United States District Court, Northern District of California
March 24, 1999
KATHLEEN R. IRWIN, ET AL., PLAINTIFFS,
OWEN T. MASCOTT, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Larson, United States Magistrate Judge.
MEMORANDUM AND ORDER
Plaintiffs filed their Motion for Class Certification, Defendants filed
their Opposition, Plaintiffs filed a Reply, and the matter was submitted
without oral argument on November 4, 1998. Supplemental pleadings were
NATURE OF THE CASE
Plaintiffs Kathleen R. Irwin, Nancy Heth, and Lorraine L. Castaneda
have moved for class certification in this action against defendants Owen
T. Mascott, Commonwealth Equity Adjustments, Inc. ("CEA"), and Eric W.
Browning, for alleged violations of the Fair Debt Collection Practices
Act, 15 U.S.C. § 1692 et seq. [FDCPA], and the California Unfair
Business Practices Act, Cal. Business & Professions Code §§ 7200, et
Plaintiffs seek certification of all issues, including liability,
damages and injunctive relief.
A. The Class Definition
Plaintiffs seek certification of the following class:
1. (i) all persons with addresses in California; (ii)
to whom any defendant has sent or will send or has
caused or will cause to be sent a letter containing
demands or representation which are identical or
similar to the demands or representations contained
in any of the letters attached as Exhibits 1-10 to
the Complaint; (iii) in connection with attempts to
collect debts arising from dishonored checks (iv)
which checks were not returned as undeliverable by
the Post Office.
Sub-class A: Those members of the umbrella class whose checks were
written for personal, family or household purposes at any time on or
after January 1, 1997 [the FDCPA class]; Sub-class B: Those members of
the umbrella class whose checks were written for any purpose at any time
on or after January 1, 1994 [the CUBPA class].
REQUIREMENTS FOR CLASS CERTIFICATION GENERALLY
Pursuant to Fed.R.Civ.Proc., Rule 23, plaintiff's burden of
establishing a factual
basis for class certification is not a heavy one. It is generally
accepted that Rule 23 should be liberally construed.*fn1
Except where underlying class facts and circumstance& ate sheer
speculation, the initial burden on the party invoking the class action to
show class facts is light. A well-pleaded complaint usually constitutes a
prima facie showing of these facts sufficient to shift immediately the
burden of disproving them to the party opposing the class. Ibid.
The prerequisites to a class action are that (1) the class is so
numerous that joinder of all members is impracticable, (2) there are
questions of law or fact common to the class, (3) the claims or defenses
of the representative parties are typical of the claims or defenses of
the class, and (4) the representative parties will fairly and adequately
protect the interests of the class.
APPLICABILITY OF FAIR DEBT COLLECTION PRACTICES
Congressional intent allowing for FDPCA class actions is expressed in
15 U.S.C. § 1692k. Definitions are provided in prior sections, e.g.,
15 U.S.C. § 1692a(3) provides:
The term "consumer" means any natural person
obligated or allegedly obligated to pay any debt.
15 U.S.C. § 1692a(5) provides:
The term "debt" means any obligation or alleged
obligation of a consumer to pay money arising out of a
transaction in which the money, property, insurance or
services which are the subject of the transaction are
primarily for personal, family or household purposes,
whether or not such obligation has been reduced to
In the complaint, Plaintiffs have alleged a class of FDCPA consumers.
Complaint, Section VII. For purposes of class certification, the
plaintiffs' allegations must be accepted as true, except where
contradicted by the evidence.*fn2
Each of the three named plaintiffs
incurred consumer debts. The defendants collect on checks written to
major retail outlets, such as Wal-Mart, K-Mart and J.C. Penney, where the
typical customer makes purchases for personal, family or household
purposes. The defendants have not proffered any evidence that
non-consumers constitute any part of the class.
