Michelo v. Nat'l Collegiate Student Loan Trust 2007-2

Decision Date11 October 2019
Docket Number18 Civ. 1781 (PGG), 18 Civ. 7692 (PGG)
Citation419 F.Supp.3d 668
Parties Mutinta MICHELO, Katherine Seaman, Mary Re Seaman, and Sandra Tabar, individually and on behalf of all others similarly situated, Plaintiffs, v. NATIONAL COLLEGIATE STUDENT LOAN TRUST 2007-2, National Collegiate Student Loan Trust 2007-3, Transworld Systems, Inc., in its own right and as successor to NCO Financial Systems, Inc.; EGS Financial Care Inc., formerly known as NCO Financial Systems, Inc.; and Forster & Garbus LLP, Defendants. Christina Bifulco, Francis Butry, and Cori Frauenhofer, individually and on behalf of all others similarly situated, Plaintiffs, v. National Collegiate Student Loan Trust 2004-2, National Collegiate Student Loan Trust 2006-4, Transworld Systems, Inc., in its own right and as successor to NCO Financial Systems, Inc.; EGS Financial Care Inc., formerly known as NCO Financial Systems, Inc.; and Forster & Garbus LLP, Defendants.
CourtU.S. District Court — Southern District of New York

Asher Hawkins, Marvin Lawrence Frank, Gregory Alan Frank, Frank LLP, New York, NY, for Plaintiffs.

Gregory Thomas Casamento, Andrew Max Braunstein, Locke Lord LLP, R. James Jude De Rose, III, Lord, Bissell & Brook, LLP, New York, NY, Aaron R. Easley, Sessions, Fishman, & Nathan & Israel LLC, Flemington, NJ, James Matthew Goodin, Locke Lord LLP, James Kevin Schultz, Morgan Ian Marcus, Sessions Fishman Nathan & Israel, LLC, Chicago, IL, Bryan C. Shartle, Michael Alltmont, Sessions, Fishman, Nathan & Israel, L.L.C., Metairie, LA, Carol A. Lastorino, Amanda Rae Griner, Rivkin Radler LLP, Uniondale, NY, for Defendants.



In these putative class actions, Plaintiffs allege that Defendants have orchestrated a scheme to "fraudulently obtain default judgments ... for unprovable debts" against them in state court, and that Plaintiffs have carried out this scheme by, inter alia, filing documents containing false or deceptive information in those state proceedings. Plaintiffs assert claims for violations of the Fair Debt Collection Practices Act (the "FDCPA"); New York General Business Law ("GBL") Section 349 ; and New York Judiciary Law Section 487. (Am. Cmplt. (Dkt. No. 60) ¶¶ 1, 12, 170-89; Bifulco Cmplt. (Dkt. No. 1) ¶¶ 1, 11, 167-86)1 The Defendants in each case have moved to dismiss. (See Michelo Mot. (Dkt. No. 80); Bifulco Mot. (Dkt. No. 37))

In a September 30, 2019 Order (Michelo Dkt. No. 107; Bifulco Dkt. No. 59), this Court granted Defendants' motions in part, and denied Defendants' motions in part. The purpose of this Opinion is to explain the Court's reasoning.



Plaintiffs Muninta Michelo, Katherine Seaman, Mary Re Seaman, and Sandra Tabar (collectively, the "Michelo Plaintiffs") are current or former New York City residents and holders of student loan debt. (Am. Cmplt. (Dkt. No. 60) ¶¶ 22-25) Plaintiffs Christina Bifulco, Francis Butry, and Cori Frauenhofer (collectively, the "Bifulco Plaintiffs") are residents of Erie County, New York, and likewise hold student loan debt. (Bifulco Cmplt. (Dkt. No. 1) ¶¶ 21-23) Defendants in the Michelo action are two student loan trusts, their servicing agents, and a law firm retained by the trusts; Defendants in the Bifulco action are two different, but related, loan trusts, and the same servicing agents and law firm named in the Michelo action.3

Plaintiffs were each sued by one of the trusts – acting through the trusts' law firm – in state-court debt collection proceedings initiated between 2013 and 2015. (Am. Cmplt. (Dkt. No. 60) ¶¶ 63, 83, 114; Bifulco Cmplt. (Dkt. No. 1) ¶¶ 62, 94, 123) Plaintiffs allege that these suits are part of Defendants' "fraudulent scheme to make false representations to consumers and in court filings to obtain payments on debts they cannot prove they are owed," and have filed this action on behalf of a putative class of the scheme's alleged victims. (Am. Cmplt. (Dkt. No. 60) ¶ 1; Bifulco Cmplt. (Dkt. No. 1) ¶ 1)

