FILED: NEW YORK COUNTY CLERK 06/07/ :35 PM INDEX NO /2016 NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 06/07/2017. Exhibit A

Transcription

1 Exhibit A

2 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X FERN A. FISHER, DEPUTY CHIEF ADMINISTRATIVE JUDGE FOR NEW YORK CITY COURTS AND ADMINISTRATIVE AUTHORITY OF THE CIVIL COURT OF THE CITY OF NEW YORK, by ERIC T. SCHNEIDERMAN, Attorney General of the State of New York, Petitioner, v. Index No.: /2016 PROPOSED COMPLAINT IN INTERVENTION LEUCADIA NATIONAL CORP., L-CREDIT, LLC, LR CREDIT, LLC, and LR CREDIT 1-23, LLC, Respondents, and THE ROLLING JUBILEE FUND, Solely as Assignee X MIGUEL MOYA and CHRISTOPHER GUIDA, on behalf of themselves and all others similarly situated, Plaintiffs-Intervenors v. LEUCADIA NATIONAL CORP., L-CREDIT, LLC, LR CREDIT, LLC, and LR CREDIT 1-23, LLC, and THE ROLLING JUBILEE FUND, Solely as named Respondents in original action X follows: Plaintiffs-Intervenors Miguel Moya and Christopher Guida, by their attorneys, allege as NATURE OF THE ACTION 1. Miguel Moya and Christopher Guida, represented by the same attorneys appointed as Class Counsel in the concomitant federal Sykes v. Mel Harris proceeding, bring this Complaint to ensure the vacatur of default judgments that the LR Credit respondents

3 (collectively LR Credit ) obtained and later allegedly sold ( the Sold Judgments ). The Attorney General brought this CPLR 5015(c) proceeding on behalf of Deputy Chief Administrative Judge Fern Fisher to vacate all judgments obtained by LR Credit, including the Sold Judgments. After this Court ordered the vacatur of all approximately 200,000 judgments obtained by LR Credit, including the Sold Judgments, the Attorney General asked this Court to reinstate approximately 15,000 judgments that LR Credit allegedly sold to a third-party, Virgo Capital, LLC ( Virgo ). Mr. Moya and Mr. Guida have LR Credit judgments entered against them that are now purportedly owned by Virgo and seek to ensure the Sold Judgments remain vacated. 2. Those consumers whose LR Credit judgments were sold are positioned no differently than the other 185,000 consumers with LR Credit judgments. Specifically, LR Credit obtained the Sold Judgments and the judgments it did not sell using the same uniform practices: filing false affidavits of merit, and, often, false affidavits of service. As a result, all consumers with LR Credit judgments are uniformly entitled to interpose a defense predicated upon but not limited to the foregoing defenses [fraud, misrepresentation, illegality, unconscionability, lack of due service, violations of law, or other illegalities]. CPLR 5015(c). 3. Consumers with Sold Judgments are equally as entitled to vacatur as consumers whose judgments were not sold. PARTIES 4. Plaintiff-Intervenor Miguel Moya is a resident of the Bronx, New York. 5. Plaintiff-Intervenor Christopher Guida is a resident of Williamsville, New York. 6. The LR Credit Respondents are a group of corporations incorporated either in Delaware or New York, including Leucadia National Corp., LR Credit, LLC, L-Credit, LLC, and 2

4 related entities LR Credit 1-23, LLC. Mr. Moya and Mr. Guida bring no claims against the LR Credit respondents and name them only in their capacity as Respondents in this proceeding as brought by Judge Fisher. 7. Respondent the Rolling Jubilee Fund ( Rolling Jubilee ) is an unrelated non- -profit Delaware corporation, the mission of which is to provide charitable relief to consumers by lawfully acquiring their unpaid legal obligations and subsequently extinguishing those obligations. LR Credit has assigned all consumer debt which it purchased, and any default judgments associated therewith, to Rolling Jubilee. Rolling Jubilee has agreed to serve as assignee of these assets in order to facilitate this action, as well as to halt all related collection activities and extinguish, where possible, the debt. Judge Fisher named Rolling Jubilee solely as assignee, recognizing that it had no involvement in the debt-collection activities which give rise to this proceeding. Mr. Moya and Mr. Guida bring no claims against Rolling Jubilee and name it only in its capacity as Respondent in this proceeding as brought by Judge Fisher. FACTS I. MOYA S LR CREDIT JUDGMENT AND VIRGO S ENFORCEMENT PROCEEDINGS 8. LR Credit brought an action against Mr. Moya, LR Credit 14 v. Moya, 74377/07 (Bronx Civ. Ct). 9. Mr. Moya was never served and received no notice of the lawsuit. Moya Aff. 3. Process server and Sykes defendant John Andino filed an Affidavit of Service falsely stating that he had served Mr. Moya by affixing the summons and complaint to his door and mailing the court papers to him. Id. Ex. 1. However, Mr. Moya never received process affixed to his door or in the mail. Id. 4. As the federal court in Sykes found, Mr. Andino and two other process servers who worked for the same company claimed to have performed service in two or more 3

