The opinion of the court was delivered by: James Larson, United States Magistrate Judge.
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].
Id. at 982.
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.
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).
To determine whether a debt collector's dunning letters violate this
provision, the appropriate standard of review is from the perspective of the
"least sophisticated consumer." Newman v. CheckRite, supra, 912 F. Supp. at
debt collector violates this section of the FDCPA when a letter
appears to be sent by an attorney without the attorney's having both
reviewed the debtor's file and gained some knowledge about the specific
debt. Id. If the attorney did not first conduct an individual review of the
debtor's case, or if the attorney did not determine if a particular letter
should be sent, or if the attorney did not know the identity of the person
to whom the letter was sent, the communication from the attorney is false
and misleading under § 1692e(3). Id.
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
CEA Manager Robert Hyde would bring Mascott information regarding debtors
that Hyde thought should be sued. According to Hyde, Mascott made the
decision to sue, but Hyde could not recall any time when Mascott told him to
sue or not to sue someone.*fn9 The decision to settle a
case was made by either Owen Mascott or CEA's director of
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.
, 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:
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. This letter is titled:
There can be no genuine dispute that this letter threatens suit. The use
of the word "may" does not mitigate the tone of the letter which purports
to be a "formal notice," names a particular court, and references a legal
action, a judgment, cost of service of process, attorneys' fees, garnishment
and levies. This court finds that all the letters are calculated to
intimidate the least sophisticated consumer into believing that legal action
against her is imminent.
C. "SC" and "1719" Letters (Id., Exs. 184,185,186,195)
The fifth letter in the 1719 series, designated "1719," and the third
letter in the 490.5 letter series, designated "SC," are virtually identical.
They are printed on attorney letterhead. They advise the check writer:
CEA states in the letter that if the payment demands are not met before
the specified date, a lawsuit may be filed the following day. The sample
complaint enclosed with the letter includes the check writer's name and
details concerning the check.
Sometimes CEA includes a summons with the check writer's name.
CEA added the heading: YOU HAVE NOT YET BEEN SUED. This seems to indicate
that there is but a brief grace period to pay CEA's demand after which the
check writer will be sued. All in all, the letter communicates that (1) a
lawyer has been hired to sue the check writer; (2) the lawsuit will be filed
on a specific date if payment isn't made; and (3) a lawsuit, as exemplified
by the mock complaint, will be filed if the check writer does not pay
immediately. This letter indicates that the debtor's only options are either
payment or being sued.
The court finds that this process constitutes a threat to sue, as a matter
of law. U.S. v. National Financial Services, Inc., 820 F. Supp. 228, 234-235
(D.Md. 1993) (letter stating that "only your immediate payment will stop
further legal action" was threat to sue in violation of FDCPA.) See also
Crossley v. Lieberman, 868 F.2d 566 (3d Cir. 1989) (abuses by attorney debt
collector more egregious than those of lay collectors because consumer
reacts with more duress.) Id. at 570. CEA Business Manager Hyde testified
that having a lawyer's name on it "definitely helps" the impact of a
d. The "AFW" Letter (Id., Ex. 181)
In the third letter in the 1719 series, the "AFW" letter, CEA warns the
debtor of "Potential Liability" which includes "Filing Cost" and "Court
Costs." The obvious implication is that a costly lawsuit will be filed
unless the debtor pays the "Settlement Amount" within the next ten days.
Again, the court finds that this constitutes a threat to sue.
E. "S2" or "One Last Chance" Letter (Id.,Ex. 6)
CEA sent plaintiff Nancy Heth a letter dated May 29, 1997 as an apparent
follow-up to the 490.5 lawsuit letter. In the letter CEA warned Ms. Heth
that its client, "Jcpenney Ukiah" [sic] had requested that CEA delay filing
a lawsuit, to give her a chance to make payment arrangements with CEA. The
alternative, if she did not pay within the deadline, would be for CEA to
advise "Jcpenney" to proceed with the lawsuit. In the letter CEA also
advised Ms. Heth she could expect to be served by the "County Sheriff's
Office." Plaintiffs observe that this letter implies an attorney-client
relationship between CEA's general counsel and the original creditor on the
debt and that together they are focusing on collecting this particular debt.
This letter is computer-generated. Owen Mascott, CEA's general counsel, in
the normal course of business did not communicate directly with creditors
and, therefore, could not have consulted with "jcpenney" regarding Ms.
