Unfortunately the wheels of justice move slowly. We first announced the “New Agency Test” about 23 months ago. We filed suit 18 months ago. We finally had our first scheduled trial of a contested case last week.
The case was big – a $25,000 loan that made three payments so the principal due was $23,800 (ok, actually $23,766.14). The defendant had disputed and objected every step of the way. The basis for the dispute – pick from the menu of debtor claims – (a) deceptive lending practices; (b) racism; (c) no signed contract; (d) flawed chain of title; (e) usury; (f) improper accounting of payments. Fine, we can deal with it.
Then this spring, in a case management conference, the specter of the SEC Cease & Desist was raised. The defendant amended their answer to say that since “the SEC had found that these were illegal securities – they didn’t owe the money.” The defendant’s argument continued, since this was an “investment” for the people who put up the money, it wasn’t a loan and they had no obligation to repay. In support of this position, the defendant filed 300 pages of web posts on the subject.
Our lead attorney (who I will contend is the premier debt collection attorney in California) and I spent more than 20 hours in trial prep. We assembled more than 40 POUNDS of printouts in support of every aspect of our position. We repeatedly walked through our chain of testimony – exploring different approaches. At the end of the day, we decided to put me on the stand first and attack the issues directly. Our position was simple, the issue with the SEC is a lender only issue – it has no bearing on the enforceability of the loans. We did multiple dry runs until we could present a coherent case – gently educating the court about peer-to-peer lending – in 30 minutes. Our attorney and I have worked together for more than a decade – pursuing loans for four different corporate clients. When we did our final dry run, we agreed that it was a thing a beauty.
When we arrived at the court room and checked in with the clerk there was no defendant. Courts tend to be very “consumer friendly” – we’re told to wait to see if the defendant shows up. After two hours, they call the case without the defendant present. At this point, it should be a no brainer – a default prove up. Not so, the judge reads the file and says – ”I need to prove that this is a valid debt and you have standing to sue.” My attorney says “do we need to label each exhibit, as there are more than 500 of them.” The judge says “let me see them.” We drop roughly 20 pounds of exhibits on the bench.
The look of the judge’s face was priceless – made you wish that cameras were allowed in the courtroom. At this point, the judge says – “Do you have a single piece of paper that shows the $23.8 K balance” We did. The judge then says, “Mr. Fuller, are you willing to be sworn and testify that the allegations of the complaint are true.” I was.. And then those sweet, sweet words – “Judgment to the plaintiff….”
My attorney and I said “Thank you, your honor” – walked out of the courtroom and did the ridiculously appearing routine of two guys over 50 doing a “High Five.”
Will we see anything out of this judgment? I don’t know. When we identified this account for suit, the defendant owned a house with significant equity. Now according to the Zillow estimate, the defendant is “under water” on their mortgage.
At this point, the defendant has 30 days to appeal the judgment. After that, we can avail ourselves of multiple post judgment. In addition to placing a lien on the defendant’s home, we can seek wage or bank garnishment.
The second part of this blog will be a general update on the legal test. We understand that for those unaccustomed to the pace of the legal collections process, this has been frustrating, but tests are about learning. We appreciate the participation and patience of everyone that volunteered to be part of the test.