District Court (Cal.) Strikes Rosenthal Act Affirmative Defenses; Says Rosenthal Act Class Penalty Not Pre-empted by FDCPA and Bona-fide Error Defense Must Meet FRCP Pleading Standards

In Youssofi v. Allied Interstate LLC, 2016 WL 29625, at *2-3 (S.D.Cal., 2016), Judge Curiel struck an FDCPA defendant’s assertion of FDCPA pre-emption over the Rosenthal Act.

Plaintiff argues that these affirmative defenses fail as a matter of law and cites to the holding in Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055 (9th Cir. 2011). Defendant opposes contending that allowing Plaintiff to recover statutory damages under the FDCPA and Rosenthal Act is duplicative and may lead to exceeding the FDCPA statutory damages cap. It also argues that a duplicative statutory award would be grossly out of proportion to any harm allegedly suffered by the failure to include a single sentence in a limited number of debt collection letters sent out for a limited amount of time. Lastly, Defendant argues that the FDCPA’s statutory cap on class action damages preempts the damages provisions in the Rosenthal Act. In support, Defendant cites to the dissenting opinion in Gonzales.  The second affirmative defense states that “the penalties sought by Plaintiff under different statutes violates Allied’s right to due process under the Fourteenth Amendment to the United States Constitution because they are duplicative.” (Dkt. No. 4, Ans. at 5.) The third affirmative defense provides that “the penalties sought by Plaintiff violate Allied’s right to due process under the Fourteenth Amendment to the United States Constitution because the penalties bear no relation to any harm allegedly suffered.” (Id. at 5.) The fifth affirmative defense asserts that “Plaintiff’s attempt to recover statutory penalties under state law is preempted by the cap on class action damages imposed under federal law.” (Id. at 6.)  In class action suits, statutory damages under the FDCPA are limited to the lesser of $500,000 or 1% of the debt collector’s net worth. 15 U.S.C. § 1692k(a)(2)(B). In Gonzales, the Ninth Circuit held that a consumer may seek cumulative damages under both the FDCPA and the Rosenthal Act as long as the damages does not exceed the FDCPA statutory cap. Gonzales, 660 F.3d at 1067-68. In this case, Plaintiff agrees that any damages over the FDCPA statutory cap is not allowed. Moreover, the Ninth Circuit held that the Rosenthal Act is not preempted by the FDCPA. Id. at 1067.  Based on the holding in Gonzales, the affirmative defenses of “due process”, “due process”, and “preemption” fail as a matter of law. Accordingly, the Court GRANTS Plaintiff’s motion to strike the second, third and fifth affirmative defenses.

Judge Curiel also held that that defendant’s assertion of bona-fide error must plead factual support for the affirmative defense.

Plaintiff argues that the affirmative defense of “bona fide error” must be stricken because it fails to plead the circumstances of the mistake with detail. In opposition, Defendant argues that it explicitly told Plaintiff about the facts surrounding Defendant’s error. “The bona fide error defense is an affirmative defense, for which the debt collector has the burden of proof.”. . .District courts have held that the affirmative defense of bona fide error must be stated with particularity under Rule 9(b). See Walters v. Performant Recovery, Inc., –F. Supp. 3d –, 2015 WL 4999796, at *4 (D. Conn. Aug. 21, 2015) (bona fide error defense “is subject to a heightened pleading standard, regardless of whether Iqbal or Twombly generally apply to affirmative defenses”); Nguyen v. HOVG, LLC, No. 14CV837 BTM RBB, 2014 WL 5361935, at *2 (S.D. Cal. Oct. 20, 2014) (granting Plaintiff’s motion to strike affirmative defense of “bona fide error” since Defendant did not state any facts regarding the mistake that was made and mistake must be stated with particularity); Jacobson v. Persolve, LLC, 14cv735-LHK, 2014 WL 4090809, at *7 (N.D. Cal. Aug. 19, 2014) (citing merely to legal standard for bona fide error is not sufficient to assert affirmative defense); Wiebe v. Zakheim & Lavrar, P.A., No. 6:12-cv-1200-ORL-18TBS, 2012 WL 5382181, at *2 (M.D. Fla. Nov. 1, 2012) (“A claim of bona fide error is tantamount to a claim of mistake and therefore, the Defendant must plead this defense with the particularity required by Rule 9(b).”); Bradshaw v. Hilco Receivables, LLC, 725 F. Supp. 2d 532, 537 (D. Md. July 27, 2010) (striking “bona fide error” defense of merely copying language of § 1692k(c) and failing to plead facts that give the plaintiff sufficient notice of the specific mistake); Konewko v. Dickler, Kahn, Sloikowsi & Zavell, Ltd., No. 07-C-5338, 2008 WL 2061551, at *1 (N.D. Ill. May 14, 2008) (finding defendant “obligated to comply with both Fed. R. Civ. P. 8 and 9(b)” when asserting bona fide error defense under the FDCPA).  Here, Defendant alleges that “Plaintiff’s claims are barred on the basis that any statutory violation was the unintentional result of a bona fide error.” (Dkt. No. 4, Ans. at 6.) This conclusory affirmative defense provides no facts to support the allegation of “mistake.” Accordingly, the Court GRANTS Plaintiff’s motion to strike the fourth affirmative defense of “bona fide error” with leave to amend.