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Courts hit with flood of debt lawsuits

    State district courts have seen a dramatic increase in lawsuits involving debt, but due to layoffs and furlough days, their staffs cannot keep up with paperwork demands. Honolulu District Judge Hilary Gangnes stands among boxes holding about 1,000 credit card collection lawsuits that have yet to be processed in the administrative offices of Honolulu District Court. “We’re overwhelmed,” she said.

The number of lawsuits involving credit card and other debt has skyrocketed in the past several years, a reflection of the unemployment rates of Hawaii’s troubled economy, a Star-Advertiser analysis of court statistics shows.

Lawsuits that mostly involve credit card cases reached a record high of 20,789 for the 2010 fiscal year, three times more than the 6,815 filed during fiscal 2005.

The influx of lawsuits means a heavier workload for district court judges and staff already hampered by two-day-a-month furloughs and budget cuts, said Hilary Gangnes, Honolulu District Court judge in charge of the civil division.

A backlog of eight boxes filled with lawsuits was at the clerks’ office at Honolulu District Court recently waiting to be processed into the court computers.

"We’re overwhelmed," Gangnes said.

Although most lawsuits end relatively quickly in defaults, summary rulings and settlements with few going to trial, Gangnes said the increase in suits has contributed to lengthening the time it takes to process cases.

It used to take about six months to resolve a disputed lawsuit, but now that can take more than a year, the judge said.

But some lawyers who specialize in these cases aren’t complaining.

"I haven’t noticed any delay on the court’s part," said Maui attorney Lynn Araki-Regan, who files hundreds of the collection lawsuits in district courts around the state each year.

"They’re pretty efficient."

The number of the "assumpsit" lawsuits was the most startling increase in civil cases in the state Judiciary’s court statistics released for the fiscal year 2010, which ended June 30.

The suits involve claims of up to $25,000 for breaches of contract and debt collections in cases ranging from medical bills to personal, car and student loans to business contractual disputes.

But the majority of the cases, perhaps as high as 90 percent, involves credit card collections, Gangnes said.

Gangnes estimates that the suits involving credit cards generally seek from $5,000 to $15,000.

The amount of the district court’s jurisdiction increased from $20,000 to $25,000 in 2008, which might account for some of the increase in filings, but members of the legal community say it’s the downturn in the economy that is the driving force.

"I think it’s probably not unconnected to people being underwater on their mortgages. They can’t get equity from their houses to pay debts. They’re out of work and can’t get new work, or they lost a second job," Gangnes said.

"If it’s a choice between paying rent and buying groceries and paying your credit card debt, the credit card debt drops to the bottom of the pile and doesn’t get paid."

Honolulu attorney Marvin Dang, whose firm specializes in debt collections, agreed the assumpsit numbers reflect the economy.

He said his firm has also seen a similar pattern in the increases in mortgage foreclosures.

"Certainly, over the past few years, just as our economy has been challenged with regard to a lot of being either unemployed or underemployed or just stretched too thin, the number of credit card collections certainly has been on the increase," Dang said.

One debtor underscored that point after he appeared before Honolulu District Judge Steven Nakashima last month and admitted owing about $2,000 cited in a credit card lawsuit.

The 33-year-old University of Hawaii community college student, who did not want to be identified because he didn’t want his debt publicized, said he was laid off last year from his job as an assistant manager at a Waikiki store.

But he needed to pay tuition, and the credit card debt became less of a priority.

"Rent doesn’t stop and you need to eat," he said. "If it happened to me, it could happen to other people."

William Plum, a Honolulu attorney who files assumpsit cases that don’t involve credit cards, said when the economy goes down, it’s not only people who don’t pay financial obligations, but also businesses.

He said there’s been an increase in assumpsit cases involving businesses suing other businesses.

"They can be the routine things that businesses need to operate day to day," he said, such as janitorial services or office supplies.

It’s unclear whether the filings for the current fiscal year will increase, although the volume remains high. The unemployment rate climbed to as high as 6.9 percent to 7.0 percent for some months in 2009 and 2010 but was at 6.4 percent in December.

But Ganges suspects assumpsit suits will continue to increase because of the time it takes for people to crawl out of debt, even when they land new jobs.

Dang said for the past couple of months, the number of filings by his firm has "plateaued a little." He said filings might increase slightly, but he doesn’t think they will jump as high as they did for fiscal year 2010.

"I don’t necessarily see things going down for 2011," he said.

Araki-Regan, whose firm files credit card lawsuits in about 75 percent of its assumpsit cases, said her office’s filings have been "pretty steady" this fiscal year.

She said she doesn’t envision an increase and hopes the filings will decrease, even if it means less work for her.

"I’m literally working day and night. I don’t mind less business, actually," Araki-Regan said.

"For the sake of the community, I just pray the economy turns around," she said.


Some consistency in caseloads

The increase in District Court collection cases was the most dramatic increase among civil cases, according to state Judiciary statistics for fiscal year 2010 and previous years. The statewide numbers also show:
» Eviction lawsuits: The number of cases remained flat in the past six years, indicating that people will pay rent before other debts. Summary possession cases in district courts were 2,539 for fiscal year 2010. It was 2,519 (2009), 2,479 (2008), 2,491 (2007), 2,547 (2006) and 2,702 (2005). In each of the previous five years, it was more than 3,000.
» Civil cases: Circuit Court civil suits increased from 3,643 in fiscal year 2004 to 5,019 in fiscal year 2010. But those numbers are lower than from 1991 to 2000, when more than 6,000 suits were filed yearly. (District Court has jurisdiction over cases up to $25,000; Circuit Court, cases of more than $10,000. Plaintiffs seeking $10,000 to $25,000 can sue in either court.)
» Circuit Court contract cases: The category matching District Court assumpsit cases also increased from 709 in fiscal year 2007 to 1,283 in fiscal year 2010. But the increase isn’t as dramatic as in District Court, where assumpsit cases nearly tripled during that period.
» Small claims: Cases involving disputes under $3,500 remained relatively level: 3,733 (fiscal year 2010), 3,977 (2009), 3,769 (2008), 3,822 (2007).

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