Opinion
No. 2959–13.
01-06-2015
MIDLAND FUNDING LLC, Plaintiff, v. Vivia AUSTINNAM a/k/a Vivia Nam, Defendant.
Amanda Perez, Esq., New York, Amanda Perez, Esq., Newark, New Jersey, Crystal Scott, Esq., New York, Crystal Scott, Esq., Newark, New Jersey, attorney for plaintiff. Vivia Austinnam a/k/a Vivia Nam, Mount Vernon, Defendant pro se. The Lawyers' Fund For Client Protection, Albany.
Amanda Perez, Esq., New York, Amanda Perez, Esq., Newark, New Jersey, Crystal Scott, Esq., New York, Crystal Scott, Esq., Newark, New Jersey, attorney for plaintiff.
Vivia Austinnam a/k/a Vivia Nam, Mount Vernon, Defendant pro se.
The Lawyers' Fund For Client Protection, Albany.
Opinion
MARK A. GROSS, J.
By Decision and Order dated July 15, 2014 this Court ordered a hearing to determine whether sanctions would be imposed upon plaintiff and/or plaintiff's attorneys for filing a frivolous debt collection lawsuit.
On or about June 11, 2014 plaintiff moved ex parte to vacate a default judgment entered in favor of plaintiff and against defendant on January 2, 2014 and to discontinue the action. In support of its motion, plaintiff stated that upon further review of its file it had determined that MetaBank was the original creditor of the subject credit account, rather than WebBank as alleged in its complaint, and based upon the new information it no longer wished to proceed with the action. Although the Court found plaintiff's explanation for its decision to vacate the judgment and discontinue the action with prejudice patently incoherent and nonsensical, it nevertheless granted plaintiff's request to vacate the default judgment so that the defendant would no longer be prejudiced by having a default judgment on her record.
Plaintiff and plaintiff's attorney were directed to appear before this Court on August 5, 2014 at 1:30 p.m. for a hearing to determine whether plaintiff's attorneys should be sanctioned under 22 NYCRR § 130 –1.1 for commencing a frivolous action and entering a default judgment against the defendant only to decide six months later that it no longer wished to proceed with the action, without providing an appropriate explanation for such application. Specifically, the plaintiff was directed to provide the Court with documentary proof of the alleged claim in the instant action establishing plaintiff's prima facie case, including the entire chain of assignment(s) of the debt alleged. The Court further directed that plaintiff and/or its attorneys provide the Court with a legally sufficient explanation as to why it no longer wished to proceed with the instant action.
In response to the Court's order plaintiff submitted an informal correspondence to the Court dated July 25, 2014 providing a further explanation regarding its decision to discontinue the action which attached various documents in an effort to avoid having to appear for the hearing. Specifically, plaintiff's counsel, Amanda Perez, informed the Court that plaintiff had purchased the subject credit card account from Bluestem Brands, Inc. on or about January 31, 2013. At the time it purchased the credit card account, Bluestem Brands, Inc. represented to plaintiff that WebBank was the original creditor of the subject account and, therefore, when plaintiff commenced the instant action on September 23, 2013 it alleged in its complaint that the defendant had entered into a credit agreement with plaintiff's predecessor in interest, WebBank. After entering the default judgment, on or about February 4, 2014, plaintiff then, for some undisclosed reason, claims to have questioned Bluestem Brands, Inc., about the chain of title. Plaintiff further claims that Bluestem Brands, Inc. then provided plaintiff with an updated chain of title that allegedly established that the original creditor of the account was MetaBank, and that the correct chain of title for defendant's account ran from MetaBank to WebBank to Bluestem Brands, Inc. to Midland Funding, LLC.
Based upon the updated information it received, plaintiff asserted that it decided rather than seek to amend its pleadings to allege the correct chain of title for the subject account it would seek to vacate the judgment and discontinue the action with prejudice due to the complicated corporate relationship between Bluestem Brands, Inc., WebBank and MetaBank. Plaintiff asserted that it believed its decision to seek vacatur and discontinue the action was the more consumer friendly course of action since a consumer could easily be confused by a post-judgment motion to amend the pleadings. Plaintiff contended, however, that notwithstanding its decision to vacate and discontinue the action it did, in fact, have a valid cause of action against the defendant.
