Sykes v. Mel S. Harris & Assocs. LLC

780 F.3d 70

Monique SYKES, Rea Veerabadren, Kelvin Perez, Clifton Armoogam, Individually and on behalf of all others similarly situated, Plaintiffs–Appellees

v.MEL S. HARRIS AND ASSOCIATES LLC, Mel S. Harris, Todd Fabacher, Michael Young, Kerry Lutz, Esq., LR Credit 18, LLC, L–Credit, LLC, Leucadia National Corporation, LR Credit, LLC, LR Credit 10, LLC, Samserv, Inc., William Mlotok, Benjamin Lamb, David Waldman, Joseph A. Orlando, Michael Mosquera, John Andino, LR Credit 14, LLC, LR Credit 21, LLC, Philip M. Cannella, Defendants–Appellants.¹

Docket Nos. 13–2742–cv

13–2747–cv

13–2748–cv.

United States Court of Appeals, Second Circuit.

Argued: Feb. 7, 2014.

Decided: Feb. 10, 2015.

Paul D. Clement, Bancroft PLLC, Washington, DC (Candice Chiu, Bancroft PLLC, Washington, DC; James R. Asperger and Maria Ginzburg, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY; Marc A. Becker, London, UK; Brett A. Scher, Kaufman Dolowich & Voluck LLP, Woodbury, NY, on the brief), for Defendants–Appellants Mel S. Harris LLC, Mel S. Harris, Michael Young, David Waldman, Kerry Lutz, and Todd Fabacher.

Miguel A. Estrada, Gibson, Dunn & Crutcher LLP, Washington, DC (Scott P. Martin, Gibson, Dunn & Crutcher LLP, Washington, DC; Michael Zimmerman, Zimmerman Jones Booher LLC, Salt Lake City, UT; Lewis H. Goldfarb and Adam R. Schwartz, McElroy, Deutsch, Mulvaney & Carpenter LLP, Morristown, NJ; Mark D. Harris, Proskauer Rose LLP, New York, NY, on the brief), for Defendants–Appellants Leucadia National Corporation, L–Credit, LLC, LR Credit, LLC, LR Credit 10, LLC, LR Credit 14, LLC, LR Credit 18, LLC, LR Credit 21, LLC, Joseph A. Orlando, and Philip M. Cannella.

Jack Babchik, Babchik & Young LLP, White Plains, NY, for Defendants–Appellants Samserv, Inc., William Mlotok, Benjamin Lamb, Michael Mosquera, and John Andino.

Matthew D. Brinckerhoff, Emery Celli Brinckerhoff & Abady LLP, New York, N.Y. (Jonathan S. Abady, Debra L. Greenberger and Vasudha Talla, Emery Celli Brinckerhoff & Abady LLP, New York, NY; Josh Zinner, Susan Shin and Claudia Wilner, New Economy Project, New York, NY; Carolyn E. Coffey and Ariana Lindermayer, of counsel to Jeanette Zelhoff, MFY Legal Services, New York, NY; Charles J. Ogletree, Jr., Harvard Law School, Boston, MA, on the brief), for Plaintiffs–Appellees.

Jean Constantine–Davis, AARP Foundation Litigation, Washington, DC, on behalf of Amici Curiae AARP, National Association of Consumer Advocates, and National Consumer Law Center, in support of Plaintiffs–Appellees.

Danielle F. Tarantolo, New York Legal Assistance Group, New York, NY, on behalf of Amicus Curiae Consumer Advocates, in support of Plaintiffs–Appellees.

Sarang Vijay Damle, Senior Counsel, Consumer Financial Protection Bureau, Washington, DC (Meredith Fuchs, General Counsel, To–Quyen Truong, Deputy General Counsel, David M. Gossett, Assistant General Counsel, Jessica Rank Divine, Attorney, Consumer Financial Protection Bureau, Washington, DC; Jonathan E. Nuechterlein, General Counsel, John F. Daly, Deputy General Counsel for Litigation, Theodore (Jack) Metzler, Attorney, Federal Trade Commission, Washington, DC, on the brief), on behalf of Amici Curiae The Consumer Financial Protection Bureau and Federal Trade Commission, in support of Plaintiffs–Appellees.

Before: JACOBS, CALABRESI, and POOLER, Circuit Judges.

Opinion

Judge JACOBS dissents in a separate opinion.

POOLER, Circuit Judge:

These consolidated appeals are taken from the September 4, 2012 class certification opinion, Sykes v. Mel Harris & Assocs., LLC, 285 F.R.D. 279 (S.D.N.Y.2012) (“Sykes II ”), and March 28, 2013 class certification order of the United States District Court for the Southern District of New York (Denny Chin, Circuit Judge ). Defendants in this case comprise three entities: “(1) various subsidiaries of Leucadia National Corporation (“Leucadia”) that purchase and collect consumer debt; (2) Mel S. Harris and Associates LLC (“Mel Harris”), a law firm specializing in debt collection litigation; [and] (3) Samserv, Inc. (“Samserv”), a process service company.”

