New York Judge Criticizes Credit Card Scavenger Lawsuits

New York judges have openly expressed their frustration with credit card collection lawsuits and the fact that consumers contest only six percent of the time. Six percent!

The deficiencies criticized by the New York judges are also problematic in other states although consumers’ ability to combat the deficiencies depends upon the law of the state where the collection lawsuit is pending.

In Centurion Capital Corp. v. Guarino
, Centurion Capital Corp. sought to reduce a default a default judgment entered on December 8, 2005, into a judgment. (Default judgments arise when defendant consumers fail to respond to the complaint or appear in court as required.) Centurion Captial Corp. filed an application to accept a Notice of Assignment of the default judgment from “Centurion Capital Corp.” to “Palisades Acquisition XVI, LLC” and a consent to substituting the new counsel for Palisades as the new plaintiff.

Judge Straniere commented that :

“This is another case which is slowly convincing me that I am the judge in the ‘Sixth Sense’ part of the Civil Court where, like characters in that film who only see dead people, I am relegeated to seeing cases with ‘dead corporations’ represented by ‘dead law firms’.”

Ouch! The Court proceeded to present a detailed analysis explaining the frustration which lead to the Court’s pithy comment. The Court’s analysis focused on eight general questions.

First, the Court asked whether the underlying action was properly brought.

The complaint alleged that Centurion Capital Corporation is a Maryland corporation with an office in Rockville, Maryland without alleging that it was authorized to sue in New York.

The Court checked the Maryland Department of State records and found that Centurion Capital Corporation was formed on March 24, 2005, and was dissolved on March 25, 2009. There was no indication that
Centurion Capital was ever revived. Nor was there any evidence that Centurion Capital Corporation obtained a certificate of authority to transact business in New York.

Many states require foreign corporations to register to transact business in their state as a prerequisite to filing a lawsuit. In order for a foreign corporation to maintain a lawsuit in New York, it must obtain a certificate of authority to do so and pay all state fees and taxes. [Business Corporations Law Section 1301 and 1312(a).] Judge Straniere noted that :

“[t]here is case law that holds that there is a difference between ‘commencing’ an action and ‘maintaining’ an action, which permits the unregistered foreign corporation to file the action initially (commence the action), but to be in compliance in order for the action to continue (maintain the action). Paper Mfrs. Co. v. Ris Paper Co., Inc. 86 Misc.2d 95 (1976).”

Judge Straneiere also noted that there is New York case law holding that a single, isolated transaction will not subject a foreign corporation to the registration requirements of New York’s Business Corporation Law. Highfill, Inc. v. Bruce and Iris, Inc., 50 AD.3d 742 (2008). So, the Court proceeded to analyze whether the pending case was an isolated occurrence.

The Court noted that Centurion Captial Corporation’s stated purpose was to purchase accounts receivable and then attempt to collect these accounts receivable by using the court system.
The Court found :

“Analysis of the filings in Civil Court Richmond County, discloses that a total of 930 cases were commenced by Centurion Capital Corporation between 2005 and 2007 with 300 cases brought in 2005; 629 in 2006; while in 2007 only one case was filed. If this is not enough to establish that the plaintiff was engaged in a systemic regular course of business in New York, a check of the filings by Centurion Captial Corporation in the other four counties of the New York City Civil Court shows a total of 12,794 cases being filed city-wide during that three-year period. Of that total 17 were in 2007 and one lonely additional case was filed in 2008. A review of Civil Court Richmond County’s records discloses that none of the 930 cases went to trial.

Another way to look at the number of filings is that between March 24, 2005 and December 31, 2006, a period of twenty-one months, Centurion Capital Corporation filed over 650 cases a month in the Civil Court.”

The Court found that Centurion Captial Corporation adopted a business plan to use the New York State court system as an “arm of its collection activiites wihtout making any effort to comply with the filing
requirements for a foreign corporation.”

The Court also noted that Centurion Capital Corporation failed to obtain a license to collect consumer debts in New York City as required by New York City Administrative Code Section 20-488, et seq.

Few Courts would ever raise a waivable defense on behalf of a defendant who was in default. The Court commented that “the fact the CPLR [Section] 3211 makes lack of capacity a waivable defense, contemplates its use on an individual case basis and not in a situation like this where a plaintiff is engaged in a business which requires the use of the court system to enforce its claim as part of that business model and finds no need to comply with the minimum requirements to conduct business in New York.” Consumers should never place themselves in a situation where they depend upon a court to intervene and save them.

Second, the Court inquired whether the Consent to Substitution of Attorneys is Proper?

CPLR Section 321(b)(1) sets forth the requirements to change attorneys :

“[A]n attorney of record may be changed by filing with the clerk a consent to change signed by the retiring attorney and signed and acknowledged by the party. Notice of such change of attorney shall be given to the attorneys for all parties in the action, or if a party appears without an attorney, to the party.”

