Small Businesses Can Avoid Expensive Problems Up Front with Thoughtful Formation Documents

All too often, entrepreneurs do not put enough thought into formation issues when forming their small business.  When unforeseen circumstances later arise, what seemed a quick and easy way to form a business can be revealed as an unexpected source of aggravation, expense, and worry.  

The first formation issue that must be considered is, of course, what form of business entity to create.  There are two kinds of mistake here, each of which can be costly.  On the one hand, entrepreneurs may simply begin and continue operating without any formalities, in which case the law treats the business as a sole proprietorship or partnership.  This can be appropriate depending on the nature of the business, but if personal liability is a concern, it could be very expensive, as these default organizational forms provide no protection against personal liability for the business's debts or torts.  On the other hand, many entrepreneurs assume that some particular form, such as a corporation or an LLC, is appropriate, without considering the need for the form, its sustainability, its long-term appropriateness, or the expense of setting it up.  For some businesses, sole proprietorship or partnership is perfectly appropriate and there is little to nothing to be gained by forming a corporation or LLC and thus incurring filing fees and annual franchise taxes.  A corporation, though cheaper to form than an LLC, may be less appropriate if there are going to be issues with maintaining the formality of a corporation, or if the organizational and management flexibility of an LLC is desirable.  A brief discussion with an attorney and a tax professional could result in significant savings if it avoids an inappropriate form decision.

The second common formation issue is the failure to provide for the dissolution of the business.  There is an old saying:  hope for the best, prepare for the worst.  Business partners that get along today may not tomorrow.  Every partnership should have a written partnership agreement to, at the very least, address what happens if the partners have a falling out.  The LLC form provides great flexibility to structure the management of the business and to provide for the admission of new active or passive members and the exit of existing members.  If you are forming an LLC and not preparing an LLC Agreement that addresses these issues, you are not making the most of the form.  If you've settled on a corporation as the form of your entity, executing a shareholder agreement and/or a buy-sell agreement now could save you a lot of trouble and money in the event new shareholders buy in, or an existing shareholder dies, exits the business, or is terminated.

My firm advises on and handles small business formation and dissolution issues and disputes.  Contact us if you require such services.

Car Dealers Must Disclose Reliance on Negative Credit History to Raise Car Loan Interest Rate

On May 31, 2012, the U.S. District Court for the District of Columbia held that the Fair Credit Reporting Act requires a car dealer to disclose to a car buyer that negative credit history resulted in a higher interest rate on the buyer's car loan - even if the dealer was not the one that reviewed the credit history because only a bank or finance company did so.  The case is National Automobile Dealers Association v. Federal Trade Commission, Civ. A. No. 11-1171 (ESH). 

The National Automobile Dealers Association (NADA) filed the case to challenge the Federal Trade Commission's rule that required such disclosures.  The Fair Credit Reporting Act has long required creditors to notify consumers of "adverse actions" taken based on information in a credit report, such as when credit is denied.  In 2003, Congress amended the FCRA to additionally require users of credit reports to provide a "risk based pricing notice" when negative credit history results in a higher interest rate.  Reasoning that because the dealer is who the buyer directly interacts, the FTC, charged with interpreting the FRCA, held that a car dealer is a "user" of credit reports that must provide this notice.  

NADA sued seeking to have this rule overturned, arguing that a car dealer is not actually a "user" of the credit report if it is a bank or finance company that actually determines the higher interest rate.  To understand the context of NADA's position, one must consider how the typical car financing works.  Dealers selling cars on credit are lenders, and so subject to laws such as the Truth in Lending Act that impose disclosure and other obligations on creditors.  Dealers thus prepare contracts setting forth the loan interest rate, and execute such contracts as lenders as part of the car sale.  Dealers generally then assign the car loan to a bank or finance company immediately after selling the car.  NADA argued that when the bank or finance company reviews a credit report and communicates to the dealer, which in turn inserts the higher interest rate into the contract, the dealer is not a "user" of the credit report.  The FTC rejected that position, and the federal court upheld the FTC's interpretation as reasonable.

NADA's position appears somewhat bold.  Car dealers have long had a hard time accepting the fact that when they sell cars on credit, they are creditors.  Thus one still occasionally sees outright TILA violations where the dealer doesn't even disclose a finance charge or interest rate.  In the "risk based pricing notice" scenario, even if the dealer didn't look directly at the buyer's credit report, it executed a contract containing the interest rate and so relied on the report one way or the other.  The scenario in which NADA's position actually would make sense would be one where the dealer inserts an interest rate and only later contacts a bank or finance company which then pulls the report.  In that situation, one often finds that the dealer can't unload the paper because the bank or finance company demands a higher rate.  The law's response to that situation is to say, too bad so sad.  The dealer made a bad loan and is stuck with it.  But practically, this is where one sees the classic "auto fraud" fact patterns, the "yo-yo sale" and "spot sale."  The dealer prepares new contracts with the higher rate and talks the buyer into signing them, threatening to take the car back if not.  Don't do it!  This is fraud, deception, and an outright TILA violation - an expensive one for the dealer because damages under TILA are double the total finance charge over the course of the loan, which could be tens of thousands of dollars.  


My firm handles lawsuits addressing car dealer or lender misconduct.  If you have been the victim of any fraud or abuse  by a car dealer or lender, contact us to discuss your options.

Telephone Consumer Protection Act: The Federal Courts Giveth and They Taketh Away

Two federal courts recently issued decisions in cases construing the Telephone Consumer Protection Act (TCPA), 47 U.S.C. 227.  The more important decision, out of the Seventh Circuit and written by Judge Easterbrook, held that a consumer's consent to be contacted at a cell phone number by an autodialer or pre-recorded voice does not authorize such calls to be made to individuals other than the consumer, such as if the phone number has subsequently been assigned to a different individual than originally made such consent.  Therefore, individuals who have no relationship with a creditor and who innocently receive misdirected collection calls may sue and recover potentially very large sums of money to compensate them for the inconvenience such calls create.  The other decision, from the Eastern District of Pennsylvania, addresses what happens if the person being called actually did have a relationship with the creditor.  The court there held that a consumer who has consented to be called may not thereafter revoke that consent.  Although this is not a very consumer-friendly decision, consumers make take some solace in the fact that the bulk of other federal court decisions disagree, and hold such revocation effective.

