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UNITED STATES v. BRAND JEWELERS

October 8, 1970

UNITED STATES of America, Plaintiff,
v.
BRAND JEWELERS, INC., et al., Defendants


Frankel, District Judge.


The opinion of the court was delivered by: FRANKEL

FRANKEL, District Judge.

The interesting question before the court is whether the United States has "standing" as a plaintiff to seek injunctive and other civil remedies for an allegedly "long-standing and systematic practice" of obtaining default judgments against economically disadvantaged defendants by means of the technique known with apt inelegance as "sewer service." The question arises upon a motion to dismiss under Fed. R. Civ. P. 12(b), so it is well to stress at the outset that we deal only with allegations, by no means established "facts," but we are to assume for present purposes that the things alleged are true.

 I.

 Invoking the court's jurisdiction under 28 U.S.C. § 1345, *fn1" the Government brings this action against Brand Jewelers, Inc., a retail seller of watches, jewelry and other consumer goods; Brand's president and sole stockholder, Howard Star; its attorney, Sol H. Erstein; and two corporations and 15 individuals, styled "the process serving defendants" (including the officers of the corporate service agencies, notaries public who participate in proving service and individuals employed in the physical business of serving process). The charges in the complaint may be summarized as follows:

 Brand Jewelers sells its wares through salesmen who solicit "door-to-door, on the street and at factories and other places of work." Sales are "on easy credit terms, with little or no down payment" and small installment payments over months or years. The purchasers generally "are poor and are members of economically and culturally deprived minority groups residing in slum or ghetto areas * * *."

 Each year Brand Jewelers files in the Civil Court of New York City thousands of summonses and complaints, verified by defendant Star, with proof of service, claiming money judgments for alleged customer defaults. "As a matter of longstanding and systematic practice, the process serving defendants understand that the account of defendant Brand Jewelers, Inc., like that of many other major volume creditors, is one for which proper service is neither expected nor desired, and * * * the process serving defendants * * * fail to make proper service of process, or prepare * * * false * * * affidavits of service of process, or both [for Brand and the other volume creditors], knowing that such affidavits will be used to obtain default judgments * * *." Brand Jewelers obtains default judgments for failure to appear and file a timely answer against over 90% of the defendants named in its aforesaid summonses and complaints, "and such default judgments are thereafter enforced against such persons by garnishment of their wages and other means." Most of these judgments "are invalid in that, among other things, they are based upon [false] affidavits of service * * * without proper service of process having been made."

 In somewhat more "mixed" allegations, the complaint goes on to aver that the above-described practices of defendants in obtaining default judgments "violate the Constitution and laws of the United States, impede and burden the United States in the exercise of its powers and the discharge of its responsibilities, and create a public nuisance of direct concern to the United States," in that (a) many victims of default judgments are deprived of property without due process of law; (b) affidavits denying that defendants are in military service are made without knowledge of the facts, violating the Soldiers' and Sailors' Relief Act, 50 U.S.C. App. § 520; (c) garnishments of wages and other practices of defendants "impose a substantial burden on interstate commerce, and hinder the proper operation of federal bankruptcy law;" (d) federal revenue collections are "[jeopardized]" because false default judgments are used to support improper bad debt deductions; (e) the default judgments are entitled to full faith and credit in states other than New York; (f) notices of default are sent through the United States mails; "(g) defendants' practices undermine public confidence in the courts and in the rule of law * * *;" (h) these "practices arise from and in turn exacerbate urgent contemporary problems of poverty, urban disorder and race relations -- problems that the United States is actively seeking to alleviate and resolve through programs involving the expenditure of federal funds and by other means;" and "(i) defendants' practices jeopardize the purposes for which the Constitution of the United States was ordained and established * * * as set forth in the preamble * * *."

 In addition to seeking injunctive relief, the complaint prays for invalidation of default judgments unlawfully obtained, an accounting for sums realized upon such judgments, written notice of the judgment herein from Brand Jewelers to each alleged victim of an unlawful default judgment, and "restitution or compensatory or punitive damages, or both, and costs, including attorneys' fees, to any judgment debtor who appears herein within 120 days after receiving such written notice and establishes a right to such relief against defendants, or any of them."

 II.

 Within the somewhat exuberant array of grounds and "interests" asserted by the Government as bases for its standing -- including those in the preamble to the Constitution, the theory about bad debt deductions, the concern for the mails, and the business about full faith and credit -- two points emerge, in this court's view, as sufficient to sustain the suit:

 
(1) the authority to remove large-scale burdens upon interstate commerce, and
 
(2) the authority to correct widespread deprivations, by what amounts to state action, of the right not to be deprived of property without due process of law.

 The two are not necessarily distinct and separate. Indeed, their doctrinal bases are substantially identical. The order of listing them here reflects only the degree of their narrow, and probably nonessential, resemblance to authoritative decisions of the past.

 (1) The starting point is In re Debs, 158 U.S. 564, 15 S. Ct. 900, 39 L. Ed. 1092 (1895), the subsequent history of which illustrates the spectacular unpredictability of the evolution of precedents. There, it will be recalled, the United States obtained an injunction against continuation of a strike and boycott, attended by acts of physical obstruction, affecting the operations of 22 railroads (presumably capable of mounting their own lawsuits). In sustaining sentences for contempt for defiance of the injunction, the Supreme Court upheld the right of the United States, by its Attorney General and his subordinates, to sue for injunctive relief where interstate commerce and "the carriage of the mails" were being "forcibly obstructed" (id. at 577, 15 S. Ct. 900, 903) in the manner shown. "Among the powers expressly given to the national government," the Court explained (p. 579, 15 S. Ct. at p. 904), "are the control of interstate commerce and the creation and management of a post office system for the nation." (The cited powers of the "national government" are, of course, among those given to Congress in Article I of the Constitution.) The Court went on to recall some of the manifold statutes in which Congress had exercised those powers -- by authorizing compensated transportation by railroad of government personnel and property and the mails, by regulating transportation of livestock, by regulating ...


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