In a case that was defended by a number of industry attorneys, including David Grassi and Chad Echols of Frost Echols and Brendan Little of Lippes Mathias, a State Court judge in New Mexico has granted a motion to dismiss filed by the defendants — seven different collection operations — that were sued by a former member of the New Mexico Attorney’s General Office for not complying with state licensing laws. The suit sought to recover $4 million in fees that were paid to the defendants and $30,000 in damages for each violation of the applicable statute.
The Background: The plaintiff, an attorney named Kenneth Stalter, filed what is known as a qui tam lawsuit, which is a type of whistleblower lawsuit that allows a private citizen to file a lawsuit on behalf of the government against someone who has allegedly defrauded the government.
- The complaint alleged that the defendants failed to comply with state licensing laws by not having enough managers for the physical locations that the defendants claimed to operate, and for using private residences as registered offices. The plaintiff alleged these were violations of the Collection Agency Regulatory Act. Based on those violations, the defendants — which contracted with various state entities to collect educational and medical debts — were violating the Fraud Against Taxpayers Act (FATA). The licenses, the plaintiff argued, should never have been granted.
- The plaintiff worked in the state AG’s office until 2018 and learned of the fraud in 2021.
The Ruling: Judge Denise Barela Shepherd granted the defendants’ motion to dismiss because under the FATA, the prohibited actions involve attempting to obtain payment for a false or fraudulent claim or attempting to increase a payment obligation by fraudulent means.
- The plaintiff “does not allege Defendants charged the state for services that were not provided, fraudulently inflated their invoices, delivered false receipts, or that they otherwise attempted to obtain payments or avoid payment obligations by fraudulent means,” the court wrote. “Rather, qui tam Plaintiff alleges Defendants should not have been licensed. Even if Defendants obtained their licenses based on misrepresentations as alleged, FATA does not provide a remedy for improper licensing.”
