Wednesday, August 21, 2019

FYI: Cal App (2nd Dist) Holds No Duty of Care Owed in Loan Mod Negotiations

Disagreeing with contrary rulings from the First and Sixth Districts, the California Court of Appeal for the Second District recently affirmed a trial court’s ruling that no duty of care is owed to a borrower during contract negotiations for a mortgage loan modification.

A copy of the opinion is available at:  Link to Opinion

In 1998, plaintiff borrower (“Borrower”) obtained a $500,000.00 loan secured by a deed of trust (the “First Loan”).  The First Loan is not at issue.  In 2005, Borrower obtained two junior loans from defendant bank (“Bank”) in the amounts $167,820.00 (the “Second Loan”) and $82,037.00 (the “Third Loan”) (collectively, the “Junior Loans”).  Borrower subsequently encountered financial troubles leading the Bank to record a notice of default on the Second Loan in September 2009. 

In January 2010, Borrower contacted the Bank seeking to modify the Junior Loans and subsequently submitted loan modification requests to the Bank on January 29, 2010.  In March 2010, Borrower received correspondence from the Bank concerning the Second Loan, which Borrower claimed led him to believe the Second Loan had been converted into an unsecured loan. Around this time, Borrower separately alleged the Bank contacted his wife and informed her no foreclosure sale would occur and that the Bank “was simply trying to recover money through standard collection practices.”

In April 2010, Borrower received a second letter from the Bank where it offered to charge off 50% of the Second Loan’s balance if the Bank and Borrower could reach a satisfactory arrangement.  Borrower claims the letter reinforced his belief that the Second Loan had been converted into an unsecured loan.

In November 2010, the Bank sold the Second Loan to a different entity (“Note Holder”) and canceled the Third Loan in March 2014.  In August 2013, Borrower separately modified the First Loan.

In April 2014, the Note Holder recorded a notice of default as to the Second Loan leading Borrower to submit several loan modification requests.  Borrower asserted the Note Holder never responded to his modification attempts, and instead informed him in August of 2014 that the Second Loan service transferred to another entity (the “Current Servicer”).  Thus, Borrower submitted another loan modification application to the Current Servicer who rejected as a result of Borrower “having too little income.” 

Borrower subsequently filed for Chapter 7 bankruptcy relief and submitted two additional loan modification applications during the pendency of his bankruptcy.  The Current Servicer rejected both of loan modification applications again citing Borrower’s low income.  In 2014, Borrower, with the assistance of a legal aid representative, submitted a third loan modification application. The Current Servicer allegedly informed the legal aid representative that it no longer considered the Second Loan as being in “active foreclosure.”  Borrower separately contacted the Note Holder who informed Borrower that “it would consider a modification in lieu of foreclosure.” 

In October 2014, Borrower’s bankruptcy was dismissed lifting the bankruptcy stay.  Borrower subsequently learned that the property at issue would be sold in five days’ time.  Borrower immediately contacted the Current Servicer who confirmed the property’s sale date. 

The property was subsequently sold via foreclosure sale with the Note Holder being the highest bidder. 
   
Borrower subsequently instituted the instant action against Bank asserting causes of action for: (1) negligence; (2) intentional infliction of emotional distress (“IIED”); and (3) violations of Business and Professions Code section 17200 (“Section 17200”). 

Relevant to this appeal and his negligence claim, Borrower alleged the Bank owed Borrower a duty of care to: (1) “process, review, and respond carefully and completely to the loan modification applications [Borrower] submitted to [the Bank]; and (2) refrain from engaging in unfair and offensive business practices that confused Borrower and prevented him from pursing foreclosure prevention alternatives.  Borrower further alleged the Bank breached its duty of care by failing to respond to his loan modification applications and by stating it would not conduct a foreclosure, among other things. 

The Bank demurred to Borrower’s operative complaint, which the superior court granted without leave to amend.  Specifically, the trial court dismissed Borrower’s negligence claim because Borrower failed “to plead facts supporting a tort duty of care by [Bank] to Borrower regarding the loan modification.”  The trial court sustained the Bank’s demurrer to Borrower’s IIED claim for failure to plead outrageous conduct and separately dismissed the Section 17200 “for want of an underlying claim.” 

Borrower appealed the lower court’s order sustaining Bank’s demurrer without leave to amend.

On appeal, Borrower argued the Bank owed him a duty of care under the holdings of Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941 (Alvarez); Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150 (Daniels). 

