Federal Court Holds Least Sophisticated Debtor would be Misled by Language in Debt Collection Letter thus Entitling Plaintiff in FDCPA Class Action to Summary Judgment and Finds Fact Plaintiff was not Misled Irrelevant to its Decision or to Defense Motion to Decertify Class Action
Plaintiff filed a class action in California federal court against Arrow Financial Services alleging violations of the federal Fair Debt Collection Practices Act (FDCPA) and its state-law equivalent, California’s Rosenthal Act, in that debt collection letters sent by defendant failed to comply with the applicable laws. Gonzales v. Arrow Fin. Servs. LLC, 489 F.Supp.2d 1140, 1143 (S.D. Cal. 2007). The class action complaint was premised on the following language in defendant’s “form collection letters”: “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.” Id. Plaintiff alleged this violated the FDCPA and the Rosenthal Act because the debt underlying defendant’s collection effort had been charged off more than 7 years ago and “a credit bureau cannot report a debt charged off more than 7 years previously,” id. An unsophisticated consumer thus may be misled by the form letter into believing that “payment or nonpayment of the claimed debt may impact the consumer’s credit reporting, when that is not true.” Id., at 1143-44. After the district court certified the lawsuit as a class action, defense and plaintiff attorneys filed cross-motions for summary judgment, and defense attorneys moved to decertify the class, id., at 1144. The district court denied both defense motions, and granted partial summary judgment in favor of plaintiff.
After summarizing the FDCPA and the “least sophisticated debtor” standard applied in the Ninth Circuit, Arrow, at 1146, a determination made by the court, not a jury, measured by an “objective standard,” id., and after setting forth the relevant section of the Rosenthal Act, id. (quoting Cal. Civil Code, § 1788.13(f)), the district court turned to the defense motion for summary judgment. Defense attorneys argued that the debt collection letters did not violate the FDCPA or the Rosenthal Act because the letters are not false or misleading – the letters did not “illegally threaten any action” or mislead or deceive anyone, and “Arrow does not have a policy to report debts such as plaintiff’s debts to the credit bureaus and in no way seeks to use credit reporting as a means to illegally collect debts.” Id., at 1147. The defense also relied on plaintiff’s deposition testimony that (1) he knew he did not have to pay the debt and that Arrow would not report such a failure to credit bureaus, and (2) he was not confused by the letter he received from Arrow, id. The federal court noted that it had already found the letters to be misleading or deceptive because “without any explanation detailing what debts are likely to be reported or even if the subject debt is one that is reportable, ‘the least sophisticated debtor could likely believe his [or her] debt is reportable just because the letters indicate the credit bureaus will be notified’” and that even though the letters did not expressly threaten to contact credit bureaus they implied that “the status of the debt may have already been or may, at some later date, be submitted to the credit bureaus” and that such conduct “is actionable under the Act.” Id., at 1148 n.1.
While the district court admitted that plaintiff’s testimony was “troubling,” it concluded that the fact plaintiff “was not ‘duped’ by the language…in the collection letter…is not fatal to plaintiff’s claims.” Arrow, at 1149. The court reasoned that plaintiff’s experience in the mortgage lending industry meant that he was not the “least sophisticated debtor” and so his personal understanding was irrelevant to whether the collection letters violated the FDCPA or the Rosenthal Act, id. The court agreed also with defense attorneys that plaintiff had not presented any evidence that the “least sophisticated debtor with debt older than 7 years would have found the language as a threat to take action defendant could not legally take or would have been misled or confused as to whether his debt was reportable,” but the court found such evidence unnecessary to support plaintiff’s claim. Id. The federal court stated that it “has unearthed no case in which the plaintiff was required to present evidence, such as a survey as suggested by defendant…to support the Court’s finding in plaintiff’s favor under the ‘least sophisticated debtor’ standard” and, accordingly, found that plaintiff’s “lack of evidentiary support” did not compel summary judgment in favor of defendant. Id. The district court therefore denied the defense motion for summary judgment, id.
