District Court (Cal.) Says Judgment in Favor of Debtor in Debt Collection Action Does Not Preclude Debt Collector From Continuing to Collect by Non-Judicial Means

The question presented in this case is whether that ruling in favor of Alarcon in state court bars Defendants’ subsequent non-judicial attempts to collect on the debt, and, if it does, whether such attempts would violate the FDCPA. The Court is not aware of any Ninth Circuit authority on the question, but Galaxy points to an instructive case from the Eastern District of Virginia, Wynne v. I.C. Sys., Inc., 124 F. Supp. 3d 734 (E.D. Va. 2015). In that case, the plaintiff, Wynne, incurred a debt to the defendants related to an overdrawn checking account. When Wynne defaulted on that debt, the defendants sued her in Virginia state court. The state court ultimately ruled in favor of Wynne, although it’s unclear on what grounds. Defendants then attempted to collect the debt through non-judicial means. Wynne sued in federal court, alleging that these attempts to collect the debt were barred by the state court judgment and constituted violations of the FDCPA. The district court disagreed and dismissed the suit. One of the reasons for the dismissal was a finding that although collection was precluded through the judicial process, it may still be legally permitted through non-judicial means. Id. at 742.  Alarcon pushes back on the holding of the Wynne case, noting that California’s standards for extinguishment are different than those in Virginia and would preclude subsequent attempts to collect on a debt reduced to judgment. California has adopted the definition of “bar” set out in the Restatement of Judgments. See, e.g., Ferraro v. Camarlinghi, 161 Cal. App. 4th 509, 531 (Cal. Ct. App. 2008). The rule of bar provides that “[i]f the judgment is in favor of the defendant, the claim is extinguished and the judgment bars a subsequent action on that claim.” Restatement (Second) of Judgments § 17 (1982). In Alarcon’s view, the term “claim” is broader than (and subsumes) the term “debt,” and that, accordingly, Defendants are “barred’ ” from attempting to collect on this debt. This argument proves too much. The Restatement of Judgments provides that an underlying judgment bars a subsequent “action” on that claim. The term “action,” by its very definition, refers to a legal proceeding. See Cal. Civ. Proc. Code § 22 (“An action is an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement, or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense.”). There is little doubt the state court judgment would preclude a subsequent legal proceeding to collect on the debt, but it does not follow that it also precludes Defendants from attempting to collect that debt through non-judicial means. Alarcon cannot state a cognizable FDCPA or RFDCPA⁵ claim based on Defendants’ attempts to collect the debt through non-judicial means, absent some other statutory violation. The Defendants are entitled to summary judgment.