The text of each of the five letters, considered an light of the practice
of CEA's attorneys merely to conduct a cursory review of debtor information,
satisfies the second prong of the test, that is, there is no real
possibility that CEA will sue. A false threat to take action may be
established by showing that no assessment has been made as to whether the
threat will be carried out. Masuda v. Thomas Richards & Co.,
759 F. Supp. 1456, 1459-61 (C.D.Cal. 1991) (suit filed without
review of the file by anyone, much less an attorney), or by showing that
the debt collector rarely follows through on a threat. United States v.
National Financial Services, Inc., 98 F.3d at 138; Bentley, supra.
Mr. Mascott and his successors only reviewed debtor information when they
were seriously considering litigation. The vast majority of debtors were not
sued, yet received letters which threatened suit. The absence of meaningful
legal review, coupled with the threat to sue, violates the FDCPA, even
without any showing of the odds that CEA would sue a particular debtor or
how many debtors were actually sued, of the thousands who received
In the case at bar, CEA now files more lawsuits than it did when it
retained Mascott,*fn18 and it still sues less than 0.05% of check writers,
or approximately one in 2200. This pattern violates the FDCPA, since CEA,
by its own admission, rarely follows through on its threats to sue.
7) CEA violates § 1692e(4), by sending dunning letters that threaten
post-judgment remedies that CEA does not intend to seek. The facts here
are much the same as above for lawsuits, in that CEA threatens to obtain a
judgment and garnish wages, when it almost never does. These hollow threats
violate the FDCPA, specifically § 1692e(4), which prohibits: the
representation or implication that nonpayment of any debt will result in the
arrest or imprisonment of any person or the seizure, garnishment, attachment
or sale of any property or wages of any person unless such action is lawful
and the debt collector or creditor intends to take such action. Id.
CEA also sends collection letters threatening to execute on judgments,
which it does not intend to do in violation of 15 U.S.C. § 1692e(4) and
(5). Again, empty threats are issued in an attempt to extract money.
The court finds that the letters above also violate the provisions of the
FDCPA dealing with false threats of post-judgment remedies, since they
threaten lawsuits, which imply post-judgment action, or explicitly describe
the post-judgment actions which CEA will take if the consumer does not pay,
for example wage garnishments and bank levies.
8) CEA violates § 1692g(a), by sending initial dunning letters that
do not contain the validation notices required by the statute. The FDCPA
provides that "within five days after the initial communication with a
consumer. . . a debt collector shall send the consumer a written notice
containing [a list of disclosures and notifications.] Newman v CheckRite,
912 F. Supp. at 1381, citing 15 U.S.C. § 1692g. § 1692g(a) of the
FDCPA requires that any letter to a debtor from a debt collector contain a
validation notice which provides: (1) the amount of the debt, (2) the name
of the creditor to whom it is owed, (3) a statement that the debtor has
thirty days within which to dispute the validity of all or a portion of the
debt, after which the debt will be assumed by the debt collector to be
valid, (4) the debtor's right to obtain written verification of the debt
or a copy of the judgment, and (5) a statement that the debt collector will
provide the name and address of the original creditor, upon written request
by the debtor. Id.
Validation requirements are strictly construed under the "least
sophisticated consumer" standard. Baker, 677 F.2d at 778. (Validation notice
insufficient because debt collector did not explicitly inform debtor of
right to contest a portion of the alleged debt.)
(a) The "ADX" Letter does not include an offer to obtain verification of
the debt and provide it to the consumer if the consumer requests it within
the thirty-day time period. This is required by 15 U.S.C. § 1692g(4).
Therefore, as a matter of law, the "ADX" letter violates the FDCPA.
(b) The second letter in the 490.5 series (Plaintiffs' Appendix III, Ex.
196) violates the validation provision of the FDCPA because it requires
payment in less than thirty days after the initial notice. Terran v. Kaplan,
109 F.3d 1428 (9th Cir. 1997) (A demand for payment within less than the
thirty-day time frame necessarily requires the debtor to forego the
statutory right to challenge the debt . . .within thirty days, or suffer
For this reason, requiring a payment that would eliminate the debt before
the debtor can challenge the validity of that debt directly conflicts with
the protections for debtors set forth in the FDCPA.) Id. at 1434. CEA's
letter, as a matter of law, violates the FDCPA.
