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1 IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA JENNIFER SHOUSE and JOAN HROBUCHAK on their own behalf and on behalf of all others similarly situated, v. Plaintiffs, NATIONAL CORRECTIVE GROUP, INC. and ANDREW J. JARBOLA III, Lackawanna County, Pennsylvania District Attorney Defendants. A Preliminary Statement COMPLAINT Civil Action No: CLASS ACTION 1 Plaintiffs seek relief pursuant to the federal Fair Debt Collection Practices Act, 15 USC 1692 et seq., the Fourteenth Amendment to the United States Constitution, as enforced through the Civil Rights Act of 1871, 42 USC 1983, the Pennsylvania Constitution, the Fair Credit Extension Uniformity Act, 73 P.S et seq., the Unfair Trade Practices and Consumer Protection law, 73 P.S et seq. and the Pennsylvania common law from Courthouse News Service conduct of the Defendants in connection with the collection of debts which has caused them serious harm and threatens further such harm. In support thereof the following is stated: B Jurisdiction 2 Jurisdiction is conferred on this Court by 28 USC 1331 and 1337 in that this action arises under the laws of the United States, specifically the Fair Debt Collection

2 Practices Act (hereafter FDCPA. Jurisdiction is additionally conferred by this Act itself, 15 USC 1692k(d. Further, this Court has jurisdiction pursuant to 28 USC 1343(a(3 and (4 over the Plaintiffs claim that the Defendants have violated their right to due process under the Fourteenth Amendment to the U. S. Constitution. 3 Supplemental jurisdiction is additionally conferred on this Court by 28 USC 1367 over the Pennsylvania Constitutional, statutory and common law claims in that these claims are so related to the claims over which this Court has original jurisdiction that they form a part of the same case or controversy. C Parties 4 Plaintiff Jennifer Shouse is a citizen of the United States and a resident of Lackawanna County, Pennsylvania. 5 Plaintiff Joan Hrobuchak is a citizen of the United States and a resident of Lackawanna County, Pennsylvania. 6 Defendant National Corrective Group, Inc. (NCG is a corporation which maintains its principal offices at 180 Avenida La Pata, Suite 200, San Clemente, CA As will be more fully set out herein, NCG is a debt collector and creditor under the provisions of the FDCPA and the FCEUA and a state actor for purposes of 42 USC Since on or about March 31, 2009, NCG has operated what it titles a bad check restitution program in Lackawanna and approximately twenty other Pennsylvania counties through contracts with the district attorneys of these counties. 7 Defendant Andrew J. Jarbola III is an attorney and the district attorney for Lackawanna County, Pennsylvania with his principal office located in Scranton,

3 Pennsylvania. He is a policy making official of Lackawanna County, a state actor for purposes of 42 USC 1983 and a debt collector for purposes of the FDCPA and the FCEUA. D Factual Statement 8 Defendant NCG operates bad check restitution programs through contracts with district attorneys throughout the Unites States, including Pennsylvania. 9 On or about August 29, 2006, NCG s predecessor, American Corrective Counseling Services, Inc. (hereafter ACCS, entered into a contract with Defendant Jarbola to operate such a program in Lackawanna County, Pennsylvania. 10 Since on or about March 31, 2009, NCG has assumed ACCS s duties and responsibilities under its contracts with Pennsylvania district attorneys, including Defendant Jarbola. NCG has continued to operate the bad check restitution program in Lackawanna and other counties in the same, or substantially the same manner as ACCS. 11 Pursuant to this contract, Defendant Jarbola permits NCG to use his office, his official letterhead and his signature in communicating with individuals who have issued checks which have been dishonored. NCG thereupon uses the district attorney s identity in threatening prosecution and imprisonment, stating or implying that criminal charges have been filed and that court appearances will be required, and stating that payments are due that far exceed the amount of the dishonored check. These notices are sent for the purpose of collecting private debt as well as fees to the Defendants. NCG has the same arrangement with certain other Pennsylvania district attorneys. 12 Through its ability to use the district attorney brand and its superior performance relative to other debt collectors, NCG solicits and then receives from merchants reports of debts owed to them due to dishonored checks.

