Sykes v. Mel Harris and Associates, LLC
2010 U.S. Dist. LEXIS 137461
| S.D.N.Y. | 2010Background
- Eight New York City plaintiffs allege a mass debt-collection scheme involving a debt buyer (Leucadia defendants), a law firm (Mel Harris defendants), and a process-serving company (Samserv defendants) to obtain default judgments through sewer service.
- Defendants allegedly filed over 100,000 state-court actions from 2006–2008; after default judgments, they allegedly froze bank accounts, threatened garnishments, and damaged credit to pressure settlements.
- Debt portfolios were purchased for pennies on the dollar with limited documentation, often lacking proof of the original debt's validity.
- Todd Fabacher, designated custodian of records for Mel Harris, allegedly signed thousands of affidavits of merit, asserting personal knowledge of debts.
- Plaintiffs claim FDCPA, RICO, GBL § 349, and Judiciary Law § 487 claims, seeking injunctive, declaratory, and damages relief.
- The Court addresses motions to dismiss under Rules 12(b)(6), 12(b)(1), and 9(b), ruling on which claims survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| FDCPA timeliness and tolling | Equitable tolling applies for many plaintiffs due to concealment and sewer service. | FDCPA claims are time-barred for some plaintiffs; tolling is not adequately pleaded. | Equitable tolling applies to most plaintiffs; Graham is barred for tolling due to explicit notice issues. |
| Debt collector definition (FDCPA applicability) | Leucadia entities are debt collectors; Samserv may be liable despite process-serving exemption when engaged in abusive conduct. | Defendants argue non-collector status or exemption for process servers. | Leucadia is a debt collector; Samserv is not protected by blanket exemption when engaged in abusive conduct; FDCPA claims survive against them. |
| FDCPA prohibited conduct | Affidavits of merit and litigation actions were supported by false representations to depress debt and obtain judgments. | Actions in filings/affidavits do not inherently violate the FDCPA. | FDCPA claims are plausible where affidavits misrepresented knowledge or lacked substantial support. |
| RICO claims (substantive and standing/conspiracy) | Pattern of racketeering with mail/wire acts and an association-in-fact enterprise; standing exists due to injuries from default judgments. | Pleadings fail to connect some individuals to the pattern; no distinct enterprises; no proper RICO standing for all defendants. | Substantive RICO claims survive for most defendants; certain individual members are dismissed; RICO conspiracy claims survive for others, with some dismissals. |
Key Cases Cited
- S.Q.K.F.C., Inc. v. Bell Atl. Tricon Leasing Corp., 84 F.3d 629 (2d Cir. 1996) (defining pattern in mail/wire fraud context)
- Reves v. Ernst & Young, 507 U.S. 170 (Supreme Court 1993) (requires participation in operation or management for liability)
- Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339 (2d Cir. 1994) (association-in-fact enterprise; distinguishes entity vs. enterprise)
- First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir. 2004) (enterprise structure requirements for RICO)
- Am. Fuel Corp. v. Utah Energy Dev. Co., Inc., 122 F.3d 130 (2d Cir. 1997) (veil-piercing standard under New York and Delaware law)
- Bennett v. U.S. Trust Co. of N.Y., 770 F.2d 308 (2d Cir. 1985) (enterprise vs. person distinction in RICO)
- Discon, Inc. v. NYNEX Corp., 93 F.3d 1055 (2d Cir. 1996) (veil-piercing and corporate veil principles)
- Fletcher v. Atex, Inc., 68 F.3d 1451 (2d Cir. 1995) (alter ego and piercing the corporate veil considerations)
- Alibrandi v. Fin. Outsourcing Servs., Inc., 333 F.3d 82 (2d Cir. 2003) (debt-collection scope under FDCPA; ongoing definition of debt collector)
- McNall v. Credit Bureau of Josephine County, 689 F. Supp. 2d 1265 (D. Or. 2010) (FDCPA applicability to process servers beyond mere service)