District Court (Cal.) Brings Creditor under FDCPA by Applying Vicarious Liability; Finds Litigation Privilege Affords No Defense

Judge Karlton’s precedent-setting and liability imposing decisions under the FDCPA are numerous.  (See., e.g, Newman v. Checkrite California, Inc., 912 F.Supp. 1354, E.D.Cal. 1995)(debt collector vicariously liable for debt collection activities of attorney; no FDCPA defense that collector was following the orders of the superiors; litigation privilege does not apply to FDCPA); Newman v. Checkrite California, Inc., 1994 WL 896637 (E.D.Cal. 1994) (check is a ‘consumer transaction’ under FDCPA); Davis v. Hollins Law, 2013 WL 1091221 (E.D.Cal. 2013) (attorney exemption under Rosenthal Act does not extend to Law Firms); Riley v. Giguiere, 631 F.Supp.2d 1295 (E.D.Cal. 2009) (FDCPA plaintiff need not prove IIED standard to recover emotional distress as actual damages).     Judge Karlton recently issued an opinion expanding the FDCPA to include otherwise-exempt creditors based on a vicarious liability theory, even where the creditors are otherwise not subject to the FDCPA.  In Huy Thanh Vo v. Nelson & Kennard, 2013 WL 1091207 (E.D.Cal. 2013), Judge Karlton found:

U.S. Bank counters that, for vicarious liability to apply, the vicariously liable party must itself be a “debt collector,” as defined by the FDCPA. In support of this position, it cites Oei v. N Star Capital Acquisitions, LLC, 486 F.Supp.2d 1089, 1097 (C.D.Cal.2006), and two cases from the Sixth Circuit, Wadlington v. Credit Acceptance Corp., 76 F.3d 103, 108 (6th Cir.1996) and Havens–Tobias v. Eagle, 127 F.Supp.2d 889, 898 (S.D.Ohio 2001). ¶  The FDCPA is silent on the issue of vicarious liability; the doctrine is a creation of caselaw.  The Supreme Court has not directly dealt with the issue of vicarious liability in FDCPA cases. ¶ . . . U.S. Bank’s position (that only “debt collectors” may be held vicariously liable for their attorney’s acts) appears untenable under Ninth Circuit precedent. Neither Fox, 15 F.3d at 1507, nor Clark, 460 F.3d at 1162, found that the parties held vicariously liable were “debt collectors” under the FDCPA. In fact, Clark identifies and discusses a test for determining vicarious liability under the FDCPA-whether or not the alleged principal exercises control over the alleged agent—without reference to whether the alleged principal is a “debt collector.” Id. at 1173. As attorneys are their clients’ agents, Blanton v. Womancare, Inc., 38 Cal.3d 396, 403–4, 212 Cal.Rptr. 151, 696 P.2d 645 (1985), it appears that U.S. Bank can be found vicariously liable for Nelson & Kennard’s FDCPA violations. ¶  It is evident that holding creditors vicariously liable for their attorneys’ acts under the FDCPA will extend liability under the statute to non-“debt collectors.” Even accepting the Seventh Circuit’s view that creditors are not liable because “they are presumed to restrain their abusive collection practices out of a desire to protect their corporate goodwill,” Aubert, 137 F.3d at 978, an attorney collecting a debt on behalf of a creditor is not restrained by such reputational considerations. By acting as the creditor’s agent, and in effect, allowing the creditor to say, “I didn’t do it; my attorney did it,” the attorney allows the creditor to collect under “a name other than his own which would indicate that a third person is collecting or attempting to collect such debts.” 15 U.S.C. § 1692a(6). In sum, holding non-“debt collector” creditors vicariously liable for their attorneys’ actions creates needed incentives for creditors to monitor their attorneys’ compliance with fair debt collection laws. ¶  I conclude, consistent with the Ninth Circuit’s precedent, that U .S. Bank can be held vicariously liable under the FDCPA for Nelson & Kennard’s acts.

Judge Karlton also found the Bank vicariously liable under the Rosenthal Act.  To do so, Judge Karlton first had to find that the law firm was subject to the Rosenthal act, which he did.