5 places at the same time on 517 occasions. Sykes v. Mel Harris & Assocs., LLC, 285 F.R.D. 279, 284 (S.D.N.Y. 2012), aff'd, 780 F.3d 70 (2d Cir. 2015). For example, Andino claimed to have performed service at nine different locations at 4 p.m. on March 29, Id. 10. After Mr. Moya failed to appear, LR Credit moved for a default judgment and in support of that application, filed an affidavit of merit, signed by Todd Fabacher, who claimed personal knowledge that Mr. Moya owed a debt to Aspire Card. Moya Aff. Ex. 2. However, as the federal court in Sykes found, Fabacher sign[ed] hundreds of affidavits a week, purportedly based on personal knowledge, purporting to certify 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. Sykes, 285 F.R.D. at On January 30, 2008, based upon the false affidavits of service and merit, LR Credit obtained a default judgment against Mr. Moya for $4, Moya Aff. Ex According to LR Credit s records that were provided to Class Counsel in the Sykes action, LR Credit lists Mr. Moya s judgment as sold on January 4, 2012 to Virgo. Greenberger Aff According to the affidavit of Virgo s counsel, Virgo sought and obtained an income execution against Mr. Moya in 2013, pursuant to which it eventually managed to collect $45.46 in October Id. Ex. 4 & Ex On or about April 5, 2017, New York City Marshal Ronald Moses issued a second income execution against Mr. Moya. Mr. Moya learned of this income execution from his employer. Id. Ex. 5 8 & Ex On May 2, 2017, this Court vacated all judgments obtained by LR Credit, including the Sold Judgments. Dkt

6 16. On May 10, 2017, not knowing that his judgment had already been vacated, Mr. Moya moved to vacate the LR Credit judgment and income execution in Bronx Civil Court. Moya Aff. Ex. 7. On May 23, 2017, Virgo, represented by Houslanger & Associates ( Houslanger ), opposed the motion. The affidavit in opposition relied on Mr. Andino s affidavit of service, to which it sought to attach a presumption of regularity despite the fact that Mr. Andino s affidavits have been thoroughly discredited in the federal court proceedings, and stated that Mr. Moya now owes $7,630 on the outstanding judgment due to accumulating interest (less credit for payments). Id. Ex. 8 7, 10. Virgo submitted no additional proof of service from Mr. Andino and no proof that the debt was actually owed. See generally id. Ex Virgo further claimed in its sworn affidavit that this CPLR 5015(c) proceeding did not impact its continuing ability to enforce the judgment because though Mr. Moya s judgment was originally included on the list of judgments to be vacated, an updated Exhibit A spreadsheet was released which advised that there were judgments included in the original spreadsheet as a result of a clerical error. Id. Ex Virgo did not inform the Bronx Civil Court that this Court had not actually approved the updated Exhibit A, nor did it explain that this Court had issued an order restoring this matter to the calendar and scheduling a hearing. 18. On May 24, 2017 the Bronx Civil Court found that there was a cloud of suspicion over the legitimacy of Mr. Moya s judgment because the change in ownership of the judgment does not necessarily change the [manner] in which the judgment was obtained. Id. Ex. 9. It ordered a traverse hearing for June 30, Id. 5

