Court of Appeals Upholds Jury Verdict in Landmark Predatory Lending Lawsuit

January 29, 2014, New York, NY—In a sweeping victory for eight first-time homebuyers in Brooklyn, the Second Circuit Court of Appeals today affirmed in all respects a jury verdict entered after a three-week trial in a case brought by the Brooklyn offices of Legal Services NYC (LSNYC) and AARP.

The original complaint in Barkley v. Olympia Mortgage Co. and five consolidated cases alleged that Yaron Hershco, a property flipper who operated in New York City’s outer boroughs and parts of Long Island and New Jersey, and his companies operating under the United Homes trade name, purchased properties, performed cosmetic repair work and caused the properties to be fraudulently and significantly over-appraised. Marketing the properties as newly renovated, Hershco and United Homes, conspiring with various mortgage lenders, appraisers and attorneys, then resold the homes to first-time home buyers for far more than the properties’ true values.

As a result of this scheme, our clients ended up with unaffordable mortgages and unsound and unsafe homes. Our clients sued Hershco, the United Homes entities, and various mortgage lenders, appraisers, and attorneys involved in the scheme for violations of the Fair Housing Act, federal civil rights statutes barring discrimination based upon race, and state and local anti-discrimination laws. Our clients also asserted state law claims for fraud and conspiracy to commit fraud, and for violations of New York General Business Law § 349.

On June 1, 2011, after three weeks of trial, the jury returned with a verdict awarding the clients over $1 million for fraud, conspiracy to commit fraud, and deceptive practices, including punitive damages awards against Hershco, the United Homes companies, Olympia Mortgage Corporation, Alliance Mortgage Banking Corporation, and attorney Benjamin Turner. The jury also found that the United Homes entities were essentially Hershco’s alter ego, and permitted the plaintiffs to pierce the corporate veil, thereby allowing Hershco to be held liable for the actions of his corporations and employees and agents. After post-trial motion practice, the district court denied Hershco’s motions to set aside the jury’s verdict and also awarded our clients over $2 million in attorneys’ fees. The defendants appealed the decision to the Second Circuit Court of Appeals.

Today’s decision from the Second Circuit Court of Appeals in Barkley v. Olympia Mortgage Company, 12-2909-cv, first upheld the district court’s decision to consolidate the six different actions for trial. It then went on to uphold the jury’s verdict across the board, finding that the jury could have reasonably concluded from the evidence presented at trial that Hershco and the United Homes entities defrauded -more- our clients about the conditions of the homes they purchased; that the defendants prevented our clients from discovering the quality and extent of the renovations that were allegedly made to the homes before our clients bought them; and that the conduct of Hershco and United Homes—luring inexperienced, low-income homebuyers into purchasing damaged homes—was so egregious as to support an award of punitive damages. The Second Circuit also agreed with the jury on the propriety of piercing the corporate veil, finding,

[T]he record indicates that Hershco manipulated the United Homes entities, undercapitalizing them and moving money freely among them to pay salaries, marketing, construction, and closing costs. That intermingling afforded Hershco the opportunity to quickly purchase and resell more properties, furthering the scheme. And Hershco himself signed the deeds of sale for each Buyer’s home. The evidence was sufficient for a reasonable juror to conclude that Hershco’s domination was the proximate cause of the Buyers’ injuries.

The Second Circuit also upheld the trial Court’s award of attorneys’ fees, finding that “This litigation spanned seven years, involved dozens of attorneys and numerous paralegals, and achieved a substantial recovery for the plaintiffs. The award was within the range of permissible decisions.”

“Today’s decision from the Second Circuit is a profound vindication of our clients’ rights and the immense work that our advocates have done over the last nine years to ensure that they received justice for the harms they suffered,” said Meghan Faux, the Director of LSNYC’s Brooklyn program. “The jury’s verdict, which was affirmed across the board by the Court of Appeals, sends clear notice to property flippers and their unscrupulous accomplices that, as a society, we will not tolerate their schemes to target unsophisticated first-time minority homebuyers with substandard homes and inflated mortgages, and that they prey on such communities at their own peril.”

Raun Rasmussen, Executive Director of LSNYC, added “This is a great example of how tenacious litigation is sometimes the only way to combat fraud and deception. We are so happy that we were able to halt these pernicious practices and help our clients keep their homes.”

The case was litigated by attorneys from our Brooklyn office in close collaboration with Jean Constantine Davis, Esq. of AARP and with J. Christopher Jensen, Esq., of Cowan, Liebowitz & Latman acting as pro bono trial counsel. Sara Manaugh of Brooklyn Legal Services argued the appeal.

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For more information contact: Sara Manaugh, 718-246-3270, smanaugh@ls-nyc.org, or Meghan Faux, 718-246-3276, [email protected].

 Previously: Federal Jury Finds Lender Fraud

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