Schwarm v. Craighead

• Decision Date: 05 May 2008
• Docket Number: No. CIV. 05-01304 WBS GGH.,CIV. 05-01304 WBS GGH.
• Citation: 552 F.Supp.2d 1056
• Court: U.S. District Court — Eastern District of California
• Parties: Kristy SCHWARM, Patricia Foronda, and Josann Ancelet, on behalf of themselves and others similarly situated, Plaintiffs, v. Henry CRAIGHEAD, an individual, District Attorney Technical Services, Ltd., a Nevada Corporation, dba Computer Support Services, aka Check Restitution/Prosecution Program, John Q. Lawson, an individual, Mary A. Chase, an individual, and Does 1 through 20, inclusive, Defendants.

552 F.Supp.2d 1056

Kristy SCHWARM, Patricia Foronda, and Josann Ancelet, on behalf of themselves and others similarly situated, Plaintiffs, v. Henry CRAIGHEAD, an individual, District Attorney Technical Services, Ltd., a Nevada Corporation, dba Computer Support Services, aka Check Restitution/Prosecution Program, John Q. Lawson, an individual, Mary A. Chase, an individual, and Does 1 through 20, inclusive, Defendants.

No. CIV. 05-01304 WBS GGH.

United States District Court, E.D. California.

May 5, 2008.

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Deepak Gupta, Public Citizen Litigation Group, Washington, DC, O. Randolph Bragg, III, Horwitz, Horwitz & Associates, Chicago, IL, Paul Arons, Law Offices of Paul Arons, Friday Harbor, WA, Ronald Wilcox, Ronald Wilcox, Esq., San Jose, CA, Scott Christopher Shoblom, Law Office of Scott Shoblom, Santa Rosa, CA, for Plaintiffs.

Timothy J. Ryan, Ryan & Fong, Sacramento, CA, for Defendants.

Henry Craighead, Fair Oaks, CA, pro se.

MEMORANDUM AND ORDER RE: MOTIONS FOR SUMMARY JUDGMENT

WILLIAM B. SHUBB, District Judge.

Plaintiffs Kristy Schwann, Patricia Foronda, and Josann Ancelet filed this class action lawsuit against defendants Henry Craighead, District Attorney Technical Services, Ltd. (DATS), John Q. Lawson, and Mary A. Chase based on defendants' collection efforts. Plaintiffs now move for summary judgment with respect to their claims against Craighead for violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692-1692p, and the procedural due process clauses of the federal and state Constitutions. Craighead subsequently filed a cross-motion for summary judgement with respect to his liability under the FDCPA.

I. Factual and Procedural Background¹

In 1985, the California Legislature enacted the Bad Check Diversion Act (BCDA), Cal.Penal Code §§ 1001.60-1001.67, "to provide a feasible alternative to criminal prosecution by offering bad check writers a chance to pay their debts and clear the incident reports against them without risking criminal prosecution." del Campo v. Kennedy, 491 F.Supp.2d 891, 895 (N.D.Cal.2006). After a county authorizes and a district attorney creates a bad check diversion program, the BCDA permits the district attorney to contract with a private entity to "conduct[]" the program.² Cal.Penal Code § 1001.60.

DATS, which also did business as Computer Support Services (CSS), contracted with twenty-five California district attorneys' offices to administer diversion programs pursuant to the BCDA.³ (Pls.' Stmt, of Undisputed Facts # 59.) DATS' written contracts with the district attorneys' offices established that DATS would "provide services[.] as an independent contractor" to the district attorneys' offices in accordance with the BCDA. (Arons Decl. Exs. 19-22.) The contracts also established the percent of the collected fees the district attorneys' offices would receive, whether the particular office was guaranteed a monthly minimum remittance, and that DATS had to indemnify a respective district attorney's office for DATS' actions made pursuant to the contract. (Id.)

Craighead was the founder and chief executive officer of DATS. (Arons Decl. Ex. 2 (Craighead's Resp. to Pls.' Interrog. ## 1-2).) He also served as its president from April 14, 1998 through April 17, 2004 and was one of the three members of DATS' Board of Directors, which exercised final authority over DATS' procedures and policies. (Id.; Craighead Dep. 11:2-7.) In 1980, Craighead also designed the automated software program DATS used to generate collection letters and track activity (Craighead Dep. 144:10-11.) For the entire duration of DATS' operations in California, Craighead independently managed and maintained that program and DATS' computer system. (Id. at 20:19-25.) Craighead was also responsible for DATS', marketing and independently negotiated its contracts with district attorneys' offices. (Id. at 20:12-13, 140:10-12.) He also oversaw coordination of DATS' diversion classes, distributed monthly payments to the district attorneys' offices, accessed the post office box to which check writers mailed payments, and acted as a signatory for the bank account in which DATS deposited check writers' payments. (Pls.' Stmt, of Undisputed Facts ## 25, 28-30.) Craighead also "regularly interface[d] with clients, victims, and check writers" to accomplish DATS' collection efforts. (Arons Decl. Ex. 2 (Craighead's Resp. to Pls.' Interrog. #1).)

