Plaintiffs’ attorney offers to exit loanDepot class action over conflict of interest

Ari Karen, a partner at Mitchell Sandler PLLC, has submitted a motion to withdraw as counsel for borrowers who filed a class-action lawsuit against loanDepot in July 2025 amid a dispute over conflicts of interest.

loanDepot filed a motion in November 2025 to disqualify Karen and his law firm, citing the “presence of significant ethical conflicts” in a case where the lender faces accusations of steering and violation of the loan officer compensation rule.

The potential conflict stems from Karen’s previous representation of Sean Johnson, a former loanDepot loan officer. Karen defended Johnson in a February 2022 arbitration after the lender accused him of breach of contract and poaching when he left to join Movement Mortgage. Karen also later served as the defense attorney for Movement in a related lawsuit filed by loanDepot in Delaware.

Crucially, Johnson is the loan officer who originated the loans for the four named plaintiffs in the current class action — Nathan Johnson, Rachel DeBaun, Nathan Moor and Shawn Derrick.

U.S. District Court Judge Julie R. Rubin signaled on June 1 that she would disqualify Karen and Mitchell Sandler from the loanDepot class-action case unless they produced valid conflict-of-interest waivers from the former clients.

“Absent competent waivers, Mr. Karen and his firm are operating under material conflicts of interest in the representation of Plaintiffs and putative class members in this case,” Rubin wrote in her memorandum opinion.

In a response filed the following day, Karen stated that although he had already obtained waivers from the former clients, he believed the “Plaintiffs’ interests are best served by withdrawing from this litigation and allowing the case to proceed with current Co-Counsel Michael Paul Smith and Smith, Gildea & Schmidt, LLC’s representation.”

“The firm and its ethics expert believe that the facts and law permit the firm’s representation of the Plaintiffs consistent with its ethical obligations and that such a determination could have been reached without further consideration by the court,” Karen said in a statement given to HousingWire.

“However, the firm believes that it is in the Plaintiffs’ best interests for it to withdraw from the case to prevent these distractions from undermining the Plaintiffs’ ability to pursue the serious legal claims against loanDepot on behalf of the putative class.”

loanDepot did not immediately reply to HousingWire’s request for comment. But in a court filing on Wednesday, the company wrote that “Mr. Karen was informed of this serious conflict of interest nine months ago and therefore had ample time to confer with his Former Clients or withdraw; he instead forced loanDepot and this Court to expend significant resources to address this issue, but now asks the Court to wipe the slate clean without reviewing the waivers he supposedly has obtained already.

“Despite the troubling nature of this engagement, loanDepot will consent to the withdrawal of Mr. Karen and Mitchell Sandler PLLC, provided the Court clarifies in its order that they are barred from any further involvement in this case, which Mr. Karen’s proposed order fails to address,” the filing added.

Conflict of interest, confidential information

Because the plaintiffs are accusing loanDepot of steering violations under the Truth in Lending Act (TILA), the court noted that Karen’s current representation could expose his former clients — including Johnson — to civil and criminal liability using confidential information he gained while representing them.

In her decision, Rubin detailed how the current and prior litigation are substantially related, pointing out the inherent ethical dilemma Karen faces.

“Plaintiffs do not address the obvious scenario where Mr. Johnson is deposed by Defendant or called as a witness at trial, which would place Mr. Karen in the untenable position of having to examine his Former Client, Mr. Johnson, to establish that he — as Plaintiffs’ loan officer — steered Plaintiffs ‘towards mortgage loans that contained higher rates and less favorable terms,’ as expressly alleged at paragraph 76(b) of the Amended Complaint,” Rubin wrote.

According to the judge’s memorandum opinion, loanDepot asserted that because Johnson originated the mortgages for all four named plaintiffs, he had access to confidential information concerning the loans — including borrower names, loan numbers and compensation. The lender argued that Karen naturally would have learned this information through his representation of Johnson.

Karen disputed this claim, arguing that the borrowers expressed interest in pursuing the case with his representation independently. He stated that he utilized the borrowers’ own loan closing documents to verify their standing and that they were identified without any access to loanDepot’s confidential information.

Rubin, however, said in her decision that “the court finds that the Johnson Arbitration (and the other arbitration proceedings in which Mr. Karen served as counsel for at least one other former loanDepot loan officer) and the current action are substantially related, and that Mr. Karen had access to, and likely obtained, confidential information through his representations of the Former Clients in the arbitration proceedings, including the Johnson Arbitration, and that such information would advance Plaintiffs’ position here.”