On Defending Debt Collection Lawsuits – Part 2

Note: Please read On Defending Debt Collection Lawsuits – Part 1 first. Otherwise, some of this post won’t make no sense.

A lot has been written on the debt-collection/buying industry over the past decade. John Oliver even did a hilarious monologue on it which culminated in him buying tens of thousands of dollars for medical debt for pennies on the dollar before discharging it. To be clear, I want to make a few clarifications.

“Debt collector” generally refers to any entity that collects another party’s debt, whether it owns the debt or not. Often people refer to them as “collection agencies.” These are the folks who send out collection (“dunning”) letters, call your cell phone at all hours, and offer preposterous “one-time deals” to resolve a debt. Some, such as myself, also classify law firms which primarily collect debts, either through the usual tactics or via lawsuits, under this header as well. While many of the attorneys who work for these firms see themselves as genuine lawyers who do real legal work, the reality is that they are low-paid paper pushers with limited litigation experience. Many of the ones with talent look to get out of these firms ASAP.

“Debt buyer” generally refers to any entity that buys up pools of debt from an original creditor. Synchrony and Comenity, for example, are banks that provide retail credit cards for, say, Best Buy. When people hit hard times and decide that their priority is food rather than paying off their 4K TV, the accounts the creditors hold go into default. Rather than expend too much time and energy on these accounts, many of which are for relatively low dollar amounts, these creditors sell off pools of these debts to a debt buyer like Midland Funding. The information that Midland or other buyers receive about the accounts ranges from “adequate” to “piss poor.” In some instances, a buyer receives nothing but a spreadsheet with names, addresses, perhaps a partial social security or account number, and an amount. While this may not seem like enough information to meaningfully collect on allegedly default accounts, think again. The limited information supplied to debt buyers, much of it containing errors galore, serves as the basis for almost all debt-collection lawsuits.

No matter who holds the debt, be it an original creditor or buyer, at some point these entities have to decide whether to let an account go or turn to their brethren, the debt-collection law firm, for assistance. All states have a statute of limitations on when debt-collection actions can be brought, regardless of the legal theory employed. The most basic cause of action for these suits is breach of contract since, supposedly, the creditor and debtor formed a contractual relationship at some point in the past. In Michigan, the statute of limitations for such suits is six years from the last transaction. For a credit card, that means either the last time the card was used or when the last payment was made. Given the poor record keeping and incomplete information that is transmitted from creditors to debt buyers to debt-collection lawyers, it should surprise nobody that lawsuits are filed after the statue of limitations has expired. That is a no-no, for which some remedies exist (more on that later).

Other legal theories are typically employed as well, such as unjust enrichment and account stated. The “benefit” of these theories, at least in the mind of collection attorneys, is that they typically have lower evidentiary standards than a contract action. Although I believe this view is contestable, it is widely presumed in Michigan that a creditor or debt collector sending a “statement of account” (whatever that means) to an alleged debtor is sufficient for establishing a cause of action against them unless they specifically object to the statement. By pleading this cause, a collection attorney can do an end-run around any contractual agreement between the original creditor and debtor. This may not seem like much at first blush, but more than a few credit contracts contain provisions that can assist a defendant in court. Certain agreements contain so-called notice provisions that state that if either party intends to bring an action against the other, prior written notice must be given. Unsurprisingly, such notice is often not given or there is no record of it. In that instance, the lawsuit itself is premature and ought to be dismissed. If dismissal is not an option, then the defendant has a valid defense, and potential counterclaim, against the creditor for breaching the credit agreement. These and other provision, many of which are unknown to collection lawyers, go by the wayside when account stated is pursued.

As for unjust enrichment and other theories that fall under the umbrella of “implied” rather than “express” contract, longstanding Michigan case law holds that they cannot stand if an express contract, that is a written contract, exists between the parties. That does not stop attorneys from pleading such causes nor courts from granting collectors victory based upon them. Account stated, which I mentioned above, is recognized by the Michigan Supreme Court as a form of implied contract, yet courts routinely ignore that as well.

