The California Court of Appeal, First District, recently affirmed a trial court’s order granting summary judgment against a debt collector for violating the FDCPA and the RFDPCA. In so ruling, the Court of Appeal applied a credit card agreement’s Delaware choice-of-law provision to the debt collector’s claims for open book account and account stated and found that the debt collector’s claims were time-barred by Delaware’s three-year statute of limitations for breach of contract. The Court of Appeal also affirmed the trial court’s award of attorney’s fees to the debtor’s counsel.
A copy of the Court of Appeal’s opinion in Professional Collection Consultants v. Lujan may be found here.
The debtor had a credit card account with Chase Bank USA, N.A. The debtor’s cardmember agreement provided that federal law and the law of Delaware governed the agreement.
In 2007, the debtor ceased making payments toward the credit card account, and Chase assigned its claim. After several assignments, the debt collector acquired the claim.
In 2011, the debt collector filed suit against the debtor alleging common counts – specifically, a claim for open book account for money due and for account stated in writing. Debtor cross-complained for alleged violations of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”), and the California Rosenthal Fair Debt Collection Practices Act, Civ. Code, § 1788, et seq. (“RFDCPA”), against the debt collector, the debt collector’s attorney, the debt collector’s vice president who verified the debt collector’s complaint, and a prior assignee of the debt.
The parties filed competing motions for summary judgment. The trial court granted the debtor’s motion against the debt collector and found that the debt was time-barred. The trial court also granted the assignee’s and the individual defendants’ motions for summary judgment and ruled that they did not meet the statutory definition of a debt collector under either the FDCPA or the RFDCPA. The trial court later awarded the debtor his attorneys’ fees but declined to award any statutory damages against the debt collector or attorneys fees to the prevailing defendants.
The Court of Appeal affirmed the trial court’s judgment against the debt collector on its common counts and on the debtor’s claim for alleged violations of the FDCPA and the RFDCPA. The Court of Appeal determined that Delaware’s three-year statute of limitations applied to the debt collector’s claims based on the cardmember agreement’s choice-of-law provision. The Court of Appeal concluded that the debt collector violated the FDCPA and the RFDPCA by attempting to collect a time-barred debt.
In reaching its decision, the Court of Appeal rejected the debt collector’s argument that the cardmember agreement’s choice of law provision did not apply to its common counts because an action based on an open book account or an account stated in writing is completely independent of, and unrelated to, the underlying contract.
The Court of Appeal observed that a common count is not a specific cause of action; rather, it is a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness.
As you may recall, a book account is a detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation, and shows the debits and credits in connection therewith. A book account is open where a balance remains due on the account.
Relatedly, an account stated is an agreement, based on prior transactions between the parties, that the items of an account are true and that the balance struck is due and owing. An action on an account stated is not based on the parties’ original transactions, but on the new contract under which the parties have agreed to the balance due.
The Court of Appeal then noted that the statute of limitations that applies to an action is governed by the gravamen of the complaint, not the cause of action pled. For instance, where the gravamen of a complaint is a liability created by statute, a plaintiff cannot extend the limitations period by framing his case as a breach of contract instead.
The Court of Appeal then reasoned that if the debtor had maintained an open book account with Chase, that account was one that arose out of the cardmember agreement. The Court of Appeal observed that the debt collector had not presented any other evidence of a written agreement between the parties. The Court of Appeal then concluded that the gravamen of the debt collector’s complaint was for breach of the cardmember agreement and that its choice of law provision and Delaware’s three-year statute of limitation rendered the debt collector’s claims time-barred.
The Court of Appeal also rejected the debt collector’s argument that Delaware law tolled the statute of limitations while the debt collector was absent from the State of Delaware.
In part, Delaware’s tolling statute provides: “If at the time when a cause of action accrues against any person, such person is out of the State, the action may be commenced, … after such person comes into the State in such manner that by reasonable diligence, such person may be served with process …”
The Court of Appeal joined other non-Delaware courts in declining to apply Delaware’s tolling statute. The Court of Appeal determined that applying the tolling provision would produce the absurd result of abolishing the statute of limitations defense entirely, which would be inconsistent with a fundamental policy of California law.
The Court of Appeal then rejected the debt collector’s argument that the unsigned cardmember agreement’s choice-of-law provision was invalid because it violated Code of Civil Procedure section 360.5, which requires a signed writing to waive a statute of limitations defense. The Court of Appeal pointed out that the debtor had not waived the statute of limitations, but rather sought to give it full effect.
The Court of Appeal further rejected the debt collector’s argument that the entire cardmember agreement was invalid because it was not signed. The Court of Appeal pointed out that the debtor had accepted the cardmember agreement by using the credit card.
Then, the Court of Appeal rejected the debt collector’s argument that the four-year statute of limitations for civil actions arising out of Acts of Congress should apply because Chase is a federally-chartered bank. The Court of Appeal explained that the debt collector brought a state law breach of contract claim, not a claim arising out of an Act of Congress.
Finally, the Court of Appeal rejected the debt collector’s argument that the debtor’s recovery should be offset by the underlying debt pursuant to Code of Civil Procedure section 431.70.
As you may recall, Section 431.70 only applies “[w]here cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person …”
The Court of Appeal explained that the debtor’s claim of unlawful debt collection could not have existed until the statute of limitations had already run. As a result, Section 431.70 did not revive the debt collector’s claims for the purposes of offset.
In an unpublished portion of its opinion, the Court of Appeal affirmed the trial court’s judgment in favor of the prior assignee because the debtor had not established a triable issue of material fact as to whether the assignee met the statutory definition of a debt collector.
The FDCPA defines a debt collector as a person engaged in a “business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts … asserted to be owed or due another …” The RFDPCA defines debt collector similarly, except that the RFDCPA exempts attorneys from its reach.
The Court of Appeal did reverse the trial court’s judgment in favor of the individual defendants – i.e., the debt collector’s attorney and the debt collector’s officer who verified the complaint. The Court of Appeal determined that triable issues of material fact existed as to whether the debt collector’s officer and attorney were debt collectors under the FDCPA and the RFDCPA.
Finally, the Court of Appeal affirmed the trial court’s decision to not award the debtor statutory damages and the trial court’s award of fees to the debtor’s attorney. The Court of Appeal found that statutory fees under both the FDCPA and the RFDCPA were entirely discretionary. The Court of Appeal also found that the trial court had not abused its discretion in awarding fees to the debtor’s counsel.
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