7 II. GUIDA S LR CREDIT JUDGMENT AND VIRGO S ENFORCEMENT PROCEEDINGS 19. LR Credit brought an action against Mr. Guida, LR Credit 5 v. Guida, 13475/04 (Rochester City Ct). On October 14, 2004, LR Credit obtained a default judgment against him for $2, Affidavit of Christopher Guida, June 6, 2017 ( Guida Aff. ) Aff. 2 & Ex Mr. Guida was never served and received no notice of the lawsuit. He first learned of the existence of this judgment on or about May 25, 2017, when he received a certified letter enclosed with an income execution. Id According to LR Credit s records that were provided to Class Counsel in the Sykes action, LR Credit lists Mr. Guida s judgment as sold on January 4, 2012 to Virgo. Affirmation of Debra Greenberger, June 7, 2017 ( Greenberger Aff. ) Virgo, represented by Houslanger, sought an income execution against Mr. Guida s employer, which was dated February 21, 2017 and received in Erie County Court on May 8, Guida Aff. Ex. 1. The Erie County Sheriff s office notified Mr. Guida, by letter dated May 17, 2017, that the $2, judgment had ballooned to $4,978.51, with interest and fees. Id After learning of this judgment, Mr. Guida promptly sought the underlying court file but has not yet received it. Id. 6. Mr. Guida believes that LR Credit 5 s affidavit of service purports to have served him at his former address in Rochester, New York at some point in This was not proper service because in early 2003, at least one year prior to the alleged service, Mr. Guida had moved to Buffalo, New York. Id Mr. Guida further believes the default judgment is based on an alleged debt from Providian Financial, a credit card he does not specifically recall and does not recognize. However, Mr. Guida does remember defaulting on a credit card in approximately If the 6

8 judgment is based on that credit card debt, the 2004 lawsuit brought by LR Credit 5 would have been outside the applicable statute of limitations. 24. On June 5, 2017, Mr. Guida moved by order to show cause to vacate the default judgment and income execution in Rochester City Court. See Guida Aff. Ex. 2 III. LR CREDIT S FRAUDULENT DEBT COLLECTION PRACTICES & LR CREDIT S SALE OF JUDGMENTS 25. Mr. Moya and Mr. Guida are class members in Sykes, et al. v. Mel S. Harris and Associates LLC, et al., 09 Civ (S.D.N.Y), a federal lawsuit challenging LR Credit s debt collection practices. The Complaint in Sykes alleged that the LR Credit entities and other defendants engaged in a scheme to obtain default judgments against consumers by filing false affidavits of merit and service in state court and to use those fraudulently obtained judgments to extract money from consumers. 26. In 2011, the Sykes plaintiffs filed their motion for class certification supported by the following evidence: (1) sworn testimony from Todd Fabacher, the person who signed all the affidavits of merit, that he did so purportedly based on personal knowledge, purporting to certify 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. Sykes, 285 F.R.D. at 285; and (2) sworn testimony detailing numerous instances of documented sewer service contained within defendants electronic records, which provided substantial support for plaintiffs assertion that defendants regularly engaged in sewer service. Id. at Furthermore, the class certification briefing and supporting documents established that the individual process server defendants had lost or destroyed all of their logbooks pertaining to service on Sykes class members and had no particular memory of serving any 7

9 particular class member. Because of the destruction of the logbooks, it is impossible to prove that any Sykes class member was validly served; no such evidence exists or could possibly be discovered. 28. In 2012, at a time when all of this information was well-known and publicly available, Virgo Capital LLC allegedly bought approximately 15,000 junk judgments including Mr. Moya s and Mr. Guida s from LR Credit. Greenberger Aff. Ex In total, LR Credit sold approximately 25,000 judgments between October 2007 and April 2012 to nine different debt buyers, according to LR Credit s records. Id. 30. Based on this evidence, the federal district court found that defendants unitary course of conduct purportedly to obtain default judgments in a fraudulent manner presents common questions of law and fact that can be resolved most efficiently on a class-wide basis. Sykes, 285 F.R.D. at Specifically, the court found that every potential class member s claim arises out of defendants uniform, widespread practice of filing automatically-generated, form affidavits of merit based on personal knowledge and, in many instances, affidavits of service, to obtain default judgments against debtors in state court. Id. at The Sykes court also found that a single challenge to this unitary course of conduct, that is, fraudulently procuring default judgments, is without question, more efficient than requiring thousands of debtors to sue individually. Id. at 290, 294. IV. LR CREDIT AGREES TO MASS VACATUR OF ALL JUDGMENTS IT OBTAINED 32. LR Credit settled the Sykes lawsuit. As part of the settlement, LR Credit agreed to cooperate in the filing of an action pursuant to CPLR 5015(c) to vacate default judgments obtained by LR Credit. 8