Without getting too far into the weeds, Michigan has rules of pleading that are often ignored in debt-collection suits. While these rules are rather low level (Michigan is a “notice pleading” state, meaning a party only must be put on general notice of what is being alleged), debt collectors find ways to violate them all the time. Without variance, debt-collection firms will use internally generated forms that are nothing but fill-in-the-blank complaints where the basic information from the spreadsheets mentioned above are punched into the document by assistants or paralegals. These documents are rarely reviewed by an actual attorney. When I have pointed out manifest, even ridiculous, errors on these pleadings, such as not identifying how many parties there are; using correct pronouns; and getting the name of the court and judge wrong, the collection attorney’s response is to shove off blame on their assistants. Rarely have I seen judges admonish them for this.

This is only the tip of the iceberg for how debt-collection lawsuits run. In the next part, I will get into the process of a debt-collection suit, including the manner in which many alleged debtors are served. That is often where the real trouble starts.

On Defending Debt Collection Lawsuits – Part 1

Note: This is Part 1 of a series of posts on the nature of debt collection in court, specifically Michigan courts. This installment contains basic background information on the Michigan court system, which is not substantially different than the systems of other states. As someone who routinely defends people in debt-collection suits, I make no pretense to neutrality. Usury, which is at the heart of almost all debt-collection suits, is a sin; I am no friend of it. And for reasons which should become clear over these posts, I am no friend of deep problems in the legal system that have turned too many courts in handmaidens of the debt-collection industry.

Defending debtors or, rather, alleged debtors in court is a largely thankless job. This conclusion, though reached largely from my experience as an attorney in Michigan, seems to be shared by other lawyers I have spoken with across the country. The ones with the brightest outlooks tend to be legal-aid lawyers who have a modest salary to fall back on along with a cloak of legitimacy in the eyes of the judiciary. After all, they are “pro bono attorneys” trying to help “the little guy” on their way to “more legitimate” legal work in other fields. Whether this perception is accurate or not is neither here nor there; it tends to be the way of things. For the rest of us, of which there are relatively few scattered across America’s legal landscape, the perception is that we are pariahs, troublemakers, legal obscurantists, etc. because we have the temerity to provide what all persons ought to be entitled to, namely a proper defense under the law. Part of that defense, indeed a large part of it, entails holding debt-collecting plaintiffs accountable under procedural and substantive rules intended, at the very least, to prevent precisely what goes on in courts across the country: the bulk filing of under-researched, cookie-cutter complaints that are often unsupported by credible evidence.

In the Michigan legal system, there are effectively two trial courts: district and circuit. The latter, created by the state’s constitution, handle high-level matters such as felonies and civil suits above $25,000.00. District courts, which were created 50 years ago by statute, are adjunct tribunals charged with handling misdemeanors, landlord/tenant proceedings, and sub-$25k civil suits. They are sometimes characterized as “neighborhood courts” intended to be closer to the people than their beefier circuit brethren. Every Michigan county, save for some rural ones, has one circuit court and any number of district courts. My county, for instance, has four (or five—depending on how you want to count) district courts. There is sufficient evidence to support the conclusion that at least some of these district courts are underfunded, understaffed, and undermotivated to serve as anything more than a clearinghouse for unimportant cases.

Of course, any person who has been on the business end of a district court proceeding is unlikely to find their legal matter “unimportant.” A low-level misdemeanor, pled to under prosecutorial pressure, can blight a person’s record for years, leaving them unable to find gainful employment or subject to probationary conditions which, without further assistance, they may very well fail. Landlord/tenant proceedings, too, can have a traumatic impact. An eviction record is a surefire guarantee that future housing will be difficult to find, particularly if one is looking to live in a safe, clean, and stable complex. As for general civil suits, outside of the rare low-stakes business dispute or a jilted lover seeking to get back that “interest free loan” she gave to her cheating boyfriend, the overwhelming majority which clog Michigan district courts are filed by debt collectors.

