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Rosenthal FDCPA: 2008 in Review

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As we have done in the preceding 3 years, this article provides an annual update on trends in litigating Rosenthal Fair Debt Collection Practices Act (“Rosenthal FDCPA”) claims. Over the past three years, the addition of a Rosenthal FDCPA claim has gone from obscurity to regularity. And as the inclusion of a Rosenthal FDCPA claim has become customary, the case law interpreting the statute has increased dramatically. In 2005, there were only about 6 cases that interpreted the Rosenthal FDCPA since its inception in 1977. In 2008, there were approximately 35 cases published in some fashion throughout the year that referenced and interpreted the Rosenthal FDCPA. 1

"(M)ore and more debtors are seeing Internet websites toting the benefits of FDCPA litigation."

As with FDCPA claims, one of the biggest trends regarding the Rosenthal FDCPA is the filing of more lawsuits that have no merit, especially in the context of home loans and foreclosure efforts.  As the economy has worsened, debt collectors have seen the number of accounts referred increase, but the percentage of collections decrease.  Similarly, as the number of debtors increase and as the amount of debt increases, more and more debtors are seeing Internet websites toting the benefits of FDCPA litigation.  For that reason, debt collectors have to be aware of how courts are addressing Rosenthal FDCPA claims . . . on the frontline.

Civil Code Section 47(b) Litigation Privilege

The most litigated Rosenthal FDCPA issue in 2008 was the litigation privilege.  California’s litigation privilege, codified at Civil Code section 47(b), acts as a bar to liability for any communication related to a judicial proceeding.  (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1057, 1061, 1065.)

The litigation privilege is not limited to statements made in court and is viewed expansively.  (See Jacob B. v. County of Shasta (2007) 40 Cal.4th 948, 955 (litigation privilege trumps constitution privacy protections).)  The litigation privilege has been used to bar liability for pre-litigation communications and post-judgment enforcement efforts after litigation ends.  (Rusheen, supra, 37 Cal.4th at 1057 (post-judgment enforcement efforts); Knoell v. Petrovich (1999) 76 Cal.App.4th 164, 171 (privilege barred claim based on statements made in attorney’s demand letter); Larmour v. Campanale (1979) 96 Cal.App.3d 566, 569 (attorney’s demand letter held privileged); Wilton v. Mountain Wood Homeowners Assn. (1993) 18 Cal.App.4th 565, 570(privilege applies even if no final decision made to litigate);.)  In fact, every time the California Supreme Court has addressed the litigation privilege, the California Supreme Court has expanded its reach.  (See Jacob B., supra, 40 Cal.4th at 955; Rusheen, supra, 37 Cal.4th at 1057-65.)

The federal district courts have had difficulty interpreting California’s litigation privilege as it applies to the Rosenthal FDCPA.  Some courts have determined that the Rosenthal FDCPA, as the later enacted statute and as the more specific statute, trumps the litigation privilege.  (See, e.g., Mello v. Great Seneca Fin. Corp. (N.D. Cal. 2007) 526 F.Supp. 1089; Butler v. Resurgence Fin., LLC (C.D. Cal. 2007) 521 F.Supp.2d 1093; Oei v. N. Star Capital Acquisitions (C.D. Cal. 2006) 486 F.Supp.2d 1089.)  These same courts note that if the litigation privilege was to trump the Rosenthal FDCPA, the litigation privilege would render the protections afforded by the Rosenthal FDCPA meaningless. 

California courts have already addressed this issue in the context of California Business & Professions Code section 17200, otherwise known as the Unfair Competition Law (“UCL”).  The California Supreme Court rejected the contention that the litigation privilege could not apply to a statutory claim, because to do so would subvert the will of the Legislature.  The Court held that the litigation privilege as a “general” statute does not give way, even to a more “specific” statutory cause of action, such as that found in the UCL. (Rubin v. Green (1993) 4 Cal.4th 1187, 1201.)  The Rubin Court concluded thus the broad litigation privilege controls over more “specific” causes of action for the very reason section 47 is “general” in nature.  (Id.; accord Ribas v. Clark (1985) 38 Cal.3d 355, 364-65.)

