MONIQUE SYKES, REA VEERABADREN, KELVIN PEREZ, CLIFTON ARMOOGAM, Individually and on behalf of all others similarly situated, Plaintiffs-Appellees,
MEL S. HARRIS AND ASSOCIATES LLC, MEL S. HARRIS, TODD FABACHER, MICHAEL YOUNG, KERRY LUTZ, ESQ., LR CREDIT 18, LLC, L-CREDIT, LLC, LEUCADIA NATIONAL CORPORATION, LR CREDIT, LLC, LR CREDIT 10, LLC, SAMSERV, INC., WILLIAM MLOTOK, BENJAMIN LAMB, DAVID WALDMAN, JOSEPH A. ORLANDO, MICHAEL MOSQUERA, JOHN ANDINO, LR CREDIT 14, LLC, LR CREDIT 21, LLC, PHILIP M. CANNELLA, Defendants-Appellants. 
Argued February 7, 2014
As corrected February 10, 2015.
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Defendants Leucadia National Corporation, a company that purchases consumer debts, Mel S. Harris and Associates, a law firm with a significant debtcollection practice, and Samserv, Inc., a process server, appeal from the September 4, 2012 class certification opinion and March 28, 2013 class certification order of the United States District Court for the Southern District of New York (Denny Chin, Circuit Judge). The district court's March 28, 2013 order certified two classes. The first class, pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure, comprised " all persons who have been or will be sued by the Mel Harris defendants as counsel for the Leucadia defendants . . . assert[ing] claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961; New York General Business Law (GBL) § 349; and New York Judiciary Law § 487." Special App'x at 46. The second class, certified pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, comprised " all persons who have been sued by the Mel Harris defendants as counsel for the Leucadia defendants in . . . New York City Civil Court and where a default judgment has been obtained. Plaintiffs in the Rule 23(b)(3) class assert claims under RICO; the Fair Debt Collection Practices Act, 15 U.S.C. § 1692; GBL § 349; and New York Judiciary Law § 487." Special App'x at 47 . We conclude that the district court did not abuse its discretion in certifying either class.
PAUL D. CLEMENT, Bancroft PLLC, Washington, DC (Candice Chiu, Bancroft PLLC, Washington, DC; James R. Asperger and Maria Ginzburg, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY; Marc A. Becker, London, UK; Brett A. Scher, Kaufman Dolowich & Voluck LLP, Woodbury, NY, on the brief), for Defendants-Appellants Mel S. Harris LLC, Mel S. Harris, Michael Young, David Waldman, Kerry Lutz, and Todd Fabacher.
MIGUEL A. ESTRADA, Gibson, Dunn & Crutcher LLP, Washington, DC (Scott P. Martin, Gibson, Dunn & Crutcher LLP, Washington, DC; Michael Zimmerman, Zimmerman Jones Booher LLC, Salt Lake City, UT; Lewis H. Goldfarb and Adam R. Schwartz, McElroy, Deutsch, Mulvaney & Carpetner LLP, Morristown, NJ; Mark D. Harris, Proskauer Rose LLP, New York, NY, on the brief), for Defendants-Appellants Leucadia National Corporation, L-Credit, LLC, LR Credit, LLC, LR Credit 10, LLC, LR Credit 14, LLC, LR Credit 18, LLC, LR Credit 21, LLC, Joseph A. Orlando, and Philip M. Cannella.
JACK BABCHIK, Babchik & Young LLP, White Plains, NY, for Defendants-Appellants Samserv, Inc., William Mlotok, Benjamin Lamb, Michael Mosquera, and John Andino.
MATTHEW D. BRINCKERHOFF, Emery Celli Brinckerhoff & Abady LLP, New York, N.Y. (Jonathan S. Abady, Debra L. Greenberger and Vasudha Talla, Emery Celli Brinckerhoff & Abady LLP, New York, NY; Josh Zinner, Susan Shin and Claudia Wilner, New Economy Project, New York, NY; Carolyn E. Coffey and Ariana Lindermayer, of counsel to Jeanette Zelhoff, MFY Legal Services, New York, NY; Charles J. Ogletree, Jr., Harvard Law School, Boston, MA, on the brief), for Plaintiffs-Appellees.
