Alleged Collection Mill Agrees To Settle Class Suit Over Cursory Case Handling

Hackensack law firm Forster, Garbus & Garbus has agreed to pay $35,000 to settle claims that it filed hundreds of debt collection suits against consumers without individual attorney review.

The firm allegedly violated the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692e(3), by giving a false impression that an attorney was involved in the filing of those complaints, when in fact they were mass-produced.

The suit, Krug v. Forster, Garbus & Garbus, 10-cv-1844, touches on an inchoate area of law — namely, how much investigation an attorney must perform to determine the validity of an alleged debt before filing a collection suit.

“It’s a new area and the case law hasn’t developed yet,” says the named plaintiff’s lawyer, Philip Stern, head of a Maplewood firm.

A joint motion filed Monday in District Court in Newark seeks approval of the settlement, which calls for Forster Garbus to pay $7,500 to class members and $27,500 in legal fees.

The plaintiffs are debtors who were served with complaints filed by Forster Garbus on behalf of Arrow Financial Services in Special Civil Part in Cumberland County for a one-year period starting in April 2009.

Named plaintiff Karl Krug, of Millville, was alleged to have defaulted on a $4,947 credit card bill to Washington Mutual Bank. The bank sold the debt to Arrow Financial Services of Nile, Ill., which, in turn, retained Forster Garbus in an attempt to collect from Krug.

In April 2009, Forster Garbus sent Krug a dunning letter which stated, in part, that “at this time, no attorney with this firm has personally reviewed the particular circumstances of your account.” In June of that year, a nonattorney at the firm left two phone messages on Krug’s answering machine. On June 5, the firm sued Krug on behalf of Arrow. Partner Glen Garbus signed the complaint.

Krug retained Stern, who won dismissal of the collection case in April 2010 after Arrow was unable to present business records to show the debt was valid. The current suit was filed that month.

Stern says a ruling in the Eastern District of New York, a few months before Krug’s suit was filed, was the first to hold that an attorney violated the FDCPA by filing a collections suit without anything more than a cursory inquiry into whether the debt is valid. In Miller v. Upton, Cohen & Slamowitz , 687 F. Supp. 2d 86 (E.D.N.Y. 2009), which stemmed from an alleged default on a Lord & Taylor charge account, the court rejected the lawyer’s assertions that his general knowledge of credit practices at the retailer and its national collections counsel were a substitute for specific knowledge of an individual file.

Krug’s complaint cited New Jersey Court Rule 1:4-8, which requires a lawyer signing a complaint to have read it and to have conducted a reasonable inquiry that the allegations of the case have factual support.

The suit also claimed that Forster Garbus placed telephone calls to class members that falsely conveyed the impression that the person calling was an attorney, and those calls failed to provide meaningful disclosure of the law firm’s identity as caller or to disclose that the firm is attempting to collect a debt and that any information obtained will be used for that purpose — all in violation of the FDCPA.

Of the $7,500 payable to class members under the settlement, $2,500 is to go to Krug and the rest will be distributed among the roughly 200 class members, who stand to receive around $25 each. Stern says that although the recovery may seem modest, it’s more than the class members would get as damages under the FDCPA if the case were tried.

The pool of $5,000 distributed to class members is greater than would be available if the case was tried, says Stern. The FDCPA limits recovery in such cases to the 1 percent of the defendant firm’s net worth, but Forster Garbus agreed in the settlement to go over the 1 percent limit, says Stern. He is bound to keep the firm’s net worth confidential.

Forster Garbus was represented in the case by Gregg Kahn of Wilson Elser in Newark, who did not return a call. Garbus, a named defendant, also did not return a call.

Source: New Jersey Law Journal (article taken down, link removed)