The TCPA generally prohibits the making of a call with an automatic dialer or pre-recorded voice to any phone number unless there is an emergency purpose or the caller has the prior express consent of the "called party."  47 U.S.C. 227(b)(1).  The TCPA provides that for each violation (i.e. each call) the aggrieved consumer is entitled to a least $500 damages, and this is to be increased to $1500 per call if the violations are willful.  The FCC has opined since 2008 that a consumer's provision of a phone number to a creditor in a credit application or otherwise constitutes such "express consent."  These two recent cases address wrinkles in the operation of this "express consent" exception.

In the Seventh Circuit decision, Soppet v. Enhanced Recovery Company, LLC, No. 11-3819 (decision dated May 11, 2012), AT&T hired the defendant debt collector to collect a phone bill.  The debt collector used a predictive dialer to call a cellular number, at which its customer had consented to be called in his or her contract with AT&T.  However, the phone number had since been assigned to an unrelated individual, the plaintiff.  The lower court held that the "called party" whose consent must be obtained before autodialed calls may be placed is the party who is actually called, i.e., the current subscriber to the phone number.  The calls here were thus violations of the TCPA.

The Seventh Circuit affirmed, and in doing so, rejected the various statutory construction arguments put forward by the debt collector.  In effect, the collector argued that the court should not read the statute as Congress wrote it, because this would make it too hard to collect debts.  The court noted that it was conceded that the TCPA would be violated if the original customer had provided a false telephone number - whether on purpose or by mistake.  Similarly, were the collector to dial an erroneous number by mistake, it seems clear the TCPA would be violated.

Many people have had the experience of receiving collection or other annoying and potentially expensive autodialed calls directed to a former subscriber to their cellular telephone number.  Under Soppet it is clear that a remedy may be had for such annoyance and expense.  In a lawsuit against the caller, the TCPA makes available substantial minimum damages.

While the Seventh Circuit clarified the broad scope of TCPA liability in Soppet, the Eastern District of Pennsylvania meanwhile issued a particularly narrow decision in Gager v. Dell Financial Services, LLC, No. 3:11-cv-2115 (Mariani, J) (filed May 29, 2012).  

In Gager, the court addressed whether a consumer who has given express consent to be called at a cellular number may revoke that consent.  Numerous courts have held that the consumer can do so, differing only over how - orally or in writing.  Many courts addressing TCPA claims brought in conjunction with claims against debt collectors under the Fair Debt Collection Practices Act have held that because the FDCPA imposes liability for violation of requests to "cease and desist" contact only where those requests are written, withdrawals of consent to receive collection calls must also be in writing.  Starkey v. Firstsource Advantage, LLC, 2010 WL 2541756 (W.D.N.Y. 2010); Cunningham v. Credit Mgmt., L.P., 2010 WL 3791104 (N.D. Tex. 2010); Moore v. Firstsource Advantage, LLC, 2011 WL 4345703 (W.D.N.Y. 2011); Moltz v. Firstsource Advantage, LLC, 2011 WL 3360010 (W.D.N.Y. 2011).

Other courts have rejected this position, holding - sensibly - that one's interpretation of the TCPA should not vary depending on whether the defendant is a debt collector.  The TCPA either allows oral withdrawal of consent or it doesn't.  If it allows withdrawal of consent, nothing in the TCPA suggests it has to be in writing.  Adamcik v. Credit Control Services, Inc., 2011 WL 6793976 (W.D. Tex. 2011) (so holding in case also involving FDCPA claims); Gutierrez v. Barclays Group, 2011 WL 579238 (S.D. Cal. 2011) (so holding in creditor case without FDCPA claims). 

Decisions finding that consent may be revoked - by whatever means - have generally relied on a 1992 FCC order that stated that a customer's release of his or her phone number constitutes authorization to call only "absent instructions to the contrary."  7 FCC Rcd. 8752, 8769 (1992). 

The court in Gager disagreed with both sets of decisions, and held that express consent, once given, cannot be revoked at all, by any means.  In doing so, the court read the 1992 FCC order as referring to instructions to the contrary given at the same time the phone number is provided.  The court acknowledged that consent may be revokable where debt collectors are concerned, because the FDCPA expressly allows a written cease-and-desist request; thus, the court's logic apparently will not apply to TCPA suits against debt collectors.  However, because a creditor, and not a debt collector, was at issue, the court held that consent was irrevokable.

Whatever may be the merit of this reading of the 1992 order, the order certainly doesn't say that consent, once given, is irrevokable, and such an interpretation seems inconsistent with the very idea of consent and so appears an unnaturally strict construction of the statute itself, particularly where the statute being construed is one that Congress intended to protect consumers from having undesired costs and inconvenience imposed on them by undesired cellphone contacts.  The most natural reading of the TCPA "express consent" language seems to be that once a consumer communicates expressly a lack of consent, there is no longer express consent to receive calls.  If the 1992 order clarifies anything, it is that the mere fact of the creditor having the consumer's phone number, alone, cannot be treated as consent where the creditor knows otherwise.  If consent was to be irrevokable, one would expect that to be noted in the statute.

As noted, the Gager court itself distinguished cases against debt collectors.  Thus, consumers receiving autodialed calls or calls with a pre-recorded voice from debt collectors who have sent a written cease-and-desist request may still be able to obtain substantial minimum damages as compensation.  To the extent non-debt collectors are making the calls, the bulk of extant authority continues to hold consent revocable, and so consumers aggrieved by such calls from a business they have had some relationship with will still find it advisable to communicate, ideally in writing, a revocation of their consent to such calls.

My firm handles TCPA claims against debt collectors, creditors, or other abusive companies.  If you have received such calls, contact us.

Credit-Card Plaintiffs Are Often Unable or Unwilling to Prove Their Debt Collection Case at Trial

Recent experiences around the country suggest that even original creditors, such as credit-card companies, are unable or unwilling to go to trial and actually prove their cases.

In Florida, Chase Bank actually went to trial on a case in September 2011 in which it sought about $15,000 on a consumer credit card.  The consumer had a substantial defense in that she had opened the account as a zero-interest account, and Chase later raised the interest rate, allegedly without notice to her.  The consumer won the case at trial.  

As is common, the Bank called the consumer as its first witness and attempted to prove up its case through her.  While this is common, creditors often will neglect to actually ensure the consumer's presence by serving a trial subpoena.  The collection attorney's intention in doing this is to bully the consumer into admitting she received the account statements in the mail.  In this particular case, Chase attempted to do so with account statements that were such obvious frauds that the tactic seems to have monumentally backfired.  The consumer ultimately testified that she calculated the amount she actually owed as about $80. 

