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November 20, 2008 |
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| August 07, 2008 |
By: John Pacenti |
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eronica Kelly got one of those calls every parent dreads.
Her 16-year-old daughter and a teenage friend were detained at JCPenney for allegedly stealing a pair of sunglasses last March.
When Kelly arrived at the store, the security guard told her that her daughter’s friend was the one with the sticky fingers. Charges were later dropped.
Then the letters and phone calls started.
Palmer Reifler & Associates, a civil recovery firm in Orlando, said a payment of $202 by Kelly could avoid a potential lawsuit by JCPenney. When she balked at the first letter, the amount increased to $477.
Kelly didn’t know what to do. The single mother from Allentown, Pa., feared law enforcement would come to her home and further embarrass her family if she didn’t pay the law firm. Instead, she turned to Miami-area attorneys who are seasoned in consumer-rights lawsuits.
She is now the plaintiff in a potential class action lawsuit assigned to U.S. District Judge Federico Moreno in Miami. The complaint accuses the law firm of mail and wire fraud in a scheme to shake down millions of people across the nation.
The firm says it’s working well within the law and has defended litigation elsewhere claiming consumer fraud. On its Web site, it tells retailers: “Don’t absorb your losses, recover them.”
Kelly said she felt she was being strong-armed when her daughter had done nothing wrong.
“When these letters first started coming, my daughter and I both lived in a constant state of anxiety and fear,” Kelly said. “I felt as if they were trying to take advantage of me and extort money from me without any justification. I knew I had to fight back.”
The lawsuit is muscular and aims high, seeking treble damages under the civil Racketeer Influenced and Corrupt Organizations Act, better known as RICO. The lawsuit filed by attorneys Lance Harke and Adam M. Moskowitz asks for an injunction to put a halt to the Palmer firm’s collection business.
“This scheme has been challenged by consumers across the country but has not been stopped, either because the wrong legal theory was used and/or the case was settled,” the 18-page lawsuit reads. “This lawsuit seeks to stop this practice, once and for all.”
The suit filed June 26 seeks damages under RICO and compensatory damages for money collected from the letters. It alleges unjust enrichment and violation of Florida’s Deceptive and Unfair Trade Practices Act.
Harke said the genesis of the proposed class action is a case taken by his wife, attorney Alison Harke. A client had been accused of shoplifting from Home Depot. He brought screws from home to make sure he bought the right kind but was accused of stealing them.
“These retailers, some or many of them by policy, encourage people to be stopped wrongfully,” said Lance Harke of Miami’s Harke & Clasby. “Some employees are given incentives to detain as many people as possible.”
Moskowitz said his firm, Kozyak Tropin & Throckmorton in Coral Gables, is selective about taking class action cases. But after investigating the allegations for more than a month, he said it became an easier decision “when we learned about how millions of customers were treated in the same manner by this firm and that there is an actual industry out there that makes millions of dollars by basically these one-page letters without any personal review by a lawyer.”
Palmer Reifler & Associates remains unbowed.
Natt Reifler, partner in the firm, said his employees work under state civil recovery statutes that allow retailers to seek civil damages and penalties from people who have committed retail theft. In many states, no arrest is needed for stores to seek civil restitution.
“Depending on the dollar value of the merchandise, some retailers have certain types of criteria on whether or not they are going to call the police,” he said. “When an individual takes possession of the merchandise with the intention to deprive the retailer of the benefit of use or full retail value of the property, they have crossed a property rights line.”
Reifler noted there are costs associated with shoplifting — such as employing loss prevention personnel — that have nothing to do with the value of stolen products. Civil restitution laws are aimed at recovering some of that money, he said.
Richard Hollinger, a criminology professor at the University of Florida in Gainesville, is considered an expert on retail theft. On the university’s Web site, he is quoted as saying shoplifting alone costs $10 billion a year.
“None of the property crimes people worry about — such as convenience store theft, bank robberies and household burglary — even come close to these numbers,” he said. “Compounding the problem is that we all pay for this loss in terms of higher prices.”
