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MEMBERS OF THE BAR REPLY COMMENTS

During the recent “CCP Talk to the Judges” seminar, various comments were made by members of the bar regarding Court of Common Pleas Administrative Directive 2011-1 Consumer Debt Collection Actions and Court of Common Pleas Administrative Directive 2010-3 SPEED. (To view the Administrative Directives, please visit our Administrative Directives page). 

Based on the feedback raised during the seminar, the judges agreed to consider comments on both directives. The Court created a comment form for members of the bar to post Initial Comments to the Court through May 27th.

Reply comments were to be provided to the Court by June 17th and were limited to responses to points or information provided in the Initial Comments. Additionally, all Reply Comments were to identify the specific point(s) for which the response is being submitted.

The Court received three (3) INITIAL COMMENTS regarding Court of Common Pleas
Administrative Directive 2011-1 Consumer Debt Collection Actions.  There have not been any
comments submitted on Court of Common Pleas Administrative Directive 2010-3 SPEED.


ALL OF THE COMMENTS ON COURT OF COMMON PLEAS ADMINISTRATIVE DIRECTIVE 2011-1 CONSUMER DEBT COLLECTION ACTIONS ARE POSTED BELOW. THE REPLY COMMENTS ARE POSTED BELOW THE INITIAL COMMENTS. THE IDENTITY OF PERSON(S) SUBMITTING COMMENTS WERE NOT DISCLOSED IN AN EFFORT TO INVITE OPEN DISCUSSION.

 
INITIAL COMMENT #1: Although I do not regularly litigate in debt matters in CCP, I have several matters currently pending in which I represent debtors.  I support the directive, in that it requires creditors to provide information that is required to successfully try credit card debts.  In each of the four matters I have currently, the creditor has been specifically asked to produce the assignment of the debt, showing my client's name and account number, and is unable to do so.  Superior Court has seen the same thing with mortgage assignments, and both these issues are of national scope, highlighting the haphazard manner in which banks and other financial institutions have done their business.
REPLY COMMENTS TO INTIAL COMMENT #1:

1.

It's about time.  This is long overdue and I hope it spreads to other states.  They should also have to have the account statements so the Court can actually see that the debt buyer purchased the debt for 2 to 3 cents on the dollar and is trying to collect $10,000 on about $1,000 worth of charges, with the rest being compound interest, late fees, overlimit fees, attorney's fees and other garbage fees that serve no purpose other than creating a windfall for the debt buyer and driving the alleged debtor and his family into bankruptcy, taking dozens of legitimate creditors with him.

2.

 Here Here! - I fully support this as I was recently taken to district court in Massachusetts for a debt that wasn't actually mine!  I filed an answer asking for proof of my debt.  They couldn't obtain proof so they dismissed the action.
 
INITIAL COMMENT #2:As the following submission on behalf of the Delaware Creditors Bar is lengthy, if you would like to view the comments in their original format (pdf), including the Table of Contents, please click here. If you do not have the free Adobe Acrobat Reader, please visit the Adobe site to download it.
INTRODUCTION
     On behalf of the creditors’ counsel identified below, we appreciate the opportunity to comment on Administrative Directive 2011-1 Consumer Debt Collection Actions.  We would like to state at the outset that we certainly support the goals articulated by the Court at the May 6, 2011 meeting: (a) fairness to all litigants, (b) judicial efficiency, and (c) consistency and predictability of judicial procedure.

      We agree the information necessary to enable the defendant to identify the account that is the subject of the action should be included in the Complaint.  We agree that proof beyond the bare allegations of the Complaint should be provided to the Court in support of the entry of Judgment in favor of plaintiff.

A. Burden vs. Benefit
     At the May 6, 2011 Meeting, the Court stated that the Federal Trade Commission Reports regarding debt collection were among the sources consulted in drafting the Directive.  In its July 2010 Report, the FTC stated that reforms should be undertaken to “adequately protect consumers without unduly burdening legitimate debt collection.” (Emphasis added.)  The FTC noted that “debt collection plays a vitally important role in the consumer credit system…(by helping to keep) credit prices low and (helping to) ensure that consumer credit remains widely available.”

     Because we represent the credit side of the collection industry, we are in a unique position to provide information to the Court critical to any evaluation whether particular measures are “unduly burdensome” to creditors.  Well established methods and standards for transferring and maintaining information and records have been developed within the credit industry that are designed, in part, to preserve the integrity and viability of legal debt collection.

B. Consistency and Predictability

     We are concerned that the Directive in its present form will not provide the “consistency and predictability” to litigants contemplated or avoid disparate rulings among Judges.  The Court explained that the Court Clerks will not be charged with implementing the Directive.  Only in those instances where cases come before a Judge will the pleadings be evaluated for conformity with the Directive.  To that end, paragraph 4 of the Directive states that the Court may “sua sponte” withdraw the entry of a Judgment.  At the May 6, 2011 Meeting, the Court explained that the Directive is designed to allow flexibility rather than exactitude with regard to the information and proofs required.  While we appreciate the flexibility, a good faith attempt to comply with the Directive may be insufficient to establish finality as contemplated by Rule 60(b) and principles of res judicata.  If an otherwise properly entered default judgment may later be challenged (potentially after funds have been collected and/or post judgment costs have been expended) based on an interpretation of the Directive, plaintiffs will not be able to rely on the validity and enforceability of a judgment in connection with post judgment collection activity or otherwise.

     We are concerned that the Directive, in its present form, would have the unintended consequence of increasing the burden on the Court, create an undue burden on fair debt collection, and cause a situation where judgments can be challenged and vacated years after entry (after collection of funds and expenditure of additional costs) for reasons having to do with the adequacy of documentation attached to the Complaint rather than the legitimacy of the claim- where “adequacy of documentation” is subject to dispute and interpretation.

     The Court has indicated that Court Clerks will not be asked to review initial pleadings. The question of whether or not a plaintiff has failed to comply with the Directive will apparently arise only in situations where the debtor is represented; a motion hearing or trial is scheduled; judgment by stipulation is submitted for Court approval; or, a motion to vacate is filed - all of which are exceptions to the typical debt action, which is disposed of by default under Rule 55(b)(1) (upon written direction of the plaintiff and upon affidavit of amount due).  Unless the Court undertakes the additional task of reviewing applications for judgment by default, enforcement of the Directive in most cases will rely on the threat of Rule 11 sanctions - a point made loud and clear in the third “whereas” clause of the Directive.

     However, Rule 11(b)(3) provides only that “the allegations and other factual contentions have evidentiary support or if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery;” a standard, we submit, that is congruent with notice pleading and much less than that required under the Directive.

     We believe the Directive would be of greater assistance to both sides, and to the Court, if instead of requiring the attachment of specific documentation, it required the disclosure of information, perhaps by affidavit, sufficient to inform defendants as to who is making the claim and on what grounds, but without burdening the creditor with potentially voluminous document production where there is no genuine dispute. After all, defendants in debt actions have typically been contacted numerous times, both in writing and by phone, and are almost always very well aware of the debt and would pay it if they had the money.  To the extent debtors have questions, the federal Fair Debt Collection Practices Act affords the right to obtain such information well before suit is filed.