10 33. LR Credit has stipulated as part of the settlement that all defendants in debt collection actions brought by LR Credit in New York would have been entitled to interpose a defense predicated upon fraud, misrepresentation, illegality, unconscionability, lack of due service, violations of law, or other illegalities. 34. LR Credit transferred their consumer debt portfolio assets to Rolling Jubilee, an unrelated Delaware non-profit corporation, in order to facilitate the vacating of default judgments. V. THE ATTORNEY GENERAL BROUGHT THIS PROCEEDING TO VACATE ALL JUDGMENTS, INCLUDING SOLD JUDGMENTS 35. On November 28, 2016, Deputy Chief Administrative Judge Fern A. Fisher filed this proceeding under CPLR Rule 5015(c) to vacate every judgment obtained by the LR Credit entities, including judgments subsequently sold, on the grounds that each judgment debtor would be uniformly entitled to interpose a defense such as fraud, misrepresentation, illegality, unconscionability, or lack of due service. 36. The Petition explicitly included all judgments LR Credit owned at the time of settlement and approximately 25,000 default judgments that LR Credit obtained but subsequently sold to other parties. Dkt. 1 (Petition) at 6 n.2. While the Attorney General provided direct notice of the Petition to LR Credit and Rolling Jubilee, it explained that it would be impractical to name all such parties [i.e. parties that now hold the Sold Judgments] as respondents in this case, especially as they appear sometimes to have failed to update court records to substitute themselves as plaintiffs for the LR Creditor involved. Id. The Attorney General further explained that the LR Creditors are best positioned to know the circumstances under which these judgments were obtained and whether, for instance, false affidavits of merit were filed by their agent. Id. 9

11 VI. THE COURT S MAY 2, 2017 ORDER VACATING ALL JUDGMENTS LR CREDIT OBTAINED 37. This Court granted the relief sought by the Attorney General on May 2, 2017, stating that Petitioner s petition seeking to vacate and set aside all default judgments obtained by Respondents Leucadia National Corp., L-Credit, LLC, LR Credit, LLC, and LR Credit 1-23 against consumers in the State of New York and to stay all marshals and/or sheriffs who hold executions under such judgments from executing to collect such judgments is granted without objection. Dkt. 15 (emphasis added). 38. To effectuate its Order, the Court ordered that all default judgments listed on Exhibit A were vacated and their execution stayed. 39. In an April 28, 2017 letter accompanying Exhibit A, the Attorney General explained that there were errors in the data used to create that list (because the list originated with the Sykes defendants, whose records had many inaccuracies); specifically, the State could not identify judgment courts for a considerable number of individuals eligible for relief under the settlement. Dkt. 13. Accordingly, the Attorney General explained that corrections will be required to ensure that as many as possible of those eligible for relief receive it, and asked that the Court s order permit such correction. The Court granted this request in its Order, stating that the parties shall have leave to amend Exhibit A, List of Default Judgments, to include updated information regarding the judgment court and case number of each affected judgment where such information is not yet available. Dkt. 15. The Order did not authorize the Attorney General to remove judgments from Exhibit A. VII. ATTORNEY GENERAL SEEKS TO REINSTATE 15,000 LR CREDIT JUDGMENTS ALLEGEDLY SOLD TO VIRGO 40. On May 9, 2017, the Attorney General submitted a letter and an updated judgment list, deleting some judgments included as a result of clerical error and making other 10

12 corrections ( May 9 List ). Dkt. 18. The May 9 List is 449 pages shorter than Exhibit A and appears to omit approximately 14,813 judgments that the Sykes defendants records list as having been sold to Virgo. While these judgments are listed as purchased by Virgo in the Sykes defendants records the same records that the Attorney General stated were replete with errors official court records continue to list LR Credit as the judgment creditor for all but a fraction of the Sold Judgments. To enforce these 15,000 judgments, Virgo would have been required under CPLR 5019(c) to notify the Court of a change in the judgment creditor, which it did not do. Moreover, Virgo has not intervened in or appeared in this action. 41. Counsel for the Sykes class (the same attorneys who represent Mr. Moya and Mr. Guida), by letter dated May 12, 2017, challenged the Attorney General s May 9 request, and argued that no change should be made to the vacatur order because those 15,000 people are entitled to relief from their judgments. Dkt. 20. The Attorney General, by letter dated May 15, 2017, stated that it was approached by counsel representing Virgo and, as a result, sought the reinstatement of those judgments because it is seeking to maintain the status quo while negotiations take place with Virgo. Dkt The Attorney General also stated that Sykes Class Counsel does not represent any party in the present CPLR 5015(c) action brought by Judge Fisher and therefore has no standing to raise any objections in this case. Dkt. 21. VIII. CLASS ACTION ALLEGATIONS 43. Mr. Moya and Mr. Guida bring this class action pursuant to Article 9 of the New York Civil Practices Law and Rules on behalf of all persons with Sold Judgments (i.e. judgments obtained by LR Credit that LR Credit allegedly sold) listed on New York State Courts E-Filing Document Number 14, Exhibit A, List of Default Judgments, filed on April 28, 2017, under Index Number /2016, involving consumers in the State of New York. 11