The failure to disclose in the initial written communication with the
consumer and, in addition, if the initial communication with the consumer
is oral, in that initial oral communication, that the debt collector is
attempting to collect a debt and that any information obtained will be used
for that purpose, and the failure to disclose in subsequent communications
that the communication is from a debt collector, except that this paragraph
shall not apply to a formal pleading made in connection with a legal action.
(c) CEA's initial letter in its 1719*fn19 series violates § 1692g
for the same treasons as the letter above. This letter advises the consumer
just before the notice regarding the thirty-day validation period:
"This matter will be held in abeyance for five days
awaiting your payment or reply. If any disputes, or
if paid, advise immediately."
Any consumer reading this would reasonably assume
that there would be consequences in delaying more
than five days before contacting CEA. This conflicts with the
statutory thirty day period for disputing and requesting validation
of the debt, and violates 15 U.S.C. § 1692g.
9) CEA violates § 1692e(11), by not including
in each of its dunning letters, as required, that
it is a debt collector attempting to collect a
debt, or that any information obtained will be
used for that purpose.*fn20
(a) The "ADX" Letter states:
This is an attempt to demand penalties pursuant
to Penal Code 490.5. Any information will be used
for that purpose. Unless you dispute the validity
of the penalties demanded or any portion thereof
within 30 days, after receipt of this letter, we
assume this debt is valid.
This does not satisfy the requirement that CEA identify
both itself as a debt collector and the letter as an
attempt to collect a debt.
(b) The "ADR" letter, CEA's second letter in its
490.5 series, also fails to comply with the provision requiring
identification as a debt collector attempting to collect a debt.
The text advises ambiguously, "This may have been sent
to you by a collection agency."
Applying the least sophisticated consumer standard,
this is deceptive, and does not comply with the statute.
(d) The "SC" letter, the third in the 490.5 series,
also advises, "This may have been sent to you by
a collection agency." If also fails to comply with
10) CEA violates § 1692e(2) and (10), by sending
dunning letters that omit the face amount of the
check which CEA seeks to collect, and by substituting
a higher figure as the "claim amount" or "assignment
These letters violate the FDCPA prohibition against false, deceptive or
misleading information being used to collect a debt. West v. Costen,
558 F. Supp. 564, 583 (W.D.Va. 1983).
For example, the "ADX" letter sent to plaintiff Nancy Heth contained the
date and number of her check and the following:
Offer of Settlement:
Assignment amount: $210.38
Statutory fee: $89.00
Settlement total: $299.38
CEA sent the same "ADX" form letter to plaintiff Lorraine Castaneda. It
also included the date
and number of her check and the following:
Offer of Settlement:
Claim amount: $64.25
Statutory fee: $89.00
Settlement Total: $153.25
The actual amount of each check, $186.65 as to plaintiff Heth and $34.16
as to plaintiff Castaneda, does not appear anywhere in any collection letter
CEA sent to either of them. Applying the least sophisticated consumer
standard leads to the conclusion that she would probably assume that the
assignment amount or the claim amount was the amount of the check. This
would be especially true when the check had been written some time before
the letter was received and the check writer had no independent recollection
of the check or the amount. Consequently, the excess charges could be added
without any dispute from the consumer. This court finds that this failure to
disclose the additional charges is deceptive and misleading and, therefore,
violates 15 U.S.C. § 1692e(2).
11) Each of CEA's debt collection practices described above also violates
Cal. Business and Professions Code § 17200, et seq., ("CUBPA"), which
prohibits unlawful, unfair or fraudulent business practices.
One of the purposes of the FDCPA is to "insure that those debt collectors
who refrain from using abusive debt collection practices are not
competitively disadvantaged. . ." 15 U.S.C. § 1692(e). By violating the
FDCPA, Defendants engage in illegal practices which competitively
disadvantage their peers who obey the law and refrain from those practices.
This court finds that the deceptive practices described above, which
violate the FDCPA, also violate the CUBPA.
