Finley v. Dynamic Recovery Solutions LLC et al

Filing 58

ORDER granting in part and denying in part 34 MOTION for Summary Judgment; 35 MOTION for Summary Judgment. Signed by Judge Thelton E. Henderson on 06/15/2015. (tehlc1, COURT STAFF) (Filed on 6/15/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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NANCY H. FINLEY,

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Plaintiff,

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v.
DYNAMIC RECOVERY SOLUTIONS
LLC, et al.,

Case No. 14-cv-04028-TEH
ORDER GRANTING IN PART AND
DENYING IN PART MOTIONS FOR
SUMMARY JUDGMENT

Defendants.
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This matter came before the Court for oral argument on Defendants’ motions for

United States District Court
Northern District of California

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summary judgment on June 8, 2015. The Court has carefully considered the arguments of

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the parties at the hearing and in the papers submitted, and the motions are now GRANTED

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IN PART and DENIED IN PART for the reasons set forth below.

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BACKGROUND

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In June of 2001, banks and debt collectors started contacting Plaintiff Nancy Finley

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(“Plaintiff”) regarding a debt she owed of approximately $18,000. Compl. at ¶ 10 (Docket

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No. 1-1). California’s four-year statute of limitations for Plaintiff’s debt appears to have

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run sometime in 2004 or 2005. Id. at ¶¶ 17, 18. Nonetheless, debt collection agencies

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continued to contact Plaintiff, off and on, for almost ten years after the statute of

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limitations expired. Id. at ¶ 10.

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On January 15, 2010, Defendant Accelerated Financial Solutions (“Accelerated”)

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purchased Plaintiff’s debt. Stile Decl. at ¶ 5 (Docket No. 35-1). Also, sometime in April

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of 2010, Plaintiff received a letter from Defendant Consumer Recovery Associates

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(“Consumer”), requesting repayment of the debt. Compl. at ¶ 10(m). Plaintiff’s counsel

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sent a letter to Consumer on April 29, 2010, notifying Consumer that Plaintiff was

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represented by counsel and making other demands. Id. at ¶ 14.

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Sometime between January 27 and February 4, 2014, Accelerated opened an

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account with Defendant Dynamic Recovery Solutions (“Dynamic”) for the purposes of

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collecting Plaintiff’s debt. Stile Decl. at ¶ 6; Porter Decl. at ¶ 5 (Docket No. 34-1). On

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May 7, 2014, Dynamic sent a debt collection letter to Plaintiff, requesting payment of

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$39,969.99. Ex. J to King Decl. (Docket No. 47). The collection letter offered to “settle

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[Plaintiff’s] account” under various payment plan arrangements. Id.

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Plaintiff also alleges that Dynamic called her approximately nine times between
March 8, 2014, and June 7, 2014. Opp’n to Dynamic Mot. at 3 (Docket No. 44).
Plaintiff brought suit in August of 2014 against Defendants Accelerated, Dynamic,
and Consumer, alleging violations of the federal Fair Debt Collection Practices Act, the

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United States District Court
Northern District of California

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California Rosenthal Act, the California Fair Debt Buying Practices Act, and the California

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Unfair Competition Law. Compl. at ¶¶ 28-49. Defendants Accelerated and Dynamic now

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move for summary judgment on all of Plaintiff’s claims against them. Accelerated Mot. at

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2 (Docket No. 35); Dynamic Mot. at 2 (Docket No. 34).

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Defendant Consumer separately moved for summary judgment based on the

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expiration of the statute of limitations for Plaintiff’s claims against it. Consumer Mot. at 2

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(Docket No. 27). The Court vacated the hearing on that motion to allow Plaintiff to

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conduct additional discovery on what communications Consumer sent to Accelerated after

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Plaintiff disputed her debt. May 7, 2015 Order at 2 (Docket No. 40). A case management

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conference on the status of that discovery is currently scheduled for June 22, 2015.

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LEGAL STANDARD
Summary judgment is appropriate if “there is no genuine dispute as to any material

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fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

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Material facts are those that may affect the outcome of the case. Anderson v. Liberty

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Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is “genuine” if there

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is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id.

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At the summary judgment stage, the court may not weigh the evidence and must view it in

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the light most favorable to the nonmoving party. Id. at 255.
A party seeking summary judgment bears the initial burden of informing the court

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of the basis for its motion, and of identifying those portions of the pleadings and discovery

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responses that demonstrate the absence of a genuine issue of material fact. Celotex Corp.

