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Over the past year, our firm has defended – with increasing frequency – claims asserted against collection agencies that allege violations of California’s Rosenthal Fair Debt Collection Practices Act (“Rosenthal FDCPA”), Civil Code sections 1788, et seq. There have also been a few Rosenthal FDCPA decisions that have changed the litigation landscape in California. Given the increasing interest by the plaintiff’s bar in bringing Rosenthal FDCPA causes of action, we thought it would be useful to review this statute.
A BRIEF HISTORY OF THE ROSENTHAL FDCPA
The Rosenthal FDCPA was enacted in the same time frame as its federal counterpart, the FDCPA. The Rosenthal FDCPA contains many of the same collection agency obligations as the FDCPA. This article is not intended to discuss all of the nuanced differences between the two statutes, but will highlight a few.
As originally enacted, the Rosenthal FDCPA did not permit the plaintiff to pursue a class action, unlike the FDCPA. (Compare Civ. Code § 1788.30(a) with 15 U.S.C. § 1692k(a).) And like the FDCPA when it was originally enacted, the Rosenthal FDCPA ostensibly excludes attorneys from its definition of debt collector. (See Civ. Code § 1788.2(c).) The FDCPA was amended, in 1986, to include attorneys in its definition of debt collectors.
THE ROSENTHAL FDCPA IS AMENDED IN 1999
The Rosenthal FDCPA has been amended from time to time. 1 The recent amendment adding section 1788.17, which was enacted in 1999 and effective January 1, 2000, will greatly impact litigation brought against debt collectors. Section 1788.17 was added to the Rosenthal FDCPA, to incorporate “the remedies” and certain other obligations found under the FDCPA’s sections 1692b through 1692j. The Rosenthal FDCPA now includes and incorporates the obligations under those portions of the FDCPA addressing (1) “acquisition of location information” (§ 1692b), (2) “communications with the debtor and third parties” (§ 1692c), (3) “harassing and abusive” collection activities (§ 1692d), (4) “false and misleading” representations (§ 1692e), (5) “unfair” collection practices (§ 1692f), (6) “validation of debts” (§ 1692g), (7) application of payment for debtors with multiple debts (§ 1692h), (8) “venue” provisions (§ 1692i), and (9) “furnishing of deceptive collection forms” (§ 1692j). While Civil Code section 1788.17 does not explicitly incorporate 15 U.S.C. § 1692k, the damages provisions of the FDCPA, as noted above, section 1788.17 does state that the FDCPA’s remedies are to be incorporated.
Courts will need to clarify a collector’s obligations where the obligations under the Rosenthal FDCPA differ from those under the federal FDCPA. By way of example, the federal FDCPA provides that a collection lawsuit shall be venued where the consumer signed the contract sued upon or where the consumer resides at the commencement of the action. (15 U.S.C. § 1692i(a(1)-(2).) The Rosenthal FDCPA, however, provides that collection litigation shall be prosecuted where the debtor incurred the debt, or where the debtor resides at the commencement of the action. (Civ. Code § 1788.15(b).) In a situation with a credit card debt where the debtor signed his or her application in San Francisco County, and then moved to Santa Clara County and purchased something with the credit card, it is unclear whether the debtor could be sued in San Francisco County or Santa Clara County without violating the FDCPA or the Rosenthal FDCPA. And there are other examples of potential conflicts between the two statutory schemes. (Compare Civ. Code § 1788.11(b) (requiring disclosure of name and potentially agency’s name on a telephone message) with 15 U.S.C. § 1692b (prohibiting disclosure to third parties, ostensibly including telephone messages, that the communication relates to a debt or the identity of the agency unless expressly requested).
There are certainly legal arguments to be made to clarify the collector’s obligations. For instance, to the extent that the Rosenthal FDCPA is inconsistent with the FDCPA, the Rosenthal FDCPA would be “preempted” or superseded by the FDCPA’s provisions. (See 15 U.S.C. § 1692n.) Almost none of the myriad of differences in obligations under the Rosenthal FDCPA and the federal FDPCA have not been addressed by any court.
