A Magistrate Court judge in New York has granted in part and denied in part a motion to exclude the testimony of a defense expert in a Fair Debt Collection Practices Act class action accusing a group of student loan trusts and their collectors of filing “sham” collection lawsuits they allegedly could not prove if contested.
The background: The plaintiffs are student loan borrowers who were each sued in New York state court by one of the defendant trusts more than a decade ago.
- In each of those collection suits, the trust identified itself as the “original creditor” on the loan and obtained a default judgment, even though the trusts did not originate any of the loans and instead acquired them through what the plaintiffs called a “byzantine securitization process.”
- The trusts have no employees, so a servicing agent directed the collection lawsuits and a law firm served as counsel of record; both are also defendants.
- The plaintiffs allege the defendants filed thousands of collection suits in bulk without the intent or ability to prove ownership of the loans, solely to obtain default judgments and extract money through liens and wage garnishments. Central to that theory is the claim that the schedules meant to list which loans were transferred to which trust were blank.
- After a class was certified, the court allowed the defendants to serve one expert report on the student loan securitization process. Their expert, a retired managing director who underwrote several of the trusts’ bond offerings, opined that the trusts followed a standard two-step securitization structure and that industry participants would understand the trusts owned the loans.
- The plaintiffs moved to exclude the expert’s testimony, arguing he was unqualified, offered legal conclusions, and speculated about what other parties believed.
The ruling: Judge Barbara Moses of the District Court for the Southern District of New York granted the motion in part and denied it in part.
- Judge Moses found the expert qualified based on more than 20 years in education finance, noting an industry expert does not need formal training or published scholarship. He may explain how securitizations work, that the trusts generally followed that process, and how the loan servicer used a coding system to track ownership.
- But he may not interpret the “True Sale Opinions” issued by law firms during the securitizations, because telling a jury what a legal document means is a legal opinion reserved for the court.
- He also may not claim the deal documents show a loan had a ready buyer in a particular trust. The judge wrote that none of the language he highlighted “connects the dots” between any particular loan and any particular trust.
- Nor may he vouch for the servicer’s records as the “most reliable source of information,” because he repeatedly described what the servicer “would” have done without pointing to evidence it actually did so consistently or accurately.
- The largest portion excluded was any testimony about what the defendants or other “industry participants” understood, thought, believed, knew, or determined, which the judge ruled lies outside the bounds of expert testimony.
- At his deposition, the expert defended the blank schedules by explaining, “You don’t take 50,000 loans and run a schedule and attach them to the document.”
