Judge Was Not Kind to Collection Agency Plaintiffs in RICO Case Decision

On Monday, a New Jersey District Court judge granted defendants’ motion to dismiss claims against them in the case of Winters, et al, v. Jones, et al,. You may recall this as the RICO case; insideARM first wrote about the lawsuit when it was filed in December 2016.

A copy of the judge’s Order can be found here.

A copy of the judge’s Opinion can be found here. The Opinion is not for publication.

Editor’s Note:  An unpublished opinion is a decision of a court that is not available for future citation as precedent because the court deems the case to have insufficient precedential value.

Background

A putative class action lawsuit was filed on Monday, December 5, 2016 against five New Jersey law firms alleging that the firms are running a “Mafia-style” racketeering operation that has been targeting ARM (Accounts Receivable Management) companies by filing spurious Fair Debt Collection Practices Act (FDCPA) class actions, initiated primarily to generate attorneys’ fees.

A copy of the original Complaint can be found here.

The Plaintiffs in the case are Jeffrey A. Winters (Winters) and Collection Solutions, Inc., (CSI) a New Jersey Corporation. Winters is the sole shareholder of CSI. CSI also operates under the trade name of United Credit Specialists (UCS). CSI and UCS are primarily engaged in debt collection services.

The named Defendants are:

• Joseph K. Jones, Esq. (Jones), and Benjamin J. Wolf, Esq. (Wolf). They are attorneys licensed to practice in New Jersey, New York, and Connecticut, who practice as principal Members of Jones, Wolf & Kapasi, LLC (JWKLLC).
• Laura S. Mann, Esq. (Mann). Mann is an attorney licensed in New Jersey and the principal of the Law Offices of Laura S. Mann, LLC (MannLLC)
• Ari H. Marcus, Esq. (Marcus) and Yitzchak Zelman, Esq. (Zelman). Marcus and Selman are attorneys licensed to practice in New Jersey and New York and are the principals in Marcus & Zelman, LLC (MZLLC)

The complaint alleged that starting in 2013 and accelerating since, Defendants had schemed to operate a business plan (RICO Plan) in violation of 18 USCA §1961, et seq., the Federal RICO Statute (RICO), and the similar New Jersey RICO Statute, NJSA 2C:4 l-l, et seq. (NJRICO). 

A few examples of the alleged conduct include (see a more complete list in our December 2016 article):

• Defendants avoid Small Claims Courts or unprofitable immediate payment of nominal claims without attorney's fees, by filing spurious putative class actions in Federal Court en masse, on the theory that the vast majority of the relatively deep-pocketed defendants would view a quick settlement for under $100,000 as basically a nuisance claim; with the rare contested case only confirming to Defendants the practical advisability of settling early on a class basis.

• Defendants search out, solicit, and develop professional Plaintiffs retained to pose as theoretical "least sophisticated consumers"; falsely imputing imaginary consequences and the requisite actual damages to those Plaintiffs, when any actual damages are likely prevented by consultation with referring attorneys or Defendants.

• Defendants knowingly ignoring the almost universal absence of actual damages and lack of typicality, while falsely alleging the existence of certifiable plaintiff classes; all the while necessarily knowing that the alleged classes had little or no chance of being certified if there was any critical examination by the Court or adversary counsel of the propriety of certification.

Judge Vazquez’s Opinion

Judge John Michael Vazquez’s Opinion was in response to the motions to dismiss plaintiff’s amended complaint. The motions were considered and granted without oral argument. Judge Vazquez sated that the First Amended Complaint (FAC) “suffers from defective legal theories, both substantively and as pled. Moreover, Plaintiff’s factual allegations are severely lacking in light of the federal pleading requirements.”

Specifically,

The Court finds that the FAC fails to plead plausible factual allegations against Defendants. The FAC is riddled with factually unsupported accusations and wholly conclusory language. Besides inflammatory language and conclusory allegations (most notably “sham” litigation), Plaintiffs offer by way of “proof’ little more than print-outs from PACER reflecting cases that Defendants worked on. Plaintiffs claim that the following actions show a fraud of epic proportions: (1) filing a large number of cases, (2) settling a “majority” of those cases “relatively quickly”; (3) acting as co-counsel in several cases; (4) Jones and Mann conducting a legal seminar on the FDCPA; and (5) in two cases, Abranzov and Franco, Defendants using the same general format of pleadings and the same general theory of the case. None of these facts, individually or collectively, reflect any improper conduct nor can any reasonable inference of wrongdoing be drawn therefrom.