4 13 NCG and Jarbola instruct merchants who have received dishonored checks or their assignees to complete a complaint form, which must be sent to a post office box held in the district attorney s name but fully controlled by NCG. 14 The merchants or their assignees who submit such a complaint are told that once this occurs they are not permitted to accept payment from the check writer and must refer check writers, who attempt to make payments, to the bad check restitution program. There is no procedure for withdrawing a bad check complaint. 15 Those against whom a complaint has been filed are informed that this complaint may be dimissed or erased only by meeting all program requirements including full payment, not by paying a merchant directly. 16 In this and other communications with check writers, NCG feigns that it is the office of the district attorney. 17 Pennsylvania has a state constitutionally authorized procedure for private parties to file criminal complaints including those charging the issuance of a bad check, which is defined by statute as a check issued knowing that it will not be honored by the drawee. The approval of a district attorney to proceed criminally is required if the check is in the amount of $200 or greater. 18 The complaint forms received at the designated post office box are automatically forwarded to the offices of NCG in California and are never reviewed by any employee of the district attorney. NCG alone evaluates the complaints and initiates participation in the bad check restitution program. It has a purely financial incentive in doing so.

5 19 After receiving a complaint, NCG sends the individual accused of writing the dishonored check a notice, ostensibly from the district attorney, on official district attorney letterhead, with a reproduction of the district attorney s signature, informing the individual that the district attorney s office has received a report(s of criminal activity alleging you have violated [the Pennsylvania bad check statute] and informing the individual of the penalties for violating that statute, including imprisonment. The notice then lists a Balance Due, which includes the amount of the check and substantial fees. 20 This individual is repeatedly informed that failure to participate in the program will result in a court appearance and criminal prosecution and is informed that failure to pay in full the amount stated as due and schedule a financial accountability class within TEN (10 DAYS may result in the case then being forwarded for criminal prosecution. A separate page included with this notice is headed OFFICIAL NOTICE IMMEDIATE ATTENTION REQUIRED and states the full balance due on a date ten days afterwards. 21 The notice does not inform the individual that knowledge that the check would not be honored is a required component of the issuance of a bad check. 22 Notwithstanding the threat of prosecution in TEN DAYS if full payment is not made, the reverse side of this notice states that if the recipient believes that the notice was received in error or wishes to dispute this notice in writing, he or she may contact the District Attorney s Bad Check Restitution Office at a toll free number or fax or mail a written dispute within 30 days to a fax number or post office box. The phone and fax numbers provided, as well as the P.O. box, connect the individual with representatives of NCG in California, not with Defendant Jarbola s or any other district attorney s office.

6 Information is not received or reviewed by any representative from Defendant Jarbola s office. 23 Fifteen days afterward or on a date when NCG determines non-compliance with its demand, if later, NCG sends the individual another notice in the name of the district attorney entitled WARNING OF CRIMINAL CHARGES stating the full balance due and requiring that the individual respond immediately. There is no reference to a dispute opportunity. 24 Employees of NCG alone respond to phone calls and written communications from individuals accused of writing bad checks and determine whether to continue debt collection through phone calls and additional notices. 25 These NCG employees work on commission and are compensated based on the amount of money they are able to generate. 26 NCG employees frequently contact individuals accused of writing bad checks at home or on their cell phones, including through the use of robotic calls and at late hours, and threaten them with criminal prosecution and imprisonment if payment is not made immediately. 27 Individuals who contact Defendant Jarbola s or other district attorney s offices directly to discuss the accusations are referred to the District Attorney Bad Check Restitution Program without informing them that they are actually being referred to NCG. 28 Neither NCG nor Jarbola have any intention to prosecute the individuals threatened with such prosecution for failure to participate in the restitution program. 29 Defendant Jarbola and other district attorneys have also authorized NCG to use their name, signature and letterhead to charge individuals numerous incidental fees over and

