Judge Dismisses Challenge to Legal Collections Tactic

A judge’s decision in Ohio recently may have helped to clear some of the jungle of legal filings that have been entangling the legal collection marketplace in recent years.

Then again, the effort to trim this tangled forest may have just begun.

The case is just one in a series of suits by Cincinnati attorney Stephen R. Felson against Cleveland-based legal collectors Javitch, Block & Rathbone.

The various suits boil down to objections by Felson’s clients against the practice of many legal collectors, often working for debt purchasing firms, of simultaneously filing hundreds of claims against debtors. In a nut shell, Felson charges that the legal firms swear knowledge and documentation on each case they take to court, even though they don’t have that documentation. That violates the FDCPA, according to Felson.

In February, Judge Michael R. Barrett ruled against a Felson motion for summary judgment that Javitch violated the FDCPA in a suit against consumer Peggy Miller.

Barrett, writing in the U.S. District Court, Southern District of Ohio, denied the motion, concluding that Javitch had demonstrated that it had spent “considerable time, effort and research” in evaluating whether to sue Miller over a debt.

Additionally, Javitch submitted reports from two experts on the accounts receivable management industry, who detailed the way firms such as Javitch receive account information and the amount of that information, Barrett writes in his decision.

David Lavine, a director at ARM consultant Kaulkin Ginsberg, was one of the experts providing a report. Lavine responded to several of Felson’s major points – that much of the documentation lacks a chain of title because it is sold in bulk in an electronic format; that consumer debt is unique and can’t be sold; and that there’s a lack of substantive attorney involvement in these cases.

First, Lavine responds, it is common today for financial instruments to be sold in an electronic format. “You can buy a T-bill from the government and you don’t get a piece of paper. That’s true of stock as well.”

Second, a debt is a financial instrument that can be sold, said Lavine. “The right to collect money from someone is a right. You own it and you can sell it,” said Lavine.

Finally, attorneys do work all these court collection cases, partly through efficiencies created by technology, said Lavine. Realistically, “each case may not require an extreme amount of attorney time,” he said. “Just because you do a lot of them doesn’t mean you aren’t doing them right. There is no proof that was happening,” he said.

Further, the current approach to legal debt collections is audited by credit grantors, debt buyers, agencies, and others. “This is not the Wild West frontier,” said Lavine.

The judge concluded that Javitch followed industry standards in its treatment of Miller and dismissed the request for summary judgment.

Lavine cautioned that several cases remain that could severely impact the collections industry. “The industry is responding. If you lose you are in big trouble. You have to fight it,” said Lavine.

Rockville, Md.-based Kaulkin Ginsberg is the parent of insideARM.