As I have discussed before, the use of obviously fraudulent account statements in debt collection lawsuits is common.  The fraudulent nature of the statements is often detectable when, for example, the consumer has moved to a new address during the life of the account, yet the statements attached to creditor motions or introduced at trial bear the current mailing address even when they pre-date the address by years.  In this particular Chase case, the Bank did exactly that, submitting statements that had an address that was a vacant lot as of the time of the statements.  However, they also apparently submitted some statements that contained a fictional address (1234 Main Street, Anytown, USA 00000).  This was unusually sloppy, but in principle, par for the course. 

In the Florida case, the consumer was, of course, all too willing to testify, because she strongly believed in her defense.  Having given the Bank nothing it could use, the Bank called its putative document custodian as its only other witness.  As is to be expected, the witness - unable to identify her own employer - acknowledged that Chase's records were all computerized, and admitted to having absolutely no knowledge whatsoever of how that computer system worked.  She was thus incapable of authenticating Chase's documents.  Ultimately the court entered judgment against the consumer for the $80 she admitted she owed.

I have previously written about the recent revelations about Chase Bank's credit card records, which an internal audit revealed to have numerous errors, apparently due to the keeping of separate databases for active as opposed to defaulted accounts, and an error-prone method to transfer data from one to the other.  Although the kind of whistleblowing that brought the Chase revelations to light has not happened with other banks, there is every reason to believe that unreliable record-keeping plagues the industry.  In a follow-up article after its piece about the Chase revelations, American Banker magazine discussed indirect evidence that other banks' account information is riven with errors.  According to American Banker, when Bank of America sells its credit card accounts to debt buyers, it expressly represents that it does not possess original account documents, and will not guarantee accuracy of the information at all.  US Bancorp will apparently guarantee accuracy to within 10% of the asserted account balance, but no better. 

Just this last April American Express went to trial in a case in Kings County Civil Court in which it sought to collect about $16,000.  The case is American Express Bank v. Tancredo, CV-24043-11/KI, NYLJ 1202551841663, at *1, 3 (N.Y.C. Civ. Ct. Kings County Apr. 27, 2012).  Here, the defendant had no attorney.  However, judges of the New York City Civil Court have in recent years been conscientious about ensuring that pro se defendants are not run roughshod over by represented creditors.  Here, American Express started its case with a putative document custodian that sought to introduce account statements and a cardmember agreement through formulaic recitation of no more than the elements of the business records rule exception to the hearsay rule.  The custodian did not identify the entity that issued the credit card.  AmEx called the consumer as a witness, and she indicated she did not know which American Express company issued her card.  In an opinion published in the New York Law Journal, Judge Dear, describing this as "robo-testimony," found it insufficient to establish that the documents were admissible as business records.  In particular, the witness described no office policy at American Express with respect to mailing account statements or cardmember agreements that would suggest these documents were actually mailed to the defendant.  Judge Dear dismissed AmEx's case.  

Notwithstanding that they do not actually want a trial and are not capable of winning at trial, some collection law firms in New York have begun to routinely serve a "notice of trial" early in the case, sometimes doing so improperly while discovery is still pending.  The logic of doing so against a self-represented consumer is plain.  If the consumer misses the court appearance, the creditor may obtain a default judgment.  If not, the consumer will likely be pressured by the judge and creditor attorney to settle the case for a payment plan on 100% of the claimed balance, notwithstanding that the balance may, for numerous reasons unknown to the consumer, be something that, in whole or in part, is not owed.  The logic of serving such a thing on a represented consumer's attorney, however, is mysterious.  It seems to be the product of nothing more than a mindless collection-firm bureaucracy that has decided to serve the same papers in every case.

To illustrate, I recently appeared for trial in a $3800 Citibank case.  Although the trial had been scheduled months in advance and I had served motions in limine seeking to exclude all of its evidence, Citibank did not send, or plan to make available, any witness, nor did it serve a trial subpoena to secure the consumer's attendance; and Citibank sent a local attorney to cover the trial who had no knowledge of the case and no documents to use as exhibits.  Citibank's strategy in its entirety was to have the case adjourned through a request made on the day of trial - not something that made the Judge happy.  Having been given the rest of the day to arrange a witness, Citibank ultimately offered to settle that account and a much larger account not at issue in the case for a small and affordable payment plan.  Although I was looking forward to voir dire-ing Citibank's witness, in the event that it procured one, my client was happy with the result.  

Past success does not guarantee success in any future matter.  Do, however, contact me should you have a debt case in need of defending.

New York Civil Procedure Roundup

No "prevailing party" attorneys' fees unless party prevailed with respect to "central relief sought."  On April 27, 2012, the Fourth Department issued a decision in Chainani v. Lucchino addresing the availability of "prevailing party" attorneys' fees.  Here the plaintiffs sued the defendants alleging that defendants breached a 2000 agreement granting a parking easement, by modifying its lot in a way that prevented their parking.  Plaintiffs brought two causes of action, one seeking damages and a prospective injunction prohibiting defendants from interfering with plaintiffs' parking rights, and another seeking a more limited order that defendants modify the lot to enable them to park there.  The parties settled for a stipulated order requiring the modifications, and dismissal of the claim for a broader injunction and damages.  Plaintiffs then sought attorneys' fees under the 2000 agreement, which contained a provision giving fees to a "prevailing party" in an action to enforce the agreement.  The lower court denied fees, and the Fourth Department affirmed, over a dissent from Justice Carni.  The court noted that in determining who is a "prevailing party" it considers whether the party obtained the "central relief" sought, "consider[ing] the true scope of the dispute litigated, followed by a comparison of what was achieved with that scope."   Because plaintiffs did not obtain damages, a finding that the 2000 agreement was breached, or the broader injunctive relief sought in their first cause of action, the court held that the comparison favored finding that they were not prevailing parties.

This case has some potential relevance to consumer-debt cases that have an attorney fee-shifting provision. One strategy in such cases is to argue that because interest was not authorized by any contract, plaintiff is limited to obtaining the balance of principal remaining when all payments are applied against principal.  Even if this amounts to something, where it amounts to far less than the demanded amount, a debtor defendant should be able to argue that the plaintiff is not the prevailing party.  More importantly, if this was the position taken all along by the defendant, the latter should be able to argue that he or she is the prevailing party and so entitled to attorneys' fees.  (General Obligation Law 5-327 provides that any time a consumer contract provides for attorneys' fees to be awarded against the consumer, the consumer is automatically reciprocally entitled to fees if he or she prevails.)