INCORPORATING FDCPA REMEDIES INTO THE ROSENTHAL FDCPA
Probably more problematic for California collectors is the incorporation of the FDCPA’s “remedies” into the Rosenthal FDCPA. This has led to mischievous results. For example, despite the clear prohibition against class actions found under the plain language of the Rosenthal FDCPA (Civ. Code § 1788.30(a) (“Any debt collector … shall be liable to that debtor only in an individual amount … .”) (emphasis added)), the plaintiff’s bar now has successfully argued that the “class action remedy” afforded under the FDCPA (15 U.S.C. § 1692k(a)) is also available under the Rosenthal FDCPA.
Notwithstanding the plain language to the contrary, the argument made by the plaintiff’s bar is strengthened by the legislative history to section 1788.17, all of which provides that the most important aspect of the amendment was, in fact, to provide for a class remedy under the Rosenthal FDCPA! (See, e.g. Senate Judiciary Committee, Senate Judiciary Committee Analysis on AB 969 (May 18, 1999) pp. 3-4.) Federal District Courts have agreed with this analysis, and for the first time have granted class actions based upon the Rosenthal FDCPA. (See Abels v. JBC Legal Group (N.D. Cal. 2005) 227 F.R.D. 541, 548; McDonald v. Bonded Collectors, LLC (S.D. Cal. 2005) 2005 WL 2008202.)
The “incorporation” of the FDCPA’S remedies into the Rosenthal FDCPA does not stop there. Attorneys for debtors now are asserting an entitlement to not only the class remedies under the FDCPA - of 1% of net worth for the class (15 U.S.C. § 1692k(a)(2)(B)) - but also an additional entitlement under the Rosenthal FDCPA of 1% of net worth for the class (Civ. Code § 1788.17) – for a total of 2% of net worth as statutory damages to the class!
This issue has not been litigated in, much less decided by, the courts. And since an additional 1% of net worth is typically not a large dollar figure for most collection agencies, it is likely that this issue will not be litigated for some time, if ever. Indeed, a similar issue exists with the statutory $1,000 individual damages under the FDCPA, and the duplicate $1,000 statutory damages to individuals under the Rosenthal FDCPA. The issue of duplicative statutory damages to individuals has been around for two decades but has yet to be decided in a published decision.
There are arguments to be made that neither a class not an individual should be entitled to what amounts to “double dipping” or a double recovery. Furthermore, the FDCPA’s statutory damages were specifically limited to strike a balance between penalizing the abusive debt collector while not overburdening legitimate efforts to collect outstanding debts. (Thomas v. Pierce, Hamilton, & Stern, Inc. (N.D. Ga. 1997) 967 F.Supp. 507, 510-11 (“The Senate Report on the FDCPA reflects an interest by Congress ‘to protect consumers from a host of unfair, harassing and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors,’ including ‘nuisance suits.’”); see also 15 U.S.C. § 1692(e).) “The reasonable conclusion is that Congress decided that the $1,000 statutory award [and the 1% class statutory award] for reprehensible conduct represents a balance between the competing interests of the two and presents a reasonable deterrent against overzealous debt collectors.” (Thomas, supra, 967 F.Supp. 507, 510; see also Sanders v. Jackson (8th Cir. 2000) 209 F.3d 998, 1002 (“Thus, by making the extent of the penalty directly proportional to a percentage of the defendant’s net worth, Congress hoped that punishment might be meted out according to a business’s ability to absorb the penalty.”) (emphasis added).)
This balance is arguably upset if California’s Rosenthal FDCPA can be used to double a collector’s liability exposure for damages. If this can be characterized as an inconsistency, then the federal FDCPA would preempt these double statutory damages. (See 15 U.S.C. § 1692n.) However, the FDCPA expressly states that a state law which provides greater protection is not inconsistent. (Id.) In other words, if larger statutory damages could be considered “greater” protection, then it is not clear that a preemption argument would be successful to prevent this practice.
