Since the 2000s, creditors—both original and debt buyers—have obtained hundreds of thousands of default judgments against people in the New York City Civil Court. Consumer protection and law enforcement actions have shed light on widespread problems with service of process, which reached epidemic proportions a decade ago and still persist to this day. Without proper notice of the lawsuit, too often consumers first learn about the action when creditors seek to enforce a default judgment, which may be years later. New York law provides an avenue for addressing the lack of personal jurisdiction: New York's Civil Practice Law & Rules §5015(a)(4). Proper submissions by litigants and appropriate application of the legal standard by the courts are essential to ensuring that these consumer credit actions are decided on the merits and that default judgments are not improperly enforced where plaintiffs failed to legally serve defendants.

Background

Over the past decade and a half, original creditors and debt buyers have filed, annually, tens of thousands of consumer credit actions in the New York City Civil Court. In 2008, consumer credit filings in Civil Court peaked at more than 300,000. By comparison, the total number of civil cases filed in all the U.S. District Courts for the same year was just over 267,000. The number of filings began to decline, and reached a low of 45,000 in 2016; however, this trend reversed in 2017, when filings climbed to over 75,000. Over 95% of defendants in consumer credit actions are unrepresented, which creates challenges for the courts in fairly administering these cases and for defendants in effectively defending themselves in these actions. Defending against consumer credit actions is all the more difficult because of longstanding, well-documented and widespread problems with service of process that often result in entry of default judgments. For example, in 2009, the New York Attorney General brought a case against 35 debt collection law firms, which had used improper service to obtain over 100,000 default judgments. For consumer credit actions in New York City Civil Court, rates of default judgment for failure to answer have ranged from astonishing numbers in 2008 (70% citywide) to the unacceptably high rate of 41% in 2017. Between 2008 and 2017, creditors obtained entry of an estimated 738,000 default judgments against consumers. Default judgments cause hardship for low-income people through wage garnishment and bank account restraints—among other collateral consequences.

Consumer credit actions and the practices of many third-party debt collectors routinely present additional substantive defects, which have been documented by state and federal agencies. For example, a 2010 Federal Trade Commission Report titled “Repairing a Broken System” indicated five concerns with debt collection litigation, including filing suits based on insufficient evidence, failing to properly notify consumers of suits, the high prevalence of default judgments, improperly garnishing exempt funds from bank accounts, and suing or threatening to sue on time-barred debts.

In response to the demonstrated abusive debt collection practices, legislatures and courts have adopted various reforms. In 2009, New York City adopted sweeping reforms of the process server industry. Most notably, in 2014, the courts instituted new rules related to consumer credit actions to combat improper service, insufficient documentation, and time-barred claims. These reforms, however, applied prospectively, and the vast pool of default judgments remained; today, debt collectors aggressively enforce older and older default judgments.

Legal Standards

New York Civil Practice Law & Rules (CPLR) §5015(a) contains the conditions under which courts set aside a judgment or order. Paragraph (4) of this section pertains to cases in which the court that rendered a judgment or order lacked jurisdiction, including because of improper service of process. Service of process is a constitutional requirement necessary for a court to have jurisdiction over a person. Patrician Plastic v. Bernadel Realty, 256 N.E.2d 180, 184 (1970). The Court of Appeals has held that the statutory requirements for personal service mandate strict compliance. Dorfman v. Leidner, 565 N.E.2d 472, 474 (1990). A court does not have personal jurisdiction over a defendant who has been improperly served pursuant to CPLR §308, regardless of when the judgment was entered. In fact, Weinstein, Korn, and Miller's CPLR Manual explains that, when a jurisdictional defect exists, no “issue of discretion arises; a judgment or order granted in the absence of jurisdiction over the defendant is a nullity that must be set aside unconditionally.” And, David Siegel's New York Practice notes that a motion brought under paragraph (4) does not require an accompanying affidavit of merit, nor is there a time limit in which the motion has to be brought because the judgment in such instances is void and the order sought declares it to be so.

