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Media Alerts - Monique Sykes, et al. v. Mel S. Harris & Associates, LLC, et al. - Second Circuit
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February 11, 2015
  Monique Sykes, et al. v. Mel S. Harris & Associates, LLC, et al. - Second Circuit
Headline: Second Circuit Affirms Class Certification in Debt Collection "Default Judgment Mill" Action

Area of Law: Civil Procedure, Class Action, Fair Debt Collection Practice Act, RICO

Issue(s) Presented: Whether two classes were properly certified in an action brought by thousands of debtors against corporation affiliates that purchased consumer debt, service process company, and law firm specializing in debt collection litigation, for abusive debt collection practices in violation of federal and state law.

Brief Summary: Plaintiffs are New York City residents who were sued by defendants in debt collection actions in New York City Civil Court between 2006 and 2010. Defendants include affiliates of Leucadia National Corporation, a large purchaser of consumer debt, Mel S. Harris & Associates (Mel Harris), a law firm that initiated debt collection litigation as counsel for Leucadia, and a process service company. Plaintiffs initiated an action in the United States District Court for the Southern District of New York for damages and injunctive relief on behalf of themselves and others, alleging that defendants effectively operated a massive illegal debt collection "default judgment mill" in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), the Fair Debt Collection Practices Act (FDCPA), New York General Business Law (GBL) § 349, and New York Judiciary Law § 487.

The district court certified two classes under FRCP 23, one comprising all those who had or would be sued by Mel Harris as counsel for Leucadia, and one comprising all those sued by Mel Harris as counsel for Leucadia who had a default judgment entered against them. Defendants appealed the class certification orders. In this consolidated appeal, a divided Second Circuit affirm, holding the district court did not abuse its discretion in certifying the two classes.

The full text of the opinion may be found at:
http://www.ca2.uscourts.gov/de...9b275/1/hilite/


Extended Summary: Plaintiffs are New York City residents who were sued by defendants in debt collection actions in New York City Civil Court between 2006 and 2010. Defendants include subsidiaries of Leucadia National Corporation, a large purchaser of consumer debt, Mel S. Harris & Associates (Mel Harris), a law firm that initiated debt collection litigation as counsel for Leucadia, and Samserv, Inc., a process service company. Plaintiffs sued on behalf of themselves and others in the United States District Court for the Southern District of New York alleging that defendants effectively operated an illegal debt collection "default judgment mill" in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), the Fair Debt Collection Practices Act (FDCPA), New York General Business Law (GBL) § 349, and New York Judiciary Law § 487.

According to plaintiffs, the defendants engaged in a scheme to purchase large amounts of consumer debt in order to initiate debt collection actions and collected millions of dollars by generating fraudulent defaults judgments. Plaintiffs alleged more specifically that, after purchasing large amounts of computer debt, defendants electronically generated thousands of complaints and summonses to initiate collection proceedings, engaged a process server for "sewer service" whereby plaintiffs were not actually served, but proof of service was filed with the court, and, ultimately, electronically generated motions for default judgment when plaintiffs failed to appeal. The evidence presented indicated that from 2006 to 2010, "'Leucadia entities filed 124,838 cases' and Mel Harris represented Leucadia in 99.63 percent of those cases." Plaintiffs sought damages and injunctive relief.

After the lower court denied defendants' motion to dismiss, plaintiffs moved for class certification under Federal Rule of Civil Procedure (FRCP) 23(a) and the district court ultimately certified two classes. One class, certified under FRCP 23(b)(2) comprises all those who have been or will be sued by Mel Harris as counsel for Leucadia in violation of RICO and state law and sought injunctive relief directing defendants to, in essence conform their debt collection practices to governing law and notify plaintiffs of their right to re-open cases in which a default had been entered against them. The second class, certified under FRCP 23(b)(3) comprises all those sued by Mel Harris as counsel for Leucadia who have had a default judgment entered against them and seeks damages under RICO, the FDCPA and New York state law.
Defendants appealed, arguing that the district court abused its discretion in certifying the two classes.

The Second Circuit majority disagrees with defendants, finding the district court did not abuse its discretion in certifying one class under 23(b)(2) and the second under 23(b)(3). The majority concludes that, as to the first class certified under 23(b)(s), plaintiffs' evidence satisfied the "commonality" requirement of FRCP 23(a) and that individual issues predominate over issues shared by the class, and met the requirement under 23(b)(2) that the injunctive relief would provide relief to each class.