A dishonored check written on a personal checking account is prima
facie evidence that the check was written for personal purposes*fn3 In
another case involving a volume check collector, Ditty v. CheckRite,
Ltd., Civ. No. 2:95-CV-430C (D. Utah, 8/13/98 Order)*fn4 the court held
[T]he use of a personal check, as identified on the
defendant's computer system, creates a rebuttable
presumption that the debt was consumer in nature and
is sufficient to make out plaintiffs' prima face
case: Id., citing Berrios v. Sprint Corp., 1998 WL
199842 at 10 (E.D.N.Y. 1998). Ditty v. Checkrite,
Ltd., 1998 WL 663357, *3.
See also, Wells v. McDonough, 1998 WL 160876, *5 (N.D.Ill. 1998),*fn5
which also involved check collection, in which class certification was
granted because the personal nature of the transaction could be
determined by looking at either the check or at defendant's records.
Similarly in TILA
(Truth in Lending Act, 15 U.S.C. § 1601 et seq.) cases, arguments
such as the defendants' here have been rejected.*fn6
The fact that
defendants do not maintain information that allows a precise
determination of the nature of each purchase should not be a bar to
proceeding under the FDCPA. See, e.g., Gladstone v. The Master
Collectors, Inc. (N.D.Ga. Civ. No. 1:94-cv-0143-FMH), 2/1/95 Order
Certifying Class, pp. 15-17.*fn7
It would be possible to identify checks written for commercial
purchases and distinguish them from those written for consumer purchases.
In the context of a proposed class under 15 U.S.C. § 1601 et seq.
("TILA"), the Seventh Circuit stated: "Such commercial purchases would
frequently be readily identified by the listing of the name of the
business as the purchaser in the contract."*fn8 It is likely that a
commercial purchase by check would be on the business's checking
account. Thus, all that may be required to identify consumers as members
of the FDCPA class is to separate personal checks from business checks,
or to look at the predominant customer base of the merchant.
The parties agree that the class consists of between 191,000 and
300,000 California residents, so numerosity is not at issue.
There must be "questions of law or fact common to the class."
Fed.R.Civ.P. 23(a)(2). "The fact that there is some factual variation
among the class grievances will not defeat a class action. . . . A common
nucleus of operative fact is usually enough to satisfy the commonality
requirement of Rule 23(a)(2)."*fn9
Some of the putative class members have state law claims which fall
outside the one year statute of limitations for FDCPA claims. This would
affect the temporal scope of the class, not whether a class should be
Defendants argue that the FDCPA preempts state action.
There are three circumstances in which state law is preempted under the
Supremacy Clause, U.S. Const. Art. VI, cl. 2, by federal law: (1) express
preemption, where Congress explicitly defines the extent to which its
enactments preempt state law; (2) field preemption, where state law
attempts to regulate conduct in a field that Congress intended the
federal law exclusively to occupy; and (3) conflict preemption, where it
is impossible to comply with both state and federal requirements, or
where state law stands as an obstacle to the accomplishment and execution
of the full purpose and objectives of Congress.*fn10 The overriding
consideration is whether Congress intended to preempt state law.*fn11
Congressional intent to preempt state law must be clear and manifest.
*fn12 The mere existence of a detailed regulatory scheme does not by
itself imply preemption of state remedies.*fn13 Moreover,
"preemption of state law by federal statute or regulation is not favored
in the absence of persuasive reasons either that the nature of the
regulated subject matter permits no other conclusion, or that the
Congress has unmistakably so ordained."*fn14
Express or Implied Preemption
In the present case, defendants rely upon the doctrine of implied
preemption. Citing cases that hold that the FDCPA does not provide for a
private right of injunctive relief, defendants argue that the FDCPA
preempts injunctive relief under state law. Defendants briefly refer to
15 U.S.C. § 1692n, but omit any reference to its last sentence. That
provision of the FDCPA provides, in its entirety:
This title does not annul, alter, or affect, or exempt
any person subject to the provisions of this title
from complying with the laws of any State with respect
to debt collection practices, except to the extent
that those laws are inconsistent with any provision of
this title, and then only to the extent of the
inconsistency. For purposes of this section, a State
law is not inconsistent with this title if the
protection such law affords any consumer is greater
than the protection provided by this title.
