Debt Collection

Stone Cold

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The business idea was a good one: one partner, we’ll call him “Salesman,” was experienced in the stone business. He would bring his knowledge and talents. The other partner, we’ll call him “Moneybags,” would bring his cash. Together, they would launch a business to import and distribute stone material from China. The plan was for Moneybags to invest money into the newly-formed corporation to be used to purchase the stone material, and Salesman was going to make profitable deals, moving the product to market through wholesalers.

In anticipation of launching the business, and in order to buy the stone material, Moneybags gave Salesman more than $250,000, a bit at a time. Every time Moneybags invested a chunk of money, Salesman gave him an “IOU” for the money. After a while, and after a series of exchanges which raised his suspicions, Moneybags became convinced that Salesman was diverting the seed money from the stone business and was using it instead for personal purposes. Thinking he had been defrauded, Moneybags began an action to recoup whatever he could of his original investment. The situation was dire and complicated, but it got worse. During this period, Salesman went on a business trip to Africa and died.

Substitution of wife/administrator as defendant

Before learning that Salesman had died, Moneybags had already brought a lawsuit against Salesman, through counsel other than Richard A. Klass, Your Court Street Lawyer, for breach of contract and embezzlement. After Salesman died, Moneybags’ lawsuit was “stayed” or stopped from proceeding. According to law, when a defendant dies, there is a stay of the legal proceeding until someone is appointed to represent the estate of the deceased. CPLR 1015 (“If a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties.”). Salesman’s widow was appointed as the administrator of his estate. At this point, Moneybags sought help from Richard A. Klass. The first step was to substitute the wife/administrator as the defendant in place of her deceased husband.

Elements of Fraud and Conversion

The next, important, step was to amend the Complaint in the action to include various causes of action, including fraud and conversion against the estate of the defendant. To allege fraud, the Complaint contained the essential elements that (a) Salesman made representations to Moneybags about investing the money into buying stone material; (b) those representations were false and misleading; (c) that Salesman made those representations knowingly and with the intent and purpose of inducing Moneybags to invest the money; (d) that Moneybags justifiably relied on those representations to his detriment; and (e) he sustained damages. The Complaint also alleged that Salesman wrongfully took and converted the investment moneys for his own purposes and in derogation of Moneybags’ rights.

Rights as a Shareholder in the Corporation

Aside from alleging that Salesman was a fraudster who diverted his investment moneys into his own pocket, Moneybags also pursued rights afforded to him as a shareholder in a New York State corporation. New York Business Corporation Law Section 717 states that “A director shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.” (Similarly, Business Corporation Law Section 715(h) provides “An officer shall perform his duties as an officer in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.”)

Aiding and Abetting Breach of Fiduciary Duty

Unless some “bite” could be put into the Complaint to allege that the wife and son may have some personal liability, Moneybags realized he was nearly certain to lose his entire $250,000 investment. Richard A. Klass amended the Complaint to allege numerous causes of action against not only the estate of Salesman but also his wife/administrator of the estate and son, including fraud, conversion, constructive trust, accounting, breach of fiduciary duties, aiding and abetting breach of duties, and unjust enrichment. Under New York law, a claim for aiding and abetting breach of fiduciary duty consists of the following elements: (1) a breach of fiduciary duty, (2) that the defendant knowingly induced or participated in the breach, and (3) that the plaintiff suffered damages as a result of the breach. See, S&K Sales Co. v. Nike, Inc., 816 F2d 843 [2 Cir. 1987]. In this case, Moneybags alleged that the wife and son should be held liable to him, and not only Salesman’s estate.

The amendment of the Complaint to include numerous allegations against the several defendants pushed them to immediately settle the case for a substantial percentage of Moneybag’s initial investment.

copyr. 2013 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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Surprise!

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On a recent day, “Jack” (not his real name) went to an ATM to withdraw money from his bank account. To his surprise, he could not. Upon contacting the bank’s customer service department, he discovered that his bank account was restrained and could not be accessed. The bank’s representative informed him that there was a judgment against the joint accountholder—a friend, we’ll call him “Stan”—and this was the reason for the restraint on the account.