The Court denied plaintiff's request that the hearing be cancelled and the hearing was adjourned to August 21, 2014. At the hearing, plaintiff's counsel reiterated almost verbatim its written explanation regarding its decision to discontinue the action. In support of its contention that plaintiff had a valid cause of action and judgment against Ms. Austinnam, plaintiff's counsel submitted various copies of documents .
The Court notes that the exact same supporting documents were produced in the initial correspondence to the Court as were submitted at the hearing.
Plaintiff produced a copy of a Bill of Sale from MetaBank to WebBank dated June 28, 2012 which references an Account Transfer Agreement which was not produced. Inexplicably, in conjunction with this Bill of Sale, plaintiff also produced a copy of an Affidavit of Sale of Account by Debt Seller sworn by an individual named C.J. Hamilton, who asserts that he is the V.P. of Collections and Recoveries of Bluestem Brands, Inc. formerly known as Fingerhut Direct Marketing, Inc. Mr. Hamilton asserts that he is the custodian of certain books and records of Bluestem and that his affidavit is based upon his review of said business records. Mr. Hamilton further asserts that on January 31, 2013 Bluestem sold off a pool of accounts to Midland Funding, LLC and that WebBank had previously sold those accounts to Bluestem pursuant to a purchase agreement dated January 10, 2013. Mr. Hamilton then states that the original creditor was CIT Bank for accounts that originated between September 29, 2003 to February 16, 2010; MetaBank for accounts that originated between February 17, 2010 to June 30, 2012; and WebBank for accounts that originated between July 1, 2012 to the present. He also asserts that MetaBank had previously sold and assigned the accounts which originated prior to July 1, 2012 to WebBank.
Plaintiff also produced a copy of a Bill of Sale between WebBank and Bluestem Brands, Inc. dated January 25, 2013 which references an Account Purchase Agreement which again was not produced. The Bill of Sale references certain charged off accounts described in another document entitled Schedule 1, which is attached to the Bill of Sale. The aforementioned Schedule 1 merely indicates that the accounts being purchased are described in an electronic file named Bulk Sale Fingerhut Primary. There is no reference to any particular credit card accounts or even a file name or number. An Affidavit of Sale of Accounts accompanies the Bill of Sale which is sworn by Kelly M. Barnett, the president of WebBank. In her affidavit, Ms. Barnett asserts that on or about January 25, 2013 WebBank transferred certain charged-off accounts to Bluestem Brands, Inc. Ms. Barnett also asserts that Bluestem Brands, Inc. was the account servicer for the subject accounts from the origination of the accounts through January 25, 2013.
Plaintiff further produced an Assignment and Bill of Sale between Bluestem Brands, Inc. and Midland Funding, LLC dated January 31, 2013 which references an Account Purchase Agreement which, once again, was not produced. The Bill of Sale references certain charged off accounts described in another document entitled Schedule 1, which is attached to the Assignment and Bill of Sale. This aforementioned Schedule 1 indicates that certain charged off accounts being transferred are described in an electronic file the name of which was redacted. An Affidavit of Sale of Account by Debt Seller accompanies the Assignment and Bill of Sale which is sworn by Ray Frigo, who identifies himself as the Chief Operating Officer of Bluestem Brands, Inc. In his affidavit, Mr. Frigo asserts that he is the custodian of certain books and records of Bluestem and that his affidavit is based upon his review of said business records. Mr. Frigo further asserts that on January 31, 2013 Bluestem sold off a pool of accounts to Midland Funding, LLC and that WebBank had previously sold those accounts to Bluestem pursuant to a purchase agreement dated January 10, 2013. Once again, there is no reference to any particular account numbers or files.
Lastly, plaintiff produced a credit card account statement from Fingerhut, dated May 15, 2012, which is addressed to the defendant and which shows an account balance of $1,110.77. Only the last four digits of the account number, that being 1398, is referenced on the statement. No other documents were submitted to the Court.