Furthermore, the legislative history materials make clear that the section 1788.17 amendment was intended to create greater penalties for unfair and disreputable collection activities. (See, e.g. Senate Judiciary Committee, Senate Judiciary Committee Analysis on AB 969 (May 18, 1999) pp. 3-4.) Why was that? The legislative history materials we have reviewed indicate that the California Legislature believed that the existing penalties were insufficient to curb unfair and illegal collection practices. (Id.) In light of the intent expressed in the legislative history, we believe it will be difficult to argue that the California legislature did not intend to provide debtors with a “double recovery,” by combining or “stacking” the damages available under the FDCPA with those under the Rosenthal FDCPA.
RECENTLY THE COURTS HAVE EXPANDED THE APPLICATION
OF THE ROSENTHAL FDCPA TO LAW FIRMS
As collection attorneys are well aware, the Rosenthal FDCPA expressly excludes attorneys from its coverage. (Civ. Code § 1788.2(c).) But collection attorneys are nonetheless subject to the obligations of the Rosenthal FDCPA. Collection attorneys are governed by the requirements set forth in Business & Professions Code section 6077.5. This provision incorporates the obligations of the Rosenthal FDCPA, as well as other obligations.
Section 6077.5 sets forth obligations not only for collection attorneys, but also for their staff. (Bus & Prof. Code § 6077.5(a).) Notably, section 6077.5 sets forth no express remedies. There is, however, a question as to whether a violation of section 6077.5 can provide a basis for liability, as opposed to discipline through the state bar. In Lemieux v. Jensen (S.D. Cal. 2004) 2004 WL 302318, *3, an unpublished decision, the Court noted that plaintiff could have brought a claim against the collection attorney under section 6077.5, rather than the Rosenthal FDCPA.
Now that the plaintiff’s bar has decided to pursue Rosenthal FDCPA claims with more vigor, federal courts, primarily, are being asked to address whether the Rosenthal FDCPA is applicable to law firms. Although the plain language of the Rosenthal FDCPA specifically excludes “attorneys” (Civ. Code 1788.2(a)), it is silent as to the exclusion of “law firms,” professional corporations, and the like. Of course, the principals of a law firm or a professional law corporation can only be attorneys. (See, e.g., Bus. & Prof. Code § 6165.) Moreover, as noted above, the attorneys and their staff are subject to the Rosenthal FDCPA’s obligations through section 6077.5.
Two California courts have addressed this issue indirectly. First, in Carney v. Rotkin, Scherin & McIntyre (1988) 206 Cal.App.3d 1513, the inclusion of a “law firm” within the Rosenthal FDCPA’s definition of debt collector was addressed indirectly. In that case, a debtor sued a law firm, and its lawyers, because of the way they attempted to enforce a judgment. The debtor asserted, among other things, a Rosenthal FDCPA claim. The Court dismissed the complaint in its entirety, including the Rosenthal FDCPA claim. The Court explained that the Rosenthal FDCPA does not apply to attorneys. (Id. at 1526.) By dismissing the law firm, as well as the attorneys, the court implicitly appeared to recognize that neither individual attorneys, nor their law firms, are within the coverage of the Rosenthal FDCPA.
Similarly, the Court implicitly recognized the inapplicability of the Rosenthal FDCPA to a law firm in Rie v. Rosen (2nd Dist. 2005) 2005 WL 39866, decided by a California appellate court. In this unpublished decision, the Court inferred that the Rosenthal FDCPA cause of action alleged against an attorney and his law firm must fail in light of the express attorney exemption found in the Rosenthal FDCPA. (Id. at *2 fn. 4 (unpublished).)
Despite these decisions, a federal district court recently addressed this issue. That Court concluded that the Rosenthal FDCPA does apply to law firms. The Court acknowledged that the individual attorney was not subject to Rosenthal, but explained:
However, giving section § 1788.2(c) [sic] the same reading does not yield the same result for [the law firm]. The statute merely states that it does not apply to “attorney” or “counselor at law”; it does not outright exclude “law firms”. Since the legislature specifically excluded attorneys from the statute but was silent on law firms, this Court presumes that the legislature did not intend to exclude law firms.
