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IRWIN v. MASCOTT
August 31, 2000
KATHLEEN R. IRWIN, ET AL. PLAINTIFFS,
OWEN T. MASCOTT, ET AL., DEFENDANTS.
The opinion of the court was delivered by: James Larson, United States Magistrate Judge.
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").
An order was filed on August 23, 2000, ruling on all the pending discovery
Plaintiffs allege that CEA and its executive director Browning through its
then attorney Owen Mascott violated the FDCPA and CUBPA by means of 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
3) often contained draft lawsuits which Mascott had no
intention of filing, to extort extra charges from debtors.
(Complaint, ¶¶ 36-43, 51-61).
The class was certified on March 24, 1999. Irwin v. Mascott,
96 F. Supp.2d 968 (N.D.Cal. 1999).*fn1 The class is defined as follows:
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].
Defendants' Motion to Add Third-party Defendants was denied on
February 11, 2000. Irwin v. Mascott, 94 F. Supp.2d 1052 (N.D.Cal.
2000) Since the motion for summary judgment was submitted, the
parties have filed approximately ten discovery motions.*fn2
Plaintiffs move for summary judgment, including findings of fact and
conclusions of law that Defendants' debt collection practices violate the
FDCPA and the CUBPA, and that Defendants are liable to Plaintiffs for
damages. Plaintiffs also move for entry of a preliminary injunction that
Defendants cease all illegal debt collection practices.
STANDARD FOR SUMMARY JUDGMENT
An issue is "genuine" only if there is a sufficient evidentiary basis on
which a reasonable fact finder could find for the nonmoving party, and a
dispute is "material" only if it could affect the outcome of the suit under
governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49,
To withstand a motion for summary judgment, the opposing party must set
forth specific facts showing that there is a genuine issue of material fact
in dispute. See Fed.R.Civ.P. 56(e). A dispute about a material fact is
genuine "if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party." Anderson, 477 U.S. at 248. If the
nonmoving party fails to make a showing sufficient to establish the
existence of an element essential to that party's case, and on which that
party will bear the burden of proof at trial, "the moving party is entitled
to a judgment as a matter of law." Celotex v. Catrett, 477 U.S. 317, 323
The Court does not make credibility determinations with respect to
evidence offered, and is required to draw all inferences in the light most
favorable to the nonmoving party. See T.W. Elec. Serv., Inc., 809 F.2d at
630-31 (citing Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 587
(1986). Summary judgment is therefore not appropriate "where contradictory
inferences may reasonably be drawn from undisputed evidentiary facts . . .
'' Hollingsworth Solderless Terminal Co. v. Turley, 622 F.2d 1324, 1335 (9th
A party seeking summary judgment bears the initial burden of informing the
court of the basis for its motion, and of identifying those portions of the
pleadings and discovery responses which demonstrate the absence of a genuine
issue of material fact. Celotex, 477 U.S. at 323. Where the moving party
will have the burden of proof on an issue at trial, it must affirmatively
demonstrate that no reasonable trier of fact could find other than for the
If the moving party meets its initial burden, the opposing party must then
"set forth specific facts showing that there is some genuine issue for
trial" in order to defeat the motion. Anderson, 477 U.S. at 250, 106 S.Ct.
at 2511; Fed.R.Civ.P. 56(e). "Where the record taken as a whole could not
lead a rational trier of fact to find for the nonmoving party, there is no
`genuine issue for trial.'" Matsushita, 475 U.S. at 587. A grant of summary
judgment is reviewed de novo by the appellate court; a denial of summary
judgment is reviewed for an abuse of discretion. U.S. v. $5,644,540.00 in
U.S. Currency, 799 F.2d 1357, 1361 (9th Cir. 1986).
Plaintiffs ask this Court to issue an order granting summary judgment as
to the liability of Defendant CEA for violations of the FDCPA, and the
CUBPA, as well as plaintiffs' right to damages, restitution, and declaratory
and injunctive relief. Plaintiffs do not request an award of a specific
amount of either damages, restitution or interest by this motion. The FDCPA
provides for both actual and statutory damages, up to the statutory ceiling,
according to the sound discretion of the trial court. 15 U.S.C. § 1692k.