Turning to plaintiff’s motion for partial summary judgment, the district court found as a matter of law that the collection letters violated the FDCPA and the Rosenthal Act. Under the FDCPA, an analysis of whether a debt collector violated section 1692e(5) requires a determination of “ (1) whether a debt collector threatened a legal action and, if so, (2) whether the action threatened could legally be taken or whether the debt collector harbored an intent to carry out the action.” Arrow, at 11500 (citations omitted). The district court agreed that the “least sophisticated debtor” may understand Arrow’s collection to be “a threat to take action which defendant cannot legally take or never intended to take, that is, reporting debt to credit bureaus that had been charged off more than seven years previously.” Id. Faced with plaintiff’s and defendant’s competing interpretations of the collection letter language, the court noted that it need not resolve which interpretation was “more appropriate” because “the only interpretation of the language that is relevant to the Court’s decision in this case is that of the hypothetical least sophisticated debtor.” Id. The court had previously found that the least sophisticated debtor “would interpret the language in the letters as implying ‘that the status of the debt may have already been or may, at some later date, be submitted to the credit bureaus,’” id., at 1151, and it now concluded that the least sophisticated debtor would understand that the letters implied a threat to take an action that defendant could not legally or never intended to take, id., at 1151-52. Accordingly it granted summary judgment on plaintiffs § 1692e(5) claim, id., at 1152.
With respect to plaintiff’s section 1692e(10) claim, defense attorneys again argued that plaintiff’s deposition testimony defeated the motion but the district court reaffirmed its opinion that “the least sophisticated debtor is the only viewpoint that is relevant and, therefore, plaintiff Gonzales’ testimony that he was not confused or misled by the language at bar provides no support for defendant.” Arrow, at 1152. Because the court believed the least sophisticated debtor would find the collection letter language “misleading and deceptive,” it granted summary judgment in favor of plaintiff on the § 1692e(10) claim, id., at 1153. Finally, in light of the court’s conclusion that the collection letter violated Section 1692, it necessarily found that the letter also violated the Rosenthal Act. Id., 1153 (citing Cal. Civ. Code, § 1788.13(f)); accordingly, it granted summary judgment in favor of plaintiff “on the issue of defendant’s liability under the Rosenthal Act,” id.
With respect to the defense motion to decertify the class, based on plaintiff’s deposition testimony, defense attorneys argued that the typicality and adequacy of representation requirements of Rule 23(a)(1) and (a)(4) were no longer met, and that decertification also was warranted by the “one-way intervention” rule. Arrow, at 1153-54. The court first addressed Rule 23(a)(4)’s requirement that the class representative “suffer in the same manner as the other class members to adequately represent the class.” Id., at 1154 (citing Molski v. Gleich, 318 F.3d 937, 955 (9th Cir.2003)). Here, plaintiff testified that “due to his prior experience working as a mortgage broker, he was not misled or confused by the language that is the subject of the instant suit.” Id. Plaintiff responded that the issue is whether the “unsophisticated consumer” will be misled, and that whether plaintiff was misled has no bearing on “whether defendant’s letters are false, misleading or deceptive to the least sophisticated debtor,” id., at 1155. Plaintiff further argued that his superior knowledge allowed him to realize that the false statement had been made, id. Defense attorneys countered that these arguments are irrelevant because “adequacy requires that the class representative ‘be part of the class and possess the same interest and suffer the same injury as the class members.’” Id. (quoting Molski, 318 F.3d at 955). The district court found legal authority on both sides wanting, and concluded that “defendant has failed to meet its heavy burden of demonstrating Rule 23(a)(4)’s adequacy requirements have not been established.” Id.
Defense attorneys argued that plaintiff’s claim was not typical of the class because his testimony does not support the claim that the letters contained “false, misleading or deceptive language,” Arrow, at 1155-56, because he has unequivocally stated that he was neither misled nor threatened by the…letters,” id., at 1156. Plaintiff responded that his receipt of the same collection letter was “sufficient to demonstrate typicality,” id. The court agreed, holding at page 1156 that “typicality is sufficiently established if the class representative received the same collection letters as the class members. “ Finally, the district court dismissed the defense one-way intervention argument as moot, id., at 1156-57.