     In order to promote consistency and predictability, we submit that it is particularly important that the Directive clearly define words and phrases. To that end, we respectfully ask the Court to consider the following:

  1. The Directive addresses “consumer loan or credit card debt collection actions.” 
    1. It is not clear whether this category is intended to include, for example, indirect loans for the purchase of automobiles and similar items and/or leases of consumer goods.  If so, plaintiff would be required to identify the name of the automobile dealer or other seller of goods in the caption which could violate the assignment to the extent it requires the assignee to sue in its own name without mention of the dealer/seller.
    2. It is not clear whether this category is intended to include business credit cards.  Frequently, such accounts will provide for personal liability of the principals of the business.  Similarly, “consumer loan” is not defined.  It is not uncommon for an extension of credit to an individual to be used for business purposes.
  2. Reference is made in the Directive to the “original” creditor.  If a consumer obtains a store credit card that is issued by a National Bank (e.g. a Sears card issued by Citibank) the creditor is Citibank, but the consumer will likely identify the account as his/her “Sears” account.  An account may not have been sold in the conventional sense; however, mergers and/or acquisitions and/or one or more name changes may have caused the name of the holder to be different than what it was when the account was opened.  If the goal is to enable the defendant to recognize the account, presumably the name of the creditor at the time of the default will achieve that purpose.  Requiring a plaintiff to recite in the Complaint the various name changes that occurred over the life of the account would be burdensome to the creditor with little or no benefit to the defendant.
  3. Reference is made in the Directive to the “original” account number.  Account numbers are commonly changed as a result of bank mergers and acquisitions, at the time of charge off or if the account holder reports the card stolen or lost or upgrades the account to a “gold,” “platinum” or similar status.  As a result, the consumer is most likely to recognize the account number that existed at the time of default rather than one that might have been in effect at some earlier point during the life of the account.
  4. Paragraph 1(e) of the Directive requires the “principal due at the time of default.”  As more fully explained below, interest and fees are capitalized into the balance in a revolving credit account until charge off.  The word “principal” has no clear significance in this context prior to charge off.  The charge off balance is a highly regulated figure which represents the sum of all unpaid amounts that accrued on the account up to that date.  It is impractical and difficult to break down the components of the charged off balance that accrued during the period of time between the default and the charge off date.
  5. Paragraph 2(a) of the Directive requires “a copy of the original contract or other documentary evidence of the original debt” to be attached to the Complaint.  A good faith interpretation of this section could permit the attachment of a credit card statement.  However, another interpretation might be that the account Terms and Conditions are required.  It is common for multiple Terms and Conditions to be issued over the life of a credit card account.  The expectation is that the use of the card, following the issuance of a new set of Terms and Conditions, constitutes acceptance of those new Terms and Conditions.  Therefore, the Terms and Conditions available at the time of suit may not be those that were issued when the account was opened.
  6. Paragraph 2(b) of the Directive requires “a copy of the assignment or other documentary evidence establishing that the plaintiff/creditor is the owner of the debt” (emphasis added) be attached to the Complaint.  A reasonable interpretation of this provision could allow for a sworn Affidavit of the plaintiff/creditor stating that the plaintiff/creditor is the assignee and current holder of the account.  Another interpretation could allow attachment of an original creditor statement or Terms and Conditions as Evidence of Ownership of the Account.
SPECIFIC ISSUES

     In the Introduction above, we addressed particular sections of the Directive in an effort to illustrate items subject to interpretation that could result in disparate rulings and unintended consequences.  The intention of the “Specific Issues” section is to address certain provisions of the Directive more comprehensively.

I           Proof of Standing/Ownership of the Account

      Paragraph 2(b) of the Directive requires the entire chain of Assignment, with account level information at each transfer, to be attached to the Complaint in situations where the debt has been assigned more than once. When account level information is available, it is typically contained in lengthy spreadsheet attachments to the Bills of Sale and Assignment.  The time, effort and resources required to access, print and redact those attachments is significant.  There is a plethora of common law in other jurisdictions to establish that a debt buyer plaintiff should not be required to proffer a full chain of title to establish account ownership absent a genuine dispute raised by defendant regarding that issue.  We submit that such a requirement imposes an undue burden on the creditor and that a sworn Affidavit of ownership, along with the most recent Assignment/Bill of Sale should be sufficient to establish standing to sue.

     We consulted with Midland Credit Management, Inc., a wholly owned subsidiary of Encore Capital Group, in an effort to provide the Court industry level input why this requirement is overly burdensome to creditors and, in certain instances, impossible to meet.  The following information was provided.

OTHER RELIABLE SOURCES OF PROOF OF OWNERSHIP ARE AVAILABLE THAT ARE LESS BURDENSOME TO PROVIDE
Portfolio-level documentation – Presumably, the purpose of the requirement is to ensure that the entity collecting on the account has “actual title” to the account.  While account-level detail is one possible way of proving ownership (when that account-level detail is available), portfolio-level documentation also provides a reasonable basis to establish ownership.  This has been accepted by various jurisdictions (e.g., NYC's DCA regulations, CT's recent regulations).

Assertion of ownership is reliable indicia of ownership – In addition to establishing a chain of title through a paper trail, a debt collector's assertion of ownership is reliable indicia of ownership.  Although it may not on its face seem to be sufficient to the court, the mere assertion of ownership has significant credibility.  It is not a mere allegation in connection with a case, which must be proven; in the context of a collection action, a representation of ownership or a demand to collect on an account is an assertion in connection with the collection of a debt.  Any misrepresentation of such a claim in connection with collection activity is a violation under the FDCPA and most of its state-law analogues.  Such a claim, if inaccurate, gives rise to a strong cause of action under those laws against the party making that claim.  (Those laws, too, give consumers significant rights to request validation of the claims.)  Even if the consumer were not to assert his or her own rights under those laws, collectors are heavily regulated, and state attorneys general or licensing entities, too, can impose significant penalties for such violations.

Credit reporting is reliable indicia of ownership – Similarly, an account owner who is credit reporting on the account is a reliable demonstration of ownership.  Here, too, Federal and state laws dictate significant penalties for inaccurately reporting a consumer's credit history (i.e., Fair Credit Reporting Act and Fair and Accurate Credit Transactions Act).  Those laws, too, give consumers significant rights to challenge information contained in a credit report, and impose legal duties on the credit reporting agency and entities providing information to such reports.  By reporting ownership and a collection interest in an account, an account owner subjects itself to civil and regulatory enforcement action if it were to engage in a practice of reporting false information.

Possession of account-level documents is reliable indicia of ownership – Requirements that the account owner come to the court with account-level media (i.e., billing statements, charge-off statements, etc.) reasonably provide indications of account ownership.  Various state and federal laws (i.e., Gramm–Leach–Bliley Act, Regulation P: Privacy of Consumer Financial Information 12 CFR 216) restrict an issuers ability to share consumer information, especially account/financial information, with non-affiliated third parties.  The account owner's possession of and access to detailed account information (including, but not limited to, billing records) provides significant indicia of legitimate account ownership.