7 above an administrative and accountability class fee. These incidental fees include late payment fees, rescheduling fees, Payment/Convenience fees and Overpayment/Handling fees. 30 Pursuant to the contract with NCG, Defendant Jarbola receives 100% of the administrative fees generated by NCG. NCG receives 100% of the class fees and incidental fees. 31 Neither Defendant Jarbola nor other Pennsylvania district attorneys have the authority under Pennsylvania law to operate a pre-charge, extra judicial diversion, restitution or debt collection program, nor are the fees charged pursuant to such programs authorized by law. Most Pennsylvania district attorneys have declined to participate in NCG s scheme. 32 Pennsylvania has authorized, through state rule, diversion programs which require that criminal charges first be actually filed and which require judicial oversight and approval. 33 NCG is a debt collector as defined in the FDCPA, 15 U.S.C. 1692a, and the FCEUA, 73 P.S , in that it uses the mails in regularly collecting or attempting to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. 34 NCG is also a debt collector as defined in the FDCPA, 15 U.S.C. 1692a, and the FCEUA, 73 P.S , in that in collecting its own debt it uses a name other than its own in conveying to debtors that a separate entity is collecting or attempting to collect such debts. 35 NCG issues forms for use in its bad check restitution programs which create the false belief in a consumer that a district attorney is participating in the collection of or in an attempt to collect a class fee such consumer allegedly owes NCG, when in fact the district attorney is not so participating. In doing so, NCG is additionally liable to the same extent as a debt collector under the FDCPA.

8 36 Defendant Jarbola is also a debt collector as defined in the FDCPA, 15 U.S.C. 1692a, and the FCEUA, 73 P.S , in that without official authority he regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. 37 Defendant Jarbola has acted under the color of state law in using his official position to deprive Plaintiffs of their property without legal authority and otherwise in failing to provide Plaintiffs an opportunity consistent with due process to protect themselves from an erroneous deprivation of their property. 38 NCG in acting in concert with Defendant Jarbola and in a like manner with other district attorneys has also acted under the color of state law. 39 Through written and verbal communications, the Defendants routinely mislead Plaintiffs, including the representative Plaintiffs, into believing: (a that they are dealing directly with an attorney, specifically with the office of the district attorney; (b that the office contacted is duly authorized by the state of Pennsylvania to be so engaged including the imposition of fees and charges; (c that the crime of bad check issuance has occurred; (d that legal process has issued; (e that a criminal restitutionary debt including substantial fees and charges is presently due; (f that the debt claimed due is not subject to discharge in bankruptcy; (g that further criminal prosecution, arrest and imprisonment will ensue upon non-payment of outstanding amounts;

9 (h that any dispute regarding its actions will require an appearance in court, as well as a criminal, police or court record; and (i that it is authorized to impose additional fees and charges if payment and other required participation in its program does not timely occur. 40 In communications with Plaintiffs, Defendants have failed to identify themselves as debt collectors, other than as they publicly state or imply this to Plaintiffs and others through use of envelopes which prominently state their program s name. 41 The Defendants communications with Plaintiffs falsely imply a limited 30 day opportunity to dispute a bad check charge, fail to inform Plaintiffs that a portion of the asserted debt may be disputed, and fail to offer verification of the debt. 42 On June 4, 2009, Jennifer Shouse issued two checks in the amounts $23.31 and $36.00 to a retail merchant for personal goods. She issued these checks believing that her employer had deposited her last paycheck through direct deposit, as she had been informed would occur, and that her account contained sufficient funds to cover the checks. 43 Unbeknownst to her, Ms. Shouse s employer had mailed a substantial portion of this paycheck to her. As a result, when presented at the bank, the checks did not clear. 44 Plaintiff deposited her paycheck as soon as she received it. However, because of substantial nonsufficient funds fees charged to her account for the dishonored checks, there was not enough money left to cover the checks she had written. 45 After receiving a threatening notice from NCG, Plaintiff Shouse contacted NCG and informed its representative of the mistake that had occurred and that she could not afford to pay the full amount demanded, $319.91, $260 of which consisted of fees. She was told

