Solberg v. Victim Servs., Inc.

• Citation: 415 F.Supp.3d 935
• Decision Date: 20 November 2019
• Docket Number: Case No. 14-cv-05266-VC
• Parties: Karen SOLBERG, et al., Plaintiffs, v. VICTIM SERVICES, INC. d/b/a CorrectiveSolutions, et al., Defendants.
• Court: U.S. District Court — Northern District of California

415 F.Supp.3d 935

Karen SOLBERG, 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 November 20, 2019

Michael Francis Ram, Susan S. Brown, Robins Kaplan LLP, Mountain View, CA, Paul Arons, Law Office of Paul Arons, Friday Harbor, WA, Blythe H. Chandler, Maria Hoisington-Bingham, Beth E. Terrell, Terrell Marshall Daudt and Willie PLLC, Seattle, WA, Daniel Ronald Martin Townsend, Deepak Gupta, Pro Hac Vice, Gupta Wessler PLLC, Washington, DC, Karl Olson, Cannata, O'Toole, Fickes & Olson LLP, San Francisco, CA, for Plaintiffs.

Michael Andrew Taitelman, Sean Michael Hardy, Freedman & Taitelman LLP, Los Angeles, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT; DENYING MOTION TO AMEND CLASS DEFINITION

Re: Dkt. Nos. 314, 320, 331

VINCE CHHABRIA, United States District Judge Many district attorneys throughout California have established diversion programs for people accused of passing bad checks with fraudulent intent. These programs allow suspects to avoid the possibility of criminal prosecution if they pay restitution and take a financial responsibility class. The district attorneys typically contract with private entities to administer the diversion programs.

In this class action, the plaintiffs contend that a private entity—a company called Victim Services—administers diversion programs around the state in a way that violates the federal Fair Debt Collection Practices Act (FDCPA), as well as state law. The parties have filed cross-motions for summary judgment. The motions raise several complicated questions, only some of which can be answered at this stage:

First, is Victim Services exempt from the FDCPA's coverage? The answer is no, at least for the period covered by this class action, because Victim Services failed to satisfy at least one of the statute's prerequisites for exclusion from coverage.

Second, did the letter that Victim Services sent to suspects on behalf of district attorneys mislead debtors in violation of the FDCPA? The answer to this question is no as well—the letters sent during the class period were not misleading in any material respect.

Third, did Victim Services violate the FDCPA by charging participants fees that are not authorized by California law for these diversion programs? This question cannot be answered based on the materials the parties have submitted in connection with their cross-motions for summary judgment.

Fourth, did Victim Services violate the provisions of California law invoked by the plaintiffs? The answer to this question is no, with one caveat. If Victim Services charged unauthorized fees, this of course would be a state-law violation as well as a violation of the FDCPA.

Accordingly, summary judgment is granted to Victim Services on all claims except those based on the allegation that it charged fees not authorized by state law. The parties will be permitted to file renewed cross-motions for summary judgment if they determine that this question can be answered without regard to any disputed material facts.

I

In California, it is illegal to pass a bad check with fraudulent intent. See Cal. Penal Code § 476a. Because bad checkwriting is prevalent but frequently involves small dollar amounts, district attorneys often lack the resources to effectively deter this crime by prosecution. Many counties have therefore turned to pre-charge diversion programs that lower the stakes for the suspect but raise the probability that the suspect will face some consequence for writing a bad check. The bargain of the diversion program is straightforward: If the suspect makes the alleged victim whole, pays the diversion program's administrative fees, and attends a class about financial responsibility, the district attorney will agree not to prosecute the suspect.

The California Legislature laid the groundwork for these diversion programs by passing the Bad Check Diversion Act.

See Cal. Penal Code § 1001.60 et seq. This statute, in addition to setting parameters for the programs generally, allows district attorneys to contract with private entities to handle referrals from victims, collect fees, and teach the classes. Many (if not all) district attorneys in California use private entities to administer their bad-check diversion programs.

