In February 2011, a process server working for ABC Legal Services filed a document with the Alameda County Superior Court saying he had personally served Fremont physical education teacher Matthew Walker with a lawsuit over an unpaid $2,340.76 personal loan.
In his proof of service, process server Richard Lowry stated that he had handed the papers to Walker at the Fremont Unified School District offices at 3:37 p.m. Feb. 15. But Walker says that not only did he never take out a personal loan, but he was six miles away, coaching a basketball game at Thornton Junior High School, when he supposedly was served. A crowd of students and parents could attest to his whereabouts, he said.
Walker is one of 16 residents from Alameda, Santa Clara and San Mateo counties who recently sued ABC Legal Services. The residents filed 14 separate lawsuits in San Francisco federal court between June 2011 and April 2012, claiming that the firm’s process servers lied about serving court papers in debt collection cases. The lawsuits accuse ABC Legal of the “ignominious and shoddy practice of ‘sewer service,’ ” a colloquialism that stems from reports that some process servers throw court documents into sewers instead of delivering them.
The process-serving industry in California is largely unregulated, which can leave consumers vulnerable to unscrupulous servers who often are paid per transaction. There is no systematic way to gauge how widespread improper service is, industry experts said.
San Jose attorney Fred W. Schwinn, who filed the suits against ABC Legal – one of the country’s largest process-serving businesses – estimates that there are “hundreds, if not thousands,” of these kinds of cases in California. His review of three months of ABC Legal records found multiple instances in which process servers claimed to be in two places at the same time.
In Walker’s case, B.H. Financial Services, a Los Angeles company that buys portfolios of consumer debt and then tries to collect on them, contacted the teacher about two years ago. Walker explained that his only debts were a car payment and student loans.
Walker also told B.H. Financial representatives that he had been a victim of identity theft, and he said he sent the collections company a copy of the police report. Nevertheless, the company filed a debt collection lawsuit against Walker in January 2011. ABC Legal was hired to serve the papers, and the case was assigned to Lowry, a contractor of the legal services company.
“It’s a disturbing feeling that you’re being sued over something, and if you’re going to be sued, you want to be sued over something you know about and you did,” Walker said.
An attorney for B.H. Financial, Arash Khakshooy, declined to comment. ABC Legal, its attorneys and Lowry did not respond to repeated requests for comment.
ABC Legal’s website says its process server audit team “analyzes GPS coordinates, time/date stamped photos, process server routes and travel time, protecting you from the embarrassment and compliance risk of fraudulent service.”
According to the Federal Trade Commission and collections industry representatives, the number of debt buyers like B.H. Financial that are attempting to collect on aging consumer debt – sometimes called “zombie debt” – has grown in recent years.These debt buyers purchase portfolios of uncollected debt from credit card companies, banks or other debt buyers for far less than face value – often pennies on the dollar.
Some collection companies rely on increasingly aggressive tactics, including lawsuits. A 2010 report [PDF]issued by the FTC concluded that “certain debt collection litigation … practices appear to raise substantial consumer protection concerns,” including reports that lawsuits had been filed without enough evidence of who actually owns the debt, had been filed against the wrong person or had not been properly served.
A default judgment is entered against a debtor who fails to respond to a collection lawsuit. In the most extreme cases, consumers have had wages garnisheed and bank accounts levied – even if they had not been properly served and were not aware that a debt collection case had been filed against them.
Critics of the debt collection industry say litigation coupled with improper service allows debt collectors to game the system at the expense of consumers who are struggling to make ends meet.
Debt collection is a competition to “get money from people who don’t have any,” said Scott Maurer, a Santa Clara University, a supervising attorney who oversees a law school clinic that works with low-income debtors. “Whether they owe the debt collector or not, the Constitution says that everyone has a right to due process and the right to appear in court to contest the debt.”
Collections industry representatives said litigation is a costly last resort, and they also have an interest in curtailing improper service.
“Making sure that consumers receive the information they need and are required by law to receive is a top concern for the industry,” said Mark Schiffman of ACA International, an association of credit and collection professionals. “We don’t do process serving; we hire process servers, and when we hire someone, we want to make sure they’re doing their job.”
In California, those servers need to meet only minimal requirements. Prospective servers must register with the county clerk where they live, undergo a criminal background check and post a $2,000 performance bond. No training is required.