‘Champerty’ Case Heightens Judge’s ‘Sixth Sense’ That He Is Seeing ‘Dead Corporations’ Represented By ‘Dead Law Firms’

This dialogue was taken almost verbatim from Centurion Capital Corp. v. Guarino, 11117/05, NYLJ 1202553647897, at *1 (Civ., RI, Decided May 3, 2012) Judge Philip S. Straniere. Decided: May 3, 2012.


‘Champerty’ Case Heightens Judge’s ‘Sixth Sense’ That He Is Seeing ‘Dead Corporations’ Represented By ‘Dead Law Firms’

What happens when a judge starts to see – repreatedly – what he thinks are lawsuits filed by defunct corporate parties, represented by law firms that have ceased to exist?

Perhaps the judge says what New York Supreme Court Justice Philip S. Straniere said in a recent case, faced with that situation:

This is another case which is slowly convincing me that I am the judge in the ‘Sixth Sense’ part of the [New York] Civil Court where, like characters in that film who only see dead people, I am relegated to seeing cases with ‘dead corporations’ represented by ‘dead law firms.’

Centurion Capital Corp. v. Guarino, No. 11117/05, 2012 N.Y. Slip Op. 50749(U), Civil Court, City of New York, Richmond County (N.Y. Sup. Ct. Apr. 30, 2012) (Straniere, J.).

The judge – besides invoking the 1999 M. Night Shyamalan movie The Sixth Sense, where a child played by Haley Joel Osment famously declares, to the Bruce Willis character, that “I see dead people” – decried what he saw as potential champerty involving the assignment and re-assignment of litigation rights. MB900412704[1]

He also expressed concern about lawsuits filed by companies that may not be registered to do business in New York – including one company that filed more than 13,000 lawsuits in New York courts from 2005 and 2007.

In Centurion, the judge explained that “Plaintiff, ‘Centurion Capital Corporation,’ assignee of Bank of
Marin, commenced this action against the defendant, Anna Guarino, alleging that the defendant had failed to make payments on a consumer credit transaction” and that a 2005 default judgment was entered against the non-appearing defendant.

“Currently before the court is an application to accept a Notice of Assignment of the above judgment from ‘Centurion Capital Corp.’ to ‘Palisades Acquisition XVI, LLC,’ as well as a consent to the substitution of attorney designating new counsel for Palisades as the new plaintiff.

The court concluded that the failure of Centurion “to properly register with the [New York] Secretary of State when coupled with its failure to register as a licensed debt collector creates a fraud on both the public and the court.”

The court, therefore, vacated the judgment against Guarino.

The court in Centurion also discussed whether there were proper consents to changes of attorneys, proper assignments, and the issue of champerty. About champerty, the court said the following:

One of the recurring problem with consumer credit litigation brought by third-party debt buyers such as Centurion Capital and Palisades is that not only is the debt sold on a regular basis to another third-party debt collector, resulting in suits being maintained by more than one creditor against a debtor on the same original debt, but the attorney of record is also often changed and no substitution of attorney form filed with the court or notification being given to the debtor.

This lawsuit takes that problem beyond that issue. The law firms involved in this case appear not only to have been substituted for as counsel, with or without notifying the court of the change, but also appear to have gone out of business as viable law firms. The court must question whether they are in fact just attorneys representing a client or clients in debt collection or do in fact have an ownership stake in the litigation. The close physical proximity of the offices of these law firms and the third party debt buyer
client, raises suspicion as to what is the real relationship between them.

The reason for this concern is also supported by the fact that a number of the attorneys appear to remain ‘on-site’ while the name of the law firm on the door and letterhead changes. Are Wolpoff & Abramson, Mann Bracken and Fulton, Friedman & Gullace, providing only legal services to debt buyer clients or do they have a stake in the litigation which may be in violation of the Judiciary Law?

[New York] Judiciary Law §§ 488, 489 & 490 prohibit certain practices whereby attorneys and corporations purchase debt solely for the purpose of bringing litigation in regard to that debt. This practice is referred to a ‘champerty’ and case law does not label that activity illegal where the litigation is the end result of the debt buyer trying to
collect on the debt by other legal, commercially acceptable means and then only using litigation as the last resort [Bluebird Partners, LP v. First Fidelity Bank, NA, 94 N.Y.2d 726 (2000)]. Were that the case almost all third party debt purchasers of consumer credit debt would be ‘illegal.’

The above being said, this case may actually fit into the definition of champerty because nowhere in the complaint does Centurion Capital Corporation allege that demand for payment of the underlying credit card debt was made and that the defendant refused payment. When coupled with plaintiff’s failure to attach a copy of the initial assignment of the debt to Centurion Capital, it becomes impossible to determine how long after the debt was purchased did Centurion Capital wait before bringing this litigation. If there is no reasonable amount of time between the date of assignment of the debt and the commencement of this litigation, then there may be a presumption that the debt was purchased solely for litigation purposes and not primarily for collection. It is impossible for the court to make any determination in that regard because of the failure of the plaintiff to properly set forth the basis of its claim in the complaint and to produce ‘requisite proof’ sufficient to have sustained entry of a default judgment.

The court presumes that when an attorney brings an action on behalf of a client, there has been some investigation by counsel to determine that the client has a good faith basis for bringing the suit. Based on the current history of consumer credit debt collection litigation where plaintiffs lack the ability to prove a case at trial, or by summary judgment, or present enough requisite proof to get a default, it must be concluded that certain attorneys are not making a good faith investigating into the client’s claim. A constant issue in the area of consumer credit litigation is to what extent does counsel for the creditor have responsibility to have reviewed the documentation of its client to determine whether it has sufficient proof to prove its case, before the litigation begins. This court has seen too many cases where creditor plaintiffs, especially third party debt buyers, have little or no documentation to warrant commencement of an action let alone entry of a judgment. At what point do attorneys have an obligation to tell the client that they will not bring the lawsuit absent some showing of the ability to prevail on the underlying claim[?] . . . . Generation of a summons and complaint based on a computer printout of a debtor’s account from a third-party debt buyer who had no contact with the debtor has in practice become dangerously close to a violation of the Rules of Professional Conduct [Rule 1.16 & 3.1]. How much verification of their client’s ability to prove its case was done by the attorneys in this case considering that during a twenty-one month period in the New York City Civil Court counsel was filing on the average 650 cases a month. And that was just for this third-party debt buyer. The firms involved in this case represent many different third-party debt buyer plaintiffs.

The judge directed the clerk to reject the filing seeking assignment of the judgment until all of the defects listed in the opinion are corrected, and to stay enforcement of judgment activities in the Guarino, or any of the other 930 actions in Richmond County, New York, filed by Centurion.

A complete copy of the opinion is available here.

SOURCE: http://www.secondaryinsurancemarketblog.com



One Response to “‘Champerty’ Case Heightens Judge’s ‘Sixth Sense’ That He Is Seeing ‘Dead Corporations’ Represented By ‘Dead Law Firms’”
  1. StuckinSoPa says:

    “Zombie” collection agencies work on pure bluff and gall anyway. They have to, what with the statute of limitations having expired on the majority of debts they purchased. Instead of a long drawn out opinion the judge should have just fined the lawyers, BIG TIME, for wasting court time. It is a crime, at least here in PA, to file lawsuits for the sole purpose of intimidation and harassment. And the judge gets to fine lawyers AND plaintiffs here. Made the papers a few years ago,$25,000 fine for the lawyers, $25,000 for the plaintiff, PLUS 90 days (time suspended, dollars were not!)

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