$59M settlement in 'sewer service' debt-collection suit; 190,000 default judgments may be vacated
A $59 million settlement has been reached in a federal class-action lawsuit over debt-collection tactics that included alleged fraudulent affidavits and “sewer service” of complaints that alleged debtors never received.
In addition to a now-defunct New York law firm and a process server, a debt-buying agency that sent collection matters to the law firm for enforcement is also on the hook in the Manhattan case, according to partner Debra Greenberger of Emery Celli Brinckerhoff & Abady. Her law firm represented plaintiffs in the suit, along with MFY Legal Services and the New Economy Project
Under the settlement, which has not yet been approved by the court, Mel S. Harris & Associates would pay a little under $8 million; Samserv Inc. would pay $517,500; and Leucadia National Corp., the parent company of a number of debt-buying agencies, would provide $46 million, plus disgorging more than $4.5 million received in 2015 in related collection matters, according to a plaintiffs’ brief (PDF) seeking preliminary approval of the pact. Leucadia agreed to the settlement last year and the other two defendants did so on Thursday, Greenberger told the ABA Journal.
Involving approximately 75,000 default judgments in which money actually was collected from debtors by Mel S. Harris & Associates and another 117,000 in which collection efforts were unsuccessful, the case is, Greenberger believes, “the largest ever of its kind.”
Additionally, the unprecedented settlement “sends a huge message to other debt buyers and other debt collection firms,” partner Matthew Brinckerhoff told the New York Times (reg. req.).
Under the settlement, the 192,000 judgments will be transferred to an entity of the plaintiffs’ choice that will not pursue collection efforts and they may eventually be vacated, Greenberger tells the ABA Journal.
Another 161,000 debtors on Leucadia’s list, of which 20,000 paid something toward the claimed balance due, are also included in the settlement on the theory that they could have been subjected to default judgments, Greenberger said. However, these 161,000 debtors never made it to the law firm collection process.
As far as the default judgments were concerned, Mel S. Harris & Associates was involved in the collection effort as a joint venture with the Leucadia debt-buying entities, she said.
The amount that plaintiffs will be paid varies depending on how far along in the collection process they were, how much they paid and how many others make reimbursement claims.
At issue in the class action is some $800 million in judgments of which about $113 million was collected, according to the plaintiffs’ brief. Assuming that 30 percent of those affected file claims for reimbursement, which would be a high return rate, those who lost money as a result of default judgments are likely to be made whole, as far as the actual amount collected is concerned.
However, such judgments have “a spiraling effect” above and beyond the actual loss of wrongfully collected funds, founder Sarah Ludwig of New Economy Project told the New York Times, pointing to the adverse affect on credit scores. She said most of the judgments entered were against those living in minority neighborhoods.
The plaintiffs are a group of largely low-income people, Greenberger said, vacating the judgments also could provide “really important relief” by helping them get housing and jobs. That’s because credit scores are often reviewed before housing and jobs are offered.
“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,” plaintiff Rea Veerabadren, whose bank account was subjected to collection efforts following a 2006 default judgment, told the Times. “Maybe one day I will be able to forget, but this was the worst time of my life.”
The Times said that Samserv did not immediately respond to a request for comment and that Leucadia declined to comment.
Related coverage:
ABAJournal.com: “Federal Judge OKs RICO Conspiracy Class Action Against Law Firm in ‘Sewer Service’ Case”
See also:
ABA Journal: “Debt-buying industry and lax court review are burying defendants in defaults”
ABAJournal.com (2009): “New York AG Sues 35 Law Firms, Seeks to Void 100,000 Default Judgments”
