Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—EDNY: $9.8 Million Default Judgment Entered for Chase Bank Against Alleged Debt Relief Scam, (Jun 19, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Brooklyn has entered a default judgment for Chase Bank USA, N.A. against an allegedly fraudulent debt elimination scheme, but for a somewhat lower amount than that requested by Chase (Chase Bank USA, N.A. v. Allegro Law, LLC, June 18, 2013, Chen, P.).

Chase filed suit against an operation that allegedly fraudulently induced Chase credit cardmembers to stop paying their credit card bills and instead send them to the operation. In return for upfront fees, the operation allegedly falsely promised to settle with Chase for less than the outstanding balances on their accounts and issued boilerplate letters to Chase accusing it of unspecified Fair Credit Billing Act and other statutory violations.

Chase asserted claims for violation of the New York Consumer Protection Act, among other claims. Since one of the defendants, AmeriCorp, Inc., had not retained new counsel following the withdrawal of its original attorneys, and since it was not permitted to proceed in the absence of counsel, the court entered a default order as to AmeriCorp.

Chase filed a motion for entry of default judgment against AmeriCorp in the amount of $11,767,496.11, based on assumptions “that (i) all participating cardmembers possessed a desire to settle their [credit card] account balances with Chase for less than the full amount due and (ii) absent the Allegro scheme, the cardmembers would have settled with Chase on their own to pay a portion of the outstanding balances on their credit cards.”

The court granted the motion, but reduced the amount of the default judgment to $9,797,229.52. A declaration from a member of Chase’s Credit Card Services business provided sufficient basis for the damages. The declaration set forth four possible means of determining the damages, including the one resulting in the $11,767,496.11 amount, and another resulting in an amount of $9,797,229.52, based on assumptions “that all participating cardmembers belonged to the category of Chase cardmembers who, though late in making the minimum monthly payments on their credit card accounts, ultimately did not have an ongoing delinquency problems, and would have continued to make these payments to Chase.” The court found the declaration to be credible and “conservative,” and therefore did not conduct a hearing into the truth of her allegations.

However, the court found the declaration did not support Chase’s requested $11,767,496.11 award. The Chase employee herself had stated that the cardmembers who joined the scheme “most likely resembled” those cardmembers “who still managed to make regular monthly payments which they intended ultimately to go toward paying” Chase. The court found the operation’s claims to cardmembers that it would use their monthly payments to settle with Chase did not “support the assumption that the cardmembers would have sought to settle with Chase on their own.” Therefore, the cardmembers “were much more likely to persist in paying down their credit cards on a monthly basis than they were to arrange a settlement with Chase,” according to the court.

Moreover, two other district courts had previously entered default judgments against other “debt elimination” schemes at Chase’s behest at amounts “reflecting minimum monthly payments that participating cardmembers would have made, but which Chase did not receive.” Therefore, the court entered the default judgment against AmeriCorp in the amount of $9,797,229.52.

The case is No. 08-CV-04039 (PKC).

Attorneys: Beth Moskow-Schnoll (Ballard Spahr Andrews & Ingersoll, LLP) for Chase Bank USA, N.A.

Companies: Chase Bank USA, N.A.; Allegro Law, LLC; AmeriCorp, Inc.

Cases: StateUnfairTradePractices NewYorkNews