15 U.S.C. § 1692n, emphasis added.
Thus, there is an express statement of Congressional intent not to
preempt state laws, such as Cal.Bus. & Prof.Code §§ 17200 et seq.,
which may provide for greater protection, in the form of injunctive
relief, than does the FDCPA. In any case, this Court has jurisdiction
over a sub-class B [the CUBPA class], for the full four year period
provided by California law.*fn15
Pendent Party Jurisdiction
In Finley v. United States,*fn16 the Supreme Court held that pendent
party jurisdiction could be exercised only with statutory authorization.
Specifically, the Court stated that where a plaintiff brings an action
against the United States under the Federal Tort Claims Act, the Act does
not provide for pendent-party jurisdiction over additional defendants for
whom an independent jurisdictional base is lacking. Congress enacted the
supplemental jurisdiction statute, 28 U.S.C. § 1367, as part of the
Judicial Improvements Act of 1990, as a legislative response to Finley
v. United States.*fn17
Subsection (a) of Section 1367 applies to cases brought pursuant to the
district court's federal question jurisdiction.*fn18 It provides in
Except as provided in subsections (b) and (c) . . . in
any civil action of which the district courts have
original jurisdiction, the district courts shall have
supplemental jurisdiction over all other claims that
are so related to claims in the action within such
original jurisdiction that they form part of the same
case or controversy under Article III of the United
States Constitution. Such supplemental jurisdiction
shall include claims that involve the joinder or
intervention of additional parties. 28 U.S.C. § 1367
(a), emphasis added.
The last sentence of section 1367(a) effectively abrogates the
restrictions on pendent party jurisdiction formerly created by Finley v.
United States, supra, in federal question cases.*fn19
permits the district court to decline to exercise supplemental
jurisdiction over certain
types of plaintiffs or certain types of claims.
The Ninth Circuit has interpreted § 1367 as allowing a district
court, at its discretion, to exercise jurisdiction over supplemental
parties.*fn20 In the Executive Software case the court ruled that once a
district court determines that supplemental jurisdiction is permissible
under § 1367, then § 1367(c) provides the exclusive means by
which the district court may decline supplemental jurisdiction. Ibid.
Accordingly, unless a court properly invokes a section 1367(c)
category in exercising its discretion to decline to entertain pendent
claims, supplemental jurisdiction must be asserted. Id. at 1556.
District courts in California have asserted supplemental jurisdiction
in actions with facts similar to the case at bar. For example, in Guzman
v. Oxnard Lemon Associates Ltd.,*fn21 the district court asserted
supplemental jurisdiction in an employment discrimination class action
with jurisdictional facts substantially similar to the case at bar. There
the court stated:
The Court recognizes that the class, as certified, contains members
who, because of the applicable statute of limitations, may not be able to
maintain a federal claim under Title VII. The Court intends to exercise
its supplemental jurisdiction over these class members pursuant to
28 U.S.C. § 1367. Id.
In La Patagonia Compania v. Empresa Lineas Maritimas Argentinas,*fn22
the district court went a step further and, in the interest of judicial
economy, exercised supplemental jurisdiction over supplemental state
claims, even though the statute of limitations had run on the principal
federal claim. Id., at *4
In this action the court unquestionably has jurisdiction over named
plaintiffs' Fair Debt Collection Practices Act claim. Since putative class
members' claims are supplemental to the named plaintiffs' claims, this
Court's exercise of supplemental jurisdiction over these claims is
appropriate. The existence of such claims does not defeat commonality.
CHECK WRITERS' INTENT
Defendants argue that a class member who wrote a check knowing it would
not clear, did not incur a "debt" within the meaning of the FDCPA.
Therefore, since it would be necessary to examine each class member to
determine his or her state of mind when writing a check, individual
questions will predominate over common questions and class certification
should be denied for lack of commonality.
The FDCPA does not distinguish between debtors based on their intent.
*fn23 Recently, the Seventh Circuit expressly ruled on the argument that
there is a "fraud" exception to the FDCPA which would allow check
collectors to operate outside the FDCPA. The court reasoned that:
[N]either the text nor underlying legislative history
of the FDCPA lends itself to the recognition of a
fraud exception. Indeed, nothing, in the Act makes
inquiry in to the debtor's intent at the time he or
she writes a subsequently-dishonored check. Its
language focuses primarily, if not exclusively, on the
conduct of debt collectors, not debtors. Absent some.
textual directive in the FDCPA, we will not alter that
focus, for our task is to interpret the words of
Congress, not add to them.
