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KAMALA D. HARRIS Attorney General of California ZACKERY P. MORAZZINI Supervising Deputy Attorney General S. MICHELE INAN Deputy Attorney General State Bar No. 119205 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Telephone: (415) 703-5474 Fax: (415) 703-5480 E-mail: [email protected] Attorneys for Defendants Edmund G. Brown Jr., Governor of California and Kamala D. Harris, Attorney General of California

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

CHRISTOPHER P. DUENAS,

3:10-CV-05884-RS

Plaintiff, NOTICE OF MOTION AND MOTION TO DISMISS COMPLAINT FOR v. DECLARATORY, INJUNCTIVE OR OTHER RELIEF; MEMORANDUM OF POINTS AND AUTHORITIES EDMUND G. BROWN JR., in his official capacity as Governor of California; Date: March 17, 2011 KAMALA D. HARRIS., in her official Time: 1:30 p.m. capacity as Attorney General of California; Courtroom: 3 JAMES TOWERY, in his official capacity Judge: Hon. Richard Seeborg as the Chief Trial Counsel of the State Bar Trial Date: None Set of California, Action Filed: December 27, 2010 Defendants.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. IV. IV.

TABLE OF CONTENTS Page MOTION TO DISMISS.................................................................................................................. 2 MEMORANDUM OF POINTS AND AUTHORITIES ................................................................ 3 I. II. III. Nature Of This Action............................................................................................. 3 Grounds For This Motion ....................................................................................... 4 Statement Of The Facts ........................................................................................... 4 A. B. The Law ...................................................................................................... 4 Legislative History ...................................................................................... 5

Factual Allegations Of The Complaint ................................................................... 6

ARGUMENT .................................................................................................................................. 7 I. II. III. The Claims Against The Governor Must Be Dismissed ......................................... 7 The Allegations Of The Complaint Are Insufficient To Confer Standing On Plaintiff.................................................................................................................... 8 California Civil Code Section 2944.7 Does Not Violate A First Amendment Right To Hire And Consult Counsel ................................................ 11 California Civil Code Section 2944.7 Is Not Vague, But Provides Plaintiff A Reasonable Opportunity To Know What Is Being Prohibited .......................... 14 California Civil Code Section 2944.7 Does Not Violate Equal Protection .......... 15

CONCLUSION ............................................................................................................................. 17

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASES

TABLE OF AUTHORITIES Page

Ashcroft v. Iqbal 556 U.S. ___, 129 S. Ct. 1937 (2009) ....................................................................................... 9 Bell Atl. Corp. v. Twombly 550 U.S. 544 (2007) .................................................................................................................. 9 Brotherhood of Railroad Trainmen v. Virginia Bar 377 U.S. 1 (1964) .............................................................................................................. 11, 13 California Employment Stabilization Commission v. Morris 28 Cal. 2d 812 (1946) ............................................................................................................... 4 City of Dallas v. Stanglin 490 U.S. 19 (1989) .................................................................................................................. 16 Ex Parte Young 209 U.S. 123 (1908) .................................................................................................................. 7 Laird v. Tatum 408 U.S. 1 (1972) ...................................................................................................................... 8 Legal Aid Services of Oregon v. Legal Services Corp. 608 F.3d 1084 (9th Cir. 2010)................................................................................................. 12 Los Angeles Branch NAACP v. Los Angeles Unified School District 714 F.2d 946 (9th Cir. 1983)..................................................................................................... 7 Lujan v. Defenders of Wildlife 504 U.S. 555 (1992) .................................................................................................................. 8 Mothershed v. Justices of Supreme Court 410 F.3d 602 (9th Cir. 2005) .......................................................................................... 8, 11, 12 NAACP v. Button 371 U.S. 415 (1963) ................................................................................................................ 13 Pennell v. San Jose 485 U.S. 1 (1988) ...................................................................................................................... 9 Phyler v. Doe 457 U.S. 202 (1982) ................................................................................................................ 15