As you may recall, the Alvarez and Daniels rulings held that a lender owes a borrower a duty of care in tort during mortgage modifications negotiations.  However, there is a sharp conflict among California courts as to whether a lender owes a duty of care to a borrower during mortgage loan modification negotiations, and the California Supreme Court has not resolved the conflict.

The Court began its analysis by examining Southern California Gas Leak Cases (2019) 7 Cal.5th 391 (“Gas Leak Cases”), which recently found there is no tort duty where the damages complained of purely are economic.  Specifically, the Gas Leak Cases held that economic losses flowing from “a financial transaction gone awry” are “primarily the domain of contract and warranty law or the law of fraud, rather than of negligence.’” (Gas Leak Cases, supra, 7 Cal.5th at p. 402.)

The Court further noted “a striking degree of unanimity” weighing against the Alvarez and Daniels decisions as courts in at least 23 jurisdictions refuse “to import tort duties during mortgage modifications negotiations. 

The Court next examined the Restatement of Torts (“Restatement”) and found it provided that “no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between its parties.”  Indeed, the Restatement further explained that the economic loss rule “prevents the erosion of contract doctrines by the use of tort law to work around them…[and] also reduces the confusion that can result when a party brings suit on the same facts under contract and tort theories that are largely redundant in practical effect.”

The Court separately noted “the ability of legislatures to craft remedies beyond the ken of courts…[as] through the democratic process, the Legislature can bring to bear a mix of expertise while considering competing concerns to craft a solution in tune with public demands.”  Gas Leak Cases, supra, 7 Cal.5th at p. 413.

Thus, the Court held that the trial court properly dismissed the Borrower’s negligence claim because “a lender does not owe a borrower a common law duty to offer, consider, or approve a loan modification.”

Concerning Borrower’s other causes of action, the Court found his IIED claim was frivolous and that the trial court correctly dismissed Borrower’s Section 17200 claim.

Accordingly, the Court affirmed the trial court’s order sustaining Bank’s demurrer without leave to amend.


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon





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Monday, August 19, 2019

FYI: 9th Cir Holds Violation of Facial Recognition Law Sufficient for Standing, Upholds Class Cert

The U.S. Court of Appeals for the Ninth Circuit recently held that the class plaintiffs alleged a concrete and particularized harm sufficient to confer Article III standing where the defendant company’s alleged collection, use, and storage of the plaintiffs’ biometric information was the substantive harm targeted by the Illinois Biometric Information Privacy Act (“BIPA”), which statute protects the plaintiffs’ concrete privacy interests. 

The Ninth Circuit further held that the district court did not abuse its discretion in certifying the class.

Accordingly, the Ninth Circuit affirmed the district court orders certifying the class, and denying the defendant’s motion to dismiss.

A copy of the opinion is available at:  Link to Opinion

Facebook, Inc. (“Facebook”) operates one of the largest social media platforms in the world, with over one billion active users.  When a new user registers for a Facebook account, they must create a profile and agree to Facebook’s terms and conditions, which permit Facebook to collect and use data in accordance with Facebook’s policies.

In 2010, Facebook launched a feature called Tag Suggestions.  When Tag Suggestions is enabled, Facebook may use facial-recognition technology to analyze whether the user’s Facebook friends are in photos uploaded by that user. 

Facebook users living in Illinois brought a class action in a federal district court in California against Facebook claiming that Facebook’s facial-recognition technology violates Illinois law.  Specifically, the Plaintiffs alleged that Facebook violated BIPA by collecting, using, and storing biometric identifiers from their photos without obtaining a written release and without establishing a compliant retention schedule.

Under BIPA, “[a]ny person aggrieved” by a violation of its provisions “shall have a right of action” against an “offending party.”

Facebook moved to dismiss the complaint for lack of Article III standing on the ground that the Plaintiffs had not alleged any concrete injury.  While the motion to dismiss was pending, the Plaintiffs moved to certify a class under Rule 23.

The district court denied Facebook’s motion to dismiss, and certified a Rule 23(b)(3) class of “Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011.”  The matter was then appealed. 

On appeal, the Ninth Circuit addressed the issue of Article III standing, noting that to establish standing a plaintiff “must have suffered an ‘injury in fact’ – an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical.”

A concrete injury need not be tangible, but in determining whether an intangible injury is concrete, courts consider both history and legislative intent. 

