Carroll v. U.S. Equities Corp.

Decision Date24 September 2019
Docket Number1:18-CV-667 (TJM/CFH)
PartiesROBERT CARROLL, Plaintiff, v. U.S. EQUITIES CORP., LINDA STRUMPF, HAL SIEGEL, DAVID WARSHALL, WING LAM, Defendants.
CourtU.S. District Court — Northern District of New York

THOMAS J. McAVOY, Senior United States District Judge

DECISION & ORDER
I. INTRODUCTION

Plaintiff Robert Carroll ("Plaintiff") commenced this action pro se asserting claims under the Fair Debt Collection Practices Act ("FDCPA"), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), New York General Business Law § 349 ("GBL § 349"), and New York Judiciary Law § 487. The action also asserts a New York state common-law claim for malicious prosecution. Defendants U.S. Equities Corp. ("U.S. Equities"), Linda Strumpf ("Strumpf"), and Hal Siegal ("Siegal")(collectively "Defendants") move pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss the claims against them. Plaintiff opposes the motion. For the reasons that follow, the motion is granted in part and denied in part.

II. BACKGROUND

Unless otherwise noted, the following facts are taken from the Complaint, documents attached to the Complaint as exhibits, documents incorporated by reference in the Complaint, and documents in the underlying state-court litigation. Generally, Plaintiff maintains that Defendants, based upon false affidavits of service and merit, obtained a default judgment against him in Kingston City Court for a consumer debt and then, unbeknownst to him, served an information subpoena and restraining notice on a bank where he had deposited over $50,000, thereby seizing money in that account. Plaintiff's efforts to stop execution of the retraining notice and to vacate the default judgment were unsuccessful.

Plaintiff contends that the default judgment against him was acquired using a scheme similar to that used in another case. See Compl. ¶¶ 1-2, 21.1 In this regard, Plaintiffalleges that Strumpf, an attorney, represented U.S. Equities, a debt collection agency owned by Strumpf's husband, Siegal, in thousands of debt collection lawsuits. Plaintiff maintains that U.S. Equities purchased "for pennies on the dollar" debt portfolios consisting of spreadsheets containing the names, addresses, and social security numbers of people who allegedly owed money on defaulted consumer debts. According to Plaintiff, these debt portfolios did not include the original credit agreements, nor did they include account statements or any other documentation that could be used to verify the accuracy of the data in the spreadsheets. Plaintiff also contends that the contracts of sale that accompanied the debt portfolios specifically disclaimed the accuracy of the spreadsheets. Plaintiff maintains that U.S. Equities collected debts by filing lawsuits against the people named in the spreadsheets and obtaining judgments against them. In the lawsuits, Strumpf was the attorney and U.S. Equities was the plaintiff that collected on the judgments by freezing people's bank accounts, seizing their money and wages, and intimidating people into making voluntary payment agreements. Plaintiff asserts that because U.S. Equities did not and could not obtain proof that any particular person actually owed a debt, they could not win judgments in contested cases. Therefore, he contends, they concocted a scheme that allowed them to win uncontested default judgments. Pursuant to this scheme, defendants submitted to the courts false affidavits of service and false affidavits of merit. In support of his contention that this scheme existed, Plaintiff points to a lawsuit commenced in July 2010 by then-New York State Attorney General Andrew M. Cuomo against Serves You Right, Inc.("SYR") and David Warshall ("Warshall").2 This lawsuit was the result of an investigation into the fraudulent activities of the process-serving firm SYR during the period of January 1, 2007 to September 30, 2009. The lawsuit resulted in a July 21, 2010 Consent Order and Judgment that permanently enjoined SYR and Warshall from having any interest in any business involved in the service of legal process, required SYR to permanently cease any and all business activities and dissolve, required Warshall to surrender any license he had obtained as a process server from the New York City Department of Consumer Affairs, and required Warshall to pay a fine of $50,000. Because Strumpf had used SYR's services during the period covered by the lawsuit, she entered into an "Assurance of Discontinuance" ("AOD") agreement with the New York State Attorney General. The AOD indicated that on a "persistent and repeated basis" during the relevant period, SYR had prepared false affidavits of service, and that Strumpf had used SYR's services on approximately 4,020 occasions, and had obtained default judgments based on those false affidavits. The AOD did not indicate, however, that Strumpf was aware that SYR's affidavits were false. Nevertheless, in light of the fact that judgments had been obtained using false affidavits, Strumpf agreed to cooperate in identifying defendants in those cases, to give them an opportunity to have the judgments vacated.