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TABLE OF AUTHORITIES (continued) Page Santa Monica Foods Not Bombs v, City of Santa Monica 450 F.3d 1022 (9th Cir. 2006)................................................................................................... 8 Schweiker v. Wilson 450 U.S. 221 (1981) ................................................................................................................ 16 Secretary of State v. Munson 467 U.S. 947 (1984) ................................................................................................................ 13 United Mine Workers of Am. v. Ill. State Bar Assn 389 U.S. 217 (1967) ................................................................................................................ 13 United States v. Richardson 418 U.S. 166 (1974) .................................................................................................................. 8 United States v. Williams supra, 553 U.S. at 304............................................................................................................. 14 United Transportation Union v. State Bar of Mich. 401 U.S. 576, (1971) ............................................................................................................... 13 Village of Hoffman Estates v. Flipside 455 U.S. 489 (1982) ................................................................................................................ 14 W & S Life. Ins. Co. v. State Bd. of Equalization 451 U.S. 648 (1981) ................................................................................................................ 16 Williamson v. Lee Optical of Okla. 48 U.S. 483 (1955) .................................................................................................................. 16 Wolfson v. Brammer 616 F.3d 1045 (9th Cir, 2010) .................................................................................................... 8 STATUTES 42 U.S.C. 1983 ..................................................................................................................... 3, 6, 7 Bus. & Prof. Code 6106.3 ........................................................................................................ 3, 4 Bus. & Prof. Code 10000 et seq. .................................................................................................. 4 Bus. & Prof. Code 10026 ............................................................................................................. 4 Civ. Code 2944.6 ................................................................................................................ 3, 4, 5 Civ. Code 2944.7 ................................................................................................. 3, 4, 5,9, 15, 16 iii
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TABLE OF AUTHORITIES (continued) Page

Civ. Code 2945.1 ......................................................................................................................... 6 Civ. Code 2945.4 ......................................................................................................................... 6 CONSTITUTIONAL PROVISIONS Cal. Const. Article V., 1 ............................................................................................................... 7 First Amendment.................................................................................................................... passim Fifth Amendment .................................................................................................................. 3, 6, 14 Eleventh Amendment .................................................................................................................. 4, 7 Fourteenth Amendment ........................................................................................................... 3, 4, 7 OTHER AUTHORITIES Senate Bill 94 ......................................................................................................................... passim

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NOTICE OF MOTION PLEASE TAKE NOTICE THAT on March 17, 2011, at 1:30 p.m., or as soon thereafter as this matter may be heard in Courtroom 3 of the above-entitled court located at 450 Golden Gate Avenue, 17th Floor, San Francisco, California, defendants Governor Edmund G. Brown Jr. and Attorney General Kamala D. Harris will move this Court for an order under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) dismissing the complaint with prejudice on the grounds set forth below. This motion is based upon this notice of motion and motion to dismiss, the memorandum of points and authorities attached thereto, a request for judicial notice, such oral and documentary evidence as shall be introduced at the hearing, and all pleadings and papers on file herein. Dated: January 27, 2011 Respectfully Submitted, KAMALA D. HARRIS Attorney General of California ZACKERY P. MORAZZINI Supervising Deputy Attorney General

/s/ S. Michele Inan S. MICHELE INAN Deputy Attorney General Attorneys for Defendants Edmund G. Brown Jr., Governor of California and Kamala D. Harris, Attorney General of California

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MOTION TO DISMISS Defendants Edmund G. Brown Jr. and Kamala D. Harris move to dismiss plaintiffs complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) on the following specific grounds: 1. The complaint fails to state a claim upon which relief can be granted against Governor Brown in that any claims against him are barred by the Eleventh Amendment. 2. The complaint is barred for lack of subject matter jurisdiction in that plaintiff lacks standing. 3. The complaint fails to state claims upon which relief can be granted against defendants pursuant to 42 U.S.C. 1983 for violation of First, Fifth and Fourteenth Amendment rights. WHEREFORE, defendants Governor Edmund G. Brown Jr. and Attorney General Kamala D. Harris pray that the motion to dismiss be granted and the complaint be dismissed with prejudice. Dated: January 27, 2011 Respectfully Submitted, KAMALA D. HARRIS Attorney General of California ZACKERY P. MORAZZINI Supervising Deputy Attorney General

/s/ S. Michele Inan S. MICHELE INAN Deputy Attorney General Attorneys for Defendants Edmund G. Brown Jr., Governor of California and Kamala D. Harris, Attorney General of California

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I.

