"Sewer Service" Victims Score $59 Million Settlement In Class Action Suit Accusing Sleazy Law Firm, Process Servers & Zombie Debt Buyers Of Obtaining Default Judgments Against Consumers Without Properly Serving Them w/ Court Papers

In New York City, The New York Times reports:

• Tens of thousands of New Yorkers who had their wages garnished or bank accounts frozen in a surreptitious debt-collection scheme will receive $59 million in a class-action settlement that also bars a major network of collectors from continuing the practice.
  
  The settlement, which was filed [...] in Federal District Court in Manhattan, deals a significant blow to an industry that in recent years fed off a recessionary rise in consumer debt actions as companies bought up charged-off debt at low rates and then sought to recover the full debt for themselves.
  
  It also gives hope to a larger group of mainly low-income, minority New Yorkers who are under a cloud of about $800 million in default judgments that the collectors won using fraudulent documents in court, according to legal filings. The plaintiffs will probably have those judgments vacated, and a major network of firms will be forced to stop buying and collecting debt, according to the settlement terms.
  
  “I’m happy that it’s finished — that these companies pay for what they did, and they will not be able to do that again,” said Rea Veerabadren, 63, a plaintiff who had her bank account restrained after a default judgment in 2006. “Maybe one day I will be able to forget, but this was the worst time of my life.”
  
  A class-action lawsuit filed in 2009 accused debt collectors of using a practice known as “sewer service.” That meant debt collectors failed to serve a notice of complaint but filed a false affidavit claiming that the notice had been properly served and that they had evidence of the money owed. People with the alleged debt, unaware of the complaint, did not show up in court, setting off a legal proceeding under which the collector almost always won a default judgment against them.
  
  In Ms. Veerabadren’s case, the lawsuit says a process server swore in an affidavit to leaving papers with a man at her Queens home whom she had never heard of. Ms. Veerabadren, a nanny from Mauritius, said she panicked and did not know where to turn when the bank froze her account and charged her a $125 legal processing fee.
  
  Consumer advocates say victims often first learn they are being targeted when property is seized. A default judgment on its own can follow someone for decades, making it difficult for that person to rent an apartment, open a bank account or get a job.
  
  “There’s wealth being systematically extracted, which will be restored through this settlement,” said Sarah Ludwig, the founder and a co-director of the advocacy group the New Economy Project, which filed the lawsuit along with MFY Legal Services and the law firm of Emery Celli Brinckerhoff & Abady.
  
  Ms. Ludwig said a vast majority of the judgments were entered against people living in minority neighborhoods. “They end up on people’s credit reports,” she said. “This has a spiraling effect.”
  
  The settlement, which advocates say is unprecedented in its scale, curtails the activity of companies along the whole debt-collection chain, including the debt-buying companies, the law firm hired to collect the debt and the process-serving firm that is supposed to notify debtors.
  
  The law firm that had collected the debt, Mel S. Harris & Associates, went out of business in September.
  
  The process-serving company named in the lawsuit, Samserv Inc., of Brooklyn, agreed to stop serving process in consumer debt-collection cases and to start paying process servers as much money for unsuccessful attempts as for successful ones, according to the settlement. Advocates say unbalanced rates put pressure on servers to lie about whether they had actually served notice, and state inquiries have suggested that servers sometimes claim to be in several places at once.
  
  Advocates said the monetary scale of the settlement would probably reverberate across the industry. Debt collectors have already become more constrained by state reforms enacted after the suit was filed that require them to provide more evidence in cases, said Carolyn Coffey, the supervising attorney at MFY.
  
  Matthew D. Brinckerhoff, of the law firm, said, “This sends a huge message to other debt buyers and other debt collection firms.”
  
  Mr. Brinckerhoff said the firm’s projections showed that people who participated in the settlement would get all of their money back, and maybe more. About 75,000 people are expected to receive monetary compensation under the settlement, which also sets in motion the vacating of about 115,000 additional default judgments.
  
  The settlement names several debt-buyer firms with variations on the name L-Credit, which are subsidiaries of Leucadia National, a publicly traded holding company. A Leucadia spokeswoman said the company had no comment on the settlement.
  
  Representatives for Samserv could not be reached for comment on Friday. A person who answered the phone at the law firm Stephen Einstein & Associates, which is now processing the accounts, declined to comment.

Source: Victims of Debt Collection Scheme in New York Win $59 Million in Settlement.

For more on "sewer service" practices in New York City, see 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.