Opinion
No. 1788–08.
2012-01-5
MIDLAND FUNDING LLC d/b/a in New York as Midland Funding of Delaware LLC, Plaintiff, v. Dianne WALLACE, Defendant.
Rubin & Rothman, LLC, Islandia, Pillsbury Winthrop Shaw Pittman, LLP, New York, for Midland Funding LLC & Rubin & Rothman, LLC. Dianne Wallace, Mount Vernon, Defendant Pro Se.
Rubin & Rothman, LLC, Islandia, Pillsbury Winthrop Shaw Pittman, LLP, New York, for Midland Funding LLC & Rubin & Rothman, LLC. Dianne Wallace, Mount Vernon, Defendant Pro Se.
The Lawyers' Fund for Client Protection, Albany.
MARK A. GROSS, J.
By Decision and Order dated September 6, 2010, this Court ordered a hearing to determine whether sanctions would be imposed upon plaintiff and/or plaintiff's attorneys for filing a frivolous debt collection lawsuit.
On or about June 18, 2010 plaintiff moved ex parte to vacate a default judgment entered in favor of plaintiff and against defendant on June 17, 2008 and to discontinue the action. Although the plaintiff failed to provide any explanation regarding why the judgment was erroneously entered or the reason for the two year delay in seeking to vacate said judgment, the Court granted plaintiff's request to vacate the default judgment so that the defendant would no longer be prejudiced by having a default judgment on her record.
Plaintiff and plaintiff's attorney were directed to appear before this Court on October 5, 2010 at 1:30 p.m. for a hearing to determine whether plaintiff's attorneys should be sanctioned under 22 NYCRR § 130 –1.1 for their frivolous conduct in entering a default judgment against the defendant in error and failing to vacate said erroneous judgment in a timely fashion. Specifically, the plaintiff was directed to provide the Court with documentary proof of the alleged claim in the instant action establishing plaintiff's prima facie case, including the entire chain of assignment(s) of the debt alleged. The Court further directed that plaintiff and/or its attorneys provide the Court with a sufficient explanation as to why the default judgment was entered in error and why there was a two year delay in seeking vacatur of said erroneous default judgment.
The hearing was adjourned several times and finally was held on January 10, 2011. Contrary to the assertions in plaintiff's motion, at the hearing, plaintiff's counsel informed the Court that it had mistakenly sought to vacate the default judgment entered due to an error by one of plaintiff's counsel's associates. Plaintiff had instructed counsel to vacate a judgment on another file counsel handled for plaintiff, however, counsel's office inadvertently transposed one file digit which led to the mistaken motion to vacate the judgment in the instant matter. Plaintiff's counsel contends that plaintiff had a valid judgment against Dianne Wallace, the defendant herein.
In support of their contention that plaintiff's judgment against Ms. Wallace is valid, plaintiff's counsel produced an Assignment of Accounts from Jefferson Capital Systems, LLC to Midland Funding LLC dated February 10, 2006 which references two other agreements which were not produced. Plaintiff's counsel also submitted a sworn statement of Andrew Carlson, the Manager of Portfolio Sales for Jefferson Capital Systems, LLC. In his statement, Mr. Carlson swears that CompuCredit Corporation is the parent corporation of Jefferson Capital Systems, LLC and that CompuCredit Corporation acquired certain credit card accounts issued by Columbus Bank and Trust Company. Mr. Carlson further swears that after the accounts are charged off by CompuCredit the accounts are transferred and assigned to Jefferson Capital Systems, LLC. Mr. Carlson also affirms that Jefferson Capital Systems, LLC subsequently sold many of the accounts it had acquired to Midland Funding, LLC which sale was consummated by an Assignment of Accounts. It is further sworn that the accounts associated with the Columbus Bank and Trust Company accounts are identified as being in bin 410636 and that all information regarding those credit card accounts was transmitted electronically to the account purchasers. Ms. Danielle Wohlfehrt, a legal outsourcing manager for Midland Credit Managing, the servicing agent for plaintiff, testified at the hearing that based upon her experience in the consumer debt industry, a credit card account in the name of Dianne Wallace was included in the account bin referenced in Mr. Carlson's affirmation.