JEAN CONSTANTINE-DAVIS, AARP Foundation Litigation, Washington, DC, on behalf of Amici Curiae AARP, National Association of Consumer Advocates, and National Consumer Law Center, in support of Plaintiffs-Appellees.
DANIELLE F. TARANTOLO, New York Legal Assistance Group, New York, NY, on behalf of Amicus Curiae Consumer Advocates, in support of Plaintiffs-Appellees.
SARANG VIJAY DAMLE, Senior Counsel, Consumer Financial Protection Bureau, Washington, DC (Meredith Fuchs, General Counsel, To-Quyen Truong, Deputy General Counsel, David M. Gossett, Assistant General Counsel, Jessica Rank Divine, Attorney, Consumer Financial Protection Bureau, Washington, DC; Jonathan E. Nuechterlein, General Counsel, John F. Daly, Deputy General Counsel for Litigation, Theodore (Jack) Metzler, Attorney, Federal Trade Commission, Washington, DC, on the brief), on behalf of Amici Curiae The Consumer Financial Protection Bureau and Federal Trade Commission, in support of Plaintiffs-Appellees.
Before: JACOBS, CALABRESI, and POOLER, Circuit Judges. Judge Jacobs dissents in a separate opinion.
POOLER, Circuit Judge.
These consolidated appeals are taken from the September 4, 2012 class certification opinion, Sykes v. Mel Harris & Assocs., LLC, 285 F.R.D. 279 (S.D.N.Y. 2012) (" Sykes II " ), and March 28, 2013 class certification order of the United States District Court for the Southern District of New York (Denny Chin, Circuit Judge ). Defendants in this case comprise three entities: " (1) various subsidiaries of Leucadia National Corporation (" Leucadia" ) that purchase and collect consumer debt; (2) Mel S. Harris and Associates LLC (" Mel Harris" ), a law firm specializing in debt collection litigation; [and] (3) Samserv, Inc. (" Samserv" ), a process service company."
Sykes II, 285 F.R.D. at 283. Defendants also include " associates of each of the foregoing entities," id., and we respectively refer to them as the Leucadia defendants, Mel Harris defendants, and Samserv defendants (as did the district court).
The district court's March 28, 2013 order certified two classes. The first class, certified pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure, comprises " all persons who have been or will be sued by the Mel Harris defendants as counsel for the Leucadia defendants . . . assert[ing] claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961; New York General Business Law (GBL) § 349; and New York Judiciary Law § 487." Special App'x at 46.
The second class, certified pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, comprised " all persons who have been sued by the Mel Harris defendants as counsel for the Leucadia defendants in . . . New York City Civil Court and where a default judgment has been obtained. Plaintiffs in the Rule 23(b)(3) class assert claims under RICO; the Fair Debt Collection Practices Act [(FDCPA)], 15 U.S.C. § 1692; GBL § 349; and New York Judiciary Law § 487." Special App'x at 47.
We conclude that the district court did not abuse its discretion in certifying either class.
We draw our facts from the district court's class certification opinion, which depended on " the depositions, declarations, and exhibits submitted . . . in connection with" the motion for class certification. Sykes II, 285 F.R.D. at 283. The district court, as was proper, only resolved " factual disputes to the extent necessary to decide the class certification issue." Id. (citing In re Initial Public Offering Sec. Litig., 471 F.3d 24, 27, 41-42 (2d Cir. 2006). It did not resolve " factual assertions relate[d] to the merits . . . but state[d] them as the parties' assertions," and we will follow that practice. Id. Where we are required to supplement the background as laid out by the district court by virtue of the arguments of the parties on appeal, we will also refer to the depositions, declarations, and exhibits which formed the record before the district court at class certification.
" Monique Sykes, Rea Veerabadren, Kelvin Perez, and Clifton Armoogam are New York City residents who were each sued by various defendants in debt collection actions commenced in New York City Civil Court between 2006 and 2010." Sykes II, 285 F.R.D. at 283. Each plaintiff " denies being served with a summons and complaint in their respective action. . . . Defendants, nevertheless, were able to obtain default judgments against them." Id.
II. Defendants' Alleged Default Judgment Scheme
A. Default Judgments
These default judgments, in the words of plaintiffs, are the result of defendants' construction of a " default judgment mill." The " mill" operates in this fashion: first, by obtaining charged-off consumer debt; second, by initiating a debt-collection action by serving a summons and complaint on the purported debtor; and third, by submitting fraudulent documents to the New York City Civil Court in order to obtain a default judgment.
