Lender Sues TV Station, Law Firm Over Fraud Story

A Van Nuys finance company named in a November sweeps television “undercover” report about home repair rip-offs has filed a $1-million lawsuit against a Los Angeles TV station and a public interest law firm.

Operators of DFS Financial Services contend that the Nov. 17 news broadcast by KTTV Channel 11, prepared with the assistance of the Bet Tzedek Legal Foundation, falsely suggested that their company illegally peddles home improvement loans and tricks elderly homeowners into signing mortgages.

Officials of the television station and the legal group said they stand behind the TV story. They suggested Friday that the lawsuit is an attempt to stifle further investigation of home repair abuses.

Although the television station is part of the deep-pockets Fox Television network, Bet Tzedek is a nonprofit community group that operates on a shoestring budget from donations and grants.

“Our supporters will not allow anything to quiet the voice we speak with for our clients,” said David Lash, executive director of Bet Tzedek.

A Fox official said the lawsuit will not cause the television station to shrink from further investigative reporting, either.

The two-part “Fox Undercover” report included hidden-camera views of home improvement company salesmen suggesting extra repairs to elderly homeowners and then handing them loan documents to sign to pay for the work.

The report included interviews with senior citizens who said they didn’t realize they were mortgaging their homes to pay for the repair work. Others complained they were steered into signing up for loan payments they couldn’t afford.

DFS Financial Services was fingered as being behind the loans. “The lender could have seized their home if they’d missed a single payment,” said television reporter Jeff Michael, who also is named in the lawsuit.

Bet Tzedek lawyer Manuel Duran condemned the loan company in comments aired in the segment.

“The only way I could characterize a company like DFS is it just indiscriminately lends money and doesn’t care about their borrowers. They’re using contractors to bring them business. All they care about is how much equity is in that property,” Duran said.

The show included scenes of Los Angeles County sheriff’s deputies raiding a home improvement contractor’s office in search of evidence of fraud. There was also a view of DFS Vice President Stephen Bernal as he was secretly photographed through a window of his Van Nuys office.

DFS officials say they declined to be interviewed on camera but that TV reporters nonetheless snooped around their offices on Sherman Way and frightened loan company workers.

Company employees eventually called police and alerted FBI agents who work in the same complex near the Van Nuys Airport about the “strange men in dirty, scruffy clothes [who] were lurking in the DFS parking lot,” according to the Superior Court lawsuit.

The lawsuit contends that the television report overstated the size of several of the DFS loans it mentioned. It also asserts that Michael turned down the firm’s offer to provide copies of the loan documents in question. “Fox News declined, stating that it already had the documents it needed from Bet Tzedek,” the lawsuit states.

Michael was reported Friday to be out of town and unreachable. Other station and network officials said their policy is not to comment on pending litigation.

According to the lawsuit, Bet Tzedek was involved in two lawsuits against DFS at the time the show aired, “one of which was to settle just before the broadcast.” But the settlement was delayed by Duran “to his client’s detriment until after the broadcast so that Bet Tzedek would appear to Fox News to be more involved in in-depth litigation against DFS than it really was.”

Duran declined to comment on the lawsuit. But Lash denied that the timing of the settlement was changed to give the TV report a boost.

“We’d never do anything to compromise the interest of our clients,” he said.

Lash defended 25-year-old Bet Tzedek’s involvement in the television investigation as proper. “Our mission is to protect people and part of that mission is public awareness, communicating potential problems the community may face.”

But Bet Tzedek could be crippled if DFS wins the lawsuit, he acknowledged. His 21-attorney staff operates on a $3.5-million annual budget.

“A big judgment could wipe us out,” Lash said.

DFS President Robert Whitaker said he initially feared that the television report was going to wipe out his 17-year-old firm.

He said the company suffered an immediate drop in business after the broadcast and was forced to lay off eight employees and cut the salaries of most others by 15%.

Whitaker said his firm has a tight lending policy and rarely has to initiate foreclosure action against borrowers who fall behind in their payments. He said only seven notices of default were filed and just one foreclosure sale was ordered on the approximately 1,600 loans DFS handled in 1997--the most recent year for which figures have been compiled.

DFS lawyer Heidi Ellyn said the firm is cooperating with the Sheriff’s Department’s ongoing investigation into home improvement fraud. “There are some shady people out there, but we are not one of them,” Ellyn said.

She said the heavily promoted news report was calculated to attract viewers during the November ratings period. Television stations set advertising price rates on the basis of viewership measured during such so-called sweeps months.

Ellyn said she wasn’t happy having to include Bet Tzedek in the lawsuit.

“I have a lot of respect for them. They are the champions for a lot of people, including the elderly,” she said.

“But that said, the comments they made were incredibly irresponsible and untrue.”