See also 15 U.S.C. § 1692k (a)(2)(B) (class action damages
limited to lesser of $500,000 or 1 per cent of debt collectors'
net worth). See also 15 U.S.C.A. § 1692k(b)(1)
(District court must consider frequency and persistence of
noncompliance by debt collector, nature of such noncompliance,
extent to which such noncompliance was intentional, and other
relevant factors in deciding the amount of any "additional damages"
awarded as a consequence of violation of the FDCPA.)
The CUBPA provides for both disgorgement of profits and injunctive relief
Any person who engages, has engaged, or proposes to
engage in unfair competition may be enjoined in any court
of competent jurisdiction. The court may make such orders
or judgments, including the appointment of a receiver, as
may be necessary to prevent the use or employment by any
person of any practice which constitutes unfair
competition, as defined in this chapter, or as may be
necessary to restore to any person in interest any money
or property, real or personal, which may have been
acquired by means of such unfair competition.
Business & Professions Code §§ 17200, et seq.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Plaintiffs ask this Court to make the following findings, as a matter of
1) CEA*fn3 violates 15 U.S.C. § 1692 et seq., the Fair
Debt Collection Practices Act ("FDCPA"), in particular §§
1692e(2)(A), (10), and 1692(f), by seeking charges from
check writers in excess of those expressly permitted by
Cal. Civ. Code § 1719. (See Plaintiff's Memorandum of
Points and Authorities at pages 19 — 23. § 1719
authorizes recovery of the face amount of the check, and
treble damages at a minimum of $100, and a maximum of
$1,500.00, provided the debt collector sends the check
writer a certified letter informing him of the right to
pay the check and a service charge within thirty days to
avoid treble damages. § 1719 was amended January 1, 1997
to authorize an additional $25.00 service charge for
uncleared checks. This amendment is not retroactive.
CEA routinely sends demand letters that do not conform to the provisions
of § 1719, for example:
The "ADC Letter" (Plaintiffs' Appendix III in Support of
Motion for Summary Judgment, Ex. 50) demands the face
amount of the check, and $25.00 and interest. CEA is not
entitled to interest.
The "AFW Letter" (Id.,Ex. 181) adds a $35.00 "legal
notice cost" to the check amount, service charge and
interest. This "legal notice cost" is also an
unauthorized charge to which CEA is not entitled under § 1719.
The "AFX Letter" (Id., Ex. 182) demands payment of the
check amount, treble damages, a $25.00 bank charge, and
interest. CEA is not entitled to treble damages, the
$25.00 charge, or the interest.
CEA cannot establish that any of these letters were sent
by certified mail, since, until the last few months,*fn4
CEA did not maintain any documentation that letters were
CEA does not deny any of the factual allegations made by
Plaintiffs regarding CEA's letters. (See "Defendant's
The court has carefully reviewed the text of each letter and finds that
all the letters violate the FDCPA, in particular §§ 1692e(2)(A), (10),
and 1692(f), by seeking charges from check writers in excess of those
expressly permitted by Cal. Civ. Code § 1719.
2) CEA violates the FDCPA, in particular § 1692 et seq., §§
1692e(2)(A), (10), and 1692(f), by seeking charges from check writers
pursuant to Cal. Penal Code § 490.5. § 490.5 provides for penalties
for someone who takes merchandise from a merchant without intent to pay for
"When an adult or emancipated minor has unlawfully taken
merchandise from a merchant's premises . . . the adult or
emancipated minor shall be liable to the merchant . . .
for damages of not less than fifty dollars nor more than
five hundred dollars, in addition to the retail value of
the merchandise, if not recovered in merchantable
condition . . . Cal. Penal Code section 490.5.
