As we did last year, this article will discuss the trends in the judicial interpretation of California’s Rosenthal Fair Debt Collection Practices Act (“Rosenthal FDCPA”), Civil Code sections 1788, et. seq. The Rosenthal FDCPA was enacted at approximately the same time as its federal counterpart, the FDCPA. The Rosenthal FDCPA contains many of the same collection agency obligations as the FDCPA.
Last year we predicted that Rosenthal FDCPA claims would continue to be pled in greater numbers, and we saw Rosenthal FDCPA claims pled in almost every case in which we defend debt collectors or their clients. There are also a great many published decisions that reference and interpret the Rosenthal FDCPA, although many are not published officially, and thus may be rejected by other courts. This article will review some of the issues that we see evolving in our defense of collectors
The litigation privilege, found in Civil Code section 47(b), was one of the most frequently discussed issues in published court cases in 2007. Section 47(b) states that any “publication or broadcast” made in the course of a “judicial proceeding” is absolutely privileged. The litigation privilege has been expanded over the years to bar virtually all tort actions, including actions based on statutory laws like the Rosenthal FDCPA, based on communicative or non-communicative conduct related in some way to litigation, including pre-litigation demands. (See, e.g., Silberg v. Anderson (1990) 50 Cal.3d 205, 212; Merlet v. Rizzo (1998) 64 Cal.App.4th 53, 64-66; Wilton v. Wood Homeowners Assn. (1993) 18 Cal.App.4th 565, 568-71.)
As Rosenthal FDCPA claims have increased over the last couple of years, defendants have repeatedly argued that the litigation privilege bars any such claims. Courts are split on whether the litigation privilege is an absolute bar to liability under the Rosenthal FDCPA. Some courts have rejected the litigation privilege because if the litigation privilege bars liability under the Rosenthal FDCPA, then the Rosenthal FDCPA would be nullified. (See, e.g., Butler v. Resurgence Fin., LLC (C.D. Cal. 2007) 521 F.Supp.2d 1093; Mello v. Great Seneca Fin. Corp. (C.D. Cal. 2007) 526 F.Supp.2d 1024; Oei v. N. Star Capital Acquisitions, LLC. (C.D. Cal. 2006) 486 F.Supp.2d 1089) Other courts have accepted the litigation defense and dismissed Rosenthal FDCPA claims. (See, e.g., Nickoloff v. Wolpoff & Abramson (C.D. Cal. 2007) 511 F.Supp.2d 1043; Sengchanthalangsy v. Accelerated Recovery Specialists, Inc. (S.D. Cal. 2007) 473 F.Supp.2d 1083, 1089; Taylor v. Quall (C.D. Cal. 2006) 458 F.Supp.2d 1065, 1068.)
One court compared the two lines of cases and attempted to reconcile these divergent lines of cases. (See Reyes v. Kenosian & Miele, LLP (N.D. Cal. 2007) 525 F.Supp.2d 1158.) The Reyes court concluded that the litigation privilege applies to Rosenthal FDCPA claims that arise from collection activity after litigation is commenced and does not apply to Rosenthal FDCPA claims that arise from collection activity that predates litigation. (Id.) The California Supreme Court has repeatedly ruled in favor of the litigation privilege, and we predict that the California Supreme Court would favor the application of the litigation privilege for many Rosenthal FDCPA claims.
The California Supreme Court recently reiterated the broad scope of the 47(b) litigation privilege:
“The purposes of section 47, subdivision (b), are to afford litigants and witnesses free access to the courts without fear of being harassed subsequently by derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, to give finality to judgments, and to avoid unending litigation.”
Another purpose is to “promote ( ) effective judicial proceedings” by encouraging full communication with the courts. To further these purposes, the privilege has been broadly applied. It is absolute and applies regardless of malice. Indeed, the privilege extends to civil actions based on perjury. “The resulting lack of any really effective civil remedy against perjurers is simply part of the price that is paid for witnesses who are free from intimidation by the possibility of civil liability for what they say.” (Jacob B. v. County of Shasta (2007) 40 Cal.4th 948, 955 (citations omitted).)
Given the California Supreme Court’s repeated interpretation of the litigation privilege, we continue to believe this to be a viable defense against Rosenthal FDCPA claims, and look forward to the federal courts moving toward that consensus as well.