At the first step, " [p]laintiffs allege that the Leucadia and Mel Harris defendants entered into joint ventures to purchase
debt portfolios, and then filed debt collection actions against the alleged debtors with the intent to collect millions of dollars through fraudulently-obtained default judgments." Id.
At the second step, Mel Harris would employ " a software program . . . designed by [Mel Harris employee] Mr. [Todd] Fabacher." Appellees' App'x at 157. Fabacher is employed as a " director of information technology for Mel Harris." Sykes II, 285 F.R.D. at 284. His program " selects and organizes debts for the generation of a summons and complaint for each debt. These documents are signed by an attorney, and bundled together in batches of 50. Each batch is sent to a single process serving company." Appellees' App'x at 157. Further, the process serving company associated with each debt is saved by this computer program, so " the process serving company associated with any particular debt can be readily ascertained." Appellees' App'x at 157.
To effectuate this second step, Leucadia and Mel Harris defendants would hire a process server, often Samserv. Sykes II, 285 F.R.D. at 283. Plaintiffs allege that " Samserv routinely engaged in 'sewer service' whereby it would fail to serve the summons and complaint but still submit proof of service to the court." Id. This proof of service was first delivered to Mel Harris, which, " [a]fter process [wa]s allegedly served, . . . receive[d] from the process serving company an electronic affidavit of service." Appellees' App'x at 157. After receiving this affidavit of service, the system designed by Fabacher " automatically organize[d] and print[ed] a motion for a default judgment [and] an affidavit of merit . . . within approximately 35 days after the date of service of process." Appellees' App'x at 157-58.
Having generated these documents, at the third step, " [a]fter a debtor failed to appear in court for lack of notice of the action, the Leucadia and Mel Harris defendants would then apply for a default judgment by providing the court with . . . an 'affidavit of merit' attesting to their personal knowledge regarding the defendant's debt and an affidavit of service as proof of service." Sykes II, 285 F.R.D. at 283 (emphasis added).
Before the district court at the class certification stage, there was substantial evidence of the scope and impacts of this alleged scheme. " Between 2006 and 2009, various Leucadia entities filed 124,838 cases," and Mel Harris represented Leucadia in 99.63 percent of those cases. Id. at 284. " The 'vast majority' of such cases were adjudicated without appearance by the defendant debtors, indicating the likelihood that a default judgment was entered." Id. Further, " [b]etween 2007 and 2010 various Leucadia entities obtained default judgments in 49,114 cases in New York City Civil Court." Id.
B. Affidavits of Service
The district court concluded that " [b]etween January 2007 and January 2011, Samserv defendants performed service of process in 94,123 cases filed by Mel Harris in New York City Civil Court, 59,959 of which were filed on behalf of Leucadia defendants." Id. In evaluating the evidence submitted by plaintiffs with respect to Samserv's practice of engaging in sewer service, the district court concluded that there was " substantial support for plaintiffs' assertion that defendants regularly engaged in sewer service." Id. This conclusion was based on the fact that " [r]ecords maintained by defendants reveal hundreds of instances of the same process server executing service at two or more locations at the same time," id., as well as the fact that " [t]here were . . . many other occasions where multiple services were
purportedly made so close in time that it would have been impossible for the process server to travel from one location to the other as claimed." Id.
Plaintiffs point out that the record before the district court also included a number of other irregularities. For example, " in 2,915 instances, a process server claimed to have attempted or completed service before the date that the service was assigned to that process server--[a] physical impossibility." Appellees' App'x at 163. Additionally, process servers often reported 60 service attempts in a single day, Appellees' App'x at 183, and the six particular process servers who accounted for a majority of service performed by Samserv for Mel Harris " reported high volumes of service, including hundreds of days on which they claimed to have made more than 40 visits in a single day," Appellees' App'x at 165. However, an experienced process server attested to the fact that " based on [his] experience, . . . it is unlikely that a process server could regularly make more than 25 service attempts at personal residences in one day." Appellees' App'x at 153. Finally, " [t]he six process servers also reported widely divergent rates of personal, substitute, and nail and mail service." Appellees' App'x at 165. There was no evidence in the record at class certification that would explain the divergent rates for the means of service. Plaintiffs finally point out that, despite the district court's order that Samserv defendants produce logbooks recording their service attempts by October 6, 2009, which could ostensibly confirm service, none have been turned over.