Other federal district courts have held that the litigation privilege does provide a complete defense to claims under the Rosenthal FDCPA when the claims are based on representations to a court made during litigation.  (Nickoloff v. Wolpoff & Abramson, LLP (C.D. Cal. 2007) 511 F.Supp.2d 1043; Taylor v. Quall (C.D. Cal. 2006) 458 F.Supp.2d 1065.)  .

In 2008, courts tried to reconcile these two contradictory lines of cases.  In 2008, federal district courts generally concluded that the litigation privilege does not conflict with the Rosenthal FDCPA claim if the claimed violation is not specifically enumerated in the Rosenthal FDCPA; and thus, the litigation privilege bars liability.  Federal district courts also generally upheld the litigation privilege if the claimed violation arose out of actual litigation.  If there is no conflict, then the litigation privilege will provide a complete bar to liability.  (See, e.g., Johnson v. JP Morgan Chase Bank (E.D. Cal. 2008) 536 F.Supp.2d 1207, 1211-12; Cassady v. Union Adjustment Co., Inc. (N.D. Cal. 2008) 2008 WL 4773976, *6-7.)  While the tide appears to be moving in the right direction, courts are still very divided over the applicability of the litigation privilege to Rosenthal FDCPA claims.

But we cannot finish our discussion of cases where the litigation privilege was argued as a defense without discussing Yates v. Allied Int’l Credit Corp. (S.D. Cal. 2008) 578 F.Supp.2d 1251. The circumstances of the Yates case present the kind of horror story that each agency hopes never occurs. In Yates, a collector called a debtor and an argument ensued. The debtor hung up on the collector. Then, the collector called the police department and filed a false police report, claiming the debtor was killing someone. The police immediately responded, with guns drawn, and arrested the debtor. A door was kicked down in the process. The debtor’s roommates were also forced to evacuate the house, and police dogs were brought in to help search the home. The police eventually concluded it was a false police report, and released the debtor. And it is no wonder that a civil lawsuit followed closely thereafter.

The litigation privilege not only protects actions arising from civil court proceedings, but also criminal court proceedings. Although California courts are split on whether liability is barred for a police report, the Yates Court concluded that the false police report was privileged with respect to many of the state law claims asserted, especially since the debtor had other avenues of redress, including a criminal action. (Id. at 1254-55.) However, the Yates Court declined to apply the litigation privilege to the Rosenthal FDCPA claim, finding that the litigation privilege is inapplicable to the Rosenthal FDCPA claim. (Id. at 1255.)

Vicarious Liability for Damages under the Rosenthal FDCPA

There were no published cases that discussed the interplay between vicarious liability for damages and the Rosenthal FDCPA until 2008. In 2008, in Miller v. Midland Funding LLC (C.D. Cal. 2008) 2008 WL 4093004, the Court explained how vicarious liability for a client does not increase the damages amount.

The issue arose in the context of what liability exists after a debtor accepts a Rule 68 offer from a collection attorney. In Miller, the debt collector sued a collection law firm and its debt buyer client for alleged acts by the collection law firm. As is so common, the collection law firm extended a Rule 68 offer for $1,001 plus reasonable attorneys’ fees and costs, in an effort to control the costs of litigation, no doubt. The debtor accepted the law firm’s offer, and judgment was entered against the firm. (Id. at *1.)

Subsequently, the debt buyer moved to dismiss the case as to the debt buyer because the debtor had received all the compensation that he could by settling with the law firm. The Court noted that all of the alleged violations stemmed from the acts of the law firm, not the debt buyer. This was an important point in the Court’s analysis. The Court first examined whether the debt buyer could be held vicariously liable for the actions of its attorney. The Court held that the debtor had failed to submit evidence to establish a sufficient relationship to hold the debt buyer liable for the actions of its attorneys, especially since attorneys are considered independent contractors in California. (Id. at *4.)

The Court then noted that since the debtor had settled with the law firm for all claims, “Plaintiff has already recovered fully from [the attorneys], thus it would be a double recovery to now hold another defendant liable for the acts of [the attorneys].” (Id.) “In sum, because Plaintiff has recovered from [the law firm], he cannot now recover from another party under an agency theory for the acts of [the law firm].” (Id. at *5.)