The majority also finds that the district court did not abuse its discretion in finding that plaintiffs' satisfied the requirements for the second class certification under Rule 23(b)(3). The majority rejects the defendants' argument that individual issues related to damages, timeliness and service predominated over issues shared by the class, making certification inappropriate under Rule 23(a). The court concludes instead that the common issue of whether defendants' actions violated RICO, FDCPA and state law predominated. Referring to the 2013 United States Supreme Court decision in Comcast Corp. v. Behrend, relied on by defendants, the majority holds that Comcast "did not rewrite the standards governing individualized damage considerations: it is still clear that individualized monetary claims belong in Rule 23(b)(3)" where, as here, the damages stem from the same common liability.
The majority further finds no abuse of discretion in the district court's finding that the evidence supported a conclusion that a class action is "superior to other available methods for fairly and efficiently adjudicating" the issues. The Second Circuit explains that, few plaintiffs would have the incentive to proceed in state court, where they would have to bring their claims individually, because the amounts at stake for individual plaintiffs is relatively small, and many of them have limited means to pursue individual claims.

Judge Jacobs filed a dissent in which he maintains that "[t]his is class litigation for the sake of nothing but class litigation." He writes that the majority's superiority ruling is error because there is a statutory remedy available in state court, en masse vacatur, which is more efficient and speedy than a federal class action. He further argues that in finding common issues predominate over individual ones, the district court erred by failing to rigorously weighing the common and distinct issues. The dissent also agrees with defendants that the injunctive relief class was certified in error because, the named plaintiffs have already had their default judgments vacated.

The full text of the opinion may be found at:
http://www.ca2.uscourts.gov/de...dec05/1/hilite/


Panel: Circuit Judges Jacobs, Calabresi, and Pooler

Argument Date: 02/07/2014

Date of Issued Opinion: 02/10/2015

Docket Number: 132742cv

Decided: Affirmed

Case Alert Author: Joan O'Connor Archer

Counsel: PAUL D. CLEMENT, Bancroft PLLC, Washington, DC (Candice Chiu, Bancroft PLLC, Washington, DC; James R. Asperger and Maria Ginzburg, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY; Marc A. Becker, London, UK; Brett A. Scher, Kaufman Dolowich & Voluck LLP, Woodbury, NY, on the brief), for Defendants¿Appellants Mel S. Harris LLC, Mel S. Harris, Michael Young, David Waldman, Kerry Lutz, and Todd Fabacher.

MIGUEL A. ESTRADA, Gibson, Dunn & Crutcher LLP, Washington, DC (Scott P. Martin, Gibson, Dunn & Crutcher LLP, Washington, DC; Michael Zimmerman, Zimmerman Jones Booher LLC, Salt Lake City, UT; Lewis H. Goldfarb and Adam R. Schwartz, McElroy, Deutsch, Mulvaney & Carpetner LLP, Morristown, NJ; Mark D. Harris, Proskauer Rose LLP, New York, NY, on the brief), for Defendants¿Appellants Leucadia National Corporation, L¿Credit, LLC, LR Credit, LLC, LR Credit 10, LLC, LR Credit 14, LLC, LR Credit 18, LLC, LR Credit 21, LLC, Joseph A. Orlando, and Philip M. Cannella.

JACK BABCHIK, Babchik & Young LLP, White Plains, NY, for Defendants¿Appellants Samserv, Inc., William Mlotok, Benjamin Lamb, Michael Mosquera, and John Andino.

MATTHEW D. BRINCKERHOFF, Emery Celli Brinckerhoff & Abady LLP, New York, NY (Jonathan S. Abady, Debra L. Greenberger and Vasudha Talla, Emery Celli Brinckerhoff & Abady LLP, New York, NY; Josh Zinner, Susan Shin and Claudia Wilner, New Economy Project, New York, NY; Carolyn E. Coffey and Ariana Lindermayer, of counsel to Jeanette Zelhoff, MFY Legal Services, New York, NY; Charles J. Ogletree, Jr., Harvard Law School, Boston, MA, on the brief), for Plaintiffs¿Appellees.

JEAN CONSTANTINE¿DAVIS, AARP Foundation Litigation, Washington, DC, on behalf of Amici Curiae AARP, National Association of Consumer Advocates, and National Consumer Law Center, in support of Plaintiffs¿Appellees. DANIELLE F. TARANTOLO, New York Legal Assistance Group, New York, NY, on behalf of Amicus Curiae Consumer Advocates, in support of Plaintiffs¿Appellees. SARANG VIJAY DAMLE, Senior Counsel, Consumer Financial Protection Bureau, Washington, DC (Meredith Fuchs, General Counsel, To Queen Truong, Deputy General Counsel, David M. Gossett, Assistant General Counsel, Jessica Rank Divine, Attorney, Consumer Financial Protection Bureau, Washington, DC; Jonathan E. Nuechterlein, General Counsel, John F. Daly, Deputy General Counsel for Litigation, Theodore (Jack) Metzler, Attorney, Federal Trade Commission, Washington, DC, on the brief), on behalf of Amici Curiae The Consumer Financial Protection Bureau and Federal Trade Commission, in support of Plaintiffs¿Appellees.

Author of Opinion: Judge Pooler for majority; Judge Jacobs dissenting

Circuit: 2nd Circuit

Case Alert Circuit Supervisor: Elyse Diamond Moskowitz

    Posted By: Elyse Diamond @ 02/11/2015 08:35 AM     2nd Circuit  

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