Gonzales v. Arrow Fin. Servs., LLC

Decision Date23 September 2011
Docket NumberNo. 10–55379.,10–55379.
Citation11 Cal. Daily Op. Serv. 12210,2011 Daily Journal D.A.R. 14504,660 F.3d 1055
PartiesJohnny GONZALES, on behalf of himself and all others similarly situated, Plaintiff–Appellee, v. ARROW FINANCIAL SERVICES, LLC, Defendant–Appellant.
CourtU.S. Court of Appeals — Ninth Circuit


David M. Schultz, Joel David Bertocchi, and Jennifer W. Weller, Hinshaw & Culbertson, LLP, Chicago, IL, for the defendant-appellant.

Elizabeth J. Arleo, Arleo Law Firm, Ramona, CA, Owen Randolph Bragg and Craig M. Shapiro, Horwitz, Horwitz & Associates, Chicago, IL, Shaun Khojayan, Beverly Hills, CA, and Richard John Rubin, Santa Fe, NM, for the plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California, John A. Houston, District Judge, Presiding. D.C. No. 3:05–cv–00171–JAH–RBB.Before: BETTY B. FLETCHER and N. RANDY SMITH, Circuit Judges, and

JAMES S. GWIN, District Court Judge.*

Opinion by Judge B. FLETCHER; Dissent by Judge N.R. SMITH.


B. FLETCHER, Circuit Judge:

Appellant Arrow Financial Services (Arrow) appeals the district court's decision, on summary judgment, that letters sent by Arrow to nearly 40,000 California residents constituted “false, deceptive, or misleading representation[s] ... in connection with the collection of any debt” in violation of the federal Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692e. It also appeals a jury's award, after trial, of statutory damages under both the FDCPA and California's Rosenthal Fair Debt Collection Practices Act (“Rosenthal Act), California Civil Code § 1788 et seq. Arrow contends that the Rosenthal Act does not permit class actions, and that permitting class plaintiffs to recover statutory damages under both the FDCPA and Rosenthal Act violates the FDCPA. We have jurisdiction under 28 U.S.C. § 1291. We disagree with Arrow's contentions and affirm the district court.


Arrow Financial Services is a debt buyer and collector. It purchases consumer debts that have been written off by the original creditor. Most debt buyers acquire the debts for a fraction of the balance, but then attempt to collect the entire debt.1 In 2002, Arrow purchased a portfolio of debts owed to health clubs. All of these debts were more than seven years old; accordingly, pursuant to the Fair Credit Reporting Act, 15 U.S.C. § 1681c(a)(4), none of these debts could be reported to a credit reporting agency. They were, to use industry parlance, “obsolete.” Fed. Trade Comm'n v. Gill, 265 F.3d 944, 948 (9th Cir.2001) (citing 15 U.S.C. § 1681c(a)). As a general practice, Arrow does not report obsolete debts. In 2004, Arrow attempted to collect on this portfolio of debts by sending substantially identical letters to nearly 40,000 California residents. One of those residents was Johnny Gonzales, the named plaintiff in this action. The letter informed Mr. Gonzales that he owed a PAST DUE BALANCE to “Holiday Spa of Calif”. It stated:


At this time we are willing to settle your past due account for 50% of the full balance and accept this amount as settlement of the referenced account. The settlement amount must be made in one payment and received by our office on or before May 28, 2004.

* * * Settlement Amount $276.48 You Save $276.49 * * *

Upon receipt of the settlement amount and clearance of funds, and if we are reporting the account, the appropriate credit bureaus will be notified that this account has been settled. Please mark the appropriate box below.

1. [ ] Enclosed find payment for the above-stated settlement amount. By depositing this payment in the sum of $276.48, you have accepted this as settlement. When my funds clear, and if you are reporting the account, you will notify the appropriate credit bureaus of this settlement.


Should you have any questions, please feel free to contact me....

Important notice required by law: This agency is engaged in the collection of debts. This communication is an attempt to collect a debt and any information obtained will be used for that purpose.

