A Jackson County jury has ordered a debt collection agency to cough up nearly $83 million to a woman it mistakenly pursued to collect a credit card debt of little more than $1,000.
The jury found that Portfolio Recovery Associates LLC, one of the biggest debt buyers in the country, had acted maliciously in suing the woman, Maria Guadalupe Mejia, when the actual holder of the debt was a man with a similar-sounding name.
Jackson County Circuit Judge Joel P. Fahnestock earlier had stricken the company’s pleadings after it failed to comply with requests to hand over information in the case.
The jury then determined damages, hearing evidence for five days before assessing actual damages against the company of $250,000 for violating the Fair Debt and Collection Practices Act (FDCPA) and punitive damages of $82,990,000 for malicious prosecution.
“This company has gained a reputation for take no prisoners, ‘If you mess with us we’re going to take you all the way, you’re going to have to spend a lot of money on this litigation, you’re going to have to go all the way to trial,’” said Gina Chiala, one of Mejia lawyers. “And so, among consumer lawyers, they are known to be very aggressive in litigation and to not stop; even when they’re wrong, they’re just not going to stop.”
A spokesman for the company, Michael McKeon, called the verdict “outlandish” and said it “defied all common sense.”
“We hope and expect the judge will set aside this inappropriate award and we plan to file motions to make that request formally in the near term,” he said. “Any fair reading of the facts of this case makes plain that a verdict of this size is not justice by any means, and cannot stand.”
Portfolio Recovery is owned by PRA Group Inc., a public company based in Norfolk, Virginia. In a regulatory filing on May 11, it said it believed “the verdict and magnitude of the award to be erroneous and intends to promptly request that the court set aside such an inappropriate award.”
The company added that, unless the verdict is reduced or overturned, “the verdict could have a material adverse effect on the Company’s financial condition and/or operations.”
In 2014 PRA reported total revenues of nearly $881 million and net income of $176.5 million. The punitive damage award amounts to nearly half the 2014 net income figure.
On the advice of her attorneys. Mejia, 51, was not available for comment pending a final judgment in the case. But in a written statement, she said:
“On February 6, 2013, my husband came to my place of employment and handed me the lawsuit Portfolio Recovery Associates, LLC had served him with at our home. They wanted me to pay them over $1,000. I did not owe this company any money. My husband and I were already struggling just to keep our children fed and the lights on. The lawsuit terrified me. I feared they would take my house and I feared they would arrest me. I was very shocked that they sued me for one year and three months even though I never had the credit card. And after they dismissed the case, they said they might sue me again.
“I am so thankful to the jury for giving me and my family justice. This should not happen to anyone and I hope the jury’s verdict will stop Portfolio from doing this to others. I am grateful that my name is totally cleared and my family and I can move on.”
Chiala said that Mejia, who lives in the Northeast part of Kansas City, worked for 15 years at a dry cleaners shop on Independence Avenue that recently closed, leaving her out of work.
Mejia broke down in tears after the jury handed down its verdict, she said.
“She’s been so afraid through this whole thing,” Chiala said. “A lot of it has been difficult for her to understand. It’s been very confusing. They just really scared the heck out of her.”
Chiala said the credit-card debt in question was actually owed by a Kansas City, Kan., resident with a similar but not identical name. But even after Mejia told Portfolio Recovery that it had the wrong person, it persisted in trying to collect the debt from her, Chiala said.
“They denied it was clear that they had the wrong person,” she said.
McKeon, the spokesman for Portfolio Recovery, said that as soon as the company realized it had sued the wrong person, it dropped the case.
“Obviously those are facts that could have been contested at trial, but we didn’t get an opportunity to do that,” he said.
Debt buyers like Portfolio Recovery typically buy massive portfolios of debt from banks for pennies on the dollar. But the banks often don’t provide account documents with details on the debtors, leading to cases of mistaken identity.
“Long story short, they almost never have documents when they’re in the collection phase,” Chiala said. “They don’t have the credit card agreements, credit card applications, account notes, prior correspondence – all that stuff that helps distinguish one person from another.”
A majority of debt collection suits result in default judgments against the debtor because the debtor does not respond to the lawsuit or fails to show up in court. The debt buyer will then seek to collect on the judgment by garnishing the debtor’s wages or bank account.
After Portfolio Recovery sued Mejia, she sought advice from Legal Aid, which tried to get the lawsuit dismissed. That didn’t happen, and just before the first scheduled court date, Chiala’s law firm, Slough Connealy Irwin & Madden, stepped in to represent her. The firm promptly filed counterclaims under FDCPA and for malicious prosecution.
“It wasn’t her debt, it wasn’t her credit card account, it wasn’t anyone she knew,” Chiala said. “They had sued the wrong person.”
Rather than dismiss the case, however, Portfolio Recovery kept the suit going for 15 months. Chiala said that after it failed to comply with several discovery requests – the procedure by which parties in a case exchange evidence – Fahnestock found the company liable for both malicious prosecution and violations of FDCPA.
“I believe they thought that they could wear us out...,” Chiala said. “It takes a lot to get through these discovery battles. We had two big hearings on this, we filed four motions on this and it was a huge endeavor to get to that point. And so my belief is it was a strategy to just wear us down and wear us out.”
McKeon disputed that, saying the company thought it was on solid legal ground.
“The judge didn’t like the tack we took in dealing with discovery issues and said enough is enough, I find you guys liable, it’s over and we’re going right to damages,” McKeon said. “So we really didn’t get a chance to get into the substance of the case.”
Under FDCPA, Mejia is entitled to an award of attorney’s fees from Portfolio Recovery that are determined by the court. Once the judge makes that decision, the company will likely ask for a new trial or, alternatively, a reduction of the damages.
Punitive damages are meant to punish the defendant as well as deter others from engaging in similar behavior. A 1996 decision by the U.S. Supreme Court, however, limited their amount.
In that case, BMW v. Gore, a jury had awarded the plaintiff $4,000 in compensatory damages and $4 million in punitive damages (later reduced by the Alabama Supreme Court to $2 million) because BMW didn’t disclose it had repainted his car. The Supreme Court struck down the punitive award, finding that it was grossly excessive because there wasn’t a reasonable relationship between it and the actual damage award.
The high court, however, has never spelled out what ratio of punitive damages to actual damages constitutes “excessive.”
Dan Margolies, editor of the Heartland Health Monitor team, is based at KCUR.