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Kristy Schwarm, Patricia Foronda, and Josann Ancelet, On Behalf of v. Henry Craighead

March 31, 2011



Defendant Henry Craighead founded defendant District Attorney Technical Services, Ltd. ("DATS"), to collect debts pursuant to California's Bad Check Diversion Act ("BCDA"), Cal. Penal Code §§ 1001.60-1001.67. Under the BCDA, district attorneys' offices could establish diversion programs for debtors who wrote bad checks and contract with private entities, such as DATS, to conduct the programs. Cal. Penal Code § 1001.60. Based on DATS' collection efforts, plaintiff Kristy Schwarm initiated this class action on June 29, 2005, alleging claims for 1) violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692-1692p; 2) violations of the Civil Rights Act, 42 U.S.C. § 1983, based on alleged procedural due process violations; 3) state constitutional procedural due process violations; 4) fraudulent misrepresentation; and 5) negligent misrepresentation.

On March 4, 2006, this court certified the case as a class action for "[a]ll persons who wrote checks in California to whom DATS mailed collection demands concerning dishonored checks, since June 29, 2003," and up until the date of the court's Class Certification Order.*fn1 (Mar. 4, 2006 Order 20 (Docket No. 42).) The court named Schwarm as the class representative and subsequently granted plaintiffs' motion to add plaintiffs Patricia Foronda and Josann Ancelet as class representatives. (May 25, 2007 Order 5 (Docket No. 134).)

After DATS filed Chapter 7 bankruptcy, this action was automatically stayed on August 18, 2006, pursuant to 11 U.S.C. § 362(a). On September 20, 2006, this court lifted the automatic stay as to Craighead only and, on May 5, 2008, granted plaintiffs' motion for summary judgment with respect to Craighead's violations of subsections 1692e(2)-(5), (9)-(11), (14), 1692f(1), and 1692g(a) of the FDCPA. Schwarm v. Craighead, 552 F. Supp. 2d 1056 (E.D. Cal. 2008) ("Schwarm I"). In the same order, the court denied plaintiffs' motion for summary judgment on their claims based on alleged violations of their federal and state procedural due process rights. Id. at 1082-87. Three months later, plaintiffs sought summary judgment on the issue of damages, and the court awarded plaintiffs actual damages against Craighead in the amount of $741,387.05. Schwarm v. Craighead, No. 2:05-1304, 2008 WL 3286797 (E.D. Cal. Aug. 6, 2008) ("Schwarm II").

In granting plaintiffs' motions for summary judgment, the court found that Craighead was personally liable for violations of the FDCPA and the resulting damages based on his collection efforts on behalf of DATS. Schwarm I, 552 F. Supp. 2d at 1070-74. In both cases, the court emphasized that its findings would neither have a preclusive effect nor serve as the law of the case as to DATS because the case against it was stayed due to its pending bankruptcy. Id. at 1068 n.8; Schwarm II, 2008 WL 3286797, at *1.

In DATS' pending bankruptcy, plaintiffs filed claims in excess of four million dollars and ultimately received $160,242.43 from the bankruptcy estate.*fn2 (Pls.' Req. for Judicial Notice Ex. 3.) After the bankruptcy court issued a Final Decree indicating that the administration of the estate was complete, the automatic stay as to DATS was lifted. (Docket No. 213.)

Now, plaintiffs move for summary judgment against DATS based on the exact conduct and damages at issue in their prior motions for summary judgment against Craighead. Specifically, plaintiffs seek summary judgment against DATS with respect to its alleged violations of subsections 1692e(2)-(5), (9)-(11), (14), 1692f(1), and 1692g(a) of the FDCPA and joint liability for $741,387.05 in actual damages. Plaintiffs also seek an award against Craighead and DATS of $1,000.00 in statutory damages for each named plaintiff under subsection 1692k(a)(2)(A). Lastly, plaintiffs request the court to enter final judgment against Craighead and DATS, holding them jointly and severally liable for actual damages of $741,387.05 and statutory damages of $3,000.00 and attorney's fees and costs pursuant to § 1692k(a)(3). DATS filed a Statement of Non-Opposition to the motion and Craighead filed a document titled "Motion to Dismiss Summary Judgment upon New Evidence for the Defense," which the court will construe as a motion for reconsideration of the court's decisions in Schwarm I and Schwarm II.

1. Violations of the FDCPA

The FDCPA governs the conduct of debt collectors, which of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. § 1692a(6). Courts have routinely concluded that corporations constitute "persons" under subsection 1692(a)(6) and may thereby be liable as a "debt collectors" under the Act. E.g., Fox v. Citicorp Credit Servs., Inc., 15 F.3d 1507 (9th Cir. 1994); see also 1 U.S.C. § 1 ("In determining the meaning of any Act of Congress, unless the context indicates otherwise . . . the words 'person' and 'whoever' include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals . . . ."); FCC v. AT&T Inc., --- S.Ct. ----, ----, 2011 WL 691243, at *5 (2011) ("We have no doubt that 'person,' in a legal setting, often refers to artificial entities. The Dictionary Act makes that clear.");; compare 15 U.S.C. § 1692a(6), with 15 U.S.C. § 1692a(3) (defining "consumer" as "any natural person obligated or allegedly obligated to pay any debt") (emphasis added). DATS, a corporation that exclusively engaged in the practice of collecting debts, is therefore subject to the FDCPA.

In its May 2, 2008, Order, the court held Craighead personally liable for violations of subsections 1692e(2)-(5), (9)-(11), (14), 1692f(1), and 1692g(a) of the FDCPA based on DATS' collection efforts. Craighead's personal liability derived from his role within DATS, which included serving as its founder, chief executive officer, president, and on its Board of Directors, designing its automated software, managing and maintaining its software program and computer system, marketing its products, negotiating its contracts with district attorneys' offices, managing its collection efforts, and interfacing with clients and debtors. Schwarm I, 552 F. Supp. 2d at 1073-74. Although the court's prior findings are not the law of the case as to DATS and do not have preclusive effect, the court's discussion throughout its order illustrates that Craighead's conduct giving rise to his liability under the FDCPA was indistinguishable from that of DATS.

More importantly, in light of DATS' non-opposition to plaintiffs' motion for summary judgment, the court incorporates its prior analysis herein, id. at 1074-82, and thereby concludes that DATS' conduct violated subsections 1692e(2)-(5), (9)-(11), (14), 1692f(1), 1692f(1), and 1692g(a) of the FDCPA for the reasons explained in detail in its prior order.

Similarly, the court's prior award of $741,387.05 in actual damages against Craighead was based exclusively on the diversion fees that DATS collected. While DATS was able to dispute the amount or its liability based on those fees in the pending motion, it has declined to do so and the court therefore incorporates its prior analysis herein. See Schwarm II, 2008 WL 3286797, at *2-3.

Accordingly, the court will grant plaintiffs' motion for summary judgment with respect to DATS' violations of the aforementioned subsections of the FDCPA and liability for actual damages in the amount of $741,387.05.

2. Statutory Damages

Based on a single violation, the FDCPA allows the court to award named plaintiffs "additional damages . . . not exceeding $1,000." 15 U.S.C. ยง 1692k(a)(2)(A)-(B). In determining whether to award statutory damages and the amount of any such award, the court must consider "the frequency and persistence of noncompliance by the debt collector, the nature of such ...

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