Damages or Restitution
1. For violations of the FDCPA, CEA is liable for actual damages
consisting of foreseeable out-of-pocket expenses incurred by check writers
in responding to CEA's demands, including the amount which CEA collected
above the face amount of each check, plus pre-judgment interest, for all
payments demanded or made on or after January 1, 1994. 15 U.S.C. § 1692k
Except as otherwise provided by this section, any debt
collector who fails to comply with any provision of
this subchapter with respect to any person is liable
to such person in an amount equal to the sum of —
(1) any actual damage sustained by such person as a
result of such failure; 15 U.S.C. § 1692(a)(2)
provides for additional statutory damages. Plaintiffs
do not yet seek a ruling on the amount of statutory
Plaintiffs also claim entitlement to restitution, in the form of
disgorgement by CEA of its illegally-obtained profits. This is authorized
by the CUBPA. Indeed, it also authorizes an order of restitution of any
money which a trial court finds may have been acquired by means of any
illegal practice. (Emphasis added). Bank of the West v. Superior Court,
2 Cal.4th 1254, 1267 (1992). A court may order restitution without
individualized proof of deception, reliance and injury, if necessary to
prevent the use of an unfair practice. Id.
Plaintiffs seek an order refunding to class members all money collected
by CEA beyond what it was lawfully entitled to collect.*fn21
In the case at bar, Plaintiffs do not seek a determination of the actual
amount of damages, only a finding of law that such damages are due under
the applicable statutes.
Restitution of any money which the court finds may have been acquired as
a result of the unfair practice is justified as a deterrent to future
violations. Bank of the West v. Superior Court, 2 Cal.4th 1254, 1267
(1992); Fletcher v. Security Pacific National Bank, 23 Cal.3d 442, 451
(1979). Prejudgement interest is also due on money paid as restitution.
Cal. Civ. Code § 3287(a) provides, in pertinent part:
Every person who is entitled to recover damages certain,
or capable of being made certain by calculation and the
right to recover which is vested in him upon a particular
day, is entitled also to recover interest thereon from
that day, except during such time as the debtor is prevented
by law, or by the act of the creditor from paying the debt. . .
Damages is defined broadly to include any compensatory monetary recovery,
as provided in Cal. Civil Code § 3281, which provides:
Every person who suffers detriment from the unlawful act
or omission of another, may recover from the person in
fault a compensation therefor in money, which is called damages.
Cal. Civil Code § 3287 has been consistently applied to require the
award of prejudgment interest where the judgment is for money owed or to be
refunded pursuant to a statutory obligation. Tripp v. Swoap, 17 Cal.3d 671,
2. For violation of the California Unfair Business Practices Act, CEA is
liable to class members who paid a service charge, plus pre-judgment
interest, for all payments demanded or made on or after January 1, 1994.
The rationale is that plaintiffs were deprived of the use of any money they
paid to CEA and should be made whole by being compensated for interest they
would have been paid, in order to prevent unjust enrichment of CEA by its
having the use of Plaintiff's money. Id.
Declaratory relief is appropriate when: (1) the judgment will serve a
useful purpose in clarifying and settling the legal relations in issue; and
(2) it will terminate and afford relief from the uncertainty, insecurity and
controversy giving rise to the proceeding. Gammon v. GC Services Ltd.
Partnership, 162 F.R.D. 313, 320 (N.D.Ill. 1995). See also, Guerra v.
Sutton, 783 F.2d 1371, 1376 (9th Cir. 1986).
Class members in this case are entitled to a judgment declaring that
Defendant's practice of demanding a service charge and making other
misrepresentations violate the FDCPA and CUBPA, as follows:
1. CEA's collection charges on dishonored checks are unlawful under the
FDCPA and CUBPA to the extent that those charges exceed those expressly
allowed under Cal. Civil Code § 1719;
2. CEA has acted unlawfully in seeking a service charge under Cal. Civ.
Code § 1719 on checks written prior to January 1, 1997;
3. CEA has acted unlawfully in seeking treble damages under California
Civil Code § 1919(a) because it has not mailed letters which comply with
the prerequisites of that statute;
4. CEA has acted unlawfully in seeking damages pursuant to California
Penal Code § 490.5;
5. CEA has falsely represented that its standard computer-generated
collection letters are communications from an attorney;
6. CEA has acted unlawfully in threatening to sue check writers who do
not pay its demands because at the time it makes these threats CEA has
not decided to sue the check writer;
7. CEA has acted unlawfully by sending collection demands which do not
include the notice required by 15 U.S.C. § 1692g, or which
contain language which contradicts or overshadows the notice;
8. CEA has acted unlawfully by sending collection demands which do not
include the disclosure statement required by 15 U.S.C. § 1692e(11).
