A New Mexico district court has dismissed a False Claims Act (FCA) case against a group of debt collection agencies. The qui tam lawsuit was filed in 2023. A qui tam lawsuit allows a private citizen to report fraud on behalf of the government, in this case the State of New Mexico. Kenneth Stalter, the plaintiff, is a former employee of the New Mexico Attorney General’s Office who “considers himself a crusader,” said David Grassi, attorney at Frost Echols LLC and part of the team that helped secure the win. “In his X/Twitter bio, he states he is ‘[f]ighting secrecy, abuse, and violations.’”
Stalter believed the collection agencies named in the lawsuit were not complying with New Mexico’s licensing laws, despite the fact that the agency charged with overseeing collection agencies can only issue licenses to compliant collection agencies.
The collection agency defendants named in the case contract with various state entities to collect educational and medical debt. They are Alltran Education Inc., Continental Service Group Inc. d/b/a ConServe, EOS USA Inc., Todd, Bremer & Lawson, Transworld Systems Inc., Williams & Fudge Inc. and Windham Professionals Inc.
“Because of [Stalter’s] misguided belief the collection agencies were not complying with licensing laws, he sought disgorgement of all fees earned collecting on accounts owed to the State of New Mexico, as well as treble damages, statutory damages, and attorneys’ fees,” Grassi said. “This was not a wholly benevolent undertaking because a successful qui tam plaintiff is entitled to keep 25% of the recovery.”
Based on Stalter’s allegations, the FAC asserted a single count for violation of the Fraud Against Taxpayers Act (FATA). FATA is a remedial statute designed to compensate the state for losses incurred as a result of fraud.
The defendants moved to dismiss, arguing the FAC did not state a claim for violation of FATA.
Ultimately, the court sided with the defendants, stating: “[The q]ui tam 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. Rather, qui tam plaintiff alleges [the d]efendants should not have been licensed … [and] FATA does not provide a remedy for improper licensing.”
Grassi noted that the amounts sought in the lawsuit were substantial, and he was pleased to have the judge “see the lawsuit for what it was and dismiss at an early stage so the agencies involved do not need to have to worry about this hanging over their heads, and do not have to incur the continued expense of having to defend such a broad and overreaching lawsuit.” To read more click here.