C. Affidavits of Merit
The district court provided a complete overview of the process for generating affidavits of merit, the facts of which are not challenged on appeal. " The affidavits of merit submitted by the Mel Harris and Leucadia defendants . . . follow a uniform format." Sykes II, 285 F.R.D. at 284. Fabacher " attests that he is 'an authorized and designated custodian of records' for" one of the Leucadia entities that owns the charged-off debt, in New York City Civil Court. Id. He affirms that because he " 'maintain[s] the . . . records and accounts . . . including records maintained by and obtained from [the collection entity's] assignor' . . . he is 'thereby fully and personally familiar with, and [has] personal knowledge of, the facts and proceedings relating to the [debt collection action].'" Id. (first, second, fourth, and fifth alterations in original) (emphasis added).
The district court explained the crux of the issue as follows:
Typically, Fabacher does not receive the original credit agreements between the account holders and the creditors. Instead, he receives a bill of sale for the portfolio of debts purchased that includes 'sample' credit agreements and 'warranties' made by the seller regarding the debts in the portfolio. In many instances, such agreements do not exist. If they do exist, Fabacher's 'standard practice' does not entail reviewing them before endorsing an affidavit of merit. He instead relies on the warranties made by the original creditor . . . .
Fabacher produces the affidavits of merit for signature in batches of up to 50 at a time. He 'quality check[s]' one affidavit in each batch and if it is accurate, he signs the remaining affidavits in the batch without reviewing them. The quality check consists of ensuring that information printed on the affidavit matches the information stored in the Debt Master database.
Id. at 285 (alteration in original). Reviewing these allegations at an earlier stage in the proceedings, the district court concluded
that " [a]ssuming 260 business days a year, Fabacher had to have personally (and purportedly knowledgeably) issued an average of twenty affidavits of merit per hour, i.e., one every three minutes, over a continuous eight-hour day." Sykes v. Mel Harris & Assocs., LLC, 757 F.Supp.2d 413, 420 (S.D.N.Y. 2010) (" Sykes I " ).
Plaintiffs point out that the practice of Leucadia defendants in purchasing these charged-off debts, which involves acquiring only limited information with respect to the character of this debt, is not uncommon in the secondary consumer debt market. Typical information transmitted in the purchase of a consumer debt will include the consumer's name, address, and the amount owed. See Federal Trade Commission, The Structure and Practices of the Debt Buying Industry, 34-35 (Jan. 2013), available at http://www.ftc.gov/sites/default/files/documents/reports/structure-and-practices-debt-buying-industry/debtbuyingreport.pdf (last visited Feb. 6, 2015). It is extremely rare, however, that the purchaser of the debt will receive any underlying documentation on the debt. Id.
III. Proceedings Below
Monique Sykes commenced this action against " some of the Leucadia, Mel Harris, and Samserv defendants" on October 6, 2009, alleging FDCPA and GBL claims. Sykes II, 285 F.R.D. at 285. Rea Veerabadren joined the action on December 28, 2009, and " class allegations and RICO claims were added." Id. Kelvin Perez joined the suit on March 31, 2010, at the filing of a second amended complaint, which added the New York Judiciary Law claim against Mel Harris. Id.
Defendants moved to dismiss, and the district court denied the motion. In adjudicating the motion to dismiss, the district court reasoned, inter alia, that the FDCPA claims were not time-barred under the relevant one-year statute of limitations for Sykes and Perez on the grounds that those claims had been equitably tolled. Sykes I, 757 F.Supp.2d at 421-22. This was because, the district court found, " sewer service purposefully ensures that a party is never served, [therefore] it is plausible that defendants' acts were 'of such character as to conceal [themselves]' to warrant equitable tolling." Id. at 422 (second alteration in original) (quoting Bailey v. Glover, 88 U.S. (21 Wall.) 342, 349-50, 22 L.Ed. 636 (1874)).
For their part, Samserv defendants moved to dismiss the FDCPA claims on the grounds that they were not " debt collectors" for the purposes of the FDCPA. Id. at 423 (citing exemptions for process servers under 15 U.S.C. § 1692a(6)(D)). The district court disagreed, reasoning that the FDCPA " protects process servers only 'while' they serve process," and therefore " Samserv defendants' alleged failure to serve plaintiffs process and provision of perjured affidavits of service remove them from the exemption." Id.
