Breazeale v. Victim Servs., Inc.

• Decision Date: 27 July 2016
• Docket Number: Case No. 14-cv-05266-VC
• Citation: 198 F.Supp.3d 1070
• Parties: Kevin BREAZEALE, et al., Plaintiffs, v. VICTIM SERVICES, INC. d/b/a Correctivesolutions, et al., Defendants.
• Court: U.S. District Court — Northern District of California

198 F.Supp.3d 1070

Kevin BREAZEALE, et al., Plaintiffs,

v.VICTIM SERVICES, INC. d/b/a Correctivesolutions, et al., Defendants.

Case No. 14-cv-05266-VC

United States District Court, N.D. California.

Signed July 27, 2016

Paul Arons, Law Office of Paul Arons, Friday Harbor, WA, Blythe H. Chandler, Beth E. Terrell, Terrell Marshall Daudt and Willie PLLC, Seattle, WA, Deepak Gupta, Gupta Wessler PLLC, Washington, DC, Karl Olson, Michael Francis Ram, Susan S. Brown, Ram, Olson, Cereghino & Kopczynski LLP, San Francisco, CA, for Plaintiffs Kevin Breazeale, Karen Solberg, Kevin Hiep Vu and Nancy Morin.

Michael Andrew Taitelman, Sean Michael Hardy, Freedman & Taitelman LLP, Los Angeles, CA, for Defendants Victim Services, Inc., National Corrective Group, Inc. and Mats Jonsson.

ORDER DENYING MOTION TO COMPEL ARBITRATION

VINCE CHHABRIA, United States District Judge

The first question presented by this motion to compel arbitration is whether the Federal Arbitration Act applies to a contract between a local prosecutor and a criminal suspect about how to address a potential state-law criminal violation. It does not.

The second question is whether California law allows arbitration of a dispute, between a citizen and the government or its agents, arising out of the exercise of the government's criminal law enforcement powers. It does not.

I.

The California Legislature has authorized county district attorneys to create and administer diversion programs for people who write bad checks. Cal. Penal Code § 1001.60 et seq. The statutory scheme contemplates that the district attorney will create the county's diversion program ‘within his or her office.‘ Id. § 1001.60. The scheme further provides that if a district attorney decides there is probable cause to believe a suspect has violated California Penal Code section 476a (which makes it a crime to write a bad check with the intent to defraud), the district attorney may refer the suspect to the program. Id. §§ 1001.60, 1001.61. Under the program, the district attorney promises not to prosecute the suspect, and the suspect agrees to pay back the victim, pay specified fees, and take a class about financial responsibility. Id. § 1001.64; see also id. § 1001.65. The district attorney may hire a private entity to administer the county's diversion program. Id. § 1001.60.

The defendants in this case are a handful of corporate entities, all of which are allegedly owned and controlled by Victim Services, Inc. For convenience, this ruling refers to the defendants simply as "Victim Services." Various county district attorneys in California have contracted with Victim Services to administer bad check diversion programs. The plaintiffs are five people who received letters from district attorneys, each on district attorney letterhead and under the signature of the relevant county district attorney, but sent by Victim Services. The letters threatened prosecution under California Penal Code section 476a unless the recipients agreed to participate in that county's bad check diversion program. The case is a proposed class action, with the plaintiffs proposing to represent all people to whom Victim Services sent similar letters on behalf of California county district attorneys within the applicable statutes of limitations.

The lawsuit asserts a variety of claims. For example, the plaintiffs allege that Victim Services is violating the bad check diversion statutes by sending these letters to people and putting them in diversion programs even though no district attorney has first assessed whether there is probable cause to believe those people have written bad checks with intent to defraud (as the authorizing statutes require). The lawsuit also alleges that Victim Services imposes fees on participants in the diversion programs that are not contemplated by the authorizing statutes. And the lawsuit alleges that Victim Services violates the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. , by imposing unlawful fees, making false threats, and sending deceptive letters to people.