Keele v. Wexler, 149 F.3d 589
, 595 (7th Cir. 1998), emphasis in the
There is no fraud exception to the FDCPA and there will be no need to
inquire into the intent of any individual class member in writing a
PROOF OF RECEIPT
Defendants say that proof of whether each plaintiff actually received a
notice in violation of the FDCPA would require individual investigation
and defeat commonality. A debt collector violates the FDCPA by sending a
notice containing unlawful provisions. Whether the notice is received is
irrelevant to the issue of liability.*fn24 Even if receipt of the
collection letter were required, there is an evidentiary presumption that
a properly posted letter has been received by the addressee.*fn25
Moreover, those class members who sent money to defendants had certainly
NOTICE OF SERVICE CHARGE: EXPRESS AGREEMENT
The possible existence of an agreement to pay a service charge might
theoretically require individual inquiry into Plaintiffs' transactions.
However, even if there were evidence of an express agreement to pay the
service charge, the service charge agreement would be a void liquidated
damages provision under California Civil Code § 1671.
The liquidated damages issue is equitable in nature and is a matter to
be decided by the court.*fn26 The party seeking to rely on a liquidated
damages clause bears the burden of proving its validity.*fn27
The relevant subsection of Civil Code § 1671 is subsection (d). It
applies to consumer contracts to purchase goods and services, and
prescribes the standard of invalidity of liquidated damages in such
Cal. Civil Code section 1671 provides in pertinent part:
(c) The validity of a liquidated damages provision
shall be determined under subdivision (d) . . . where
the liquidated damages are sought to be recovered
from . . .:
(1) A party to a contract for the retail purchase, or
rental, by such party of personal property or
services, primarily for the party's personal, family,
or household purposes;
(d) In the cases described in subdivision (c), a
provision in a contract liquidating damages for the
breach of the contract is void except that the parties
to such a contract may agree therein upon an amount
which shall be presumed to be the amount of damage
sustained by a breach thereof, when, from the nature
of the case, it would be impracticable or extremely
difficult to fix the actual damage. Emphasis added.
The first requirement for a valid liquidated damages provision under
section 1671(d) is that the actual damages which would be sustained from
a breach must be "impracticable" or "extremely difficult" to determine.
Emphasis added; Garrett supra, 9 Cal.3d at 739, 108 Cal.Rptr. 845,
511 P.2d 1197. As a matter of law, collection costs are not difficult to
The second requirement for a valid liquidated damages provision is that
the amount of liquidated damages "must represent the result of a
reasonable endeavor by the parties to estimate a fair average
compensation for any loss that may be sustained." Emphasis added, Hitz,
38 Cal.App.4th at 288, 44 Cal.Rptr.2d 890. Such an estimate cannot occur
without analysis of the loss that is to be compensated. Absent either of
the two elements, a liquidated damages provision is void. Id.
The validity of the liquidated damages clause is determined by the
circumstances existing when the fee provisions are inserted into an
agreement, and not by subsequent events. Id. The parties' reasonable
endeavor to estimate the loss must precede the setting of fees. Id. Cost
analyses or studies made subsequent to the agreements are not relevant to
the validity of the fees. Id., at 291-292, 44 Cal.Rptr.2d 890.
In sum, there is no evidence suggesting that it is likely that notices
setting forth defendants' "statutory fees" and other charges were posted
and no basis to believe that defendants will be able to meet their burden
of producing evidence of an agreement to pay such charges, Moreover, as a
matter of law, those charges would constitute illegal liquidated
damages. There is no valid need for an individual inquiry into each
transaction. The possible existence of an agreement to pay a service
charge would not defeat commonality in this case.