MEMORANDUM OF POINTS AND AUTHORITIES NATURE OF THIS ACTION In response to the unprecedented home mortgage foreclosure crisis, the California Legislature passed Senate Bill 94 in 2009 which enacted new California Civil Code sections 2944.6 and 2944.7 and Business and Professions Code section 6106.3. These new statutes were enacted to protect residential home borrowers from predatory attorneys and others who had a practice of collecting advance fees for loan modification or forbearance activities that would not be likely to help the borrower save or regain his or her home. California Civil Code section 2944.7 makes it unlawful for any person who offers to perform a mortgage loan modification or other form of mortgage loan forbearance to ask for or receive any compensation until after the person has performed the service the person contracted to perform. California Civil Code section 2944.6 requires persons providing loan modification services to a borrower for a fee to deliver to the borrower a statement containing mandatory language notifying the borrower that (1) the same services are available for free; (2) it is not necessary to pay someone for the services; and (3) a list of nonprofit housing counseling agencies are available. California Business & Professions Code section 6106.3(a) makes the Civil Code provisions expressly applicable to attorneys by providing for the imposition of discipline for any attorney engaging in conduct in violation of Civil Code sections 2944.6 and 2944.7. Plaintiff Christopher Duenas alleges that he is currently in default on his mortgage and wants and needs the advice of an attorney, but he cannot consult with an attorney because of the fee restriction on loan modification services enacted in Senate Bill 94 that require an attorney performing a loan modification to forego any fees until after the work is actually performed. In his action under 42 U.S.C. 1983 challenging the constitutionality of the restriction on the payment of advance fees for the performance of a loan modification, plaintiff alleges that the fee restriction: (1) violates his First Amendment right to hire and consult an attorney; (2) is an unconstitutionally vague statute sweeping within its ambit free speech activities protected by the First Amendment and failing to provide notice of what conduct is prohibited in violation of his Fifth Amendment due process rights; and (3) violates his Fourteenth Amendment equal protection 3
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rights in that (a) there is no similar fee restriction applicable to attorneys hired by bank and mortgage lenders and (b) paid attorney services are better than the free services available to distressed borrowers. For the reasons stated below, plaintiffs claims are meritless. II. GROUNDS FOR THIS MOTION Defendants move to dismiss the complaint on three grounds. First, the Governor must be dismissed because he has no enforcement responsibilities in connection with the new statutes and the suit against him is barred by the Eleventh Amendment. Second, plaintiffs constitutional challenges are all subject to dismissal because he does not have standing to assert the claims, and the court is without subject matter jurisdiction. Third, plaintiffs purely legal challenges to the fee restriction in Civil Code section 2944.7 do not violate First, Fifth or Fourteenth Amendment rights as a matter of law. III. STATEMENT OF THE FACTS A. The Law

On October 11, 2009, Governor Arnold Schwarzenegger signed Senate Bill 94 into law, which took effect immediately. Senate Bill 94 enacted new California Civil Code sections 2944.6 and 2944.7 and Business and Professions Code section 6106.3.1 The new Civil Code laws prohibit any person from claiming fees for loan modification services before actually performing the services, and require persons performing loan modifications for a fee to disclose that it was not necessary to hire a lawyer to perform the work. New Business & Profession Code section 6106.3 made Civil Code sections 2944.6 and 2944.7 specifically applicable to attorneys who can now be disciplined for violations of the laws. Specifically, Civil Code section 2944.7 provides in part: (a) Notwithstanding any other provision of law, it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise Senate Bill 94 enacted and amended other statutes applicable to real estate brokers and salesmen, foreclosure consultants and finance lenders to prohibit the advance payment of fees to perform loan modifications. These statutes included Business & Professions Code section 10026 cited in the complaint which is part of the Real Estate Act relating to the licensing of real estate brokers and salesmen. (See Bus. & Prof. Code, 10000 et seq.; California Employment Stabilization Commission v. Morris, 28 Cal. 2d 812, 816-17 (1946). Because these statutes are not applicable to attorneys, they are not at issue in this case. 4
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offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following: (1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform. Civil Code section 2944.6 provides in part: (a) Notwithstanding any other provision of law, any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, shall provide the following to the borrower, as a separate statement, in not less than 14-point bold type, prior to entering into any fee arrangement with the borrower: It is not necessary to pay a third party to arrange for a loan modification or other form of loan forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting wwww.hud.gov. Both laws impose criminal fines and imprisonment for violations. Civ. Code, 2944.6(c); 2944.7(b). Both laws apply only to mortgages and deeds of trust secured by residential real property containing four or fewer dwelling units. Civ. Code, 2944.6(e); 2944.7(d). B. Legislative History