The Miami lawsuit contends Reifler’s firm is abusing the civil recovery statutes, alleging, “These generic form letters are meant to harass, intimidate and coerce consumers into paying a large fine by threatening civil action.”
Palmer’s firm generates 80,000 to 120,000 demand letters each month for more than 50 clients including Wal-Mart, JCPenney, Kmart and Walgreens, according to the lawsuit. The letters are signed by attorneys in states where the recipients reside, and the lawyers are paid a small monthly fee to allow Palmer’s firm to use their electronic signatures, which add gravitas to the demand.
“It’s pretty serious when you get a threatening letter from a law firm,” Moskowitz said.
Reifler said the out-of-state attorneys are not just a rubber stamp. They review their state statutes and the demand letter format and review and prepare pleadings and customized response letters, perform conflict checks and follow up on claims with opposing parties.
“The amount that they charge varies and can be based on hourly rates and monthly retainers, depending on how much time and work is done in any given month,” he said.
Palmer’s firm avoids the federal Fair Debt Collection Practices Act because it is not collecting a “debt” but instead seeking a settlement of a tort offense, according to the lawsuit.
The firm each month receives a report from its clients with names, ages and addresses of consumers detained. It then uses computer software to automatically generate form letters, calculate the amount and affix a local attorney’s name.
The firm receives up to one-third of the money it recoups. It has set up a Web site where recipients of the civil demand letters can pay by credit card.
“Defendant and its co-conspirators, on its own and as part of a common fraudulent scheme and conspiracy, extorted millions of dollars from consumers,” Harke and Moskowitz write in the civil RICO suit.
The Orlando firm is accused of engaging in a conspiracy with attorneys across the country. Harke and Moskowitz say the letters are sent without any intent of actually filing a lawsuit.
Reifler said his firm filed about 80 court complaints this year, which would calculate to be about 0.1 of a percent of all the letters sent at most.
“There is no requirement under the law for tort claims that demand letters be followed by lawsuits,” Reifler said. “Courts generally favor out-of-court settlements and sometimes retailers choose not to proceed with suits if these matters are not amicably resolved through the demand process.”
Reifler said the RICO claim is frivolous. He said his firm is helping save businesses from going under and keeping the price of consumer products down.
“What we are doing is proper, and we are protecting the rights of retailers,” he said. “In a tough economy, retailers need to watch their bottom line. And while they are trying to stay afloat, the last thing they need is people taking merchandise.”
John Pacenti can be reached at (305) 347-6638.
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Reader's comments
said:The story said the firm in Orlando receives a list of persons who were "detained." It does not say the list is comprised of persons convicted of shoplifting or "retail theft." It would seem that there is no basis to allege that restitution is required without a criminal prosecution convicting the person of the suspected crime. In addition, what are the laws on collecting the persons' personal information and relaying that to a third party law firm who then relays it again to another lawyer in a different state. I do see a transmission being sent, over wire or using electronic format, (also interstate) to multiple persons which allege the person did something wrong, and for which there are quasi-legal instruments drafted as a result. The intimidation tactic seems clear. In the Kellys' example, I read that the security guard even told the mother that her daughter wasn't the one stealing, and the story noted that charges were dropped. This example amounts to even more evidence of intimidation unless the daughter was found guilty of being an accessory or accomplice. I would think someone would have to be found guilty of the crime in either a criminal court or a civil court before restitution for "questionable expenses" could be threatened or even recovered by the person. Someone help me... RICO or conspiracy requires more than one party, using wire, mail, or electronic format to do harm to another person or entity. If they send the list containing names of persons detained and most likely the situation in which they were involved (without a judicial conviction) to a third and fourth party (unless it was for purposes to have their lawyers file criminal charges or a civil suit) it would seem like a case of defamation or libel. Add to that the then baseless intimidation (extortion) and I think there's a conspiracy/RICO case there. Not to mention the Bar of the various jurisdictions should be looking into the many lawyers involved in the scheme. Aug. 7 at 9:53 a.m. | |
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