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IRWIN v. MASCOTT

February 11, 2000

KATHLEEN R. IRWIN, ET AL., PLAINTIFFS,
V.
OWEN T. MASCOTT, ET AL., DEFENDANTS



The opinion of the court was delivered by: Larson, United States Magistrate Judge.

  ORDER DENYING MOTION TO ADD THIRD-PARTY DEFENDANTS

INTRODUCTION

Defendants' Motion to Add Third-Party Defendants was heard on November 17, 1999. Mark Ellis and June Coleman appeared for Defendants. Paul Arons and Lorraine Baur appeared for Plaintiffs. After oral argument, the Court took the matter under submission.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs Kathleen R. Irwin, Nancy Heth, and Lorraine L. Castaneda filed suit on December 31, 1997, for damages and injunctive relief 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 §§ 17200, et seq. ("CUBPA").

Plaintiffs alleged that CEA, and its executive director Browning, through its then attorney, Owen Mascott, violated the FDCPA and CUBPA through written communications to debtors which:

1) contained impermissible threats of future litigation;
2) sought add-on charges and damages which CEA (and its attorneys) were not entitled to collect under California law; and
3) often contained draft lawsuits, which Mascott had no intention of filing, as a deceptive practice in an attempt to extort extra charges from debtors.

(Complaint, ¶¶ 36-43, 51-61).

The class was certified on March 24, 1999. Irwin v. Mascott, 186 F.R.D. 567 (N.D.Cal. 1999).

THIS MOTION

CEA and its president, Eric Browning,*fn1 move for this Court's permission to serve a third-party complaint on Homan and Lobb, and its successor, Homan and Stone ("Homan firms"), CEA's former law firms. Mascott was CEA's general counsel up to the time of the filing of the lawsuit. The Homan firms took over in 1998 and 1999. CEA claims that certification of the plaintiff class extended CEA's potential liability through the present, into the time period when its collection advice was provided by the Homan firms. Plaintiffs included these firms in the class notice, despite CEA's objection that they were not named defendants in the action and should not appear on the notice absent amendment of the complaint.

After class certification, CEA reviewed its potential liability for collection activities in 1998 and 1999, and discovered that it exceeded its insurance policy limits. At his partial deposition in September 1999, Robert Hyde, CEA's Operations Manager, revealed that CEA had retained the Homan law firms and relied on their advice as to both collections and compliance, just as CEA had previously relied on the advice of its attorney, Owen Mascott.

Between July and mid-September, 1999, CEA decided that it had no choice but to file a third-party action against the law firms that had acted as its counsel after the lawsuit was filed. Its basis for doing so is that:

1) these firms advised CEA whether its collection program was in compliance with state and federal law; and
2) CEA is being held vicariously liable for the allegedly wrongful acts of its collections attorneys, including the written collection communications from the Homan firms.

CEA believes that the liability, if any, of the Homan firms is "inextricably intertwined" with the liability, if any, of CEA to Plaintiffs.

CEA seeks to implead the Homan firms in the interest of judicial economy. It denies any prejudice to Plaintiffs, saying in fact that the Homan firms' insurance will enlarge the potential pool for Plaintiffs' recovery. CEA denies any undue delay, citing the class certification as its first notice that it could be liable for collection activities occurring after the filing of the lawsuit.

Plaintiffs object, claiming delay and prejudice, with the addition of parties setting up a potential conflict of interest of existing CEA counsel, addition of new counsel who will need time to be brought up to speed, re-taking of discovery, and refiling of motions. Plaintiffs observe that the Homan firms are themselves the defendants in other lawsuits and that their insurance is probably nearly exhausted by now. Plaintiffs minimize the participation of the Homan firms in the alleged violations of the FDCPA and CUBPA, claiming that they only continued to use Mascott's boilerplate collection letters and lawsuit templates, merely changing the names on the stationery.

LEGAL ARGUMENT

Plaintiffs contend that this Court could legitimately find that the impleader by defendants of the Homan firms would transplant a legal malpractice case into this consumer protection case. The legal facts and issues in the malpractice case would be quite separate and not necessary at all to the plaintiffs' case. Since the FDCPA is a strict liability statute, no showing of intent is necessary to establish liability,*fn2 and there is no advice of counsel defense. Defendants have also asserted this defense to the CUBPA claims, despite the fact that lack of intent is not available as a defense to liability for violations of CUBPA, premised on violation of FDCPA.

Defendants rely on Judge Williams' decision in Banks v. City of Emeryville, 109 F.R.D. 535 (N.D.Cal. 1985). In that case, a jail inmate died when her mattress caught fire. Her family sued the City and the police chief, who moved to implead the mattress manufacturer for indemnity or contribution. The court denied impleader of third-party defendants as part of the plaintiff's ยง 1983 claim, but permitted it on an ancillary state law claim for negligence or comparative fault. The court in effect said that the third-party plaintiffs could recover from the third-party defendants only for the state law claims. In the Banks case, presumably these claims included wrongful death, a substantial ...


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