Senate Bill 94 was introduced by California State Senator Ronald Calderon on January 22, 2009. Complaint, 1. The States interest in deterring unethical practices by attorneys who charge advance fees for a loan modification and do not perform the work was revealed in Senate Bill 94s legislative history soon after the bill was first introduced. An analysis of the bill by the Senate Committee on Banking, Finance and Insurance dated March 27, 2009 states the basis for the Legislatures enactment of the bill: . . . [T]here is significant anecdotal evidence that others are preying on borrowers fears of losing their homes and their ignorance of the options available to them, and charging these borrowers fees (often up-front, non-refundable fees) for services the borrowers could obtain elsewhere, free-of-charge. Unscrupulous individuals and businesses seeking to take advantage of troubled borrowers can be found outside every mortgage fair, trying to drum up business . . . California does have a law regulating the activities of foreclosure consultants, but the law contains numerous exemptions from its requirements, including exemptions for 5
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legal professionals, real estate brokers, and several types of lenders who perform loan modification services.2 SB 94 closes loopholes in existing laws, which have allowed an unscrupulous loan modification industry to spring up. It does so by prohibiting individuals and businesses from accepting up-front fees for helping negotiate a loan modification or other form of loan forbearance or forgiveness on a borrowers behalf. This prohibition is intended to prevent persons from charging borrowers an up-front fee, providing limited services that fail to help the borrower, and leaving the borrower worse off than before he or she engaged in the services of a loan modification consultant. Under the provisions of the bill, persons exempt from the foreclosure consultant law [e.g. lawyers] would be allowed to help negotiate loan modifications on a borrowers behalf for a fee, paid after services were rendered . . . Defs Req. for Judicial Notice, Exh. 1, p. 4, emphasis added. IV. FACTUAL ALLEGATIONS OF THE COMPLAINT Plaintiff alleges he is in default on his mortgage. Complaint, 7. He alleges that he would like to hire an attorney to help him evaluate his mortgage, determine the extent of his rights against his lender, evaluate the consequences of a decision to breach his mortgage contract, and evaluate and negotiate any proposed loan modification or forbearance documents. Id., 1, 7. But he alleges he has learned that: (1) he cannot hire an attorney to represent him unless the attorney does so at no charge until the representation is complete; (2) the attorney may be jailed, fined, and disciplined by the State Bar of California if the attorney receives a fee before the work is completed; and (3) if he contacts his bank for advice, the bank would be using a team of the very best attorneys to press every legal advantage against him. Id., 1-2. Plaintiff raises as a first cause of action a facial and as-applied claim of violation of First Amendment rights under 42 U.S.C. 1983, arguing that the fee restriction in Civil Code section 2944.7 denies his constitutional right to retain and consult an attorney. Complaint, 37-39. As a second cause of action, plaintiff alleges that the fee restriction is overbroad under the First Amendment or unconstitutionally vague under the due process clause of the Fifth Amendment. Id., 40-46. As a third cause of action, plaintiff alleges that the fee restriction violates Foreclosure consultants are persons who assist distressed homeowners faced with foreclosure. Civ. Code, 2945.1(a). California law prohibits foreclosure consultants from collecting a fee for specified foreclosure services until after the services have been fully performed. Civ. Code, 2945.1(e)(1)-(8), 2945.4(a). 6
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Fourteenth Amendment equal protection rights. Id., 47-49.3 Plaintiff seeks a judicial declaration that the fee restriction violates these constitutional rights and an injunction barring enforcement of the provision, and attorneys fees and costs. Id., 55-57. ARGUMENT I. THE CLAIMS AGAINST THE GOVERNOR MUST BE DISMISSED The Eleventh Amendment provides in part: The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state. To bring suit against the Governor in his official capacity for injunctive relief, plaintiff must necessarily rely on the exception in Ex Parte Young, 209 U.S. 123 (1908) which holds that a suit against a state official seeking prospective injunctive relief is not barred by the Eleventh Amendment. Id. at 159-60. However, the exception to Eleventh Amendment immunity announced in Ex Parte Young applies only where the defendant state officer has some connection with the enforcement of the [challenged] act. Id. at 157. Here, plaintiff alleges that the Governor is the chief executive officer of the State of California with responsibility for ensuring that laws are properly enforced. Complaint, 15. California does not allocate to the Governor any role in enforcing criminal violations of law or combating unethical and unprofessional conduct of lawyers, although he has a general constitutional duty to see that the laws of the state are faithfully executed. Cal. Const. Art. V, 1. In the absence of allegations of threat by the Governor to enforce an allegedly unconstitutional statute against plaintiff, the Governors general duty to enforce California law under the circumstances of this case does not establish the requisite connection between him and enforcement of criminal laws or laws implicating attorney discipline. Los Angeles Branch NAACP v. Los Angeles Unified School District, 714 F.2d 946, 953 (9th Cir. 1983). Therefore, the Governor is immune from suit under the Eleventh Amendment and should be dismissed from the case. There is a fourth cause of action for violation of 42 U.S.C. 1983 but it does not allege a violation of the federal constitution beyond the violations in the first three causes of action. 7
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II.

THE ALLEGATIONS OF THE COMPLAINT ARE INSUFFICIENT TO CONFER STANDING ON PLAINTIFF The doctrine of standing serves to identify those disputes that are appropriately resolved