Finally, in bold letters, the letter instructed Gonzales to “Please see reverse side for important information.” The “important information” was the following: “NOTICE TO CALIFORNIA RESIDENTS: As required by law, you are hereby notified that a negative credit report reflecting on your credit record may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations.” Id. at 90. All in all, the letter refers to credit bureaus three times. It twice states that if Arrow is reporting the debt, it will notify credit bureaus once the settlement funds clear, and also provides a notice that if a consumer fails to fulfill his credit obligations, negative information may be submitted to a credit reporting agency.

On receipt of the letter, Gonzales conducted an independent investigation and determined that Arrow could not legally report the debt to any credit bureau. On January 28, 2005, Gonzales filed suit on behalf of himself and a putative class, claiming violations of the FDCPA and the Rosenthal Act, because the letter would likely cause recipients to believe that their failure to pay the debts would result in negative credit reports. The district court certified a class to include 39,727 similarly situated Californians, and designated Gonzales as the class representative. On June 8, 2007, the district court granted summary judgment to Gonzales on the issue of liability under the FDCPA and the Rosenthal Act.

The district court then held a jury trial to determine the amount of damages. The court instructed the jury that class members could receive separate statutory damages pursuant to the FDCPA and the Rosenthal Act claims. The jury awarded Gonzales $250 on the FDCPA claim and an additional $250 on the Rosenthal Act claim. It awarded the class members $112,500 on the FDCPA claim and $112,500 on the Rosenthal Act claim. The total damages awarded were $225,500.


We review the district court's grant of summary judgment de novo. Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F.3d 1132, 1135 (9th Cir.2009). Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. We review questions of law, including the district court's interpretations of the FDCPA and the Rosenthal Act, de novo. Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1030 (9th Cir.2010).


The FDCPA was enacted as a broad remedial statute designed to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). The FDCPA comprehensively regulates the conduct of debt collectors, imposing affirmative obligations and broadly prohibiting abusive practices. See, e.g., 15 U.S.C. §§ 1692b (governing the acquisition of location information), 1692e (prohibiting misleading or deceptive practices). The FDCPA does not ordinarily require proof of intentional violation, and is a strict liability statute. See McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d 939, 948 (9th Cir.2011). Though the Federal Trade Commission (“FTC”) is empowered to enforce the FDCPA, 15 U.S.C. § 1692 l, Congress encouraged private enforcement by permitting aggrieved individuals to bring suit as private attorneys general. Camacho v. Bridgeport Fin., Inc., 523 F.3d 973, 978 (9th Cir.2008). Prevailing plaintiffs, including class members, are entitled to actual damages, statutory damages, and attorney's fees and costs. 15 U.S.C. § 1692k(a).

As relevant here, section 1692e of the FDCPA broadly prohibits the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” The Act includes a non-exhaustive list of examples of proscribed conduct, including:

(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.


(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

15 U.S.C. § 1692e.

“Whether conduct violates [§ 1692e] ... requires an objective analysis that takes into account whether the ‘least sophisticated debtor would likely be misled by a communication.’ Donohue, 592 F.3d at 1030 (quoting Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 934 (9th Cir.2007)); see also Swanson v. S. Or. Credit Serv., Inc., 869 F.2d 1222, 1227 (9th Cir.1988).2 In this circuit, a debt collector's liability under § 1692e of the FDCPA is an issue of law.3 Terran v. Kaplan, 109 F.3d 1428, 1432 (9th Cir.1997).

The “least sophisticated debtor” standard is “lower than simply examining whether particular language would deceive or mislead a reasonable debtor.” Id. (internal quotation marks omitted). The standard is “designed to protect consumers of below average sophistication or intelligence,” or those who are “uninformed or naive,” particularly when those individuals are targeted by debt collectors. Duffy v. Landberg, 215 F.3d 871, 874–75 (8th Cir.2000) (internal quotation marks omitted); accord Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 774 (7th Cir.2007) (cautioning that “if the debt collector has targeted a particularly vulnerable group,” “the benchmark for deciding whether the communication is deceptive would be the competence of the substantial bottom fraction of that group”). At the same time, the standard “preserv[es] a quotient of reasonableness and presum[es] a basic level of understanding and willingness to read with care.” Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir.2008) (internal quotation marks omitted). The FDCPA does not subject debt...

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