April 30, 2014

Calif. Rips Chase's Defenses In Abusive Debt-Collection Row

The state of California urged a Los Angeles County judge on Thursday to toss a bevy of equitable defenses JPMorgan Chase & Co. asserted against claims that it abused credit-card customers through shoddy record-keeping and other debt collection practices that have plagued the mortgage servicing industry.

At a hearing Thursday, Deputy Attorney General James Toma asked Superior Court Judge Jane L. Johnson to reconsider her written tentative ruling, which sustained the state's demurrer on 10 of JPMorgan's 20 affirmative defenses. Toma said that JPMorgan's equitable defenses shouldn't be available against a public law enforcement claim.

“In this case what the defendant is trying to do is assert equitable defenses not against the people of the state of California, but against the consumers,” he said. “They are trying to bring in, sweep in, the actions of the consumers, which is just not allowed based on the law of how affirmative defenses work.”

California Attorney General Kamala D. Harris sued JPMorgan in March 2013, alleging that in-house attorneys for JPMorgan's retail banking unit, Chase Bank USA NA, filed more than 100,000 lawsuits against California consumers between January 2008 and April 2011, an average of more than 100 per day.

To keep up that pace, Chase's attorneys relied on abusive practices, according to the suit. Bank representatives illegally robosigned many litigation filings, including verified complaints and other sworn documents, without actually reviewing relevant files or bank records, the complaint says. And in some cases, bank attorneys and other employees did not even read the documents before filing them, according to the suit.

Chase filed over 1,000 debt collection lawsuits each month over the course of three years, the suit says. Along with the 100,000 complaints filed by Chase's in-house attorneys, outside firms the bank hired to help with debt collection filed an additional 20,000 cases against Californians during the relevant period, according to the suit.

Chase also engaged in a process known as “sewer service,” in which it claimed it had properly served consumers with legally required notice of debt collection lawsuits without actually doing so, the complaint says.

The suit also says Chase put together their legal filings in a sloppy manner marked by shoddy record-keeping. In some cases, Chase neglected to redact consumers' personal information from court filings in violation of California law, and swore that consumers sued by the bank were not on active military duty without having actually checked if that was the case, the complaint claims.

Chase afterward asserted its affirmative defenses against the claims, including laches, unjust enrichment, as well as defenses of unintentional acts and reasonable justification, plus collateral estoppel and res judicata.

On Friday, JPMorgan's attorney Noah Levine of WilmerHale asked Judge Johnson to change her tentative dismissal of its defense of res judicata, saying that in cases when the bank had settled with debtors, those settlements should stand, and those debtors should not be granted restitution in this case.

“The only thing obtained from debtors was payment on debt validly owed,” he said. “There's no authority for why that should be restored under a restitution theory.”

Judge Johnson took the matter under submission then asked the parties to bring back to the court a resolution of their dispute over a potential protective order for discovery of confidential documents, as the state said it needs to be able to show potential witnesses documents before deposing them. JPMorgan objected.

California is represented by Deputy Attorneys General Bernard A. Eskandari and James Toma.

Chase is represented by David L. Schrader of Morgan Lewis & Bockius LLP; and Noah A. Levine and Alan Schoenfeld of WilmerHale.

The case is California v. JPMorgan Chase & Co., case number BC508466, in the Superior Court of the State of California, County of Los Angeles.