SCENARIOS WHERE ACCOUNT-LEVEL DOCUMENTATION DOES NOT EXIST

Joint origination of accounts – Pursuant to special financing agreements, at origination of the accounts, one bank underwrites the accounts while another unaffiliated entity owns the product/receivables.  At some point thereafter, as defined in the financing agreement, the entity with rights to the receivables maintains ownership of the accounts, and is free to transfer complete ownership of the accounts to a debt buyer. For example, First North American Bank (“FNANB”) along with CompuCredit Corporation (“CompuCredit”) issued Emerge Visa credit card accounts. Pursuant to the financing agreement, CompuCredit maintained ownership of the accounts, and thereafter rightfully sold/transferred title to the accounts to its subsidiary, Jefferson Capital Systems, LLC. (“JCAP”). JCAP then sold the accounts to Midland Funding LLC (“MFL”). In this scenario, there exists, and we are able to provide, writings establishing the transfer of ownership from CompuCredit to JCAP to MFL; however, there are no such documents from FNANB to CompuCredit, because a sale did not occur from FNANB to CompuCredit.

Bank merger – Banks often merge with one another during the life of an account. Account-level proof is nearly impossible when Bank A, who originates the account, merges with Bank B, who obtains the account but then charges it off. For example, JPMorgan Chase Bank, NA, doing business as Chase (“Chase”) acquired assets of Washington Mutual Bank, N.A. (“WAMU”) including credit card accounts issued by WAMU. This "transfer" would be the subject of a merger or acquisition agreement, and is very unlikely to have the "account-level" audit trail that the DE directive anticipates.

Complex organizational structure of issuing banks – Account-level documentation is nearly impossible when a bank operates through various entities. For example, Credit One Bank, N.A. originates credit card accounts funded by affiliated entities, MHC Receivables, LLC (“MHC”) and FNBM, LLC (“FNBM”). The credit card receivables are then transferred to MHC and FNBM under the terms of self-executing purchase agreements. The accounts are thereafter sold to a debt buyer. Due to the internal “transfers” and self-executing transactions, it is unlikely to have “account-level” documents detailing those internal “transfers”. It is not until the sale to a third party where such documentation exists.

Transactions structured differently – Each of the scenarios above shows common examples of transactions resulting in an impossible requirement to show account-level detail on the chain of title, although title clearly passed through the entities in the ordinary course of business.  That business, however, is not structured in a way that lends itself easily to showing an account-level audit trail for each step.  It's not because title is in question; it's simply because it's not the way the transactions are structured as a practical matter.


II         The Charge-Off Balance

     Paragraph 1(e) of the Directive requires the Complaint to include the “principal due at the time of default…”  As explained below, we submit that charge-off rather than default date is the appropriate starting point for the balance breakdown to be included in the Complaint.  We submit that the charge-off balance should be accepted as the “principal” amount and any interest and fees sought following the charge-off date should be itemized separately.

     The charge off balance is an inherently reliable number that is pervasively regulated by multiple federal agencies (e.g., Federal Reserve Board, FDIC, Office of the Comptroller of Currency [OCC]) and governed by stringent federal laws.  Credit card issuers are subject to the FFIEC (Federal Financial Institutions Examination Council) uniform Retail Credit Classification and Account Management Policy which requires charge-off no later than the end of the calendar month in which the account becomes more than 180 days past due.  (The timeframe is 120 days for certain consumer credit accounts such as retail installment agreements.)

     The charge-off balance consists of all sums that are due and owing as of the charge-off date.  It includes the amount actually expended by the cardholder for goods and services, all un-reimbursed cash advances or transfers and all interest, fees and charges.  It represents the total of all unpaid activity on the account as of the date of charge-off and this becomes “principal.”

     Due to their reliance on federal law, many regulated creditors are unable to itemize pre charge-off balances electronically.  Doing so requires manual review which may be appropriate in particular cases, but is not feasible in every claim.  A credit card customer may incur charges over many years, never paying off the balance.  Monthly statements are sent, detailing the prior balance, current charges, interest and fees.  The consumer may make a minimal payment each month.  By the time of default, therefore, there is no straightforward way to segregate the original balance, fees and charges.

     The banks have practically no discretion regarding the charge-off date or the amount of the charge-off.  Banks must remove the asset from their balance sheets six months after delinquency to avoid “puffing.”  The bank’s discretion is limited to charging the account off at the end of the month on which the 180 days occur instead of the 180th day itself and re-aging the account in limited circumstances where the consumer makes at least three consecutive minimum monthly payments or the equivalent cumulative amount.

      When an account is charged-off, the credit card issuer absorbs the outstanding balance as a loss and takes the amount of the non-performing receivable as a charge against current earnings.  It does not mean the debt is extinguished or forgiven and no longer owed by the account holder.

      Credit card issuers send their account holders statements of account each month.  Consumers have the right to challenge any item on each statement within sixty days following receipt of the statement.  If they fail to challenge or object to any charge, interest or fee within those sixty days, the issuer may presume that the statement was correct.  In most cases, the account holder receives six statements following the default.  If no payments or arrangements are made during this period, the account is charged-off.

III        Original Contract

      Paragraph 2(a) of the Directive states that the “original contract or other documentary evidence of the original debt” be attached to the Complaint.  (Emphasis added.)  In addition to the concerns explained above that this provision is subject to varying interpretations, we question the intended meaning of “original” contract. 

      To be enforceable, it is well settled law that a contract must be supported by consideration given by both parties to the transaction and the mere issuance of a credit card by a bank does not create a contract between the lender and the borrower.

      Lacking consideration, the issuance of a credit card by a lender is merely a continuing offer to lend money.  As such, the credit card itself is simply the tangible object indicating to merchants or other sellers of commodities that the person who has received the credit card from the issuer thereof has a satisfactory credit rating; and; if credit is extended to the card holder, the issuer of the credit card will pay for the merchandise delivered. 

      The contract is formed when the borrower makes use of the lender’s offer to extend credit.

By Statute, 6 Del. C. §2542, the laws of the State of Delaware recognize

“[u]se of the credit card by the intended recipient shall constitute acceptance [of the terms and conditions stated in the offer(1)], but there shall be no liability by the intended recipient prior to the use of same.
      Delaware’s Legislature defines the above “contract” as a “Revolving Credit Plan” and at 5 Del. C. §941(4) sets forth the definition:


Revolving credit plan” or “plan” means a plan contemplating the extension of credit under an account governed by an agreement between a bank and a borrower pursuant to which:
      1. The bank permits the borrower and, if the agreement governing the plan so provides, persons acting on behalf of or with authorization from the borrower, from time to time to make purchases and/or to obtain loans by use of a credit device(2);

      2. The amounts of such purchases and loans are charged to the borrower’s account under the revolving credit plan;

      3. The borrower is required to pay the bank the amounts of all purchases and loans charged to such borrower’s account under the plan but has the privilege of paying such amounts outstanding from time to time in full or otherwise in accordance with the agreement governing the plan; and

      4. Interest may be charged and collected by the bank from time to time on the outstanding unpaid indebtedness under such plan.

     Evidence of the “Agreement” between a bank and a borrower is commonly referred to as  “Terms and Conditions” for the advancement of credit.  Terms and Conditions are sent along with the credit card issuer’s offer to lend and collectively set forth the foundation of the future “loans” to be made between the parties.  If the borrower chooses to accept the offer by using the credit device, the borrower accepts the terms and conditions associated with its use.  The borrower is free to decline use of the credit device, in which case, the terms and conditions of use would be inapplicable.