Plaintiffs assert that CEA is invoking this section to try to extract
penalties intended for shoplifters from consumers who write checks which do
not clear. Plaintiffs contend that CEA has no idea what the intent of each
check writer is, and that the merchants' right to invoke § 490.5 is
unassignable. Newman v. CheckRite California, Inc., 912 F. Supp. 1354, 1378
(E.D.Cal., 1995). Plaintiffs are correct and CEA does not offer any argument
which directly contradicts this contention.
This court finds that Penal Code § 490.5 does not apply to a buyer who
writes a check to a merchant and takes merchandise from the store with the
merchant's knowledge and permission. The buyer in such an instance has
lawfully taken merchandise. The failure of the buyer's check to clear does
not make the buyer a shoplifter. CEA has no basis for assuming that every
person who writes a check which later fails to clear knows at the time of
writing it that it will not clear and, therefore, has no intent of paying
the merchant. The court finds that CEA violates the FDCPA by threatening to
impose penalties under Penal Code § 490.5 against consumers whose checks
fail to clear.
3) CEA violates § 1692e(7), by sending collection letters which
reference Cal. Penal Code § 490.5, because these letters state or imply
that by writing a check that did not clear, the check writer has committed
larceny. Again, Plaintiffs are correct, and CEA does not contradict this
contention. This court finds that these letters violate the FDCPA.
4) CEA violates § 1692e(2) and (10), by sending collection letters
which misrepresent the amounts due from consumers, or which contain false,
deceptive or misleading representations regarding the respective rights and
obligations of the debt collector and the consumer. This is part and parcel
of the earlier contentions that CEA demands penalties and interest it has no
right to. CEA does not counter this contention.
This court finds that these letters violate the FDCPA.
5) CEA violates § 1692e(3), and is liable for damages, by falsely
representing that its dunning letters are communications from attorneys. The
FDCPA prohibits "the false representation or implication that any individual
is an attorney or that any communication is from an attorney"
15 U.S.C. § 1692e(3). Section 1692e(3) prohibits a debt
collector from using an attorney's status to add to the force of its
collection letters, unless the attorney is actually involved in the
collection effort to the extent implied by the letter. Abuses by attorney
debt collectors are more egregious than those of lay collectors, because a
consumer fears more an attorney's improper threat of legal action than
that of a debt collection employee who is not an attorney. A debt
collection letter on an attorney's letterhead conveys authority and
credibility. Crossley v. Lieberman, 868 F.2d 566, 570
(3d Cir. 1989).
As noted by the Second Circuit:
"[M]ass mailings may sometimes be the only feasible means
to contact large numbers of delinquent debtors,
particularly when many of those debtors owe relatively
small sums. But it is also true that the FDCPA set
boundaries within which debt collectors must operate. No
mass mailing technique is permissible — regardless of how
effective it might be — if that technique constitutes a
false, deceptive or misleading communication . . .
[T]here will be few, if any, cases in which a
mass-produced collection letter bearing the facsimile of
an attorney's signature will comply with the restrictions
imposed by section 1692e." Clomon v. Jackson,
988 F.2d 1314, 1321 (2d Cir. 1993). See also Avila v
Rubin, 84 F.3d 222 (7th Cir. 1996) (mass-produced
collection letters sent on attorney letterhead violated
FDCPA where an attorney had no direct personal
involvement in the creation, preparation or mailing of
letters to a plaintiff.) Id. at 228-229. CEA sends
collection letters on attorney letterhead signed by an
attorney,*fn5 previously Owen Mascott, and more
recently, Jacob Koper. Owen Mascott testified that he
looked at spreadsheets of debtor data, including names,
addresses, check amounts and merchant names. He reviewed
the letters which were generated by using the
spreadsheets in order to meet "compliance requirements,"
which he defined as "being aware of where letters with my
name as part of it are being sent. You know, where and to
whom and to what accounts." As he scanned the computer
spreadsheets, he checked off each name.
