In July 2009, New York State Attorney General Andrew Cuomo commenced a special proceeding against several New York State collections law firms in a matter that will be decided by a New York State Supreme Court Justice in Buffalo, New York in December 2009. The special proceeding is noteworthy because it presents an unusual theory of liability against the respondent law firms. All of the named law firms are firms which specialize in representing creditors in their collection of established debts from consumers and commercial entities to whom the creditors have previously extended credit. The creditors had engaged the respondent law firms to commence civil actions to collect the debts from the defendant debtors.

The process server used by the several respondent law firms had, the Attorney General uncovered in an investigation, provided the law firms with allegedly fraudulent affidavits of service. The affidavits of service purported to reflect that the defendant debtors in the underlying collections lawsuits had been properly served with copies of the summons and complaints against the defendant debtors to commence a collections action against them. In fact, the Attorney General alleges, the process serving company and its individual process servers had, in many instances, filled out affidavits of service reflecting service on the defendant debtors and signed the affidavits of service when, in fact, the defendant debtors had never been served. Based upon the affidavits of service and the fact that the defendant debtors thereafter did not serve answers to the complaints which the respondent law firms believed had been served on them, the respondent law firms commenced proceedings for default judgments against the defendant debtors. The default judgments can result in garnishment of wages of defendant debtors or other forced collections.

Using a procedure of New York law which allows the Chief Administrative Judge of the Courts of the State of New York to bring a special proceeding to protect the integrity of judgments entered in the Courts of New York, Chief Administrative Judge Ann Pfau commenced an action, with the support of the Attorney General, against the respondent law firms. The special proceeding seeks two categories of relief from the respondent law firms: information from them identifying the debtors against whom default judgments were taken based upon fraudulent affidavits of service, and restitution to these debtors.

The first category of relief, while seemingly innocuous, would require the respondent law firms to engage in an extremely time consuming and expensive effort of going through hundreds, and in many cases, thousands, of archived litigation files to isolate the data sought and report it to the Attorney General. Thus, while the request on its surface seems benign in the sense that it asks the respondent law firm to assist the Attorney General in identifying these debtors so they can be notified, the reality of compliance with the request would involve a very significant business interruption for the law firms and a very significant commitment of personnel and funds to comply with the request, given that the information is not centrally stored or organized in any fashion. For many of the respondent law firms, they would have to virtually review every archived litigation file to determine if it falls within the category sought by the Attorney General and then retrieve the data from those files. While some of the respondent law firms are involved only to the extent of 300 files, many of the law firms are involved to the extent of 5,000 to 13,000 files. The second category of relief requested aEUR" restitution aEUR" is extraordinary. This is because the respondent law firms from whom restitution is sought by the Attorney General (to return funds to the debtors upon whom fraudulent default judgments were taken) were never the beneficiaries or holders of the judgment in the first instance. It is the clients of the respondent law firms aEUR" the creditors which retained them aEUR" who were the holders of the default judgments against the debtors. By seeking to make the respondent law firms liable to the debtors for the amounts of the judgments (i.e. restitution), the special proceeding seeks to have the firms aEURoerepayaEUR? amounts they never recovered to their financial benefit in the first instance, since the funds went to their client/creditors, not to the law firms. The involved law firms recovered, at most, a minor contingent percentage of the default judgment as payment for their services.

The respondent law firms have not yet filed opposition to the special proceeding, but their opposition is due in early December and the dispositive hearing on the issue will be held in mid-December. At stake is nothing less than the integrity of the role of a litigation attorney, in that the special proceeding seeks to make the firms liable not for their own actions, but for those of a vendor it retained (the process server) by asking the firms to repay amounts they never received but which they may have recovered for their creditor-clients. In this sense, the special proceeding is novel and the determination of the special proceeding should be of great interest to those involved in the defense of legal malpractice claims.

With respect to the merits of the special proceeding, the Attorney GeneralaEUR(TM)s papers are voluminous and exhaustive in their analysis of the situation. As for but one example, affidavits of several Special Investigators with the Attorney GeneralaEUR(TM)s Office has been offered to the Court. These affidavits demonstrate that examination of a random sampling of affidavits of service filed by the process server at issue uncovered instances where one individual process server attested to having served two different defendant debtors in two different cities at the same time, an obviously impossibility. The papers purport to show that the principals of the process serving agency, not just the individual process servers, were aware of and condoned this activity. Absent from the Attorney GeneralaEUR(TM)s submissions to the Court, however, is evidence that any of the respondent law firms were aware of this behavior or that they had any reason to suspect it or investigate it.

The respondent law firms relied upon the State of New York in the sense that the process servers were licensed by the state. Further, in the practice area of collections, 80% to 85% of all properly commenced actions result in default judgments. As such, the experience of a high default rate among actions sent out to the process server in question would not present any noticeable change in an already high default rate. Additionally, from the law firmaEUR(TM)s perspective, each individual affidavit of service it receives relates only to an individual litigation file in their office and is filed within that litigation file. There is no standard of care by which the respondent law firms would be expected to undergo any comparison or analysis of all of the affidavits of service it receives to look for irregularities such as those uncovered by the Special Investigators of the Attorney GeneralaEUR(TM)s Office. Indeed, upon receipt of an affidavit of service from a process server, the standard of care requires only that attorney inspect the affidavit to determine that it properly reflects the manner of service and is duly signed and notarized. The attorney looks for, for example, an affidavit purporting to reflect personal service on a defendant, but failing to state the particulars of the defendant personally served (hair color, height, race, etc.). The Attorney GeneralaEUR(TM)s Special Proceeding seems to imply that a much higher standard of care exists in that the law firms should comprehensively and collectively analyze affidavits of service received to determine if individual process servers have attested to completing service in a logistically impossible manner (i.e., serving two defendants in two cities at the same time).

The Special Proceeding brought by the New York State Attorney General and its Chief Administrative Judge could, if it succeeds, put several law firms out of business. Some insurers for the law firms, while defending them, have served coverage reservations of rights for any judgments against the respondent law firms. The result of the Special Proceeding is highly anticipated and will be reported in a future edition of this bulletin.

About The Author: Albert J. D'Aquino of Goldberg Segalla LLPaEUR(TM)s highly experienced trial attorneys. A partner of the firm, his practice includes products liability and trucking industry defense, professional malfeasance defense and litigation of cases presenting catastrophic damages. He has been an invited speaker at Defense Research Institute (DRI) national meetings and has authored articles concerning successful accident reconstruction strategies and aggressive defense techniques. Mr. D'Aquino is responsible for trial technique training of associates in the firm's seven offices across New York State. Mr. D'Aquino has been named to Business First's Who's Who in Law and to New York Super Lawyers About The Author: Albert J. D'Aquino of Goldberg Segalla LLPaEUR(TM)s highly experienced trial attorneys. A partner of the firm, his practice includes products liability and trucking industry defense, professional malfeasance defense and litigation of cases presenting catastrophic damages. He has been an invited speaker at Defense Research Institute (DRI): national meetings and has authored articles concerning successful accident reconstruction strategies and aggressive defense techniques. Mr. D'Aquino is responsible for trial technique training of associates in the firm's seven offices across New York State. Mr. D'Aquino has been named to Business First's Who's Who in Law and to New York Super Lawyers.