Now, before getting any further, let me note that not all debt-collection suits are created equal. An initial line can be drawn between those brought by original creditors (say, for example, Bank of America) or debt buyers like Midland Funding, LVNV, or, in the case of student loans, unholy artifices like National Collegiate Student Loan Trust. Almost all of the debts in question are consumer debts: medical debt, credit card debt, student loan debt, and so forth. What these suits share in common is that they are almost universally brought by a handful of debt-collection mills (law firms) that file cookie-cutter complaints en masse in district courts with little to no evidentiary support. While an attorney’s name will appear on these documents, few if any were ever prepared or even reviewed by an attorney. And even if an attorney’s eyes saw them before they moved out the door, the chances are high that the reviewing lawyer is an entry-level associate with limited litigation experience.

Why, you may ask, would any law firm, even a debt mill, behave so recklessly as to file legal documents that likely cannot withstand modest scrutiny? Because they can. Although precise statistics for Michigan are lacking, national estimates point to approximately 75% of all debt-collection suits ending in default. What that means is that after a person is served (or not—more on that later) with a debt-collection suit, they have 21-28 days to file an answer and affirmative defenses. (The time to respond depends on the manner of service.) Answers in and of themselves are not very remarkable: a person either admits, denies, or states they do not have sufficient information to respond to each allegation made against them in the complaint. Defenses, on the other hand, are trickier since certain ones have to be raised immediately or they are deemed waived. For example, if a court lacks personal jurisdiction over a defendant, Michigan law requires that to be raised at the outset or it is waived. The same is true for the statute of limitations. Since most debt-collection suits are rooted, albeit loosely, in contract law, a plaintiff has six years to bring it. And no, just because a plaintiff has blown the limitations period does not mean they won’t try to use the courts to collect.

Should a defendant not answer a suit within the requisite period of time, the debt-collecting plaintiff can file for a default judgment for the full amount it is seeking, plus costs, interest, and statutory attorney fees. It may come as no surprise that the math on these defaults can get a little fuzzy. With no meaningful opposition or oversight, it is not uncommon to find excessive interest tacked on to these judgments or costs inserted that have no basis in reality. Once that default judgment is acquired, the debt-collecting plaintiff is free to use a variety of mechanisms to collect, including garnishing a defendant’s wages, tax returns, and bank accounts or subpoenaing the defendant to appear in court and, under oath, provide all of their financial information to the collector’s attorney. Even if these default judgments are attained illicitly, inaccurately, or the individual subject to them has valid defenses at law, they are difficult to unwind.

If you have read this far, please note I will flesh a number of issues raised here in future installments. There is a lot to be said on how the debt-buying/collecting industry functions, particularly how pools of debt are sold (and resold) between entities for pennies on the dollar before winding up as the bases for most collection suits. When this business practice intersects with the legal realm, serious evidentiary issues are raised before they are, lamentably, ignored by far too many courts. All is not gloom and doom, however. I plan to highlight ways in which some judicial actors have pushed for reform and how a few judges have developed measured approaches to ensure that alleged debtors are not trampled over in their courtrooms.

Writings on Law

As many of you have surely notice, my writing on here has been sporadic over the past few months. In addition to my full-time job, I also handle legal cases on the side for The Maul Law Group, located in West Michigan. As part of my service to the firm, I am starting to contribute writings on legal topics that I come across during my practice. I have, from time to time, written on legal topics here, though that will be changing going forward.

If you are so inclined, please click over to the Maul Law “Legal News” section and don’t hesitate to share your thoughts, especially if you are in the legal profession. Remember: sharing and clicking material from Maul Law helps raise the firm’s search profile which in turn helps us attract new business.

For those of you who have been reading me for years, hopefully you agree that the time has come in my life to purchase a yacht. Your help is appreciated

Criminal Law on a Tuesday

In a working paper available via SSRN, Bernard Harcourt, a professor of law at Columbia, presents three essays on criminal justice, including a provocative piece comparing the sentencing of Daryl Hamm to death in Alabama to the “show trial” grand jury hearings of Darren Wilson, the police officer responsible for shooting Michael Brown. Harcourt argues that these “verdicts” are illusionary; they fail to get to the truth and instead use the legal process to mask raw political decisions. Even the venerable New York Times was duped, declaring the Grand Jury decision to not deliver a bill of an indictment a “verdict” when, in fact, no trial had taken place, no witnesses were called through the adversarial process, and no neutral trier of fact was present. Yet today many Americans believe that Wilson was “acquitted” of any wrongdoing because the legal process, as orchestrated by a politically driven prosecution team, says so.

