In Sykes v. Mel S. Harris and Associates LLC, — F.3d —-, 2015 WL 525904 (2d Cir. 2015), the Court of Appeals for the Second Circuit certified a class against a debt collector who purported to operate a mill that resulted in illegal default judgments in New York City.

 These default judgments, in the words of plaintiffs, are the result of defendants’ construction of a “default judgment mill.” The “mill” operates in this fashion: first, by obtaining charged-off consumer debt; second, by initiating a debt-collection action by serving a summons and complaint on the purported debtor; and third, by submitting fraudulent documents to the New York City Civil Court in order to obtain a default judgment. At the first step, “[p]laintiffs allege that the Leucadia and Mel Harris defendants entered into joint ventures to purchase debt portfolios, and then filed debt collection actions against the alleged debtors with the intent to collect millions of dollars through fraudulently-obtained default judgments.” Id.  At the second step, Mel Harris would employ “a software program … designed by [Mel Harris employee] Mr. [Todd] Fabacher.” Appellees’ App’x at 157. Fabacher is employed as a “director of information technology for Mel Harris.” Sykes II, 285 F.R.D. at 284. His program “selects and organizes debts for the generation of a summons and complaint for each debt. These documents are signed by an attorney, and bundled together in batches of 50. Each batch is sent to a single process serving company.” Appellees’ App’x at 157. Further, the process serving company associated with each debt is saved by this computer program, so “the process serving company associated with any particular debt can be readily ascertained.” Appellees’ App’x at 157.  To effectuate this second step, Leucadia and Mel Harris defendants would hire a process server, often Samserv. Sykes II, 285 F.R.D. at 283. Plaintiffs allege that “Samserv routinely engaged in ‘sewer service’ whereby it would fail to serve the summons and complaint but still submit proof of service to the court .” Id. This proof of service was first delivered to Mel Harris, which, “[a]fter process [wa]s allegedly served, … receive[d] from the process serving company an electronic affidavit of service.” Appellees’ App’x at 157. After receiving this affidavit of service, the system designed by Fabacher “automatically organize[d] and print[ed] a motion for a default judgment [and] an affidavit of merit … within approximately 35 days after the date of service of process.” Appellees’ App’x at 157–58.  Having generated these documents, at the third step, “[a]fter a debtor failed to appear in court for lack of notice of the action, the Leucadia and Mel Harris defendants would then apply for a default judgment by providing the court with … an ‘affidavit of merit’ attesting to their personal knowledge regarding the defendant’s debt and an affidavit of service as proof of service.” Sykes II, 285 F.R.D. at 283 (emphasis added).  Before the district court at the class certification stage, there was substantial evidence of the scope and impacts of this alleged scheme. “Between 2006 and 2009, various Leucadia entities filed 124,838 cases,” and Mel Harris represented Leucadia in 99.63 percent of those cases. Id. at 284. “The ‘vast majority’ of such cases were adjudicated without appearance by the defendant debtors, indicating the likelihood that a default judgment was entered.” Id. Further, “[b]etween 2007 and 2010 various Leucadia entities obtained default judgments in 49,114 cases in New York City Civil Court.” Id.

The Court of Appeals rejected the Rooker-Feldman doctrine as a defense.  But, interestingly, the Court of Appeals and the dissent discussed whether sums that the debtors paid and which were lawfully owed under the instruments could be “damages” under the FDPCA.  Although I have not reviewed the briefing, the debt collector apparently did not argue that such sums were not “damages” under the FDCPA, but instead argued that such sums paid by the debtors should defeat class certification.

The only individualized damages inquiries that “may exist,” Sykes II, 285 F.R.D. at 293, are those that turn, in plaintiffs’ words, on “the return of the money extracted from them as a result of … fraudulent judgments,” as well as incidental damages. We conclude that inquiries into these damages are not sufficient grounds on which to conclude that the district court’s determination that individualized damages issues will not predominate in this case was an abuse of discretion. In the first place, plaintiffs point out that the amount of any money extracted from plaintiffs is stored by defendants themselves. Because the evidence necessary to make out such damages claims, while individual, is easily accessible, such individual damage considerations do not threaten to overwhelm the litigation. See  Leyva, 716 F.3d at 514.

The dissent agreed on this point, but seemed to go a bit farther to conclude that such sums were “damages”:

I also agree that the amount of debt owed by each class member, which defendants urge as an individualized issue that defeats certification, is beside the point. The harm can be viewed as the obligation created by a fraudulent default judgment, so that it should not matter that the original debt may remain, and be unaffected. See  Hamid v. Stock & Grimes, LLP, 876 F.Supp.2d 500, 501–03 (E.D.Pa.2012) (“It is clear from its underlying purpose that debtors may recover for violations of the FDCPA even if they have defaulted on a debt…. If [plaintiff’s] payment was not a proper element of actual damages under the FDCPA, a debt collector could harass a debtor in violation of the FDCPA, as a result of that harassment collect the debt, and thereafter retain what it collected.”); accord  Abby v. Paige, No. 10–23589–CIV, 2013 WL 141145, at *8–9 (S.D.Fla. Jan.11, 2013); cf.  Sparrow v. Mazda Am. Credit, 385 F.Supp.2d 1063, 1071 (E.D.Cal.2005) (“[S]trong policy reasons exist to prevent the chilling effect of trying FDCPA claims in the same case as state law claims for collection of the underlying debt.”); Isa v. Law Office of Timothy Baxter & Assocs., No. 13–cv–11284, 2013 WL 5692850, at *3 (E.D.Mich.2013) (“Congress did not intend for collectors to engage in violations, enter judgments, and use state law on judgment execution to force payment to creditors.”).