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v. Catrett, 477 U.S. 317, 323 (1986). The non-moving party must then “identify with

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reasonable particularity the evidence that precludes summary judgment.” Keenan v. Allan,

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91 F.3d 1275, 1279 (9th Cir. 1996) (quotation and citations omitted).
“If a nonmovant shows by affidavit or declaration that, for specified reasons, it

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cannot present facts essential to justify its opposition, the court may: (1) defer considering

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United States District Court
Northern District of California

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the motion or deny it; (2) allow time to . . . take discovery; or (3) issue any other

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appropriate order.” Fed. R. Civ. P. 56(d). Early in a case, it is preferable to allow the

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parties to conduct additional discovery, rather than decide a motion for summary judgment

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on an incomplete record. Burlington N. Santa Fe R. Co. v. Assiniboine & Sioux Tribes of

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Ft. Peck Reservation, 323 F.3d 767, 773-74 (9th Cir. 2003).

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DISCUSSION
Plaintiff brings claims under the federal Fair Debt Collection Practices Act, the

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California Rosenthal Act, the California Fair Debt Buying Practices Act, and the California

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Unfair Competition Law. Defendants move for summary judgment on all of these claims.

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I.

PLAINTIFF’S FAIR DEBT COLLECTION PRACTICES ACT CLAIMS

a. Both Defendants are Debt Collectors and are Subject to the Act
The federal Fair Debt Collection Practices Act, Title 15, United States Code,

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section 1692 et seq., prohibits debt collectors from taking certain actions in the course of

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collecting a debt. The statute distinguishes between “debt collectors,” to whom these

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prohibitions apply, and “creditors,” to whom they do not; “these two categories—debt

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collectors and creditors—are mutually exclusive.” Schlosser v. Fairbanks Capital Corp.,

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323 F.3d 534, 536 (7th Cir. 2003).

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A “debt collector” is defined as “any person who uses any instrumentality of

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interstate commerce or the mails in any business the principal purpose of which is the

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collection of any debts, or who regularly collects or attempts to collect, directly or

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indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C.

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§ 1692a(6). A “creditor,” on the other hand, is defined as “any person . . . to whom a debt

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is owed, but such term does not include any person to the extent that he receives an

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assignment or transfer of a debt in default solely for the purpose of facilitating collection

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United States District Court
Northern District of California

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of such debt for another.” 15 U.S.C. § 1692a(4).
Because of the latter clause in the “creditor” definition, courts around the country

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have found that businesses are debt collectors, and subject to the requirements of the Fair

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Debt Collection Practices Act, where they purchased a debt that was already in default for

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the purpose of debt collection. E.g., Ruth v. Triumph Partnerships, 577 F.3d 790, 796-97

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(7th Cir. 2009) (“Where, as here, the party seeking to collect a debt did not originate it but

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instead acquired it from another party, we have held that the party’s status under the

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FDCPA turns on whether the debt was in default at the time it was acquired.”); see also

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Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 931 (9th Cir. 2007) (explaining that a

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party that purchases a debt can still be subject to the Act).

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Courts in this district have relied on Ruth and Guerrero, and looked to whether a

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debt was in default at the time of its purchase to determine whether the purchaser is a

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creditor or a debt collector. E.g., McQueen v. Am. Exp. Centurion Bank, No. C 12–2550

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MEJ, 2012 WL 5301075, at *2-3 (N.D. Cal. Oct. 25, 2012); Suellen v. Mercantile

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Adjustment Bureau, LLC, No. 12–cv–00916 NC, 2012 WL 2849651, at *3-4 (N.D. Cal.

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June 12, 2012); see also Moen v. Merrick Bank Corp., No. C 07-0574 MMC, 2007 WL

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1381411, at *1 (N.D. Cal. May 7, 2007).

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Here, it is clear that Defendant Dynamic is a debt collector within the meaning of
the Fair Debt Collection Practices Act. The collection letter that Dynamic sent to Plaintiff
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stated “This is an attempt to collect a debt by a debt collector . . . .” Ex. J to King Decl.

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(Docket No. 47). Dynamic does not argue otherwise.
Accelerated is also a debt collector covered by the statute, under the reasoning of

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Ruth, McQueen, and Suellen. Accelerated purchased Plaintiff’s debt while it was in

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default: Plaintiff started receiving collection letters as early as 2001, and Accelerated

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purchased the debt on January 15, 2010. Compl. at ¶ 10; Stile Decl. at ¶ 5. Accelerated is

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therefore subject to the requirements of the Fair Debt Collection Practices Act, discussed

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below.