After summarizing the aforementioned documents, plaintiff once again explained that it only became aware of the fact that MetaBank was the original creditor in February 2014 when it further questioned Bluestem Brands, Inc. regarding the chain of title. However, plaintiff never provided any explanation as to why it further questioned Bluestem Brands, Inc. about the chain of title after entering the default. Plaintiff also failed to provide the Court with any information detailing what additional documentation Bluestem Brands, Inc. had failed to provide when it initially assigned the pool of charged off accounts it had purchased from WebBank and which was subsequently provided.
At the conclusion of the hearing, the Court noted that plaintiff had failed to provide the Court with prima facie evidence of its claim. Specifically, the documents provided did not show that defendant's alleged account was part of the accounts assigned. A copy of the schedule of the specific accounts assigned, as referred to in each assignment (redacting all but the defendant's account information), was NOT provided to the Court. Simply stated, plaintiff failed to show that it owned defendant's account. Plaintiff's counsel indicated that it would provide the Court with such proof in a post-hearing submission, but has never done so.
Plaintiff's post-hearing submission consisted of an affidavit of Gavin Forrette, the Director of Collections and Recoveries for Bluestem Brands, Inc., which was dated September 4, 2014. Mr. Forrette states in his affidavit that he has been employed by Bluestem Brands, Inc. for only seven months. Mr. Forrette asserts that he has personal knowledge of the general business practices of Bluestem Brands, Inc. and that his statements are based upon information provided by persons working under his direction and supervision, his own personal knowledge and/or his review of Bluestem's records, including records pertaining to defendant's account. Mr. Forrette further reiterates in his affidavit the same superfluous information provided in Mr. Hamilton's previously submitted affidavit: that on January 31, 2013 Bluestem sold off a pool of accounts to Midland Funding, LLC and that WebBank had previously sold those accounts to Bluestem pursuant to a purchase agreement dated January 10, 2013; that the original creditor was CIT Bank for accounts that originated between September 29, 2003 to February 16, 2010; MetaBank for accounts that originated between February 17, 2010 to June 30, 2012; and WebBank for accounts that originated between July 1, 2012 to the present. Mr. Forrette then asserts that based upon his review of the records pertaining to defendant's account he has determined that defendants account was sold to Midland Funding as part of the bulk account sale and assignment, dated January 31, 2013, between Bluestem Brands, Inc. and Midland. He further asserts that the data regarding defendant's account was submitted electronically and is documented in Exhibit “C” attached to his affidavit. Mr. Forrette then states that as part of the portfolio transaction Bluestem provided the chain of title from the current issuer WebBank to Bluestem and Bluestem to Midland but that on February 4, 2014 Bluestem provided an updated chain of title that clarified the defendant's account as having a chain of title from MetaBank to WebBank to Bluestem to Midland. Exhibit “C” attached to Mr. Forrette's affidavit consists of a document entitled “Copy of Data provided in reference to Defendant as part of portfolio sale from Bluestem to Midland.” The document consists of a table containing information including but not limited to, a lot number (LOT125), defendant's name, address, the account number, credit card number, opening date, charge off date and charge off amount. The heading above the table states “File name: LOT125 Final Data–V2xlsx”.
The Court finds Mr. Forrette's affidavit to be inconsequential to plaintiff's contention that it had a prima facie case against the defendant. First, Mr. Forrette clearly had no personal knowledge of the assignments of the alleged debt between any of the parties as he has only been employed by Bluestem Brands, Inc. for seven months and all of the documents regarding the account assignments submitted to the Court pre-date his employment. In addition, Mr. Forrette clearly avers that his statements are based, in part at the very least, upon information provided by persons working under his direction and supervision and upon review of Bluestems Brands, Inc.'s records. As such, Mr. Forrette's affidavit was based solely upon the documents that were provided to him after the alleged assignment took place. In addition, with the exception of his hearsay statements that defendant's account was part of the bulk account assignment from Bluestem to Midland, there is no substantive proof that defendant's account was part of the bulk account transfers and assignments that took place between MetaBank, WebBank, Bluestem and Midland or that defendant's account is owned by Midland. Mr. Forrette's hearsay assertion in his affirmation that defendant's account was part of the bulk accounts assigned is not sufficient as a matter of law to prove that such an assignment took place. See, Palisades Collection, LLC v. Gonzalez, 10 Misc.3d 1058A (Civ.Ct. NYC 2005); Citibank v. Martin, 11 Misc.3d 219, 807 N.Y.S.2d 284 (Civ.Ct. NYC 2005).