In determining whether the violation of a statute causes a concrete injury, the Ninth Circuit has adopted a two-step approach: “(1) whether the statutory provisions at issue were established to protect [the plaintiff’s] concrete interests (as opposed to purely procedural rights), and if so (2) whether the specific procedural violations alleged in the case actually harm, or present a material risk of harm to, such interests.”

In considering the first factor, the Ninth Circuit noted that “[p]rivacy rights have long been regarded as providing a basis for a lawsuit in English or American courts.”  Moreover, in recent Fourth Amendment jurisprudence, “the Supreme Court has recognized the potential for unreasonable intrusions into personal privacy” related to enhanced technology. 

In light of this background, the Ninth Circuit “conclude[d] that an invasion of an individual’s biometric privacy rights has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts.”

Moreover, “[t]he judgment of the Illinois General Assembly, which is ‘instructive and important’ to our standing inquiry, . . . supports the conclusion that the capture and use of a person’ biometric information invades concrete interests.”

The Ninth Circuit therefore concluded that “the statutory provisions at issue” in BIPA were established to protect an individual’s “concrete interests” in privacy, not merely procedural rights.

The Court next turned to whether the specific procedural violations alleged actually harm, or present a material risk of harm to, such interests.

In concluding that they did, the Ninth Circuit noted that the Plaintiffs alleged that a violation of the BIPA requirements allowed Facebook to create and use a face template and retain that template for all time.  Thus, “[b]ecause the privacy right protected by BIPA is the right not to be subject to the collection and use of such biometric data, Facebook’s alleged violation of these statutory requirements would necessarily violate the plaintiffs’ substantive privacy interests.”

Accordingly, the Ninth Circuit held that “plaintiffs’ have alleged a concrete injury-in-fact sufficient to confer Article III standing.”

The Court next turned to Facebook’s argument that the district court abused its discretion by certifying the class.  Specifically, Facebook argued that class certification was not compatible with Rule 23(b)(3), which requires that “questions of law or fact common to class members predominate over any question affecting only individual members.”  Facebook further argued that the Illinois extraterritoriality doctrine precludes the district court from finding predominance.

The Ninth Circuit disagreed, determining that the “threshold questions of BIPA’s applicability can be decided on a class-wide basis,” by deciding if the violation of BIPA occurred when plaintiffs used Facebook in Illinois, or if they occurred when Facebook’s servers created a face template.

Facebook additionally argued that the district court abused its discretion by certifying a class because a class action is not superior to individual actions, because the possibility of a large, class-wide statutory damages award defeats superiority.   

The Ninth Circuit rejected this argument, ruling that “nothing in the text or legislative history of BIPA indicates that a large statutory damages award would be contrary to the intent of the General Assembly.” 

Thus, the Ninth Circuit held that “the district court did not abuse its discretion in determining that a class action is superior to individual actions in this case.”


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon





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Wednesday, August 14, 2019

FYI: 9th Cir Holds No FCRA Violation by CRA When Dispute Did Not Come "Directly" From Consumer

The U.S. Court of Appeals for the Ninth Circuit held that where a company sent dispute letters to a credit reporting agency (“CRA”) on behalf of a consumer, but the consumer did not identify the items to be disputed, review the letters, or otherwise play any role in preparing the letters, the letters did not come “directly” from the consumer, and the CRA was not required to conduct a reinvestigation under section 1681i of the federal Fair Credit Reporting Act (“FCRA”).

As a result, the Ninth Circuit held that the CRA did not violate section 1681i, and also did not act unreasonably and therefore did not violate section 1681e(b).

Accordingly, the Ninth Circuit affirmed the trial court’s order granting summary judgment in favor of the defendant CRA.

A copy of the opinion is available at:  Link to Opinion

A consumer (“Consumer”) hired a credit repair organization (“Company”) to perform “credit repair services.”  The Company thereafter sent a letter to a credit reporting agency (“CRA”) asserting that several items in the Consumer’s credit file were inaccurate, and asking the CRA to conduct a reinvestigation to verify the items’ accuracy.

The Consumer had no input on the preparation of the letter, and did not review the letter before it was sent.  

After receiving the letter, the CRA sent a letter to the Consumer stating that it had “received a suspicious request in the mail” and “determined that it was not sent by [the Consumer].”  The CRA further informed the Consumer that it would “not be initiating any disputes based on the suspicious correspondence.”  Finally, the CRA explained that the Consumer could call the CRA or visit its website if he believed the information in his credit file was inaccurate or incomplete. 