To initiate its collection efforts, DATS followed uniform practices and procedures throughout the state. (Pls.' Stmt, of Undisputed Facts #33.) After contracting with a district attorney, DATS established working relationships in which local merchants and Certegy, a check guarantee company, would send bad checks to DATS for collection. (Craighead Dep. 157:1-6.) To participate in a diversion program, a local merchant had to sign a memorandum of understanding, which required the merchant to complete a "Request for Complaint" form in order to submit a bad check to DATS. (Pls.' Stmt, of Undisputed Facts # 36.) The memorandum of understanding also had a line for the merchant to indicate the amount its bank charged for a returned check. (Arons Decl. Ex. 23; Craighead Dep. 101:3-4.) Upon submitting a check to DATS, the local merchant could not pursue independent collection efforts or accept a payment from the check writer. (Arons Decl. Ex. 23.)

When a merchant referred a dishonored check to DATS, it would be entered into DATS' computer system. (Craighead Dep. 28:21-23.) Each week, DATS sent a report of newly entered checks to the appropriate district attorney's office. (Id. at 39:8-18.) According to Craighead, it was "very rare" for the respective district attorney's office not to respond to each weekly check entry report. (Id. at 39:14-18.) If an office did not respond, Craighead states that DATS contacted the office via telephone and obtained a verbal response from the district attorney's office. (Id. at 39:17-18, 23-24.) While the content of a district attorney's office's "response" is unclear,⁴ Craighead alleges that DATS "never initiate[d] recovery activity prior to getting some response from a district attorney concerning the check entry report." (Id. at 39:19-22.) Somewhat conflicting with his deposition testimony, however, is a cover letter that accompanied a weekly report dated August 23, 2005 in which Craighead stated: "If we have not received a response from your office by September 1, 2005 we will believe that you have reviewed the listing and found no one who is not eligible for the Restitution/Diversion Program and we will proceed with your prescribed restitution procedures." (Arons Decl. Ex. 28.)

Unless a district attorney's office instructed DATS to stop processing a particular check or a merchant requested DATS to terminate its efforts, DATS' computerized system began issuing a series of form collection letters ten days after DATS entered a check into its system. (Craighead Dep. 48:4-18, 49:19-22; see also Arons Decl. Ex. 2 at 17 (indicating that Craig head did "not personally send program letters to check writers").) Although the respective district attorney's offices did not review each letter before DATS mailed it, DATS did not draft any of its letters and all were "drafted or approved by a district attorney's office." (Craighead Dep. 40:20-25, 46:15-17, 52:19-22.) DATS also provided its form collection letters to each district attorney's office prior to entering into a contract with the office. (Id. at 45:15-17.)

To begin its collection efforts for all of the bad checks it received, DATS used the same three-letter series, which it sent in a pre-determined sequence at pre-programmed intervals. (Pls.' Stmt, of Undisputed Facts # 41.) The four lines of the letterhead for each letter includes: 1) the name and title of the county district attorney for the particular county; 2) the county name; 3) "Check Restitution/Prosecution Program"; and 4) a phone number with a 916 area code, which was DATS' phone number.⁵ (Arons Decl. Exs. 2-12, 16.) The signature line indicates that each letter was sent by either the "Program Administrator" or "Administrator." (Id. Exs. 2-13, 16.) Some of the letters also indicate the name of the Program Administrator and that the Administrator is part of the "Bad Check Unit." (Id.) The letters instructed the check writers to send payments to the Bad or NSF Check Program's P.O. Box in Fair Oaks, California, which was DATS' P.O. Box. (Id.) The letters neither reference DATS or CSS nor state that the district attorney's office did not send the letters. (Id.)

In DATS' "First Notice," the check writer was told that a "Complaint has been submitted accusing you of a violation of Penal Code Section 476a (Passing a worthless check) by" the listed complainant and that "[t]his office is currently investigating this complaint." (Arons Decl. Ex. 3.) "To suspend this criminal investigation," the letter demanded payment of 1) the check amount, 2) a $35.00 "bad check fee," 3) an $85.00 "diversion fee," and 4) a bank fee of up to $10.00. (Id.) The letter gave the check writer the opportunity to avoid the $85.00 diversion fee and waive "MANDTORY attendance at a financial management class" by paying the total amount due within fifteen days. (Id. (emphasis in original).) The letter also warned the recipient that failure to respond would "be considered a rejection of this diversion opportunity and may result in further investigation with the possible issuance of a criminal complaint and ARREST warrant." (Id. (emphasis in original).) The letter also included the following FDCPArequired language: "As required by 15 USC 1692e, Subdivision 11 of the FDCPA we are providing the following statement; [sic] This is an attempt to collect a debt and any information obtained will be used for that purpose." (Id.)

If the...