Party may request change of venue in amended complaint.  In Valley Psychological, P.C. v. GEICO, the Third Department on May 10, 2012, held that where a defendant failed to request change of venue before or with the original answer as required by CPLR 511(b), but served an amended answer as of right, the party could request change of venue in the amended answer.  The amended answer supersedes the original answer and so including the request in it satisfies the CPLR 511(b) requirement.  CPLR 511(b) further provides that the request is waived if a motion to change venue is not made within 15 days of serving the demand to change venue, which the defendant here did.  Although the lower court granted change of venue in its discretion under forum non conveniens principles, finding that Nassau County was more convenient than Albany County, the Third Department held that defendant was entitled to change of venue as a matter of right because the demand was properly served and Albany County was not a proper venue since neither party had its principal place of business there.

This decision is likely to come in handy for attorneys who take over cases that had been litigated by self-represented defendants that may have neglected to assert a venue defense in the original answer.  Courts liberally allow amendment of the answer under such circumstances.  See Renaissance Equity Holdings, LLC v. O’Neil, Index No. 098946/08, 2009 N.Y. Misc. LEXIS 2416, at *3 (Sup. Ct. Kings County Apr. 27, 2009).  Although CPLR 513 absolves consumers from any need to affirmatively request change of venue in consumer debt-collection cases, individuals defending commercial debt-collection cases may benefit from this rule.


My firm handles appeals, both directly for clients and for attorneys that need legal writing and research.  Contact us if you need such services.

Should Judges Write Their Own Opinions?

In a recent New York Times Op-Ed, attorney William Domnarski excoriates the practice of having law clerks "ghostwrite" judges' legal opinions, calling it a "crisis in the federal judiciary."  Mr. Domnarski asserts that "ghostwritten" opinions are less intellectually rigorous and carry less imprint of a judge's personal style than opinions personally drafted by the judge, and that they encourage opinions that reach dishonest and opaque conclusions.

As a former law clerk to a federal appellate judge, as well as an attorney with experience working in law offices big and small, I view Mr. Domnarski's assertions as both wrong and unrealistic.  Indeed, as Mr. Domnarski acknowledges, judges who rely on clerks to prepare first drafts are only doing what attorneys at any large, private law firm do, and so what they themselves have likely done during the entire career that resulted in their promotion to the federal bench.  In support of his assertion that this somehow undermines the rigor of the opinion-writing process, Mr. Domnarski cites nothing other than his own impressionistic perception that the handful of "great" opinion-writers "go it alone."

There is a reason that law firms across the country have adopted a division of labor in which substantive pleadings are drafted in the first instance by a junior attorney.  This division of labor is efficient and, if anything, encourages the intellectual rigor that Mr. Domnarski seeks.  Particularly among federal appellate clerks, the new attorneys tasked with this drafting are well trained and experienced in intellectually rigorous research and analysis through courses at top law schools, and often MBA or Ph. D programs, and service on law reviews.  Senior attorneys or judges signing their names to the final work product inevitably put their own stamp on it - and rightly so, as broader experience provides a sense of the contours of the field and what arguments work and don't worn that a junior attorney lacks.  This iterative and dialogic process is highly conducive to rigor and allows the "personal style" of the signatory to fully flourish.

It is in the nature of Mr. Domnarski's argument that it cannot be supported.  A judge's body of work is that judge's personal style.  If Judge Posner's opinions are to be compared with those of judges that use "ghostwriters," how about including self-drafters who lack the silver tongue and academic credentials of a Judge Posner?  But there is simply no way to know who does and does not write some or all of their own work.  In effect, Mr. Domnarski chooses to evaluate the entire judiciary by comparison with the work of a handful of its leading lights.  To attribute the difference to the drafting process, though, defies logic.  The difference is one among the judges he chooses to compare.

One thing that does seem patently wrong in Mr. Domnarski's argument is the suggestion that "ghostwriting" has somehow reduced the intellectual rigor of the judiciary's body of work.  A comparison of today's opinions with those of 100 years ago, when "ghostwriting" was less common, refutes that notion.  Back in Chief Justice Marshall's day, the federal caseload was low enough that judges could spend the time necessary to produce comprehensive, reasoned opinions on their own - though one can question whether this actually improved the "honesty and transparency" of the conclusions of such strategically obscurantist opinions as Marbury v. Madison or Johnson v. McIntosh (talk about pounding the table).  

But by the turn of the last century, the federal court caseload had reached a level where, notwithstanding the literary merit of opinions drafted by the likes of such luminaries as Holmes, Brandeis, Cardozo, Friendly, or Hand, certainly the bulk of what came out was thinly researched and argued and often simply ideological.  Or compare the law office history of Justice Black's First Amendment opinions with the dueling historical analyses of Justices Souter and Rehnquist in Seminole Tribe v. Florida.  To suggest that a return to the practices of the 30s or earlier would increase rigor is simply fantasy.

Tenth Circuit Issues Justiciability Decision in FCRA Pre-Emption Case

On May 7, 2012, the Tenth Circuit Court of Appeals issued a decision reversing the District of New Mexico in a case involving federal pre-emption of a New Mexico state law addressing identity theft.  Consumer Data Industry Association v. King, No. 11-2085.  

Congress amended the federal Fair Credit Reporting Act in 2003 to add protections specifically addressing identity theft.  These new provisions made it much easier for a consumer to remove information from a credit report where the consumer's dispute is grounded in identity theft as opposed to, say, a merchant dispute.  Under narrow circumstances, the credit bureaus may keep information in a report notwithstanding the consumer's request, if they conclude the consumer's request is fraudulent or mistaken.  Because this exception threatens to absorb the rule, the New Mexico Legislature passed that state's Fair Credit Reporting and Identity Security Act in 2010, requiring that credit bureaus keep such information removed unless a court, or the consumer him- or her-self, concludes that the request was fraudulent or mistaken.  Although well-meaning, such a provision is likely to be held pre-empted by the federal FCRA provisions.  In the event of a violation of this requirement by the bureaus, the New Mexico law permits any aggrieved consumer, or the state Attorney General, to sue to enforce its provisions.

In this case, a credit bureau industry association sued the New Mexico Attorney General to enjoin enforcement of the New Mexico law.  The district court dismissed the case, holding it not justiciable under Article III of the U.S. Constitution.

To be justiciable under Article III, the suit must address a real injury, caused by the defendant, which the court is capable of redressing by ordering some relief.  The district court held, essentially, that because the law permits any aggrieved consumer to sue the bureaus, an injunction directed only at the New Mexico Attorney General would not redress the bureaus' threatened injury of being sued.

The Tenth Circuit, unsurprisingly, reversed, essentially holding that an order at the Attorney General would redress some injury, and so satisfies Article III requirements, which the district court read too stringently.  In effect, the court held that Article III does not make the perfect the enemy of the good.  Here, the injunction sought was "good enough" to satisfy Article III justiciability.

As a practical matter, it seems unlikely that the credit bureaus will be deluged by consumer suits under the New Mexico law.  The district court on remand will likely hold the law pre-empted and enjoin enforcement, and such a decision is likely to be followed by state courts; the very prospect should deter many consumers from filing such suits.  

This is a shame.  New Mexico is in a perfect position to act as a "laboratory of democracy" testing an alternative approach to identity-theft protection that may better serve consumers than the current federal regime, which New Mexico citizens obviously felt granted too much unsupervised discretion to the credit bureaus.  Citizens there and elsewhere may still lobby Congress to similarly amend the FCRA - or to amend the FCRA to permit states to adopt stronger identity-theft protections.

Broaden Credit Protections for Military Personnel

Four Democratic Senators and the Delaware Attorney General recently proposed a bill that would amend the Servicemembers Civil Relief Act (SCRA) to provide broader protections against abusive creditor conduct.  The bill was covered recently by American Banker magazine. 

The SCRA provides general protections to active-duty military personnel against unconscionably high interest rates in loans.  It also allows for the activated personnel to cancel residential leases and pause payments on a mortgage, and provides for debt-collection (and other) lawsuits, such as mortgage foreclosures, to be stayed while servicemembers are activated,and prohibits default judgments from being entered in such suits, so as to prevent the unfairness of making servicemembers litigate while otherwise engaged, often abroad or in a war zone.

The proposed bill, S. 3179, entitled the Servicemembers Housing Protection Act, would extend the SCRA's protections concerning leases and mortgage foreclosures to a broader array of activated personnel, and to deceased servicemembers' surviving spouses For the time being, the bill has been referred to the Senate Veteran's Affairs Committee.

It is about time the SCRA was strengthened, but the proposals are certainly not enough.  Private military contractors employed abroad in providing services to the military are in an equally unfair and untenable position in the event they are sued in a U.S. court, and should be equally able to invoke the SCRA's provisions concerning lawsuit stays as proper military personnel.  Spouses should be protected before the death of the servicemember.  

Finally, the weakest provision of the SCRA concerns the interest-rate cap.  For loans entered into before active-duty service began, the applicable interest rate is reduced to 6%.  This is one of the only federal caps on interest rates - generally the National Bank Act and Federal Deposit Insurance Act permit national banks and FDIC-insured banks to charge any rate of interest permitted in their home state, which allows banks to organize entities in states such as South Dakota and Nevada that have no usury limit through which they can make credit-card and other loans at unconscionably high interest rates.  

However, the SCRA limit is very narrow, and the SCRA permits predatory lenders to take unfair advantage of active-duty personnel by lending to them at unconscionable interest rates so long as the loan is executed during active military service.  

Congress did take some action in 2006 to address this situation, passing amendments to the 2007 Defense Authorization Act that cap interest rates on loans to military personnel at 36% and also prohibit certain payday lending transactions.  The provisions are summarized by the Center for Responsible Lending.   However, 36% is an absurdly high limit.  A financially marginal consumer with a substantial loan at 25% will often repay the loan multiple times over in interest payments over a period of years without ever reducing principal before finally defaulting as the result of an unexpected medical expense or loss of income. 

Some opponents of usury caps for servicemember loans argue that these will lead to tighter credit for servicemembers.  Allowing impoverished borrowers to further impoverish themselves by taking unsustainable loans that enrich unscrupulous lenders while preventing them from accumulating savings and ultimately ruining their credit is no good answer to this quandary.  Increased pay together with a federal low-interest lending program would present a far better solution.

Prison Law Roundup: Second and Sixth Circuits Fairly Uphold Rules of Procedure in Prisoner Cases; Fourth Circuit Strikes Blow for Religious Freedom; Seventh Circuit Upholds Prisoner's Right to Be Free from Unnecessary, Prolonged Pain

In three recent prisoners' civil rights cases, the Second and Sixth Circuits showed that they are prepared fairly to hold corrections defendants to their burdens under the rules of pleading and evidence when those defendants seek to have suits dismissed for failure to exhaust administrative remedies.  Meanwhile, the Fourth Circuit struck down an unreasonable prison regulation that impinged on a Muslim inmate's freedom to exercise his religion by wearing a short beard, and the Seventh Circuit reinstated inmate claims that had been dismissed without comment by a district court that apparently overlooked them, including a claim for deliberate indifference to serious medical needs in violation of the Eighth Amendment.

As a brief background for those unfamiliar with the general issue of exhaustion, Congress in 1995 passed the Prison Litigation Reform Act, 42 U.S.C. 1997e, which, among other things, required as a pre-requisite to any prisoner's filing of a federal lawsuit complaining of "prison conditions" that the prisoner first exhaust those administrative remedies that are "available" to them within the prison system.  In subsequent cases, the Supreme Court has in effect held that because Congress meant to broadly exclude inmates from the courthouse, the statute is interpreted as broadly as it can be fairly read, and thus, the Court rejected lower-courts' narrow readings that, for example, a discrete assault by a guard on an inmate is not a "prison condition" (not an ongoing circumstance), Porter v. Nussle, 534 U.S. 516 (2002), or that where a prison grievance system does not make money damages available as a remedy, so that it is not an "available" remedy and need not be exhausted, Booth v. Churner, 532 U.S. 731 (2001).  Indeed, the Court has showed a united front against prisoners' rights in these cases despite strong textualist arguments for a narrower construction.

Ignorance of both the requirements of the grievance system and of the requirement to use it before going to court, the known fact that grievance systems are totally useless and farcical, and fear of retaliation for complaints directed at guards who may already have assaulted them, predictably result in frequent non-use of prison grievance systems by prisoners.  The statute is thus well designed to keep legitimate constitutional violations from being addressed.  Corrections officials must still, however, actually prove non-exhaustion in order to obtain dismissal of the claims against them.  And they have surprisingly frequent difficulty in making effective efforts to do so, often putting in the kind of evidentiarily useless affidavits - witnesses with no personal knowledge, reliance on multiple hearsay and violations of the Best Evidence Rule - that one expects to see only in penny-ante debt collection cases.  Indeed, it is surprisingly common to have corrections officials' summary-judgment motions based on an alleged failure to exhaust administrative remedies denied due to such evidentiary failures.  See, e.g., Livingston v. Piskor, 215 F.R.D. 84, 85-86 (W.D.N.Y. 2003); Donahue v. Bennett, No. 02-CV-6430, 2003 U.S. Dist. LEXIS 12601, at *10 (W.D.N.Y. June 23, 2003).