Plaintiff requests that, pursuant to California Business and Professions
Code §§ 17200 et seq., CEA and its subsidiaries, principals, officers,
agents, employees, successors and assigns be hereby and immediately
permanently enjoined and restrained from:
1. Sending collection letters which do not include the face amount of the
check in any identification of the debt or itemization of damages;
2. In connection with collection demands made pursuant to California
Civil Code § 1719 demanding any amounts in excess of the actual
postage expense as the "cost of mailing" pursuant to § 1719(a);
3. Making collection demands pursuant to California Penal Code §
4. Making demands for treble damages pursuant to California Civil Code
§ 1719, unless defendant has (1) sent a letter which meets all the
requirements of § 1719 and (2) maintained a record that shows the
actual letter mailed, the actual date of mailing, and that the letter
was sent certified mail;
5. Representing orally or in writing, directly or by implication, that a
check writer's failure to pay the amount being demanded will cause the
check writer to be subject to legal action, including suit, or cause the
consumer's debt to be reduced to judgment when at the time the
representations are made defendant has not both: (1) obtained
authorization from the creditor to take that particular legal action
and (2) reached a decision to take such legal action at the time the
representation is made;
6. Representing orally or in writing, directly or by implication that a
communication is from an attorney unless an attorney has had meaningful
professional input in the decision to send a particular letter to a
particular check writer, including, but not limited to, having reviewed
the file of the check writer to whom the letter is being sent, verified
that the information in the file is accurate, and determined based on
the file information to send the particular letter;
7. Making any collection demands which CEA knows or should know are
unlawful, false, deceptive or misleading or which otherwise violate the
Fair Debt Collection Practices Act, including, but not limited to, falsely
representing: (1) that a communication is from an attorney; (2) that
failure to pay the money being demanded will result in a lawsuit being
filed, a judgment being obtained, or a judgment being executed; or (3)
that the check writer has committed a crime;
8. Sending collection demands which do not include the notice required
by 15 U.S.C. § 1692g, or which contain language
which contradicts or overshadows the notice;
9. Sending collection demands which do not include the disclosure
statement required by 15 U.S.C. § 1692e(11).
Defendants oppose Plaintiffs' motion for the most part on the basis of
disputes regarding law, rather than fact. Defendants allege some procedural
lapses as well. For example, Defendants characterize the motion as directed
only at CEA, not its president, Eric Browning, or its attorney, Owen
Mascott. Defendants argue the motion is premature, as well, on grounds that
"discovery is not well-developed." Defendants cite Rule 56(f), Fed.R.Civ.P.,
in support of this proposition. However of the evidence against Defendants
consists of their own testimony and documents. Further discovery from
Plaintiffs would probably not make a difference. Plaintiffs' intent is not
at issue, nor are
their actual damages. For the above reasons, this court rejects
Defendants' procedural objections as unfounded.
In their substantive opposition to Plaintiff's motion:
1) Defendants contend Plaintiffs have failed to show that the alleged
violations of the FDCPA, for example of §§ 1692g and 1692e(8), were
committed knowingly and intentionally. This is a legally invalid defense.
"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. McIntyre 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 U.S.C.A § 1692k.
Intent is only an issue in setting the amount of damages.*fn22
A debt collector's intent is significant in establishing liability only
with respect to whether it intended to commit specific acts, 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 facts material
to the defendants' intent to commit these specific acts to be material and
not subject to summary judgment.) This does not apply to the debt
collector's intent to violate the statute. Intent to violate the statute is
not necessary to prove a violation of the FDCPA.
As previously held by this court:
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.
Irwin v. Mascott, 94 F. Supp.2d 1052, 1057 (N.D.Cal. 2000).
In the case at bar, Defendants' own testimony verifies that both CEA and
Mr. Mascott were well aware of the practices and procedures followed in
issuing the debt collection letters. Mascott testified that as CEA general
counsel, he had certain duties.
These included scripting letters, telephone calls targeting "bad check
writers", and developing strategies for the creditor-clients.*fn24 He
testified that he worked with CEA management to change and format
letters.*fn25 Mascott delegated some tasks associated with the
letters to his executive secretary.*fn26 His first contact with an
account came only after the creditor-clients had provided CEA with
computerized lists of checks and sometimes copies of the checks
themselves.*fn27 Other CEA personnel compiled the spreadsheets which
he reviewed, two days before the letters were scheduled to be sent
from the "mail site." Collection agency employees worked with the
data and determined which letter would be issued.*fn28 Defendants'
managers and attorney collectively designed the letters, modified
them periodically, and decided which ones went out to which
debtors.*fn29 Defendants at all times knew which letters were going
out to whom and their content.