Failure to Act After Payment of Debt May Be Liability
One of the most interesting cases decided in 2007 addressed the plaintiff’s Rosenthal FDCPA claim (and a FDCPA claim) that arose from information on a credit report after the debt had been paid some three years prior. Defendant argued that the claim was time barred by the Rosenthal FDCPA’s one year statute of limitations because no debt existed after the debtor had paid the debt almost three years prior. (See Winter v. JC Systems, Inc. (S.D. Cal. 2008) 2008 WL 331403) Apparently the credit report was made prior to the payment of the debt, and plaintiff had alleged a violation based on defendant’s failure to remove the information from the credit report after the debt was paid. The Court concluded that the Rosenthal FDCPA (and the FDCPA) regulates the collection of debts, but does not regulate conduct once a debt no longer exists. Since the debtor had paid the debt over three years ago, there was no “debt” as defined by the two statutory schemes. Defendant’s failure to act was not an attempt to collect a “debt.”
It is important to note what this case does not address. This case does not involve a situation where a collector is attempting to collect a debt that does not exist. Also, note that the Winter case does not address any obligations a debt collector who furnishes information to a credit reporting agency has, such as under the Fair Credit Reporting Act (See 15 U.S.C. § 1681i) The Winter case addresses what a debt collector’s obligations are under the Rosenthal FDCPA once the debt is paid. I believe that the same analysis can also be applied to debts that have been recalled or returned to the current creditor, whether that be the original creditor or a debt buyer. FDCPA case law interpreting 15 U.S.C. § 1692g supports the Winter Court’s analysis. Upon receipt of a 1692g dispute or validation letter, a debt collector is under no obligation to the debtor if the debt collector chooses to cease collection actions. (Guerrero v. RIM Acquisitions LLC (9th Cir. 2007) 499 F.3d 926, 940)
Unclean Hands Defense
Another interesting case decided in 2007 addressed whether an unclean hands defense was a viable defense under the Rosenthal FDCPA. In Mejia v. Marauder Corp. (N.D. Cal. 2007) 2007 WL 806486, defendants argued that the debtor fraudulently obtained credit in violation of the debtor’s obligations under the Rosenthal FDCPA. Section 1788.20 states debtors are obligated as follows:
“In connection with any request or application for consumer credit, no person shall:
(a) Request or apply for such credit at a time when such person knows there is no reasonable probability of such person’s being able, or such person then lacks the intention, to pay the obligation created thereby in accordance with the terms and conditions of the credit extension, or
(b) Knowingly submit false or inaccurate information or willfully conceal adverse information bearing upon such person’s credit worthiness, credit standing or credit capacity.” (Civ. Code § 1788.20)
Civil Code section 1788.30(g) states that a defense based upon a debtor’s intentional violation of the statute is available to the debt collector if relevant or pertinent to the claimed violation. Some courts have addressed the application of an unclean hands defense in the context of the FDCPA, rejecting such argument and also noting that the alleged improper collection actions are not pertinent or relevant to fraudulently obtaining credit. (See, e.g., Irvin v. Mascott (N.D. Cal. 1999) 96 F.Supp.2d 968, 975-76; see also Baker v. G.C. Services Corp. (9th Cir. 1982) 677 F.2d 775, 777 (“The (FDCPA) is designed to protect consumers who have been victimized by unscrupulous debt collectors, regardless of whether a valid debt actually exists.”).)
However, the Mejia Court did not reject the defense on this basis, but rather on the basis that defendants failed to establish that plaintiff had fraudulently entered into the civil transaction. The defendants had submitted plaintiff’s bankruptcy petition, which was filed approximately six months after plaintiff sought a payday loan of about $150. The bankruptcy petition established that plaintiff was in debt by about $48,000 six months after he sought the payday loan. The Court found such evidence did not demonstrate that plaintiff fraudulently obtained the payday loan without intent to pay the debt.
Further evidence of a lack of intent to pay the debt at its inception could provide a basis for an unclean hands defense under Rosenthal FDCPA. However, a court may still reject such a defense because obtaining a debt fraudulently is not pertinent or relevant to the claimed Rosenthal FDCPA violation. For instance, would fraudulent conduct be pertinent or relevant to a violation based on an improper initial letter, harassing phone calls, or threats to litigate when the collection agency does not intend to litigate? These are issues that will necessarily have to be addressed by future judicial decisions.