The "claims or defenses of the class representative must be typical of
the claims or defenses of the class." Fed.R.Civ.P. 23(a)(3). "[A]
plaintiff's claim is typical if it arises from the same event or practice
or course of conduct that gives rise to the claims of other class members
and his or her claims are based on the same legal theory."*fn29
In Keele v. Wexler, cited supra, the court reasoned that any person who
has been subjected to debt collector conduct which violates the FDCPA is
entitled to statutory damages, and therefore has suffered the same injury
as unnamed class members. So long as the injuries of the named plaintiffs
and the class members arose out of the same conduct, the named plaintiffs
may properly represent the class. Id. In the present case, the named
plaintiffs are seeking to represent a class consisting of those who
received letters containing the same or similar demands as those that
they received. Their claims are therefore typical of those of the class.
The fact that Ms. Castaneda and Ms. Irwin may also have a right to
statutory damages, injunctive relief and declaratory relief, but may not
have a right to actual damages, does not render their claims atypical.
There is no conflict between the named plaintiffs and class members
which would affect typicality. As courts recognize, in consumer class
actions where recoveries are small, often the only realistic prospect of
any relief is a class action.*fn30
So long as the plaintiffs' claims arise out of a common nucleus of
operative fact, and otherwise meet Rule 23 requirements, the fact that
there are multiple alleged violations of the FDCPA is no obstacle to
Defendants also contend that the fact that some of the named plaintiffs
may have had attorneys at the time that they received some of the
letters, and may have received advice from these attorneys, renders their
claims atypical. Specifically, defendants argue that this means that the
"least sophisticated debtor" standard should not apply to these
plaintiffs. The "least sophisticated debtor" standard is an objective
standard, applied when the issue is whether a communication from a debt
collector violates the FDCPA, for instance a debt collector made a threat
to take action that cannot legally be taken, in violation of
15 U.S.C. § 1692e(5). It is an objective standard, imposed to further
the protective purposes of the FDCPA*fn32 The standard applies even to
those who have lawyers.
ADEQUACY OF CLASS REPRESENTATIVES
A prerequisite for class certification under Rule 23 is that the person
representing the class must be able "fairly and adequately to protect the
interests" of all members of the class. Fed.R.Civ.P. 23(a)(4).
Representation is adequate where: (1) the attorney representing the class
is qualified and competent; (2) the class representative does not have
interests antagonistic to the remainder of the class,*fn33 and (3) the
class representative has a sufficient interest in the outcome of the case
to ensure vigorous advocacy.*fn34
Defendants attack the plaintiffs' adequacy to represent the class on one
ground alone . . . lack of financial resources to pay for notice and
administration costs. In making this argument defendants inflate the size
of the potential class by 100 percent, and ignore "the fact that, based
on defendants' information, only 10% of the class will be mailed notice
of this action and given an opportunity to opt out.
Defendants argue that there may be as many as 300,000 class members and
that it is going to cost $213,000 to provide class notice. The cost of
mailing would be $0.40 per person. Multiplying the per person cost by the
approximate class total of 191,000, the real cost of mailing notice of
this class action would be $76,400.
There should be no need to send notices to more than about 10 percent
of these, based on the information defendants have provided so far.
Plaintiffs are seeking certification for the entire class under Rule 23
(b)(2), which does not require notice. Notice, and an opportunity to opt
out, should be required only for those who have paid defendants money
above the face amount of the check and may be entitled to a refund of
that money. According to defendants, this is 7 to 10 percent of the total
class. Assuming that 20,000 class members are entitled to either actual
damages or restitution, or both, notice costs will be approximately
Plaintiffs' counsel represent to the Court that they know what class
actions cost, and that they have the ability to advance those costs.
Plaintiffs objected to discovery of both their and their counsels'
financial resources because the representation that litigation costs will
be advanced by counsel is sufficient.*fn35
The anticipated costs in this case are far less than those in Newman
v. Checkrite,*fn36 in which settlement was negotiated by the same
counsel on both sides as the case at bar. In Newman, 183,000 class
members had paid fees over the face amounts of their dishonored checks.
In the case at bar, only about 19,000 class members paid such fees and
are, therefore, potentially entitled to monetary damages.
