Appeal questions AG's subpoena, injunction against debt-purchaser

By John O'Brien | Oct 3, 2013

CHARLESTON – A subpoena and temporary injunction issued against a debt-purchaser and in favor of the state Attorney General’s Office were debated Oct. 1 before the state Supreme Court.

Cavalry Portfolio Services made its case to the court almost two years after Kanawha County Circuit Court Judge James C. Stucky granted a temporary injunction against it while denying its motions to dismiss.

Former Attorney General Darrell McGraw sued Cavalry SPVI, Cavalry SPV II, Cavalry Investments and Cavalry Portfolio Services in June 2010.

Cavalry purchases debts from debtors who have given up on collecting them. Cavalry then attempts to collect the debts itself with litigation.

Testimony from McGraw’s staff alleged that Cavalry debt-purchasers had filed at least 1,300 collection lawsuits prior to becoming licensed in October 2010.

Of those lawsuits, 743 resulted in judgments totaling more than $3 million against West Virginia consumers, with 369 default judgments.

In October 2011, Stucky ordered Cavalry to stop all wage garnishments and to release all liens filed against West Virginia consumers’ property stemming from judgments obtained by its companies before they became licensed.

It also ordered Cavalry to fully comply with an investigative subpoena issued by McGraw in January 2010.

After Stucky refused to dissolve the temporary injunction, Cavalry appealed.

Cavalry argues the injunction should be dissolved because the debtors from whom they seek to recoup debts will suffer no harm in its absence.

“At the outset, it must be remembered that the debts Petitioners purchased are obligations that the debtors did in fact incur to third parties and which they fully expect to be paying,” one of Cavalry’s appeal briefs says.

“Even assuming…that Petitioners should not have been collecting those debts without a license, the debts were obligations that the debtors bargained for, and if Petitioners had not been collecting them, then someone else would have.

“Whether or not the Petitioners had a license when they collected those debts, they are debts that the debtors bargained for, and that they are not suffering any undue or unforeseen burden in paying. Should the Attorney General prevail in the end, the debtors may simply enjoy a windfall, having a debt that they incurred forgiven because of an administrative error made by the entity that purchased their debt; an entity of which they likely had no knowledge, and an error that had no effect on them whatsoever.”

At the time the complaint was filed, Cavalry says it did not have a license because it was informed by the tax commissioner it did not need one. Later, a different tax commissioner told it it needed one.

Attorney General Patrick Morrisey’s response brief says the injunction was within the discretion of the court.

“(T)he debt buying industry is notorious for filing suits against unsophisticated, unwitting consumers without providing proof that it owns the debt and in the absence of any admissible proof of the amount of the debt or that it is owed by the consumer it sued,” the brief says.

Cavalry also argues Stucky erred in enforcing the investigative subpoena, which it says was not supported by probable cause and was issued without an administrative hearing.

Because McGraw filed the lawsuit, the subpoenas should have been terminated, the company claims.

“By filing a verified complaint, the Attorney General was evincing the fact that he had concluded to his satisfaction that such violations (of the West Virginia Consumer Credit and Protection Act) had indeed occurred,” Cavalry’s other appeals brief says.

“Therefore, under the black letter of the law, his subpoena power was at an end, any further investigation he wished to make would have to be done pursuant to the rules of civil discovery.”

Morrisey’s response says the subpoena, which requests certain documents and information from Cavalry, is proper. It calls the challenge “frivolous.”

“Cavalry failed to produce a single case in support of (its) position because there are none,” the brief says.

“(I)t is well settled that commencement of a civil action does not terminate an administrative agency’s investigative authority nor moot its administrative subpoena.”

Other civil cases scheduled for oral argument on Oct. 1-2 include:

-The appeal of Theresa Weimer, a fired teacher whose Pocahontas County lawsuit was dismissed because she did not first file a grievance with the West Virginia Public Employees Grievance Board;

-Vicky Lou Hughes’ appeal, which is similar to Weimer’s and was consolidated with it;

-Three certified questions from Cabell Circuit Court in the appeal of Master Mechanical Insulation, which was sued after a man fell from a second-floor balcony of an apartment complex;

-Charles R. Wright’s appeal of a Jefferson Circuit Court decision that affirmed the tax assessment on his home;

-The appeal of the Weirton Policemen’s Pension and Relief Fund of an order in its Hancock County lawsuit against Edward D. Jones & Co. that sent the issue to arbitration;

-A Greenbrier County appeal involving the insurance policy of a funeral home asked to disinter a man’s remains, which were relocated to another cemetery; and

-Teresa Dellinger’s appeal of summary judgment for Charleston Area Medical Center in a medical malpractice case from Kanawha County.

Submitted on the briefs without oral argument was Green Tree Servicing’s appeal of a Raleigh County decision that declared an arbitration provision void.

From the West Virginia Record: Reach John O’Brien at

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