Generally speaking, debt collection is a legal, if much maligned way to make a living. And, as long as people keep owing other people money, it is going to be a component of our society.
Of course, aside from existential disagreement about whether debt-collection agencies should exist at all, one of the reasons many people dislike the industry is its reputation for heavy-handed tactics.
One the primary tool debtors have against improper debt collection is the Fair Debt Collections Practices Act (FDCPA), which, among a lot of different things, prohibits debt collectors from harassing debtors, lying to them, threatening them with unfounded lawsuits and trying to get people to pay uncollectable debts. Under the FDCPA, whenever a debt collector violates a provision of the statute, the debtor may be owed statutory damages of up to $1,000 per violation, regardless of any actual damages, and attorneys’ fees. In practice, this means someone who gets a harassing phone call might be able to walk away with $1,000 and their attorney might get her fees paid for.
As the Chamber of Commerce recently whined in an amicus filing in the Supreme Court, the FDCPA has created “booming business” for plaintiffs’ attorneys who sue for mere “technical violations of the law.” Class actions are also available for widespread misbehavior. While an individual lawsuit is small potatoes, if you aggregate enough cases together and sue misbehaving debt collectors enough times, plaintiffs’ lawyers can make a decent living earning their clients $1,000 recoveries. While reasonable minds might question the Chamber’s assertion that that is a bad thing, FDCPA lawsuits have risen almost 10-fold in the last fifteen years, which means that they can’t be ignored by the debt-collection industry.
Recently a debt-collection agency in New Jersey had enough. According to Collections Solutions, Inc., a handful of plaintiffs-side attorneys have been filing scores of meritless FDCPA lawsuits, particularly class-actions, against the company in an effort to extort small settlements. While the lawsuits might be total garbage, Collections Solutions argues that it is willing to pay settlements early on because they are cheaper than actually doing anything to fight the cases.
Collections Solutions has had enough, and recently filed a RICO lawsuit against the lawyers representing the aggrieved debtors.
The Racketeer Influenced and Corrupt Organizations Act (RICO), is a federal statute designed to target organized crime, which prohibits any person from engaging in “a pattern of racketeering activity” that affects interstate commerce. It is a criminal statute, but notably also provides for a private cause of action, replete with treble damages from harms caused.
RICO suits are tricky though, and require proof of a number of elements. For the most part, a plaintiff must prove that a defendant (1) willfully or knowingly (2) engaged in “racketeering activity” (3) more than once (4) involving an “enterprise,” which (f) affected interstate commerce. “Racketeering activity” is defined as a violation of a list of separate criminal statutes, such as federal wire fraud. As a result, RICO typically requires proof that the alleged racketeers committed all of the elements of some specific predicate crime.
Collections Solutions has claimed that the debtors’ attorneys gathered together a group of “professional plaintiff[s]” who served as class representatives in a host of “spurious class actions” that the attorneys knew were legally meritless. They did so, says Collections Solutions, to extort settlement amounts from the innocent “deep-pocket” debt collectors.
While those allegations sound pretty crappy, the complaint is pretty light on why this makes out a RICO claim. Remember, RICO is a way of aggregating underlying violations of specific criminal laws. With respect to the predicate crimes that constitute the “racketeering activity” the plaintiffs allege, in a conclusory fashion that the defendants committed the federal crimes of mail fraud, wire fraud, obstruction of justice, obstruction of state law enforcement, witness tampering, fraud and misuse of documents, and extortion without even bothering to mention the elements of those crimes, much less make any effort to say how they were committed. The plaintiffs also allege predicate New Jersey crimes with a teensy bit more specificity, notably calling the scheme “extortion” because the debtors’ attorneys allegedly threatened to continue bogus lawsuits unless they were paid to stop.
Lawyers for the defendants called the lawsuit “completely frivolous” and claimed they will seek sanctions.
While reserving judgment on the sanctionability of the claim, it does appear that the complaint definitely doesn’t make a valid federal RICO claim. Pleading RICO violations in federal court requires a plaintiff to plead with particularity the basis of the alleged predicate act. You can’t just say someone broke the law without explaining how. Here the complaint just lists federal crimes that were violated, without even trying to say how.
Even on the basis of the stated New Jersey crimes, the complaint still isn’t good enough. State law offenses can only be RICO predicates if they are generic felonies “involving murder, kidnaping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical.” Theft is not on that list. So that means the only possible claim is “theft by extortion.” However, generic RICO extortion under state law “is defined as ‘obtaining something of value from another with his consent induced by the wrongful use of force, fear, or threats.’” But those threats can’t be just threats of lost money – they have to relate to actual use of force or violence. Otherwise we’re just talking away hard business negotiations. As the whole point of the lawsuit seems to be that the debtors’ counsel keeps filing iffy lawsuits and the debt collectors keep paying out to avoid losing more money by going to trial, that’s maybe shitty and illegal, but it isn’t extortion.
By looking at how tenuous this lawsuit is, we can see that really the defendant cum plaintiff-debt collector is trying to just give it right back to the debtors’ attorneys. It seems that they believe that the answer to questionable lawsuits designed to extract nuisance-value settlements is to file an equally bogus lawsuit in the hope of accomplishing the same.
While that sentiment is perhaps understandable, it is a terrible move for the debt collectors. At worst, it is, as the debtors’ attorneys have claimed “frivolous” and sanctionable. At best, it is the first step in a war of mutually assured destruction. Let’s say the suit has legs enough to extract some kind of settlement (this is doubtful, but let’s assume anyway). What stops debtors’ attorneys, who, according to the debt collectors, have already made filing vexatious lawsuits against debt collectors their entire business, from countering with RICO suits of their own? “You tried to extort me by filing a RICO suit? Have a RICO suit!”
Furthermore, if the debt collectors succeed, it is a terrible outcome for us all. It may be tempting to dismiss this whole affair as the squabbling of different types of lowlifes. But we would do well to remember that RICO is a criminal statute. We should also remember that, even if the particular debtors’ attorneys have behaved like asses, it is not exactly a social benefit for debt collectors to be able to extort money out of debtors’ counsel as retribution for fighting back against unfair debt collection. If the original lawsuits against the debt collectors were baseless, counsel could perhaps seek sanctions. But, then again, one might suspect that not every lawsuit filed against the debt collectors is meritless. The whole point of having attorneys fee provisions and statutory damages built into the FDCPA is to encourage lawsuits against violators on behalf of people who can’t hire an attorney. Punishing such litigation is not something we should condone.