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The UDC-DCSL Law Clinic Wins DC Embezzlement Case

Tuesday, September 13, 2011   (1 Comments)
Posted by: Max Rodriguez
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The University of the District of Columbia David A. Clarke School of Law Legal Clinic obtained a default judgment for $38,300 in compensatory damages and $100,000 in punitive damages for a case involving a local unlicensed management company’s embezzlement of $35,000 from a low-income cooperative, and $3,300 in management fees for services that were not performed. The case was brought as a joint effort by the Community Development Law Clinic (CDLC) and Housing and Consumer Law Clinic (HCLC). The legal team included 3Ls Diane Seay, Aimellia Siemson, and Jennifer Blemur; UDC-DCSL Professors Louise Howells, Alysia Robben, and Ed Allen served as supervising attorneys; and Professor Thomas Mack served as a consulting attorney, assisting with crafting the complaint and developing the legal strategy.

Although judgment was entered by default due to the defendants’ failure to answer, a considerable amount of work went into research, investigation, and preparation for the hearings. The student attorneys convinced Judge Edelman to award a large sum in punitive damages. After rendering his decision at the end of the case, Judge Edelman praised the team by name for their efforts in obtaining justice for their client. Additionally, Judge Edelman went on to acknowledge the valuable services of the CDLC and HCLC offered at no cost.

The students in the CDLC and HCLC had lots of preparation, with moot court and clinic helping them to craft a legal strategy before ever appearing in front of a judge. Jennifer Blemur, who appeared before a judge for the first time with this case said, "Mooting helped to organize my thoughts in front of judge. It is intimidating, but it is easier to speak to a judge when you are prepared.” Diane Seay, who engaged in direct examination of an expert witness to show punitive damages before the judge, said working on the Las Marias case was an "amazing experience,” since law students often don’t have the opportunity to take a case to the trial or hearing stage.

The case involved a local unlicensed management company’s embezzlement of $35,000 from a low-income cooperative, and $3,300 in management fees for services that were not performed. The individual defendants were both principles of the LCM Management Company.The members of the cooperative were all from low-income families, with some earning minimum wage. The Cooperative acquired the building in 2003 and then developed and renovated it with financing from DC’s Department of Housing and Community Development (DHCD), the Sisters of Mercy Loan Fund, and Eagle Bank, a commercial lender. The 50 unit building was converted to a condominium, but the Cooperative retained a portion of the units for its lower income members, who would otherwise have been displaced in the renovation. The building currently has in place an affordability restriction, which applies to all units, whereby all units must remain affordable to families with incomes equal to or less than 80% of Area Median Income.In addition, of the units held by the cooperative, five must remain affordable to families with incomes equal to or less than 30% of Area Median Income and five must remain affordable to families with incomes equal to or less than 50% of Area Median Income. The defendants embezzled the Cooperative’s funds, and thus the impact of this crime was felt by the families with the lowest incomes.

Though the Cooperative’s Board of Directors did discover the problem in a timely manner, the defendants managed to obtain the largest portion of the stolen funds in less than a month’s time through electronic banking. The total loss of $35,000 in cash caused the cooperative members to suffer severe financial loss and penalties, particularly in connection with delinquent tax payments. The defendants not only stole from the cooperative’s funds, they also failed to responsibly handle the cooperative’s financial matters, such as making payments to DHCD for the cooperative’s mortgage payments. The defendants were able to use electronic banking to hide their activity by suppressing paper bank statements that were to go to the Cooperative’s Board of Directors and by making transfers to an out-of-state account that was identified only by a portion of the account number. Professor Howells said, "Even the most sophisticated persons have to be able to trust their management company to be competent. ”Upon discovering the theft, the Cooperative’s President contacted its legal counsel, DCSL’s CDLC, to conduct further investigation and assist in the recovery of lost funds. The HCLC stepped in to assist because its students receive substantial training in litigation while the CDLC students receive substantial training in business and real estate transactions. The joint legal team of students and professors was able to combine their expertise to advocate for the Cooperative’s low-income residents and restore justice. Diane Seay said, "We showed the co-op that we were genuinely interested in helping them find justice” adding the CDLC and HCLC students worked on this case "for people and not a grade.”

One reason this embezzlement happened is due to a lack of regulatory oversight in D.C. over real estate management companies. Two District administrative offices are involved in the regulation of management companies. The Department of Consumer and Regulatory Affairs (DCRA) is tasked with ensuring code compliance and regulating business, and the District of Columbia Real Estate Commission is tasked with regulating the licenses of professional real estate agents and upholding D.C.’s real estate license law. The DCRA allowed the management company to file Articles of Incorporation as a property management company without assuring that the principles of the company were licensed property managers. The Real Estate Commission has not responded to the Cooperative in connection with a complaint filed by the Cooperative against the company. Moreover, D.C. police have not filed criminal charges against any of the defendants, despite the fact that the UDC legal team advised the police department of the identity and location of the defendants and shared substantial information with the police department about the nature of the thefts.

Now that they have won this case the CDLC and HCLC team of students and professors will be looking to D.C. agencies to establish a more effective regulatory scheme and to establish a system of communication between the DCRA, the District of Columbia Real Estate Commission, and law enforcement agencies. At a minimum the CDLC and HCLC recommend that the D.C. government impose a more stringent process for obtaining permission to operate as a property management company in D.C.: at the very least, the district should assure that principals of a real estate management company receive background checks and obtain the necessary licenses as professional property managers before they are able to file Articles of Incorporation and obtain a business license. The student advocates have also suggested that property management companies be required to post copies of their licenses in buildings that they manage. Aimellia Siemson, who did background research on the case said, "This case may have been prevented with an adequate licensing system in place. ”In this case, one of the principles had a previous embezzlement conviction, and a simple check by either agency into her background may have prevented the company’s formation. The clinic will also be requesting that law enforcement agencies examine their approach and level of attention to real estate management companies. At first, police officials regarded the Cooperative’s complaint as a contract dispute.

Other steps will include workshops for cooperative boards of directors on effective methods for protecting funds from theft, particularly under electronic banking systems.

Student advocates who worked on the case are hopeful that their work in the CDLC and HCLC clinics has the potential to prevent future embezzlement. Aimellia Siemson said, "Actually litigating – there is no experience like it.”

Comments...

Jomo K. Graham says...
Posted Tuesday, September 13, 2011
This is a great victory for the co-op residents and clinic students alike. I'm inspired and looking forward to my clinic experience.

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