(Abels v. JBC Legal Group, P.C. (N.D. Cal. 2005) 227 F.R.D. 541, 548.)
In light of this published decision, collection attorneys and their firms are forewarned that they may face claims under the Rosenthal FDCPA.
DEFENSES TO THE ROSENTHAL FDCPA:
IS THE DEBT A CREDIT TRANSACTION?
In defending claims brought under the Rosenthal FDCPA, one of the first steps is considering whether the underlying debt is a so-called “credit transaction.” Unlike the FDCPA, the Rosenthal FDCPA only applies to debt collectors attempting to collect a debt arising from a consumer credit transaction. (See, e.g., Civ. Code §§ 1788.13 (“No debt collector shall collect … a consumer debt by …”) (emphasis added).) Under section 1788.2(e) defines a “consumer credit transaction” as “a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person … .” (Emphasis added.) Likewise, section 1788.2(f) defines “consumer debt” as “money, … due or owing … by reason of a consumer credit transaction.” (Emphasis added.)
In 2001, a California appellate court found that the Rosenthal FDCPA was inapplicable when the underlying debt obligation arose from automobile repair services. (Gouskos v. Aptos Village Garage, Inc. (2001) 94 Cal.App.4th 754, *759.) The collection activity involved the sale of a vehicle that the automobile repair shop had serviced. The vehicle was sold after the debtor refused to pay for the service. The repair shop then sued the debtor for the deficiency. As the Gouskos Court explained, the debt was not a “credit transaction” under the Rosenthal FDCPA because the debtor had not acquired any property or services. (Id.)
More recently, a federal district court also addressed what types of debts are excluded from the coverage of the Rosenthal FDCPA as “credit transactions.” On October 6, 2005, in Abels v. JBC Legal Group, slip opinion, case no. C04 02345 JW, the federal district court analyzed whether a “dishonored” check was a credit transaction. This case is not yet published, but we anticipate that it will be published.
The District Court noted that federal courts had repeatedly held that the FDCPA applied to dishonored check transactions – specifically because the FDCPA did not contain a credit transaction limitation. (Charles v. Lundgren & Associates, P.C. (9th Cir. 1997) 119 F.3d 739, 742; Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C. (7th Cir. 1997) 111 F.3d 1322, 1325.)
But, the Court rejected the argument that a dishonored check, as a deferred payment, constituted a credit transaction thereby bringing collection activity regarding the dishonored check under the purview of the Rosenthal FDCPA. During oral argument, the Court referenced check transactions as analogous to electronic fund transfer transactions, both of which the Court believed were not “credit” transactions. Based on the foregoing analysis, the District Court held that the Rosenthal FDCPA claim must fail, as the claim arose out of collection activities only involving dishonored checks.
It is possible additional cases will carve out further debt transactions which are not “credit transactions.”
DEFENSES TO THE ROSENTHAL FDCPA: PREEMPTION
A recent case from the United States District Court for the Southern District of California applied a preemption analysis to the asserted Rosenthal FDCPA violation regarding failure to report a debt as disputed upon notice of dispute. (Pirouszian v. SLM Corp. (S.D. Cal. 2005) 396 F.Supp.2d 1124, 1130.) In Pirouszian, the debtor alleged that the debt collector failed to report the debt, a student loan, as “disputed” in violation of the FDCPA. (See 15 U.S.C. § 1692e(8).) Relying upon section 1788.17 of the Rosenthal FDCPA, the debtor alleged that this also constituted a violation of the Rosenthal FDCPA because of the Rosenthal’s “incorporation provision.”
However, the District Court noted that the federal Fair Credit Reporting Act preempts all state causes of action related to furnishers of credit information. (See FCRA, 15 U.S.C. § 1681t(b)(1)(F).) The Pirouszian Court explained:
The plain language of section 1681t(b)(1)(F) clearly eliminated all state causes of action against furnishers of information, not just ones that stem from statutes that relate specifically to credit reporting. To allow causes of action under state statutes that do not specifically refer to credit reporting, but to bar those that do, would defy the Congressional rationale for the elimination of state causes of action.