In the first of the recent Sixth Circuit cases, Surles v. Anderson, No. 09-1825 (decision May 8, 2012), that is just what happened.  Correction officer defendants moved for summary judgment dismissing a prisoner's civil rights action on the ground of failure to exhaust administrative remedies under the PLRA.  The officers relied entirely on (a) a copy of their grievance policy, (b) copies of grievances submitted by the inmate plaintiff with his complaint, and (c) an affidavit attesting that a search of records showed that the inmate had not submitted any grievances since the dismissal of a prior federal complaint.  But the grievances themselves indicated on their face that they were re-submissions of grievances previously filed, and the inmate alleged the grievance system was made unavailable to him by officers' preventing the filing of grievances.  Thus, this record was patently insufficient to allow the court to grant summary judgment on the exhaustion issue.  The officers' only effort to save their motion was to argue, absurdly, that they did not bear the burden to prove non-exhaustion, but that rather, the burden of showing exhaustion was on the inmate.  The law is otherwise, as the court pointed out.  See Jones v. Bock, 549 U.S. 199 (2007) (nonexhaustion is affirmative defense); Napier v. Laurel County, 636 F.3d 218 (6th Cir. 2011).

In the second Sixth Circuit case, Davis v. Prison Health Services, No. 10-2690 (decision May 10, 2012), the prisoner plaintiff alleged that he was removed from a program because of corrections officials' animus against him as an out gay man.  The district court had accepted a magistrate's recommendation that the inmate's lawsuit be dismissed essentially because the version of events set forth in grievance denials produced by the corrections defendants did not support plaintiff's version of events and set forth a nondiscriminatory rationale for the removal.  The Sixth Circuit rightly reversed the district court, explaining that it is plaintiff's allegations that control at the pleadings stage, and that plaintiff contested the version of events set forth in the defendants' self-serving documents.

The Second Circuit a few days later issued a decision in Johnson v. Killian, No. 10-4651-pr (decision May 16, 2012).  In that case the Muslim inmate was, as a matter of federal Bureau of Prisons policy, denied the right to engage in daily congregational prayer.  He fully exhausted the grievance process to complain of this, had his grievances and appeals denied, but the prison then ceased to enforce the policy.  Two years later, a new warden took over and again began to enforce the policy.  The inmate sued under the Religious Freedom Restoration Act, alleging violation of his religious free exercise rights.  The court dismissed the suit, holding that the inmate had to exhaust the new warden's renewed enforcement of the policy.  The Second Circuit, citing numerous decisions in accord, held that where the inmate had already exhausted the exact same issue (policy of forbidding daily congregational prayer), he need not re-exhaust that issue before filing suit over an injury that ultimately results from it.  The holding is narrow, limited to situations where the exact circumstance previously grieved has germinated into an injury that is the subject of a lawsuit, and the court makes clear that the grievance must identify the precise issue sued about with some precision.

Meanwhile, on May 11, 2012, the Fourth Circuit issued a decision in Couch v. Jabe, 11-6560, in a case where an inmate challenged a prison's regulation forbidding the growth of any beard as a violation of his rights under the Religious Land Use and Institutionalized Persons Act (RLUIPA), as his Muslim faith required the wearing of a beard.  Under RLUIPA, a substantial burden on religious exercise can only be upheld if it is the the least restrictive alternative to achieve a compelling governmental interest.  Prison officials justified their "no beards" policy by the need to easily identify inmates and to prevent the smuggling of contraband in beards - effectively, security-based rationales.  Because wearing a beard would be punished by the removal of privileges and programs within the prison system, religious exercise was substantially burdened.  The court gave prison officials a pass on "compelling governmental interest," finding that an apparently factually thin affidavit asserting that beards could enable escaped inmates to avoid recognition (by shaving and changing their appearance) or that contraband could be smuggled in beards (of whatever length?) so that the prohibition served the compelling interest in prison security. The court did not require very much of a showing here, apparently deferring to the experience and expertise of the prison's affiant.

But the Court found the "least restrictive means" requirement not met.  Prison officials made no showing that a religious exemption allowing growth of a one-eighth-inch long beard would not equally serve the articulated security interest.  Nothing could be smuggled in such a beard and it would make little change in the inmate's appearance.  Here, the Fourth Circuit, like the Second and Sixth, fairly applied the rules of evidence to reject prison officials' attempt to introduce an attorney affirmation attesting to security threats occasioned by even a short beard.  Nobody with any prison administration experience apparently submitted evidence of any such threat.

Ordinarily in the prison context, restrictions on First Amendment rights are reviewed under the Turner v. Safley, 482 U.S. 78 (1987), test of "reasonable relationship to legitimate penological objectives."  This is much more like a rational basis test than strict scrutiny, and so often will result in upholding prison restraints on free speech that would not stand in other institutions.  Thus, the importance of RLUIPA's statutory imposition of "strict scrutiny" review with respect to religious freedom in prisons is apparent.  It is one of the few areas (prison rape is now another) in which Congress has actually stepped in to protect prisoners' rights, as opposed to the usual practice of stepping in to ensure that they can be denied with impunity.

Finally, the Seventh Circuit in Gomez v. Randle, 11-2962 (decision May 14, 2012), reinstated several inmate claims that a district court apparently overlooked.  The inmate was shot by a shotgun wielded by an unidentified correction officer, and then denied medical attention by several correction officers, and allegedly transferred to a different facility in retaliation for grieving all of this.  The lower court had appointed counsel for the inmate, but counsel concluded that there were no viable claims and moved to withdraw.  The court, apparently following counsel's lead, held that no viable claim existed and dismissed the suit.  The Seventh Circuit found most of the claims to have been prematurely dismissed.  First, though plaintiff had never identified and named the officer who shot him, time still remained on the statute of limitations for that claim because the statute was tolled during the administrative exhaustion process.  Thus, the claim should not have been dismissed as untimely.  Second, the district court did not even address the retaliation claim, which clearly alleged protected First Amendment activity (grieving) that officials punished with a transfer.  Third, plaintiff did state a claim for deliberate indifference to serious medical needs in violation of the Eighth Amendment by alleging that he made various officials aware of his shotgun wound yet went four days without treatment.  Significantly, the court explicitly rejected the notion that the delay in treatment could be actionable only if it exacerbated the injury, explaining:  "[E]ven though this delay did not exacerbate Gomez’s injury, he experienced prolonged, unnecessary pain as a result of a readily treatable condition."  (Slip op. at 11.)  