Jack remembered that many years ago, when he needed to travel to his home country for several months, he asked Stan if he could put Stan’s name on the bank account in case Jack needed someone to pay his bills while traveling. Ultimately, Stan never used the account—never wrote a check, never made a deposit, and never made any withdrawals. Unfortunately, years later, a creditor of Stan got a judgment against Stan and now, Jack, the primary account holder of the bank account, was paying the price.

Joint bank accounts and Banking Law Section 675

According to New York Banking Law Section 675, a joint bank account is presumed to belong to each of the accountholders—meaning that each person (and his judgment creditors) may access the full amount of the account. Specifically, this section of law provides that, except for fraud or undue influence, the making of deposits into a joint account is evidence that the depositor intended the account to be a joint tenancy. The burden of proving otherwise is upon the person who challenges title, which, in this case, would be the primary accountholder.

Once restrained, a creditor of one accountholder may be able to obtain half or all of the money in the joint account, according to differing court opinions. (One opinion, Ford Motor Credit Co. v. Astoria Federal, 189 Misc.2d 475, holds the creditor is entitled to more than half of account, and another, Mendel v. Chervanyou, 147 Misc.2d 1056, holds that it is not). In any event, in this situation, Jack had the problem where all of the money in the account belonged solely to him and Stan never used the account.

“Convenience” bank accounts

Luckily, there is another concept that applied to this situation. The law recognizes that a bank account may be established as a quasi-joint account, where a person is added merely as a “convenience” to the primary accountholder. This convenience is typically done in situations where there is an elderly parent or disabled person who cannot easily travel to the bank to handle his banking needs.

The account may actually be set up in this exact form from its inception (Banking Law Section 678 authorizes this type of account), or it may operate as one where there is sufficient proof that adding the other name to the account was just for the convenience of the accountholder. Where the account is initially set up as a convenience account, the bank will indicate the same and any deposits will not be presumed to belong to each of the accountholders but just the primary one. Also, upon death of the primary accountholder, the other person will not have a right of survivorship in the account, but the moneys will pass to whomever the primary accountholder has designated in his Will or heirs at law. Where the account is not designated as a convenience account from the onset, Banking Law Section 675 will allow a party to rebut or disprove the general presumption that it was a true joint account—evidence may include the wording written in on the account application or signature card, sources of deposits, usage of the account, and the circumstances in which the account was set up.

Jack’s attorney searched the internet for “exempt property and accounts” for more information and found an article by Richard A. Klass on the subject of the Exempt Income Protection Act (EIPA).* After getting the run-around from the creditor’s attorney for almost three weeks, Jack decided to retain Richard A. Klass, Your Court Street Lawyer.

Upon sending proof regarding the fact that the account belonged to the primary accountholder and that the debtor was on the account only for convenience purposes, along with a letter explaining the law and threatening to sue for attorney’s fees, the creditor’s attorney confirmed the next day that the account would be immediately released.

by Richard A. Klass, Esq.

* The article, entitled “Analysis of Exempt Income Protection Act,” may be found on the firm’s website.

copyr. 2013 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Credits:
Photograph on page one: ATM in Santillana, 2008, by Handige Harrie. Artwork released by author into the public domain.

R. A. Klass
Your Court Street Lawyer

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What do you do if you are sued for a credit card debt?

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Without doubt, one of the most important financial tools used in this country is the credit card. While the first credit card was actually metal-plated and similar to a military dog tag, today’s credit card may take the form of a plastic card with magnetic strip or merely using the combination of numbers to make all sorts of purchases. At this point, the usage of credit cards by consumers is as ubiquitous as maintaining a bank account or driving a car; in fact, many products and services can only be purchased through the use of a credit card. As a result, most consumers in this country have two or more credit cards.

At some point, some consumers will find themselves in a downturn of events due to loss of employment, reduction of salary, illness or divorce, where they may become unable to maintain payment of the balances due on the credit card accounts. Once that happens, the accounts go into delinquency. Due to financial reporting requirements imposed upon banks, credit card delinquencies go through different stages, where the collection of past due amounts will first be attempted internally through the bank’s collection department, then through outside collection agencies, and then eventually through litigation by law firms throughout the country. Consumers who have defaulted on their credit card accounts are very familiar with the persistent telephone calls at all hours from debt collectors (who may be located in this country or calling from overseas call centers) and letter-writing campaigns which could make the post office proud (indeed, many consumers who file bankruptcy cite the annoyances of debt collectors as one of the chief reasons for the filings).