Moreover, Mr. Forrette's statements regarding CIT Bank, MetaBank and WebBank being the originating creditors for credit accounts based upon the date said accounts were opened are simply superfluous and irrelevant. The Court is not concerned about any credit card account other than defendant's account and these assertions do nothing but create confusion without in any way substantiating plaintiff's contention that it has a viable claim against the defendant. Additionally, the Court notes that the same confounding statements were made, virtually verbatim, by Mr. Hamilton is his affidavit submitted prior to the hearing. The Court views this repeated assertion of superfluous information as an attempt by plaintiff to obfuscate plaintiff's inability to provide the requisite documentary proof needed to substantiate the validity of its action against the defendant. As such, Mr. Forrette's affidavit does not provide the Court with any additional admissible evidence of plaintiff's claim that it has a prima case against the defendant.
All of the affidavits submitted by plaintiff refer to only to the assignments of bulk accounts without providing any substantive information from which it could be determined that defendant's account was part of those assignments. The table of information attached to Mr. Forrette's affidavit as Exhibit “C” is the only document which contains information which might refer to defendant's account. None of the other documents produced refer to any of the information associated with defendant's account, i.e. LOT125, so as to demonstrate that defendant's account was actually included in any of the bulk assignments. As such, there is no admissible proof specifically establishing that defendant's credit card account was one of the accounts assigned to plaintiff. Nothing in the documents produced establishes plaintiff's chain of assignment of defendant's alleged debt and, therefore, plaintiff's counsel has not documented a prima facie case against defendant.
Moreover, Mr. Forrette's affidavit fails to address why Bluestem Brands, Inc. initially represented that WebBank was the original creditor. The unexplained change in facts regarding the original creditor is especially troublesome in light of the fact that Bluestem Brands, Inc. was allegedly the servicer for the account since its inception and as such, clearly should have known that MetaBank was the original creditor.
The Court finds that under the circumstances presented here, plaintiff's counsel, Crystal Scott, did not and could not properly have certified the complaint filed in the instant action. 22 NYCRR § 130–1.1 –a requires that “by signing a paper, an attorney or party certifies that, to the best of that person's knowledge, information and belief, formed after an inquiry reasonable under the circumstances, (1) the presentation of the paper or the contentions therein are not frivolous as defined in subsection 130–1 .1(c).” 22 NYCRR § 130 –1.1(c) defines conduct as frivolous if: (1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false.”
Under 22 NYCRR § 130 –1.1 –a a proper certification of a complaint can only be made after an inquiry reasonable under the circumstances establishes that the claim asserted in the complaint has merit in law and asserts truthful factual allegations. Plaintiff's counsel should have known what documentary proof was required for a meritorious lawsuit under New York law and knew that they did not have the required proof in the instant case when they filed suit. In order for any inquiry by counsel into the merits of the instant matter to be reasonable, counsel had an obligation to obtain the required documentation substantiating a prima facie case, including proof of the entire chain of assignment(s) of the alleged debt, prior to filing the instant action. As such, since plaintiff's counsel failed to obtain the requisite documentation substantiating the merits of plaintiff's alleged cause of action against the defendant, plaintiff's counsel, Ms. Scott, could not properly certify the complaint as required under 22 NYCRR § 130–1.1 –a.