As to Plaintiff's specific situation, he contends that on February 2, 2009, U.S. Equities obtained a "fraudulent" default judgment against him in the Kingston City Court in the amount of $28,681.97 which was a result of the $11,424.67 underlying debt plus interest at 21.99% per annum from March 28, 2002 through January 14, 2009. Compl. Ex.1, p. 9. Plaintiff maintains that this judgment was fraudulent because: he was never served with a summons and complaint; Defendant Warshall, who worked for SYR at the time, submitted a false affidavit of service; that at the time the action was commenced, Plaintiff did not live within the City of Kingston and therefore the Kingston City Court did not have personal jurisdiction over him; the judgment sought damages in excess of the statutory limit for money damages in the Kingston City Court; the date of the alleged service of the summons and complaint was more than six years after the date the cause of action accrued and thus was beyond the applicable statute of limitations; Defendant Lam submitted an affidavit of merit falsely claiming that he had personal knowledge that Plaintiff owed the debt that was the subject of the lawsuit; and that Plaintiff never received a letter from the creditor, Strumpf, or U.S. Equities notifying him of that his debt was overdue (a "dunning" letter).

Plaintiff contends that he did not learn of the lawsuit or the default judgment until June or July 2017 when he noticed that the balance in his bank account had suddenly decreased. He called his bank and was told that it had been served with an information subpoena and retraining notice effectively freezing his account. He contends that the bank never mailed a copy of the information subpoena to him but, after repeated requests, it emailed a copy to him more than a month later. He asserts that "soon thereafter," his bank "issued a check and sent it to the Nassau County Sheriff's Department." Plaintiff contacted the Nassau County Sheriff's Department civil division and was told that the Sheriff's Department would not release the funds to U.S. Equities "pending an order to show cause." Plaintiff then submitted an application to the Kingston City Court seeking an order requiring U.S. Equities to show cause why the default judgment should not be vacated, and for a temporary restraining order staying the execution of the judgment pending a hearing todetermine whether plaintiff had been properly served with a summons and complaint (a "traverse" hearing) and whether his bank account contained exempt veterans benefits. In support of that application, Plaintiff submitted an affidavit in which he attested that he was never served with a summons and complaint and did not learn of the action until he received a letter informing him that an information subpoena and restraining notice had been served on his bank; that he had a good defense to the action because the service of process was not proper, because the court did not have personal jurisdiction over him, and because the statue limitations had already expired at the time the action was commenced; that he did not live at the location where the summons and complaint was allegedly served; that he believed the representations made by the process server in attempting to effectuate service were false; that at the time the action was commenced he was living in another town and therefore the Kingston City Court never had personal jurisdiction over him; and that the funds upon which the restraining notice were executed were exempt from creditor judgment collections under the New York Debtor and Creditor Law. Compl., Ex. 2, pp. 5-7.

On August 14, 2017, the Deputy Chief Clerk of the Kingston City Court sent Plaintiff a letter stating:

Please be advised that your application to vacate the default judgment is hereby denied. In order to vacate a judgment by default, it must be shown that the failure to appear was excusable and that you have a meritorious defense.
A mere allegation that you were not served in and of itself is insufficient to show that the default was excusable. In addition, a motion to vacate a judgment must be brought within five (5) years of the filing of the judgment.
Accordingly your show cause application is hereby denied. If you have any questions about this matter, you should consult an attorney.

Id., p. 2.

This action followed. As indicated above, Plaintiff asserts FDCPA, RICO, GBL § 349, and New York Judiciary Law § 487 claims, and a New York state common-law claim of malicious prosecution. He seeks a judgment "declaring that defendants have committed the violations of law alleged in this action;" actual and/or compensatory damages; treble damages pursuant to RICO and N.Y. Jud. Law § 487; punitive damages; statutory damages pursuant to the FDCPA; and an order awarding costs, disbursements and...

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