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United States District Court
Northern District of California

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b. Plaintiff Shall Conduct More Discovery to Determine Whether Defendants Knew
Plaintiff was Represented
Among other requirements and prohibitions, the Fair Debt Collection Practices Act

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prohibits a debt collector from communicating directly with a consumer “if the debt

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collector knows the consumer is represented by an attorney . . . .” 15 U.S.C.

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§ 1692c(a)(2).

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Courts considering allegations that a debt collector communicated directly with a

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represented consumer under section 1692c require that the consumer show the debt

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collector had “actual knowledge” that the consumer was represented. Randolph v. IMBS,

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Inc., 368 F.3d 726, 729 (7th Cir. 2004); Offril v. J.C. Penny Co., Inc., No. C 08-5050 PJH,

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2009 WL 69344, at *3 (N.D. Cal. Jan. 9, 2009). This is because, unlike the other

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provisions of the Act, section 1692c makes it a violation to communicate directly to a

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consumer “if the debt collector knows the consumer is represented by an attorney.” 15

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U.S.C. § 1692c(2) (emphasis added).

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The Act also has an affirmative “bona fide error” defense, whereby a debt collector

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will not be held liable if it shows “by a preponderance of evidence that the violation was

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not intentional and resulted from a bona fide error notwithstanding the maintenance of

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procedures reasonably adapted to avoid any such error.” 15 U.S.C. § 1692k(c). Some

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courts, considering allegations under other provisions of the Fair Debt Collection Practices
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Act, have held that it is a “strict liability offense,” subject to the affirmative bona fide error

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defense described above. E.g., Reichert v. National Credit Sys., Inc., 531 F.3d 1002, 1005

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(9th Cir. 2008) (considering alleged violation of section 1692f); Clark v. Capital Credit &

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Collection Servs., Inc., 460 F.3d 1162, 1176 (9th Cir. 2006) (considering alleged violation

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of section 1692e). However, the Court is not aware of any case holding that the “actual

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knowledge” requirement of section 1692c is also subject to the reasonable procedures

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required in the bona fide error defense.

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Here, the evidence suggests that neither Defendant had actual knowledge that

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Plaintiff was represented by an attorney when Dynamic sent its letter and called her.
Accelerated’s CEO testified in a declaration that the company “did not know Plaintiff was

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Northern District of California

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represented by counsel when it sent the account to Dynamic . . . .” Stile Decl. at ¶ 8.

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Dynamic’s CFO similarly testified that the company “did not have notice of any prior

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letters from Plaintiff and/or her counsel prior to sending its letter,” and it “did not know

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Plaintiff was represented by counsel in connection with the subject debt.” Porter Decl. at

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¶¶ 8, 9 (Docket No. 34-1).

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However, Plaintiff submitted evidence that Plaintiff told another Defendant,

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Consumer, that she was represented and was disputing the debt, and that Consumer

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subsequently placed a “cease and desist” label on her account to stop collection. Ex. B to

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King Decl. (Docket No. 37). Plaintiff is already conducting discovery on the question of

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what information Consumer communicated to Accelerated in the process of attempting to

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collect Plaintiff’s debt. May 7, 2015 Order at 2.

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Plaintiff shall be allowed to conduct additional discovery regarding what, if

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anything, Consumer told Accelerated and/or Dynamic regarding Plaintiff being

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represented by an attorney. At the June 8 hearing, Plaintiff’s counsel stated that he would

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need 60-90 days for additional discovery in this matter. Plaintiff shall be prepared to

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discuss the status of this additional discovery request at the June 22 case management

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conference.

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c. Defendants May Have Made Misleading Statements Regarding the Debt
The Fair Debt Collection Practices Act also prohibits debt collectors from using

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“any false, deceptive, or misleading representation or means in connection with the

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collection of any debt,” including “the false representation of . . . the character, amount, or

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legal status of any debt;” “the threat to take any action that cannot legally be taken;” and

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“[c]ommunicating . . . to any person credit information which is known or which should be

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known to be false, including the failure to communicate that a disputed debt is disputed.”

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15 U.S.C. § 1692e & (2)(A), (5), (8).

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“Whether conduct violates § 1692e requires an objective analysis that takes into
account whether the least sophisticated debtor would likely be misled by a

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Northern District of California

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communication.” Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1061 (9th Cir.

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2011) (alteration and quotation omitted). “The ‘least sophisticated debtor’ standard is

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lower than simply examining whether particular language would deceive or mislead a

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reasonable debtor.” Id. (quotation omitted).

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Federal courts disagree about whether a debt collector can be liable under the Fair

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Debt Collection Practices Act for sending a collection letter to a consumer for an

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unenforceable debt, such as where the statute of limitations has expired. Alborzian v.