The Consumer did neither.  Instead, the Company sent several more letters to the CRA on the Consumer’s behalf.  However, the Consumer again had no input on the drafting of the letters, and did not review them before they were sent.  The CRA did not initiate a reinvestigation after receiving the letters.

The Consumer thereafter filed a complaint alleging that by failing to take action in response to the letters, the CRA supposedly violated two provisions of FCRA.  Specifically, section 1681i, which requires consumer reporting agencies to reinvestigate disputed items, and section 1681e(b), which requires CRAs to use reasonable care in preparing consumer reports.

The CRA moved for summary judgment, and the trial court granted the motion ruling that section 1681i only required the CRA to reinvestigate disputes that came from the Consumer directly.  The trial court also determined that the Agency did not violate section 1681e(b) because, in its view, that statute did not apply to reinvestigation procedures at all. 

The matter was then appealed. 

On appeal, the Ninth Circuit first analyzed the application of section 1681i, which provides in relevant part that CRAs must “conduct a reasonable reinvestigation” when an item in the consumer’s file “is disputed by the consumer and the consumer notifies the agency directly . . . of such dispute.”

The Ninth Circuit observed that the question therefore was “whether those letters came ‘directly’ from [the Consumer].”

In concluding that they did not, the Court considered the “unambiguous meaning of the word ‘directly,’” which it noted is defined by Merriam-Webster’s Third New International Dictionary as “without any intervening agency or instrumentality or determining influence.”

Thus, the Ninth Circuit determined that “to notify a consumer reporting agency of a dispute ‘directly,’ a letter must come from the consumer and be sent to the agency.” 

However, in this case the Consumer “played almost no part in submitting the dispute letter to [the CRA].”  Specifically, he “did not identify the items to be disputed,” and “did not review the letter [the Company] drafted before it sent it to [the CRA].”  Moreover, he testified that he had “absolutely no input” into the contents of the letter at all.

Under those facts, the Ninth Circuit held that “the letters did not come directly from [the Consumer].”  However, the Court cautioned that its “holding is limited to the facts before us,” and “[w]e only hold that, in this case, where [the Consumer] played no role in preparing the letters and did not review them before they were sent, the letters sent by [the Company] did not come directly from [the Consumer].”

The Ninth Circuit therefore affirmed the ruling of the district court granting the CRA’s motion for summary judgment on the section 1681i claim.

The Court next reviewed the claim under section 1681e(b), which provides in relevant part that CRAs must “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom [a consumer report] relates.”

The appellant argued that even if section 1681i did not require the Agency to conduct a reinvestigation, its refusal to reinvestigate nevertheless violated section 1681e(b) because it was unreasonable.
The Ninth Circuit disagreed, stating that “it would make little sense to use Section 1681e(b) to impose liability on [the CRA] for conduct that satisfied Section 1681i,” because that “Section 1681i represents Congress’s determination that a consumer reporting agency is only required to initiate a reinvestigation if a consumer notifies the agency of a dispute directly.” 

Thus, “[i]t cannot be unreasonable for agencies to follow that guidance.”  The Ninth Circuit therefore held that the Agency “did not act unreasonably and, as a result, did not violate Section 1681e(b).”

Accordingly, the Ninth Circuit affirmed the trial court’s order granting summary judgment in favor of the CRA. 


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon





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Wednesday, August 7, 2019

FYI: 9th Cir Holds TCPA's "Federal Debts" Exception Unconstitutional, Joins 4th Cir

The U.S. Court of Appeals for the Ninth Circuit recently reversed the dismissal of a putative class action under the federal Telephone Consumer Protection Act, 47 U.S.C.  § 227, et seq. (TCPA), finding that the plaintiff adequately alleged that the defendant placed calls using an automated telephone dialing system. 

In so ruling, the Ninth Circuit joined with a similar ruling by the Fourth Circuit, and held that the TCPA’s exception for calls “made solely to collect a debt to or guaranteed by the United States” was incompatible with the First Amendment and severed the exception as an unconstitutional restriction on speech.

A copy of the opinion is available at:  Link to opinion

As you may recall, the TCPA prohibits the use of an automatic telephone dialing system (ATDS) to place informational or collection calls or text messages to a cell phone without the user’s prior express consent.  The TCPA defines an ATDS as “equipment which has the capacity … (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  47 U.S.C. § 227(a)(1).