through the judicial process. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). To establish standing, plaintiff must show that: (1) he suffered an injury in fact an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical;4 (2) there [is] a causal connection between the injury and the conduct complained of; and (3) it [is] likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. Id. at 560-61 (citations and quotations omitted). An interest shared generally with the public at large in the proper application of the Constitution and laws will not do. See id. at 573-76; see also United States v. Richardson, 418 U.S. 166, 172 (1974) (a plaintiff must show personalized injury, not merely that he suffers in some indefinite way in common with people generally) Additionally, special standing rules apply in First Amendment cases. See Wolfson v. Brammer, supra, 616 F.3d 1045, 1058. A plaintiff seeking to vindicate constitutional rights in a facial constitutional challenge may argue that a statute is unconstitutionally vague or . . . impermissibly restricts a protected activity in all applications whether or not he has alleged any First Amendment harm to himself. Santa Monica Foods Not Bombs v, City of Santa Monica, 450 F.3d 1022, 1033 (9th Cir. 2006), citing Foti v. City of Menlo Park, 146 F.3d 629, 635 (9th Cir. 1988). A facial challenge has nothing to do with whether plaintiffs First Amendment rights are at stake, but depends instead on whether plaintiff has been injured in some way and he can be expected to satisfactorily frame the issues in the case. Mothershed v. Justices of Supreme Court, 410 F.3d 602, 610 (9th Cir. 2005), as amended by 2005 U.S. App. LEXIS 14804, citing Secretary of Maryland v. Munson, 467 U.S. 947, 955, 958 (1984). A facial challenge is often paired with an as-applied constitutional challenge, where a plaintiff argues that a law is unconstitutional as to In the case of conjectural or hypothetical allegations that are not clean-cut and concrete and fit for judicial review, the concepts of standing and ripeness overlap and provide an additional basis for dismissing the complaint for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). See Wolfson v. Brammer, 616 F.3d 1045, 1058 (9th Cir. 2010). 8
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his own speech or expressive conduct. Id. But in the case of either challenge, allegations of a subjective chill of free speech rights will not suffice to satisfy the injury-in-fact requirement. Laird v. Tatum, 408 U.S. 1, 13-14 (1972). A plaintiff must demonstrate present or future objective harm that the law has inflicted on him by deterring him from engaging in protected activity. Wolfson v. Brammer, supra, 616 F.3d 1045, 1058-59. The party invoking federal jurisdiction bears the burden of establishing the elements of standing. Lujan, supra, 504 U.S. at 561. The plaintiff must support each element of the standing requirement with the manner and degree of evidence required at the motion to dismiss stage. Id. In the past, this meant that the plaintiffs allegations were accepted as true. See, e.g., Pennell v. San Jose, 485 U.S. 1, 7 (1988). The decisions of the United States Supreme Court in Ashcroft v. Iqbal, 556 U.S. ___, 129 S. Ct. 1937, 1950 (2009) and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), however, clarify that, to survive a motion to dismiss, the plaintiffs allegations must present sufficient facts to be plausible. Plaintiff alleges that he is currently in default on his mortgage.5 Complaint, 7. Because of this, plaintiff alleges that he wants and needs to hire an attorney to help him to: (1) evaluate his mortgage; (2) determine the extent of his rights against his mortgagor; (3) evaluate the consequences of breaching his mortgage contract; and (4) evaluate and negotiate any proposed local modification or forbearance documents submitted to him. Id. 1, 7. But he alleges he has learned that he cannot hire an attorney to represent him on these subjects unless the attorney does so at no charge until the representation is complete. Id. 1. As to all of the constitutional challenges, these bare allegations are insufficient to confer standing on plaintiff. While plaintiff alleges he wants and needs to hire an attorney, nowhere in the complaint does plaintiff allege that he has ever tried and failed to hire an attorney, and has suffered an injury in failing to hire an attorney. Neither does he allege that he has tried and failed to obtain any of the free loan modification services available to him or tried and succeeded in The allegation fails to disclose whether the mortgage is secured by residential real property containing four or fewer dwellings, making the fee restriction in Civil Code section 2944.7 even applicable to a lawyer hired to perform a loan modification. Civ. Code, 2944.7(d). 9
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obtaining free services but received inadequate free services. Complaint, 31, 48. Instead, he appears to assume that all attorneys will desire to be paid in advance and no attorneys will provide the services he seeks because of the fee restriction which is not plausible, and he dismisses free services as presumptively inadequate which is also implausible. In the absence of allegations that plaintiff himself has tried and failed to obtain paid attorney services or even free services, his allegations are subjective and too generalized, vague, and conclusory to support either a facial or as-applied challenge because they do not specify how the fee restriction provision has specifically harmed plaintiff, and they appear to raise merely policy disagreements with the legislation. Moreover, plaintiff is not even the object of Civil Code section 2944.7 enacted in Senate Bill 94 that he claims violates his constitutional rights. Whether a plaintiff has standing will depend[] considerably upon whether the plaintiff is himself an object of the [government action] at issue, and [i]f he is, there is ordinarily little question that the action . . . has caused him injury. Lugan, supra, 505 U.S. at 561-62. Here, plaintiff is not the object of the government action -- attorneys who require payment of fees before actually performing agreed upon loan modification services are the object of the law. In the absence of any real or threatened injury from government action to him, plaintiff does not have standing to bring this suit. Finally, the fee provision of Civil Code section 2944.7 does not even appear to apply to the attorney consultation that plaintiff alleges he wants in his complaint, e.g., (1) evaluation of his mortgage, (2) evaluation of the extent of his rights against his mortgagor, (3) evaluation of consequences of breach of the mortgage contract, and (4) evaluation of need for a loan modification. Complaint, 1, 7. None of these activities are covered by the challenged law. The law also does not apply to fees in a contested court proceeding with a lender as claimed in the complaint because presumably the scope of representation in a court suit is to prosecute or defend the suit, not to perform an actual loan modification matter. See Complaint, 46. The legislative history makes it very clear that the only service subject to the fee restriction in Civil Code section 2944.7 is the actual performance of an agreed mortgage loan modification or other form of mortgage loan forbearance with the borrowers lender. Defs Req. for Judicial Notice, Exh. 1, p. 10
