Federal District Judge denies motions to dismiss and to compel arbitration in class action debt collection suit
On December 4, a Federal District Judge in Manhattan denied motions filed by defendants in a class action brought by NYLAG and Hughes Hubbard & Reed LLP claiming that debt buyers and their attorneys orchestrated a massive debt collection scheme against thousands of New Yorkers. The suit alleges that Palisades Collection, its corporate parent, Asta Funding (NASDAQ: ASFI), and its law firm, Pressler & Pressler, aggressively used a strategy of improper litigation to wrongfully obtain and enforce millions of dollars of default judgments. Asta Funding is one of the nation’s largest debt buyers.
District Judge Robert P. Patterson, Jr. denied from the bench a motion to compel plaintiffs to bring their claims in arbitration, rather than litigation, on the ground that the defendants had not established that plaintiffs ever agreed to arbitrate. Judge Patterson also denied a motion to dismiss claims of a named plaintiff representing individuals against whom there are outstanding default judgments in earlier state court actions.
“Judge Patterson’s decision to deny the motion to send these claims to arbitration is a tremendous win for those most harmed by the defendants’ tactics – they now have the right to their day in court, and to a judge’s decision,” said NYLAG attorney Danielle Tarantolo. “The denial also points to the underlying flaw in the third-party debt collection business model. Debt buyers play a numbers game: they buy a huge volume of debt at cents on the dollar, then profit by relying on automated systems, backed by neither valid documentation nor reliable processes to protect vulnerable consumers.”
“This is a gratifying moment for those who have been victimized by the unlawful debt collection practices of the defendants,” added Diane E. Lifton, a litigation partner at Hughes Hubbard. “We can now proceed to litigate the case in court and move toward the day when New York consumers – many poor and working poor – who are caught up in this ugly scheme will at last see justice done.”
The class action, which was filed in May, focuses on the defendants’ use of a mass litigation strategy over a two-year period targeting an estimated 60,000 New York City residents, regardless of whether they had actually incurred the debts. The defendants sued to collect debts allegedly purchased from AT&T Wireless. Many individuals were never made aware of the fact that they had been sued, or had no legal representation, resulting in default judgments against them. Often, alleged debtors had no knowledge of the judgments until their banks accounts were restrained or their wages garnished by the defendants.