David Bentley Hart once provocatively declared that all human law is a fiction, and he’s right. Even the laws that we have, the ones we can look up on Lexis and Westlaw, are little more than an expression of particular ideological interests with only scant interest in aligning with any higher notion of justice, natural or divine. Even if one wishes to ground law in something a bit less “exalted,” such as history or tradition, consider for instance how rickety the “Anglo-American legal tradition” has become. Michigan, for example, has an ever-growing list of so-called strict liability offenses whereby no intent is required, which flies in the face of an aspect of Anglo-American criminal law that has been present since at least the days of Judge Blackstone. Scant attention is paid to this, as this reality both benefits prosecutors and only impacts the “criminal elements” of society.

Tell a layman this and should gasp. And the only reason lawyers would go unfazed is because most don’t care. As noted, prosecutors adore strict liability offenses; it makes their job easier. Defense attorneys, at a certain level, may not be a big fan of them, though the more strict liability offenses there are, the greater chance someone will be ensnared by one and need legal assistance. (Never mind, of course, that assistance comes with one hand tied behind its back.) The public at large, constantly made fearful of crime around every corner, don’t have a powerful incentive to seek reform to the criminal code to ensure that strict liability offenses are minimized, or disposed of altogether. Many states, in order to rectify this problem, have passed statutes imputing general intent on all crimes, though Michigan is not one of them. Sure, the Michigan Supreme Court has said that strict liability offenses are “generally disfavored,” but that has not stopped the legislature from passing more or the courts from enforcing them.

Returning to Harcourt, there is more going on in criminal law than just the use of procedure to mask politics broadly. There are specific political economic interests at stake. Municipalities depend on criminal sanctions to fill their coffers and meaningful reforms which would reduce dangerous behavior are rarely taken. For instance, consider criminal sanctions for driving while intoxicated. All automobiles could, in theory, be equipped with so-called blow-and-go equipment that would make a driver pass a sobriety reading before activating the car. Although some would find a way to evade these measures, the vast majority of those inclined to “risk it” and drive intoxicated would be prevented from getting on the roads. Similarly, measures restricting the late-night sale of alcohol and the operation time of bars would also substantially reduce the risk of drunk driving, and yet they are not taken. Why? Because drunk driving offenses bring in revenue, both to the local municipality, but the state, along with the legal profession as a whole. Moreover, restrictions on alcohol and alcohol sales are said to have adverse economic consequences for stores and bars; never mind that what they are peddling contributes to people making poor decisions with deadly consequences.

Could the system be otherwise? Certainly, but not likely. In other forums, Harcourt has called for greater civic engagement as a means to both exposing power structures and generating meaningful reforms in accordance with justice (albeit an ill-defined sort of justice). But those who are most likely to wind up on the wrong side of criminal law are those least likely to head to the polls, sign petitions, engage in protests, or use print and online media to make their positions known. It would be nice to hope that those in power or “those in the know” will, out of the goodness of their hearts, take steps to ameliorate the plight of under-represented persons who are routinely subject to the inequities of the criminal justice system, but hope is only meaningful when placed in its proper context, which is always theological. At the practical level, hope means very little; a willingness to act is crucial. But from whence does that willingness come? Who is answering that question?

About Last Night

Many sophisticated arguments have been made for and against the application of the death penalty, most consequentialist and some deontological. In Catholic circles, debate over the death penalty recently heated up after Pope Francis condemned the practice outright. That pronouncement, like so many pronouncements of this Pontiff, appeared to conflict with the Church’s prior teaching on the matter, which recognizes the permissibility of the death penalty while allowing that there may be prudent reasons for civil authorities to refrain from using it. In the United States, the death penalty is legal in 31 states, though four currently have a moratorium on the practice. This term, the Supreme Court of the United States will hear arguments about why the death penalty should be abolished under the Punishments Clause of the Eighth Amendment. That clause, rightly or wrongly, has come to be interpreted in line with our “evolving standards of decency,” an elastic measuring stick that I, as a tender (and naïve) youth of 27, criticized in my first foray into legal scholarship as historicist.