The Court notes that only one actual assignment of plaintiff's account was submitted to the Court in support of plaintiff's counsel's contention that plaintiff's judgment against Ms. Wallace was valid, that being the assignment from Jefferson Capital Systems, LLC to Midland Funding LLC. Plaintiff's counsel was unable to present admissible evidence of the entire chain of assignment of the underlying debt in this matter. Noticeably missing was an assignment from the original creditor Columbus Bank and Trust Company, with whom defendant allegedly entered into a credit card agreement, to CompuCredit Corporation. The alleged assignment from CompuCredit Corporation to Jefferson Capital Systems, LLC was also not produced. Mr. Carlson's hearsay assertion in his affirmation that such assignments took place is not sufficient as a matter of law to prove that such an assignment took place. See, Palisades Collection, LLC v. Gonzalez, 10 Misc.3d 1058A (Civ.Ct. NYC 2005); Citibank v. Martin, 11 Misc.3d 219 (Civ.Ct. NYC 2005).
Moreover, the Court finds Ms. Wohlfehrt's testimony to be inconsequential to plaintiff's contention that it had a prima facie case against the defendant. First, Ms. Wohlfehrt acknowledged that she had no personal knowledge of the assignment of the alleged debt between any of the parties. Rather, Ms. Wohlfehrt's testimony relied solely upon the documents that were provided after the alleged assignment took place. Second, Ms. Wohlfehrt's testimony regarding the electronically transferred documents highlights the fact that there is no actual proof that defendant's account was actually assigned. According to Ms. Wohlfehrt's testimony, the assignment of accounts refers to a series of credit card accounts grouped together by the first seven digits of the account numbers referred to as the bin number. In fact, Ms. Wohlfehrt acknowledged that she does not know if all of the accounts issued by Columbus Bank and Trust having the same bin number were part of the assignment. As such, there is no admissible proof specifically establishing that defendant's credit card account was one of the accounts assigned.The Court also notes that Ms. Wohlfehrt's testimony is itself contradictory in that she testified that the bin number was the first seven digits of the credit card account numbers yet the documents submitted by plaintiff's counsel as evidence of the assignment only show a bin number that is six digits, not seven. Nothing in Ms. Wohlfehrt's testimony establishes plaintiff's chain of assignment of defendant's alleged debt and therefore, plaintiff's counsel did not have a prima facie case against defendant.
It is plaintiff's counsel's contention that plaintiff need not be able to establish a prima facie case before issuing a summons and complaint. Rather, counsel contends that the rules requiring certification of a summons and complaint require only that plaintiff have a basis in law and fact before commencing an action and need not have the requisite proof to establish a prima facie case prior to commencing an action. Counsel further contends that they fulfilled the requirements of CPLR § 3215 in obtaining the default judgment. They further argue that although plaintiff had never actually obtained an assignment from the original creditor at the time they filed suit and obtained the default judgment the “rules” did not require a full chain of assignment at the time the debt was acquired.
The Court finds that under the circumstances presented here, plaintiff's counsel did not and could not have properly certified the complaint they filed in the instant action. 22 NYCRR § 130 –1.1–a requires that “by signing a paper, an attorney or party certifies that, to the best of that person's knowledge, information and belief, formed after an inquiry reasonable under the circumstances, (1) the presentation of the paper or the contentions therein are not frivolous as defined in subsection 130–1 .1(c).” 22 NYCRR § 130 –1.1(c) defines conduct as frivolous if: (1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false.”
Under 22 NYCRR § 130 –1.1–a a proper certification of a complaint can only be made after an inquiry reasonable under the circumstances establishes that the claim asserted in the complaint has merit in law and asserts truthful factual allegations. Plaintiff's counsel should have known what documentary proof was required for a meritorious lawsuit under New York law and knew that they did not have the required proof in the instant case when they filed suit. In order for any inquiry by counsel into the merits of the instant matter to be reasonable counsel had an obligation to obtain the required documentation substantiating a prima facie case, including proof of the entire chain of assignment(s) of the alleged debt, prior to filing the instant action. As such, since plaintiff's counsel failed to obtain the requisite documentation substantiating the merits of plaintiff's alleged cause of action against the defendant, plaintiff's counsel could not certify the complaint as required under 22 NYCRR § 130 –1.1–a. Accordingly, the certification here is disingenuous, misleading and false.
