United States District Court, Northern District of California
February 11, 2000
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.
ORDER DENYING MOTION TO ADD THIRD-PARTY DEFENDANTS
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
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).
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
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;
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
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.
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 § 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 cause of action. In
the case at bar, it would be virtually impossible to separate the state
and federal causes of action, since they are premised on the same actions
Rule 14, Fed.R.Civ.P., governs third-party practice. It provides, in
(a) When Defendant May Bring in Third Party. At any
time after commencement of the action a defending
party, as a third-party plaintiff, may cause a summons
and complaint to be served upon a person not a party
to the action who is or may be liable to the
third-party plaintiff for all or part of the
plaintiff's claims against the third-party plaintiff.
The third-party plaintiff need not obtain leave to
make the service if the third-party plaintiff files
the third-party complaint not later than 10 days after
serving the original answer. Otherwise, the
third-party plaintiff must obtain leave on motion upon
notice to all parties to the action.
The decision whether to permit impleader is left to the discretion of
the trial court. Fed.R.Civ.P. Rule 14(a), 28 U.S.C.A. "[A] court, called
upon to exercise its discretion as to impleader, must balance the desire
to avoid circuity of actions and to obtain consistent results against any
prejudice that the plaintiff might suffer from complications of the case."
Somportex Ltd. v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 439 n. 6
(3d Cir. 1971), cert. denied, 405 U.S. 1017, 92 S.Ct. 1294, 31 L.Ed.2d
479 (1972)(In deciding whether to permit impleader, a court must consider
the following: (1) prejudice to the original plaintiff; (2) complication
of issues at trial; (3) likelihood of trial delay; and (4) timeliness of
the motion to implead.)
TIMELINESS OF MOTION TO IMPLEAD
Plaintiffs object that Defendants could have impleaded their attorneys
soon after this lawsuit was filed. Defendants retort that they only
recently, following the class certification, calculated that their
potential liability exceeded their insurance coverage and that they needed
to look to other resources, should they be found liable. Furthermore,
Defendants lay the blame on Plaintiffs themselves for failing to name the
other law firms as defendants. This Court finds that Defendants' delay is
excusable, under the circumstances, but that Plaintiffs are not required
to sue whomever Defendants think they should sue.
COMPLICATION OF ISSUES AND LIKELIHOOD OF TRIAL DELAY
Complication of issues and delay of the trial are significant
concerns, since injecting a legal malpractice cause of action could well
delay and complicate the consumer debt collection class action. If the
legal issues and evidence in the malpractice cause of action are not
closely related to the consumer debt collection action, adding the
third-party claim could greatly increase both the discovery necessary to
bring this case to trial and the length of the trial itself.
For impleader to be permitted under Rule 14, the third-party
plaintiff's claim must be dependent upon the outcome of the main claim.
Stewart v. American Int'l Oil & Gas Co., 845 F.2d 196, 199-200 (9th Cir.
1988)(dismissing third-party complaint for failure to show party would be
liable for claims against a defendant).
Professors Wright and Miller explain: . . . [the
claim] cannot simply be an independent or related
claim but must be based upon plaintiff's claim against
defendant. The crucial characteristic of a Rule 14
claim is that defendant is attempting to transfer to
the thirdparty defendant the liability asserted
against him by the original plaintiff. The mere fact
that the alleged third-party claim arises from the
same transaction or set of facts as the original claim
is not enough.
6 Fed.Prac. & Proc. Section 1446 at 257 (1971 ed.). See also, 3 J.
Moore, Federal Practice, paragraphs 14.04-14.15.
This does not mean that the third-party defendant must be liable to the
"As a matter of procedure, Rule 14 does not require
that the third party defendant be liable to the
original plaintiff in
order for the original defendant to proceed with his
claim against a third party defendant and recover
Huggins v. Graves, 337 F.2d 486
, 489 (6th Cir. 1964). See also, Barnett
v. Sears Roebuck and Co., 80 F.R.D. 662, 665 (W.D.Okla. 1978).