Consequently the process of identifying, notifying and paying these
class members would be much lower. Plaintiffs' counsels' plan for
administering the Newman class, a much larger one than in this case, was
approved by the court. Counsel has demonstrated
their ability to manage this type of class action.
CERTIFICATION UNDER RULE 23(b)(2)
Class certification may be appropriate where a defendant acted or
refused to act in a manner applicable to the class generally, rendering
injunctive relief or declaratory relief appropriate to the class as a
whole. Fed.R.Civ.P. 23(b)(2). Rule 23(b)(2) generally does not extend
to cases in which the appropriate final relief "relates exclusively or
predominantly to money damages."*fn37
Plaintiffs are seeking injunctive and declaratory relief, restitution,
and statutory and actual damages. Statutory damages are limited to one
percent of defendants' net worth, up to $500,000. 15 U.S.C. § 1692k.
Even assuming a combined net worth for defendants of $10,000,000, total
statutory damages would be only $100,000. Distributed pro-rata to a class
of 191,000 people, these damages would be $0.52 per person. Clearly,
statutory monetary damages do not predominate.
Actual damages consist of the amount which class members paid above the
face amount of each check. Plaintiffs do not at this point have any
evidence regarding the total amounts collected from class members.
Defendants, however, have proffered evidence that they only successfully
collect on 7 to 10 percent of all checks referred to them for
collection. Using the 10 percent figure, defendants have collected from
19,100 of the 191,000 accounts referred. Therefore, 90 percent of those
whose rights allegedly were violated are not entitled to actual damages
in this lawsuit. These 171,900 class members who are not entitled to
actual damages are still entitled to injunctive and declaratory relief.
Even where damages may eventually be awarded, if injunctive relief is a
significant aspect of the relief sought, Rule 23(b)(2) certification is
appropriate. Gelb v. American Tel. & Tel. Co., 150 F.R.D. 76, 78
INJUNCTIVE AND DECLARATORY RELIEF
Defendants argue that injunctive relief is not appropriate because
defendant Mascott no longer works for CEA, and because since January 1,
1997, California Civil Code § 1719 expressly allows for a $25.00
Mascott has indeed left CEA, and apparently has been replaced by new
lawyers, "Homan & Stone." This may remove any need for injunctive relief
against Mascott. Defendant CEA's practices have not changed, however.
Homan & Stone send out letters, on behalf of CEA,*fn38 which are
identical or similar to those previously sent out by Mascott.
Defendants argue that California Civil Code § 1719 provides for a
lawful $25.00 service charge, which renders any need for injunctive
Defendants demand more than the $25.00 service charge. Defendants have
not explained what bearing their potential entitlement to a $25.00
service charge on checks written after 1996 has to do with the monetary
demands which they routinely make, for various fees and penalties.*fn39
Moreover, California Civil Code § 1719 is not retroactive, and
therefore CEA may not use that statute to justify
demands made in connection with checks written prior to January 1, 1997,
the effective date of the amended statute.
In ruling on this motion the substantive allegations of the complaint
are generally taken as true.*fn40 Plaintiffs have alleged a continuing
practice by defendants of sending out letters in violation of the FDCPA.
Other than the representation that Mascott no longer Works for CEA,
defendants have not proffered any evidence that they have stopped sending
out letters which violate the. FDCPA. Accordingly, the request for
injunctive relief is not moot.
SERVICE CHARGES ARE NOT AN EXCEPTION TO FDCA, AND DO
NOT AFFECT CLASS CERTIFICATION
Under 15 U.S.C. § 1692f(1), tire collection of any amount over the
face amount of dishonored check is prohibited unless the excess amount is
expressly authorized by the agreement creating the debt or premitted by
law.*fn41 The burden of proving a statutory exception falls on the party
seeking to reap the benefits of the exception.*fn42 In this action
defendants seek the benefit of the statutory exception to
15 U.S.C. § 1692f(1), which allows excess charges on a debt where
expressly authorized by the agreement creating the debt. Therefore,
defendants must prove by a preponderance of the evidence that they had a
lawful agreement with each check writer to pay the additional charge.
