* Minnesota AG says big debt collector hounds customers
* Ohio judge's ruling clears way for lawsuit
* Encore not immediately available for comment
(Adds Encore statement, updated share price)
By Jonathan Stempel
NEW YORK, May 19 Minnesota sued Encore Capital
Group Inc (ECPG.O), one of the largest U.S. debt collectors,
for allegedly using fraudulent "robo-signed" affidavits in
collection cases, a practice that critics say also infects home
Thursday's lawsuit against Encore's Midland Funding LLC and
Midland Credit Management Inc units follows a ruling by an Ohio
federal judge that Minnesota's case would not interfere with a
$5.2 million class-action settlement of similar claims.
"Midland has perverted the justice system by filing
robo-signed affidavits in court and hounding citizens for debt
they don't owe," Minnesota Attorney General Lori Swanson said.
Encore Chief Executive Brandon Black in an emailed
statement said the company changed its affidavit process in
2009, believes its practices are "legally sound," and will work
with Swanson to resolve the matter. He added that "because 95
percent of consumers ignore letters sent by the company, the
legal channel is often the only remaining option."
Based in San Diego, Encore often buys debt from credit card
companies. Through year-end, it had invested about $1.76
billion to buy 33 million accounts with a face value of $54.7
billion, or about 3 cents on the dollar.
In her lawsuit filed in a Hennepin County, Minnesota,
court, Swanson said Midland workers testified under oath to
having signed up to 400 affidavits a day without reading them.
She also said the Midland units "often force individual
citizens to prove they do not owe money instead of themselves
substantiating that the citizens actually owe the money."
The lawsuit seeks a halt to improper practices, and fines
of $25,000 per violation and for contempt of court.
In the federal case, U.S. District Judge David Katz in
Toledo, Ohio had previously issued an order that put some
litigation relating to robo-signing claims on hold.
But in his ruling Wednesday, he said that order could not
cover sovereign entities, and thus "cannot be read to encompass
the state of Minnesota."
All 50 states are investigating robo-signing and other
improper practices by banks in the mortgage industry.
In afternoon trading, Encore shares were up 54 cents, or
1.8 percent, at $31.00 on the Nasdaq.
The Minnesota state case is Swanson v. Midland Funding LLC,
Hennepin County District Court. The Ohio federal case is Brent
v. Midland Funding LLC, U.S. District Court, Northern District
of Ohio, No. 08-01434.
(Reporting by Jonathan Stempel in New York; Editing by Tim
Dobbyn and Gerald E. McCormick)