It is well-settled law that the affidavit of service constitutes prima facie evidence that the defendant was validly served. In Manchovec v. Svodoba, 120 A.D.3d 772 (2d Dept. 2014), the court held that, if a defendant successfully rebutted the presumption of proper service, then a traverse hearing is necessary to determine the propriety of service. The court in Capital Equity Management v. Weisz, 28 N.Y.S.3d 647 (2d Dept. 2015) held that a defendant can rebut the presumption of proper service by submitting a “sworn, nonconclusory, factually specific, denial of service.” A defendant must demonstrate factual disputes with the affidavit of service. The court in Thomas v. Karen's Body Beautiful, No. 650779/2016, 2017 N.Y. Misc. LEXIS 5036, at *7 (N.Y. Sup. Ct. Dec. 18, 2017) listed qualifying factual disputes, such as “contesting the physical description of the person served, asserting that the person who accepted service was not at the place at the time and date the process server sworn to have served him, or contesting the specified mailing address.” No published decision requires the defendant in this procedural posture to do more than submit a sworn particularized rebuttal of the affidavit of service; under established precedent, documentary evidence is not required to grant a motion pursuant to C.P.L.R. §5015(a)(4). In addition, defendants who contend they were not properly served may move, alternately, for relief pursuant to C.P.L.R. §5015(a)(1) on the ground of excusable default.

While many unrepresented defendants do particularize their denials of service without explicitly being told to do so, a judge can take the initiative to prompt an unrepresented defendant to bring out facts or details that dispute those in the affidavit of service. Doing so is entirely permissible under Rule 100.3(B)(12) of the Code of Judicial Conduct, which authorizes “a judge to make reasonable efforts to facilitate the ability of unrepresented litigants to have their matters fairly heard.” This supplements the strong public policy in New York of “resolving disputes on their merits, and toward that end a liberal policy has been adopted with respect to opening default judgments in furtherance of justice so that parties may have their day in court.” Picinic v. Seatrain Lines, 117 A.D.2d 504 (1st Dept. 1986).

Challenges Faced by Unrepresented Defendants

The percentage of unrepresented defendants in consumer credit actions remains extremely high. The challenges of vacating old default judgments are exacerbated by various other factors, including language barriers and inordinate delays in obtaining archived court files. Many defendants are low income and enforcement of default judgments creates considerable hardship. Moreover, pursuant to C.P.L.R. §5004, the post-judgment interest rate is 9% annually, which over time can make judgments balloon appreciably.

Given the context of these cases—consumer credit actions with significant substantive and procedural defects; the documented systematic problems with service of process; the very high rates of default judgments; and the astronomically high rates of unrepresented defendants—New York City Civil Court judges must take affirmative steps to ensure the fair administration of justice. Such steps could include explaining the legal process to unrepresented litigants; referring unrepresented litigants to court-based limited-scope and other legal services; advising defendants to withdraw fatally insufficient applications so that they can resubmit better prepared papers; ordering plaintiff's counsel to produce copies of the affidavit of service when court files are unavailable; and giving defendants the opportunity to more fully investigate and prepare their applications to vacate default judgments. Such interventions should be considered “reasonable efforts to facilitate the ability of unrepresented litigants to have their matters fairly heard” under the Code of Judicial Conduct.

Conclusion

Consumer credit actions present a myriad of issues, such as extremely high numbers of filings and documented procedural and substantive defects that include widespread improper service of process and evidentiary deficiencies. These factors are compounded by astronomical rates of unrepresented defendants and pose challenges for the fair administration of law. Judges in New York City Civil Court are ethically authorized to assist unrepresented litigants to “have their matters fairly heard”—which also advances New York State's public policy of having cases determined on the merits—and must take the initiative and time required in order to fulfill these important duties.

Shirin Dhanani is dean's fellow, and Dora Galacatos is executive director, of Fordham Law School Feerick Center for Social Justice. Shanna Tallarico is supervising attorney, consumer protection unit, at New York Legal Assistance Group.