Unifund v. Youngman - Fourth Department's Significant Decision Will Stand in Debt Case

The Court of Appeals recently denied leave to review the Fourth Department's decision in Unifund CCR Partners v. Youngman, 89 A.D.3d 1377, 932 N.Y.S.2d 609 (4th Dep’t Nov. 10. 2011), lv. denied, 2012 N.Y. Slip Op. 72420.

In Unifund, the Fourth Department picked up where it left off in Palisades Collection, LLC v. Kedik, 67 A.D.3d 1329, 1331, 890 N.Y.S.2d 230, 231 (4th Dep’t 2009), holding debt buyers seeking to collect alleged debts strictly to the usual rules of evidence and procedure and rejecting motions for summary judgment that grossly fail to comply with those usual rules.

To paraphrase Jerry Jarzombek, the legendary Texas debt defense lawyer (he's lost something like six out of 4,000 cases or some such ridiculous number) (who I often paraphrase to this effect), the fact affidavit in the usual debt buyer case is essentially as though the plaintiff in a car accident case was to submit a witness affidavit that says "I wasn't there, and I didn't see the accident, but I did read about it, and that guy ran the red light."  Specifically, the debt buyer typically says: (1) although I have no assignment agreement that mentions this account, I do have these documents on Citibank letterhead with this account number on them, and how would I have those if I didn't own the account; (2) I can attest to the fact that these records came from Citibank and ended up in our records; (3) I've never worked for Citibank and know nothing about its records (I wasn't there and didn't see the accident), but these are records that Citibank created in the ordinary course of business at or about the time of the events recorded and maintained and reproduced in a reliable manner (that guy ran the red light).

In Kedik, the debt buyer actually did a bit better than the above, submitting a spreadsheet purportedly listing the assigned account, but its affiant failed adequately to explain where the spreadsheet came from and so failed to show that the spreadsheet was admissible under the business records exception to the hearsay rule.  Unifund takes the logical step of applying the principles of evidence that Kedik applied to proof of assignment to all the putative evidence submitted with such a motion for summary judgment, in particular, account statements.  An employee of Unifund does not have personal knowedge of Chase's records, so cannot authenticate them.  Only someone from Chase could authenticate them.

Even more significantly, the Fourth Department ordered that the defendant's cross-motion for summary judgment be granted and the complaint dismissed.  A debt buyer at least in the Fourth Department will face loss of its case if it makes a motion for summary judgment that inadequately proves standing or inadequately authenticates creditor records.

Lower courts in many places hesitate to treat debt collection suits as real lawsuits to which the usual rules of evidence and procedure apply.  There is often an assumption that the defendant owes the plaintiff money unless a defense of some kind can be marshaled.  See John Skiba's blog post, Are Judges Biased Against Consumers?  One hopes that Unifund helps change the culture in this respect.

The next step for the Fourth Department should be to address original creditors' evidentiary failings.  With routine use of robo-signers original creditors' records affidavits are no more compliant with personal-knowledge requirements than debt buyers', and never make the required threshold showings required under the business records exception in more than utterly conclusory, and thus inadequate, terms.  

Discover Bank Record Falsification Basis for Civil RICO Act Claims

A law firm in Pennsylvania recently filed a RICO class action against Discover Bank alleging systematic, nationwide litigation fraud through the use of falsified documents.  http://www.courthousenews.com/2012/03/14/44677.htm.

The specific conduct alleged in the lawsuit actually seems to occur in the bulk of credit-card lawsuits brought by every original creditor.  In any jurisdiction, to get a judgment in such a case, at some point the creditor must provide a copy of a putative cardmember agreement.  In almost every case, the creditor appears to provide basically a copy of the agreement it happened to be using for new accounts during some year that the account was open, often the last year it was open.  Then the creditor submits a records custodian's affidavit that states tersely that the exhibit attached is "a copy of the terms and conditions governing the account."

But it is indeed not.  To illustrate, if a debtor opened an account in 2008, they should have received a copy of a complete cardmember agreement in force in 2008.  The agreement may be modified from time to time, in which case the creditor should mail a copy of each amendment.  No creditor sends a complete new, revised copy of the agreement.  Thus, if the creditor provides a complete new, revised 2011 cardmember agreement and says that's the agreement that governed the account, that's just a complete, bald-faced falsehood.  It's not specific to Discover Bank.  Indeed, the same law firm has filed and settled numerous suits against other creditors based on the same behavior.  

We suggest that another fraudulent pattern of behavior on the part of credit-card plaintiffs is ripe for a RICO class action.  That is the use of falsified account statements.  It is occasionally obvious that account statements are fake, but most fakes are sophisticated enough that it is not obvious.  One situation where it is obvious, though, is where the account holder has moved during the time period covered by the account statements.  In those cases, generally what we see is that the creditor submits to the court as "true copies of the account statements sent to the defendant" accounts statements that all contain the current address, where the defendant did not live or receive mail during the first months covered.  This reveals that what the creditor has actually done is to essentially merge whatever is currently in its database into a form to generate current account statements.  The statements cannot purport to be "copies" of something mailed to the debtor (as required to make out an "account stated" claim), but are instead falsely described in those terms in the custodian's affidavit.

Contact me if you have received such an affidavit and exhibits in New York.  Provided you can defeat the creditor's suit, you may be able to turn around and sue them in a class action.

State Lower Courts and Agencies Still Disregarding Indian Child Welfare Act Requirements

In a number of recent cases, state Supreme Courts had to slap down lower court decisions that failed to adequately account for Indian sovereign interests in rendering child custody decisions.  The cases are a reminder that although Congress recognized and mandated respect for those interests in 1979 when it passed the Indian Child Welfare Act, 25 U.S.C. §§ 1901-1963 (ICWA), that recognition has been very slow to penetrate the consciousness of the non-Indian bar and judiciary.

The ICWA recognized the role that child protective agencies have played in furthering the genocide of Indian peoples by separating Indian children from their families and placing them with non-Indian households.  See 25 U.S.C. § 1901(3).  The removal of Indian children from their native territorial and cultural context by Euro-American social workers, as such children had long been removed by other government bureaucrats to attend forced boarding schools, was recognized as one among many examples of paternalism run amok.  And it was recognized that genocidal results were being achieved without the need for conscious prejudice or double standards, because the mainstream culture values imposed in every case by child-protective workers have a disparate impact on indigenous peoples who are economically deprived and whose lifestyles, such as reliance on extended kin networks to supervise children, differ from those common in the mainstream.  