While this logic on the surface appears sound, the Court appears to have overlooked that attorneys are expressly excluded from the definition of a “debt collector” for purposes of the Rosenthal FDCPA. (See Civ. Code § 1788.2(c).) Many cases have held that the attorney exclusion under the Rosenthal FDCPA cannot be interpreted to include law firms in the exclusion. (See, e.g., Abels v. JBC Legal Group P.C. (N.D. Cal. 2005) 227 F.Supp.2d 541, 548.) Plaintiff asked the Court to reconsider the issue of Rosenthal statutory damages. Plaintiff’s attorneys, Robert Stempler and Alex Trueblood, both conceded that the Rosenthal FDCPA attorney exclusion encompasses law firms, and argued that therefore the Rule 68 offer to the law firm did not encompass the statutory damages under the Rosenthal FDCPA. The Court granted the motion for reconsideration and vacated the portion of the order dismissing the Rosenthal FDCPA claim against the debt buyer. (Miller v. Midland Funding LLC (II) (C.D. Cal. 2008) 2008 WL 5003042, *1)

This logic of the initial order regarding the extent of damages under vicarious liability, which is not refuted by the Court when it vacated that portion of the order, remains sound. This could be the beginning of very favorable jurisprudence for the collection industry. It is a frequent ploy of the plaintiff’s bar to name several defendants in an FDCPA lawsuit, such as the individual collector, the collection agency, the collection agency’s owner, and sometimes even the collection agency’s client. It is very common for FDCPA lawsuits against collection attorneys to also include the attorney’s client as a defendant. Most of these cases allege a direct liability theory for one defendant and a vicarious liability theory for the other defendants.

However, vicarious liability is a liability theory to hold another party responsible for the acts of the party who actually caused the damages. Thus, if the party who actually caused the damages cannot pay the judgment, the party held vicariously liable will be forced to pay. (The vicariously liable party may have remedies against the party who actually committed the wrongful acts.) In the class action context, if the client is named as a defendant based on a theory of vicarious liability, then that defendant’s net worth should not be used to calculate the 1% of net worth statutory damages due to the class if liability is determined. The vicariously liable party’s net worth should not be included in the calculation. Or in the case of an errant collector, the collection agency is held vicariously liable for the collector, an employee. The collector may have no net worth, and class damages should therefore be limited to the net worth of the collector, rather than the agency.

Of course, if the plaintiff can show direct involvement in the activity that is alleged to be a violation, the theory of liability is not derivative, i.e., vicarious, but rather direct liability. Under circumstances involving direct liability, it is possible that net worth would be calculated based on both defendants, rather than one.

It has taken a long time since the enactment of the FDCPA for this issue to be raised in published cases. It is hoped that this issue will be further fleshed out in future published cases.

Rosenthal Statutory Damages Limited to $1,000 per Debt Collector

It is well established that the maximum statutory damages a plaintiff can recovery for an FDCPA claim is $1,000 per action, not per defendant or per violation. (See, e.g., Clark v. Capital Credit & Collection Servs., Inc. (9th Cir. 2006) 460 F.3d 1162, 1178; Nelson v. Equifax Information Servs., LLC (C.D. Cal. 2007) 522 F. Supp.2d 1222, 1238.) This maxim is based on the language of the FDCPA, which specifically states that, in the case of an action, statutory damages will not exceed $1,000. (See, e.g., Wright v. Finance Service of Norwalk, Inc. (6th Cir. 1994) 22 F.3d 647, 651; White v. Bruck (W.D. Wis. 1996) 927 F.Supp. 1168, 1170.) This limitation to FDCPA statutory damages was recently affirmed in Lowe v. Elite Recovery Solutions LP (E.D. Cal. 2008) 2008 WL 324777, *2.

The Lowe case also addressed, for the first time in any sort of published opinion, whether any such limitations on the statutory damages exist under the Rosenthal FDCPA. The Rosenthal FDCPA states, in relevant part:

Any debt collector who willfully and knowingly violates this title with respect to any debtor shall, in addition to actual damages sustained by the debtor as a result of the violation, also be liable to the debtor … in such amount as the court may allow, which shall not be less than one hundred dollars ($100) nor greater than one thousand dollars ($1,000). (Civ. Code § 1788.30(a).)  