10 that all that mattered was that she issued a bounced check, not why. The representative offered to allow her to pay the total amount due in two installments but would make no further payment arrangements. He did not inform her that participation in the program was voluntary. She believed that she was speaking with a representative of the district attorney s office. 46 Ms. Shouse has since received numerous additional notices including that titled WARNING OF CRIMINAL CHARGES. 47 Ms. Shouse is also receiving frequent phone calls from representatives of NCG informing her that failure to make payment will result in her immediate incarceration. Her balance is now up to $ due to additional fees. She has become very frightened. 48 Joan Hrobuchak issued a check on April 18, 2008 to a retail store in the amount of $27.17 for household goods. When she issued this check she had the available funds to cover it. However, due to a delay in processing this check and a mistake regarding her balance when writing a subsequent $10.21 check, the $27.17 check did not clear when it was presented. 49 As a result of this mistake, she incurred multiple bank fees and was unable to immediately pay the $ Plaintiff Hrobuchak has received notices substantially identical to the notices received by Plaintiff Shouse, but received these notices in the name of the Luzerne County District Attorney Bad Check Restitution Program. 51 Plaintiff Hrobuchak is and has been a resident of Lackawanna County, the $27.17 check was written to a store in Lackawanna County, and her bank is in Lackawanna County.

11 She has had no connection to Luzerne County. Despite this, ACCS and more recently NCG has represented that it is the Luzerne County District Attorney 52 Plaintiff Hrobuchak contacted the Bad Check Restitution Program believing that she was calling the Luzerne County District Attorney s Office and explained the circumstances surrounding the check s issuance and her lack of connection to Luzerne County including her inability to travel to a class there, but this was ignored. 53 Plaintiff Hrobuchak also continued to receive notices including that which was titled WARNING OF CRIMINAL CHARGES. She additionally received numerous phone calls including taped messages approximately every other week after 7:30 p.m. and as late as 8:30 p.m. She has been prevented from paying the original $27.17 debt unless she pays the extra fees, which she cannot afford due to her fixed Social Security income, and unless she attends a class, which she has no means to travel to. 54 The balance NCG has demanded from Ms. Hrobuchak, $242.17, includes $215 in fees. 55 Plaintiffs have been threatened in a manner which causes and has caused irreparable harm. 56 There is no adequate remedy at law. E Class Action Allegations 57 Plaintiffs brings this suit pursuant to Fed.R.Civ.P. 23(a, (b(2 and (b(3 on their own behalf and on behalf of a class of similarly situated individuals who have been or will be informed by Defendant NCG that they have or allegedly have violated the provisions of the Pennsylvania Crimes Code pertaining to the issuance of bad checks, 18 Pa.C.S. 4105, and have been or are subject to debt collection as a result. Plaintiff Shouse also brings this action

12 on behalf of a subclass of class members who have been subject to unconstitutional and otherwise illegal conduct by the Defendants specifically with respect to the Lackawanna County District Attorney Bad Check Restitution Program. 58 The class and subclass are so numerous that joinder of all members is impractical. Though the precise number of class members and subclass members are unknown, these numbers are believed to be large. The Defendants have improperly carried out a bad check restitution program in Lackawanna and other counties in Pennsylvania. Over a recent two year period approximately 12,500 individuals in Pennsylvania paid monies into the same bad check restitution programs now operated by NCG with various district attorney offices. In Lackawanna County alone an average of $70,000 per year in dishonored check amounts were improperly collected during a recent period. Since most of these checks involved small sums under $200, the number of class members affected by the Lackawanna County program each year is substantial. 59 There are questions of law or fact common to the class and subclass. These include but are not limited to: (a whether NCG is a debt collector as defined in and regulated by the FDCPA and FCEUA; (b whether Jarbola is a debt collector as defined in and regulated by the FDCPA and FCEUA; (c whether NCG and Jarbola have acted contrary to the FDCPA, the FCEUA and/or the UTPCPL by using collection forms and otherwise acting to mislead members of the class and subclass into believing that a determination has been made that they have committed a crime, that

