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Johnny Gonzales, On Behalf of v. Arrow Financial Services

September 23, 2011


Appeal from the United States District Court for the Southern District of California John A. Houston, District Judge, Presiding D.C. No. 3:05-cv-00171-JAH-RBB

The opinion of the court was delivered by: B. Fletcher:



Argued and Submitted June 6, 2011-Pasadena, California

Before: Betty B. Fletcher and N. Randy Smith, Circuit Judges, and James S. Gwin, District Court Judge.*fn1

Opinion by Judge B. Fletcher; Dissent by Judge N.R. Smith


Appellant Arrow Financial Services ("Arrow") appeals the district court's decision, on summary judgment, that letters sent by Arrow to nearly 40,000 California residents constituted "false, deceptive, or misleading representation[s] . . . in connection with the collection of any debt" in violation of the federal Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692e. It also appeals a jury's award, after trial, of statutory damages under both the FDCPA and California's Rosenthal Fair Debt Collection Practices Act ("Rosenthal Act"), California Civil Code § 1788 et seq. Arrow contends that the Rosenthal Act does not permit class actions, and that permitting class plaintiffs to recover statutory damages under both the FDCPA and Rosenthal Act violates the FDCPA. We have jurisdiction under 28 U.S.C. § 1291. We disagree with Arrow's contentions and affirm the district court.


Arrow Financial Services is a debt buyer and collector. It purchases consumer debts that have been written off by the original creditor. Most debt buyers acquire the debts for a fraction of the balance, but then attempt to collect the entire debt.*fn2 In 2002, Arrow purchased a portfolio of debts owed to health clubs. All of these debts were more than seven years old; accordingly, pursuant to the Fair Credit Reporting Act, 15 U.S.C. § 1681c(a)(4), none of these debts could be reported to a credit reporting agency. They were, to use industry parlance, "obsolete." Fed. Trade Comm'n v. Gill, 265 F.3d 944, 948 (9th Cir. 2001) (citing 15 U.S.C. § 1681c(a)). As a general practice, Arrow does not report obsolete debts. In 2004, Arrow attempted to collect on this portfolio of debts by sending substantially identical letters to nearly 40,000 California residents. One of those residents was Johnny Gonzales, the named plaintiff in this action. The letter informed Mr. Gonzales that he owed a "PAST DUE BALANCE" to "Holiday Spa of Calif". It stated:


At this time we are willing to settle your past due account for 50% of the full balance and accept this amount as settlement of the referenced account. The settlement amount must be made in one payment and received by our office on or before May 28 2004.

*** Settlement Amount $276.48 You Save $276.49 ***

Upon receipt of the settlement amount and clearance of funds, and if we are reporting the account, the appropriate credit bureaus will be notified that this account has been settled. Please mark the appropriate box below.

1. [ ] Enclosed find payment for the above-stated settlement amount. By depositing this payment in the sum of $276.48, you have accepted this as settlement. When my funds clear, and if you are reporting the account, you will notify the appropriate credit bureaus of this settlement.

Should you have any questions, please feel free to contact me . . .

Important notice required by law: This agency is engaged in the collection of debts. This communica- tion is an attempt to collect a debt and any information obtained will be used for that purpose.

Finally, in bold letters, the letter instructed Gonzales to "Please see reverse side for important information." The "important information" was the following: "NOTICE TO CALIFORNIA RESIDENTS: As required by law, you are hereby notified that a negative credit report reflecting on your credit record may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations." Id. at 90. All in all, the letter refers to credit bureaus three times. It twice states that if Arrow is reporting the debt, it will notify credit bureaus once the settlement funds clear, and also provides a notice that if a consumer fails to fulfill his credit obligations, negative information may be submitted to a credit reporting agency.

On receipt of the letter, Gonzales conducted an independent investigation and determined that Arrow could not legally report the debt to any credit bureau. On January 28, 2005, Gonzales filed suit on behalf of himself and a putative class, claiming violations of the FDCPA and the Rosenthal Act, because the letter would likely cause recipients to believe that their failure to pay the debts would result in negative credit reports. The district court certified a class to include 39,727 similarly situated Californians, and designated Gonzales as the class representative. On June 8, 2007, the district court granted summary judgment to Gonzales on the issue of liability under the FDCPA and the Rosenthal Act.

The district court then held a jury trial to determine the amount of damages. The court instructed the jury that class members could receive separate statutory damages pursuant to the FDCPA and the Rosenthal Act claims. The jury awarded Gonzales $250 on the FDCPA claim and an additional $250 on the Rosenthal Act claim. It awarded the class members $112,500 on the FDCPA claim and $112,500 on the Rosenthal Act claim. The total damages awarded were $225,500.


We review the district court's grant of summary judgment de novo. Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F.3d 1132, 1135 (9th Cir. 2009). Summary judgment is appropriate where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56. We review questions of law, including the district court's interpretations of the ...

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