The plaintiff alleged that the defendant used an ATDS to alert its users, as a security precaution, when their account was accessed from an unrecognized device or browser.  For unknown reasons, the plaintiff received messages from the defendant despite not being a user of the defendant’s products and services, and never consented to such alerts.

The plaintiff sued on behalf of two putative classes:  people who received a message from the defendant without providing their cell phone number to the defendant; and, people who notified the defendant that they did not wish to receive messages but later received at least one message.

The plaintiff alleged that the defendant maintained a database of phone numbers and explained how the defendant programed its equipment to automatically generate messages to those stored numbers. 

The defendant filed a motion to dismiss. The trial court concluded that the plaintiff inadequately alleged that the defendant used an ATDS to send its messages and dismissed the complaint with prejudice.

This appeal followed. 

The Ninth Circuit began its analysis by explaining that an ATDS need not be able to use a random or sequential generator to store numbers.  Instead, it merely needs to have to capacity to “store numbers to be called” and “to dial such numbers automatically.”  Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1053 (9th Cir. 2018).

The defendant urged the Ninth Circuit to interpret Marks narrowly, as such an expansive definition of an ATDS would capture smartphones because they can store numbers and, using built in automated response technology, dial those numbers automatically.

The defendant also sought to differentiate its equipment because it stored numbers “to be called” only reflexively as a preprogramed response to external stimuli outside of its control. 

The Ninth Circuit disagreed, stating that the statutory text provide no basis to exclude equipment that stored numbers “to be called” only reflexively.  Instead, the equipment need only have the “capacity” to store numbers to be called.  47 U.S.C. § 227(a)(1).

Moreover, the Ninth Circuit noted that phone numbers are frequently stored for purposes other than “to be called”, and provided examples such as merchants and restaurants that stored numbers to identify customers in their loyalty program.

Unpersuaded by these arguments, the Ninth Circuit held that plaintiff sufficiently plead that the defendant used an ATDS.

The defendant also argued that it was entitled to dismissal on the pleadings because the TCPA excepts calls “made for emergency purposes.”  47 U.S.C. § 227(b)(1)(A).

However, because the plaintiff alleged that he did not have an account with the defendant, meaning his account could not have faced a security issue, the Ninth Circuit determined that the emergency exception cannot apply to the defendant’s text messages.

Next, the Ninth Circuit turned to the defendant’s argument that the TCPA’s “debt-collection exception” was incompatible with the First Amendment. 

As you may recall, in 2015 Congress added an exception for calls “made solely to collect a debt owed to or guaranteed by the United States.”  47 U.S.C. § 227(b)(1)(A)(iii).

The Ninth Circuit observed that the pre-amendment TCPA was content neutral and consistent with the First Amendment.  Gomez v. Campbell-Ewald Co., 768 F.3d 871, 876 (9th Cir. 2014), aff’d 136 S. Ct. 663 (2016).

The TCPA satisfied intermediate scrutiny, as the Ninth Circuit explained, because it was narrowly tailored to advance the “government’s significant interest in residential privacy” and left open “ample alternative channels of communication.”  Moser v. Fed. Commc’ns Comm’n, 46 F.3d 970, 974 (9th Cir. 1995).

However, the Ninth Circuit noted that the debt-collection exception changed the framework because the TCPA now favors speech “solely to collect a debt owed to or guaranteed by the United States.”   
Because this section “target[ed] speech based on its communicative content”, the Ninth Circuit found the exception content-based and therefore subject to strict scrutiny.  Reed v. Town of Gilbert, Ariz., 135 S. Ct. 2218, 2226 (2015).

Under strict scrutiny the debt collection exception may be justified only if it is narrowly tailored to serve compelling state interests.  Reed, 135 S. Ct. at 2226.

The Ninth Circuit observed that the government advanced only one interest:  “the protection of personal and residential privacy.” 

However, the Ninth Circuit found autodialed calls to collect government debt were “every bit as invasive of residential and privacy rights as any other automated call,” and permitting callers to collect government debt hinders, not furthers, the government’s asserted interest.

Moreover, the debt collection exception in the Ninth Circuit’s view was not the least restrictive means to protective the public fisc. 

As the Ninth Circuit explained, “Congress could protect the public fisc in a content neutral way by phrasing the exception in the terms of the relationship rather than content,” or “[t]he government could also obtain consent from its debtors or place the calls itself.”