13 prosecution will follow, and that criminal restitution including substantial fees has been imposed and is due; (d whether NCG and Jarbola have acted contrary to the FDCPA, the FCEUA and/or the UTPCPL by denying members of the class and subclass an unencumbered opportunity to dispute whether an alleged debt is due; (e whether NCG and Jarbola have acted contrary to the FDCPA, the FCEUA and the UTPCPL by concealing NCG s true identity when communicating with Plaintiffs and instead by misrepresenting that it is an attorney and specifically the district attorney; and (f whether NCG and Jarbola have acted contrary to the FDCPA, the FCEUA and the UTPCPL by imposing upon Plaintiffs fees and charges not authorized by agreement or law. (g Whether NCG and Jarbola have violated the Due Process Clause of the Fourteenth Amendment to the United States Constitution. (h Whether NCG and Jarbola are liable under 42 U.S.C. 1983, which provides a private cause of action against anyone who, under color of state law, causes to be subjected, any citizen of the United States to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws. (i Whether Jarbola has engaged in the operation of a bad check restitution program without state authority.

14 60 As set out hereafter, the claims of the representative Plaintiffs are typical of the claims of the class and subclass. 61 The representative Plaintiffs will fairly and adequately assert and protect the interests of the class and subclass. There is no conflict between the representative Plaintiff and the class and subclass as a whole. 62 The representative Plaintiffs have retained counsel with substantial experience in the conduct of class actions including actions raising constitutional and consumer protection claims. 63 For the following reasons a class action provides a fair and efficient method for the adjudication of this matter: (a common questions of law and fact predominate over any questions affecting individual members; (b any individual issues can and should be resolved through commonly available notice and dispute resolution procedures, and, as a consequence, this proceeding does not present substantial case management issues; (c the prosecution of individual actions would create a risk of inconsistent or varying adjudications which may confront the Defendants with incompatible standards of conduct; (d the adjudication of individual matters would as a practical matter be dispositive of the interests of other members of the class without the requirements of a class proceeding being available to protect those interests;

15 (e the representative Plaintiffs are not aware of any other proceedings which raise the issues presented in this action; and (f individual claims may be insufficient in amount and claimants insufficiently aware of such claims to rely on a case by case adjudication of the common monetary claims raised in this proceeding. 64 As hereafter set out, the Defendants have acted and refused to act on grounds generally applicable to the class and subclass, thereby making final injunctive relief or corresponding declaratory relief appropriate with respect to the class and subclass as a whole. F Causes of Action Count One Fair Debt Collection Practices Act against Defendants NCG and Jarbola. 65 Defendants have violated the FDCPA by committing the acts set out in this complaint including, but not limited to: (a engaging in false, deceptive or misleading representations by concealing NCG s identity and falsely representing its affiliation with the office or offices of the district attorney, as prohibited by 15 USC 1692e; (b misrepresenting the amount of the debt by falsely representing that the outstanding balance due from Plaintiffs includes significant fees and charges, as prohibited by 15 USC 1692e; (c misrepresenting the legal status of the debt by falsely representing that Plaintiffs have committed a crime and/or that their conduct establishes a crime, and that absent payment of substantial charges prosecution will go forward, as prohibited by 15 USC 1692e;

16 (d misrepresenting the character or legal status of the debt by falsely representing that the debt constitutes criminal restitution which may not be discharged in bankruptcy,, as prohibited by 15 USC 1692e; (e falsely representing the compensation which may be lawfully received for the collection of a debt, 15 USC 1692e; (f falsely representing that NCG s communications are from an attorney, 15 USC 1692e; (g falsely representing that non-payment will result in further criminal prosecution including an appearance in court and a criminal, police or court record, 15 USC 1692e; (h falsely representing or implying that the opportunity to dispute the validity of the notice and/or allegations it has communicated is limited to a thirty day period, 15 USC 1692e; (i failing to initially communicate that the notice sent to Plaintiffs is an attempt to collect a debt and subsequently that communications are from a debt collector, 15 USC 1692e; (j falsely representing or implying that a bad check crime report is legal process, 15 USC 1692e; (k using the name of an organization or office other than NCG s true name, 15 USC 1692e; (l collecting or attempting to collect fees and charges which are not authorized by agreement or law, 15 USC 1692f;