It is important for the consumer to understand that, from the perspective of the creditor, settling the debt and collecting a portion of the credit card debt is the main objective. This means that attempts to settle the credit card with the consumer will be pushed by the creditor at every stage of the process. For certain consumers, this is very beneficial, as significant savings can be accomplished through a reduced lump-sum payment.

Once the almost-terrifying debt collectors’ campaign has ended, and the debt is still owed, the bank will either pursue collection of the debt itself or by selling the debt to another company, either of which will commence a law suit against the consumer to obtain a judgment.

The first step that the collection law firm will take is to file the case in the appropriate local court where either the consumer/former account holder resides or where the account was opened. The initial document filed with the court will be a “Summons” (which is typically accompanied with the Complaint, which specifies the details of the claim against the consumer). The credit card company will be referred to as the “plaintiff” and the consumer will be referred to as the “defendant” in the Summons. The next step after the Summons is filed with the court is for the process server to serve a copy of the Summons on the defendant, informing him that a law suit has been filed and that he needs to respond to the Summons and plead any defenses to the case.

Once served, the defendant must serve and file his “Answer.” The filing of the Answer will also place the case onto the court’s pre-trial conference calendar. Each side will have an opportunity to conduct discovery of the other’s evidence, including obtaining copies of credit card applications, agreements, and account statements.

After both parties have completed discovery proceedings, one of them (usually the plaintiff) will make a motion to the judge for “summary judgment,” meaning that there is no need for a trial of the facts and the court should award judgment in favor of one of the parties. If the court grants the motion, then the successful party can enter the judgment (either dismissing the case or awarding a monetary amount). If the motion is denied, then the case will proceed to a trial.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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Requirement of Stating License Information in a Complaint Against a Consumer

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Dunkin Donuts may want us to believe that “America runs on Dunkin,” but the truth is, America runs on its service industry. In our everyday lives there are people who provide a service to us; whether it is waiting on us in a restaurant, a physician or health care worker taking care of us, or a contractor working on our homes. America’s service industry is a vital part of our economy and everyday lives.

But what happens when the service provider is not paid for his services? How can that person collect money that is due them? Someone who has not been paid for services rendered can file a lawsuit seeking to collect unpaid monies from a consumer/client.

New York’s Civil Practice Law & Rules (the CPLR) Section 3015 provides some guidance when a service provider decides to file a lawsuit against a consumer/client to pay sums due and owing. Depending on the location or venue of the lawsuit and the type of industry that provided the service, a plaintiff may be required to include in his complaint his license number.

CPLR 3015(e) was recently amended to state that when a plaintiff starts a lawsuit against a consumer, the plaintiff must include in the complaint the name on the license, the license number and the government agency which issued the license if the plaintiff is required to be licensed by the Department of Consumer Affairs of the City of New York, Counties of Nassau, Putnam, Rockland, Suffolk, and Westchester. CPLR 3015(e) provides:

(e) License to do business. Where the plaintiff’s cause of action against a consumer arises from the plaintiff’s conduct of a business which is required by state or local law to be licensed by the department of consumer affairs of the city of New York, the Suffolk county department of consumer affairs, the Westchester county department of consumer affairs/weight-measures, the county of Rockland, the county of Putnam or the Nassau county department of consumer affairs, the complaint shall allege, as part of the cause of action, that plaintiff is duly licensed and shall contain the name and number, if any, of such license and the governmental agency which issued such license; provided, however, that where the plaintiff does not have a license at the commencement of the action the plaintiff may, subject to the provisions of rule thirty hundred twenty-five of this article, amend the complaint with the name and number of an after-acquired license and the name of the governmental agency which issued such license or move for leave to amend the complaint in accordance with such provisions. The failure of the plaintiff to comply with this subdivision will permit the defendant to move for dismissal pursuant to paragraph seven of subdivision (a) of rule thirty-two hundred eleven of this chapter.