The FDCPA is a strict liability statute and thus does not require a
showing of intentional conduct on the part of the debt collector. Pittman
v. J.J. Mac Intyre Co., 969 F. Supp. 609, 613 (D.Nev. 1997) citing Kuhn
v. Account Control Technology, Inc., 865 F. Supp. 1443, 1450 (D.Nev.
1994) see also Cavallaro v. Law Office of Shapiro & Kreisman,
933 F. Supp. 1148 (E.D.N.Y. 1996); Cacace v. Lucas, 775 F. Supp. 502, 505
(D.Conn. 1990), 15 USCA § 1692k.
The only Ninth Circuit case even remotely close to the point refers to
intent, but only to commit specific acts in violation of the FDCPA, for
instance, to threaten to sue with no intention of doing so, or to
telephone a debtor with intent to harass. Fox v. Citicorp Credit
Services, Inc., 15 F.3d 1507, 1517 (9th Cir. 1994), 15 U.S.C. § 1692e.
The court found the defendants' intent to commit these specific acts to
be material and not subject to summary judgment.
This is distinguishable from defendants' knowing that a specific act
violated the statute and doing it anyway, which would show intent to
violate the statute. Only the latter would be at issue where defendants
raise the defense of reliance on advice of counsel. This is not relevant
to liability under the FDCPA. In the case at bar, the third-party
plaintiffs' cause of action for malpractice would not be closely related
to the Plaintiffs' claim for violation of the FDCPA, since the
third-party plaintiffs' intent is not at issue to prove liability.
Proof of intent to injure is not necessary to prove a violation of
CUBPA. People v. Duz-Mor Diagnostic Laboratory, Inc., 68 Cal.App.4th 654,
80 Cal.Rptr.2d 419 (1998) (No proof of intent to injure required to prove
violation), Cal. Bus. & Prof.Code section 17200 et seq. Whether intent is
an element of an available defense depends on the underlying offense in a
CUBPA action. The Act requires a violation of law. It "borrows" other
laws where a defendant's violation is also anti competitive or
deceptive. A defense to the underlying offense is a defense under the
Act. Duz-Mor, 68 Cal.App.4th at 673, 80 Cal.Rptr.2d 419.
There is no defense of reliance on advice of counsel in the FDCPA
violation. Consequently, good faith reliance on the advice of counsel is
no defense to violation of CUBPA. The third-party legal malpractice
action would not be dependent on Plaintiffs' claims against Defendants,
since good faith reliance on the advice of counsel would not be a defense
to liability. The case at bar is rather straightforward, involving an
alleged violation of a strict liability statute under the FDCPA, which
also governs which defenses are available to any corresponding violation
of the CUBPA. Intent plays no part in determining liability for violation
of either the FDCPA, or the CUBPA.
There are numerous legal and factual complications which would result
from impleader of the third-party defendants in this case. If this Court
permits impleader, a cause of action for legal malpractice enters the
case, and requires taking evidence regarding the elements of that claim.
The Court also must evaluate a percentages of liability and who wrote and
sent which letters at which times. Allocating liability for damages would
be an additional chore.
DOES THIRD-PARTY COMPLAINT ALLEGE A CAUSE OF ACTION FOR WHICH RELIEF MAY BE
This is an important factor in this Court's decision whether to permit
impleader. It makes no sense to permit such a potentially prejudicial
expansion of the case at the expense of Plaintiffs, if the third-party
plaintiffs do not have a valid
theory of relief against the third-party defendants.
Defendants seek to implead their former counsel on the theory that they
may be able to obtain either contribution or indemnity from the attorneys
for bad legal advice which induced them to violate to FDCPA and the
CUBPA. This is a federal question case, so federal law determines whether
impleader is available under Rule 14.