     A bank is not required to continue the extension of credit at the “original” terms and may, at any time, issue changed terms and conditions.  “Each use of the credit card constitutes a separate contract between the parties”, Garber v. Harris Trust & Savings BK, 104 Ill. App.3d 675 (1982)(3). 

     Delaware follows the Garber principles through Grasso v. First USA Bank, 713 A.2d 304 (Del.Super. 1998) (CA No. 97C-10-144JOH)(4) which stated:


“... (1) use of the credit card meant acceptance of and would subject [Grasso] to the terms of the Agreement, (2) [Grasso] would be responsible for all charges incurred according to the Agreement, and (3) the terms of [Grasso’s] account are subject to change(5) as provided in the Agreement”.

The Fair Credit Reporting Act, 15 U.S.C. §1666(a) (Correction of billing errors) states:

(a)        If a creditor, within sixty days after having transmitted to an obligor a statement of the obligor’s account in connection with an extension of consumer credit, receives at the address disclosed under Section 1637(b)(10) of this title a written notice ... from the obligor in which the obligor:

(1)  sets forth or otherwise enables the creditor to identify the name and account number, if any, of the obligor,
(2)  indicates the obligor’s belief that the statement contains a billing error and the amount of such billing error, and
(3)  sets forth the reasons for the obligor’s belief (to the extent applicable) that the statements contains a billing error,

the creditor shall, unless the obligor has, after giving such written notice and before the expiration of the time limits herein specified agreed that the statement was correct... :

(B)(i)   make appropriate corrections in the account of the obligor...

     Because the “terms” of a bank’s willingness to lend credit are subject to change; because each use of the credit card constitutes a separate contract pursuant to the terms in force at the time of use; because the obligor is given the opportunity to dispute billing errors; and because credit card holders may use the credit device for the purchase or return of commodities over the course of time, the most applicable evidence with which to validate the enforceability of the revolving credit card contract would be the most recent “terms and conditions” (contract) or other documentary evidence of the debt.

IV        Application of Rule 37

     Paragraph 3 of the Directive refers to “Motions to Compel Discovery” citing Rules 37(a) and 37(e)(1) concerning the efforts made in an attempt to reach an agreement over discovery issues as a prerequisite to the filing of discovery motions.  The first sentence paraphrases Rule 37 as it currently exists; however, the second sentence appears to expand the Rule to include a “good faith” requirement where “parties are expected to consult” to resolve “discovery dispute[s]”.  This expansion and/or modification of the existing Rule is subject to varied interpretation and necessarily requires judicial guidance to counsel prior to its implementation in order to effectuate the Court’s goal of predictability from the Bench. 

     The typical defendant in a consumer debt collection action is acting pro se.  Extensive efforts, via telephone calls (where permissible) and correspondence, are made by our respective offices attempting to resolve issues and claims without the need for Court involvement.  If, by the point a discovery motion is filed, we have not been able to make contact with the defendant, it is extremely unlikely that yet another telephone call and/or letter addressing the outstanding discovery will be helpful. 

      As more fully explained below, motion dates are not readily available and it is not uncommon for trial dates to be scheduled so quickly that the discovery motion practice contemplated by the Rules is impractical.  It is submitted that adding another step in the process that will delay the motion process with little, if any, benefit to defendants would be unfair and prejudicial to creditors.  Additionally, many accounts are under “cease and desist” restriction.  We are not able to call or contact those defendants without risking violation of the federal Fair Debt Collection Practices Act.

V         RULE 11 and RULE 1.5(a)

     It is respectfully suggested that the third “WHEREAS” clause in the Directive referencing Court of Common Pleas Civil Rule 11 be stricken.  An attorney’s Rule 11 obligations relative to the signing of pleadings, motions and other papers are applicable to all actions filed in the Court of Common Pleas.  Thus, referencing Rule 11 in an Administrative Directive limited to consumer debt collection actions is both unnecessary and inappropriate.

     The expressed purpose of the Directive is to adopt and implement standardized procedural guidelines in consumer debt collection actions to ensure fairness to all litigants and improve efficiency in the administration of justice.  By reiterating Rule 11 requirements and sanctions in the Directive, the Court is creating, albeit unintentionally, a perception to the Bar and the general public that attorneys practicing in this area of the law have been engaging in conduct violative of the Rule.  The Creditors’ Bar considers this misperception offensive and vehemently opposes its dissemination.  Accordingly, counsel submits that fairness compels the elimination of references to Rule 11 in the Directive.

     Similarly, reference in the Directive to attorneys’ fees pursuant to Rule 1.5(a) of the Delaware Lawyers’ Rules of Professional Conduct is superfluous and serves no purpose other than to suggest there is widespread non-compliance of the Rule by the Creditors’ Bar.  Rule 1.5, when read in its entirety, permits attorneys to charge fixed or contingent fees under certain conditions set forth in the Rule.

      The Directive’s specific reference to Rule 1.5(a), without explanation, and without giving consideration to 5 Del C. §951 and 10 Del C. 3912 is inexplicable.  Thus, it is respectfully suggested that the attorneys’ fees provision of the Directive be stricken.

VI        Trials

      Paragraph 5 of the Directive addresses the ramifications for being unprepared for Trial.  To the extent it is the Court’s position that a representative of the plaintiff must always be available to testify in order for plaintiff to be considered “prepared for trial,” we respectfully disagree.  Especially when the representative would be traveling to Delaware from out of state, we submit plaintiff should be entitled to make a strategic decision to base its case on defendant’s pleadings, discovery responses and other admissions as well as questioning of the defendant, especially when there appears to be a strong likelihood defendant will not appear for trial based on defendant’s conduct throughout the proceedings. 

      Although the Directive is even handed with regard to sanctions for failure to be prepared for trial, as a practical matter, plaintiff bears a much heavier burden than the defendant since it is not likely an award of sanctions in favor of plaintiff for defendant’s failure to appear will be recoverable and, in many instances, plaintiff will have incurred the expense of traveling to DE from out of state.

      A related issue is that trial notices frequently generate settlement negotiations.  It is not uncommon for negotiations to continue up to the day of trial.  The need for plaintiff’s representative to make and commit to travel arrangements may require settlement negotiations to terminate prematurely.  Based on the balance due, the likelihood of settlement and similar considerations, we submit a plaintiff should be permitted to seek dismissal without prejudice in lieu of sending a representative in the event ongoing settlement negotiations ultimately fail.

      When the only issue in dispute is the balance due, we submit plaintiff should be permitted to rely on its Affidavit of amount due, absent admissible evidence from the defendant challenging the reliability of plaintiff’s sworn Affidavit.  This is especially appropriate where: (a) the Affidavit is supported by account documents, such as monthly billing statements, supporting the amount due; and/or (b) (as more fully addressed below) insufficient time and opportunity has been provided to plaintiff to proceed with a summary judgment Motion. 

      We believe the Court is aware of some of the scheduling problems we have been experiencing in New Castle County.  Available Motion days are frequently limited due to the calendars becoming full, holidays, Judges’ conferences and similar events.  We are not informed that a particular calendar is full until we receive a rejection notice for a Motion we attempted to file for that date.  Often, we have submitted multiple Motions for that date, resulting in numerous rejections. 