The initial purpose of this legislation was to place the burden on a “home improvement contractor” to establish it was licensed to perform the work at the time the work was performed. Courts have consistently held that a failure to have a license at the time the work was performed will preclude the contractor from commencing an action. Working without a license or obtaining a license after the work was performed is too late, and will result in the lawsuit getting dismissed. (This pleading requirement, which initially began to address issues concerning home improvement contractors, was expanded to include all of the different types of licenses issued by the government agency).

The requirement of the plaintiff to include its license information in the complaint does not mean anyone who needs a government license to perform their work must include their license number. The Court in NCSPlus v. WBR Management, 37 Misc.3d 227, 949 NYS2d 317 [Sup.Ct., Nassau Co. 2012], determined that the plaintiff, who was a debt collection agency, was not required to include its license information in the complaint because the dispute did not involve a “consumer credit transaction” against a consumer but rather between a debt collection agency and a merchant. (The term “consumer credit transaction” means a transaction where credit is extended to an individual and the money which was the subject of the transaction was primarily for personal, family or household purposes).

Therefore, it is important to remember that if you are a licensed service provider who decides to sue a customer or client, you may need to include your license information in your summons and complaint or you risk having your case thrown out.

by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass

R. A. Klass
Your Court Street Lawyer

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Seminar Announcement: “Nuts and Bolts of Collection Law”

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In early November, Richard Klass will help present a seminar entitled The Nuts and Bolts of Collection Law. This seminar, presented by the National Business Institute, will take place at the Hyatt Place Garden City, in Garden City, New York. Information follows.

Nuts and Bolts of Collection Law

Date: Wednesday, November 09, 2011

Time: 9:00 am-4:30 pm

Location:

Hyatt Place Garden City
5 North Avenue
Garden City, NY

Facility Phone: 516-222-6277

NBI Product ID#: 57049ER

Program Description

Ensure Your Clients Get Paid
Winning a judgment against a bad debt doesn’t necessarily mean cash in hand. Do you have a firm grasp of the procedures for legally collecting that debt? Are your recovery actions in compliance with the strict guidelines governing collection? Don’t rush in unprepared. Maximize your chances for recovery with the practical steps provided in this strategic seminar. Enroll today!

  • Avoid collection activities that violate the FDCPA and/or state laws.
  • Learn best practices for discovering debtor assets both pre- and post-judgment.
  • Recognize what provisional and final remedies are available to creditors to collect what is owed.
  • Walk through the procedural steps for executing wage garnishments, judgment liens, attachments and other methods of collection.
  • Know the creditor’s rights when collecting debt and when the debtor files for bankruptcy.

Who Should Attend

This basic-to-intermediate level seminar is primarily designed for attorneys and other legal professionals. Those who may also benefit from the collection techniques provided include: collection and loan officers, accounts receivable personnel, credit managers, bankers and controllers.

Course Content

  1. The Fair Debt Collection Practices Act (FDCPA) and State Collection Laws
  2. Ethical Issues in Collection
  3. How to Find Debtors and Their Assets
  4. Obtaining a Judgment: A Procedural Guide
  5. Collecting a Judgment: A Procedural Guide
  6. Creditors’ Rights When a Debtor Files Bankruptcy
Continuing Education Credits:

