Credigy Receivables, Inc. Sues a Victim of Identity Theft, and Court Upholds Victim's Award of Attorneys' Fees for Frivolous Enforcement of Judgment

The Langel Firm is a New York law firm practicing debt defense litigation. But we report on relevant cases all over the country. The case discussed below affirmed a North Carolina trial court's application of a state law awarding attorneys' fees to an identify theft victim who spent considerable money defending herself against enforcement of a judgment for a debt that was not hers.

In a 2010 decision, the Court of Appeals of North Carolina affirmed a trial court order awarding attorneys' fees to a victim of identity theft (Credigy Receivables, Inc. v. Whittington (N.C. Ct. App. 2010)). Credigy Receivables, Inc. was assigned a default judgment from First Select, as transferee of Fleet Bank, against a defendant whose identity had been stolen. The defendant immediately informed her own counsel that she had been contacted by Credigy. Credigy was then notified that an identity theft had occurred, and that the defendant did not owe the debt underlying the judgment.

When the defendant made a motion for attorneys' fees, Credigy's counsel informed defendant's counsel that a "mistake had been made and…should be corrected." Counsel for Credigy declined to make a binding agreement that collection efforts would be stopped until the defendant withdrew her motion for attorneys' fees. Litigation ensued.

The defendant claimed that Credigy pursued a non-justiciable claim because she was never served with process in regard to the default judgment. Thus, the judgment was void and unenforceable against her. Credigy, however, contended that attorneys' fees were not proper, alleging a lack of sufficient documentation of identity theft. Credigy also alleged that it purchased the default judgment from First Select without any knowledge or notice of disputes concerning the account. The trial court granted the defendant's motion to set aside the judgment and to award attorneys' fees. Credigy appealed this decision.

In appealing the trial court's decision, Credigy argued that attorneys' fees were unjustified because the default judgment was presumptively valid, presenting a justiciable issue as to the defendant's identity and indebtedness, and that Credigy suspended its enforcement efforts once it received competent evidence that the defendant was not liable on the judgment.

The Court of Appeals found that Credigy acquired a right to collect on the underlying debt only to the extent of its predecessors in interest when it purchased the default judgment. Thus, Credigy never had the right to enforce its purchased judgment against the defendant because its assignor never had a claim against the defendant for the underlying debt. The defendant never opened the account with Fleet Bank, and was never made a party to the judgment through service of process. Credigy never purchased the right to seek payment of the judgment from this defendant, as she was merely the victim of stolen identity.

Attorneys' fees in North Carolina are awarded by the trial court at its own discretion, where the court finds complete absence of a justiciable issue of either law or fact raised by the losing party. A justiciable issue, in North Carolina, is one that is real and present. The court found that Credigy did not have standing to sue the defendant. Credigy never suffered an "injury in fact" because it never purchased a legally protected contractual interest against the defendant. Further, the defendant did not default on the account underlying the debt, so Credigy's injury would not be "fairly traceable" to the defendant. The Court then imputed Credigy with the knowledge that it lacked standing at the time it attempted to enforce the judgment against the defendant: Fleet Bank should have been aware that it would only have standing against the signing party, and this knowledge of standing was thus transferred to Credigy.

Credigy lacked the proper standing to enforce the default judgment against the defendant, and the pleadings supporting the default judgment presented no justiciable issue. Credigy should have been aware that it was pursuing a non-justiciable claim, and, thus, attorneys' fees were properly granted. The victim was awarded $26,101.75 in attorneys' fees as a result of defending herself against Credigy on a debt she did not incur.

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