‘Plainly wrong’: Debt buyer failed to prove standing

It was “plainly wrong” for a trial court to rule that a debt buyer had standing to sue because it failed to provide sufficient documentation that it owned a debt obtained through multiple assignments, the Court of Appeals of Virginia has held.

Challenging the debt buyer’s standing, the defendant argued that the plaintiff’s documents didn’t specify the chain of title necessary to establish standing. The trial court disagreed.

Despite Virginia’s dearth of precedent related to debt buying, Judge Doris Henderson Causey said the trial court erred by ruling in the debt buyer’s favor.

“We hold that the assignment of rights alleged here created a standing issue,” Causey wrote. “Further, because [the plaintiff] failed to establish its ownership of a debt owed by [the defendant], we hold that [the plaintiff] had no legally cognizable interest in the alleged controversy.”

Judges Mary B. Malveaux and Daniel E. Ortiz joined Causey in reversing Green v. Portfolio Recovery Associates (VLW 024-7-058).

Longstanding issue

Jay Speer, executive director of the Virginia Poverty Law Center, told Virginia Lawyers Weekly this decision calls into question thousands of lawsuits and garnishments in Virginia.

“Virginia lawyers and the General Assembly need to take a close look at what is going on in our general district courts,” Speer said.

Drew Sarrett with Consumer Litigation Associates described how general district courts have been favorable venues for debt collectors in Virginia.

“It’s a very important part of their high-volume business model,” he said.

Along with documentation issues, Sarrett warned that defendants often don’t know about lawsuits because debt collectors post service at a defendant’s last known address — rather than their more current usual place of residence.

“There’s good case law saying you must exercise some level of diligence to determine where a defendant actually lives,” he said, adding that identity theft is aided by the lack of good service.

Attorneys for the plaintiff refused to comment on the pending litigation.

Debt buyer

Debt buyer Portfolio Recovery Associates, or PRA, sued to collect almost $9,000 for a credit account on which Mazie Green allegedly defaulted. The debt had been assigned several times before PRA obtained it.

PRA submitted four bills of sale; none mentioned specific debtor names or account numbers or included attachments with that information. Instead of transfer agreements with specific information, PRA provided a spreadsheet showing Green’s name and an account number.

An affidavit of PRA’s records custodian claimed that Green owed the debt for a PayPal credit account ending in 7068. Billing statements and pricing documents referenced Green but listed two different account numbers.

After the general district court and circuit court ruled in PRA’s favor, Green appealed.

Little precedent

Virginia courts have little precedent related to debt buying. Causey looked to cases from other jurisdictions and secondary sources.

After describing the debt buying business model, the judge acknowledged that it reduces losses, thereby allowing creditors to provide cheaper credit.

“But the business model depends on debt buyers using the legal process (or the threat of a lawsuit) to collect on enough of the many debts they have bought to generate a profit,” Causey wrote. “And that is when problems can arise.”

Documentation of a debt is often lost in the course of it being sold several times, which can lead to mistakes, the judge noted.

However, “the number of debts disputed likely understates the lack of information problem because consumers often do not challenge debts,” she pointed out.

Green presented “a relatively unsettled question on appeal — whether a plaintiff attempting to collect on a delinquent obligation without proof that it owns the debt raises a question of standing or a defect in the plaintiff’s case-in-chief,” Causey said.

Other jurisdictions are split on that issue; Virginia has only considered it in the real property context.

No standing

“The point of standing is to ensure that the person who asserts a position has a substantial legal right to do so and that his rights will be affected by the disposition of the case,’” Causey explained.

A party seeking to recover a debt must prove it owns the right to the specific debt at issue and must trace the chain of title for a debt received by assignment.

“The trace of the chain of title may not be broken,” the judge said. “It must be continuous to establish the assignment.”

Causey found Green’s case was analogous to Green v. Ashby, an 1835 opinion of Virginia’s then-named Supreme Court of Appeals, where a creditor’s “scant evidence” failed to establish the privity necessary to support its claims against the defendant.

“As in Ashby, to prove it had been assigned Green’s debt, PRA introduced several pieces of documentary evidence along with testimony supporting those documents,” the judge wrote. “And, as in Ashby, PRA needed more evidence to meet its burden to prove it owned the right to recover on Green’s specific account. In other words, who owes the debt and who legally can collect the debt must be stated clearly in the documentary evidence. Random spreadsheets with numbers do not meet the burden to prove who owns the right to recover a debt.”

The bill of sale must contain all the information and attachments to authenticate the debt.

“We find this jumble of documents, without more, akin to the mutilated paper in Ashby that purported to show the plaintiff had been assigned the claim he sought to recover on,” Causey wrote.

PRA’s affidavits and testimony weren’t enough to tie the documents to the chain of assignments because the affiants showed no knowledge of the assignments.

Causey cited the Ohio Court of Appeals’ holding in Premier Cap. LLC v. Baker that a plaintiff must produce documentation referencing the debtor’s specific account number even if an affiant could authenticate certain documents.

Wisconsin, Georgia and Texas courts have made similar rulings.

Here, PRA’s spreadsheet showed Green’s name with an account number but it lacked a date, a creditor name, and any means of tying it to a specific bill of sale or source of the document.

Causey then held that collection of an assigned debt requires production of evidence for each assignment that shows the chain of title from original assignor to the plaintiff.

“At a minimum, such evidence must show that the defendant’s account number, along with other relevant identifying information, was included in the assignment (e.g., an attachment to a bill of sale listing account numbers and other identifying information that traces back to the bill of sale by affidavit),” she said.

Further, a claim based on a written contract must be proven by evidence that the defendant signed and dated the agreement, or the plaintiff must file a lost document affidavit under Virginia Code § 8.01-32.

“If documentary evidence is unavailable for a given assignment, the plaintiff must produce, by witness testimony or an affidavit, evidence from a custodian of record or other qualified individual with personal knowledge that the defendant’s specific account was assigned,” the judge added.

Given the “scanty and incomplete evidence in the record,” Causey said it was plainly wrong for the circuit court to find that PRA had standing to assert their claim or proved ownership of Green’s debt.