On 5th September, U.S. Circuit Judge Denny Chin certified a class of thousands of potential plaintiffs who had been sued in New York City civil court over unpaid debts and had default judgments entered against them. Plaintiffs in the lawsuit claimed that Leucadia National Corp, a company that purchases consumer debts, and the law firm of Mel S Harris Associates, which specializes in debt collection, uses methods to prevent defendants from contesting cases.
One of such methods includes “sewer service” or causing notices to be improperly delivered or never served at all. The judge said that the plaintiffs had provided “substantial support” to their claims against the law firm and the consumer-debt company.
However, Brad Scher, an attorney representing Harris Associates, said, “It’s important to note that this decision in no way addresses the merits of the case, and has no bearing on liability, but simply allows the case to move forward as a class.”
Susan Shin, a staff attorney with the Neighborhood Economic Development Advocacy Project, which represented the plaintiffs, said that such “sewer service” tactics are being used by debt buyers for a long time.
Improper service of notices allows ex-parte decisions or default judgments against the debtors, and the creditor can seek to freeze the bank accounts of debtors or seek to garnish the defendant’s wages. Shin said it was an old method used by debt buyers “using the courts as an arm of their collection efforts.”
Carolyn Coffey, another attorney representing the plaintiffs noted that the same abusive tactics are also used in many unfair mortgage foreclosures.
The case would be moving forward as a class action on alleged violations of the Racketeer Influenced and Corrupt Organizations Act, the Fair Debt Collection Practices Act, and the New York General Business Law.
The case is Sykes v. Mel S Harris and Associates, U.S. District Court for the Southern District of New York, No. 09-8486.