People Ex Rel. Harris v. Sarpas
225 Cal. App. 4th 1539
| Cal. Ct. App. | 2014Background
- US Homeowners Assistance (USHA), run by Statewide Financial Group, Inc. (SFGI), solicited upfront fees for loan-modification services between Jan 2008 and July 2009, taking over $2.2 million but producing no credible loan modifications or refunds.
- Defendants: Sarpas (50% owner, operations manager), Nazarzai (other 50% owner), and Fasela (office/sales manager who originated the “97% success” claim). SFGI was placed in receivership when the AG sued.
- The California Attorney General sued under the UCL (Bus. & Prof. Code § 17200) and FAL (§ 17500), seeking injunctions, restitution, and civil penalties; bench trial in 2012 resulted in permanent injunctions, restitution up to $2,047,041.86 (USHA, Sarpas, Nazarzai jointly & severally; Fasela up to $147,869), and civil penalties totaling $2,407,581 (some joint-and-several).
- On appeal Sarpas and Fasela raised six principal challenges (protective order limiting interrogatory responses; admission of deposition excerpts; restitution liability; civil-penalty awards and amounts; confrontation/due-process; admission of deposited checks).
- The Court of Appeal affirmed in all respects except it struck and remanded the $360,540 civil-penalty award against Fasela for recalculation because the trial court did not adequately explain or tether that specific amount to statutory factors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Protective order limiting responses to voluminous interrogatories | AG: Individualized proof for each victim unnecessary under UCL/FAL; plaintiffs need only provide info for witnesses they intend to call live | Defs: AG must answer thousands of interrogatories to identify specific allegations against each defendant | Court: Protective order proper; abuse of discretion not shown given burden, duplicative interrogatories, and settled law permitting classwide restitution without individualized proof |
| Admission of deposition excerpts at trial | AG: Depositions were properly noticed; reading deposition testimony is not the same as "calling at trial" under protective order | Defs: Use of deposition transcripts violated protective order because AG did not provide interrogatory answers for those deponents | Court: Protective order covered live witnesses only; admission of properly noticed depositions did not prejudice defendants; admission was proper |
| Restitution liability for defendants who did not receive payments directly from victims | AG: Restitution under UCL/FAL may reach funds obtained through scheme even if paid to the corporation; equitable goal is to restore victims | Defs: Following Bradstreet, a defendant cannot be ordered to restore money he never personally received | Court: Defendants may be ordered to pay restitution though payments were routed to the corporation; Bradstreet does not control and other authorities permit restitution where defendants participated in and benefitted from the scheme |
| Civil penalties and their calculation (esp. against Fasela) | AG: Statutory penalties under §§17206/17536 are appropriate given large number of victims, targeting of vulnerable consumers, persistence and willfulness | Defs: Penalties excessive and unsupported; Fasela lacked active participation so penalty amount is untethered | Court: Penalties supported for Sarpas and generally for Fasela, but the specific $360,540 penalty against Fasela lacked an explained statutory basis—strike and remand for recalculation |
Key Cases Cited
- Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163 (Cal. 2000) (restitution under UCL may be ordered without individualized proof of harm)
- In re Tobacco II Cases, 46 Cal.4th 298 (Cal. 2009) (UCL restitution available without individualized proof of deception/reliance)
- People v. JTH Tax, Inc., 212 Cal.App.4th 1219 (Cal. Ct. App.) (restitution under FAL/UCL may be awarded classwide)
- Bradstreet v. Wong, 161 Cal.App.4th 1440 (Cal. Ct. App.) (distinguishable holding limiting restitution where individual defendants did not personally receive funds; discussed and not dispositive)
- Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (Cal. 2003) (equitable restitution not available to recover property in which plaintiff had no vested interest; factual limits of that principle noted)
- Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305 (Cal. Ct. App.) (rejects narrow reading that UCL restitution is limited to direct payees; permits restitution where defendant’s unlawful practice caused plaintiff to pay third party)
- Fremont Life Ins. Co. v. People ex rel. Bill Lockyer, 104 Cal.App.4th 508 (Cal. Ct. App.) (restitution under UCL does not require individualized proof of harm)