Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D.N.Y.: Debtors state claims against debt collection companies based on misrepresentations of debts, (Jul 25, 2013)

By Jody Coultas, J.D.

Debtors stated New York General Business Law (GBL) claims against debt collection companies that allegedly misrepresented the ownership of the debtors’ accounts, the amounts of the debts, and the companies’ status as a licensed debt collector, the federal district court in New York City has held (Fritz v. Resurgent Capital Services, LP, June 24, 2013, Block, F.).

LVNV Funding, LLC, purchases consumer debt from creditors who have written off the accounts. It outsources collection of the debts to Resurgent Capital Services, LP. Resurgent alleged that it was the “purchaser and assignee” of the debt at issue, that it owned and retained all rights to the debt, and alleged that it was a licensed debt-collection agency. The debtors alleged that the companies misrepresented the debts because they were actually held by LVNV and the license number belonged to LVNV.

To state a GBL claim, a plaintiff must allege the defendant engaged in deceptive acts or practices that were consumer-oriented, misleading in a material way, and that the plaintiff was injured as a result. Consumer-oriented acts are those that have a broad impact on the public. The GBL does not require that the plaintiff show reliance on the deception.

The debtors sufficiently alleged GBL claims against the companies, according to the court. Evidence that the companies had bought hundreds of thousands of dollars of consumer debt was sufficient to show the allegedly deceptive practices had a broad impact on consumers at large. Communications and practices that could mislead a debtor as to the nature and legal status of the underlying debt, or that could impede a consumer’s ability to respond to or dispute collection, violate the Fair Debt Collection Practices Act (FDCPA).

The court used the same reasoning to conclude that the misrepresentations would mislead a reasonable consumer and a less sophisticated consumer. The alleged damages, such as time spent and costs incurred by consumers to defend against meritless collection lawsuits, were sufficient. The fact that the debtors did not allege that the deceptive acts resulted in judgments against them did not factor into the court’s reasoning. The allegations regarding the misrepresentations of Resurgent’s ownership of the debt, its status as a licensed debt collector, and the amount of debt owed were sufficient to state stated FDCPA claims.

Resurgent’s arguments that the claims should be dismissed based on either collateral estoppel, abstention, or the Noerr-Pennington doctrine were dismissed. None of the collection actions resulted in a judgment, so collateral estoppel did not apply. The action was not “parallel” to the state-court collection actions, so abstention did not apply. the court was not persuaded that Noerr-Pennington immunized Resurgent and LVNV from such liability because the doctrine excepts “sham” litigation from its protection.

The case is No. 11-CV-3300 (FB) (VVP).

Attorneys: Ahmad Keshavarz (The Law Office of Ahmad Keshavarz) for Giselle Fritz. Brett A. Scher (Kaufman Dolowich Voluck & Gonzo LLP) for Resurgent Capital Services, LP and LVNV Funding, LLC.

Companies: Resurgent Capital Services, LP; LVNV Funding, LLC

Cases: StateUnfairTradePractices NewYorkNews