In his analysis, Judge Vazquez summarized two relevant doctrines, both used by the Defendants in their Motion to Dismiss. First, he raised the Noerr-Pennington Doctrine, which protects the First Amendment right to petition the Government for a redress of grievances. Basically, he says, this doctrine protects the Defendants’ right to bring the cases in question against Plaintiffs.

Second, he addressed the New Jersey Litigation Privilege (NJLP), which – according to New Jersey courts – “shields ‘any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.’” (in other words, it provides immunity for defamation actions). While he goes on to note that the NJLP is not absolute, and remedies exist for a plaintiff to allege abuse of the judicial system, the Plaintiffs in this case did not attempt to use these remedies.

He stated that both of these doctrines on their own potentially preclude the current case…nonetheless he provided other reasons to dismiss the complaint as well. A few highlights follow that represent the pattern of the Judge’s Opinion.

As to the allegations of fraud, Judge Vazquez responds:

Plaintiffs have done little more than point the Court to PACER filings and assert in a conclusory fashion that these filings evidence fraud. Plaintiffs have failed to analyze any of Defendants’ filings to plausibly plead which were allegedly fraudulent and why they were so. Yet, even if Plaintiffs were able to plausibly set forth factual allegations, the underlying theory of wire fraud would not find legal support. Numerous courts have rejected the theory that the filing of complaints, along with other litigation activity, can be the basis of wire or mail fraud.

As to the allegations of obstruction of justice, Judge Vazquez responds:

Plaintiffs further allege that Defendants obstructed justice in violation of 1$ U.S.C. § 1503 as a predicate act. The FAC sets forth one paragraph to support this claim. In the first sentence, Plaintiffs state that Defendants obstructed justice “by virtue of using corrupt plaintiffs to file lawsuits in Federal Court primarily for the purpose of securing settlements inuring primarily for the benefit of Defendants.” Id. In the second sentence, Plaintiffs recite the elements of an obstruction of justice claim and perfunctorily state that Defendants’ actions fit these elements. These two sentences are merely conclusory and wholly insufficient to plead a plausible obstruction of justice claim.

As to the allegations of extortion, Judge Vazquez comments:

…Moreover, N.J.S.A. § 2C:20-5 provides that “[a] person is guilty of theft by extortion if he purposely and unlawfully obtains property of another by extortion.” Under the statute there are seven provisions (a-g) that list ways a person may commit extortion. Plaintiffs, however, do not specify which provision(s) they believe Defendants are liable under. Further, no provision appears to apply to Defendants’ alleged misconduct. The Court, therefore, is at a loss as to how Plaintiffs’ believe the facts of this case fit within the theft by extortion statute. It will not speculate. Plaintiffs have not provided sufficient facts to plausibly plead theft by extortion and the legal theory is suspect at best.

Similar to the pattern of responses above, Judge Vazquez found that Plaintiffs’ allegations of RICO, conspiracy, fraud, negligence, and legal malpractice were insufficiently pled; he proceeded to grant Defendants’ motions to dismiss.

The Judge left a small window for Plaintiffs to file a Second Amended Complaint, but added, “In light of the numerous factual and legal deficiencies, the Court has real concerns that any attempted amendment of the FAC would be futile.” He gave Defendants 30 days to file, but also noted that if they do so, “and Defendants to not believe that Plaintiffs have adequately addressed the numerous deficiencies in the FAC, Defendants can also file another motion for Rule 11 sanctions.”

insideARM Perspective

When this suit was first filed it generated quite a bit of chatter within the ARM industry.  The idea of an agency “fighting back” against perceived frivolous litigation was interesting. Still, most observers felt the litigation was a steep uphill climb.  Judge Vazquez has effectively thrown a very large bucket of ice cold water on the Plaintiffs.  The hill just got even more steep.

It is also interesting to note how difficult it has been for agencies to get sanctions against consumer plaintiff’s attorneys when they get frivolous cases dismissed. However now that the tables are turned, the judge clearly opened the door for sanctions against the agencies and their and the attorneys, should they choose to proceed.