The Lowe Court noted that the Rosenthal FDCPA language differs from the FDCPA language. Unlike the FDCPA statutory language, the Rosenthal FDCPA language “provides that ‘any debt collector’ shall be liable for up to $1,000.” (Lowe, supra, 2008 WL 3247777, at *3.) The Lowe Court concluded that the maximum statutory damages under the Rosenthal FDCPA were $1,000 per debt collector. (Id.)

The Lowe Court is correct that the FDCPA does emphasize an “action,” in the remedies provision of the FDCPA. However, there are other arguments against expanding the scope of statutory damages under the Rosenthal FDCPA. The language of the Rosenthal FDCPA is not that different from the FDCPA – each states “any debt collector … is liable” for statutory damages. Certainly the policy reasons underlying the jurisprudence that the FDCPA is limited to $1,000 per action are equally applicable to the Rosenthal FDCPA. Furthermore, since the remedies of the FDCPA are imported into the Rosenthal FDCPA (Civ. Code § 1788.17), one could argue that the FDCPA statutory damages now apply. It will be important to track how this issue develops for purposes of evaluating claims.

Verbatim Credit Reporting Notice Does
Not Constitute a Rosenthal FDCPA Violation

Debt collectors who report information regarding a debtor to a credit reporting agency are required to provide the following notice either before the debt collector reports credit information or within 30 days after reporting credit information. (Civ. Code § 1785.26.) The notice language proposed by section 1785.26 is:

“As required by law, you are hereby notified that a negative credit report reflecting on your credit record may be submitted a credit reporting agency if you fail to fulfill the terms of your credit obligation.”

In Boyle v. Arrow Fin. Servs. (N.D. Cal. 2008) 2008 WL 4447727, the Court did not specifically interpret the Rosenthal FDCPA, but did discuss this reporting requirement, which provided the basis for the Rosenthal FDCPA claim in this case. The notice received by the debtor mirrored the statutory language above. The debtor argued that the notice implied that the collection agency would submit a negative credit report and that the collection agency was required by law to submit a negative credit report.

The Court rejected this argument:

The notice provision states only that the law requires that the consumer be notified before a negative credit report may be submitted. It does not suggest that the credit agency is required to submit a negative credit report or that it would submit a report. Indeed, the notice simply says that a negative credit report may be submitted. (Id. at *2 (emphasis in original))

The debtor also argued that since the debtor had already been sent such a notice by the original creditor, the subsequent notice was not required by law. The Court also rejected this argument. The Court explained that there was no statutory authority or case law that supported this argument, and a plain reading of the statute supports the conclusion that the collection agency had to send its own notice. Moreover, the law did not prohibit the sending of more than one notice. (Id. at *3.) The Court dismissed the claims with prejudice.

Credit Reporting and Similar Conduct
After the Debt Is Paid Is Not Collection Activity

Previous case law has held that once the debt is paid in full, the FDCPA no longer applies. (Posso v. Asta Funding, Inc. (N.D. Ill. 2007) 2007 WL 3374400, *3.) “When a debt is extinguished there is no debt and there can be no debt collection.” (Id.) This makes sense since the FDCPA regulates debt collectors who are attempting to collect a debt and prohibits certain collection conduct.

In Winter v. I.C. System, Inc. (S.D. Cal. 2008) 543 F. Supp.2d 1210, the Court was asked to address this issue in the context of entries on the plaintiff’s credit report. Plaintiff had paid the debt “under duress” and without an admission that the debt was valid, when plaintiff was arranging for financing to buy a home. Subsequently, the debtor believed that his credit score had been reduced as a result of credit information regarding the paid debt. The debtor had his attorney contact the collection agency to dispute the debt and ask for the information regarding the paid debt to be removed. The collection agency refused to remove the tradeline from the credit report, and did not inform the credit reporting agencies that the debt was disputed.

