District Court (Cal.) Finds Debt Collector who Did Not Honor Settlement of Debt and Proceeded to Default Judgment was not Protected in Federal Court by Rooker-Feldman Doctrine or Litigation Privilege

In Santos v. LVNV Funding, LLC, 2012 WL 216398 (N.D.Cal. 2012), Judge Davila found that an FDCPA claim arising out of a debt collector’s failure to honor a settlement agreement in an underlying debt collection action was not protected by the Rooker-Feldman doctrine or the litigation privilege.  The facts were as follows.  Santos became delinquent on a consumer credit card account assigned to LVNV, and LVNV filed a collection action against Santos in Santa Clara County Superior Court. Santos called BLG and worked out a payment plan to resolve the debt.  BLG informed Santos that if she made the agreed upon payments, she would not need to go to court and could disregard the summons. Santos completed the payments on or about February 28, 2009, and Defendants had knowledge of that fact.  On September 23, 2009, despite the completed settlement, Defendants filed a Request for Entry of Default in the state court action. Default was entered and default judgement was granted in the amount of $4,210.75.  On March 2, 2010, Defendants caused Santos’s bank account to be levied, and Santos was charged a fee for processing the levy. In or around October 2010, De-fendants served an earnings withholding order on Santos’s employer. Id. ¶ 18. The judgment was set aside on or about May 3, 2011. Defendants then filed a dismissal without prejudice.  Plaintiff sued in federal court.  Defendant moved to dismiss, which the District Court denied. 

The District Court found the Rooker-Feldman doctrine inapplicable.

The Rooker–Feldman doctrine applies to “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). The doctrine prevents litigants from attacking a state court judgment by filing a subsequent federal lawsuit, “no matter how erroneous or unconstitutional the state court judgment may be.” Kelly v. Med–1 Solutions, LLC, 548 F.3d 600, 603 (7th Cir.2008).  ¶   Although the judgment Defendants obtained on its state court claims was set aside, Defendants argue that this federal action is based on harm resulting from that judgment. It appears that some of the injury alleged in the Complaint resulted from the state-court judgment that has been set aside. The Complaint, however, alleges violations based on Defendants’ conduct in pursuing that judgment in violation of a settlement; the Complaint does not ask the court to review or to reject the state court’s judgment. ¶   Accordingly, the Rooker–Feldman doctrine is inapplicable to remove this action from this court’s jurisdiction.

The District Court also found the litigation privilege inapplicable.

Finally, Defendants argue that because the basis for this action is Defendants’ filing of legal documents seeking default, levy, and garnishment in a judicial proceeding, the case is barred by California litigation privilege that protects statements made in any judicial proceeding. Cal. Civ.Code § 47(b).  The California litigation privilege, however, does not apply to FDCPA claims. See Welker v. Law Office of Horwitz, 626 F.Supp.2d 1068, 1072 (S.D.Cal.2009); Oei v. N. Star Capital Acquisitions, LLC, 486 F.Supp.2d 1089, 1098 (C.D.Cal.2006). This rule is especially clear in light of the Supreme Court’s decision in Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995) that the Supreme Court held that the FDCPA “applies to attorneys who ‘regularly’ engage in consumer-debt collection activity, even when that activity consists of litigation.” Although the Heintz decision does not expressly address litigation privilege, the decision “leaves little room for the proposition that an attorney’s litigation activities are immune and thus not subject to the FDCPA.” Reyes v. Kenosian & Miele, LLP, 619 F.Supp.2d 796, 803 (N.D.Cal.2008). ¶  The California litigation privilege also does not apply to RFDCPA violations. See Komorova v. National Credit Acceptance, Inc., 175 Cal.App.4th 324, 337, 95 Cal.Rptr.3d 880 (App.Ct.2009) (finding that the litigation privilege “cannot be used to shield violations of the [RFDCPA] ).” In Komorova, the California Court of Appeals held that an exception to the litigation privilege existed because (1) the RFDCPA is more specific the California litigation privilege and (2) the RFDCPA would be “significantly inoperable if it did not prevail over the privilege where, as here, the two conflict.” Id . at 339–40, 95 Cal.Rptr.3d 880. Here, as in Komorova, if the court were to apply the litigation privilege to protect Defendants’ filings, which allegedly sought to improperly collect the debt, that decision would in effect render the RFDCPA inoperable. See also, Welker v. Law Office of Daniel J. Horwitz, 699 F.Supp.2d 1164, 1174 (S.D.Cal.2010).  ¶  Accordingly, the litigation privilege is inapplicable to shield Defendants from liability for Santos’s FDCPA and RFDCPA claims.