Villalba v. Houslanger & Assocs., 19-CV-4270 (PKC) (RLM)

CourtUnited States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
Writing for the CourtPamela K. Chen, United States District Judge.
Decision Date28 March 2022
PartiesCARLOS VILLALBA, Administrator of the Estate of RAMON GALEAS, Plaintiff, v. HOUSLANGER & ASSOCIATES, PLLC, TODD HOUSLANGER, and VIRGO CAPITAL, LLC, Defendants.
Docket Number19-CV-4270 (PKC) (RLM)

CARLOS VILLALBA, Administrator of the Estate of RAMON GALEAS, Plaintiff,
v.

HOUSLANGER & ASSOCIATES, PLLC, TODD HOUSLANGER, and VIRGO CAPITAL, LLC, Defendants.

No. 19-CV-4270 (PKC) (RLM)

United States District Court, E.D. New York

March 28, 2022


MEMORANDUM & ORDER

Pamela K. Chen, United States District Judge.

Plaintiff, the Administrator of the Estate of Ramon Galeas, [1] brings this lawsuit against Defendants Houslanger & Associates, PLLC and Todd Houslanger (collectively, “Houslanger”), and Virgo Capital, LLC (“Virgo”) (collectively “Defendants”), alleging that Defendants violated Sections 1692e, 1692f, and 1692g of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”), New York General Business Law (“GBL”) § 349, and New York Judiciary Law § 487. Plaintiff also alleges that Defendants committed the tort of conversion. Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(6), and Houslanger moves to strike certain allegations under Rule 12(f). For the reasons below, Houslanger's motions to dismiss and strike are denied in their entirety, and Virgo's motion to dismiss is granted in part and denied in part.

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BACKGROUND

I. Factual Background[2]

When Galeas commenced this suit, he was a 69-year-old man who spoke little English. (Amended Complaint (“Am. Compl.”), Dkt. 22, ¶¶ 44, 85.) He lived in Queens County, New York, and worked the night shift (10 p.m. to 6:30 a.m.) at Rite Aid. (Id. ¶¶ 3, 41-43, 48.)

Sometime before 2007, Galeas was the victim of identity theft. (See Id. ¶ 19; see also Identity Theft Report, Dkt. 22-5.) As a result of the identity theft, he accumulated credit card debt. (See Am. Compl., Dkt. 22, ¶ 19; see also Identity Theft Report, Dkt. 22-5.)

In 2007, LR Credit 11, LLC, through its collection law firm, Mel S. Harris & Associates, LLC (collectively, “LR Credit”), filed collection lawsuits against over 100, 000 New Yorkers, including Galeas. (Am. Compl., Dkt. 22, ¶¶ 15-16.) LR Credit engaged in “sewer service, ” whereby it failed to serve summonses and complaints on the alleged debtors, but still submitted affidavits of service to the court, falsely attesting that service had been made on the alleged debtors. (Id. ¶¶ 16, 20-24.) LR Credit then used the false affidavits of service to obtain default judgments against the alleged debtors, including Galeas. (Id. ¶ 25.) In 2009, a putative class of New York plaintiffs sued LR Credit (among others) alleging various causes of action based on this fraudulent practice of sewer service. See Sykes v. Mel Harris & Assocs., LLC, 285 F.R.D. 279, 283-85 (S.D.N.Y. 2012).

Virgo was chartered in November 2011. (Am. Compl., Dkt. 22, ¶ 28.) Two months after Virgo was chartered, it purchased approximately 15, 000 default judgments from LR Credit,

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including the judgment against Galeas. (Id. ¶ 27.) Virgo never notified Galeas that it had obtained the judgment. (Id. ¶¶ 38-39.)

After LR Credit sold the 15, 000 judgments to Virgo, the plaintiffs suing LR Credit were granted class certification, see Sykes, 285 F.R.D. at 294, and settled with LR Credit (Am. Compl., Dkt. 22, ¶ 26). The parties to the settlement stipulated that LR Credit would stop collecting on the purported debts and cooperate in vacating the default judgments it had obtained based on the allegedly fraudulent affidavits of service. (Id.) They also “stipulated . . . that all [of the alleged debtors] in debt collection actions brought by LR Credit in New York would have been entitled to interpose a defense predicated upon ‘fraud, misrepresentation, illegality, unconscionability, lack of due service, violations of law, or other illegalities.'” (Id.) After the settlement was approved, the New York Supreme Court entered an order vacating all of the default judgments that LR Credit still possessed, but not those that LR Credit had already sold. (See Id. ¶¶ 29-33.)

Virgo and Houslanger knew of, or at least had enough information to determine, the fraudulent circumstances by which LR Credit had obtained a default judgment against Galeas in Queens County Civil Court. (Id. ¶¶ 34, 51-56.) Nevertheless, Virgo employed Houslanger to collect on the judgment against him. (Id. ¶¶ 27, 34.) In 2016, Houslanger sought to collect on the judgment by, inter alia, garnishing Galeas's wages. Houslanger “signed an income execution to Rite Aid” (“Income Execution”), directing Rite Aid to garnish Galeas's wages to satisfy the judgment. (Id. ¶¶ 41-42.) Rite Aid began garnishing Galeas's wages. (Id. ¶ 43.)

