In December 2023, New Economy Project, with co-counsel, won a unanimous decision in the Appellate Division, First Department, upending over a decade of bad case law that enabled unscrupulous debt collectors to systematically deprive low-income New Yorkers of due process.
In 2016, Sharae Banks, a single mother living and working in NYC, discovered that a debt buyer – a company that buys old debts for pennies on the dollar – had obtained a court judgment against her years earlier, for tuition allegedly owed to a trade school that New York State had ordered shut down in 2006. Ms. Banks told the debt buyer’s attorney that she did not owe the alleged debt and had never received notice of the lawsuit, but he offered her only an unaffordable payment plan. The debt buyer then began seizing her wages, causing her severe financial hardship.
Only a few years later did Ms. Banks learn she could challenge the judgment and ongoing wage seizures by asking the court to vacate – or cancel – the judgment, on the basis that she never received notice of the lawsuit. Under state law, if someone was never properly notified of a lawsuit against them, the court lacks “personal jurisdiction” and does not have the power to issue a judgment against them. Based on our decades of experience assisting low-income New Yorkers, people often do not receive notice of a debt collection lawsuit because of “sewer service,” a fraudulent practice where process servers fail to deliver court papers but then file false papers with the court claiming that service was proper. In Ms. Banks’s case, the debt buyer’s process server claimed to have served her with court papers at her supposed home in Manhattan, even though she lived on Staten Island at the time.
When Ms. Banks asked the court to vacate the judgment, she presented proof that the debt buyer’s process server had claimed service at an invalid address. Nevertheless, the court denied her request to vacate the judgment, saying that Ms. Banks had waited too long and had therefore “waived” her right to make such a request. The court cited New York court decisions saying that people may not challenge judgments against them if they “demonstrated a lack of good faith” or were “dilatory” in asserting their rights – without regard for whether the judgments were fraudulently obtained, through sewer service.
We then appealed the court’s decision. On June 17, 2022, the Appellate Term, First Department, issued a decision agreeing with the lower court that Ms. Banks had waived her right to challenge the judgment on the basis that she never received notice of the lawsuit.
We then appealed the Appellate Term’s decision to the Appellate Division, First Department. (See below for links to the parties’ Appellate Division briefs.) We argued that before a court may decide that someone has waived a right – such as Ms. Banks’s right to challenge the debt buyer’s judgment on the basis that she was never told she had been sued – the court must determine that the person knew about the right and intentionally abandoned that right. Having her wages seized, we argued, did not automatically mean that she knew she could challenge the underlying judgment and that she had intentionally given up her right to do so. New York State Attorney General Letitia James and seven legal services organizations filed friend-of-the-court (“amicus”) briefs in support of Ms. Banks.
On December 7, 2023, the Appellate Division, First Department, agreed in a unanimous decision, finding that “[t]he mere fact that a defendant . . . was subject to payments pursuant to a wage garnishment order for more than one year without taking some action is not, without more, a proper basis for finding waiver of the ability to seek relief” from a judgment entered without proper service.
For far too long, New York courts have issued decisions unfairly describing people who are unable to mount prompt legal challenges as “dilatory” or lacking in good faith. In their disregard for the myriad structural obstacles, such as fraudulent conduct by debt buyers, that prevent low-income New Yorkers from asserting their legal rights, these courts have effectively punished people for being poor or lacking legal representation. Going forward, thousands of New Yorkers facing debt collection lawsuits – especially New Yorkers of color, who are disproportionately harmed by debt buyers’ abusive litigation practices – stand to benefit from the Appellate Division, First Department’s monumental decision on this appeal.
New Economy Project filed the appeal to the Appellate Term with co-counsel The Legal Aid Society, and is grateful to The Barbara McDowell and Gerald S. Hartman Foundation for its support of that appeal. New Economy Project filed the appeal to the Appellate Division with co-counsel The Legal Aid Society and Quinn Emanuel Urquhart & Sullivan, LLP, and is grateful to New York State Attorney General Letitia James and the seven legal services organizations – CAMBA Legal Services, Fordham Law School Feerick Center for Social Justice, Legal Services NYC, Legal Services of the Hudson Valley, Mobilization for Justice, New York Legal Assistance Group, and St. John’s University School of Law’s Consumer Justice for the Elderly: Litigation Clinic – for their amicus support.
Read more:
- Amsterdam News – Harlem mother’s court victory opens door to challenge unconstitutional debt collection tactic targeting Black and brown New Yorkers
- Law360 – Quinn Emanuel Aids ‘Sewer Service’ Debt Collection Fight
- New York Law Journal – New York Attorney General Files to Join Appeal by Debtor Who Says She Is Victim of ‘Sewer Service’
- New Economy Project – Advocates Win Far-Reaching Appellate Court Victory Challenging Abusive Debt Collection
Key Appellate Division filings: