¶ 28 We considered whether such disclosure was an adequate remedy for the deceptive advertisement practices.
¶ 29 Here, that the invoices disclosed the prices the defendants charged for foreclosure-related services does not immunize the defendants from claims that the prices themselves are deceptive. In other words, the accurate disclosure of a deceptively set price does not automatically legitimize the price or cure the alleged deception. The trial court therefore erred in concluding, as a matter of law, that charging high prices is not deceptive as long as the prices are accurately disclosed.
¶ 30 For the foregoing reasons, we hold that, for purposes of a deceptive trade practices claim under the CCPA, disclosure of a price charged does not automatically insulate a party from claims that the price is deceptive. Here, the State's CCPA claim alleges that Castle and the vendors engaged in a scheme to generate invoices with greatly inflated charges for foreclosure-related services, while Castle falsely represented to mortgage servicers that these charges were the "actual, necessary, and reasonable" costs for such services. Evidence of the market rates charged by unaffiliated vendors for such services is directly relevant to establishing whether the costs invoiced by the vendors were the actual or reasonable costs of such services. Market rate evidence is further relevant to the State's allegation that the vendors themselves also benefitted from the common scheme. We therefore conclude that the trial court abused its discretion in barring evidence of market rates for foreclosure-related services. Accordingly, we make our rule absolute and remand the matter to the trial court for further proceedings consistent with this opinion.
JUSTICE GABRIEL dissents, and JUSTICE HOOD joins in the dissent.
JUSTICE GABRIEL, dissenting.
¶ 31 In its petition for an order to show cause pursuant to C.A.R. 21, the State asserted that one week before trial and without the benefit of briefing or argument from the parties, the district court had issued two orders, ruling sua sponte that charging high prices is not deceptive or unjust if the prices were accurately disclosed. The State claimed that (1) the district court's rulings reflected the first time that the court had suggested that the market rates for the services at issue were irrelevant to the State's case and (2) the district court's eve-of-trial rulings foreclosed the State from presenting its principal theory of the case. Based on these contentions, we issued the requested order to show cause.
¶ 32 Because the subsequent briefing that we received from the defendants in this case showed that the State's representations of the record were incorrect, and because it is not clear to me that the district court misunderstood the claims as set forth in the State's amended complaint, I would vacate the order to show cause and dismiss this appellate proceeding.
¶ 33 Accordingly, I respectfully dissent.
¶ 34 In its C.A.R. 21 petition, the State challenged the district court's January 7 and January 11, 2016 orders.
¶ 35 In the January 7, 2016 order, the court (1) granted the motion of defendants The Castle Law Group, LLC, Lawrence E. Castle, and Caren A. Castle (the "Castle Defendants") to limit the testimony of Matthew Lausten, whom the State had designated as an expert witness, and (2) granted in part and denied in part the motion of defendants Absolute Posting & Process Services, LLC, Ryan O'Connell, and Kathleen Benton (the "Absolute Defendants") to exclude Lausten's testimony. In so ruling, the court stated:
¶ 36 The next day, the State filed a motion to clarify the court's January 7, 2016 order, and this resulted in the January 11, 2016 order. In that order, the court began by stating, "I appreciate the opportunity to restate the rulings I have made throughout this case, although I am a little surprised it is necessary at this late date." The court continued:
¶ 37 These orders disposed of motions properly pending before the court, and thus, they were not issued sua sponte. Moreover, notwithstanding the State's assertion to the contrary, it appears that the State had a full opportunity to be heard on each of these motions.
¶ 38 In addition, and again contrary to the State's assertions, these rulings did not reflect the first time that the district court had expressed the views set forth therein. Nor could the State reasonably claim surprise at these rulings. To the contrary, the court had expressed the same views, and it had articulated the same understanding of the State's claims, on repeated occasions beginning in November 2014 and continuing until the time that the court issued the two rulings at issue.
¶ 39 Specifically, the court entered the following pertinent orders, none of which was attached to the State's C.A.R. 21 petition:
¶ 40 The State does not, and in my view cannot, show that what the district court said in the January 7 and January 11, 2016 orders was different in any way from what the court had said repeatedly (and without apparent objection from the State) since November 2014. To the contrary, the above-described orders belie the State's assertions that on the eve of trial, the district court, without warning, gutted the State's case by ruling sua sponte and for the first time that (1) charging high prices is not deceptive or unjust if the prices were accurately disclosed and (2) the market rates for the services at issue were irrelevant to the State's case. Accordingly, the above-described orders undermine the basis for the State's request for extraordinary relief pursuant to C.A.R. 21.
¶ 41 For these reasons, I would vacate the order to show cause and dismiss these appellate proceedings.
¶ 42 Even were I to conclude that the State's C.A.R. 21 petition warranted the granting of an order to show cause, I would not make that order absolute because the State has not persuaded me that the district court's understanding of the State's allegations was incorrect, much less so far off the mark as to require this court's extraordinary intervention.
¶ 43 Although, as the district court pointed out, the amended complaint is replete with conclusory allegations of inflated and above-market costs and fraud, the mere fact that the defendants allegedly charged inflated or above-market prices would not alone establish viable CCPA claims against them. Rather, as pertinent here, the State must prove that the defendants made false or misleading statements of fact concerning the prices of their services.
¶ 44 Here, as noted above, the district court repeatedly and consistently expressed its understanding of the false and misleading statements at issue. Specifically, the court read the State's amended complaint to allege that (1) the Castle Defendants conspired with the other defendants to charge inflated prices for foreclosure-related services and (2) this scheme was devised to allow the Castle Defendants to avoid their fixed attorney fee contracts with Fannie Mae and Freddie Mac, as well as any regulatory caps on such fees.
¶ 45 The court's understanding finds ample support in the State's amended complaint. For example, in paragraph 65 of the amended complaint, the State alleged, "Despite agreeing to perform foreclosures for a maximum allowable fee per file, the Castle Defendants viewed this fee as insufficient. Accordingly, they devised a scheme to circumvent the maximum allowable fee by inflating foreclosure costs to make millions above and beyond the maximum allowable fee."
¶ 46 Likewise, in paragraph 73 of the amended complaint, the State alleged:
¶ 47 Accordingly, I cannot say that the district court's understanding of the State's allegations was incorrect or so extraordinary as to warrant this court's immediate intervention. To the contrary, the court's understanding was consistent with the State's allegations as reflected in the amended complaint. As a result, even were I not inclined to dismiss these appellate proceedings, I would discharge the order to show cause.
¶ 48 For these reasons, I respectfully dissent.