Even if there were evidence that a service charge notice had been
posted, that would not be enough. There must also be evidence that the
check writer both saw the notice and intended to agree to its terms.*fn43
Pursuant to 15 U.S.C. § 1692f(1), such an agreement must have been
express. Given the nature of the relationship between defendants and the
merchants, it is doubtful that in any individual case defendants can
produce any evidence that a service notice was posted by the merchant and
seen by the check writer who expressly agreed to its terms.
DEFENDANTS' ASSERTION OF A STATE LAW PRIVILEGE IS NOT
AN OBSTACLE TO CLASS CERTIFICATION
As an affirmative defense, defendants assert a privilege for
pre-litigation communications. This privilege applies only when, prior to
commencement of a lawsuit, a communication having some relation to a
proceeding that is contemplated in good faith and is under serious
consideration is made by a possible party to the litigation. Emphasis
added; Laffer v. Levinson, Miller, Jacobs & Phillips, 34 Cal.App.4th 117,
40 Cal.Rptr.2d 233, (1995), citing, Restatement Second of Torts, Section
586, Comment e, p. 248.*fn44 The mere possibility that a proceeding
might be instituted is not to be used as a cloak to provide immunity for
tort actions when the possibility is not seriously considered. Ibid.;
Herzog v. "A" Company, Inc., 188 Cal.Rptr. 155, 138 Cal.App.3d 656,
660-662 (1982). (Emphasis added).
Defendants have not proffered any facts supporting a conclusion that
time a collection letter was sent, a CEA representative had made an
individual determination whether or not the recipient would be sued if
they paid the demand. The computerized nature of this volume collection
operation makes it unlikely that individualized attention was given to any
of the 191,000 accounts defendants sought to collect. Moreover, since
only eight lawsuits were ever filed,*fn45 out of apparently 171,900
people who did not pay defendants' demands, some unique factors had to
trigger a lawsuit. The fact that eight people were actually sued does not
give rise to the conclusion that the litigants will have to individually
sift through 191,000 other accounts to divine defendants' intent.
Clearly, defendants' uniform practice was never to sue check writers, and
whatever policy they followed, or intent they possessed, existed on a
class-wide, not an individual basis.
Likewise, defendants' interpretation of the "creditor's privilege"*fn46
will not require an examination of individual accounts, since it only
applies to communications with third parties, not those between a creditor
and an alleged debtor. Newman v. Checkrite of California, Inc., supra,
912 F. Supp. at p. 1374.
DEFENDANTS' INTENT TO FILE LAWSUITS IS NOT RELEVANT TO CLASS
Defendants argue that plaintiffs will have to show on a case-by-case
basis that defendants did not have any intent to sue. This is not
correct. Where defendants rarely, if ever, file collection lawsuits, that
fact alone may be sufficient to prove a lack of intent.*fn47
assuming that defendants had some criteria for determining when a lawsuit
would be filed, such as a monetary minimum, current employment, or other
indicia that filing a lawsuit will probably be profitable, plaintiffs
will be able to determine which accounts met such criteria. The threats
to sue which were sent to people who did not meet these criteria would be
MANAGEABILITY OF ISSUES FOR TRIAL
There are no manageability problems which will interfere with art
orderly trial on the merits. The violations alleged in the complaint are
systemic. Liability issues that remain for trial will be determined
according to the lawfulness of the systemic decisions and actions "taken
by defendants. Damages may be calculated based on defendants' computer
For instance, on the issue of the threats to file suit and to attach
property and wages, as probative, if not determinative, on intent,
plaintiffs will proffer evidence that defendants rarely sued anyone and
have never executed on a judgment. Defendants will counter with their
testimony that they always intended to sue people and attach their
property. The trier of fact may well find for one of the parties on that
Many of the issues, for instance, the legality of the demands for
payment pursuant to Penal Code § 490.5, are legal issues that will be
decided by the Court. See e.g., Newman v. Checkrite of California, Inc.,
supra, 912 F. Supp. at 1354, in which the majority of the issues raised
by the defendants in an almost identical factual setting were decided on
CLASS NOTICE WILL NOT BE A PROBLEM
Notice does not need to be sent to 23(b)(2) class members who did not
incur actual damages. This is 90 percent of the class, according to
Notice must be sent to the Rule 23(b)(3) class, those who paid money
above the face amount of the check and are entitled to actual damages
and/or restitution. Based on defendants' evidence, this will be less than
20,000 people, and notice costs will be approximately $8,000.00.
