More than 100,000 potential plaintiffs can pursue class-action litigation accusing Leucadia National Corp. and a law firm of illegally winning default judgments in debt collection cases, a federal appeals court in New York ruled Tuesday.

The Consumer Financial Protection Bureau and Federal Trade Commission had warned that a contrary ruling possibly would undermine the Fair Debt Collection Practices Act. The 2nd Circuit Court of Appeals ruled 2-1 in the case.

Four New York City residents, led by Monique Sykes, had challenged lawsuits filed from 2006 to 2009 in New York City civil courts on behalf of Leucadia, which buys consumer debt at cents on the dollar then tries to collect.

Leucadia was represented in more than 99% of the collection lawsuits by the Mel S. Harris law firm, a debt collection specialist that the plaintiffs called a "default judgment mill." Samserv Inc., a process server, also was sued.

"Sewer service" - a practice involving debt collectors failing to serve complaints on debtors - became the focus of the lawsuit. These cases commonly involve collectors falsely claiming to courts that service took place and that the cases are warranted.

Sewer service often results in default judgments because debtors do not know they need to appear in court. It can lead to bank account seizures, wage garnishments and damaged credit scores.

Judge Rosemary Pooler, on behalf of the 2nd Circuit majority, wrote that the plaintiffs' claims had enough in common to allow a class action. She pointed to allegations that one Harris employee apparently certified the merits of 20 lawsuits per hour, thus making it clear that he did not review the underlying documents.
Circuit Judge Dennis Jacobs dissented, believing there were too many individual issues to justify a class action.

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