* 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 (Reuters) - 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 foreclosures.
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)