Galeas noticed that money was being removed from his paychecks, but believed that this was to pay union dues. (Id. ¶ 44.) He realized that his wages were being garnished only when a family member explained that the reductions were not union dues. (Id. ¶ 45.) Having been the

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victim of identity theft, and being unaware of the default judgment against him, Galeas experienced stress and “wanted to cry” whenever he saw his paycheck. (Id. ¶ 93.)

In April 2018, Galeas appeared in the Civil Court action, and obtained an order to show cause as to why he should be required to pay the default judgment against him. (Id. ¶ 57; see also Order to Show Cause, Dkt. 22-15.) Galeas indicated that he had not been properly served in the underlying debt collection suit and that his first notice of a legal action against him was the Income Execution resulting in the garnishment of his wages. (Order to Show Cause, Dkt. 22-15, at ECF[3]2.) He further noted: “It is not my debt. I am a victim of identity theft. I had no business dealings with the plaintiff [Virgo].” (Id.)

On April 18, 2018, the Civil Court held a show cause hearing. (Am. Compl., Dkt. 22, ¶¶ 57-58.) Galeas was assisted during the hearing by the “Volunteer Lawyer for the Day” program. (Id. ¶ 58.) On behalf of Virgo, Houslanger offered to settle the case by ceasing collections, but did not offer to return the money that had already been garnished. (Id. ¶ 59.) Galeas rejected the offer, and the Civil Court granted Houslanger's request for a nearly six-month adjournment. (Id.)[4] Throughout the next five months, Defendants[5] continued to condition any agreement to vacate the default judgment on Galeas's agreement to forfeit the money already garnished from his wages. (Id. ¶ 67.) As a result of the garnishment and prolonged litigation, Galeas suffered emotional distress (id. ¶ 95), was unable to sleep (id.), and was concerned “during

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the more than eleven months that the court case was going on because he did not know if he was going to get his money back” (id. ¶ 91).

In January 2019, the Civil Court scheduled a traverse hearing to determine whether Galeas had been properly served in the underlying collection suit. (Id. ¶ 71.) Defendants did not prepare any evidence or witnesses. (Id. ¶¶ 72-76.) On March 6, 2019, the day of the hearing, Galeas again was represented by a volunteer attorney for the day. (Id. ¶ 76.) When the attorney asked Defendants whether a process server would appear as a witness to substantiate the underlying default judgment, a Houslanger attorney handed Galeas's volunteer attorney “a stipulation to vacate the judgment, discontinue the case with prejudice, and a general release” (the “Stipulation”). (Id.) The Stipulation provided that “[a]ny sums currently held in trust by the New York City Marshal, ” who had executed the garnishment of Galeas's wages, would “be directed to be returned to [Galeas], ” and that the collection action would be discontinued with prejudice. (Id. ¶ 77 n.8; see also Stipulation, Dkt. 22-17, ¶¶ 1-2.) But in a third paragraph, the Stipulation also provided, in convoluted and seemingly contradictory terms, that “[a]ny sums previously received, if any, may be retained by [Defendants], ” and that Galeas would release any claims-including FDCPA claims-against Defendants. (See Am. Compl., Dkt. 22, ¶ 77 n.8; see also Stipulation, Dkt. 22-17, ¶ 3.) The volunteer attorney representing Galeas crossed out this additional language in the third paragraph, and both Galeas and Defendants signed the modified Stipulation. (See Am. Compl., Dkt. 22, ¶ 86; see also Stipulation, Dkt. 22-17, ¶ 3.)

On December 6, 2018, while the Order to Show Cause was pending, $423.26 of Galeas's garnished wages were returned to him. (Am. Compl., Dkt. 22, ¶ 70.) According to the Amended Complaint, “[i]t is unclear whether this is the full amount that Defendants caused to be garnished from Mr. Galeas' wages.” (Id.)

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II. Procedural Background

On July 24, 2019, Galeas filed a complaint against Defendants in this Court. (See Complaint, Dkt. 1.) On October 4, 2019, Houslanger sought a pre-motion conference to move to dismiss. (See Dkt. 16.) A month later, Virgo also requested a pre-motion conference to move to dismiss. (See Dkt. 21.) On November 20, 2019, while the pre-motion conference requests were pending, Galeas filed the Amended Complaint, alleging that Defendants had violated the FDCPA, GBL § 349, and New York Judiciary Law § 487, and had committed conversion. (See Am. Compl., Dkt. 22.) The same day, Galeas responded to the pre-motion conference requests. (See Plaintiff's Opposition to Houslanger's Request for a Premotion Conference (“PMC Opposition”), Dkt. 23; Dkt. 24.) The Court denied the pre-motion conference requests and set a briefing schedule for Defendants' proposed motions. (See 11/22/2019 Docket Order; 12/12/2019 Docket Order.) On January 30, 2020, Defendants served their motions to dismiss on Galeas. (See Dkts. 33, 34.) On March 11, 2020, Galeas served his response to Defendants' motions. (See Dkt. 40.)

On March 31, 2020, Galeas's counsel filed a notice that Galeas had died. (See Dkt. 42.) A day later, Defendants filed their motions to dismiss and reply briefs. (See Dkts. 43, 44, 45, 46.) Galeas's counsel indicated that it could not file Galeas's opposition brief, given that no party had been substituted as Plaintiff. (See Dkt. 47.)

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