13 44. The class is so numerous that joinder of all members is impractical. 45. There are questions of law and fact common to the class that predominate over questions affecting only individual members. subclasses. 46. The claims of the class representatives are typical of the claims of the class or of the 47. By pursuing their own interests, the class representatives will advance the interests of the absent class members. The class representatives will fairly and adequately protect the interests of the class. 48. There are no conflicts of interest between the class representatives and the absent class members, and the class representatives will vigorously prosecute this action on behalf of the class. 49. A class action is superior to the other available methods for the fair and efficient adjudication of this controversy. FIRST CAUSE OF ACTION Pursuant to CPLR 5015(c) 50. Plaintiffs-Intervenors hereby repeat and reallege the foregoing paragraphs as if the same were fully set forth at length herein. 51. CPLR 5015(c) provides that an administrative judge may bring a proceeding to vacate default judgments when the default judgments were obtained by fraud, misrepresentation, illegality, unconscionability, lack of due service, violations of law, or other illegalities or where such default judgments were obtained in cases in which those defendants would be uniformly entitled to interpose a defense predicated upon but not limited to the foregoing defenses and such default judgments have been obtained in a number deemed sufficient by [the judge] to justify such action, upon appropriate notice to the respective parties 12

14 or their counsel. 52. LR Credit, which obtained the initial default judgments at issue in this proceeding, has agreed that all alleged debtors whom it sued in New York courts were entitled to interpose the defenses of fraud, misrepresentation, illegality, unconscionability, lack of due service, violations of law, or other illegalities. 53. The district court found that records maintained by the process servers for LR Credit revealed hundreds of instances of the same process server executing service at two or more locations at the same time. 54. Furthermore, LR Credit has not objected to the Sykes plaintiffs contention that the process-service company for most of the default judgments in New York City Civil Court failed to produce in the litigation the logbooks required by statute under certain circumstances to evidence service on defendants. 55. The district court also found that the representative for LR Credit filing for default judgment had affirmed in an affidavit of merit in each of thousands of cases that he was fully and personally familiar with, and [has] personal knowledge of, the facts and proceedings relating to the [debt collection action]. Sykes, 285 F.R.D. at 284. However, the court found, the representative for LR Credit did not review the underlying documents pertaining to specific debts. In many cases, the representative did not even have access to key documents; for example, the original creditors sometimes failed to provide LR Credit copies of the actual contracts with debtors and instead provided only sample contracts. The LR Credit representative used a database of alleged facts about the debts received from the original creditors to mass-produce the set of papers filed in connection with each motion for default judgment for up to fifty cases at a time. He reviewed the papers for one case out of the batch and 13

15 then signed affidavits of merit for each case in the batch. Id. at Counsel for LR Credit and Rolling Jubilee have notice of this action. PRAYER FOR RELIEF WHEREFORE, Plaintiffs-Intervenors seek judgment as follows, with respect to all default judgments obtained in debt collection actions in New York state court by LR Credit, where the judgment was then allegedly sold: (a) (b) vacating and setting aside such default judgments; staying all marshals and/or sheriffs who hold executions under such judgments from executing to collect such judgments; and (c) ordering restitution pursuant to CPLR 5015(d) for all members of the class from all judgment collectors except LR Credit related entities; and (d) granting such other and further relief as this Court deems just and proper. Dated: June 7, 2017 New York, New York EMERY CELLI BRINCKERHOFF & ABADY LLP By: /s/ Matthew D. Brinckerhoff Debra L. Greenberger Elizabeth S. Saylor 600 Fifth Avenue, 10 th Floor New York, New York NEW ECONOMY PROJECT Sarah Ludwig 121 W 27 th Street, Suite 804 New York, New York MFY LEGAL SERVICES, INC. Carolyn E. Coffey and Ariana Lindermayer, of counsel to 14

16 Jeanette Zelhof 100 William St., 6th Floor New York, New York NATIONAL CENTER FOR LAW AND ECONOMIC JUSTICE Claudia Wilner 275 Seventh Avenue, Suite 1506 New York, New York Attorneys for Proposed Intervenors 15