Leucadia and Samserv defendants further argued that plaintiffs lacked standing to bring their claims under RICO. Id. at 427. This was because, according to defendants, plaintiffs could neither establish an injury to their property interest nor that " the RICO violations were  the proximate cause of their injuries " Id. The district court disagreed, reasoning that " defendants' pursuit of default judgments and attempts to enforce them against plaintiffs proximately caused their injuries, see Baisch v. Gallina, 346 F.3d 366, 373-74 (2d Cir. 2003), which include the freezing of personal bank accounts and incurring of legal costs to challenge those default judgments." Id. at 427-28.
Finally, Leucadia and Mel Harris defendants challenged the district court's subject
matter jurisdiction under the Rooker-Feldman doctrine, " because plaintiffs are effectively appealing from a state-court judgment." Id. at 429. The district court rejected this argument as well. First, the district correctly noted that the doctrine would only apply if " a plaintiff invites a district court to review and reject an adverse state-court judgment." Id. (citing Hoblock v. Albany Cnty. Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005)). The district court then concluded that " plaintiffs assert claims independent of the state-court judgments and do not seek to overturn them." Id.
Following the district court's decision, plaintiffs moved for class certification, as well as for another opportunity to amend their complaint. Sykes II, 285 F.R.D. at 285. The third amended complaint (the operative complaint on appeal) added Clifton Armoogam as plaintiff and an additional Leucadia entity as defendant. Id. The district court granted the motion for class certification on September 4, 2012. Id. at 294. Leucadia and Mel Harris defendants obtained new counsel after this decision.
On March 28, 2013, the district court adopted plaintiffs' proposed class certification order. The two classes certified are as follows.
Pursuant to Federal Rule of Civil Procedure 23(b)(2), a class is certified of all persons who have been or will be sued by the Mel Harris defendants as counsel for the Leucadia defendants in actions commenced in New York City Civil Court and where a default judgment has been or will be sought. Plaintiffs in the Rule 23(b)(2) class assert claims under [RICO], [GBL] § 349, and New York Judiciary Law § 487.
Pursuant to Rule 23(b)(3), a class is certified of all persons who have been sued by the Mel Harris defendants as counsel for the Leucadia defendants in actions commenced in New York City Civil Court and where a default judgment has been obtained. Plaintiffs in the Rule 23(b)(3) class assert claims under RICO; the [FDCPA]; GBL § 349, and New York Judiciary Law § 487.
Special App'x at 46-47.
The district court exercised jurisdiction under 28 U.S.C. § 1331, 28 U.S.C. § 1367, and 15 U.S.C. § 1962k(d). After certification, each defendant timely petitioned for leave to appeal the grant of certification pursuant to Rule 23(f) of the Federal Rules of Civil Procedure. Our court granted these petitions July 19, 2013. We have jurisdiction pursuant to 28 U.S.C. § 1292(e).
STANDARD OF REVIEW
" We review a district court's decision to certify a class under Rule 23 for abuse of discretion, the legal conclusions that informed its decision de novo, and any findings of fact for clear error." In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 116 (2d Cir. 2013) (" In re U.S. Foodservice " ).
I. Legal Standards
A. Class Certification
" The class action is 'an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.'" Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2550, 180 L.Ed.2d 374 (2011) (quoting Califano v. Yamasaki, 442 U.S. 682, 700-701, 99 S.Ct. 2545, 61 L.Ed.2d 176 (1979)). Two classes of plaintiffs were certified in this case, under both Rule 23(b)(2) and Rule 23(b)(3) of the Federal Rules of Civil Procedure.
As such, plaintiffs must meet both the requirements for the particular relief, injunctive or monetary, sought under those two rules, as well as the threshold requirements for class certification under Rule 23(a).
1. Rule 23(a) Prerequisites
Rule 23(a) of the Federal Rules of Civil Procedure provides that a class may be certified only if four prerequisites have been met: numerosity, commonality, typicality, and adequacy of representation. See Dukes, 131 S.Ct. at 2550; accord In re Nassau Cnty. Strip Search Cases, 461 F.3d 219, 225 (2d Cir. 2006). Specifically, the Rule provides as follows:
One or more members of a class may sue or be sued as representative parties on behalf of all members only if:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or ...