Solberg v. Victim Services, Inc.

Background

California district attorneys use pre-charge bad-check diversion programs that allow people accused of intentionally passing bad checks to avoid possible prosecution by paying restitution, program fees, and attending a financial responsibility class. District attorneys may contract with private entities to administer these programs. Victim Services administered programs for district attorneys in 32 California counties.

Karen Solberg, Nancy Morin, and Narisha Bonakdar brought this class action. Bonakdar participated in a diversion program; Solberg and Morin disputed that they had committed bad-check offenses. The plaintiffs alleged that Victim Services violated the Fair Debt Collection Practices Act (FDCPA) through misleading demand letters and by collecting fees not authorized by California law. They also asserted claims under California’s Unfair Competition Law and for fraudulent and negligent misrepresentation.

The parties filed cross-motions for summary judgment. Summary judgment is a ruling that resolves a claim when the record shows no genuine dispute over facts that would require a trial. The court had previously certified two overlapping statewide classes: one concerning FDCPA claims by people who received letters during the specified class period, and one concerning Unfair Competition Law claims by people who paid fees during the specified class period.

FDCPA coverage and exemptions

The court held that Victim Services was subject to the FDCPA during the class period. The court noted that Congress created a possible exemption for private administrators of bad-check diversion programs, but only if they satisfy detailed statutory requirements.

Victim Services did not satisfy the requirement that its initial written communication clearly and conspicuously explain that, after a written dispute, the district attorney or an authorized district attorney employee would determine whether probable cause existed and that restitution efforts would be paused until that determination. The form letter instead said that a private program administrator would review the dispute under criteria established by the district attorney, without providing the required assurances.

The court also rejected Victim Services’ argument that it qualified for the FDCPA’s fiduciary exemption. That exemption concerns a person collecting a debt for the person to whom the debt is owed. The court reasoned that Victim Services would need a fiduciary duty to the alleged victims, not merely an asserted duty to the district attorneys. The court further stated that Victim Services likely did not have the required fiduciary relationship and that collecting restitution appeared central, rather than incidental, to its work.

Demand letters

The court ruled that the letters were not materially false or misleading under the FDCPA. The use of district attorney letterhead and signatures accurately conveyed that Victim Services was acting on behalf of the district attorneys in their diversion programs. The letter also disclosed that the program was administered by a private entity under contract with the district attorney.

The court rejected the plaintiffs’ argument that references to possible criminal prosecution were misleading because only a small percentage of people who failed to complete the program were referred for prosecution. The court concluded that the letters described a real possibility of further action and did not falsely imply that prosecution was imminent or that Victim Services itself had authority to prosecute.

The court also found that the letters adequately addressed the FDCPA’s required disclosures concerning the purpose of the communication and the process for disputing or verifying the alleged obligation. Victim Services therefore received summary judgment on the FDCPA claims based on the letters.

Fees

The plaintiffs challenged fees of up to $185 for the financial responsibility class, a $10 credit or debit card fee, a $25 class rescheduling fee, and a $10 late fee. The FDCPA generally prohibits collecting a fee or other amount unless the agreement creating the obligation or applicable law authorizes it.

The court held that the record did not establish whether these fees were lawful under California law. The Bad Check Diversion Act expressly authorizes certain processing and bank fees but does not list the challenged fees. However, California law also states that the Act does not preempt other pretrial or pre-complaint diversion programs. The legality of the challenged fees therefore depended on additional questions, including whether they were reasonably related to the counties’ costs, whether they were unlawful taxes rather than permissible user fees, what procedures applied to their authorization, and whether each county used an appropriate authorization procedure.

Because the parties had not adequately developed the record on those questions, the court denied both sides’ motions for summary judgment on the fee claims. The denial was without prejudice to renewed summary judgment motions if the parties later determined that the issue could be resolved without disputed material facts.

California-law claims

The court granted Victim Services summary judgment on the plaintiffs’ California Unfair Competition Law claims insofar as they were based on allegedly fraudulent or unfair practices involving the letters and diversion-program administration. The court found that the letters were not materially deceptive and that the challenged practices were not unfair on the record presented.

The court did not grant summary judgment to either side on the portion of the Unfair Competition Law claim based on the FDCPA, because that portion could depend on whether the fee collection violated the FDCPA. The court rejected attempts to base that claim on alleged failures by district attorneys to apply referral factors or make probable-cause determinations because those obligations were directed to the district attorneys, not Victim Services.

The court granted Victim Services summary judgment on the fraudulent and negligent misrepresentation claims. It concluded that no reasonable jury could find the required material misrepresentation because the letters did not falsely represent Victim Services’ authority or the material aspects of the diversion program.

Disposition

The court granted Victim Services summary judgment on all claims except claims based on the allegation that it charged fees not authorized by state law. The court denied both sides’ motions for summary judgment on those fee claims, with the possibility of renewed motions. The court denied the plaintiffs’ motion to amend the class definition to add the misrepresentation claims. In a footnote, the court also denied the plaintiffs’ motion to strike a declaration submitted by Victim Services.

The court classified the action as a substantive summary-judgment ruling because it decided the merits of several claims and legal issues, while leaving the fee-related claims for further proceedings.