In a 2007 court ruling, New York City Civil Court Judge Philip S. Straniere expresses a concern with the growing number of creditors appearing before him seeking judgments against consumers who have allegedly defaulted on credit card debt, and who have failed to make an appearance during the proceedings.
In denying judgment to a creditor in one case, Judge Straniere provides a thorough examination of the procedure that should be applied by judges in New York (and possibly outside New York as well) when scrutinizing creditors in the determination of whether or not to grant judgments on account of the allegedly delinquent debts. His examination may be useful to those consumers (and the attorneys who represent them) being sued by creditors (especially those who are less-than-affectionately referred to as "zombie debt buyers
") in attempts to thwart their efforts.(1)
Straniere begins his ruling by providing the following background [all bold text
is my emphasis, not in the original; text broken up and enumerated for ease of reading; all citations omitted]:
- Over the past several years this Court has received a plethora of confirmation of arbitration award petitions. These special proceedings commenced by a variety of creditors or their assignees seek judgments validating previously issued arbitration awards against parties who allegedly defaulted on credit card debt payments. In most of these cases the respondents have failed to answer.
- It is almost never apparent, from the filings, (1) what type of process was effectuated on the debtor to notify them of the arbitration proceedings, (2) whether the debtor participated at all in the underlying arbitration, (3) what evidence, if any, the arbitrator considered, (4) what claims the arbitrator ruled upon, and (5) what figures the arbitrator used in calculating each award.
- While the modern day creditor seeks no pound of flesh as did Shakespeare's Shylock in the "Merchant of Venice," the judiciary continues to provide an important role in safeguarding consumer rights and in overseeing the fairness of the debt collection process. As such, this Court does not consider its function to merely rubber stamp confirmation of arbitration petitions.
- A trial court does not have a "mandatory, ministerial duty to grant motion[s] for default judgment on every properly verified complaint on which there has been default; [the] court retains [the] discretionary obligation to determine whether [the] applicant has met th[eir] burden of stating [a] prima facie cause of action," and the same is true for arbitration confirmations pursuant to CPLR Article 75.
- Specifically, "an arbitration award may be confirmed upon nonappearance of the respondent only when the petitioner makes a prima facie showing with admissible evidence that the award is entitled to confirmation." If petitioner fails to establish a prima facie case the confirmation petition must be denied.
- Despite the absence of objections by most of the defaulting respondents, in the interest of justice, this Court chooses to analyze the prima facie showing of each of the petitioners' applications. As a result of such undertaking, the Court often discovers fatal procedural and substantive defects inherent within the petitions.
- The Court is aware of how the market for the sale of debt currently works, where large sums of defaulted debt are purchased, by a small number of firms, for between .04 and .06 cents on the dollar. The incentive therefore, for the firm purchasing the debt, is to herd these cases into arbitration and churn out papers seeking their confirmation as quickly as possible. The entire industry is a game of odds, and in the end as long as enough awards are confirmed to make up for the initial sale and costs of operation the purchase is deemed a successful business venture.
- However, during this process mistakes are made, mistakes that may seriously impact consumers and their credit. The petition at bar is a specimen replete with such defects and the Court takes this opportunity to analyze the filing in detail, in hopes to persuade creditors, not simply to take more care in dotting their "i"s and crossing their "t"s in their filings, but to assure a minimum level of due process to the respondents.
- Why is this debt sold for such a cheap price? Certainly part of the reason is the poor prospects of payment these creditors expect from the defaulting individuals given their past delinquent payment history, while another part is undoubtably to avoid additional costs associated with debt collection. Further yet, is the simple fact that the proof required to obtain a judgment in the creditor's favor is lacking, usually as a result of poor record keeping on the part of the creditor.
- This decision reviews applicable New York cases on confirmation of arbitration awards, and provides additional principles to guide the process. In doing so, it is expected that judicial economy will be served, and more importantly, that the rights, particularly due process, of all parties will be adequately addressed and protected.(2)
For the specific facts of this case, Judge Starniere's examination of the applicable Federal and state law, and his application of the law to the facts in this case, see MBNA Am. Bank, N.A. v Nelson, 2007 NY Slip Op 51200(U), 15 Misc 3d 1148(A) (Civ. Ct. City of New York, Richmond Cty. 2007).
Go here for other posts on zombie debt.
(1) Keep in mind that once a creditor obtains a judgment against a consumer, the recording of the judgment will usually operate to create a lien against any real estate owned by the alleged debtor, and which could result in a forced sale of the property (subject to applicable homestead exemptions under state and Federal bankruptcy law). See Ohio Woman Concerned Over Claim Of Lien On Home For "Zombie" Debt That's Not Hers. For those without real estate, the judgment creditor can still go after wages, bank accounts, and other assets (again, subject to any applicable exemptions under state or Federal bankruptcy law).
(2) Attempts at tightening up the law in this area are being made. See NYC Lawmakers Move To Toughen Regs On Debt Scavengers Buying Up, Filing Lawsuits To Collect "Zombie Debt"
For a post regarding the use of "sewer service" in connection with the filing of lawsuits by zombie debt buyers, see 35 Law Firms Named In Suit Seeking To Void 100,000+ Money Judgments; 20+ Add'l Firms Currently In NY AG's Crosshairs In Ongoing "Sewer Service" Probe.
See also, Justice Disserved, a 2008 report by MFY Legal Services (a nonprofit provider of free legal services in New York) that documents statistics of victims of improper service who had judgments unknowingly entered against them, often to devastating effect.