(Id. (quoting Jaramillo v. Experian Information Solutions, Inc. (E.D. Penn. 2001) 155 F.Supp.2d 356, 362).)
Based on the foregoing analysis, the Pirouszian Court concluded that the Rosenthal FDCPA claim arising out of on credit reporting is also preempted by the Fair Credit Reporting Act. (Pirouszian, supra, 396 F.Supp.2d at 1130.)
The Pirouszian Court also found that the claims related to the collection of student loans were also preempted by the federal Higher Education Act, following the Ninth Circuit’s Brannan v. United Student Aid Funds, Inc. (9th Cir. 1996) 94 F.3d 1260, 1263. The Pirouszian Court interpreted the Ninth Circuit’s Brannan decision as holding that all state laws that prohibit debt collectors from doing anything related to pre-litigation federal collection related to federal student loans are preempted. (Pirouszian, supra, 396 F.Supp.2d at 1129-30.)
These two holdings by the Pirouszian Court highlight the importance of exploring potential preemption defenses under the Rosenthal FDCPA.
DEFENSES TO THE ROSENTHAL FDCPA:
CIVIL CODE SECTION 47 PRIVILEGES
Civil Code section 47 is another defensive weapon to fight Rosenthal FDCPA litigation. Section 47 provides several “privileges” that can act to bar liability based on a communication, two of which are important to debt collectors. Section 47(b) states that any “publication or broadcast” made in the course of a “judicial proceeding” is absolutely privileged. The section 47(b) privilege, commonly referred to as the “litigation privilege” has been expanded over the years to bar virtually all tort actions, including actions based on 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.)
While the “immunity” under section 47(b) is absolute, without regard to intent or malice, section 47(c) is considered a “qualified” privilege. Section 47(c) is sometimes referred to as the “creditor’s privilege” and provides that an interested party, such as a creditor (or its assignee) generally possesses a qualified privilege to protect its economic interest, though that privilege may be lost if the creditor’s communication is motivated by actual malice or an intent to injure. (See, e.g., Symonds v. Mercury Savings & Loan Assn. (1990) 225 Cal.App.3d 1458, 1468; Bundren v. Superior Court (1983) 145 Cal.App.3d 784, 789; Timperley v. Chase Collection Servs. (1969) 727 Cal.App.2d 697, 699.)
We have used both of these state law privileges successfully to defeat various Rosenthal FDCPA claims throughout the years. These privileges would not, however, apply to the federal FDCPA, because of the United States Constitution’s Supremacy Clause.
However, in 2005, in an unpublished case, a California appellate court rejected the application of the section 47(c) privilege to Rosenthal FDCPA claims. (First North American National Bank v. Superior Court (2005) 2005 WL 67123, *5-6.) The appellate court questioned the applicability of the section 47(c) privilege as to Rosenthal FDCPA claims. The Court believed that application of the qualified privilege to these statutory claims under the Rosenthal FDCPA would effectively nullify the Rosenthal FDCPA. (Id. at *6.) However, the California Supreme Court has already tacitly addressed this issue, in our view. At least in the context of section 47(b), the Supreme Court has ruled that the enactment of statutory schemes does not evidence an intent to foreclose the traditional privileges and defenses embodied in section 47. (Rubin v. Green (1993) 4 Cal.4th 1187, 1200-01.) Nonetheless, as we see more frequent Rosenthal FDCPA claims, there are certain to be cases where these privileges should be applied.
DEFENSES TO THE ROSENTHAL FDCPA: THE CURATIVE LETTER
Another defense peculiar to the Rosenthal FDCPA is the curative letter. Civil Code section 1788.30(d) sets forth the curative letter defense:
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.
As with many of the provisions of the Rosenthal FDCPA, there is no judicial guidance to assist us in interpreting this provision. Nonetheless, there appears to be 3 critical aspects to this provision: (1) timing, (2) ability to cure, and (3) the content of the notice.
