MANHATTAN (CN) - A debt collection agency and the lawyers they work with obtained millions of dollars in default judgments against more than 100,000 New York City residents through "sewer service," according to a federal class action. The class claims they were never served with summons or complaint, and the collections agencies filed false affidavits of service.
Leucadia National and its shell companies L-Credit and LR Credit, have filed 104,300 consumer credit actions since 2006 in New York City civil court, according to the complaint. The class claims the Mel S. Harris & Associates law firm represented Leucadia 99 percent of the time, and Leucadia regularly hired the Samserv process-serving agency. All are named as defendants.
More than 90 percent of the people whom Leucadia and Mel Harris sue do not appear in court to defend themselves because "sewer service" deprives them of their right to due process, according to the complaint.
In 2008, the New York attorney general found that one process server who worked for American Legal Process made 69 service attempts in a single day in two counties that were 400 miles apart, according to the complaint. The worker allegedly served one person in Brooklyn at 8:19 a.m. and another in Western New York 1 minute later.
After obtaining default judgments, which affect credit ratings, the defendants can garnish wages, restrain bank accounts, seize personal property and demand unaffordable payment plans, the class claims.
Leucadia obtained default judgments against the four lead plaintiffs, Monique Sykes, Ruby Colon, Rea Veerabadren and Fatima Graham, who live in the Bronx, Brooklyn, Queens and Manhattan.
The class claims that in the fraudulent affidavits of service, the defendants claim to have spoken with people such as "Mr. Hector" and "Ms. Rolanda," who allegedly were at the plaintiffs' homes.
The plaintiffs say they do not know any such people and they never received a copy of the summons and complaint, which the defendants claim to have mailed. They say the defendants have no proof that the people they sue owe the alleged debts.
New York City is an epicenter for debt collection lawsuits, with nearly 300,000 filed each year since 2006, according to the complaint.
The class claims that debt buyers such as Leucadia buy defaulted debts for pennies on the dollar and try to collect the full face value of the debts for themselves.
"Most debt buyers have significant difficulty substantiating their claims" because the portfolios of accounts that they buy may have no documentation of the alleged debt, according to the complaint.
There is even a market for debts that are past the statute of limitations or that have been discharged in bankruptcy, the class claims.
"Debt buyers are actually unable to obtain admissible evidence of the debt in the vast majority of cases that they file," according to the complaint.
The class claims that "unscrupulous" collections agencies often resort to" sewer service" because it is the only way to get paid.
Process servers are paid the same wages as they were 23 years ago even though the cost of living has risen dramatically, according to the complaint.
The class says that 39 percent of all service in 1980s New York City was sewer service, and that if the individual process servers worked ethically they would make less than minimum wage.
New York City Civil Court allegedly vacated thousands of default judgments in the late 1960s and early 1970s because it was inundated with tainted consumer claims.
The defendants pay their workers only for completed services, so if a process server shows up to the last known address of a debtor who has moved or is dead, they must perjure themselves to receive payment, according to the complaint.
The class says Leucadia files tens of thousands of lawsuits a year though it employs only a handful of process servers.
The class seeks injunctive relief and disgorgement, alleging violations of the Fair Debt Collection Practices Act, RICO and mail fraud. It is represented by the Neighborhood Economic Development Advocacy Project, MFY Legal Services and Matthew Brinckerhoff with Emery Celli Brinckerhoff & Abady.
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