      We must then re-notice those Motions for a different date which is time consuming and may cause confusion on the part of defendants regarding the correct Motion hearing date.  Additionally, it is not uncommon for the rejection notice to be received many days after the Motion was submitted for filing.  If a trial date has been scheduled, it becomes difficult to re-notice the Motion for another date prior to trial.  Scheduling the Motion for the day of trial creates practical difficulties, especially when different Judges are assigned to the Motion and Trial calendars.

      The timeframe between the filing of an Answer and scheduling of the trial date has not been consistent.  It is difficult to advise our clients concerning their options with regard to settlement and appearances for trial when we cannot predict when a trial date might be scheduled. 

      Based on our experience in multiple jurisdictions, despite our best efforts to encourage communications, many defendants remain under the impression that they must appear at a Court hearing to resolve the claim.  They appear in Court seeking a settlement or payment arrangement which, in most instances, can be negotiated.  We submit that it would best serve the interests of the litigants as well as the Court to allow the parties time on the day of trial to attempt to resolve the cases prior to the case being called for Trial. 

      One method for resolving many of the above issues would be to issue a scheduling Order at the time an Answer is filed.  Assuming the calendar issues can be addressed so that sufficient Motion dates will be made available prior to the trial date, the parties will be better able to plan their time and efforts.

CONCLUSION
     In this submission, we have attempted to identify what we believe to be problem areas without inundating the Court with exhaustive arguments and alternative proposals for resolving the issues.  We urge the Court to consider establishing a formal bench-bar working group, including consumer attorneys, to thoroughly explore ways to reach the goals of the Directive without unduly burdening legitimate debt collection.  Such bench-bar working groups have recently been empaneled in MA, CT, MI, CA and MD (to name a few states.)  Such collaborative discussions have facilitated the creation of more transparency in the collection litigation process for consumer defendants while also making the process more streamlined for the overburdened Court personnel and ensuring that the legitimate needs of the credit granting community are considered and not unduly compromised.

FOOTNOTES:

(1)Explanation and emphasis added.

(2)“Credit Device” [at 5 Del. C. §941(7)] means any card, check, identification code or other means of identification contemplated by the agreement governing the plan.  (Emphasis added.)

(3)The following cases are only a few, among many, citing Garber:
Grasso V. First Usa Bank, 713 A.2d 304 (Del.Super. 1998) (CA No. 97C-10-144JOH)
Portfolio Acquisitions V. Feltman, 391 Ill. App.3d 642 (2009) (No. 1-07-3004)
In re Brown (E.D.Ark. 2009) (Case No. 4:08-bk-13535)
In re Viva (Bky.E.D.Tenn, 2008) (Bankruptcy No. 07-12156, Adversary No. 08-1026)
Jenkins V. General Collection Co. (Neb. 7-29-2008) (No. 8:06CV743)
Ramirez V. Palisades Collection Llc (N.D.Ill, 6-23-2008) (CA No. 07 C 3840)
Jenkins V. General Collection Co (D.Neb. 2008) (No. 8:06CV743)
Parkis V. Arrow Financial Services, Lls (N.D.Ill. 1-8-20
McMahan V. Rizza Chevrolet, Inc. (N.D.Ill. 8-31-2006) (No. 05-C 705)
Ragan V At&t Corp., 355 Ill. App.3d 1143 (2005) (No. 5-03-0038)
Taylor V. First North American National Bank (M.D.Ala. 2004) (CA No. 2:03CV368-T)
Geary V. Telular Corp., 341 App.3d 694 (2003) (No. 1-02-0951)
Banc One Financial Services, Inc. V. Advanta Mtg. Corp., (N.D.Ill. 2002) (Case No 00 C 8027)
Gaynoe V. First Union Direct Bank, 2001 NCBC 1 (2001) (No. 97 CVS 16536)
In re Caraglior (Conn. 2000) (Case No. 99-32814 DOC. I.D. NOS. 21, 27)
Sharp Electronics V. Dautsche Fin. Svcs., 216 F.3d 388 (4th Cir. 2000) (Case No. 99-1555)
In re Ward, 857 F.2d 1082 (6th Cir. 1988) (No. 87-3525)

(4)Many cases also cite Grasso:
EZE v. JP Morgan Chase Bank (E.D.N.Y. 8-10-2010 (No. 09-CV-2722 (ENV) (LB)
Koontz v. Citibank, 01-08-00495-CV (Tex.App.-Houston [1st] 6-24-2010) (No. 01-08-00495-CV)
Bramble Cons. Co. v. Exit Realty, 08C-05-234 WCC (Del.Super. 8-27-2009)
Coleman v. Assurant, Inc. (Nev. 2007) (No. 2:06-cv-00925-RLH-RJJ)
In Re Orion Refining Corp. (Del. 2007) (Bankruptcy No. 03-11483 (MFW), Adversary No. 04-52447

(5) Emphasis added.
REPLY COMMENTS TO INTIAL COMMENT #2:

1.

 Having read the comments of the Delaware Creditors Bar, it is obvious that the courts need to conform the laws, substantive and procedural, to the way that the creditors are doing business because:
1. Creditors might be inconvenienced; and 2. Somewhere in the 'due process' and 'equal protection clause', it's not fair to insist that a Plaintiff/creditor, and their counsel, in an action against an unsophisticated pro se defendant should be held to conform to longstanding Uniform Commercial Codes, statutes and case law regulating contracts between parties (including, but not limited to, rules of evidence and statutes of frauds)...especially when lenders and issuers of credit have spent years and billions of dollars paying in-house counsel to formulate credit transactions that avoid and obfuscate those longstanding bodies of law to increase their profit and insulate them from the law that might otherwise level the playing field; and 3. We didn't really learn in law school that there might be a debt that is legitimate, but unenforceable; and 4. Establishing a more fair and equitable legal playing field may shift the 'moral hazard' from those who might actually be 'skipping out' on a legitimate and enforceable debt...to an industry who pays good money to lobby for their needs to be satisfied in all corners of all branches of national and state government...so that they might 'legally' avoid any risk in conducting their business; and 5. Most importantly, it may be a long time before the financial industry sees another gift like TARP.

2.

Over the many years of practice before this court and the others in Delaware, I frequently represent plaintiffs and defendants in breach of contract actions and defend debtors in consumer collection actions.  I occasionally bring consumer collection actions.  

          Our courts and General Assembly have frequently required specialized pleading in different kinds of debt collection cases (e.g., foreclosure, garagemen lien, mechanics lien, Justice of the Peace Court repossession actions).  About 35 years ago Congress and the Federal Trade Commission conducted extensive hearings on abuses by debt collectors.  This resulted in passage of the Fair Debt Collection Practices Act.  In terms of its policy, they reasoned that third party collectors had no relationship with the debtor and were more likely to abuse the process.