Timing is critical. Pursuant to the language of the statute, the curative letter must notify the debtor within 15 days of either (1) discovering the violation or (2) receiving notice of the violation. For example, upon receipt of a summons and complaint, the 15-day clock starts to tick. The critical event is receipt, as opposed to when the summons and complaint was mailed. It could also mean the date that an agent for service of process received the complaint. Or, the date the attorney for the collector received the lawsuit documents. And the notice does not have to come in the form of a summons and complaint, but can come orally or by letter.
The section 1788.30(d) states that a collector must “notify” the debtor within 15 days. It is probably sufficient to mail the notice within 15 days, rather than have the notice received by the debtor in 15 days. This is because of a legal concept known as the “mailbox rule,” which states that notice is provided and effective on the date it is deposited in the mail. (Code Civ. Proc. § 1013.)
The notice of the violation may provide notice that the violation occurred to more than one debtor. If this is the case, the collector should immediately investigate the claim as to whether the alleged violation stems from an isolated incident or the policies and procedures of the collection agency. For instance, if a complaint contains class allegations, an argument could be made that the collector received notice as to violations against the entire class. In that case, the collector should send the curative notice to all debtors who would have been subjected to the alleged violative collection activity.
The second critical issue is whether the violation can be cured. For instance, it is unlikely that a letter could cure a collection lawsuit that was filed in the wrong venue,. However, a letter could potentially cure an inadequate validation notice or an inadequate California notice (see Civ. Code § 1812.700), assuming that the debtor was permitted an additional 30 days to dispute. One could even imagine a letter which could potentially cure a false threat by clarifying that the problematic collection letter was not intended to be interpreted as containing the threat claimed. The ability to cure violations stemming from a failure to provide meaningful disclosure in a telephone call or the use of profanity in a telephone call is less clear.
If a curative letter can be sent within the 15-day period, and the violation is one that is able to be cured, an effective curative letter must (1) notify the debtor of the violation and (2) cure the violation. The language of the curative letter must be carefully drafted to provide notice of the violation, but avoid an admission that might be used against the collector as an admission of an FDCPA violation. However, there may be arguments to preclude the use of the Rosenthal curative letter to establish liability under an FDCPA cause of action. But, since this issue has not been addressed by the courts, care must be taken.
The curative letter defense may be a quick, easy, and early act that can minimize or eliminate liability. But the key is to act quickly. For the collector that is insured, that means notifying the insurance carrier immediately and noting that time is of the essence! If you are able to utilize the “curative letter” defense, you may entirely eliminate liability under the Rosenthal FDPCA, although it will not reduce or eliminate liability under the FDCPA.
As the Rosenthal FDCPA begins to play a more important part in today’s collector litigation, it is important for the collector to recognize potentially increased liability. Moreover, it is important to consider potential defenses that are not available under the federal FDCPA. Since a Rosenthal FDCPA claim will typically be raised in conjunction with an FDCPA claim, the use of these defenses may not eliminate the case in its entirety, but it certainly could reduce liability. These potential defenses include preemption, the limited application of the Rosenthal FDCPA to credit transactions, the section 47 privileges, and the curative letter. The impending effect of the Rosenthal FDCPA and the incorporation (or doubling) of remedies on collection agencies throughout California should be carefully considered by the CAC membership.
1. The California Consumer Collection Notice Act was enacted in 2003 and sets forth further notice obligations for California debt collectors, separate and apart from the Rosenthal FDCPA. (Civ. Code §§ 1812.700, et seq.) Violation of the California Consumer Collection Notice Act is considered a violation of the Rosenthal FDCPA. (Civ. Code § 1812.702.)
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The above article and all articles in this website are not intended to be legal advice. Readers should consult an attorney to determine how the law applies to their particular circumstances. Also, please understand that the law constantly evolves and changes. Certain of the decisions and legal propositions quoted in the above article may be out of date or superseded.
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