Consumer Turns the Table on Debt Collector, or “How a Law Firm Turned a Debt of $3,000 into a Judgment of $300,000”

A North Dakota law firm learned the hard way that, if you are not careful, suing on a stale debt can come back to bite you. Johnson, Rodenburg & Lauinger (“JRL”) regularly collects consumer debts and in this case it was attempting to collect a debt on behalf of Collect America Ltd., a debt buyer. Collect America is just one of many companies who regularly buy and sell consumer debts purchased for pennies on the dollar from national firms. In this case, Collect America wanted JRL to collect on a credit card account purchased from Chase Manhatten in the name of one Tim McCollough. Tim had opened the account in 1990 but had run into hard times in the late 90s when he was injured at work and his wife had to undergo surgery. As a result, Tim paid what he could and then ceased payment altogether in 1999. And this is where the problems begin for JRL.

It appears that by the time JRL received the file the statute of limitations to collect on Tim’s debt had run. The details of what happened are rather complicated, probably too complicated for a short blog post, so suffice it to say: JRL sued Tim on an uncollectible debt and it appears that JRL had knowledge of that fact. JRL only dismissed the case after Tim hired an attorney who fought JRL in court on that issue. After JRL dismissed its case, Tim’s attorney brought suit against the firm under the Fair Debt Collection Practices Act (FDCPA). FDCPA is designed to prevent debt collectors from engaging in false, misleading or abusive practices against consumers, such as what JRL engaged in by knowingly suing on a debt that was uncollectible. After a trial, Tim was awarded actual and punitive damages of $311,000 on a debt originally totaling $3,000. OUCH! JRL appealed the verdict but the appeals court upheld the verdict and so Tim’s victory is likely final.

JRL operates a large volume practice and routinely files thousands upon thousands of cases against consumers a year. What makes this practice work is that 95% of consumer debtors do not contest the case and a default judgment is entered against them, even if the debt is not otherwise collectible. JRL had knowledge that the debt was stale but it sued the debtor regardless likely hoping for another default judgment. This time, however, the mouse roared and maybe next time JRL will listen.

You can read the whole opinion here: http://cdn.ca9.uscourts.gov/datastore/opinions/2011/03/04/09-35767.pdf

My attention was brought to this case by a blog post by Cathy Moran of the Moran Law Group. You can read her post here: http://www.bankruptcysoapbox.com/debtor-bites-collector-over-stale-debt/