Circuit Court Upholds "Sewer Service" Debt Collection Class Action

The Second Circuit Court of Appeals Tuesday in a split decision ruled that a district court was within its rights to grant class action status to a lawsuit claiming FDCPA and RICO Act violations for improper service of process in debt collection legal actions.

The case, Monique Sykes et al., vs. Mel Harris & Associates, LLC et al., alleges that collection law firm Mel Harris, acting on behalf of debt buyer Leucadia National Corp., employed a process server that allegedly deliberately did not properly serve collection lawsuit defendants with notices they were being sued. As a result, the suit alleges that when the debtors didn’t appear in court, Leucadia and Mel Harris obtained default judgments against them, which allowed them to freeze debtors’ bank accounts and threaten to garnish wages or property to obtain settlements.

According to the case, the defendants then swore in affidavits that process had been properly served and that the affiant had personal knowledge of the relevant facts.

The long-running case has been very closely watched by the ARM legal community as well as consumer advocates. In January 2011, insideARM.com explained the ramifications in an in-depth article and then followed up when the case was granted class action status.

The district judge actually certified two class in the case: for people who have been or will be sued by Mel Harris as counsel for Leucadia and are pursuing claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and New York law; and for all people who have been sued by Harris on behalf of Leucadia in New York City Civil Court and where a default judgment has been obtained and are seeking claims under RICO, New York law, and the FDCPA.

The defendants argued on appeal that the classes did not represent common enough plaintiffs to allow for a single class action.

The majority disagreed, noting allegations that one Harris employee supposedly certified the merits of 20 lawsuits per hour. This proved that it was “undisputed” that he did not review the underlying documents, leading to violations.

In the dissent, Circuit Judge Dennis Jacobs argued that a class action was unnecessary, as New York law provided a path for judges to vacate default judgments, even en masse. “The only remaining salient advantage of this federal class action is attorneys’ fees, which do not much help the members of the class,” he wrote. “This is class litigation for the sake of nothing but class litigation.”