The Curative Letter Defense
Up until 2007, there has been no judicial guidance to assist us in interpreting the Rosenthal FDCPA’s “curative letter” defense, found in Civil Code section 1788.30(d):
“A debt collector shall have no civil liability under this title if, within 15 days either after discovering a violation which is able to be cured, or after the receipt of a written notice of such violation, the debt collector notifies the debtor of the violation, and makes whatever adjustments or corrections are necessary to cure the violation with respect to the debtor.”
Many clients have suggested that there should be no liability under the Rosenthal FDCPA if the debtor did not contact the collection agency to allow it the opportunity to employ the curative letter defense, that is to say, to allow the agency to send a curative letter within the 15 day period. In 2007, a court addressed this argument and concluded that the Rosenthal FDCPA does not require the debtor to give the debt collector an opportunity to send a curative letter. (Adams v. CIR Law Offices LLP (S.D. Cal. 2007 WL 2481550, *4).
This does not mean that the “curative letter” defense is not a viable defense. The provision provides a 15 day window to send the curative letter from one of two starting points: 1) notice of a violation or 2) discovery of a violation. The provision does not define notice. One could argue, and we have done so, that the notice of a violation occurred upon service of the debtor’s Rosenthal FDCPA lawsuit.
“For the last two years, we discussed the possibility of preemption as a defense to the Rosenthal FDCPA. In 2007, preemption is again a topic of discussion. A court addressed the issue of preemption in the context of credit reporting. (Pacheco v. Citibank (South Dakota), N.A. (N.D. Cal. 2007) 2007 WL 1241934) In the Pacheco case, the plaintiff sought to hold Citibank liable for violating the Rosenthal FDCPA because of allegedly inaccurate credit reporting. However, the Fair Credit Reporting Act, which exhaustively addresses the credit reporting arena, preempts all state law causes of action for furnishers of information. (15 U.S.C. § 1681t(a).) Thus, the Pacheco Court concluded that to the extent that the Rosenthal FDCPA set forth obligations to report credit information accurately, those obligations (and any resulting liability) were preempted by the Fair Credit Reporting Act. (Pacheco, supra, 2007 WL 1241934 at *2.)
Compulsory Counter Claim Defense?
Often times, clients are frustrated that the FDCPA claim (and/or Rosenthal claim) was not raised as a cross-action in the collection lawsuit. Collection attorneys, especially, wonder if a debtor’s failure to raise the Rosenthal FDCPA claim in a collection lawsuit as a cross claim might be a defense to the currently pending Rosenthal FDCPA claim. If a defendant fails to allege in a cross-complaint any related cause of action he has against the plaintiff, the defendant may not thereafter in another action assert the related cause of action. (Code Civ. Proc. § 426.30)
Unfortunately, with respect to a typical Rosenthal FDCPA claim, at least one court has rejected this argument in a case that is unpublished at this point. In Davis v. Unifund CCR Partners (N.D. Cal. 2007) 2007 WL 1795692, the Court concluded that such claims were not compulsory because they are not related claims. (Id. at *2-3) Although the 2007 Davis decision is a lone unpublished case, it does not appear that this will be a viable defense given the weight of authority rejecting the argument that an FDCPA claim is related to a collection claim.
Liability Issues Addressed in 2007
Some of the cases highlighted liability issues, rather than defenses. In Jones v. Hertz Corp. (2007) 2007 WL 1366890, a California appellate court analyzed what constitutes harassment under section 1788.11 of the Rosenthal FDCPA, which prohibits harassing telephone calls. According to plaintiff, “the caller…abruptly said, ‘You owe us over $7,000; when are you going to pay us; if you do not pay us within 30 days, we will report your delinquency.” Jones also alleged, “incoming telephone calls from Hertz…were continuous, at odd hours, repetitious prior to 2005, disruptive and totally false and untrue,” and that Hertz knew she was “extremely ill in mind and body and disability.” The Jones Court held that “[s} single ‘annoying’ phone call is not harassment, and Jones’s allegation concerning pre-2005 telephone calls is insufficiently detailed to support a conclusion defendant engaged in frequent and unreasonable communication with plaintiff.” (Jones, supra, 2007 WL 1366890 at *4.) The Jones decision was not officially published by the Court, which may provide a basis for other court to reject its reasoning. This decision bodes well for the possibility that courts are growing less tolerant of plaintiffs’ FDCPA and Rosenthal FDCPA claims. (See also Costa v. Nat’l Action Fin. Serv. (E.D. Cal. 2007) 2007 WL 4526510 (Court precluded emotional distress damages because plaintiff’s claims that she was upset and angry, that her hands shook, and that she had occasional trouble sleeping, when she had not seen a medical professional or taken medicine were insufficient to establish emotional distress damages.))
