Faulty service? Default judgment? Garnishment? No harm, no foul.

Author: Avanti Bakane

Eastern District of Michigan court finds lack of Article III standing where plaintiffs alleged faulty service, wrongful default judgments, and garnishments issued as a result.

Plaintiffs were the targets of collection lawsuits filed by the defendant law firm and its various collection lawyers. In their federal lawsuit against defendants, plaintiffs pursued FDCPA claims, alleging that the lawyers falsely attested to proofs of service of the lawsuits upon them such that default judgments were then entered against them. What’s more, plaintiffs set forth that defendants issued garnishments pursuant to those judgments, and “[t]he garnishees withheld money” due to Plaintiffs. 

Pretty wild, right? Of course, you’re wondering whether the plaintiffs were in fact, the correct debtors of the outstanding accounts. Well, the court grasped on to this as well. 

In a succinct nine-page ruling, without holding any argument, the United States District Court for the Eastern District of Michigan disposed of plaintiffs’ claims, granting defendants’ motion to dismiss based upon lack of Article III standing and denying each of plaintiffs’ amended motion for class certification, motion to stay, and motion to limit communication as moot.

In doing so, the court found that plaintiffs’ argument that they sustained damages in the form of reputational harm, deprivation of due process, and monetary loss was not supported by their complaint allegations, which only made “a general reference to ’emotional’ and ‘general’ damages.” Further,  plaintiffs failed to allege that they did not owe these accounts or otherwise explain how the default judgments were defamatory, thus, negating any argument that defendants harmed plaintiffs’ reputation in conveying falsities regarding private financial information to third parties.

The court then visited the argument that by way of faulty proofs of service, plaintiffs were deprived of their right to notice and the opportunity to be heard, such that they were unable to challenge the collection actions. Here, the court again found plaintiffs’ complaint devoid of any such allegations. Interestingly, the court held, “And state court records show the Kline Plaintiffs have set aside the default judgments entered against them and Plaintiff Byrd does not assert she is unable to do so. Thus, at best, this is a risk of harm argument that is insufficient to establish concrete harm under Ramirez.”

Finally, as to any allegations of monetary loss, the general allegations that “garnishees withheld money” from plaintiffs were insufficient to establish concrete harm, particularly where with respect to each plaintiff, funds were either released, returned (prior to plaintiffs filing their federal lawsuit), or never held. 

In disposing of plaintiffs’ complaint without prejudice, the court noted that other courts have rejected the argument that the cost of hiring an attorney to defend a state collection action is sufficient to satisfy the injury-in-fact requirement. 

As to any opportunity to amend, the court disallowed this because plaintiffs had not filed any motion to amend nor attach a copy of a proposed amended complaint to their response to motion to dismiss. 

We have all not only seen our clients sued for (much) less but also – perhaps due to optics – on the hook for damages and fees in such situations. The court took a hard stance here, requiring the complaint to address injury, harm, and damages with specificity, and where it did not, finding it deficient as to standing. Plaintiffs’ failure to amend their complaint put the nail in the coffin in a suit we would otherwise expect to generate traction, particularly, where the underlying conduct had accompanying criminal charges.  

Kline, et al. v. Fishman Group, et al. (E.D. Mich. 2:21-11272 Feb. 28, 2022).