In addition, counsel has a continuing duty to assess the legal and factual basis of a claim in order to avoid imposition of sanctions under Part 130 of the Rules of the Chief Administrator of the Courts. See Worldwide Asset Purchasing, L.L.C. v. Akrofi, 25 Misc.3d 768, 884 N.Y.S.2d 631 (Ithaca City Ct.2009). In the case at bar, counsel was repeatedly presented with additional opportunities to re-evaluate the claim, to wit; when it applied for a default judgment against defendant, when it sought vacatur of the default judgment, when it was ordered by the Court to produce documentary proof of the alleged claim, including the entire chain of assignment of the debt, when it appeared for the sanctions hearing and was given the opportunity to produce evidence of the claim, and finally, after the hearing when it was given a final opportunity to make a post-hearing submission. First, it appears clear that plaintiff relied upon incomplete and inaccurate computer generated records to justify the commencement of this action and to support its application for a default judgment. Thereafter, plaintiff's counsel continued, repeatedly, to ignore their obligations to produce proof of their claim by submitting woefully inadequate documentation and unsubstantiated hearsay allegations, even at and after a sanctions hearing. The apparent lack of a factual basis for the claim herein renders plaintiff's counsel's conduct in commencing this action without having proof of its merit frivolous within the meaning of 22 NYCRR § 130 –1.1(c).
The Court finds that plaintiff's counsel's failure to produce the directed documentary proof is even more egregious given that plaintiff has previously prosecuted a similar action in which plaintiff's prior counsel was sanctioned by this Court for conduct hauntingly similar to plaintiff's in-house counsel's conduct. Midland Funding LLC d/b/a in New York as Midland Funding of Delaware LLC v. Dianne Wallace, 34 Misc.3d 1206(A) (Mt. Vernon City Ct.2012). As such, plaintiff and its current in-house counsel were fully aware of their legal obligations in bringing the instant action and in complying with the Court's directive that they submit the necessary documentary proof of their alleged prima facie case against the defendant. The Court even granted plaintiff and its counsel an additional opportunity to provide the Court with said proof by allowing a post-hearing submission when plaintiff should have been prepared to provide said documentary proof at the August 21, 2014 hearing. Rather than providing the requisite proof, plaintiff merely submitted to the Court the same documents it had already provided two times before coupled with an ineffectual affidavit from a new employee of one of its assignor's who had no personal knowledge regarding the bulk account assignments and more importantly, defendant's alleged account. Moreover, inexplicably, three of the four affidavits submitted by the plaintiff in support of its position that it had a proper claim against the defendant were sworn by employees of Bluestem Brands, Inc., the corporate entity which provided the false chain of assignment in the first place without providing any explanation for the prior conflicting information. Clearly, plaintiff and its counsel are extraordinarily cavalier about commencing lawsuits and taking default judgments against individuals without sufficient legal basis to do so, thereby unreasonably damaging the credit of parties like defendant herein.
The Court also finds that plaintiff's counsel's failed to fulfill the requirements of CPLR § 3215 in obtaining the default judgment. CPLR § 3215 requires submission of an affidavit of merit setting forth the factual proof constituting the claim made by the party in support of such party's application for a default judgment. In the case at bar, the Court does not consider the affidavit submitted by plaintiff with its default judgment application to be an affidavit satisfying the requirements under CPLR § 3215. First, the affidavit is by an employee of plaintiff's servicing agent and as such, is not an affidavit made by the party as required under CPLR § 3215. See HSBC Bank v. Betts, 67 A.D.3d 735, 888 N.Y.S.2d 203 (2nd Dept.2009). Second, the allegations asserted in the affidavit were purportedly based upon a review of records that were either incorrect or incomplete and did not constitute factual proof of the alleged claim. The Court finds it suspect that the records relied upon to fashion the supporting affidavit for a default judgment against defendant were questioned by plaintiff a little over a month after the affidavit was drafted and the default judgment was obtained, which inquiry led to Bluestem Brands, Inc. providing an updated chain of assignment. Clearly, Ms. Gohman based her affidavit in support of plaintiff's application for a default judgment upon inaccurate and incomplete documentation and could not possibly have established the requisite chain of assignment necessary for proof of the alleged claim.
For an assignee plaintiff to have the first hand knowledge necessary for a statutorily proper affidavit of merit as required by CPLR § 3215 such party must have obtained the entire chain of assignment(s) and the underlying documentary proof. The rules have always required a plaintiff to have first hand knowledge of the facts constituting the claim when seeking to obtain a default judgment against a defendant. As a result of recurring abuse of this requirement by attorneys representing assignee's of consumer debt, the New York courts recently restated the minimum requirements needed to satisfy the statutory prerequisites under CPLR § 3215 for assignee plaintiff's in consumer debt cases. Clearly, plaintiff's counsel knows that under New York law, a full chain of assignment in addition to documentary proof of the contract and debt is required in order to prove a prima facie case in a consumer debt action where the plaintiff is an assignee of the original creditor. See, Citibank v. Martin, 11 Misc.3d 219, 807 N.Y.S.2d 284 (Civ.Ct. NYC 2005) ; Palisades Collection, LLC v. Gonzalez, 10 Misc.3d 1058A (Civ.Ct. NYC 2005); DNS Equity Group, Inc. Lavalle, 26 Misc.3d 1228A (Dist. Ct. Nassau Cty.2010). Without proof of the chain of assignment plaintiff is unable to show its standing to sue the defendant and a lack of standing renders a litigation a ity, subject to dismissal without prejudice. Citibank v. Martin, 11 Misc.3d 219, 807 N.Y.S.2d 284 (Civ.Ct. NYC 2005).
This Court is appalled by plaintiff's counsel's conduct in the case at bar. First, plaintiff's counsel, Crystal Scott, commenced an action without having sufficient documentary proof to establish its prima facie case. Thereafter, plaintiff took a default judgment against the defendant and did so, this Court believes, in bad faith, fully knowing what proof was required to prove its case and that it was not in possession of such proof. The application for a default judgment, including the affidavit of facts and supporting documentation, was also submitted by Ms. Scott. Then plaintiff's counsel, Amanda Perez, made an ex-parte application to vacate the default judgment six months later without providing a proper explanation. After attempting to avoid having to appear before the Court, Ms. Perez appeared at the sanctions hearing but could not provide proof to substantiate plaintiff's claim. The Court even granted Ms. Perez a further opportunity to provide the Court with the proof required to substantiate its claim and she still failed to provide the requisite proof. Rather, Ms. Perez provided the Court with useless bills of sale and affidavits containing superfluous information clearly intending to obfuscate its inability to produce actual documentary evidence to support the unsubstantiated cause of action it brought against the defendant. The Court also doubts that plaintiff could ever obtain and produce the requisite proof given that it has failed to do to date. Clearly, plaintiff's assertion that the judgment against the defendant was a valid judgment was tantamount to counsel attempting to perpetrate a fraud upon the Court.
The conduct of plaintiff's counsel not only improperly denied defendant the due process of law but is egregious, careless and unprofessional, and holds the courts and the entire legal profession up for public scorn and ridicule. Such conduct shall not be countenanced by the Court.
Based upon all the foregoing, the Court finds that the plaintiff prosecuted a baseless claim to the detriment of defendant. The Court further finds that the failure of plaintiff and plaintiff's counsel, Crystal Scott, to obtain the requisite documentary proof of the claim alleged, including the entire chain of assignment(s), prior either to commencing the instant action or to obtaining a default judgment against defendant constitutes frivolous conduct within the meaning of 22 NYCRR § 130.1 –1. Moreover, despite repeated opportunities to produce the requested proof and repeated failures to do so, plaintiff's counsel, Amanda Perez, continued to assert the validity of plaintiff's claim, despite the fact that such claim is apparently entirely without merit. In doing so, Ms. Perez repeatedly asserted factual statements that were false and behaved in a manner that can only be seen as having been undertaken primarily to prolong the resolution of this case. Based thereon the Court hereby imposes a monetary sanction against plaintiff Midland Funding, LLC in the sum of $10,000.00 and monetary sanctions against plaintiff's in-house counsel Crystal Scott and Amanda Perez in the sum of $5,000.00 each, all of which sanctions are to be paid by the respective parties to the Lawyer's Fund for Client Protection no later than February 29, 2015. Proof of compliance with this Decision and Order shall be filed with the Clerk of this Court by that same date.
This constitutes the Decision and Order of the Court.