Because the debt-collection exception was insufficiently tailored to advance the government’s interests, the Ninth Circuit concluded that the debt-collection exception failed strict scrutiny. 

Lastly, the Ninth Circuit explained that only the debt collection exception violated the First Amendment and severing the exception would not undermine the TCPA.

The Ninth Circuit noted that its ruling was consistent with the Fourth Circuit’s ruling in Am. Ass'n of Political Consultants, Inc. v. FCC, 923 F.3d 159 (4th Cir. 2019), which also held that the debt collection exception was unconstitutional and severance was the appropriate remedy.

Accordingly, the Ninth Circuit reversed the trial court’s ruling and remanded for further proceedings.


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon





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Monday, July 29, 2019

FYI: Cal App Ct (1st Dist) Holds Rosenthal Act Allows Class Actions, Cure Provisions Apply to Debtor Notices

In an unreported opinion, the Court of Appeal for the First District of California recently held that a debt collector that violated the minimum type-size requirement for collection letters under Cal. Civil Code § 1812.701(b) may utilize the procedure for curing violations under California’s Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) to correct its violations.

However, the Appellate Court reversed the dismissal because the trial court should have allowed the consumer to amend the complaint or locate a suitable class representative after granting summary judgment in favor of the debt collector on her individual claim.

In so ruling, the Court also held that Rosenthal Act violations may be brought as class actions under a 1999 amendment essentially incorporating the federal Fair Debt Collection Practices Act’s provisions into the Rosenthal Act.

A copy of the opinion is available at:  Link to Opinion

The consumer received a debt collection letter from the debt collector that did not provide certain statutorily required language in the proper type-size.  The consumer filed a complaint on behalf of a putative class alleging violation of Cal. Civil Code § 1812.701(b).  As you may recall, a violation of section 1812.701(b) is “considered a violation of the Rosenthal Fair Debt Collection Practices Act”.  Cal. Civil Code § 1812.702

Nine days after it was served with the consumer’s complaint, the debt collector sent a revised collection letter that contained the required language in the same type-size as that which was used to inform her of her debt.

The debt collector argued that it cured the alleged violation within the 15-day period prescribed by Cal. Civil Code § 1788.30(d) for a curable Rosenthal Act violation.  The debt collector moved for summary judgment on the consumer’s individual claim. 

The trial court found that the “cure” provision under section 1788.30(d) applied to the debt collector’s section 1812.701(b) violation, and granted the debt collector’s motion for summary judgment and dismissed the entire putative class action.

This appeal followed.

As you may recall, debt collection practices in California are governed by federal law and by California’s Rosenthal Fair Debt Collection Practices Act, Cal. Civil Code § 1788, et seq.

Originally the Rosenthal Act did not permit class actions.  In 1999, the Legislature passed Assembly Bill No. 969, adding Cal. Civil Code B' 1788.17 to the Rosenthal Act, which provides in relevant part:  “[n]otwithstanding any other provision of this title, every debt collector collecting or attempting to collect a consumer debt shall comply with the provisions of Sections 1692b to 1692j, inclusive, of, and shall be subject to the remedies in Section 1692k of [the FDCPA].”   

Section 1692k of the FDCPA specifically provides for both individual and class action remedies, but does not contain a cure provision like the Rosenthal Act.

Then in 2003, the Legislature enacted the Consumer Collection Notice law, Cal. Civil Code §§ 1812.700-1812.702, which required third party debt collectors subject to the FDCPA, in their first written notice to debtors, to provide a description of debtor rights under state and federal law.  Cal. Civil Code B' 1812.700(a).

As relevant in this case, “[t]he type-size used in the disclosure shall be at least the same type-size as that used to inform the debtor of his or her specific debt, but is not required to be larger than 12-point type.”    Cal. Civil Code § 1812.701(b).

The cure provision in the Rosenthal Act states:  “[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.”  Cal. Civil Code § 1788.30(d).

The consumer argued that the trial court erred in applying section 1788.30(d) because the cure provision was repealed when the Legislature enacted section 1788.17 to require debt collector to comply with listed provisions of the FDCPA and subjected them to the remedies in section 1692k of the federal act. 