CPLR Section 321(b)(1). The Court was confronted with a chain of counsel which allegedly flowed from “Wolpoff & Abramson, LLP” to “Mann Bracken, LLC” to “Fulton, Friedman & Gullace, LLP”.

The counsel of record for Centurion Captial Corporation was Wolpoff & Abramson, LLP. Wolpoff & Abramson was suspended from doing business in New York or its authority to conduct business was “revoked” because of its failure to disgnate a registered agent [LLPL Section 121-1500(g) & Section 121-1502(f)], therefore the court concluded that Wolpoff & Abramson could no longer appear as attorney of record on any litigation while suspended or revoked. [LLCL Section 1306(d)(4) & LLPL Section 121-1500(m), Section 121-1502(m).]

Wolpoff & Abramson, LLP merged into Mann Bracken but apparently never bothered to notify the Court of the “substituion” of law firms.

The Court rejected the unexplained substitution of counsel from Wolpoff & Abramson to Mann Bracken. The first indication that Mann Bracken was involved was pursuant to a purported assignment of the account from Centurion Capital Corporation to Palisades Acquisition XVI, LLC which did not occur until three years after Centurion was dissolved!

Third, the Court inquired “Is there a proper assignment?”

The Court found several deficiencies in the “Notice of Assignment” which purported to assign the account/judgment from “Centurion Captial Corp” to Palisades Acquisition XVI, LLC.

The plaintiff Maryland corporation was “Centurion Captial Corporation” and NOT “Centurion Capital Corp.” Although there was a New York corporation named “Centurion Capital Corporation”, the New York corporation was not involved in the lawsuit. The Court ruled that he purported Notice of Assignment is defective because the purported assignment is not from the same entity that brought the litigation.

The Court also noted that the Notice of Assignment was undated and the acknowledgment was dated February 2, 2012. The Court questioned how it is possible for Centurion Captial Corporation which ceased to exist on March 25, 2009 to execute an assignment of judgment three years later? The Court speculated :

“One explanation might be an undelivered sack of mail was found in an abandoned Balitmore & Ohio Railroad box car, being used as a hot dog stand at Camden Yards. Another would be that Centurion Capital Corporation is a charter member of the ‘Procastinators Society.’ Perhaps they had to wait until ‘the moon was in the seventh house and Jupiter aligned with Mars.’ Some how none of these are satisfactory, especially because Centurion Capital Corporation alleged in an Alabama case in May 2008 that under Maryland law it no longer exists as a corporation [Meredith v. Unifund CCR Partners, 2009 WL 141 3361 (M.D. Ala 2009)].”

Fourth, the Court questioned whether the notarizations were proper.

The Court found that the out-of-state notarizations lacked the certificate of conformity as rquired by CPLR Section 2309(c) & Real Property Law Section 299(a) and also lacked the acknowledgment reqquired by CPLR Section 5019(c).

Next, the Court questioned whether there is a proper affidavit of the facts.

The Court held that the Affidavit of Facts in support of the default judgment was defective because the affiant (an employee of Centurion Capital Corporation) could not have personal knowledge of the books and records of Marin Bank.

The Court’s opinion concludes with a scathing analysis of the case.

“I often wonder what the conversation is between the thrid party debt collector client and the law firm considering representing the creditor, such as the world famous Dewey, Cheatum & Howe, when they initially meet. It would probably go something like this.

Client : I need a lawyer to represent me on debt collection litigation.

Lawyer : Before I agree let me ask some questions.

Lawyer : Do you know the person you want to sue and have you ever met them?

Cleint : Well no.

Lawyer : Do you have a written agreement with the person whom you claim owes you the money?

Client : No again.

Lawyer : Do you have anything signed by the debtor showing they owe the money?

Client : No.

Lawuyer : Do you ahve a bill showing the debtor owes the money?

Cleint : No.

Lawyer : Do you ahve somethign that shows the debtor made any payments on the obligation?

Cleint : No.

Lawyer : Do you have any relationship with the debtor?

Client : No.

Lawyer : Well how do you know the debtor owes you the money?

Client : I bought the debt by assignment from the original creditor and he gave me a computer print-out saying the debtor owes him money.

Lawyer : Do you have a copy of the assignment of the claim?

Client No.

Lawyer : Do you know if the statute of limitations has run on the debt and what state’s law applies to the agreement?

Client : No.

Lawyer: So let me get this straight. You’ve never had any contact with the debtor, have no copy of an agreement or any documents to verify charges were made, have no personal knowledge of any thing regarding the account, no proof that you own the account and don’t know whether the statute of limitations has run.

Sounds good to me. I’ll take the case.”

(C) 2012 Donald E. Petersen
All rights reserved.