Malen & Associates Loses Bid to Limit Portfolio Recovery v King to Post-2010 Cases

As we reported in Making Statutes of Limitations Work for You, Portfolio Recovery Assoc. v. King, a 2010 New York Court of Appeals decision, sent ripples through the debt collection industry because it specifically stated that New York's "borrowing statute" applies to collection cases. It also specifically stated that, where a debt has been purchased, the statute of limitations of the state where the original creditor is based is the correct statute to apply, if it is shorter than New York's. If New York's is shorter, New York's will apply.

This was not a decision that pleased debt buyers, and in Diaz v. Portfolio Recovery Assoc. LLC et al., in Federal District Court for the Eastern District of New York, Malen & Associates, PC argued tenaciously on a motion to dismiss to limit King's reach, to no avail.

The Diaz case began in August 2010, when plaintiff consumer Michael Diaz sued debt buyer/collector Portfolio Recovery Associates, LLC (Portfolio) and its lawyers Malen and Associates, PC (Malen) in the Eastern District of New York, alleging that Portfolio and Malen engaged in a pattern and practice of intentionally suing consumer debtors on time-barred debts, knowing that the majority of the complaints would result in default judgments or would be contested by unrepresented consumers unaware of New York's borrowing statute, CPLR § 202, and its impact on the statute of limitations.

In November 2010, Portfolio settled out of the case, leaving Malen the only defendant. Malen claimed in its motion to dismiss that CPLR § 202 did not apply to collection actions until the 2010 New York Court of Appeals decision Portfolio Recovery Assoc. v. King, 901 NYS2d 575. The court referred defendant's motion to dismiss to a magistrate judge, who filed her report on February 28, 2012. Both parties were then given an opportunity to respond. On May 24, 2012, the court adopted the magistrate's report in its entirety, denied Malen's motion to dismiss, and ordered the parties to a pretrial conference.

In the underlying state action, Portfolio, represented by Malen, filed a summons and complaint against Mr. Diaz on November 27, 2009 to collect on an alleged credit card debt. The alleged default date was December 30, 2005. The original creditor was Providian, which is incorporated and headquartered in New Hampshire. Pursuant to New York's borrowing statute, defendants were required to apply New Hampshire's 3-year statute of limitations, and thus should have filed their complaint on or before December 30, 2008.

The court rejected Malen's claim that King changed the legal landscape in any way. It noted that the three unpublished cases cited by Malen did not even discuss CPLR § 202 or whether it was applicable to consumer credit cases. The court also noted that the analysis in King was clear and straight-forward, relied on existing New York precedent, and did not note any contrary prior decisions by any New York court.

The court also rejected Malen's argument that a pleading is not a "communication" under the FDCPA, noting a Second Circuit decision expressly concluding that, absent an express exclusion in the statute, a legal pleading is a communication. Goldman v. Cohen, 445 F3d 152 (2006).

The court also found that Malen had violated New York Judiciary Law § 487, which creates a cause of action against an attorney for engaging in "deceit or collusion…with intent to deceive the court or a party," because Malen had filed over 13,000 complaints in 2009 alone, and a single attorney had signed one third of those complaints. The court found that this established a "broad pattern of deceptive filings," which supports a claim under Section 487.

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