Victim Services sent a letter to one of the plaintiffs, Narisha Bonakdar, on behalf of the El Dorado County District Attorney, Vern Pierson. The letter was on Pierson's letterhead, with his signature at the bottom. The Pierson letter began by telling Bonakdar she had "been accused of violating California Penal Code 476a." It stated that Bonakdar could "dispute the validity" of the allegation that she had violated section 476a"in writing" within 30 days of receiving the notice, and explained that "the authorized administrator of the Bad Check Restitution Program" would "review the written dispute based on criteria established by the El Dorado County District Attorney." The Pierson letter further explained that if Bonakdar participated in the program, she "acknowledge[d] and agree[d] that in addition to the fees that are charged," she would be "required to attend a rehabilitative counseling class." The letter also provided that "[c]ompletion of the Bad Check Restitution Program is valid ONLY if you comply with ALL District Attorney's requirements." And it provided that, "[b]y making full or partial payment, you are agreeing to be enrolled in the Bad Check Restitution Program, and you are agreeing to pay restitution on all reported checks as well as pay all required fees, including program, administrative, and returned item fees pursuant to the terms of this Notice."

The Pierson letter also included an arbitration provision among its "terms and conditions." After noting that the program was administered by an unidentified private entity, the letter stated, on the third page:

Agreement to Arbitrate: You and Administrator agree to resolve any and all claims and disputes relating in any way to the Program ("Claims"), except for Claims concerning the validity, scope or enforceability of this Arbitration Agreement, through BINDING INDIVIDUAL ARBITRATION before the American Arbitration Association ("AAA"). This means you will be unable to have Claim(s) resolved by a court or jury, or to participate in a class action or class arbitration. Other rights you would have if you went to court may be unavailable or limited in arbitration, including your right to appeal. The only exception to this agreement to arbitrate is that you and/or Administrator may seek relief in a small claims court for Claims within the jurisdiction of that court in any particular state.

The letter further explained that participants could opt out of arbitration in writing within sixty days of enrolling in the program.

Bonakdar completed the diversion program. "As such," according to a declaration from the El Dorado County District Attorney's office filed by Victim Services, "Bonakdar's case has been resolved and she will not be prosecuted." Victim Services contends Bonakdar is therefore also subject to the letter's terms and conditions, including the arbitration provision, because Bonakdar did not opt out of that provision. Victim Services has filed a motion to compel Bonakdar to arbitrate her claims on an individual basis. The other four named plaintiffs are not subject to any arbitration provision.

II.

An arbitration provision contained in any contract governed by the Federal Arbitration Act is valid, irrevocable, and enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA covers (with exceptions not pertinent here) maritime transactions and contracts "evidencing a transaction involving commerce." Id. Therefore, the first question is whether this contract—the agreement between the El Dorado County District Attorney and Bonakdar in which Bonakdar agreed to participate in the diversion program and the District Attorney agreed not to charge her if she successfully completed it—is a "contract evidencing a transaction involving commerce." As the Supreme Court has noted, although the statute refers to commerce generically, it actually covers contracts evidencing transactions affecting "interstate commerce." See generally Allied – Bruce Terminix Cos. v. Dobson , 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).

A.

While Victim Services insists that the FAA applies, Bonakdar makes conflicting statements on the question. Her inconsistency appears to stem from confusion about how to conceptualize the "contract" that is the subject of the inquiry. At one point Bonakdar assumes that the Court must look to the overall contract to decide whether it has the requisite connection to interstate commerce. Taking this perspective, she asserts: "An agreement to avoid criminal prosecution does not, on its face, affect commerce in even the broadest sense." Dkt. No. 106 at 7 n.2 (citation omitted). But in subsequent filings Bonakdar assumes that the "contract" to be considered for purposes of assessing the connection to interstate commerce is not the overall non-prosecution agreement, but the arbitration provision contained within it, which she seems to treat as a separate, stand-alone contract with a purely private entity. Operating under this assumption, Bonakdar concludes that the FAA applies, because the arbitration provision benefits Victim Services, a for-profit company that uses the U.S. mail to collect debts from people who wrote bad checks to big companies. Dkt. No. 136 at 1.

Bonakdar's first approach is the correct one. The FAA speaks of a "contract" that contains an arbitration "provision," and it applies to any "contract" that evidences "a transaction" involving commerce. 9 U.S.C. § 2. It's not enough that the arbitration provision happens to benefit a private company: if the arbitration provision itself could supply the requisite effect on interstate commerce, the statutory language "evidencing a transaction involving commerce," modifying "a contract," would be rendered superfluous. See, e.g. , Chubb Custom Ins. Co. v. Space Sys./Loral, Inc. , 710 F.3d 946, 966 (9th Cir.2013) ("[C]ourts should not interpret ...