Thursday, March 12, 2015

Divided Federal Appeals Court Affirms Trial Judge In "Green-Lighting" Class Action For Over 100,000 Plaintiffs In Notorious, Long Standing NYC "Sewer Service" Litigation Involving Zombie Debt Buyer & Its Law Firm & Process Server Confederates

In New York City, Reuters reports:
  • A divided federal appeals court in New York allowed more than 100,000 potential plaintiffs to pursue class action litigation accusing Leucadia National Corp and a law firm of fraudulently cutting corners to win default judgments in debt collection cases.

    Tuesday's 2-1 decision by the 2nd U.S. Circuit Court of Appeals came after the U.S. Consumer Financial Protection Bureau and Federal Trade Commission warned that a contrary ruling could undermine the Fair Debt Collection Practices Act, a 1977 law designed by Congress to police unscrupulous debt collectors.

    The lawsuit focused on "sewer service,"(1) a long-running practice where debt collectors fail to serve complaints on debtors, and later falsely certify to courts that service was made and that the cases have merit.

    Sewer service often ends in default judgments because debtors do not know to appear in court. It can lead to bank account seizures, wage garnishments and ruined credit scores.

    Four New York City residents, led by Monique Sykes of the Bronx, challenged lawsuits filed from 2006 to 2009 in New York City civil courts on behalf of Leucadia, which like rivals buys consumer debt at pennies on the dollar and tries to collect in full.

    Leucadia was represented in more than 99 percent of the collection lawsuits by the Mel S. Harris law firm, a debt collection specialist that the plaintiffs called a "default judgment mill." A process server, Samserv Inc, was also sued.

    In September 2012, Circuit Judge Denny Chin certified class actions arising from the Harris firm's lawsuits.

    Writing for the 2nd Circuit majority, Circuit Judge Rosemary Pooler agreed that the plaintiffs' claims had enough in common to allow a class action.

    Pointing to allegations that one Harris employee supposedly certified the merits of 20 lawsuits per hour, Pooler said it was "undisputed" that he did not review the underlying documents.

    Circuit Judge Dennis Jacobs dissented. He said there were too many individual issues to justify a "unwieldy" class action where "hungry lawyers" might earn a big payday.

    "This is class litigation for the sake of nothing but class litigation," Jacobs wrote.

    Leucadia also owns the Jefferies Group investment banking and securities firm. The company, its lawyer Miguel Estrada, the Harris firm's lawyer Paul Clement, and a Samserv lawyer did not immediately respond to requests for comment.

    The plaintiffs' lawyer Matthew Brinckerhoff welcomed the decision.

    "The problem of unscrupulous debt collectors is nationwide," he said in an interview. "This class action provides a framework to obtain relief for a large number of victims."

    In a brief supporting the debtors, the Consumer Financial Protection Bureau and FTC said the 1977 debt protection law was meant to curb abuses that could cause bankruptcies, marital instability, job losses and privacy invasions.

    They said "the act's purposes would be disserved" by accepting defense arguments that debtors could not recover because any false statements were directed at the civil court, not the debtors themselves.

    The AARP and the National Consumer Law Center also supported the plaintiffs.
Source: US court allows 'sewer service' debt collection class action.

For the appeals court ruling, see Sykesv. Mel S. Harris and Associates LLC, No. 13-2742 (2d Cir. Feb.10, 2015) (go here for plaintiff's appeal brief), affirming the trial judge's ruling in Sykes v. Mel Harris & Assocs., LLC, 285 F.R.D. 279 (S.D.N.Y. 2012).

Go here for the class action complaint (or at least one amended version thereof - filed December 28, 2009).

Go here for earlier posts on this case. and here for earlier posts on sewer service, generally.

For more on the "sewer service" problem in New York City, generally, see:
  • Tuerkheimer, Frank M., Service of Process in New York City: A Proposed End to Unregulated Criminality, 72 Columbia Law Review 847 (1972),

  • MFY Legal Services: Justice Disserved (A Preliminary Analysis of the Exceptionally Low Appearance Rate by Defendants in Lawsuits Filed in the Civil Court of the City of New York) (2008) (documents problem of improper service of process in debt collection lawsuits that have led to default judgments entered against unknowing victims).
(1) "Sewer service" is an epithet for the intentional failure to provide service of process on a named party in a lawsuit, in order to prevent the party from having a chance to respond. The phrase refers to the figure of speech of throwing the documents into a sewer. (Courtesy: Wikipedia).

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