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4 (Senate Bill 94 prohibits charging of advance fees by persons offering to perform loan modification from the institution servicing that borrowers residential mortgage loan). Therefore, as to these claims, there can be no injury in fact as a matter of law. III. CALIFORNIA CIVIL CODE SECTION 2944.7 DOES NOT VIOLATE A FIRST AMENDMENT RIGHT TO HIRE AND CONSULT COUNSEL In Mothershed v. Justices of Supreme Court, supra, 410 F.3d 602, the Ninth Circuit acknowledged the general applicability of the First Amendment in the area of attorney-client relations: [W]e recognize that at least as a general matter that right to hire and consult an attorney is protected by the First Amendments guarantee of freedom of expression, association and petition. Id. at 611 (citations and quotations omitted). But the court stated that, while the right to consult an attorney may fall within the First Amendments purview, states have broad power to regulate the practice of law. Id., citing United Mine Workers of Am. v. Ill. State Bar Assn, 389 U.S. 217, 222 (1967); see Brotherhood of Railroad Trainmen v. Virginia Bar, 377 U.S. 1, 6 (1964) (Virginia undoubtedly has broad powers to regulate the practice of law within its borders). Mothershed stated that states may institute reasonable time, place, and manner restrictions on the First Amendment right to consult an attorney. Id. Time, place, and manner regulations are reasonable provided that the restrictions are justified without reference to the content of the regulated speech, that they are tailored to serve a significant governmental interest, and that they leave open ample alternative channels for communication of the information Id. (citations omitted). The principal inquiry the court stated is whether the government has adopted a regulation of speech because of disagreement with the message it conveys. Speech restrictions are content-neutral when they can be justified without reference to the content of the regulated speech. Id. (citation omitted). The court stated a time, place and manner regulation is narrowly tailored so long as the substantial governmental interest it serves would be achieved less effectively absent the regulation and the regulation achieves its ends without . . . significantly restricting a substantial quantity of speech and does not create the same evils. Id. at 612 (citations omitted). 11
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In Mothershed, plaintiff, who was not authorized to practice law in Arizona, argued that pro hac vice admission requirements for out-of-state attorneys and the standards for admission to the State Bar of Arizona prevented him from practicing law in Arizona and had a chilling effect on Arizonans First Amendment right to consult with out-of-state counsel. Mothershed, supra, 410 F.3d at 605, 610-11. Plaintiff had been disciplined by the State Bar of Arizona for the unauthorized practice of law in Arizona but he had been licensed to practice in another state. Id. The court found the rules were content-neutral in that they prohibited retention of out-of-state counsel without regard to the subject matter of the representation, Arizona had a significant interest in regulating the practice of law by ensuring that attorneys were qualified, the rules did not impose a blanket prohibition on the appearance of out-of-state attorneys in Arizona, and Arizonans had other channels to obtain legal representation from attorneys licensed to practice in Arizona. Id. at 612. Accordingly, the court held the rules were reasonable time, place and manner regulations of Arizonans First Amendment right to retain and consult with a lawyer. Id. In the case of Civil Code section 2944.7, the statute survives constitutional challenge for violation of the First Amendments guarantee of freedom to retain and consult an attorney. The statute does not implicate rights to retain and consult an attorney because it does not prohibit legal representation on a loan modification; it only restricts the timing of payment of fees for a loan modification until after the attorney has actually performed the work. In this sense, the statute does not prohibit a certain category of attorney representation as discussed in Mothershed, and it does not discriminate against any particular viewpoint or ideology, or suppress ideas contrary to the States interest, and thus it is content-neutral. It also does not distort a lawyers ability to effectively represent a client. It is beyond dispute that California has a substantial government interest in the fee restriction to avoid the conduct of unscrupulous lawyers who take fees from borrowers to perform a loan modification, and then do not perform the work or obtain any result. Defs Req. for Judicial Notice, Exh.1. The fee restriction ensures that borrowers seeking a loan modification from a lawyer actually receive the work before the lawyer is paid. The fee restriction is also a reasonable time, place and manner restriction on the right to retain and consult an attorney to 12