          There is certainly a historical basis in this court for tightening the pleadings requirements.  It is not unusual for an action to be brought, including in 2011, alleging that the defendant entered into a contract with the named plaintiff, with no mention of an assignment, when in reality the named plaintiff is the second or third assignee of the contract.  It has also not been unusual that actions have been brought in this case using contradictory, alternative pleadings.  Here are examples from 3 different law firms: 

(1) 'Plaintiff, sues Defendant(s) for the sum of $--- representing balance due and owing for goods sold and delivered and/or services rendered and/or a revolving account stated between Plaintiff and Defendant(s)'

(2) 'The aforesaid Defendant(s) owes the aforesaid Plainitff(s) the principal sum of $---, plus interest at the rate of --% per annum from [date] plus attorney fees of $---, pursuant to a debt, note, contract, deficiency balance and/or legal obligation identified further as Exhibit 'A' annexed hereto'. 

(3) 'Defendant(s) entered into an agreement and the rights thereunder have been assigned to the plaintiff'.

Apart from Rule 11, FDCPA actions have found a violation where actions have been filed in the name of an attorney and that the attorney has not actually reviewed the pleadings.  In these cases, any review of the pleadings would have verified that some of the alternative pleadings were mutually exclusive.  The court's requirement of specificity may actually protect local Delaware counsel from FDCPA actions.

          Based upon the comments of the collective creditors counsel, it appears that some creditors have been violating Delaware law as to principal and interest.  The Delaware Supreme Court confirmed that compound interest in awards is not permitted under Delaware law.  Rehobeth Marketplace Assocs. v. State, 1993 Del. Lexis 194, *2-3 (Del. Supr. 1993) (citing Weinberger v. U.O.P. Inc., 517 A.2d 653, 657 (Del. Ch. 1986)).  Consumer contracts typically set forth the principal and the interest rate and (for the creditor's benefit) specify that payments will be first made to interest and other charges before principal.  Credit card statements distinguish between the outstanding balance on principal and interest.  Creditor's internal payment records obtained in discovery distinguish between principal and interest. Charge-offs required by Federal or State regulatory agencies are completely irrelevant to the law of Delaware and to the contracts upon which are the subject of the lawsuit. If creditors are combining a charge-off balance which includes principal, interest, and other charges and then imposing interest upon that entire balance, they are compounding interest.

          Delaware law has also been violated where default judgments are entered, seeking attorney's fees based upon the entire percentage specified in the contract or by statute.  The Delaware Supreme Court ruled over 35 years ago that the statute is a maximum; the fees must be reasonable.  Rock v. Short, 336 A.2d 219 (Del. Supr. 1975).  Where an action has been prepared by a computer program or legal assistant with a brief review by an attorney, the entry of attorneys fees for the entire amount will frequently not be reasonable.  The creditors' discussion as to what attorneys fees may be charged to a client under the Rules of Professional Conduct is irrelevant.  That amount may bear no relationship to what the client creditor may have imposed upon the debtor.

          The Court should narrowly define, not broaden, the indicia of ownership on the account.  An affidavit by someone in the alleged chain of ownership is certainly not sufficient.  Especially recently, there has been much publicity over the fabrication of documents (e.g., Robo-signers).   Even less reliable is credit reporting.  The same account may be reported by multiple entities as an account is assigned.  Some account owners do not make credit reports.  Some debt collectors report accounts even though they have no ownership rights (to create pressure for the debtor to pay an account even where the statute of limitations has expired).         

          Changing the pleading requirement from the original creditor to the creditor "at the time of default" would introduce numerous other problems, since there may be a dispute as to the date of default.  This is an issue that arises during statute of limitations disputes and those under the FDCPA. 

          The dispute with regard to documentation of a credit card contract is overstated.  The document that creates the contract, which is valuable to the defendant is the credit card application.  Creditors counsel are referring to a condition subsequent that the card must be used.  Presumably if the card is not used, no balance is created and no lawsuit results.

                There is also a very valid basis for requiring proof at the commencement of the action.  Debtors who contest liability sometimes can wait months for the creditor to concede that they have no contract or they cannot approve assignments.  It is uncertain why creditors seek to defer the documentation until the time of default.  There will generally be three alternatives. (1) The debtor will not answer, and plaintiff will seek an entry of default, in which case the creditor would need to show proof; (2) the defendant will contest the lawsuit and the creditor will need to show proof; (3) the parties will negotiate the matter, which will be enhanced if the original complaint shows proof that the named plaintiff is the party entitled to compensation.
3.

As the following response on behalf of the Legal Services Corporation of Delaware, Inc. is lengthy, if you would like to view the comments in their original format (pdf), please click here. If you do not have the free Adobe Acrobat Reader, please visit the Adobe site to download it.

Commentary and Support for Delaware Court of Common Pleas Administrative Directive 2011-1 - Consumer Debt Collection Actions.

Introduction

     Legal Services Corporation of Delaware, Inc. is a non-profit legal service provider serving low-income Delawareans with advice and assistance in consumer debt actions.

     Administrative Directive 2011-1 as promulgated by the Court of Common Pleas on May 6, 2011 has a sound rational basis, and we fully support its implementation in its original form. Above all, we are pleased the Court has taken the initiative to reform this area of practice, as it confirms our experience that the status quo is not meeting or serving the interests of Delaware residents. We are in a unique position to comment on this Directive. As legal representatives to some of Delaware’s most indigent clients, we observe firsthand the negative impact and consequences default judgments by debt collectors have upon our clients’ creditworthiness and livelihoods.

      The reasons we support the Directive are more fully developed below. As a starting point, we addressed some of the concerns brought to the Court’s attention by the Creditors’ bar while also highlighting issues involving Defendants in such actions which the Creditors’ bar overlooked. We are confident the Court will feel more comfortable in implementing the Administrative Directive as is, even after careful consideration of all of the points of view brought to light by all parties who responded.

Burden vs. Benefit
     We disagree that the reforms this Court has undertaken will unduly burden legitimate debt collection. We do not dispute that the credit collection industry has established methods and standards for transferring and maintaining information, the goal of which is to preserve the integrity and viability of legal debt collection. However, we question the reliability and efficacy of these methods, because they were developed to provide the most efficient transfer of information within, and for the sole benefit of, the credit industry. Specifically, the adequacy of such standards is questionable when a debt purchaser is unwilling or unable to prove its standing for the purpose of legally enforcing the debt (and thus not able to meet the one of the most rudimentary requirements necessary to the proof of legal enforceability). While it is not disputed that the Court’s proposed reforms may require improvements or revisions to the debt collection industry’s standards of record keeping, there is no evidence provided by the Creditors’ bar that such changes (in and of themselves) are unduly burdensome.

      Further, while compliance with the Directive may be considered burdensome by some with regard to the initiation of the debt action, compliance with the Directive’s requirements will ensure the Court feels more confident in the justice of adjudicating these cases on an expedited basis after the requirements have been met. The Creditors’ bar is relying on the flawed assumption that the requirement of additional documentation at the outset of a case will be unduly burdensome, while at the same time failing to take into consideration that the compliance with the requirements will lead to a more just, efficient and expedient resolution of debt actions by the Court.

Consistency and Predictability
     The Creditor’s bar has expressed concerns the Directive may foster an environment of inconsistency, unpredictability, and result in disparate rulings by the Judges (based on unique interpretations of the Directive), as quoted below:

“While we appreciate the flexibility, a good faith attempt to comply with the Directive may be insufficient to establish finality as contemplated by Rule 60(b) and principles of res judicata. If an otherwise properly entered default judgment may be later challenged (potentially after funds have been collected and/or post judgment costs have been expended) based on an interpretation of the Directive, Plaintiffs will not be able to rely on the validity and enforceability of a judgment in connection with post judgment activity or otherwise.”