In summarizing Rule 14 and the right to implead a joint tortfeasor for
contribution, Professors Wright and Miller state that:
If the governing substantive law recognizes a right of
contribution . . . impleader under Rule 14 is a proper
procedure by which to seek relief from joint
tortfeasors. The availability of impleader enable's
the right of contribution to be litigated concurrently
with the main claim. Because the question whether
someone is a joint tortfeasor is largely one of fact
to be determined by the jury, a motion to dismiss the
third-party complaint on the ground that it fails to
state a claim normally should be denied and the
third-party plaintiff allowed an opportunity to
produce evidence as to the nature of the
6 Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal
Practice and Procedure § 1448 (2d ed. 1990)(footnotes omitted).
Is there a right of action for either contribution or indemnity as
relief in a case involving violation of the FDCPA?
Contribution — Definition
"Contribution is the proportionate sharing of
liability among tortfeasors. Typically, a right to
contribution is recognized when two or more persons
are liable to the same plaintiff for the same injury
and one of the joint tortfeasors has paid more than
his fair share of the common liability."
In re "Agent Orange" Product Liability Litigations, 818 F.2d 204
, 207 (2d
Cir. 1987) (citations and quotations omitted).
Indemnity — Definition
". . . [L]iability for loss shifted from one person
held legally responsible to another person . . ."
Black's Law Dictionary, 5th ed., West Publishing Co.,
Right of Action
In the case at bar, the FDCPA provides very specific and articulated
rights and remedies, leading one to conclude that if Congress had
intended an explicit right to contribution or indemnity, it would have
included it in the statute. There is no express right of action for
either contribution or indemnity in either the FDCPA or the CUBPA.
The Supreme Court has identified specific factors which indicate
Congressional intent to create a statutory right of contribution. "These
factors are the statutory language, the legislative history, the
underlying purpose and structure of the statutory scheme, and the
likelihood that Congress intended to supersede or to supplement existing
state remedies." Northwest Airlines Inc., v. Transport Workers Union of
America, AFL — CIO, 451 U.S. 77 at 91, 101 S.Ct. 1571, 67 L.Ed.2d
750 (1981). In that case, the Court held that the airline, which had been
held liable to female cabin attendants for back pay because collectively
bargained wage differentials between female and male attendants were
found to violate the Equal Pay Act and Title VII of Civil Rights Act, had
no implied right of contribution under either Act against the labor
unions which were parties to the contracts. Id.
To determine whether a claim of contribution or indemnity exists in a
suit to enforce a federal statute which contains no explicit right to
such relief, the court investigates whether there is an implied right of
action. The methodology for determining whether there is an implied right
of action under a federal statute is:
(1) whether the plaintiff is a member of the class for whose benefit the
statute was enacted; (2) whether there is an explicit or
implicit legislative intent to create or deny the remedy sought; (3)
whether such a remedy would be consistent with the underlying purposes of
the statute;*fn3 and (4) whether the cause of action is one
traditionally relegated to state law. The Court derived the factors for
determining congressional intent from a line of cases beginning with Cort
v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975)(no implied right
of action for shareholders under state law for corporation's violation of
federal campaign contribution statute).
Courts have found no implied cause of action for indemnification in a
federal statute where there was no such express right in the statute and
where the third party plaintiff was not the intended beneficiary of the
"[w]here a statute provides a right of action in one
area but not in another, there is a "rebuttable
presumption" that the legislature did not intend to
grant a cause of There is no express right of action
for either contribution or Indemnity in either the
FDCPA or the CUBPA. action in the area in which it was
"The presumption that a remedy was deliberately
omitted from a statute is strongest when Congress has
enacted a comprehensive legislative scheme including
an integrated system of procedures for enforcement."
Crescent Wharf & Warehouse Co. v. Barracuda Tanker Corp., 696 F.2d 703
706 (9th Cir. 1983)(citations omitted), citing Northwest Airlines, 451
U.S. at 97, 101 S.Ct. 1571.*fn4
The Ninth Circuit has held that where the statute provides a
"comprehensive and reticulated" remedial scheme, but does not provide for
contribution as a remedy, a court should assume that Congress left it out
intentionally, and not create an unintended remedy, particularly one in
favor of the group the statute is aimed at regulating, rather than
protecting. In a line of ERISA cases, the court ruled that there was no
right of contribution for employers:
"Indeed, implying a right of contribution is
particularly inappropriate where, as in this case, the
party seeking contribution "`is a member of the class
[e.g., fiduciaries] whose activities Congress intended
to regulate for the protection and benefit of an
entirely distinct class [e.g., ERISA plans],'" and
where there is no indication in the legislative
history "that Congress was concerned with softening
the blow on joint wrongdoers."
