Judge Accepts $59 Million Settlement in Sykes vs. Mel S. Harris and Associates, Pending Fairness Hearing

Court documents were filed yesterday, preliminarily approving the class action settlements in Monique Sykes, et al., vs. Mel S. Harris and Associates, LLC, et al. A Fairness Hearing has been scheduled for May 11, 2016, in the U.S. District Court for the Southern District of New York.

The case is a class-action lawsuit originally certified in September 2012 by consumers against a group of affiliated debt-buying companies, their outside law firm, and a process serving agency, under the Fair Debt Collection Practices Act (FDCPA) and other federal and state statutes.

The Plaintiffs allege that the debt collector obtained over 120,000 default judgments against New York consumers by using affidavits that falsely claim the consumers had been properly served when they had not. The plaintiffs claim that the judgments are the result of defendants’ construction of a “default judgment mill.” The “mill” operates by first obtaining charged-off consumer debt; then, by initiating a debt-collection action by serving a summons and complaint on the purported debtor; and finally, by submitting fraudulent documents to the New York City Civil Court in order to obtain a default judgment. -

The Defendants have argued that this alleged conduct is not actionable under the FDCPA because the allegedly false communications were directed to the court and not the consumer.

The case was appealed to the Second Circuit, with Defendants claiming the court was not within its rights to grant class action status to the lawsuit.

The Bureau, joined by the Federal Trade Commission, filed a brief in November, 2013, arguing that the overall scheme is better understood as, in fact, being directed at the consumer, but that in any event, the relevant provisions of the FDCPA, 15 U.S.C. 1692e and 1692f, do not require that false communications or other misconduct be directed at the consumer.

In February 2015, the Second Circuit ruled in a split decision that the district court was within its rights to grant class action status to the case.

Late last week a settlement was filed in the case, awarding $59 million to tens of thousands of New Yorkers who had their bank accounts frozen and wages garnished in connection with the alleged scheme.

The law firm in question, Mel S. Harris & Associates, has recently gone out of business. The settlement names several debt buyers with names related to “L-Credit,” which are subsidiaries of Leucadia National, a publicly traded holding company.

The process-server named in the lawsuit, Samserv Inc., 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.

Any Class Member who wishes to object to the fairness, reasonableness, or adequacy of the proposed Settlements, including the Allocation Plan and/or Class Counsel’s Attorney’s Fees and Expenses Application, may do so by filing an objection as noted in the filing.