In addition, counsel has a continuing duty to assess the legal and factual basis of a claim in order to avoid imposition of sanctions under Part 130 of the Rules of the Chief Administrator of the Courts. See Worldwide Asset Purchasing, L.L.C. v. Akrofi, 884 N.Y.S.2d 631 (Ithaca City Ct.2009). In the case at bar, counsel was presented with multiple opportunities to re-evaluate the claim both when it applied for a default judgment against defendant and after it mistakenly sought vacatur of the default judgment, especially in light of the fact that it was ordered by the Court to produce documentary proof of the alleged claim, including the entire chain of assignment of the debt. Ignoring their obligations, plaintiff's counsel merely produced the one assignment from Jefferson Capital Systems, LLC to its client and an affidavit containing hearsay allegations regarding the remaining assignments, including the one from the original creditor. The Court finds that plaintiff's counsel's failure to produce the directed documentary proof is even more egregious given plaintiff's assertion at the very outset of hearing that the judgment herein was valid (despite plaintiff's prior request to vacate the same) and further given the fact that the hearing was adjourned from its originally scheduled date at counsel's request and then was further adjourned in mid-hearing for one more month to allow counsel yet another opportunity to obtain the necessary documentary proof. The apparent lack of a factual basis for the claim renders plaintiff's counsel's conduct in commencing this action without having proof of its merit frivolous within the meaning of 22 NYCRR § 130 –1.1(c).
Moreover, the Court takes issue with plaintiff's counsel's contention that they fulfilled the requirements of CPLR § 3215 in obtaining the default judgment. CPLR § 3215 requires submission of an affidavit of merit setting forth the factual proof constituting the claim made by the party in support of such party's application for a default judgment. In the case at bar, the Court does not consider the affidavit submitted by plaintiff with its default judgment application to be an affidavit satisfying the requirements under CPLR § 3215. First, the affidavit is by a non-titled employee of plaintiff's servicing agent and as such is not a affidavit made by the party as required under CPLR § 3215. See HSBC Bank v. Betts, 67 AD3d 735 (2nd Dept.2009). Second, the allegations asserted in the affidavit are not made by an individual with first hand knowledge of the facts. Although the affidavit is carefully drafted to appear as if the affirmant has actual knowledge of the underlying facts, in fact, the allegations are based upon hearsay. At one point the affirmant actually asserts “[u]pon information and belief, defendant(s) used or authorized the use of credit card account to obtain loans from the original credit grantor....” Clearly, the affirmant had no first hand knowledge of the facts constituting the claim as required under CPLR § 3215.
For an assignee plaintiff to have the first hand knowledge necessary for a statutorily proper affidavit of merit as required by CPLR § 3215 such party must have obtained the entire chain of assignment(s) and the underlying documentary proof. Counsel's contention at the hearing that the “rules” had changed since the time plaintiff was assigned defendant's alleged debt is not just incorrect, its absurd. The rules have always required a plaintiff to have first hand knowledge of the facts constituting the claim when seeking to obtain a default judgment against a defendant. The fact that the New York City courts had to explicitly delineate how to satisfy the statutory prerequisite under CPLR § 3215 for assignee plaintiff's in consumer debt cases because of the abusive conduct of counsel for assignee creditors' does not mean that the rules have changed. Rather, it means that assignee plaintiff's and their counsel were improperly seeking default judgments in consumer cases where they did not have the requisite proof of facts constituting the claim and so the courts felt the need to direct counsel regarding the proper statutory pre-requisites for a default judgment in a consumer debt action.