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JPMorgan Chase Bank, N.Am., 235 Cal. App. 4th 29, 36-37 (Cal. Ct. App. 2015)

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(collecting cases). In the Sixth and Seventh Circuits, a debt collector may be liable if the

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collection letter would mislead the least sophisticated debtor about the enforceability of the

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debt. Buchanan v. Northland Group, Inc., 776 F.3d 393, 399 (6th Cir. 2015); McMahon v.

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LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014) (“The proposition that a debt

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collector violates the FDCPA when it misleads an unsophisticated consumer to believe a

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time-barred debt is legally enforceable, regardless of whether litigation is threatened, is

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straightforward under the statute.”). In the Third and Eighth Circuits, however, such a

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collection letter is only actionable if it is accompanied by a threat of litigation. Huertas v.

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Galaxy Asset Mgmt., 641 F.3d 28, 32-33 (3d Cir. 2011); Freyermuth v. Credit Bureau

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Servs., Inc., 248 F.3d 767, 771 (8th Cir. 2001) (“[I]n the absence of a threat of litigation or
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actual litigation, no violation of the FDCPA has occurred when a debt collector attempts to

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collect on a potentially time-barred debt that is otherwise valid.”).
The Ninth Circuit has not yet determined whether a threat of litigation is required

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for such a debt collection letter to be actionable. Two cases in this district, both decided

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prior to the Seventh Circuit decision of McMahon, have followed the approach of the

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Eighth Circuit and required a threat of litigation in a debt collection letter. Abels v. JBC

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Legal Grp., P.C., 428 F. Supp. 2d 1023, 1027 (N.D. Cal. 2005); Perretta v. Capital

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Acquisitions & Mgmt. Co., No. C-02-05561 RMW, 2003 WL 21383757, at *4 (N.D. Cal.

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May 5, 2003). In Perretta, Judge Whyte applied the “least sophisticated debtor” standard

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to the potential threat of litigation, and found that a letter threatening “further steps would

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Northern District of California

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be taken” could be threatening to the least sophisticated debtor. 2003 WL 21383757, at

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*4.

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Here, Defendants have neither shown the absence of dispute as to any material fact,

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nor that they are entitled to judgment as a matter of law. It should be noted, first, that

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Defendants only raised arguments under this section in their replies. Second, it is

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undisputed that Dynamic did not tell Plaintiff that the statute of limitations had expired on

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her debt when it communicated with her. Ex. J to King Decl. Third, Dynamic’s letter to

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Plaintiff offered to “settle her account.” Id. It is plausible that the least sophisticated

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consumer could view an offer to settle as a veiled threat of litigation, or, at the least, as a

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misrepresentation that a debt is still enforceable. McMahon, 744 F.3d at 1020.

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Moreover, Defendants did not discuss Plaintiff’s claim that they failed to

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communicate the legal status of her debt to each other whatsoever in their briefing. Yet,

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under section 1692e(8), quoted above, there is a possible cause of action if any Defendant

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failed to communicate to another that Plaintiff was disputing the status of her debt.

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Because this cause of action potentially exists, and Defendants did not argue the issue at

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all, they are not entitled to summary judgment on this claim.

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Accordingly, Defendants’ motions for summary judgment on Plaintiff’s claims
under section 1692e of the Fair Debt Collection Practices Act are DENIED.
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II.

PLAINTIFF’S ROSENTHAL ACT CLAIMS
Plaintiff also brought claims under California’s Rosenthal Fair Debt Collection

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Practices Act, California Civil Code § 1788 et seq. The Rosenthal Act explicitly

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incorporates the federal Fair Debt Collection Practices Act by reference, except for its

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definitions section. Cal. Civ. Code § 1788.17; Alborzian, 235 Cal. App. 4th at 36.

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Defendants are entitled to summary judgment on the Rosenthal Act claims only to the

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extent that they are entitled to summary judgment on the federal claims. See Diaz v.

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Kubler Corp., --- F.3d ---, No. 14-55235, 2015 WL 2214634, at *1 (9th Cir. May 12, 2015)

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(“The Rosenthal Act mimics or incorporates by reference the FDCPA’s requirements . . . .

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The parties do not dispute that the Rosenthal Act claims at issue in this appeal rise or fall

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United States District Court
Northern District of California

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with the FDCPA claims.”).
Just as Defendants have not shown that they did not violate sections 1692c and

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1692e of the federal statute, they also have not shown that they did not violate the

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Rosenthal Act. Defendants’ motions for summary judgment on Plaintiff’s Rosenthal Act

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claims are DENIED.

