Breazeale v. Victim Servs., Inc.

Decision Date27 December 2017
Docket Number16-16495,Nos. 15-16549,s. 15-16549
Parties Kevin BREAZEALE; Karen Solberg; Kevin Hiep Vu; Nancy Morin; Narisha Bonakdar, on their own behalf and on behalf of others similarly situated, Plaintiffs-Appellees, v. VICTIM SERVICES, INC., DBA CorrectiveSolutions; National Corrective Group, Inc., DBA CorrectiveSolutions; Mats Jonsson, Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Sean M. Hardy (argued) and Michael A. Taitelman, Freedman & Taitelman LLP, Los Angeles, California, for Defendants-Appellants.

Deepak Gupta (argued) and Matthew W.H. Wessler, Gupta Wessler PLLC, Washington, D.C.; Paul Arons, Law Offices of Paul Arons, Friday Harbor, Washington; Beth E. Terrell and Blythe Chandler, Terrell Marshall Law Group PLLC, Seattle, Washington; for Plaintiffs-Appellees.

R. Orion Danjuma, Rachel Goodman, Nusrat J. Choudhury, and Dennis D. Parker, New York, New York, as and for Amicus Curiae American Civil Liberties Union Foundation Inc.

Jennifer D. Bennett and Brian Hardingham, Public Justice P.C., Oakland, California; David Seligman, Towards Justice, Denver, Colorado; for Amici Curiae Public Justice, The National Consumer Law Center, Towards Justice, and Professors of Arbitration, Consumer, and Contract Law.

Before: Mary M. Schroeder and Richard C. Tallman, Circuit Judges, and Robert H. Whaley,* District Judge.

SCHROEDER, Circuit Judge:

Plaintiffs are individuals who are subject to potential prosecution for violations of California’s bad check statute, which criminalizes the writing of bad checks with intent to defraud. The Defendants, Victim Services and related companies (collectively, "VSI"), pursuant to an agreement with the District Attorney’s office, sent notices to the Plaintiffs that to avoid criminal prosecution they could participate in California’s Bad Check Diversion Program, including payment of specified fees. Plaintiffs filed this putative class action claiming VSI’s practices violated state law and the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq . They seek injunctive as well as monetary relief.

Before us are two consolidated appeals from separate orders of the district court. VSI first pursues an interlocutory appeal of the district court’s denial of its motion to strike under California’s Anti-SLAPP statute. We lack jurisdiction to consider the district court’s denial, however, because under the terms of the state statute, such a denial in a case deemed to be filed in the public interest is not immediately appealable. VSI also appeals the district court’s denial of its motion to compel arbitration. We have jurisdiction over that appeal and affirm the arbitration denial because this is not a private contract subject to the provisions of the Federal Arbitration Act. We therefore affirm and remand to the district court for the conduct of further proceedings.

A. California’s Bad Check Diversion Program

California’s bad check diversion program permits district attorney offices throughout the state to defer prosecution of those accused of writing bad checks if the accused satisfies certain criteria established by statute. The district attorneys may contract with private parties to administer the program. Plaintiffs here allege that VSI, a private administrator under the program, exceeded its statutory authority and administered the program in violation of federal and state laws applicable to debt collection practices.

The bad check diversion program attempts to address a public policy problem facing the California criminal justice system. California criminalizes the writing of bad checks with intent to defraud. See Cal. Penal Code § 476a (added in 1907). And while the enactment of this proscription addressed the problem of bad check writing, California began to face a problem of overload: prosecutions of accused bad check writers eventually "inundat[ed] the state’s criminal courts." del Campo v. Kennedy , 491 F.Supp.2d 891, 895 (N.D. Cal. 2006), aff'd , 517 F.3d 1070 (9th Cir. 2008). In response, California in 1985 passed Cal. Penal Code § 1001.60 et seq. , authorizing a diversion program for bad check writers that could be administered by private entities under contract with the local district attorney. The statutory scheme permits, but does not require, district attorneys throughout the state of California to create within their offices a diversion program for those who write bad checks. Of particular relevance here, the statute allows the program to be "conducted by the district attorney or by a private entity under contract with the district attorney." Cal. Penal Code § 1001.60.

The bad check diversion program is designed to operate in accordance with certain statutory requirements that track the life of a bad check case from investigation to resolution—all without formal criminal prosecution—if certain criteria are met. A district attorney may refer a case to the bad check diversion program only if there is probable cause that the bad check statute has been violated. Id. The district attorney’s office that receives a grievance suggesting a possible bad check prosecution must also consider a non-exclusive list of factors before deciding to refer cases to the diversion program. See Cal. Penal Code § 1001.62. These factors include the amount of the bad check; the check writer’s prior criminal record and whether that person has been previously referred to the program; the number of bad check grievances the district attorney has previously received against the person, and "[t]he strength of the evidence, if any, of intent to defraud the victim." Id. These factors afford the district attorney discretion to forgo prosecution, for example, of those subject to prosecution for the first time, while focusing the limited resources of the office instead on prosecution of those who have been the subject of numerous accusations.

After the district attorney has considered these factors and concluded that there is probable cause that Cal. Penal Code § 476a has been violated, and that referral to the program is appropriate, the person identified as a potential participant is notified of referral to the program. Such person must receive notice by mail of the referral. See Cal. Penal Code § 1001.63. The statute provides the notice must include the date and amount of the check; the name of the payee; the date by which the potential participant must contact someone designated by the district attorney, and a statement of the penalty for writing a bad check. Id. To complete the diversion program successfully, the person must then complete a class conducted by the district attorney, or by the private entity under contract with the district attorney’s office, pay full restitution to the victim, and pay the diversion fees. See Cal. Penal Code § 1001.64. Pending successful completion of those conditions, the district attorney may "enter into a written agreement with the person to forego prosecution on the bad check for a period to be determined by the district attorney...." Id . Admission of guilt is not a prerequisite to placement in the program. See Cal. Penal Code § 1001.66.

VSI administers contracts with various county district attorneys in California. VSI is a registered corporation in Delaware, and VSI and its subsidiaries operate in a number of states. Under VSI’s contracts, local district attorneys retain prosecutorial discretion and approve the fees VSI requests from bad check writers. VSI receives a cut of the fees collected.

The named plaintiffs in this case each received letters from VSI describing probable criminal prosecution, with a potential punishment of up to a year in jail, if they chose not to participate in the BCDP. The letters they received were sent on district attorney letterhead and were signed by the local district attorney. The letters informed the recipients that they had "been accused of violating California Penal Code 476a," and that they could avoid criminal prosecution by enrolling in the bad check diversion program and paying the associated fees and restitution. The letters provided the recipients thirty days to dispute the allegations in writing, which would be reviewed by the "authorized administrator of the Bad Check Restitution Program." The letter does not identify VSI by name, although it states that the BCDP is "administered by a private entity under contract" with the district attorney.

Under the terms of the letter, recipients who make full or partial payment of fees and restitution "agree[ ] to be enrolled in the Bad Check Restitution Program." The letter also includes an arbitration clause, which provides:

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 terms then stipulate the agreement is to be governed by and enforceable under the FAA on only an individual basis. No arbitrator or court can "permit or certify a class action, representative action, private attorney-general action or consolidated arbitration in connection with [the] arbitration agreement." Participants in the program are allowed to opt out of arbitration in writing within sixty days of enrollment in the program.

One of the named plaintiffs, ...

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