Appeals Court Rules Against Collection Agency in FDCPA Litigation Case

A three-judge panel in California late last week sided with a District Attorney in the state and ruled that a lawsuit the DA brought against a debt collection agency can proceed. The collection agency had won dismissal of the lawsuit in a lower court after invoking its litigation privilege.

Kern County District Attorney Lisa Green filed an action against Persolve LLC for violations of the Fair Debt Collection Practices Act (FDCPA) and California’s Rosenthal Fair Debt Collection Practices Act. At issue was language used in letters with consumers. Persolve primarily uses the legal collection channel to recover debts, and as such, the communications were related to impending litigation.

Because only individuals that are in debt can bring suit under the FDCPA and California’s Rosenthal Act, the DA sued under the state’s Unfair Competition Law (UCL). Persolve argued that litigation privilege barred the action because the debt collection communications related to anticipated litigation. A Superior Court judge in Kern County agreed.

But Green appealed on the grounds that applying litigation privilege to public UCL actions would make the debt collection statutes effectively inoperable.

California’s Court of Appeal, Fifth Appellate District in Fresno, agreed with Green, writing that litigation privilege is “not without limit.” The panel noted that the DA action “borrowed” banned practices from the FDCPA and Rosenthal Act, writing:

Where, as here, the “borrowed” statute is more specific than the litigation privilege and the two are irreconcilable, unfair competition law claims based on conduct specifically prohibited by the borrowed statute are excepted from the litigation privilege…Accordingly, the People’s unfair competition law claims that are based on conduct that is specifically prohibited by the [Rosenthal] Act and/or the [FDCPA] are not barred by the litigation privilege.

The panel reversed the lower court ruling, sending it back to superior court for further proceedings.