Judge Gives Go-Ahead To Civil Suit Alleging RICO Claims, Massive Sewer Service & Robosigner Racket Against Zombie Debt Buyer/Law Firm/Process Server

In Brooklyn, New York, AOL Daily Finance columnist Abigail Field reports:

• Federal Circuit Court Judge Denny Chin just issued an opinion in a consumer class action case that should send chills down the spines of debt collectors, perhaps including foreclosure-mill law firms and their process servers, nationwide.(1)

• Judge Chin decided that plaintiffs alleged enough information about the debt collectors in this case -- a law firm, a process-serving company and a debt-buying company -- to sue them for being a criminal enterprise under the Racketeer Influenced Corrupt Organization (RICO) law. Judge Chin also allowed claims under the Fair Debt Collection Practices Act.

• Why should other companies in and related to the debt-collection business be so nervous?

For more, see A Lawsuit That Dirty Debt Collectors Should Be Worried About.

(1) For the court ruling, see Opinion - Sykes v. Mel Harris and Associates LLC (denying in part and granting in part defendants motion to dismiss) (the following excerpt appears at pages 5-7 of Judge Chin's ruling; for purposes of ruling on the defendants' motion to dismiss, the following allegations in the lawsuit are assumed to be true; bold text is my emphasis, not in the original text):

• Plaintiffs allege that the Leucadia and Mel Harris defendants entered into joint ventures to purchase debt portfolios, pursued debt collection litigation en masse against the alleged debtors, and sought to collect millions of dollars in fraudulently obtained default judgments. In 2006, 2007, and 2008, they filed a total of 104,341 debt collection actions in New York City Civil Court. Assuming 260 business days a year, they filed an average of 133 debt collection actions per day.

• The Leucadia and Mel Harris defendants regularly hired Samserv to serve process. They paid Samserv only for service attempts that were reported as completed and paid nothing for service attempts that were not reported as completed. More than 90% of the individuals they sued did not appear in court; most defaulted because they were not actually served.

• Sewer service was integral to this scheme. After a consumer failed to appear in court, the Leucadia and Mel Harris defendants applied for a default judgment by providing the court with proof of service; proof of additional mailed notice to the consumer; an affidavit attesting to whether the consumer was in the military; and an "affidavit of merit" attesting to their personal knowledge of facts substantiating their legal claims to the court.

• Leucadia had limited proof to substantiate its claims because it typically did not purchase documentation of the consumers' indebtedness to the original creditors. Nonetheless, the Mel Harris defendants' "designated custodian of records," Todd Fabacher, signed the vast majority of the approximately 40,000 affidavits of merit they filed each year. Fabacher averred to having personal knowledge of the key facts establishing that the debt in each collection action was due and owing. Assuming 260 business days a year, Fabacher had to have personally (and purportedly knowledgeably) issued an average of twenty affidavits of merit per hour, i.e., one every three minutes, over a continuous eight-hour day.

• After obtaining the default judgments, the Leucadia and Mel Harris defendants proceeded to restrain plaintiffs' bank accounts, threatened to garnish their wages or seize their property, caused them to incur litigation costs, and impaired their credit, making it difficult for plaintiffs to obtain housing, employment, and loans.

For the first amended complaint filed in this lawsuit, see Complaint - Sykes v. Mel S. Harris and Associates LLC.