The Court is outraged at counsel's cavalier retort “so we don't win at trial” in response to the Court's contention that plaintiff's counsel could not have had an actual basis in law and fact because plaintiff did not have a complete chain of assignments. See January 10, 2011 Hearing Transcript, pg. 16, line 14. Clearly, plaintiff's counsel knows that under New York law, a full chain of assignment in addition to documentary proof of the contract and debt is required in order to prove a prima facie case in a consumer debt action where the plaintiff is an assignee of the original creditor. See, Citibank v. Martin, 11 Misc.3d 219 (Civ.Ct. NYC 2005); Palisades Collection, LLC v. Gonzalez, 10 Misc.3d 1058A (Civ.Ct. NYC 2005); DNS Equity Group, Inc. Lavalle, 26 Misc.3d 1228A (Dist. Ct. Nassau Cty.2010). Without proof of the chain of assignment plaintiff is unable to show its standing to sue the defendant and a lack of standing renders a litigation a nullity, subject to dismissal without prejudice. Citibank v. Martin, 11 Misc.3d 219 (Civ.Ct. NYC 2005). The sentiment behind counsel's statement renders the intent behind both the certification requirement under 22 NYCRR § 130 –1.1–a and the affidavit of merit requirement under CPLR § 3215 utterly meaningless.
The Court is similarly appalled at plaintiff's counsel's conduct in the case at bar. First, plaintiff's counsel both commenced an action and took a default judgment without having a chain of assignment or proper documentary proof of a claim. Then plaintiff's counsel made an ex-parte application to vacate the default judgment two years later on the grounds that it was entered in error without providing a further explanation. The Court ordered a hearing to determine if plaintiff's counsel should be sanctioned for frivolous conduct for entering a default judgment in error and failing to vacate the default judgment in a timely fashion. After multiple adjournments for over three months, plaintiff's counsel appeared at the hearing and asserted that its ex-parte application to vacate the default judgment had been made in error and that the judgment entered herein against the defendant was, in fact, a valid judgment. However, notwithstanding plaintiff's assertion that the judgment against the defendant was a valid judgment, plaintiff's counsel did not and could not provide any proof to substantiate its blatantly bald assertion. The Court even granted plaintiff's counsel a further continuance of the hearing to give counsel an additional month to obtain the proof required to substantiate its claim and plaintiff's counsel still failed to provide the requisite proof. Clearly, plaintiff's assertion that the judgment against the defendant was a valid judgment was tantamount to counsel attempting to perpetrate a fraud upon the Court.
The Court further notes that contrary to plaintiff's counsel's assertion, consumer debt actions are not akin to negligence actions where extensive discovery may need to be had before a plaintiff can prove a prima facie case. Rather, consumer debt actions are primarily document driven and thus, in general, a plaintiff can establish a prima facie case without any discovery whatsoever. In the instant matter, plaintiff's counsel commenced an action without having sufficient documentary proof to establish its prima facie case. Thereafter, plaintiff took a default judgment against the defendant and did so, this Court believes, in bad faith, fully knowing what proof was required to prove its case, that it was not in possession of such proof, and, most significantly, that, in all likelihood, it could never obtain and produce the requisite proof. The conduct of plaintiff's counsel not only improperly denied defendant the due process of law but is egregious, dishonest and unprofessional and holds the courts and the entire legal profession up for public scorn and ridicule. Such conduct shall not be countenanced by the Court.
Based upon all the foregoing, the Court finds that the failure plaintiff's counsel, Rubin & Rothman, LLC, to obtain the requisite documentary proof of the claim alleged, including the entire chain of assignment(s) either prior to commencing the instant action or to obtaining a default judgment against defendant constitutes frivolous conduct within the meaning of 22 NYCRR § 130.1–1. Based thereon the Court hereby imposes a monetary sanction against Rubin & Rothman, LLC in the sum of $7,500.00 which is to be paid by Rubin & Rothman, LLC to the Lawyer's Fund for Client Protection no later than February 29, 2012. Proof of compliance with this Decision and Order shall be filed with the Clerk of this Court by that same date.
This constitutes the Decision and Order of the Court.