As a Matter of First Impression, Credit Card Debtor’s Class Action Cross-Complaint Alleging Violations of California’s Fair Debt Collection Practices Act (Rosenthal Act) Properly Dismissed on Demurrer for Failure to Define an Ascertainable Class and because Debt Collector was not Obligated to Disclose to Debtors that Debts Sought to be Collected were Time-Barred California State Court Holds
Plaintiff Asset Acceptance filed a lawsuit against debtor Lilia Hanson to collect on a $1300 credit card debt; the debtor filed a putative class action cross-complaint against Asset alleging that it violated California’s Fair Debt Collection Practices Act (“the Rosenthal Act”), which incorporates the federal Fair Debt Collection Practices Act (FDCPA), and Unfair Competition Law (UCL). Asset Acceptance, LLC v. Hanson, (Cal.App., Case No. B208548, April 1, 2009) (unpublished) [Slip Opn., at 1]. The class action claims were premised on the allegation that Asset systematically and fraudulently sought to collect on debts that were time-barred. Id. The central allegation underlying the class action cross-complaint is that Asset purchased credit card debts “for pennies on the dollar and tricks debtors into making payments, which has the legal effect of reviving the debt.” This is because, under California law, “If a debtor acknowledges a debt in writing after the statute of limitations has run, ‘a new obligation is created, for which the original barred debt is said to be “consideration.” The cause of action is on the new obligation, and a new statutory period starts running as on any other written promise.’” Id., at 2 (citations omitted). Asset demurred to the third amended class action cross-complaint; the trial court sustained the demurrer on the ground that the class action sought to represent a class that lacked a “well-defined community of interest.” Id., at 1. In an unpublished opinion, the California Court of Appeal affirmed.
The Rosenthal Act “prohibits debt collectors from using threats, physical force, obscene language, annoying telephone calls, false representations, or falsely simulating a legal action.” Asset Acceptance, at 2 (citations omitted). In part, the statute prohibits a debt collector from obtaining “an affirmation from a debtor who has been adjudicated a bankrupt of a consumer debt which has been discharged in such bankruptcy, without clearly and conspicuously disclosing to the debtor, in writing, at the time such affirmation is sought, the fact that the debtor is not legally obligated to make such affirmation,” id. (citation omitted). The appellate court observed, however, that “The Rosenthal Act is silent on whether a debt collector must give a similar warning when attempting to collect a time-barred debt that has not been discharged in bankruptcy.” Id. This was the central issue on appeal, because the class action alleged that Asset failed to disclose to the putative class members that the debts it was seeking to collect were time barred when it contacted them demanding about payment on the credit card debts. Id., at 3. Further, not only was this a matter of first impression under California case law, but federal courts considering the issue under the FDCPA have reached different conclusions. Id., at 2-3.
With respect to the well-defined community of interest issue, the appellate court noted that class action treatment is not warranted “‘where each member’s right to recover depends on facts peculiar to his case.’” Asset Acceptance, at 3 (citation omitted). The Court also rejected the debtor’s claim that class actions claims “may not be decided on demurrer,” noting that class action certification is “routinely decide[d]” on demurrer. Id., at 3-4 (citations omitted). The issue here is whether the class action sought to represent an ascertainable class, id., at 4. And in this respect, the debtor’s claim that she was entitled to conduct discovery or to have the trial court conduct an evidentiary hearing on the class action certification issues were rejected: these matters were subject to the trial court’s discretion, and it did not abuse that discretion in concluding that there was “‘there is no need to incur the expense of an evidentiary hearing or class-related discovery.’” Id. (quoting Canon U.S.A. Inc. v. Superior Court, 68 Cal.App.4th 1, 5 (Cal.App. 1998)).
With respect to the class action’s unfair debt collection practice claim, the Court of Appeal agreed that class action treatment was not warranted because there was no allegation that Asset Acceptance mailed the same letter to each putative class member or that the same script was followed on telephone calls made to collect the debts. Asset Acceptance, at 4-5. Indeed, the facts surrounding the debtor’s claim reveal that his claim is “atypical,” and supported the trial court’s conclusion that the facts surrounding each alleged violation of the Rosenthal Act “would require proof too particularized to allow a class action.” Id., at 5. As the appellate court summarized at page 6, “Where the class action requires individualized proof of misrepresentation and reliance, class certification may be denied.” (Citation omitted.) The class action’s UCL claim required considerably more analysis. See id., at 6-10. The class action’s UCL claim failed because “the UCL cause of action hinges on the Rosenthal Act, [and] it fails if no class action is stated for violation of the Rosenthal Act.” Id., at 6 (citations omitted). We do not here summarize the appellate court’s analysis of this issue – suffice it to say that the court concluded that neither the FDCPA nor the Rosenthal Act required Asset Acceptance to disclose to debtors that the debts it was seeking to collect were time-barred. Finally, with respect to the class action’s fraud and misrepresentation claims, the Court of Appeal held that “[r]ecasting the action on fraud and negligent misrepresentation theories does not establish a well-defined community interest unless the same misrepresentation was made to each purported class member.” Id., at 10. Moreover, to the extent the debtor’s class action claims were based on deceit, “there must be common facts of actual reliance.” Id. Because the same alleged misrepresentation was not made to the entire putative class, no such common facts existed in this case. Id., at 11. Accordingly, the trial court properly dismissed the class action cross-complaint for failure to define an ascertainable class, id.
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