Newman v. CheckRite, 912 F. Supp. at 1371.
The court in the Newman v. CheckRite case found the corporate debt
collector responsible for the conduct of outside counsel. In the case at
bar, Mr. Mascott acted as CEA general counsel, an even closer relationship
than that of the law firm in Newman v. CheckRite. CEA may not hide behind
its contract with its counsel. This part of Defendants' opposition fails.
7a) Defendants claim there is no vicarious liability available under
California's Unfair Business Practices Act. This is a non-issue, since
Mascott acted as CEA's attorney and agent, and therefore the liability of
CEA for his actions has a basis other than vicarious liability. This part of
Defendants' opposition fails.
8) CEA rejects Plaintiffs' contention that it made threats of legal action
which it either would not or could not undertake if the debtors failed to
pay. Plaintiffs offer statistics to show the infinitesimal number of legal
actions actually brought by CEA. CEA does not offer any alternative figures.
Plaintiffs have met their burden of proving this element of their claim by
showing that CEA's attorneys conducted no meaningful review of debtor files
and that letters which threatened suit were sent without any attorney
having made a decision to sue. Defendants offer only their lack of intent,
which is not a defense, and their good faith belief that they were entitled
to file lawsuits, even though they admit they filed "only a small number."
(Defendants' Opposition at p. 6).
In a period during which approximately 200,000 letters were sent out by
CEA, only eight people were sued. (Plaintiffs' Appendix I, filed October 13,
1999, Deposition of Robert Hyde, Vol. I, at 254:4 — 15) Defendants
object to Plaintiffs' numbers as hearsay.
However, these statistics were generated by Plaintiffs' counsel from data
provided by Defendants. As stated above, this court need not rely on
Plaintiffs' statistics to find that Defendants made threats to sue when they
had no real intent to sue. There is sufficient basis for this conclusion in
Defendants' own testimony regarding the number of lawsuits in proportion to
the number of letters and the lack of meaningful attorney review of debtors'
9) CEA claims that Plaintiffs must prove an intentional violation of §
1692g, resulting in actual injury, as well as intent for each letter CEA
sent out. Again, intent is not required to prove a violation of the FDCPA.
Defendants argue that the validation notice is only required to be sent out
with the first collection notice and that Plaintiffs have failed to
demonstrate that it was not contained in notices sent out by CEA or in
notices sent before CEA began collection. The Declarations of the named
Plaintiffs in the case at bar, Kathleen Irwin, Nancy Heth and Lorraine
Castaneda, all state that they received initial letters from CEA which did
not contain the validation notice. (Plaintiffs' Declarations in Support of
Motion for Summary Judgment, filed October 13, 1999). In these instances, at
least, there is sworn testimony that Defendants violated the validation
notice requirement of the FDCPA.
10) CEA claims Plaintiffs' California Unfair Business Practices Act
(CUBPA) claims are contingent on the FDCPA claims, and therefore summary
judgment must be denied. In fact, since this court sustains the claims for
violation of the FDCPA, the CUBPA claims must be affirmed.
The California Unfair Business Practices Act ("CUBPA") provides for
injunctive relief as a remedy for violations of laws prohibiting unfair and
anticompetitive business practices. Defendants' violations of the Fair Debt
Collection Practices Act ("FDCPA") fall into this category, since one of the
purposes of the FDCPA is to protect the debt collectors who follow the law
from those who do not.
The court has found the following practices to violate the FDCPA, as a
matter of law. Accordingly, for good cause appearing,
IT IS HEREBY ORDERED that CEA and its subsidiaries, principals, officers,
agents, employees, successors and assigns are hereby and immediately
permanently enjoined and restrained from:
Plaintiffs have met their burden of establishing that (1) there is no
genuine issue of material fact and that they have proven all the elements
of their claims under the FDCPA and the CUBPA, (2) they are entitled to
actual and statutory damages, restitution, interest and injunctive relief,
as a matter of law, and (3) Defendants have no valid defenses.
IT IS HEREBY ORDERED that Plaintiffs' motion for summary judgment as to
Defendants' liability for violation of FDCPA and CUBPA and Plaintiffs'
entitlement to remedies, including damages and injunctive relief, is
granted. Pending a determination of the amount of damages, Defendants shall
immediately cease all enjoined activities, as described above. Parties shall
appear for a further case management conference on September 20, 2000 at