Mascott reviewed the spreadsheets to see who was receiving letters, where
the checks were being written and the amounts, and to sensitize himself to
the volume and which checks were being written to which creditor-clients,
for example 7-Eleven or J.C. Penney. When he started as general counsel for
CEA, the printouts were well under an inch thick. Each quickly expanded to
two and a half to three times as many printed names.
He couldn't estimate how many.*fn6 He never decided not to send a
letter, based on this review.*fn7 Mascott did not review debtor information
in any detail until "it was reaching the point of considering actual
litigation." He would neither approve nor disapprove the sending of a
After Jacob Koper became CEA's general counsel, he did not review the
files of all 350,000 accounts handled by CEA in 1998.*fn11 CEA's Hyde
testified that Jacob Koper "looked at" the 175,000 letters which went out
in one month.*fn12 However, at the time of the deposition Hyde described
Koper's duties as follows: to give his opinion whether CEA should file suit
against a check writer, to make sure that letters are being sent to the
right state, to obtain licenses for CEA in states which require it, to be
sure letters weren't being sent out which referred to checks more than four
years old and representing CEA in lawsuits filed against check
Mascott testified that he reviewed checks for dates which might be so old
as to be outside the statute of limitations.*fn14 A non-attorney staff
person screened for check writers who were in bankruptcy proceedings and
removed their names from the list of those to whom letters would be
The court finds that Owen Mascott and Jacob Koper, as general counsel for
CEA, neither conducted individual reviews of debtor files nor decided if a
particular dunning letter should be sent, nor knew the identities of the
check writers to whom individual letters were sent. The attorneys merely
scanned the spreadsheets and the completed letters to satisfy some rote
requirement that their eyes should fall on the documents before letters
were sent out. The communications to check writers were not "from" an
attorney in any meaningful sense of the word, as discussed in Clomon v.
Jackson, 988 F.2d at 1320 and Newman v. CheckRite, 912 F. Supp at 1382.
Consequently, the letters are false and misleading and as a matter of law
violate the FDCPA.
6) CEA violates § 1692e(5), by threatening to file lawsuits when it
does not intend to do so, or is not legally capable of doing so. There is a
two-pronged test for violations of this part of the FDCPA:
(1) whether the debt collector threatened legal action,
and, if so,
(2) whether such action could legally be taken or whether
the debt collector intended to take such action. Newman v
CheckRite, 912 F. Supp. at 1379.
Again, the court applies the "least sophisticated debtor" standard, in
deciding whether there is a perceived threat of litigation. Plaintiffs
contend that five of CEA's dunning letters satisfy the first prong of the
test, even without an overt threat to sue, as long as the letter creates
the impression that legal action is a real possibility. Baker v. G.C.
Services Corp., 677 F.2d 775, 778-779 (9th Cir. 1982) (threat to refer
account to attorney for collection held to be threat of unintended legal
Plaintiff contends that the first letter in the 490.5 series threatens
suit as a matter of law. The first letter in the series is designated
A. "ADX" Letter: (Plaintiffs' Appendix II in Support of Motion for
Summary Judgment, Exs. 1,3,7)
Because you converted the merchandise to your own use without having paid
the purchase price thereof and without our client's consent, a law suit may
be filed against you. Prior to filing a suit, our client has requested that
we extend an out of court settlement offer. If you pay the Settlement Total
below, which is a portion of the penalties our client would be entitled to
under Penal Code 490.5, no suit will be filed against you. [Emphasis added.]
The letter sets forth "Potential Liability" if the Settlement Total is
not paid. This includes "Court/Service" Fees of $220.00, plus a "Statutory
Penalty" of $500.00, plus "Attorneys Fees" of $150. The alternative is
presented in closing:
If you fail to pay the Settlement Total, our client
may be left with no other choice than to file a law
suit for the Potential Liability above.
B. "ADR" Letter (Id., Exs. 2,4,8,10,183,194)
CEA uses the ADR letter second in the 490.5 series and the fourth in the
1719 series. ...