Sykes II, 285 F.R.D. at 283. Defendants also include “associates of each of the foregoing entities,” id., and we respectively refer to them as the Leucadia defendants, Mel Harris defendants, and Samserv defendants (as did the district court).

The district court's March 28, 2013 order certified two classes. The first class, certified pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure, comprises “all persons who have been or will be sued by the Mel Harris defendants as counsel for the Leucadia defendants ... assert[ing] claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 ; New York General Business Law (GBL) § 349 ; and New York Judiciary Law § 487.” Special App'x at 46.

The second class, certified pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, comprised “all persons who have been sued by the Mel Harris defendants as counsel for the Leucadia defendants in ... New York City Civil Court and where a default judgment has been obtained. Plaintiffs in the Rule 23(b)(3) class assert claims under RICO; the Fair Debt Collection Practices Act [ (FDCPA) ], 15 U.S.C. § 1692 ; GBL § 349 ; and New York Judiciary Law § 487.” Special App'x at 47.

We conclude that the district court did not abuse its discretion in certifying either class.

Affirmed.

BACKGROUND

We draw our facts from the district court's class certification opinion, which depended on “the depositions, declarations, and exhibits submitted ... in connection with” the motion for class certification. Sykes II, 285 F.R.D. at 283. The district court, as was proper, only resolved “factual disputes to the extent necessary to decide the class certification issue.” Id. citing In re Initial Public Offerings Sec. Litig., 471 F.3d 24, 27, 41–42 (2d Cir.2006). It did not resolve “factual assertions relate[d] to the merits ... but state[d] them as the parties' assertions,” and we will follow that practice. Id. Where we are required to supplement the background as laid out by the district court by virtue of the arguments of the parties on appeal, we will also refer to the depositions, declarations, and exhibits which formed the record before the district court at class certification.

I. Plaintiffs

“Monique Sykes, Rea Veerabadren, Kelvin Perez, and Clifton Armoogam are New York City residents who were each sued by various defendants in debt collection actions commenced in New York City Civil Court between 2006 and 2010.” Sykes II, 285 F.R.D. at 283. Each plaintiff “denies being served with a summons and complaint in their respective action.... Defendants, nevertheless, were able to obtain default judgments against them.” Id.

II. Defendants' Alleged Default Judgment Scheme

A. Default Judgments

These default judgments, in the words of plaintiffs, are the result of defendants' construction of a “default judgment mill.” The “mill” operates in this fashion: first, by obtaining charged-off consumer debt; second, by initiating a debt-collection action by serving a summons and complaint on the purported debtor; and third, by submitting fraudulent documents to the New York City Civil Court in order to obtain a default judgment.

At the first step, “[p]laintiffs allege that the Leucadia and Mel Harris defendants entered into joint ventures to purchase debt portfolios, and then filed debt collection actions against the alleged debtors with the intent to collect millions of dollars through fraudulently-obtained default judgments.” Id.

At the second step, Mel Harris would employ “a software program ... designed by [Mel Harris employee] Mr. [Todd] Fabacher.” Appellees' App'x at 157. Fabacher is employed as a “director of information technology for Mel Harris.” Sykes II, 285 F.R.D. at 284. His program “selects and organizes debts for the generation of a summons and complaint for each debt. These documents are signed by an attorney, and bundled together in batches of 50. Each batch is sent to a single process serving company.” Appellees' App'x at 157. Further, the process serving company associated with each debt is saved by this computer program, so “the process serving company associated with any particular debt can be readily ascertained.” Appellees' App'x at 157.

To effectuate this second step, Leucadia and Mel Harris defendants would hire a process server, often Samserv. Sykes II, 285 F.R.D. at 283. Plaintiffs allege that “Samserv routinely engaged in ‘sewer service’ whereby it would fail to serve the summons and complaint but still submit proof of service to the court.” Id. This proof of service was first delivered to Mel Harris, which, “[a]fter process [wa]s allegedly served, ... receive[d] from the process serving company an electronic affidavit of service.” Appellees' App'x at 157. After receiving this affidavit of service, the system designed by Fabacher “automatically organize[d] and print[ed] a motion for a default judgment [and] an affidavit of merit ... within approximately 35 days after the date of service of process.” Appellees' App'x at 157–58.

Having generated these documents, at the third step, “[a]fter a debtor failed to appear in court for lack of notice of the action, the Leucadia and Mel Harris defendants would then apply for a default judgment by providing the court with ... an ‘affidavit of merit’ attesting to their personal knowledge regarding the defendant's debt and an affidavit of service as proof of service.” Sykes II, 285 F.R.D. at 283 (emphasis added).

Before the district court at the class certification stage, there was substantial evidence of the scope and impacts of this alleged scheme. “Between 2006 and 2009, various Leucadia entities filed 124,838 cases,” and Mel Harris represented Leucadia in 99.63 percent of those cases. Id. at 284. “The ‘vast majority’ of such cases were adjudicated without appearance by the defendant debtors, indicating the likelihood that a default judgment was entered.” Id. Further, “[b]etween 2007 an...