U.S. Bank contends that the phrase “attorney” necessarily encompasses law firms, and therefore, defendant Nelson & Kennard is outside the ambit of the Rosenthal Act. Consequently, U.S. Bank cannot be held vicariously liable under the Act for Nelson & Kennard’s actions.  U.S. Bank largely bases its argument on the California Court of Appeals’ opinion in Carney v. Rotkin, Schmerin & McIntyre, 206 Cal.App.3d 1513, 254 Cal.Rptr. 478 (1988) (Kennard, J.).  Two federal judges in California have relied on Carney to hold that the Rosenthal Act does not apply to law firms. See Owings v. Hunt & Henriques, No. 08cv1931–L, 2010 WL 3489342, 2010 U.S. Dist. LEXIS 91819 (S.D.Cal. Sep.3, 2010) (Lorenz, J.); Minasyan v. Creditors Financial Group, No. 2:12–cv–01864, 2012 WL 2328242, 2012 U.S. Dist. LEXIS 85092 (C.D.Cal. Jun.19, 2012) (Wright, J.); Ayvazian v. Moore Law Group, No. 2:12–CV–01506, 2012 WL 2411181, 2012 U.S. Dist. LEXIS 88556 (C.D.Cal. Jun. 26, 2012) (Wright, J.).  ¶ On the other hand, at least nine federal judges in California have held that the Rosenthal Act does apply to law firms. See Abels v. JBC Legal Group, P.C., 227 F.R.D. 541, 548 (N.D.Cal.2005) (Ware, J.); Navarro v. Eskanos & Adler, No. 06–02231, 2007 WL 549904, 2007 U.S. Dist. LEXIS 15046 (N.D.Cal. Feb.20, 2007) (Alsup, J.); Owens v. Brachfeld, No. 07–4400, 2008 WL 3891958, 2008 U.S. Dist. LEXIS 63701 (N.D.Cal. Aug. 19, 2008) (Fogel, J.); Robinson v. Managed Accounts Receivable Corp., 654 F.Supp.2d 1051 (C.D.Cal.2009) (Pregerson, J.); Miranda v. Law Office of D. Scott Carruthers, No. 1:10–01487, 2011 WL 2037556, 2011 U.S. Dist. LEXIS 55180 (E.D.Cal. May 23, 2011) (Wanger, J.); Moriarty v. Henriques, No. 1:11–1208, 2011 WL 4769270, 2011 U.S. Dist. LEXIS 90442 (E.D.Cal. Oct. 7, 2011) (Thurston, M.J.); Bautista v. Hunt & Henriques, No. 11–4010, 2012 WL 160252, 2012 U.S. Dist. LEXIS 5009 (N.D.Cal. Jan. 17, 2012) (Spero, M.J.); Silva v. Jason Head, PLC, No. 09–05768, 2010 WL 4593704, 2010 U.S. Dist. LEXIS 121557 (N.D.Cal. Nov.4, 2010) (Koh, J.); Reimann v. Brachfeld, No. 10–4156, 2010 WL 5141858, 2010 U.S. Dist. LEXIS 131727 (N.D.Cal. Dec. 13, 2010) (Seeborg, J.). However, none of these decisions cites or appears to have considered Carney. Instead, the majority follow the reasoning of Abels, 227 F.R.D. at 548, that “[s]ince the [California] legislature specifically excluded attorneys from the statute but was silent on law firms … the legislature did not intend to exclude law firms.” . . . .Given the above, the court finds that the “attorney” exemption from the definition of “debt collector” under the Rosenthal Act does not extend to “law firms.” ¶   Therefore, U.S. Bank’s motion to dismiss the Rosenthal Act claims on the grounds that Nelson & Kennard is not a “debt collector” will be denied.

While Judge Karlton found Plaintiff’s negligence claim barred by the litigation privilege, Judge Karlton refused to apply the litigation privilege to the Rosenthal Act claim.