Continuing Legal Education
CLE 7.20 – NJ
CLE 7.00 – NY*

Continuing Professional Education for Accountants
CPE for Accountants: 7.00

Institute of Certified Bankers

ICB: 6.75*

* denotes specialty credits

Agenda

THE FAIR DEBT COLLECTION PRACTICES ACT (FDCPA) AND STATE COLLECTION LAWS

9:00 – 9:45, Richard A. Klass
Scope of the FDCPA
Understanding the Actions Permitted or Restricted by the Act
Demand Letters: Pitfalls to Avoid
Liability and Defenses
State Collection Laws and Their Application/Preemption
ETHICAL ISSUES IN COLLECTION
9:45 – 10:45, Richard A. Klass
Communication With Clients and Other Parties
Disclosure Issues
Aggressive Collection Practices
Unauthorized Practice of Law
Reporting Professional Misconduct
HOW TO FIND DEBTORS AND THEIR ASSETS
11:00 – 12:00, Michael Cardello III
Prejudgment Discovery Methods
Personal vs. Business Assets
Replevin/Self-Help Repossession Considerations
OBTAINING A JUDGMENT: A PROCEDURAL GUIDE
1:00 – 2:00, Michael Cardello III
Filing the Lawsuit
Service of Process
Affirmative Defenses and Counterclaims
Judgments (Default, Summary, etc.)
COLLECTING A JUDGMENT: A PROCEDURAL GUIDE
2:15 – 3:15, Kenneth H. Wurman
Post-Judgment Discovery
Judgment Liens
Wage and Bank Account Garnishment
Attachments
Writ of Execution/Seize and Sale by Sheriff
Charging Orders
Debtor Slow-Pay Motions
Turnover/Receivership
Exemptions by Debtors
Dealing With Fraudulent Transfers
CREDITORS’ RIGHTS WHEN A DEBTOR FILES BANKRUPTCY

3:15 – 4:30, Michael D. Brofman

Speakers

RICHARD A. KLASS is an attorney in the Brooklyn office of Your Court Street Lawyer. Mr. Klass is an arbitrator for the small claims part of the civil court of the City of New York, County of Kings. He practices in the areas of collections, bankruptcy, debtor and creditor, commercial litigation, legal malpractice, medical malpractice, personal injury, real estate condominium law, family law, divorce, child custody and private placement adoption law, wills, probate, trusts and estates. Mr. Klass has written numerous articles and has lectured frequently for the Brooklyn Bar Association and New York County Lawyers Association, as well as other professional groups and organizations. Mr. Klass is a member of The American Association for Justice, the New York State Bar Association, the New York County Lawyers Association (chair, The Mentoring Program, Group Mentoring Program) and the Brooklyn Volunteer Lawyers Project (Pro Bono Counsel). He earned his B.A. degree from Hofstra University and his J.D. degree from New York Law School.

MICHAEL D. BROFMAN is a member in the New Hyde Park law firm of Weiss & Zarett P.C., where he practices in the areas of bankruptcy law, debtor/creditor rights, non-judicial workouts and commercial litigation. He has lectured for the Nassau County and New York State bar associations on topics relating to his areas of practice, and is a frequent lecturer for National Business Institute on bankruptcy and secured creditor topics. He is a member of the Nassau County (member, Bankruptcy and Bank sections) and the New York State (member, Committee on Bankruptcy Law and General Practice Section) bar associations, the American Bankruptcy Institute and the Volunteer Lawyer’s Project Pro Bono Bankruptcy Panel. Mr. Brofman earned his B.A. degree from the State University of New York at Binghamton and his J.D. degree from Fordham University.

MICHAEL CARDELLO III is a partner in the Litigation Department of Moritt Hock & Hamroff LLP, concentrating in business and commercial litigation. Mr. Cardello represents large and small businesses, financial institutions and individuals in federal and state courts. He has a wide range of experience that includes trials and appellate work in the areas of corporate disputes, shareholder derivative actions, dissolutions, construction disputes, equipment and vehicle leasing disputes and other complex commercial and business disputes. Mr. Cardello earned his B.A. degree in marketing, his M.B.A. degree in finance and his J.D. degree from Hofstra University. While in law school, he was associate editor of the Hofstra Law Review. Mr. Cardello is the current vice-chairman of the Commercial Litigation Committee of the Nassau County Bar Association and also is a member of the Alternative Dispute Resolution and Securities Committee of the Nassau County Bar Association. He lectures on discovery, trial practice, equipment and vehicle leasing issues and e-discovery.

KENNETH H. WURMAN is a partner in the law firm of Naidich Wurman Birnbaum & Maday, LLP, where his practice areas, for more than 30 years, include collections and real estate. Mr. Wurman is a lecturer for National Business Institute on collection matters. He earned his B.S. degree from the State University of New York at Albany and his J.D. degree from New England School of Law. Mr. Wurman is a member of the Nassau County and New York State bar associations.

copyr. 2011 Richard A. Klass, Esq.

The firm’s website: www.CourtStreetLaw.com

Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.

He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.

Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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