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protect distressed borrowers. Borrowers with mortgage difficulties are not deprived of access to legal representation by the fee restriction. They have access to attorneys who agree to restrict receipt of payments until after performance of work, and they have access to free services available in California. (See Legal Aid Services of Oregon v. Legal Services Corp., 608 F.3d 1084, 1095 (9th Cir. 2010) (law prohibiting grantee attorneys providing legal aid from influencing legislation, participating in class actions and soliciting clients did not discriminate against content-based speech). The Supreme Court cases cited in the complaint that struck down restrictions limiting the First Amendment right to hire counsel are inopposite to the fee restriction in this case. The restrictions at issue in those cases limited the collective activity of unions to hire lawyers to access the courts on behalf of its members, suppressing content-based speech. See United Mine Workers of Am. v. Ill. State Bar Assn, supra, 389 U.S. 217, 222 (Illinois Bar asserted that union was engaged in unauthorized practice of law by hiring attorney to assist its members assertion of legal rights); Brotherhood of Railroad Trainmen v. Virginia Bar, supra, 377 U.S. 1, 6 (1964) (Virginia Bar asserted that union was engaged in the unlawful solicitation of legal business and unauthorized practice of law by assisting members in the prosecution of claims by injured workers and their families); United Transportation Union v. State Bar of Mich., 401 U.S. 576, 577 (1971) (same); see also NAACP v. Button, 371 U.S. 415, 423 (1963) (NAACP challenged statutes prohibiting solicitation of business for an attorney which prevented it from advising clients of discrimination and referring them to attorneys); Secretary of Maryland v. Munson, supra, 467 U.S. 947, 950 (challenged state statute prohibited charities engaged in protected fundraising activity to pay more than 25 percent of amount raised as expenses to fundraiser). In this case, the fee restriction does not restrict an organization or association or even an individual with a political viewpoint from hiring an attorney. At best, plaintiffs point is that the fee restriction arguably restricts the pool of attorneys who may agree to perform a loan modification for him before a potentially unscrupulous lender with lawyers (complaint, 23-28) which prevents him from best pursuing his loan modification. While plaintiff may not be able to retain the lawyer of his choice because of the fee restriction (which we will never know because 13
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he not alleged any efforts to retain a lawyer), the States interest in the regulation of unethical and nonprofessional conduct by attorneys justifies the narrowly tailored restriction upon the timing of the payment of fees, which is not unlike any common contingent fee attorney-client relationship. Under these circumstances, the fee restriction in Civil Code section 2944.7 does not violate First Amendment right to retain and consult with an attorney. IV. CALIFORNIA CIVIL CODE SECTION 2944.7 IS NOT VAGUE, BUT PROVIDES PLAINTIFF A REASONABLE OPPORTUNITY TO KNOW WHAT IS BEING PROHIBITED The second cause of action alleges that Civil Code section 2944.7 is vague, sweeping within its ambit free speech activities protected by the First Amendment and failing to provide notice of what is required of them in violation of his Fifth Amendment due process rights. Complaint, 40-44. The statute is not unconstitutionally vague. The vagueness doctrine of the due process clause of the Fifth Amendment invalidates a criminal statute if it fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement. United States v. Williams, 553 U.S. 285, 304 (2008). While ordinarily a plaintiff who engages in some conduct that is clearly proscribed by a statute cannot complain of the vagueness of the law as applied to others, in the First Amendment context, a plaintiff is permitted to argue that a statute is overbroad because it is unclear whether it regulates a substantial amount of protected speech. Id., citing Village of Hoffman Estates v. Flipside, 455 U.S. 489, 494-95 (1982) (law prohibiting sale of certain drug paraphernalia contained some ambiguities, but was sufficiently clear to provide notice and thus not impermissibly vague). In Village of Hoffman Estates, the Supreme Court recognized that economic regulation is subject to a less strict vagueness test because its subject matter is often more narrow, and because businesses, which face economic demands to plan behavior carefully, can be expected to consult relevant legislation in advance of action . . . . Id. at 498-99 (footnotes omitted). Here, plaintiff is not the object of the criminal statute he claims is vague and there is no protected speech regulated by the fee restriction in Civil Code section 2944.7. Nevertheless, the statute is narrowly drawn such that a person of ordinary intelligence will understand the attorney 14
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work that is the subject of the fee restriction. A person of ordinary intelligence is surely capable of determining that the statute prohibits an attorney from charging or receiving an advance fee for the performance of a mortgage loan modification or other loan forbearance with a borrowers lender, and nothing else. The breadth of the statute is also self-limiting in that it applies to each and every service the person contracted to perform or represented that he or she would perform. Civ. Code, 2944.7(a)(1). Thus, if an attorney contacts to perform a loan modification, that is the scope of work subject to the fee restriction provision of Civil Code section 2944.7. The hypothetical offered by plaintiff in the complaint does not render Civil Code section 2944.7 unconstitutionally vague. Complaint, 46. In the hypothetical, an attorney represents a borrower on a loan modification or forbearance matter (e.g. such as a challenge to a trustees sale as irregular in nature) in court. Id. During the court proceeding, the opposing attorney on behalf of the borrowers lender desires to discuss a loan modification or forbearance in settlement of the case. Id. In this case, so long as the attorney has not contracted to perform an actual loan modification with the borrowers lender as part of his representation in the court proceeding, the fee restriction in Civil Code section 2944.7, by its very terms, would not apply. What the statute does explicitly prohibit, however, is the payment of fees to a lawyer hired to perform an actual loan modification service with the borrowers lender before the service is completed. That is the activity that triggers the fee restriction. This is a common sense and straightforward interpretation of the words of the statute. Therefore, as a matter of law, the statute is not impermissibly vague. V. CALIFORNIA CIVIL CODE SECTION 2944.7 DOES NOT VIOLATE EQUAL PROTECTION In the third cause of action, plaintiff alleges that the fee restriction in Civil Code section 2944.7 infringes on his right to equal protection of the law. Complaint, 47-49. Specifically, plaintiff alleges that the fee restriction restricts his ability to retain and consult an attorney, but there is no similar fee restriction applicable to lenders who retain and consult attorneys to perform a loan modification. Id. at 48. Plaintiff also alleges that the statute is unequal in that a person