The California Supreme Court has not ruled on the issue of whether the litigation privilege bars Rosenthal Act claims founded on unfair debt collection practices that occur during the course of litigation. ¶  Other courts have split on the issue. At least four courts have held that the privilege supercedes the Rosenthal Act: Taylor v. Quall, 458 F.Supp.2d 1065, 1068–69 (C.D.Cal.2006) (Anderson, J .); Nickoloff v. Wolpoff & Abramson, L.L.P., 511 F.Supp.2d 1043, 1045 (C.D.Cal.2007) (Rafeedie, J.); Lopez Reyes v. Kenosian & Miele, LLP, 525 F.Supp.2d 1158, 1161–1165 (N.D.Cal.2007) (Jenkins, J.); Cassady v. Union Adjustment Co., No. C 07–5405, 2008 WL 4773976, 2008 U.S. Dist. LEXIS 90700 (N.D.Cal. Oct. 27, 2008) (Illston, J.). At least seven courts have reached the opposite conclusion: First N. Am. Nat. Bank v. Superior Court, No. B 176618, 2005 WL 67123, 2005 Cal.App. Unpub. LEXIS 356 (Cal.Ct.App. Jan.13, 2005); Oei, 486 F.Supp.2d at 1089 (Morrow, J.); Butler v. Resurgence Fin., LLC, 521 F.Supp.2d 1093, 1095–97 (C.D.Cal.2007) (King, J.); Mello v. Great Seneca Fin. Corp., 526 F.Supp.2d 1024, 1031 (C.D.Cal.2007) (Gutierrez, J.); Sial v. Unifund CCR Partners, No. 08 CV 0905, 2008 WL 4079281, 2008 U.S. Dist. LEXIS 66666 (S.D.Cal. Aug. 28, 2008) (Miller, J.); Welker v. Horwitz, 626 F.Supp.2d 1068, 1072 (S.D.Cal.2009) (Gonzalez, J .); Komarova, 175 Cal.App.4th at 324, 95 Cal.Rptr.3d 880. ¶  I am unable to discern any rule that would reconcile the decisions holding that the litigation privilege bars Rosenthal Act claims from those which reach the opposite conclusion. For example, the plaintiffs in Taylor, 458 F.Supp.2d at 1065, and in Mello, 526 F.Supp.2d at 1024, each alleged that they were sued on time-barred debts. Yet only the former holds that the litigation privilege bars Rosenthal Act claims.  ¶  What is notable is that since the issuance of Komarova—i.e., the sole published decision by a Cali-fornia appellate court to address this issue—not a single federal court has found Rosenthal Act claims to be barred by the litigation privilege. ¶  Komarova’ s holding is based on two principles. First, the rule of statutory construction “that, in cases of irreconcilable conflict, the specific statute prevails over the general one.” Id. at 338 (quoting Oei, 486 F.Supp.2d at 1100). The Rosenthal Act is the more specific statute, as “[t]he privilege is implicated in all judicial and quasi-judicial proceedings and the Act is implicated in only the small subset of those proceed-ings that involve collection of consumer debts.” Id. at 339. Second, Komarova makes clear the “ease with which the Act could be circumvented if the litigation privilege applied. In that event, unfair debt collection practices could be immunized merely by filing suit on the debt.” Id. at 340, 95 Cal.Rptr.3d 880.  ¶  I find the reasoning of Komarova persuasive. The litigation privilege does not bar plaintiff’s claims under the Rosenthal Act.

Finally, Judge Karlton found the Rooker-Feldman doctrine inapplicable where the underlying state court judgment was vacated.

Plaintiff “asserts as a legal wrong an allegedly illegal act”: that defendants sued him for a debt he did not owe. Plaintiff is not seeking relief from a state court judgment. The Sacramento County Superior Court has already vacated the judgment against him. As plaintiff correctly notes, “[T]here is not even a lower court judgment … to complain about or seek relief from—since the lower court judgment was vacated as to Plaintiff by the same court that issued it. Rather, Plaintiff seeks to recover from injuries sustained as a result of Defendants’ statutory violations and negligence when they wrongfully sued him ….” (Opposition 14.) ¶  As for U.S. Bank’s argument that the issues raised herein are “inextricably intertwined” with a state court judgment (Mot. to Dismiss 16), defendant again ignores the fact that there is no underlying state court judgment. ¶  Accordingly, the Rooker–Feldman doctrine does not bar the court from exercising subject matter jurisdiction over this case.