A. Overview of Defendants' Alleged Scheme

National Collegiate Student Loan Trust 2007-2, National Collegiate Student Loan Trust 2007-3, National Collegiate Student Loan Trust 2004-2, and National Collegiate Student Loan Trust 2006-4 (collectively, "National Collegiate" or "the "Trust Defendants") are Delaware statutory trusts doing business in New York. (Am. Complt. (Dkt. No. 60) ¶¶ 26, 27; Bifulco Complt. (Dkt, No. 1) ¶¶ 24, 25) The Trust Defendants hold a combined 15,080 loans made to New York customers, with the principal loan amounts totaling over $191 million. (Am. Cmplt. (Dkt. No. 60) ¶¶ 26-27; Bifulco Cmplt. (Dkt. No. 1) ¶¶ 24-25) Defendant NCO Financial Systems, Inc. ("NCO") – currently doing business as EGS Financial Care, Inc. ("EGS") – was the Trust Defendants' servicing agent until November 1, 2014. EGS's successor in that role is Defendant Transworld Systems, Inc. (Am. Cmplt. (Dkt. No. 60) ¶¶ 28-29, 44-45; Bifulco Cmplt. (Dkt. No. 1) ¶¶ 43-44; 26-27) The servicing agents, in turn, maintain "a nationwide network of debt-collection law firms[,] ... through which [they] coordinate[ ] and implement[ ] collections on National Collegiate's behalf." (Am. Cmplt. (Dkt. No. 60) ¶ 47; Bifulco Cmplt. (Dkt. No. 1) ¶ 46) Defendant Forster & Garbus LLP ("Forster") is one of those law firms. This New York-based firm was "retained by National Collegiate to collect on consumer debt that National Collegiate claims to own," and "files and maintains actions in New York State courts seeking debt collection" from National Collegiate's purported debtors. (Am. Cmplt. (Dkt. No. 60) ¶ 30; Bifulco Cmplt. (Dkt. No. 1) ¶ 28)

According to Plaintiffs, Forster – on behalf of the other Defendants – initiates such suits even though Defendants "have no idea whether, and how much money, [the Trust Defendants] are owed." (Am. Cmplt. (Dkt. No. 60) ¶ 1; Bifulco Cmplt. (Dkt. No. 1) ¶ 1) Defendants allegedly "use[ ] a variety of illegal tricks to deceive consumers and state courts into believing that a National Collegiate Trust has a valid legal claim against consumers, when in reality it does not." (Am. Cmplt. (Dkt. No. 60) ¶ 7; Bifulco Cmplt. (Dkt. No. 1) ¶ 7) These "illegal tricks" include consistent misrepresentations in the state court complaints Forster files. For example, these complaints "falsely state that [one of the] Trust [Defendants] is the ‘original creditor’ of the loan at issue," even though "[n]o National Collegiate Trust is the ‘original creditor’ " for any loan that is the subject of the Trust Defendants' lawsuit. (Am. Cmplt. (Dkt. No. 60) ¶¶ 8, 10: Bifulco Cmplt. (Dkt. No. 1) ¶ 87 n.14) The complaints also represent that National Collegiate is "authorized to proceed" with the state debt collection actions. Plaintiffs assert that this representation is false, because National Collegiate has not registered with the New York Department of State or paid the taxes required of a foreign entity that regularly files suit in New York state courts. (Am. Cmplt. (Dkt. No. 60) ¶ 11; Bifulco Cmplt. (Dkt. No. 1) ¶¶ 8, 10) Finally, the state complaints falsely certify that the attorneys who signed the complaints have meaningfully reviewed the claims asserted therein. Plaintiffs allege that the complaints were "mass-produced by non-lawyers ... and then signed by attorneys who [have] done nothing to confirm the validity of the allegations," and that Forster "[does] not possess, and did not review, any actual documentary support for the actions it prosecuted against any Plaintiff on any Trust Defendant's behalf." (Am. Cmplt. (Dkt. No. 60) ¶¶17, 55-56; Bifulco Cmplt. (Dkt. No. 1) ¶¶ 16, 54-55)

Defendants' alleged "tricks" also include "the widespread practice of submitting false or deceptive affidavits [in New York] state courts in order to ... obtain default judgments." Like the state court complaints, the default judgment filings "are similarly auto-generated and robosigned, and/or filed in state courts without meaningful attorney review." (Am. Cmplt. (Dkt. No. 60) ¶¶ 12, 62; Bifulco Cmplt. (Dkt. No. 1) ¶¶ 11, 61) Moreover, employees and agents of Defendant Transworld "have falsely attested to personal knowledge of (1) the account records and the customer's debt, and (2) the chain of assignments establishing entitlement to sue," when in fact these employees and agents – like the Forster attorneys – "robosign the affidavits." (Am. Cmplt. (Dkt. No. 60) ¶ 13: Bifulco Cmplt. (Dkt. No. 1) ¶ 12) Pursuant to these improper practices, Defendants have illegally obtained judgments against, and extracted money from, Plaintiffs and putative class members.

B. Defendants' Debt Collection Actions

Defendants commenced state debt collection proceedings against each of the named Plaintiffs, employing tactics characteristic of the alleged fraudulent debt collection scheme.

1. Plaintiff Michelo

Plaintiff Mutinta Michelo, now a Texas resident, previously resided in the Bronx. (Am. Cmplt. (Dkt. No. 60) ¶ 22) On July 14, 2015, Forster sued Michelo in Bronx County Civil Court on behalf of Trust 2007-2, asserting breach of contract and account stated claims against Michelo for allegedly defaulting on an educational loan. The complaint seeks damages of $22,047.88. (Id. ¶¶ 63, 66, 78) The complaint falsely states that the Trust is the original creditor of the loan, and that the Trust is authorized to proceed with the action. The signing attorney falsely certifies he or she has engaged in a meaningful review of the claims asserted. (Id. ¶¶ 67-68, 70-71, 76-77) Michelo further alleges – on information and belief – that Defendants "reported to credit bureaus that the underlying alleged debt was valid and owed, and that it was the subject of legal action." (Id. ¶ 79) Forster filed a notice voluntarily discontinuing the suit on December 9, 2016, but Defendants did not report the discontinuance to credit bureaus, a failure that negatively affected Michelo's credit and caused her economic and non-economic harm. (Id. ¶¶ 80-82)

2. Plaintiffs Katherine Seaman...

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