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III.

PLAINTIFF’S FAIR DEBT BUYING PRACTICES ACT CLAIMS
Plaintiff also brought claims under the California Fair Debt Buying Practices Act,

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Civil Code § 1788.50 et seq. The Fair Debt Buying Practices Act imposes certain

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requirements on “debt buyers,” defined by the statute as “person[s] or entit[ies] that [are]

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regularly engaged in the business of purchasing charged-off consumer debt for collection

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purposes.” Cal. Civ. Code § 1788.50(a)(1). The Fair Debt Buying Practices Act applies

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“to debt buyers with respect to all consumer debt sold or resold on or after January 1,

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2014.” Id. § 1788.50(d).

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Here, Dynamic argues that it is not a debt buyer in this case; it never purchased

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Plaintiff’s debt, but only opened an account on behalf of Accelerated. Porter Decl. at ¶ 5,

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7. Accelerated argues that the Fair Debt Buying Practices Act does not apply to it, because

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it purchased Plaintiff’s debt on January 15, 2010, nearly four years before the Act went

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into effect. Accelerated Reply at 6; Stile Decl. at ¶ 5.
At the hearing, Plaintiff stipulated to drop her Fair Credit Purchasing Act claims,

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for the reasons stated above. Defendants’ motions for summary judgment on these claims

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are accordingly GRANTED.

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IV.

Plaintiff also brings a claim under California’s Unfair Competition Law (“UCL”),

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PLAINTIFF’S UNFAIR COMPETITION LAW CLAIM

Business and Professions Code § 17200 et seq. “The UCL borrows violations of other
laws and treats them as unlawful practices that the unfair competition law makes

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United States District Court
Northern District of California

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independently actionable. Further, the UCL creates three varieties of unfair competition—

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acts or practices which are unlawful, or unfair, or fraudulent.” Wilson v. Hewlett-Packard

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Co., 668 F.3d 1136, 1140 (9th Cir. 2012) (quotation omitted). Individuals suing under the

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UCL cannot recover damages; rather, they are limited to restitution and injunctive relief.

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Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1150 (Cal. 2003).
Defendants argue that Plaintiff’s UCL claims must fail to the extent that they are

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based on any of the statutory claims discussed above. Dynamic Mot. at 8; Accelerated

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Mot. at 6. However, as discussed above, Defendants have not shown that they are entitled

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to summary judgment on Plaintiff’s Fair Debt Collection Practices Act and Rosenthal Act

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claims. As a result, Plaintiff may still maintain claims under the “unlawful” prong of the

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UCL.

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Moreover, Defendants made no argument regarding the “unfair” and “fraudulent”

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prongs of the UCL. See Dynamic Mot. at 8; Accelerated Mot. at 6-7. They therefore have

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not shown that they are entitled to summary judgment on these separate causes of action

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under the UCL, and Defendants motions regarding Plaintiff’s UCL claims are DENIED.

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V.

PLAINTIFF SHALL NOT FILE AN AMENDED COMPLAINT WITHOUT

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LEAVE FROM THE COURT

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In his briefing, and at the June 8 hearing, Plaintiff’s counsel stated that the

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Complaint should be amended to include additional causes of action under the Fair Debt

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Collection Practices Act related to Defendants’ alleged threats to take unlawful credit

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reporting actions. Opp’n to Dynamic Mot. at 9; Opp’n to Accelerated Mot. at 6.

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After the time to amend a pleading as a matter of course has expired, a party may

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only amend with the opposing party’s consent or with leave of the court. Fed. R. Civ. P.

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15(a)(2). If Plaintiff chooses to amend her Complaint to add this new theory, she must
either obtain a stipulation or file a motion. If she chooses the latter, she shall set forth, in

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Northern District of California

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clear argument with citation to authority, why such amendment would not be futile.

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CONCLUSION
For the reasons set forth above, the Court GRANTS IN PART and DENIES IN

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PART Defendants’ motions for summary judgment. Defendants’ motions regarding

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Plaintiff’s Fair Debt Buying Practices Act claims are GRANTED. Their motions

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regarding Plaintiff’s Fair Debt Collection Practices Act section 1692e claims, and related

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Rosenthal Act and UCL claims, are DENIED. The Court reserves judgment on

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Defendant’s motions regarding Plaintiff’s section 1692c claims until Plaintiff has

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conducted additional discovery.

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IT IS SO ORDERED.

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Dated: 06/15/15

_____________________________________
THELTON E. HENDERSON
United States District Judge

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