The Winter Court followed the Posso Court’s holding with respect to the FDCPA claim. The Winter Court then applied the same analysis to the Rosenthal FDCPA claim, and dismissed both claims. The Winter Court held that reporting of plaintiff’s credit information could not be for purposes of debt collection because the debt was paid in full. Although we often believe that FDCPA jurisprudence will automatically apply to Rosenthal FDCPA claims as well, it is good to have case law specifically addressing the Rosenthal FDCPA. And it is best when the case authority at issue decided the legal issue favorable to the collection industry!

Judgment in the Underlying Collection Lawsuit Is Not Res Judicata in a Subsequent Rosenthal FDCPA Action Against Attorney

We see more and more claims brought by debtors who have obtained a favorable verdict in the underlying collection matter, or who have gotten the underlying collection matter dismissed. In these types of cases, plaintiff attorneys argue that the collection attorney sought to collect a debt that was not owed by the debtor, and tout the dismissal or judgment in the debtor’s favor as the only evidence needed for the debtor to prevail on the FDCPA or Rosenthal FDCPA case. Often times, these cases develop because the collection attorney is not able to obtain evidence to support the validity of the debt, including statements of account and contracts. The debtor will ask for such documentation during discovery, and the collection attorney will either dismiss immediately thereafter, or proceed to court, only to have the judge issue a judgment in favor of the debtor because of the lack of documentation.

In 2008, a court addressed the issue of using the judgment or dismissal of the underlying action to bar the defendant collection attorney from arguing that the debt was valid. (Reyes v. Kenosian & Miele LLP (N.D. Cal. 2008) 2008 WL 171070.) In Reyes, the attorney had sued the debtor in a prior collection action. In the prior collection case, the court had ruled that the debt buyer, the plaintiff in the underlying collection action, had not submitted sufficient evidence to prevail and that the debt buyer had falsely represented that the debt was actually assigned to the debt buyer, when it was not. Plaintiff filed the FDCPA case against the attorney in hopes of using the underlying collection judgment to establish that the attorney misrepresented the status and nature of the debt. Defendants argued that the underlying judgment should not prevent the attorneys from providing evidence that the debt was valid.

The Reyes Court recognized that federal courts are to give full faith and credit to state court judgments. (Id. at *10.) But under California law, the ability to prevent another party from arguing against the findings of a state court judgment requires that (1) the issue decided in the prior case is identical to the one presented in the present action; (2) there was a final judgment on the merits in the prior case; and (3) the party against whom you seek to hold the prior judgment against is a party to the prior judgment. (Id.) The Reyes Court concluded that the attorney was not a party to the underlying collection judgment and that the attorney did not have control over the way that the underlying collection matter was prosecuted.

This will be a very important decision as defendants fight back on collection lawsuits, win the lawsuit, and then file a Rosenthal FDCPA claim.

Rosenthal FDCPA Permits a Debt Collector to Send Statements of Account Despite a Written Request to Cease Collections

For creditors, one interesting case in early 2009, involved a written notice of legal representation. (Moya v. Chase Cardmember Serv. (N.D. Cal. Jan 8, 2009) 2009 WL 57112.) The debtor brought an FDCPA and Rosenthal FDCPA claim against Chase, a creditor. One of the claims was that Chase had violated the FDCPA and the Rosenthal FDCPA by sending a collection notice to the debtor after the debtor had provided written notice that the debtor was represented by counsel, among other claims. (Id. at *2.) In response to Chase’s Motion to Dismiss, the Court quickly dispensed with the FDCPA claim, because Chase, as the original creditor, was not a debt collector under the FDCPA.

Chase argued that the Rosenthal FDCPA claim based on the notice of representation must also fail because the correspondence sent to the debtor was a “statement of account.” The Rosenthal FDCPA specifically permits a debt collector (or creditor) to send a statement of account, even if the debtor provides a written notification that the debtor is represented by counsel. (Civ. Code § 1788.14(c).) Of course, this legislative exception makes sense since the Rosenthal FDCPA includes creditors, who may have a continuing relationship with the debtor.

