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FDCPA Class Action Defense Cases–Del Campo v. American Corrective Counseling: California Federal Court Certifies FDCPA Class Action Finding Attack On Practices Used To Collect On Bounced Checks Warranted Class Action Treatment

Class Action Alleging FDCPA Violations Arising from Collection Practices Utilized to Collect from Check Writers of Bounced Checks Satisfied Rule 23 Requirements for Class Action Treatment California Federal Court Holds

Plaintiffs filed a putative class action against various defendants, including American Corrective Counseling Services (ACCS), alleging that they “engaged in a pattern of behavior in implementing the District Attorney Bad Check Diversion Program” that violated, inter alia, the California Constitution and the federal Fair Debt Collection Practices Act (FDCPA); specifically, the class action complaint alleged that defendants “operated the Diversion Program unlawfully by using the names of local district attorneys, demanding fees, and using the threat of criminal prosecution to force bad check writers to comply with their payment demands.” Del Campo v. American Corrective Counseling Services, Inc., ___ F.Supp.2d ___ (N.D. Cal. December 3, 2008) [Slip Opn., at 1 (footnote omitted)]. According to the allegations underlying the class action, various retail merchants would refer bounced checks to the District Attorney, who in turn would decide whether to refer the check writer to the diversion program. If it is referred, then defendants “instruct the merchants not to communicate” with the check writers and send out letters “purporting to be from the Santa Clara District Attorney’s Bad Check Restitution Program or the Sonoma County District Attorney Bad Check Restitution Program” and explaining that they can “avoid criminal prosecution for allegedly violating California Penal Code 476(a) by enrolling in the optional Bad Check Programs, without any admissions of guilt.” Id., at 2-3. The letter would instruct the bad check writers to make new checks out to the Bad Check Program, and included in the total to be paid the amount of the bounced check, a $35 administration fee, and a diversion program fee. Id., at 3. Many check writers tendered less than the total amount listed in the letter, and never intended on participating in the Bad Checks Program and did not participate in the program, id. Defendants sent subsequent letters demanding payment of the balance of the sums owed. The class action followed, alleging inter alia violations of the FDCPA and California’s Unfair Business Practices Act. Id. Plaintiffs’ attorneys moved the district court to certify the litigation as a class action; defense attorneys argued against class action treatment. Id., at 2. The district court determined that class action treatment was warranted and therefore granted plaintiffs’ class action certification motion.

With respect to Rule 23(a)’s requirements for class certification, the district court noted that defendants did not contest numerosity or commonality, but argued that plaintiffs’ claims were not typical and that they were not adequate representatives of the class. Del Campo, at 6. The federal court agreed that the numerosity and commonality tests had been met, see id., at 7-9. Turning to the typicality test, the court noted at page 9, “Defendants contend that Plaintiffs have not met the typicality requirement because the collection letters sent by Defendants contained ‘significant differences’ on a county-by-county basis.” Plaintiffs countered that the class action allegations assert that each of the letters “contain representations that: (1) the letter is from the local District Attorney, who has reviewed a criminal complaint made by the recipient of a dishonored check; (2) check writers who do not choose ‘diversion’ face a real risk of prosecution; and (3) to avoid prosecution, the check writer must pay the check, plus enumerated fees, and attend a ‘Financial Accountability’ Class.””Id., at 9. The district court agreed with plaintiffs, and found that the typicality test had been met, id., at 10. Defendants also argued that the named plaintiffs were not adequate representatives of the class and that plaintiffs’ counsel had a conflict of interest in representing the class. Id., at 10. The basis for the attack on the plaintiffs was their dishonesty, as evidenced by the fact that they bounced checks; the district court readily concluded that an element of being in the class could not disqualify someone from serving as the class representative. Id., at 11. And the court rejected the idea that the lobbying efforts of plaintiffs’ counsel created a conflict of interest in representing the class. Id., at 12.

Plaintiffs sought certification of both a Rule 23(b)(2) and (b)(3) class. Del Campo, at 12. Defense attorneys argued that a Rule 23(b)(2) class should not be certified because “equitable relief is not a remedy under the FDCPA” and because “money damages are not incidental to the equitable relief sought by Plaintiffs.” Id., at 13. The district court disagreed, finding that the type of conduct challenged by plaintiffs’ class action – the sending of letters with similar language and threats – is “appropriate for class certification under Rule 23(b)(2).” Id., at 14. Moreover, the court concluded that the monetary damages were “incidental” to the relief sought because the FDCPA limits damages in class actions to 1% of the net worth of the defendants, which would be spread across the approximately 900,000 members of the putative class. Id., at 14-15. Accordingly, the court certified a Rule 23(b)(2) class, id., at 15. Turning to the request for certification under Rule 23(b)(3), plaintiffs argued that they had made the requisite showing of predominance and superiority. Id., at 15. The district court agreed and certified a Rule 23(b)(3) class, see id., at 15-17.

NOTE: The district court explained, “In 1985, the California Legislature passed the Bad Check Diversion Act (‘BDCA’), which created a misdemeanor diversion program to address the growing problem of accused bad check writers inundating the state’s criminal courts. Cal. Pen. Code § 1001.60 et seq. The diversion program is intended 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. Santa Clara and Sonoma Counties adopted the program and contracted ACCS to administer their respective programs.” Del Campo, at 1 n.1.

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