Karen Solberg, Nancy Morin, and Narisha Bonakdar each wrote a bad check and were subsequently contacted for participation in one of these diversion programs. The contact was made by Victim Services, Inc., a private entity that administered the bad-check diversion programs for the district attorneys in the checkwriters' respective counties. Only Bonakdar took up the offer to participate in a diversion program and pay restitution; the other two disputed that they had committed a bad-check offense. But all three checkwriters eventually concluded that Victim Services' administration of the diversion program violates a federal statute that regulates debt collection, the Fair Debt Collection Practices Act (FDCPA).

Thus, in December 2014, the three checkwriters (and two other people who have since dismissed their claims) filed this class action against Victim Services, three related corporate entities, and two corporate officers that jointly administered bad-check diversion programs on behalf of district attorneys in 32 California counties. For short, this ruling refers to the defendants collectively as Victim Services. The plaintiffs bring claims under the FDCPA based on Victim Services' allegedly false and misleading demand letters, and based on Victim Services' collection of fees allegedly not authorized by state law. On top of the FDCPA claims, the plaintiffs pursue claims for unfair business practices under California's Unfair Competition Law (UCL) and for fraudulent and negligent misrepresentation under California's general tort law. They seek damages of more than $6 million on behalf of a statewide class of checkwriters contacted by Victim Services.

For the past five years, the plaintiffs and Victim Services have engaged in protracted litigation over pretrial motions. Victim Services first made unsuccessful attempts to dismiss the complaint and to strike the state-law claims under California's anti-SLAPP statute, which protects defendants' exercise of their First Amendment rights. As Ninth Circuit law permits, Victim Services immediately appealed the denial of its anti-SLAPP motion.

There was also a skirmish over arbitration. As mentioned earlier, Bonakdar was the only plaintiff to enter into a non-prosecution agreement with the district attorney. Her contract to participate in the diversion program contained an arbitration provision, and Victim Services moved to compel arbitration with Bonakdar on this basis. This Court concluded that the Federal Arbitration Act does not apply to contracts between a district attorney and a suspect to resolve a question of criminal liability, and that California law does not permit arbitration of a dispute regarding the performance of a core government function by the government's agent. Breazeale v. Victim Services, Inc. , 198 F. Supp. 3d 1070 (N.D. Cal. 2016). As with an anti-SLAPP motion, the denial of motion to compel arbitration is immediately appealable. The Ninth Circuit affirmed the anti-SLAPP and arbitration rulings in a consolidated appeal. Breazeale v. Victim Services, Inc. , 878 F.3d 759 (9th Cir. 2017).

Next, the parties fought over class certification. After narrowing the plaintiffs' requested class definition, this Court certified two overlapping statewide classes. See Dkt. No. 297. The first class, which is for the FDCPA claims, consists of people who received a letter from Victim Services from December 1, 2013, to May 7, 2015. The second class, for the UCL claims, contains all people who paid fees to Victim Services in response to the letter between September 1, 2011, and May 7, 2015. Victim Services then filed a motion with the Ninth Circuit seeking permission to immediately appeal the class certification order under Federal Rule of Civil Procedure 23(f), but this motion was denied.

That winding procedural history brings this case to its present stage, in which the plaintiffs and Victim Services each move for summary judgment on the FDCPA, UCL, and state-law misrepresentation claims.

II

The plaintiffs' primary argument is that Victim Services, acting as an agent of district attorneys, engaged in unlawful debt collection practices. At the outset, one might question whether this case even involves "debt collection." These diversion programs recover restitution for alleged violations of California Penal Code section 476a, the offense of passing a bad check with intent to defraud. An effort by a prosecutor, as an actor in the criminal justice system, to seek restitution on behalf of a victim is quite different from an effort by a private party to collect from a debtor. Cf. Lagos v. United States , ––– U.S. ––––, 138 S. Ct. 1684, 1688, 201 L.Ed.2d 1 (2018) (distinguishing "government investigations and criminal proceedings" from "private investigations and civil or bankruptcy litigation" for purposes of statute authorizing restitution). Even though the restitution will equal the face value of the bad check plus any bank charges, it is counterintuitive (at best) to put restitution sought by a prosecutor in the same conceptual bucket as debt collection.

Nor does the recovery of restitution in this context seem like recovery of a "debt" as that term is used in the federal debt collection statute that the plaintiffs invoke. Consider how the FDCPA defines "debt": "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment."...