The Appellate Court disagreed.  Finding no express repeal language in Civil Code § 1788.18, the Appellate Court explained that an implied repeal will be found “only when there is no rational basis for harmonizing the two potentially conflicting statutes.”  Garcia v. McCutchen (1997) 16 Cal.4th 469, 477.  The Appellate Court observed that the Ninth Circuit Court of Appeals addressed this very issue in Afewerki v. Anaya Law Grp. (9th Cir. 2017) 868 F.3d 771, and held that section 1788.17 did not remove or impliedly repeal section 1788.30b’s defense for cured violations.

The Appellate Court noted that while section 1788.17 applied “[n]otwithstanding any other provision” of the Rosenthal Act, the mere incorporation of certain provisions from the FDCPA -- none of which says anything about curing violations -- did not render sections 1788.17 and 1788.30(d) so inconsistent that the two cannot operate concurrently.

Moreover, the Appellate Court found nothing in the legislative history of section 1788.17 indicating an intent to repeal section 1788.30(d).

The consumer also argued that the type-size violation cannot be cured under section 1788.30(d) because the statute requires compliance in the debt collector’s first written communication to the consumer. 

Alternatively, the consumer argued that the cure provision did not apply to the debt collector’s section 1812.701(b) violation.

The Appellate Court rejected these arguments, citing the floor analysis of Senate Bill No. 1022 -- the bill that enacted the Consumer Collection Notice Law -- and noted that the Legislature intended a violation of the type-size requirement to be a Rosenthal Act violation and subject to the 15-day correction period. 

Thus, the Appellate Court found no error in the trial court’s application of section 1788.30, and its determination that the debt collector’s violation could be cured in a writing sent after the first written communication with the debtor.

Next, the Appellate Court turned to the consumer’s argument that the trial court erred by dismissing the entire putative class action after granting summary judgment on her individual claim.

To resolve this issue, the Appellate Court began by considering whether the language “individual action” in section 1788.30 barred a class action based on alleged violations of section 1812.701(b).

As you may recall, the remedies provision of the Rosenthal Act state that “[a]ny debt collector who violates this title with respect to any debtor shall be liable to that debtor only in an individual action, and his liability therein to that debtor shall be in an amount equal to the sum of any actual damages sustained by the debtor as a result of the violation.”  Cal. Civil Code B' 1788.30(a). 

The debt collector may also be liable for statutory damages for a willful violation.   Cal. Civil Code § 1788.30(b). 

However, in the Appellate Court’s view, section 1788.17 may be reasonably read to incorporate the class action remedies of the FDCPA into the Rosenthal Act, “[n]otwithstanding any other provision” of the Rosenthal Act, such as the individual action provisions in section 1788.30.b

The Appellate Court observed that several federal courts faced with this questions have concluded that “class actions may proceed under the amendment to the Rosenthal Act.”  Gonzales v. Arrow Fin. Servs., LLC (9th Cir. 2011) 660 F.3d 1055, 1066 (collecting cases).

Thus, the Appellate Court determined that the consumer could bring a putative class action for claim under section 1812.701(b).

Finally, the Appellate Court turned to the issue of the pick off exception in putative class actions.

As you may recall, a typical pick off situation arises when prior to class certification, a defendant gives the named plaintiff the entirety of the relief claimed by that individual and then attempts to obtain dismissal of the action, on the basis that the named plaintiff can no longer pursue a class action. 

The involuntary receipt of relief does not, of itself, prevent the class plaintiff from continuing as a class representative.  Wallace v. GEICO General Ins. Co. (2010) 183 Cal.App.4th 1390, 1399. Rather, the trial court must decide whether the named plaintiff can continue to fairly represent the class in light of the individual relief offered by the defendant.  Id., at pp. 1399-1400.

The debt collector argued that it did not pick off the named plaintiff, but rather, it substantively prevailed on the merits of her individual claim based upon the cure defense under section 1788.30(d).

However, the Appellate Court determined that the debt collector did not prevail against the consumer in the sense that her allegations were disproven or shown to be meritless.  Instead, her allegations were implicitly conceded and the debt collector did not produce any evidence that it corrected the alleged violations as to the rest of the putative class.

In the Appellate Court’s view, the debt collector voluntarily gave special treatment to the named plaintiff only, resulting in the elimination of her standing to maintain a putative class action.

Thus, the Appellate Court held that the trial court erred in dismissing the entire putative class action without affording the consumer the opportunity to amend her complaint, redefine the putative class, or locate a suitable class representative. 

Accordingly, the Appellate Court reversed the trial court’s judgment and remanded for further proceedings.


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
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Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon





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