A federal judge has approved a class action involving thousands of potential plaintiffs who were sued in New York City civil courts over their debts and then had default judgments entered against them. The collection industry has closely watched the case, Monique Sykes et al., vs. Mel Harris & Associates, LLC et al., for nearly two years.
The suit claims that consumer debt buyer Leucadia National Corp., a publicly traded holding company, and law firm Mel S. Harris Associates, which specializes in collections, used various methods to prevent defendants from contesting cases, including using a process server that allegedly deliberately did not properly serve collection lawsuit defendants with notices they were being sued.
Improper service of notices allows ex-parte decisions or default judgments against debtors, granting the creditor an ability to seek to freeze consumers' bank accounts or to garnish wages. The tactic of improperly delivering or never serving notices is known as “sewer service".
The case was first made public in December 2010 when U.S. Circuit Judge Denny Chin - also the judge who approved the class action last week - ruled that certain potential Racketeer Influenced and Corrupt Organizations Act (RICO) claims would be allowed to stand because of the collusion between the companies alleged in the case. The suit also cites alleged violations of the Fair Debt Collection Practices Act.
In certifying the class, Chin allows any consumer sued by the defendants in New York City civil courts to join the lawsuit. Brad Scher, an attorney representing Harris Associates, said the judge's decision to certify the class does not point to any merits of the case and has no bearing on liability. It simply allows the case to move forward.
The complaint notes that Leucadia filed more than 100,000 consumer collection lawsuits in New York City civil courts between 2006 and 2009 and that Mel Harris represented the company 99 percent of the time.
Susan Shin, a staff attorney with the Neighborhood Economic Development Advocacy Project, which represented the plaintiffs, said debt buyers often use “sewer service” tactics as an arm of their collection efforts.
Collections & Credit Risk would like to know what you think about this case. Is "sewer service" a common practice or a problem in the industry? How will the racketeering claims, if proven, change the way debt buyers validate debts? Contact Darren Waggoner at
