District Court (Cal.) Finds — in real property case — that FCRA overcomes the Rosenthal Act, but the Litigation Privilege Does Not.

In Farber v. JPMorgan Chase Bank N.A., 2014 WL 68380 (S.D.Cal. 2013), Judge Curiel found that mortgage servicers were subject to the Rosenthal Act, but found that only certain conduct might be actionable.  The facts were as follows:

In September 2010, Farber sold the Property by way of a “short sale” with Defendant receiving approximately $1,139,345.00. (Id. ¶ 21.) In selling the Farber Property through a short sale in September 2010, he signed a short sale approval letter containing language that attempted to hold him responsible for all deficiency balances remaining on the loan which waived the protection allotted under California Civil Procedure Code section 580b (“section 580b”). (Id. ¶ 22.) Specifically, Defendant’s short sale approval letter stated, “[t]he amount paid to Chase is for the release of Chase’s security interest(s) only, and the Borrower is responsible for all deficiency balances remaining on the Loan, per the terms of the original loan documents.” (Id.) According to Farber, the protection under section 580b applied because the loan was a standard purchase money debt secured by his home. (Id. ¶ 23.)  ¶  Defendant continued collection efforts on the alleged deficiency balance alleging that Farber is not protected by section 580b. (Id. ¶ 24.) Chase contends that Farber is indebted in the amount of about $419,855.00. (Id.) Despite Farber’s repeated requests to review the validity of the purported debt, Defendant has made various reports to credit agencies that he is delinquent on this debt. (Id. ¶ 26.)

The RFDCPA applies only to debt collectors. Cal. Civ.Code. § 1788.17. The RFDCPA in addition to incorporating some provisions of the federal statute, also adopted its own definitions. See Reyes v. Wells Fargo Bank, N.A., No. C–10–1667 JCS, 2011 WL 30759, at *19 (N.D.Cal. Jan.3, 2011). The RFDCPA defines a “debt collector” as “any person, who in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.” Cal. Civ.Code § 1788.2. The definition of “debt collector” is broader under RFDCPA than the federal statute as the FDCPA excludes creditors collecting on their own debts. See Huy Thanh Vo v. Nelson & Kennard, 931 F.Supp.2d 1080, 1090 (E.D.Cal.2013). Although the state statute does incorporate portions of the federal statute, Cal. Civ.Code § 1788.17, the federal exclusion of “creditors collecting on their own debts,” 15 U.S.C. § 1692a(6), is not included in the state statute, Cal. Civ.Code § 1788.2(c). See Austero v. Aurora Loan Servs., No. C–11–00490 JCS, 2011 WL 1585530, at *8 (N.D.Cal. Apr.27, 2011). The RFDCPA broadly encompasses “any person” who regularly engages in debt collection. Walters v. Fidelity Mortg. of CA, 730 F.Supp.2d 1185, 1203 (E.D.Cal.2010). Therefore, under the RFDCPA, a mortgage servicer can qualify as a “debt collector” as the original lender, although excluded under the federal statue. See Austero, 2011 WL 1585530 at *26; see also Huy Thanh Vo v. Nelson & Kennard, 931 F.Supp.2d 1080, 1087 (E.D.Cal.2013) (holding that bank seeking to collect a debt owed to it was a debt collector as long as they do so “in the ordinary course of business, regularly” under RFDCPA).

The Court found that FCRA preempted any credit reporting obligations under FCRA.

The FCRA contains an express preemption clause that preempts any state law that regulates liability for furnishers of information to the credit reporting agencies. Plaintiff’s state law claim under the RFDCPA incorporates § 1692e(8) of the FDCPA, which proscribes “[c]ommunicating … to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.” 15 U.S.C. § 1692e(8). The plain language of the FCRA clearly preempts such a state law claim, unless it is brought under California Civil Code section 1785.25(a). See 15 U.S.C. § 1681t(b)(1)(F). As a result, Plaintiff seeks leave of court to file a similar cause of action under California Civil Code section 1785.25(a).

Harkening to out-of-statute and NOI litigation, the Court found that the mere fact that a statute did not authorize a lawsuit for a deficiency balance did not mean that the balance itself was not owing and could not be collected.

The third amended complaint alleges that Defendant violated 15 U.S.C. § 1692f(1) “by attempting to collect amounts which were not expressly authorized by the agreement creating the debt or permitted by law since Defendant attempted to collect an alleged that was not owed by Plaintiff … due to the protection of CCP § 580b.” (Dkt. No. 28–1, TAC ¶ 48.) Although a creditor may not seek a personal judgment for remaining amounts due after a short sale, it may collect on the debt through other means since the debt is not erased by section 580b. See Armsey, 184 Cal.App.3d at 837, 229 Cal.Rptr. 509.  ¶  Accordingly, based on the Court’s analysis and Plaintiff’s non-opposition, the Court finds that the Plaintiff’s allegations do not state a claim under the RFDCPA under 15 U.S.C. § 1692f(1). As a result, the GRANTS Defendant’s motion to dismiss the RFDCPA and section 17200 claims based on violations of 15 U.S.C. § 1692f(1).

  Finally, the Court find the litigation privilege inapplicable.

District courts are split with respect to whether the litigation privilege bars RFDCPA claim. See Komarova v. Nat’l Credit Acceptance, Inc., 175 Cal.App.4th 324, 337, 95 Cal.Rptr.3d 880 (2009) (while the issue has not yet been discussed in any reported California state court cases, the federal district courts have addressed the issue) (listing cases). The court in Komarova stated it agreed with the majority of the district court cases that if the litigation privilege and the RFDCPA conflict, then the RFDCPA prevails.   Id. at 337–38, 95 Cal.Rptr.3d 880. The Court explained that the “litigation privilege cannot be used to shield violations of the Act.” Id. at 337, 95 Cal.Rptr.3d 880. Exceptions have been recognized under statutes that “are more specific” than the privilege, and “would be significantly or wholly inoperable” if the privilege applied. Id. at 339, 95 Cal.Rptr.3d 880.  ¶  Defendant attempts to distinguish this case from Komorova and other cases stating that in those cases, the court held that the RFDCPA provisions were more specific than section 47(b); however, in this case, Defendant argues that Plaintiff’s claims do not implicate any provision prohibiting specific conduct. However, Defendant provides no authority that these provisions of the RFDCPA are less specific than section 47(b). Moreover, it appears to the Court that 15 U.S.C. § 1692e(2) and 15 U.S.C. § 1692(e)(10) prohibit specific acts of misrepresentation. Thus, Defendant has not demonstrated that the litigation privilege applies to the RFDCPA for violations of 15 U.S.C. § 1692e(2) and 15 U.S.C. § 1692(e)(10) and related UCL claims. Accordingly, the Court DENIES Defendant’s motion to dismiss on this issue.