Modesto’s PMZ hit with class-action lawsuit

A Southern California law firm has launched a class-action fraud lawsuit against Modesto’s PMZ Real Estate, the leading property firm in Stanislaus County and the surrounding area.

PMZ got payments from a Concord company producing natural-hazard reports for home transactions without clients knowing, the lawsuit claims. PMZ concealed the payments by directing clients to deal with another firm – in reality, a shell company run by PMZ, the document says.

The lawsuit lists as plaintiffs three former PMZ clients from Stockton and another from Lodi who used the Modesto firm to sell homes in 2009 and 2010. In theory, hundreds or thousands of PMZ’s former clients from Modesto and beyond could join the lawsuit if a judge deems it worthy of class-action status, but PMZ says the claim is bogus and has asked a judge to throw out the entire lawsuit.

“The whole case is non-meritorious from the word go,” said Jay Varon, a Washington, D.C., attorney representing PMZ, which faces no known criminal prosecution.

Knowing that hiding from clients any source of profit is against the law, PMZ “conspired to devise a way to avoid detection” by inventing Valley NHD – a firm sharing the same Scenic Drive address as PMZ – and pretending that the company provided $89 natural-hazard disclosures, the lawsuit says. Such reports list risks from floods, forest fires and earthquakes.

In reality, Concord-based Disclosure Source would do the work for $40 and PMZ would clear $49, the lawsuit says.

“It’s a secret profit,” said Francis Bottini Jr., a La Jolla attorney. His firm is suing Paul M. Zagaris Inc., PMZ’s former name, as well as broker of record Jon Paul Zagaris, five PMZ “top producing” agents, and both natural-hazard report companies. The Concord company is owned by Fidelity National Financial, whose owner previously got in hot water with state and federal officials for devising an unrelated scheme rewarding real estate agents for “undefined costs.” Fidelity paid nearly $6 million in fines and settlements, the lawsuit says.

Bottini said it’s nothing new for agents to direct business to cronies in exchange for payment.

“It’s all incestuous,” Bottini said. Agents say, “ ‘I’m the one who decides whether you get some business; what will you give me if I pick you?’ It’s fundamentally against the freedom of competition that our country is based on,” he said.

PMZ contends that Valley NHD performed service of value rather than just slapping its label on Disclosure Source’s reports. For example, Valley NHD “assumed any liability for inaccuracies in the report if the customers took issue,” a PMZ court document says.

If clients had gone directly to Disclosure Source, they would have paid $89 – the same price charged by Valley NHD, the defendants say.

“Nobody is hurt in this claim. They got exactly what they wanted for the same amount of money,” Varon said.

Those suing didn’t do their homework because none of the four plaintiffs rounded up for the lawsuit used PMZ’s alleged shell company, Valley NHD, a court briefing says. And none of the plaintiffs used any of the five PMZ agents named in the lawsuit, the document says.

Also, such claims must be brought within a four-year statute of limitations, while nearly five years had passed since the last transaction when the lawsuit was filed Nov. 5 in Contra Costa County, PMZ contends.

“The plaintiffs are, in essence, impermissibly being used as a Trojan horse to open the doors of discovery to find an appropriate plaintiff,’” the brief says, quoting from another case in which such strategy was rejected by the court.

A Feb. 25 hearing likely will be postponed because both sides recently asked for more time, said Kristina Vaz, PMZ’s general counsel.

PMZ, founded by Paul M. Zagaris in 1947, employs 554 agents, the lawsuit says, while PMZ’s website says it’s the 38th-largest real estate firm in the United States, selling more than $1.2 billion yearly in Central Valley properties.

“If they think having a lot of money entitles them to violate the law,” Bottini said, “they have something to worry about with the judicial system.”

This story was originally published February 17, 2016 at 3:48 PM with the headline "Modesto’s PMZ hit with class-action lawsuit."