The ICWA sought to deal with this history and continuing impact by giving the Indian sovereign nation itself a stake in child custody proceedings involving native children, requiring notice to the tribe and giving it the opportunity to appear to advocate placement with an Indian family.  Having involved the Indian sovereign itself, the ICWA then requires state courts adjudicating child placement matters to apply an order of preferences favoring Indian placements “in the absence of good cause to the contrary.” 25 U.S.C. § 1915(a)-(b). The preferences favor placement with members of the child’s extended family as a first choice, and generally require preference to placement of Indian children with Indian families. Id. According to the House Report accompanying the ICWA, the purpose of § 1915 is “to protect the rights of the Indian child as an Indian and the rights of the Indian community and tribe in retaining its children in its society.” H. R. Rep. No. 95-1386, at 23 (1978) (hereinafter House Report).  As the Supreme Court  explained in Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30 (1989), the ICWA expresses “a Federal policy that, where possible, an Indian child should remain in the Indian community” and seeks to ensure that “Indian child welfare determinations are not based on a ‘white, middle-class standard which, in many cases, forecloses placement with [an] Indian family.’” 490 U.S. at 37 (quoting House Report at 23-24).   

The ICWA thus exists to protect individual and collective rights that have no place in a traditional "best interest of the child" inquiry.  Yet states have often been resistant to the ICWA preferences, and have often effectively expanded the "good cause to deviate" exception so as to entirely efface the ICWA placement preferences and replace it with a traditional "best interest" inquiry.  Compare, e.g., In re. Bird Head, 331 N.W.2d 785 (Neb. 1983) (child's "best interest" provided "good cause" to deviate); Adoption of M., 832 P.2d 518 (Wash. Ct. App. 1992) (same); Adoption of F.H., 851 P.2d 1361 (Alaska 1993) (same); Interest of A.E., 572 N.W.2d 579 (Iowa 1997) (same); and Interest of C.G.L., 63 S.W.3d 693 (Mo. Ct. App. 2002) (same), with Yavapai-Apache Tribe v. Mejia, 906 S.W.2d 152 (Tex. App. 1995) (“the use of the best interest standard when determining whether good cause exists defeats the very purpose for which the ICWA was enacted, for it allows Anglo cultural biases into the picture.”); Matter of C.H., 997 P.2d 776 (Mont. 2000) (similar); and Matter of S.E.G., 521 N.W.2d 357 (Minn. 1994) (similar); see also Michael J. Dale, State Court Jurisdiction Under the Indian Child Welfare Act and the Unstated Best Interest of the Child Test, 27 Gonz. L. Rev. 353.  The Bureau of Indian Affairs has articulated Guidelines that provide an alternative explication of "good cause" that does not reduce to traditional "best interest" analysis, which many state courts have followed.  Guidelines for State Courts; Indian Child Custody Proceedings, 44 Fed. Reg. 67584-67595, 67594 (1979) (defining “good cause” to include (i) request of the biological parents or of the child if of sufficient age; (ii) extraordinary physical or emotional needs; or (iii) unavailability of suitable families for placement after a diligent search for families meeting the preference criteria).  See Matter of S.E.G., 521 N.W.2d at 363; Matter of C.H., 997 P.2d at 782.

Power of the People Stronger Than the Power of the Bankers

Fight Back! News reports on people's victory in New Jersey where, through coordinated popular mobilizations and legal action, sufficient pressure was put on the state government and the bank that the bank finally conceded that it did not own the mortgage and that its default foreclosure was illegitimate and should  not go forward.  See http://www.fightbacknews.org/2012/5/11/people-s-power-nabs-banksters-their-attempted-nj-home-heist.

This is some truly inspiring organizing and one hopes to see more of it in this economy.  During the Great Depression, of course, we had troops of armed farmers showing up at Sheriff's sales and ensuring that nobody bid against the current owner, or showing up at evictions and moving the evictee's stuff back into their house.  Illegitimate bank action brought, in response, sharp community solidarity.  There is some of this out there today.  We need more.    

Increasing Awareness of Credit Card "Robo-Signer" Abuses

A recent series in the American Banker magazine has led to greater public awareness of abusive and fraudulent litigation tactics in consumer debt-collection lawsuits brought by credit-card originators.  Business Week takes up the story as well.

So-called "robo-signing" - in which bank employees sign off on thousands of litigation documents that they have not read and the contents of which they have no knowledge - has caused a public scandal for many of the same companies in the mortgage foreclosure context, leading some banks to institute foreclosure moratoria while they supposedly put some internal controls in place to ensure that their litigation documents are legitimate.  The phenomenon has long been strongly suspected by credit-card defense attorneys and in some cases confirmed by deposition or trial testimony.  It has not, until now, led to public scandal, however, and indeed, the banks have taken action more in the nature of covering it up than of the contrition shown in the foreclosure context.  

For example, an examination of Citibank's records-custodian affidavits in credit-card cases reveals a progressive removal of information suggesting that the affiants are robo-signers.  Affiants described a few years ago as essentially third-party debt collectors with the full-time job of supervising outside attorneys and no role in record-keeping other than that of transmitting records to counsel are described in current versions of the same form affidavits vaguely as records custodians and agents of Citibank and fully participatory and knowledgeable of the record-keeping process.  The likelihood remains that the same individuals in the past as now basically go to work and sit around signing affidavits all day at a pace rendering it humanly impossible to have obtained personal knowledge of the facts of a single case.

The specific impetus for the new public revelations are the assertions of a whistleblower from JPMorgan Chase named Linda Almonte.  Ms. Almonte was fired after raising her concerns internally at Chase, and subsequently "told all" in a letter to the SEC.  She tells of Chase employees absent-mindedly working through stacks of records-custodian affiavits, signing huge piles of them while attending unrelated meetings, without having reviewed or obtained knowledge of underlying records.  No surprise there for debt defense lawyers, though the revelations are notable for their publicity. Of more interest is that Ms. Almonte reveals that an internal audit at Chase actually disclosed that the bulk of the credit-card account records reviewed did contain significant errors, apparently stemming from Chase's blending of various record-keeping systems over the course of its various corporate mergers and reorganizations.  

Indeed, there appears to be more to the process of spitting out a current account balance owed in a credit-card lawsuit than just pressing a button on a computer.  Chase's various systems had to be reconciled essentially by hand by low-level employees whose work basically wasn't checked but was simply trusted by the "robo-signers."  As Chase is not the only bank that has gone through mergers and reorganizations over the years, this certainly suggests that all originators' assertions regarding the contents of their records should be treated with skepticism and potential sources of error in merged or revised record-keeping systems investigated.