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Minnesota Sues Law Firm Over Debt Collection Meethods

January 3, 2005
Mid-Minnesota Legal Assistance and the Minnesota Attorney General's Office have filed lawsuits against Messerli & Kramer, a Twin Cities law firm, accusing it of using unlawful and bad faith tactics to collect debts from Minnesota consumers.

"This firm specializes in obtaining default judgments, often against the poor, sick, and disabled," said Tim Thompson, Litigation Director at Mid-Minnesota Legal Assistance. "That's not illegal. But what is illegal is adding to the misery by piling their own attorney fees on to these judgments without following Minnesota law. They even bill for time they haven't spent on the case."

"It is wrong for collection attorneys to use their knowledge of the system to make unlawful gains," said Attorney General Mike Hatch. "Garnishing wages such as Social Security, veterans' benefits, or other exempted incomes, when the law states otherwise, is inappropriate and in bad faith."

Unearned Attorneys' Fees

Both lawsuits allege that M&K improperly adds unearned, or "future," attorneys' fees to the debts owed by consumers when M&K obtains default judgments, adding hundreds or thousands of dollars to the amount of the bill.

They also claim that M&K files boilerplate affidavits in Minnesota district courts seeking attorneys' fees for work that has not yet been performed. M&K's boilerplate affidavits request 15% of the principal balance (up to $3,000), which includes attorneys' fees that it estimates it will incur in the future.

According to the lawsuits, M&K's practices violate Minnesota law, which outlines the requirements to obtain an award of attorneys' fees in connection with a default judgment. Minnesota statutes do not include awards for unearned or "future" work.

Garnishments Against the Economically Vulnerable

The Attorney General's lawsuit also alleges that M&K's collection attorneys have garnished in bad faith accounts of vulnerable consumers who live on limited or fixed incomes.

Under Minnesota law, creditors can collect debts by garnishing debtors' bank accounts. Minnesota law, however, provides that certain earnings are exempt from garnishment, including income from Social Security, veterans' benefits, disability, or other protected sources.

M&K's collection attorneys attach bank accounts, garnishing exempted funds, thereby shifting the burden to the consumer to file a notice of exemption claiming that the funds are exempt from garnishment.

The Attorney General's lawsuit alleges that M&K used the garnishment process in bad faith. Among other things, instead of releasing levies where appropriate, the lawsuit alleges that M&K's collection attorneys objected to consumers' exemption claims, often without a good faith basis for doing so, thereby forcing consumers to file court documents to prove that the funds are exempt.

The lawsuit alleges that, in some cases where consumers requested a hearing to determine the validity of an exemption, M&K's attorneys either failed to show up, conceded the case at the hearing, or a court found that the funds were, in fact, exempt from garnishment.

Consumers in such cases lost access to their money for weeks because their accounts were frozen by M&K's initial levy. The Attorney General's lawsuit alleges that, in some instances, M&K garnished consumers' income even after the consumer had shown a valid exemption from garnishment.

This is not the first time M&K's collection attorneys have been involved in disputes over aggressive debt collection tactics. For instance, a collections case filed in Anoka County District Court by M&K was dismissed when the judge found that the default judgment was "entered in error and as a result of the false statements contained in the affidavit of plaintiff's attorney (M&K)."

Last month, the Minnesota Court of Appeals noted the "gravity" of actions by an M&K collection attorney who falsely told the court that a Minnesota consumer had never denied that he owed a debt to the credit card company represented by M&K.

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