Fine assessed against foreclosure lawyer Larry Castle overturned by Colorado appeals court


A Denver judge properly decided former foreclosure king Larry Castle and his law firm did not violate state laws designed to protect consumers but, according to the Colorado Court of Appeals, wrongly fined the firm for not disclosing certain business connections it had.

Denver Post fileLarry Castle

In a unanimous 3-0 decision issued Thursday, the judges upheld a Denver court’s April 2017 exoneration of Castle and two other companies for alleged fraud, but overturned a $119,500 fine assessed against Castle on the one count of the state’s civil lawsuit it lost.

The decision gave Castle another victory in a seven-year legal battle against the Colorado attorney general’s office which unsuccessfully accused the law firm and two other defendants of reaping millions of dollars in illegitimate profits on the backs of consumers.

Castle’s biggest victory — a $1.9 million assessment by Denver District Judge Morris Hoffman against the state for having filed a frivolous lawsuit against Castle, his lawyer wife, Caren, and the two companies, Absolute Posting & Process Services and Colorado American Title — is part of a separate appeal whose decision is forthcoming. The assessment was to cover the defendants’ legal fees and expenses to fight the lawsuit.

In Thursday’s 57-page opinion, Chief Judge Steve Bernard wrote that not only was Hoffman not biased in his ruling against the state on several charges against Castle and the others, but that the $119,500 fine Hoffman levied against the law firm on the one count Castle lost was improperly assessed because the public wasn’t actually harmed.

“The state had to show that an alleged deceptive practice significantly impacted the public as an actual or potential consumer,” Bernard wrote. “But, the allegation in this case — that the law firm did not disclose to two of its clients that its principals had an ownership interest in one of its vendors — did not significantly impact members of the public as actual or potential consumers.”

Judges Robert Hawthorne and Judge Ted Tow III concurred in the decision.

The crux of the state’s civil case hinged on a theory that Castle intentionally manipulated and beefed-up the side costs associated with foreclosures, from the posting of notices about court hearings at homeowners’ doors, to the real estate title work and insurance needed to complete the process. Because the firm handled thousands of foreclosures a month at the height of the nation’s foreclosure calamity, the Castles made millions of extra dollars state prosecutors claimed were unjustly earned.

The state asserted Castle’s financial interest in those side businesses was not properly disclosed to the government mortgage companies — Fannie Mae and Freddie Mac — that employed him to foreclose on homeowners. It sought as much as $26 million against Castle and the other businesses.

“This was a consumer fraud case and the real consumer fraud was the use of taxpayer dollars on a frivolous lawsuit,” Castle’s lawyer, Larry Pozner, told The Denver Post in a telephone interview. “The former attorneys general tried to expand the state’s Consumer Protection Act to absurd levels. This was a very dangerous case of government intrusion.”

Castle eventually closed his law firm, known by various names including The Castle Law Group, and currently works at Pan Am Legal in Denver.

The case has stretched across three Colorado attorneys general — it was filed under John Suthers, tried under Cynthia Coffman, and the appeal arrives under newly minted AG Phil Weiser.

“We are still reviewing the decision, evaluating our options, and looking to learn from this experience,” Weiser said in an emailed statement to The Post. “Our office remains committed to protecting Colorado’s consumers.”

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The state could ask the full 21-judge appellate court bench to review the decision or simply take it to the Colorado Supreme Court.

Part of the state’s appeal was that Hoffman wrongly allowed two key witnesses — foreclosure lawyer Stacey Aronowitz and her sister, Kelly Chopin, who ran a business that posted foreclosure notices for the Aronowitz law firm — to avoid appearing in court by asserting their Fifth Amendment right against self-incrimination instead of assessing whether that right was properly invoked. The state accused Castle and Aronowitz of conspiring to balloon the costs of posting court notices on foreclosed properties higher than was the typical cost.

State prosecutors had reached a $10 million settlement in 2014 with Castle’s biggest competitor, Aronowitz & Mecklenburg, whom they sued at the same time for similar alleged infractions. The Aronowitz firm closed and later agreed to pay about $2.5 million more to affected homeowners who sued in a separate class-action case.

Several other law firms also settled lawsuits the AG filed against them during its two-year investigation.

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