The Rosenthal FDCPA does not define the phrase “statement of account.” The Moya Court looked to the Civil Code statutes addressing credit sales and the division of the Civil Code related to retail sales contracts to provide some guidance as to what information is normally contained in a “statement of account.” (See Civ. Code § 1810.3.) Mr. Moya argued that the correspondence was a collection notice and not a statement of account because the correspondence included the toll-free number for the collection department. Notably, federal requirements under 15 U.S.C. § 1637(b), part of the federal Fair Credit Billing Act, do not require a phone number to be included in a statement of account. Chase disputed that the number belonged to Chase’s collection department. However, because this issue was raised in a motion to dismiss, the Court had to take the plaintiff’s allegations that the number belonged to Chase’s collection department as true.

In light of the lack of development of this issue and the early stage of the case, the Court felt compelled to deny Chase’s Motion to Dismiss. That would not prevent Chase from filing a motion for summary judgment if Chase were able to develop more evidence regarding the inclusion of the telephone number on the statement of account.

Continuing Violation Doctrine

And as a prelude to 2009, a recent 2009 case discussed the viability of the continuing violation doctrine, as set forth in Joseph v. J.J. MacIntyre Cos., LLC (N.D. Cal. 2005) 281 F. Supp.2d 1156, 1161, as applied to the Rosenthal FDCPA. In Joseph, the plaintiff alleged that the collection agency had violated the FDCPA by making numerous phone calls, some of which fell in the one year statute of limitations period, and some of which fell outside of the statute of limitations period. In the context of these continuing harassing phone calls, the Joseph Court held that “the conduct complained of constitutes a continuing pattern and course of conduct as opposed to unrelated discrete acts.” (Id. at 1161.) The Joseph Court concluded that the lawsuit was timely because the action was filed within one year of the most recent telephone call, creating the continuing violation doctrine. (Id.) This doctrine has been criticized, and narrowly construed to be applicable to a pattern of telephone calls.

In February 2009, the Eastern District of California discussed this doctrine in the context of the Rosenthal FDCPA. (Johnson v. JP Morgan Chase Bank (E. D. Cal. 2009) 2009 WL 382734.) The case involved a representation that a creditor made outside of the statute of limitations to a debt buyer that the plaintiff owed the creditor a debt. The creditor then sold the debt to the debt buyer. The debt buyer sued the debtor, who did not respond, and a default judgment was entered. Subsequently, the debtor contacted the creditor regarding the account, which she did not recognize. The creditor could not locate documentation for the account and determined that it did not have sufficient documentation to evidence the account. The creditor sent the debtor a letter indicating the debtor was not responsible for the fraudulent account. The debtor then set aside the default judgment, and brought a suit against the debt buyer and the creditor. (Id. at *2.)

Although the Court recognized that the doctrine might apply in the context of the Rosenthal FDCPA, the Court concluded that the single representations made by the creditor to the debt buyer did not constitute a continuing pattern or course of conduct. (Id. at *4-5.)

Conclusion

As Rosenthal FDCPA claims combined with FDCPA claims have become the rule rather than the exception, courts have been given the opportunity to provide the collection industry with guidance regarding the Rosenthal FDCPA. And as the economy worsens, we anticipate that more debtors will turn to fighting collection activity with FDCPA and Rosenthal FDCPA claims.

We think those suits will be most prevalent in cases involving collection litigation involving debt buyers. Therefore, cases addressing the litigation privilege, vicarious liability, and exclusions that permit debt buyers to send statements of account are important to be aware of and understand the implications of. And all collection agencies should be aware of current trends regarding interpreting statutory damage language and the extent of vicarious liability. Tracking the development of Rosenthal FDCPA case law prepares you to manage the risk of claims and to address claims as they occur … here, on the frontlines.


FOOTNOTE

Attorneys talk about opinions that are “published” in an official reporter, as these cases are more authoritative.  Often, judges will not “publish” their opinions, but electronic research companies like Lexis Nexis and Westlaw “publish” these cases electronically.  These cases are less authoritative, and in some instances, cannot be cited in court.  The cases which are not officially published are not precedent and other courts, even in the same jurisdiction, are not forced to follow the analysis in these un-published cases.  “Published” in this article means that the opinion was either officially published or published electronically.  Electronically published cases that have not been published officially have a cite like this:  2008 WL 123456.

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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