Remedies in Light of Section 1788.17
Section 1788.17, which was added to the FDCPA several years ago incorporates the obligations and remedies of the FDCPA into the Rosenthal FDCPA. Last year, in light of section 1788.17, it was standard protocol for plaintiffs to seek statuary damages under both the FDCPA and the Rosenthal FDCPA. Although we believe there is an argument to be made that this is improper, as discussed in last year’s article, defendants are reluctant to address this issue in court because the cost of the additional up to $1,000 in statutory damages under the Rosenthal FDCPA is less that the attorneys’ fees it would cost to address this issue.
Some plaintiff’s counsel have argued that plaintiffs are entitled to $1,000 in statutory damages under section 1788.30 of the Rosenthal FDCPA and an additional $1,000 in statutory damages under section 1788.17 of the Rosenthal FDCPA – the section that incorporates the remedies of the FDCPA into the Rosenthal FDCPA. This issue was litigated in a federal court in 2007. The Court held that it did not appear that section 1788.17, which incorporates the FDCPA remedies into the Rosenthal FDCPA, was intended to duplicate statutory damages. (Mejia v. Marauder Corp. (N.D. Cal. 2007) 2007 WL 806486,*11-12.) The Court explained that the amendment appeared to be intended to solely provide for a class action remedy.
Another aspect of section 1788.17 is that it created a class action remedy under the Rosenthal FDCPA by incorporating the FDCPA remedies, as well as the FDCPA obligations into the Rosenthal FDCPA. This aspect of section 1788.17 conflicts with another provision of the Rosenthal FDCPA, section 1788.30(a) which expressly states that Rosenthal FDCPA claims may only be brought on an individual basis. In 2007, one state trial judge reconciled this conflict by holding the Rosenthal FDCPA class actions were only permitted when the violation alleged was a violation of the FDCPA obligations incorporated into the Rosenthal FDCPA by section 1788.17. Thus, the FDCPA remedies incorporated into the Rosenthal FDCPA only applied to violation of the FDCPA obligations incorporates into the Rosenthal FDCPA by section 1788.17. In other words, if a violation of the FDCPA does not exist, then there can be no class action. On this basis, the trial court judge denied defendants’ class certification motion because plaintiff’s alleged violation was the failure to include the section 1812.700 California notice in the initial collection letter. (Johnson v. Phillips & Cohen Assoc., Ltd., case no. 1-06-CV-070971.) Since this is not a violation of the FDCPA, no class action was permitted.
During this past year, FDCPA defense attorneys and their debt collector clients saw an increase in the number of cases which included a Rosenthal FDCPA claim. These cases provided the courts an opportunity to provide guidance and interpretation of the Rosenthal FDCPA. Some cases highlighted potential new defenses, while other cases rejected them. And still other cases provided further interpretation of familiar defenses or legal issues. For instance, in Navarro v. Eskanos (N.D. Cal. 2007) 2007 WL 549904, the Court found that the standard for the Rosenthal’s FDCPA bona fide error defense was the same as the FDCPA bona fide error defense. Likewise, in Bonvillian v. United Auto Credit (E.D. Cal. 2007) 2007 WI. 810097, the Court discussed whether there would be federal subject matter jurisdiction in a Rosenthal FDCPA claim under section 1788.17, and concluded that if the defendant is a creditor debt collector not covered under the FDCPA, no federal subject matter jurisdiction existed. (Id. at *2-4.)
Nonetheless, it does appear that courts are perhaps slightly less tolerant of debtors who do not pay their debts, and then seek to prosecute cases against the debt collectors. It also appears that courts are growing less tolerant of the plaintiff’s attorneys who do not accept reasonable settlements and then seek to be awarded unreasonable fees. Perhaps, this tide is turning slightly, on the frontline.
This information is not intended as legal advice by the author, June D. Coleman, or the California Association of Collectors, Inc.