Last night, the state of Alabama attempted to put to death Doyle Lee Hamm for the murder of a motel clerk in 1987. Hamm, who has cancer, is at risk for his execution by lethal injection to go awry because of the damage to his veins. In short, there is a high risk that Hamm’s veins will rupture during the execution procedure, sending lethal chemicals into his flesh and leading to a protracted, torturous death.

Despite numerous petitions on his behalf, the 11th Circuit Court of Appeals determined, based on affidavits submitted by Alabama, that the execution could still proceed so long as certain procedures were in place, including using veins in Hamm’s lower extremities rather than his arms. In a last ditch effort to save Hamm from a potentially excruciating execution, his attorney, Columbia law professor Bernard Harcourt, appealed to the Supreme Court to review the 11th Circuit’s ruling. After granting a brief stay, the Court voted 6-3 to deny cert, thus paving the way for Alabama to carry out the execution. For 2 1/2 hours, Alabama officials attempted to find veins on Hamm capable of receiving the lethal injection; they could not. And so, less than half-an-hour before the death warrant was set to expire, the execution was called off.

What went on during those 2 1/2 hours remains a mystery. Only Hamm and those officials and correctional officers present know for sure. Hamm’s attorneys, family, and the media were not present, which is why an emergency motion was filed and granted today in federal district court. According to the order, Hamm is supposed to receive a full medical evaluation tomorrow with an official hearing on Monday which, inter alia, will allow those present, including Hamm, to give an official accounting of last night’s events. The district court has also ordered that no evidence from the aborted execution is to be disposed of, including Hamm’s clothing. What the examination, hearing, and physical evidence will reveal is anyone’s guess, though there is a high likelihood that Hamm was stuck repeatedly with a needle for more than two hours before the debacle was called off.

Distressingly, Hamm’s case received scant mainstream media attention until the execution was almost underway. The Washington Post started covering the matter late last night, noting that the Supreme Court had rescinded its stay and highlighting the risks involved with executing a cancer-stricken man. Aside from a handful of Catholic commentators and outlets that stand firmly against the death penalty in all circumstances, those “enlightened young Catholics” who routinely stock up their moral capital by chasing after causes they think will win them credibility among mainstream Leftists were silent. Why? Perhaps because Hamm, a man who far too many in America would deride as “poor white trash,” wasn’t “hip” enough to care about. Similarly, the most unsettling aspect of Hamm’s case, namely the years of legal malfeasance that have kept him on death row, isn’t “shocking” or “immediate” enough to generate Facebook “Likes” and re-Tweets. Or maybe, just maybe, the routine injustices attendant to America’s penal culture is an acceptable byproduct of a larger system of policing and surveillance meant to secure the essential promise of liberalism, the essential promise that so many “illiberal Catholics” refuse to let go of, namely an unserious life of entertainment, etc.

A Followup on “Trump v. Judiciary”

To follow up quickly on yesterday’s post concerning “Trump v. Judiciary,” reports are out that Supreme Court nominee Judge Neil Gorsuch called President Donald Trump’s recent attacks on the judiciary “disheartening” and “demoralizing.” Trump, naturally, is going after the Democratic Senator who leaked Gorsuch’s statements; to attack Gorsuch—a judge highly favored by social and religious conservatives—would be grossly inept, even for Trump.

The nature of Trump’s attacks on the judiciary boils down to the fact that the President believes the courts are political. Well, of course they are—just don’t tell other lawyers and judges that. Despite some naysayers on the sidelines, the American legal system still functions on the idea that laws can be mechanically applied by the judiciary with lawyers serving as advocates for what that application should look like. Even if this rather naïve view holds true at the local level, the bald politicization of the federal judiciary is hardly a recent development. One of the greatest disservices done to law students is to still teach them that the federal courts are legalist in nature, but I am getting away from my point.