17 (m failing to offer an opportunity to dispute the alleged debt or any portion of it and provide verification of the debt, 15 USC 1692g; and (n acting in a manner which contradicts the opportunity which it has communicated to dispute its notice or allegations, 15 USC 1692g. Count Two Fair Debt Collection Practices Act against Defendant NCG 66 Defendant NCG has violated the FDCPA by designing and furnishing forms for use in its bad check restitution programs knowing that such forms would be used to create the false belief in consumers that an organization or entity other than NCG is using this form to collect a debt claimed to be owing to NCG, 15 USC 1692j. Count Three -- Fair Credit Extension Uniformity Act against Defendants NCG and Jarbola. 67 Defendants NCG and Jarbola, by acting in violation of the FDCPA, have acted contrary to the FCEUA, 73 P.S Count Three Unfair Trade Practices and Consumer Protection Law against Defendants NCG and Jarbola. 68 The Defendants, by violating the FDCPA and consequently the FCEUA, have additionally violated the UTPCPL, 73 P.S and Count Four Violations of the Due Process Clause of the Fourteenth Amendment to the United States Constitution by Defendants Jarbola and NCG: 69 The Defendants under color of state law have deprived or threatened to deprive Plaintiffs of liberty or property contrary to due process, as actionable pursuant to the Civil Rights Act of 1871, 42 USC 1983, by :

18 (a providing inadequate notice of and opportunity to dispute the validity of criminal allegations, including: (i stating or implying that this opportunity is limited to a thirty day period; (ii misstating the elements of the crime of issuing bad checks under Pennsylvania law; and (iii requiring that Plaintiffs present objections to restitution program participation under the threat of prosecution, a court appearance and an official record of this prosecution to an unidentified private party with a pecuniary interest in their participation in this program; (b authorizing a private party to inform individuals that they can avoid criminal prosecution, a court appearance and an official record of this by paying substantial fees when the district attorney also has a pecuniary interest in program participation and when such fees have not been legislatively or judicially authorized; (c threatening Plaintiffs with criminal sanctions including imprisonment based on failure to pay restitution, which has not been judicially determined, in addition to unauthorized fees; and (d threatening Plaintiffs with criminal sanctions including imprisonment based on failure to pay such amounts when informed of the individuals financial inability to pay these amounts. Count Five -- The Pennsylvania Constitution

19 70 Defendant Jarbola, whose official powers and duties are exclusively provided by statute in accordance with the Pennsylvania Constitution, has operated and continues to operate a bad check restitution program without statutory authority. As such, his authorization to operate this program and any direct involvement in this program is in violation of the Pennsylvania Constitution. Count Six The Pennsylvania Common Law 71 The Defendants, having been unjustly enriched by the unlawful collection of fees from the Plaintiffs, are liable to them for restitution under the Pennsylvania common law. G Prayer for Relief WHEREFORE the representative Plaintiffs, on their own behalves and on behalf of all others similarly situated, pray that this Court.assume jurisdiction over this action and: (a certify that this case may proceed as a class action; (b enter a judgment which declares that the actions of the Defendants are contrary to the Fair Debt Collection Practices Act, the Fair Credit Extension Uniformity Act, the Unfair Trade Practices and Consumer Protection Law and the United States and Pennsylvania Constitutions; (c enter injunctive relief which enjoins Defendants from continuing to violate Plaintiffs rights as above declared; (d grant such non-cumulative monetary relief as is authorized by the above laws; (e grant Plaintiff their costs and attorneys fees; and

20 (f grant such additional relief as is just and proper. Respectfully submitted, /s/donald Driscoll PA I.D. #21548 Margaret W. Schuetz PA I.D. # Community Justice Project Suite 1705, 429 Forbes Avenue Pittsburgh, PA Andrew Hailstone PA I.D. #08340 Kreder, Brooks, Hailstone, LLP 220 Penn Av., Suite 200 Scranton, PA Counsel for Jessica Shouse and Joan Hrobuchak in their individual and representative capacities