NEWARK, N.J. (Legal Newsline) – A New Jersey federal judge on Jan. 8 dismissed an amended complaint that accused a law firm of running a “racketeering-style” scam operation designed to generate bogus legal fees in class action lawsuits.

Plaintiffs in the case had 30 days to file a second amended complaint after the Jan. 8 ruling, although the opinion said the court had real concerns such action would be futile. Instead, Jeffrey Winters and Collection Solutions Inc. filed an appeal with the U.S. Court of Appeals for the Third Circuit.

Yitzchak Zelman

The company is suing Joseph K. Jones; Benjamin Wolf; Wolf & Kapasi LLC; Laura Mann and the Law Offices of Laura S. Mann; Ari Marcus; Yitzchak Zelman; and Marcus & Zelman LLC.

Jones, Wolf & Kapasi LLC is an estate-planning law firm in Fairfield, New Jersey, while Mann’s law firm is located in Riverdale. Collection Solutions Inc. is a debt collection agency located in Hacksensack, New Jersey.

Marcus & Zelman represent plaintiffs in Telephone Consumer Protection Act and Fair Debt Collection Practices Act class actions.

In a lawsuit dated Dec. 5, 2016, Winters contended the defendants violated the Racketeer Influenced and Corrupt Organization Act by forming a fraudulent enterprise, avoiding small claims court or unprofitable immediate payment of “nominal” claims without attorney fees, by filing numerous sham class actions in federal court. The alleged scheme was to go after deep-pocket defendants, mostly collection agencies, who would view a quick settlement for less than $100,000 as just a nuisance claim.

Passed in 1970, RICO was designed to prevent organized crime in the U.S. and provides prosecution and civil penalties for criminal enterprises.

Thus, the alleged scheme sought to make money via an early settlement by searching out and developing professional plaintiffs who would pose as unsophisticated consumers in class actions lawsuits to promote false damages claims. The plaintiffs also alleged the defendants committed wire fraud, obstruction of justice, witness tampering and extortion.

“The plaintiffs assert the defendants committed fraud, negligence and legal malpractice through their participation in the RICO scheme,” the opinion stated.

To support the allegations, the plaintiff cited five cases filed on behalf of the same plaintiff (Marni Truglio), in which Marcus & Zelman were co-counsels. Three of the cases were opened and then settled within months of each other, the opinion states.

The defendants filed a motion with the court to dismiss the case. The plaintiffs then filed an amended complaint on Feb. 6, 2017, again alleging federal RICO violations, conspiracy, fraud and legal malpractice, according to the opinion.

The defendants subsequently filed motions to dismiss the amended complaint, and the plaintiffs opposed the motions. Following the filing to dismiss, the defendants also filed motions for sanctions against the plaintiffs the same day.

Nevertheless, the court found the plaintiff’s complaint based on a weak foundation.

“The FAC (first amended complaint) is riddled with factually unsupported accusations and wholly conclusory language,” the opinion read. “Besides inflammatory language and allegations ... the plaintiff offers by the way of proof little more than printouts from PACER reflecting cases that the defendants worked on.”

The court called the plaintiff’s contention that the large number of cases worked on by the defendants as evidence of wrongdoing “absurd.”

In addition the court noted that the using of a client (Truglio) in a number of cases settled quickly by itself was not enough to prove illegality.

The court also found accusation of violations of state and federal RICO statutes to be deficient.

The court granted the defendant’s motion to dismiss the case at the same time giving the plaintiff the right to file a new amended complaint within 30 days addressing the noted deficiencies. 

The court's opinion regarding the sanctions explained that Federal Rule of Civil Procedure 11, if violated, allows sanctions but is discretionary, used only in exceptional cases where a claim is considered patently frivolous.

The defendants contended the plaintiff’s complaint was a reckless attempt to smear them as “Mafia-like racketeers” and to chill future claims against debt collectors. The defendants also alleged a convicted felon and former debt collector Barry Sussman appeared on a conference call and was introduced as a paralegal for David Hoffman, attorney for the plaintiffs.

The defendants claimed that sanctions were warranted because claims of fraud, negligence and malpractice could not be proven.

The court opinion said the accusations came close to justifying the imposition of sanctions due to the inflammatory language of the plaintiffs and had real concerns over Sussman’s alleged involvement in the case though if he was, the court had no idea why.

The court decided not to impose Rule 11 (rules of procedure) sanctions and denied the defendants' motion to grant sanctions without prejudice.      

However, the defendants are appealing.

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