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who is able to pay for an attorney service is better able to secure the service than a person who must essentially beg for the same service. Id. The claims are entirely without merit. Under equal protection, all persons similarly situated shall be treated alike. Phyler v. Doe, 457 U.S. 202, 216 (1982). A legislative enactment that does not create a suspect classification or impinge upon a fundamental right need only be shown to bear some rational relationship to a legitimate government interest. City of Dallas v. Stanglin, 490 U.S. 19, 23-24 (1989) (upholding, under rational basis review, dance hall regulation limiting use to patrons between 14 and 18 years of age). A rational basis exists where the distinction advances legitimate goals in a rational fashion. Schweiker v. Wilson, 450 U.S. 221, 234 (1981). The distinction need not be perfect, and may result in some inequity. Id. The court does not ask whether the distinction will advance legislative goals in fact, only whether the legislature could have believed that the distinction would promote those goals. W & S Life. Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 67172 (1981). That a statute is underinclusive because it does not apply to all persons to whom it could apply, creating an advantage or disadvantage for one group or another, does not make it irrational. [T]he reform may take one step at a time, addressing itself to the phase of the problem which seems most acute to the legislative mind. The legislature may select one phase of one field and apply a remedy there, neglecting the others. Williamson v. Lee Optical of Okla., 348 U.S. 483, 489 (1955) (citation omitted). In this case, the fee restriction in Civil Code section 2944.7 creates no suspect classification and does not implicate a fundamental right because it does not deny a borrower the right to hire and consult an attorney. Therefore, the fee restriction is properly reviewed under rational basis. Civil Code section 2944.7s requirement that the payment of attorney fees for loan modification services be deferred until after the services are actually performed bears a rational relationship to the States legitimate interest. As plainly disclosed by the legislative history of Senate Bill 94, the States interest is in protecting residential loan borrowers from predatory attorneys who have had a practice of collecting advance fees for loan modification or forbearance activities, and who then fail to perform the services, or who misrepresent that they can perform services that cannot be performed. Unlike lenders, the borrowers are the ones facing loss of their 16
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homes in these circumstances. And the State could have rationally believed that attorneys who perform loan modifications for lenders were not taking fees from their lenders without performing services, as was the case with attorneys representing borrowers with problem mortgages. But to the extent that lenders lawyers are being paid for services they do not perform, the State can choose to address only part of a problem and not others without implicating equal protection rights. Therefore, there was a rational basis for applying the fee restriction to lawyers retained by borrowers and not to lawyers hired by lenders. The fee restriction does not violate plaintiffs right to equal protection of the laws. CONCLUSION For all the foregoing reasons, defendants respectfully request that this Court grant their motion to dismiss the complaint without leave to amend. Dated: January 27, 2011 Respectfully Submitted, KAMALA D. HARRIS Attorney General of California ZACKERY P. MORAZZINI Supervising Deputy Attorney General

/s/ S. Michele Inan S. MICHELE INAN Deputy Attorney General Attorneys for Defendants Edmund G. Brown Jr., Governor of California and Kamala D. Harris, Attorney General of California

SA2011100031 40477829.doc

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