Statutory damages; on the other hand, may be owed to the entire Rule
23(b)(2) class of 191,000 people. There is an open question of whether a
de minimus recovery should be distributed to class members or go to a cy
pres recovery.*fn49 In whatever manner statutory damages are handled, if
plaintiffs prevail, it is the defendants, not the plaintiffs, who will pay
administration cost. The "economic reality" test to which defendants
refer is whether, given the nature of a dispute, including the potential
damages and associated attorneys' fees and costs, the economic reality is
that individual plaintiffs are unlikely to pursue their individual
claims, especially where, as here, the individual recoveries are likely
to be small.*fn50
In accordance with the findings and conclusions contained in this
Memorandum and Order, it is, subject to alteration or amendment under
Fed.R.Civ.P. 23(c), conditionally ORDERED:
Class Certification. Civil Action No. 97-4737, styled Kathleen L.
Irwin, et al. v. Owen T. Mascott, et al. shall be maintained as a class
action on behalf of the following class of plaintiffs:
1. (i) all persons with addresses in California; (ii) to whom any
defendant has sent or will send or has caused or will cause to be sent
a letter containing demands or representation which are identical or
similar to the demands or representations contained in any of the
letters attached as Exhibits 1-10 to the Complaint; (iii) in
connection with attempts to collect debts arising from dishonored
checks (iv) which checks were not returned as undeliverable by the
Sub-class A: Those members of the umbrella class whose
checks were written for personal, family or household
purposes at any time on or after January 1, 1997 [the
Sub-class B: Those members of the umbrella class whose
checks were written for any purpose at any time on or
after January 1, 1994 [the CUBPA class]. With regard
to claims for damages and injunctive relief, with
respect to the following causes of action:
1. Violations of the Fair Debt Collection Practices
Act, 15 U.S.C. § 1692 et seq. ("FDCPA").
2. Violations of the California Unfair Business
Practices Act, Cal. Business & Professions Code
§§ 17200, et seq. ("CUBPA");
Such claims are premised upon the allegation that it is the policy and
practice of defendants to cause collection letters in the forms of
Exhibits 1-10 (attached to the Complaint) to be sent to residents of
California in an attempt to collect dishonored checks, in violation of
the FDCPA and the CUBPA, by., demanding unauthorized amounts, by
contradicting and overshadowing the violation notice, by demanding
amounts which cannot lawfully be recovered, by falsely representing that
a communication is from an attorney, by falsely
representing that the California Penal Code has been violated, by
threatening to communicate false information to a credit reporting
agency, and by using false representations or deceptive means in an
attempt to collect a debt. 15 U.S.C. § 1692e, e(2), e(3), e(4),
e(5), e(7), e(8), e(10), f and f(1).
Class Representatives; Class Counsel. Subject to further order, of the
court, Kathleen R. Irwin, Nancy Heth, and Lorraine L. Castaneda are
designated as class representatives and Paul Arons, O. Randolph Bragg,
III and Lorraine Ellen Baur are designated as counsel for the class.
(A) Class counsel shall, on or before a date ninety
days from the date of this Order, cause to be mailed
in the name of the clerk by first class mail, postage
prepaid, to all class members who can be identified
through reasonable efforts, a notice in substantially
the form as Attachment A.
Exclusion: Class members may exclude themselves from the class by
filing with the "Committee of Counsel" by a date to be determined the
form attached to Exhibit A or some other appropriate written indication
that they request exclusion from the class. Class counsel are designated
as a Committee of Counsel to arrange for a post office box and to receive
and tabulate requests for exclusion.
List of Class Members: Class counsel will file with the clerk, by a
date to be determined, an affidavit identifying the persons to whom
notice has been mailed and who have not timely requested exclusion.
WHEREFORE, for the reasons stated herein, it is hereby ordered that the
motion for class certification is granted.