Kim v. Fujikawa, 871 F.2d 1427
, 1433 (9th Cir. 1989) (concluding that
contribution is not available under ERISA, articulating the view of the
Ninth Circuit and various district courts in other circuits that ERISA
"does not provide fiduciaries with a cause of action for contribution
APPLICATION TO CASE AT BAR
The Fair Debt Collection Practices Act is Title VIII of the Consumer
Credit Protection Act, which includes such other credit-related consumer
protection laws as the Truth in Lending Act (Title I), the Fair Credit
Reporting Act (Title VI) and the Equal Credit Opportunity Act (Title
VII). Its purpose is to protect consumers from unfair debt collection
practices, and to regulate the conduct of debt collectors, including
attorneys acting as debt collectors. Schroyer v. Frankel, 197 F.3d 1170
(6th Cir. 1999) (attorneys acting as debt collectors must comply with
FDCPA). Id. at 1175, 15 U.S.C. § 1692(e) (purpose
of subchapter to promote State action to protect consumers).
One court "has found no right of contribution or indemnity by one joint
creditor against another in an action under the Truth in Lending Act
("TILA"). McCain v. Clearview Dodge Sales, Inc. v. Jefferson Bank and
Trust Co., 574 F.2d 848 (5th Cir. 1978)(finding that creditors were
jointly and severally liable to consumers, therefore not entitled to
contribution or indemnity from each other). A federal court in California
has stated in dicta that a debt collection agency may have a cause of
action for indemnity against its attorneys under terms of an
indemnification agreement in which they agreed not to violate the FDCPA.
Newman v. Checkrite California, Inc., 912 F. Supp. 1354 (E.D.Cal. 1995).
But where there is a conflict between the FDCPA and state regulation of
attorneys, the state law claim is pre-empted by the federal statute. (To
the extent there was any conflict between the federal Fair Debt
Collection Practices Act, as is was applied to attorneys retained to
collect delinquent debts and California Supreme Court's own regulation of
these same attorneys, federal legislation had to prevail, pursuant to
Supremacy Clause.) Id. at 1365.
In the case at bar, the FDCPA pre-empts any legal malpractice claim, if
the two conflict. Since this Court finds that there is no express or
implied right of contribution or indemnity under the FDCPA, then this
Court must reasonably deny, on pre-emption grounds, a motion to add a
third-party claim for legal malpractice on these theories.
Federal law controls whether impleader is proper in the case at bar.
There is no express or implied remedy of either contribution or indemnity
in the FDCPA statute, the source of this Court's jurisdiction. The intent
of Congress in enacting FDCPA was to protect the consumer. There was no
intent to protect debt collection agencies or their attorneys, especially
from each other.
The motion is denied, on grounds that there is no cause of action for
either indemnity or contribution under FDCPA, either within the plain
language of statute or implied, since the proposed third-party plaintiffs
are not members of the class of intended beneficiaries of the FDCPA.
Adding a claim of legal malpractice to this case would inject facts and
legal issues which have nothing whatever to do with Plaintiffs' claims,
under either the FDCPA or the CUBPA. To permit Defendants to implead
third-party defendants would prejudice Plaintiffs and certainly not save
the court any time, since the malpractice controversy would not help
resolve Plaintiffs' claims. Adding third-party defendants would
complicate a relatively simple case by adding issues irrelevant to
liability under either the FDCPA or the CUBPA and would prejudice
Accordingly for all the above reasons, and good cause appearing,
IT IS HEREBY ORDERED that Defendants' motion is denied.