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Failing to record assignment of judgment not violation of FDCPA, holds Federal Court

In a recent case, Musah v Houslanger & Associates, PLLC,[1] the Federal District Court for the Southern District of New York ruled that an assignment of a judgment to a debt buyer was valid even though it was never recorded with the court pursuant to CPLR 5019(c). Furthermore, the failure to record the assignment, alone, does not state a claim for relief under the Fair Debt Collection Practices Act ("FDCPA").

In this case, debt collection law firm Houslanger & Associates PLLC ("Houslanger") had obtained a state court judgment against a consumer in favor of its client, FCC National Bank in 1997. In 2012, Houslanger restrained Musah's bank through an information subpoena and restraining notice. The information subpoena stated "the current judgment creditor/assignee is Palisades Collections, LLC." In other words, the judgment changed hands without notice to the court or to the debtor, according to the complaint.

Mr. Musah sued Houslanger in federal court, alleging that Houslanger committed the following violations of the Fair Debt Collection Practices Act ("FDCPA"):

  • Falsely represented it had the right to restrain Musah's account on behalf of Palisades, violating 1692e;
  • Falsely represented the debt had been assigned to Palisades, violating 1692e(2)(A);
  • Sent out a debt collection communication without conducting a meaningful review of the court file, violating 1692e(3);
  • Took action that cannot legally be taken by restraining an account on behalf of an entity that did not have a right to the debt, violating 1692e(5),
  • Used a false representation to obtain information by serving Musah's bank with an information subpoena, violating 1692e(10);
  • Engaged in unfair and unconscionable means to collect a debt by taking steps to restrain Musah's bank account without confirming that Palisades had a right to the funds, violating 1692f; and,
  • Took nonjudicial action to effect dispossession of funds absent a present right to do so by causing the Musah's account to be restrained, violating 1692f(6).

Houslanger responded with a motion to dismiss, alleging that the plaintiff had not stated a claim under the FDCPA. The court agreed. The court began its opinion by noting that each of plaintiff's claims was grounded on the premise, based on CPLR § 5019(c), that FCC National Bank's assignment to Palisades was not legally effective. As summarized by the court, the plaintiff argued that, since Palisades failed to file FCC's assignment of the judgment pursuant to CPLR § 5019(c), the assignment to Palisades was ineffective and as a result, Palisades had no right to the judgment, and Houslanger had no right to try to collect it. The court found that this premise was not correct.

CPLR § 5019(c) states as follows:

Change in Judgment Creditor A person other than the party recovering a judgment who becomes entitled to enforce it, shall file in the office of the clerk of the court in which the judgment was entered or, in the case of a judgment of a court other than the supreme, county or a family court which has been docketed by the clerk of the county in which it was entered, in the office of such county clerk, a copy of the instrument on which his authority is based, acknowledged in the form required to entitle a deed to be recorded or, if his authority is based on a court order, a certified copy of the order. Upon such filing, the clerk shall make an appropriate entry on his docket of the judgment.

Citing to Law Research Serv., Inc. v. Martin Lutz Appellate Printers, Inc., 498 F.2d 836 (2d Cir. 1974), the court stated that 5019(c) "is not meant to benefit the debtor, should the assignment not be recorded, but rather is clearly intended for the benefit of the assignee, being designed to protect him against payment of the judgment to the wrong party." As such, the court continued, "section 5019(c) does not require assignments to be recorded in order to be deemed valid, and the assignee of a judgment may attempt to enforce that judgment and collect from the debtor even if the filing requirement of 5019(c) has not been satisfied [citations omitted]."

The plaintiff consumer cited as support Tri-City Roofers, Inc. v. Northeastern Indus. Park, 61 NY2d 779 [NY 1984], a case often referenced by consumers challenging assignments. The case as summarized by the court involved a judgment debtor who made payments to the wrong creditor, having not received notice of an assignment (though the assignment was properly filed with the court). The Court of Appeals in that case held that, since notice of the assignment had not been given, the debtor could not be held responsible. The court here said Tri-City Roofers had no relevance, "except perhaps to the extent that it tends to impliedly support the holding … that 5019(c)'s filing requirement is intended to protect the assignee."

The court concluded that its inquiry need go no further, since "absent a contrary holding by the New York Court of Appeals, the Second Circuit's holding in Law Research – which unequivocally states that an assignment of judgment is effective even without a 5019(c) filing – is binding authority on the issue for federal district courts within the Circuit."

The court also rejected the plaintiff's claim under NY Judiciary Law § 487.

[1] Musah v Houslanger & Associates, PLLC, 2012 WL 5835293 [SDNY November 28, 2012] No. 12-cv-3207 (RWS).