The federal class action brought by four individuals against law firm Mel S. Harris and Associates, debt buyer Leucadia (and several of its LR Credit subsidiaries), process serving company Samserv and various individuals[1], alleging a scheme to fraudulently obtain default judgments in New York state courts is slowly but surely wending its way through the U.S. District Court for the Southern District of New York. The case reached another milestone on September 4, 2012, when Judge Denny Chin granted the plaintiffs' motion for class certification.
In granting the motion, the court set forth in its opinion the facts as established by the record before the court and as asserted by the parties. Plaintiffs alleged that the Leucadia and Mel Harris defendants entered into joint ventures to purchase debt portfolios, then filed debt collection actions against the alleged debtors with the intent to collect millions of dollars through fraudulently-obtained default judgments. They regularly hired Samserv which, plaintiffs alleged, routinely engaged in "sewer service," whereby it would fail to serve the summons and complaint but still submit proof of service to the court.
Once a debtor failed to appear in court because of lack of notice, the Leucadia and Mel Harris defendants would then apply for a default judgment by providing the court with improper documents, including an "affidavit of merit" attesting to personal knowledge regarding the defendant's debt, and an affidavit of service as proof of service. The Leucadia and Mel Harris defendants often could not substantiate the claims made in their affidavits of merit because they typically did not possess documentation of the underlying debt, and because they affiant lacked "personal knowledge"[2] of such claims, contrary to what they stated in the affidavit.
Between 2006 and 2009, various Leucadia entities filed 124,838 cases in New York City Civil Court. In 99.63 percent of those cases, the Mel Harris firm acted as counsel. In the vast majority of cases, the defendant did not appear, and a default judgment was obtained. Between 2007 and 2010 various Leucadia entities obtained default judgments in 49,114 cases in New York City Civil Court.
Between January 2007 and January 2011, Samserv, the process server defendant, made service of process in 94,123 cases filed by Mel Harris in New York City Civil Court, 59,959 of which were filed on behalf of Leucadia. A review of Samserv's records revealed hundreds of instances of the same process server executing service at two or more locations at the same time. Three individual process server defendants[3] claimed to have made service in two or more places at the same time on 517 occasions. There were also many other occasions where multiple services were purportedly made so close in time that it would have been impossible for the process server to travel from one location to the other as claimed. These facts, said the court, together with the high number of default judgments obtained by defendants, provide substantial support for plaintiffs' assertion that defendants regularly engaged in sewer service.
The affidavits of merit submitted by the Mel Harris and Leucadia defendants in New York City Civil Court are what have come to be known in the mortgage industry as "robosigned" affidavits. All were signed by one affiant, Todd Fabacher, who is an individual defendant in this case.[4] Fabacher is "director of information technology" for Mel Harris. In each affidavit, Mr. Fabacher attests that he is "an authorized and designated custodian of records" for the plaintiff. The plaintiff may be any one of many Leucadia debt collection entities which use the name "LR Credit."
Fabacher then states that he "maintains the daily records and accounts for [the collection entity] in the regular course of business, including records maintained by and obtained from [the collection entity's] assignor." Fabacher affirms that he is "thereby fully and personally familiar with, and [has] personal knowledge of, the facts and proceedings relating to the [debt collection action]." Each affidavit then provides information on the underlying debt, including the relevant account number, original creditor, and outstanding balance.
Fabacher testified in deposition that, in preparing the affidavits of merit, he uses databases (including a database called "Debt Master") and software programs to import, sort, and check the completeness of electronic data received by the Leucadia defendants from the various creditors and debt sellers from whom they purchase debt. Typically, Fabacher does not receive original credit agreements between the account holders and the creditors. Instead, he receives a bill of sale for the portfolio of debts purchased that includes "sample" credit agreements and "warranties" made by the seller regarding the debts in the portfolio. In many instances, original agreements do not exist. If they do exist, Fabacher's "standard practice" does not entail reviewing them before endorsing an affidavit of merit. He instead relies on the warranties made by the original creditor and the information contained in the database programs.
Fabacher produces the affidavits of merit for signature in batches of up to 50 at a time. He "quality check[s]" one affidavit in each batch of 50, and if it is accurate, he signs the remaining affidavits in the batch without reviewing them. The quality check consists of ensuring that information printed on the affidavit matches the information stored in the Debt Master database. In any given week, Fabacher signs as many as 350 affidavits of merit, purportedly based on personal knowledge, certifying that the action has merit, without actually having reviewed any credit agreements, promissory notes, or underlying documents, and, indeed, without even reading what he was signing.
[1] The case is captioned Sykes v Mel Harris and Associates, LLC, et al., US Dist Ct SDNY 09-Civ 8486, Chin, J., September 4, 2012, and the opinion is currently available on Westlaw at 2012 WL 3834802 and in the New York Law Journal here.
[2] Generally, the rules of evidence require that a person who makes an affidavit or gives testimony have personal knowledge of the facts about which he testifies; otherwise, his testimony is not admissible. Debt buyers do not have the requisite personal knowledge regarding documents and facts occurring before they purchased the debt.
[3] The three process servers were Michael Mosquera, Benjamin Lamb, and John Andino.
[4] The facts regarding Mr. Fabacher all came from deposition testimony given by Mr. Fabacher in this case.