     The debt collection industry’s concern regarding consistency and predictability is disingenuous. Their paraphrasing of the Courts’ comments is taken out of context. The Court was responding to the debt collectors’ concerns that the Administrative Directive was too rigid and inflexible with regard to the required documentation. The Court, in attempting to address that concern, indicated that the language such as “a copy of the assignment or other documentary evidence” could be used to provide some flexibility to the debt collectors as to the exact documentation necessary. To then turn this around to argue that the Administrative Directive as written would not allow finality or predictability is a fallacious argument. Following the clear requirements of the Directive - by attaching a copy of the original contract and copies of all assignments will provide the debt collectors with the clarity and finality that they claim to desire. The Directive is successful in promoting consistency and predictability because it provides Plaintiffs’ attorneys with additional motivation to comply with basic evidentiary requirements. Likewise, the Directive does not interfere with the establishment of finality as contemplated by Rule 60(b) and the principles of res judicata in the context of properly entered default judgments.

      Because one of the primary goals of the Directive is to address the issue of judicial efficiency and the Court’s best use of its resources, it is not the Court’s intent to use the Directive as a basis for judicial review of properly entered default judgments (and withdrawal of default judgments sua sponte) absent other reasons motivating the review. The argument advocated by the Creditors’ bar regarding inconsistency and unpredictability is unfounded. The Directive provides the Court with an additional line of inquiry to determine the appropriateness of a judgment within the context of review in accordance with the other grounds enumerated under Rule 60(b). In this sense, the Directive is not introducing a new right or remedy available to Defendants, it is simply enlarging the narrowness of the scope of grounds for the review of an entry of judgment. We are not aware of any other context in which a Judge would single out a debt action for post-judicial review of a properly entered default judgment and impose Rule 11 sanctions, unless the appropriateness of the judgment was being questioned on another basis. The Creditors’ bar concern about predictability is likewise misplaced because adherence to the Directive will prevent erroneously entered default judgments, leading to greater measure of justice for Defendants, and greater efficiency for the Court (as this will avoid a Rule 60 motion back-log in the Court’s docket).

      As an example, if a Defendant files a motion under Rule 60(b) for whatever reason, the Court only will grant such motion in its discretion, if it decides the order will serve the interests of justice, which is one of the motivating factors for the Directive. It is not unreasonable for the Court at the time of a Rule 60 motion to review the pleadings, factual allegations and documents submitted in support of the entry of default judgment by a Plaintiff to ensure that the Plaintiff has complied with the requirements of the Directive. If the Plaintiff has not complied with the Directive’s requirements, it is not unreasonable for the Court to withdraw entry of a default judgment. Arguably, if the requirements of the Directive were not met, the order for default judgment is not properly entered. There is no inconsistency or unpredictability if the default judgments are not properly entered initially. Plaintiff’s argument that the Court’s results are inconsistent or unpredictable if a default judgment is withdrawn, due to their inability to meet basic evidentiary requirements, is faulty because the Plaintiffs can avoid that result if the Directive’s requirements are met.

      Conversely, in the case of a Defendant who has been properly served and fails to answer or defend the debt action, the Judges likewise have the discretion to deny a Defendant the opportunity for further review. The Court will not sua sponte single out a debt action for review and withdraw the entry of a default judgment that was properly entered, but the Court will only review a default judgment when the Defendant initiates an inquiry into the judgment based on the allowable grounds under Rule 60(b).

     We do not dispute the assertion by the Creditors’ bar that the Directive will not have the desired impact without a commitment from the Court that it will provide resources for the review of motions for default judgment. While Legal Services is desirous of having the Court dedicate Clerks to review all initial pleadings of all debt actions filed, we recognize that such a request would be unreasonable given the Court’s finite resources. However, based on statistics that most debt actions are resolved in the context of a motion for default judgment, the actions being disposed of through the Court of Common Pleas must be reviewed by a Judge or Clerk to effectuate the purpose of the Directive.

      On the same line of thought, the Creditors’ bar concern that the Clerks will not review any of the debt actions filed, potentially leading to a withdrawal of properly entered default judgments (and the undesired inconsistency and unpredictability accompanying such action) is also unfounded. While the Court has not and will not commit Clerks to review the adequacy of the documentation in support of a debt action, the Clerks are still charged with the task of reviewing the debt action filing to ensure that the supporting documents are submitted with the initial Complaint. If the supporting documents are not submitted at all, the Clerks still have the authority to reject such filing. While we do not speak for the Court, we are confident the Clerks will still be doing a cursory review of debt actions filed along with the supporting documents, and rejecting any non-conforming filings.

      Nevertheless, if a Plaintiffs’ attorney were to submit a filing that is con-conforming and there then exists a legitimate concern that a default judgment may be withdrawn if its basis cannot be justified (due to the lack of appropriate documentation or inadequacy of appropriate documentation), the solution is to avoid filing the debt action in the first place. The systematic “weeding out” of debt actions, where legal enforceability is questionable, will also promote judicial efficiency with regard to the debt actions already filed that have a justifiable legal basis. If a debt collection attorney’s instincts that a good faith effort to document the basis of debt action may be insufficient to withstand judicial scrutiny (post-default judgment), the most reasonable solution to avoid non-conforming results is to avoid filing such an action. If an action cannot be documented or justified, it is, as a practical matter, initially not a legally enforceable judgment. The end result of the Directive is to put the onus on the Plaintiffs to decide whether they wish to have consistency and predictability, or whether they wish to take the risk of filing an action where a default judgment may be withdrawn at a later time. Plaintiffs’ Counsel will have to engage in a decision making process whereby they will directly be responsible for determining consistency and predictability by deciding which debt actions to file in the Delaware Court of Common Pleas.

      Moreover, during the Court’s unveiling of the Directive on May 6, it became evident that some practitioners in Delaware already comply with the requirements of the Directive. They regularly substantiate initial pleadings by including a redacted version of the assignment of the account to justify the Plaintiffs’ standing for filing the debt action. In doing so, some of the Plaintiffs’ attorneys already recognize the reasonableness of having such a practice as a standard for the bar, prior to the Court making it mandatory. That being said, we question why the standardization of such documentary evidence would be problematic for the bar if some members have already adopted these practices in their normal course of business.

The Affidavit
     One recurring theme throughout the response from Creditors’ Counsel was to suggest the use of affidavits to prove their case and/or to adhere to the requirements of the Administrative Directive, instead of document production. For the sake of background, debt collectors often submit affidavits in support of a certain types of motions, the two most common being motions for default judgment and motions for summary judgment. Affidavits should not be used where the affiant lacks personal knowledge of a fact, or when the affiant is not competent to testify as to the matters stated within the affidavit. As an example, it is clearly inadequate for a debt buyer’s employee to state in an affidavit that a billing statement was mailed to a Defendant, if she/she does not have personal knowledge of that fact, and more so if he/she does not have knowledge of the regular business practices of the original creditor. In such a case, the affidavit is based on hearsay and therefore inadmissible.

