A Sum Uncertain: Preserving Due Process and Preventing Default Judgments in Consumer Debt Buyer Lawsuits in New York

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2. Debt Collection Lawsuits in New York City

In New York City, nearly all consumer debt cases are litigated in the city's Civil Court. The Civil Court was established in 1962 (187) and has monetary jurisdiction over claims up to $25,000. (188) By volume, the Civil Court is the largest civil jurisdiction court in the United States and its filings comprise 25% of the New York State Unified Court System's total filings. (189) Every consumer debt lawsuit in Civil Court begins with the purchase of an index number and the filing of a summons and complaint. (190) After filing the summons and complaint with the clerk, the plaintiff serves the summons and complaint on the defendant pursuant to the service rules of New York's CPLR. (191)

Debt collection law firms retained by debt buyer or original creditor plaintiffs rely on process server agencies to serve defendants. (192) Although there has been, (193) and continues to a lesser extent to be, service abuse in consumer debt cases in New York City, key reforms have been adopted by the Civil Court. (194) For example, the Civil Court's Section 208.6(h) notice created a new notice form that the court is required to send to each defendant, informing the defendant that they have been sued and that if a judgment is entered in the plaintiff's favor, the plaintiff may be able to seize the defendant's property, garnish the defendant's wages, or both. (195) If this notice is returned as undeliverable or the plaintiff fails to produce an affidavit of service showing that 208.6(h) service was made, a default judgment may not be entered by the clerk on behalf of the plaintiff. (196) This notice is required in addition to the normal service requirements found in the state's procedural rules. (197) Between May 2008 and September 2009, 28,422 of these notices were returned to the court as undeliverable. (198) Moreover, New York City requires process servers licensed by the DCA (199) to carry an electronic device with global position system to establish the time, date, and place when service was attempted or carried out, (200) to pass an examination, (201) and to maintain records of service. (202)

There is a great disparity in legal representation in consumer debt lawsuits. While 100% of debt collector plaintiffs are represented by counsel, only 4% of defendants have legal representation. (203) As a result, many defendants fail to take advantage of all available defenses and enter into settlement agreements with plaintiff's counsel. (204) Typically, the plaintiff's attorney will ask the defendant to discuss the case in the hallway before they go before the judge. (205) According to one report, plaintiffs' counsel uses these discussions to pressure unrepresented defendants into one-sided and sometimes unaffordable settlement agreements. (206) It has also been alleged that plaintiffs' counsel strategically use repeated adjournments to further develop their cases, hoping that unrepresented defendants will not be able to make subsequent court dates because of work or other reasons, which could result in default judgments for the plaintiffs. (207)

Debt collector plaintiffs have several causes of action against consumer defendants. Some collectors pursue breach of contract actions against consumer defendants. Under this cause of action, debt buyers allege that the consumer entered into a credit agreement, subsequently breached that agreement, and caused the creditor to incur damages as a result of the breach. (208) To satisfy a breach of contract action, collectors must produce a contract and evidence of individual charges that make up an unpaid balance. (209)

Debt collectors also pursue "account stated" causes of action against consumer defendants. (210) In this cause of action, the plaintiff argues that an account statement was sent to the defendant, it was accepted as correct, and the defendant agreed to pay the amount stated on the account. (211) Thus, for an account stated cause of action, a plaintiff must produce "(1) prior transactions that establish a debtor-creditor relationship between the parties, (2) an express or implied agreement between the parties as to the amount due, and (3) an express or implied promise from the debtor to pay the amount due. …