Even assuming Gorsuch used the words “disheartening” and “demoralizing,” that doesn’t say a whole lot about what he will do when he finally gets on the Supreme Court. There are plenty of judges who believe that other judges are “political” while they themselves remain “legal”; perhaps Gorsuch will tell himself that Trump is only attacking “political” judges, such as those of the Ninth Circuit, and not “legal” judges such as himself. That is not to say that Gorscuh, once confirmed, will rubberstamp everything the Trump administration sends the Court’s way. As an Originalist of sorts, Gorsuch is probably not a fan of Trump’s expansionist views of executive power, though he may be less bothered than many liberals about Trump’s national security agenda. But in the end Gorsuch is just one man; his presence on the highest court of the land won’t do enough to change the ideological temperament of the federal judiciary, one that appears to be at odds with any attempt to target foreigners on the basis of ethnicity and culture (or religion?).

Eric Posner Throws Down the Gauntlet on “Trump v. Judiciary”

Over at his customarily insightful web-log, University of Chicago law professor Eric Posner is issuing a challenge: “I’m looking for someone who will provide a legal or constitutional defense of Trump’s attack on the courts.” By “attack,” Posner means President Donald Trump’s recent statements that the judiciary (or at least part of it) is standing in the way of the nation’s national security interests. These statements come on the heels of Judge James Robart’s decision to issue a temporary restraining order against Trump’s controversial executive order (EO) 13,769, which temporarily restricts travel and immigration from seven predominantly Muslim countries. The matter is now before the 9th Circuit Court of Appeals.

I am skeptical that either “a legal or constitutional defense of Trump’s attack on the courts” is necessary given that this so-called attack is, at the moment, primarily political and rhetorical. Although Posner makes a loose comparison between “Trump vs. Judiciary” and “Reagan/G.W. Bush v. Congress,” the latter battle, although infused with political elements, was carried out at the legal level. Poser acknowledges, for instance, that “the Reagan administration . . . sought to change [constitutional doctrine concerning executive power] from within by appointing ideologically committed conservative judges and justices.” Arguably, Trump could go a similar route, though it would take a great deal of time—and even then there is no guarantee that judges who appear highly deferential ex ante their appointments will remain so ex post. As recent Supreme Court history has shown, Republican-appointed justices can and will defect from conservative orthodoxy on numerous matters, ranging from abortion to the power of the government to (apparently) mandate individual entry into the health-care market.

Now, as to Trump’s attack itself, whether it is accurate or not is an empirical question. Up until recently, few doubted that the courts are largely deferential to the executive when it comes to foreign affairs, including national security. Posner does not believe this has changed; rather, he appears to believe that the judiciary does not want to green-light ethnic or cultural discrimination. (It is interesting that Posner does not use the word “religious,” perhaps because he acknowledges that the judiciary has a long history of upholding certain discriminations against religious groups and practices.) And so, to the extent that Trump’s EO (and anticipated future national-security measures) seeks “to purify America of foreign influences in a cultural or even ethnic sense,” the courts are unlikely to budge. If so, that likely has far more to do with ideological rather than legal commitments. The Constitution is openly available to be read in a decidedly ideological manner with little-to-no immediate concern being given to legalism in the strict sense. Whatever creative legal or constitutional argument that can be constructed upholding the EO can be thwarted by equally creative legal or constitutional arguments to the contrary. Ideology, not law, is king.

In the end, there appears to be little reason to believe that a “Trumpian view of the Constitution” isn’t ideological as well. The constitutional text, along with the laws which are ostensibly in harmony with it, is silly putty; it can be twisted and stretched in incalculable ways and pressed against the Zeitgeist to take on new appearances. Maybe Trump does want to “purify” America, or maybe he just wants to keep it secure from credible foreign threats which happen to be associated in the public imagination with a particular ethnic-religious grouping. The judiciary, as currently constituted, may be uncomfortable with one or both possibilities, but Trump needn’t appeal forever to law to overcome them; there are many other less savory means at his disposal.