      Likewise, it is also unacceptable for a debt buyer’s affidavit to state that billing statements used to support the amounts being sought in a debt action were the types of records kept in the regular course of business, and submit such affidavit with billing statements from the original creditor. Again, unless the affiant has personal knowledge of the original creditor’s method of record keeping, and that the records were kept contemporaneously with the facts stated therein, the affidavit contains a false statement, is based on hearsay, and should not be relied on by the Court for the entry of judgment.

      Again, we oppose debt collectors’ use of affidavits because such documents are inherently not trustworthy and do nothing to further the goals envisioned by the implementation of the Directive. The debt collectors’ inability to produce the best evidence of a factual allegation is the primary motivation for the frequent use of the affidavit. The practice of submitting affidavits in support of the entry of default or summary judgments, without supporting documentary evidence, leads to the erosion of credibility, as evidenced the events unfolding around the country involving the debt collection industry. “Currently, Attorneys general in 38 states are currently fighting a proposed class-action settlement because it could make it much harder for state law-enforcement officials to regulate debt collectors...As part of the class-action case, one employee (of a debt collection company) testified in a deposition that he signed 200 to 400 affidavits a day, few of which were reviewed for accuracy.”(1) The debt collection industry’s use of affidavits containing “false and misleading” information mirrors the “robosigner” issues which recently surfaced in the mortgage industry, leading to foreclosure mistakes, followed by massive probes into the industry’s practices and procedures. The disclosure of information by affidavit is insufficient to prove the elements of a case, and does not assist the Court in meeting the requirement of fairness. In our collective experience, affidavits by the Creditors’ bar, regardless of whether they are used in support of a certain type of motion (or whether they will be used to prove elements of its compliance with the Directive), are usually based on hearsay, and/or contain false or misleading information, rendering such documents unreliable and inadmissible.

Elements of Proof
     In addition to the above, we have compiled the following list of comments in response to the Creditor’s bar. Again, we support the Administrative Directive because it will specifically address the following ongoing issues involving the elements of proof in debt actions.

Ownership of Account
     If ownership documents cannot be produced, an affidavit detailing ownership from a knowledgeable employee may be attached to the Complaint. Testimony may be introduced at the hearing for default judgment or at the trial on the merits regarding ownership, and such documents as are available may be offered as evidence for scrutiny by the Court. We also support the Directive’s mandate that the original creditor(s) be identified in the Complaint so as to provide the Defendant with knowledge from the outset as to whom the original creditor is. This will help bring to light potential defenses that the Defendant may be able to assert. Early identification of the account will lead to a more efficient administration of justice and more decisions based on the merits of the case.

Charge-off Balance
     The charge-off balance includes “unreimbursed cash advances or transfers and all interest, fees and charges.” The term “charge-off” is very vague, and without more detail, the Court and the consumer are unable to determine whether the “charge-off” complies with the terms and conditions of the contract. The Plaintiff may rely on compilations and computer records, authenticated as evidence, to prove the amounts claimed. The Plaintiff has the burden of proof, and other businesses, such as mortgage lenders, compile records for years. Therefore, with current technology, the argument that it is impossible to maintain these records is ludicrous.

      As to the original contract, once again, the Plaintiff has the burden of proving the amounts owed, including the terms and conditions of the contract. The Plaintiff may choose to file an action on each individual “contract” or use of the credit card, or may sue on all of the transactions or contracts on the credit card. The Plaintiff still has the burden of proving the terms and conditions of each contract and may produce the original contract and the subsequent changes in terms and conditions. Of course, the credit card companies have the information in their data banks or they would not know the amount to bill monthly on each transaction. The Plaintiff should produce the original contract, as well as any changes in terms and conditions in whatever form is reliable and authenticated, to assist the consumer and the Court in determining the legal justification for the amounts claimed in the lawsuit.

Rule 37
     The credit card companies’ interpretation of Rule 37 is illogical in that all parties are treated the same before the Court, whether they are pro se or represented by Counsel. To do otherwise would be discriminatory and unjust. There is no legal basis for differentiating between pro se litigants and litigants represented by attorneys.

      As stated by Creditors’ Counsel, the Rule 11 provisions and authority to award attorney’s fees already are the law in Delaware, and the Court is just in determining whether a pro se litigant or represented party or attorney should be sanctioned for impeding the process of justice. Such measures are ordered by the Court rarely, and the Directive merely highlights these options for all who appear before the Court, including pro se litigants.

Trials
     Of course, it is a waste of the time of the Court and of all of the litigants and of opposing Counsel for a Plaintiff, who has the burden of proof, to be unprepared to proceed at the scheduled hearing. The Plaintiff has the option of a voluntary dismissal if it is unprepared to proceed, and has the responsibility to promptly exercise this option to avoid clogging the Court’s docket.

      Also, the Plaintiff may exercise common sense planning by scheduling trials with represented parties on the same date. The Court is very understanding about scheduling hearings in order to foster finality in the cases before the Court, as emphasized by Creditors’ Counsel.

      The scheduling issues are not the focus of the Directive, and should be the topic of a different forum between Counsel and the Court.

Conclusion
     We have had quite a few clients who have come to us for representation with regard to debt collection matters. It has been our experience, on quite a few occasions, especially where the debt has been the subject of assignment or multiple assignments, that when we press counsel for the debt collector for documentation proving the existence of the debt and proper ownership of the debt, that the response has been to voluntarily dismiss the action.

     Whether or not the holder of an improperly documented debt collection claim is granted a default judgment should not rest upon a defendant serendipitously finding their way to a legal services program (if they are even eligible for such representation). The number of defendants who are able to reach us for representation are just a tiny percentage of the many defendants who have default judgments entered against them. The implementation of the Administrative Directive will eliminate chance as being the predictor of whether or not a defendant has a default judgment entered against them, and will provide uniformity and certainty to the process. This beneficial outcome will not come at the cost of a great burden to the plaintiffs - no more so than Form 30 Interrogatories create a great burden to personal injury plaintiffs. In summary, the Court’s Directive will reinforce the public opinion that the Court of Common Pleas is the benchmark for fair and impartial justice for all Delaware residents.

 

FOOTNOTES:
  (1) Jessica Silver-Greenberg, States to Fight Lawsuit Accord, WALL ST. J., June 14, 2011, at C5.
4. Excuse me but, why should a Plaintiff not have to prove their case here like they do in all other cases?
 
COMMENT #3 (sent on behalf of a Delaware business owner): I am disappointed by what appears to be an action of the Court which moves our State (and this country) closer to nanny government. Many defendants do not bother to respond to lawsuits because they know they owe money. Debtors are already protected under the Fair Debt Collections Practices Act. If the defendant cannot be bothered to respond to the Plaintiff or the Court requesting additional evidence of indebtedness, why do you Judges feel it necessary to act as their representing counsel? This directive, in my opinion, is a direct assault on Delaware businesses trying to recover money justly owed by Delaware residents.  

REPLY COMMENTS TO INTIAL COMMENT #3:

1.

 The key here is 'justly owed' debt. I think everyone agrees that justly owed debts should be paid. All the court seems to be asking for is proof, like they do in all other courts for all other claims, that the debt is in fact justly owed.


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