Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App.: Complaint alleging violations of federal, state debt collection laws not barred by California litigation privilege, (Aug 19, 2013)

By Thomas G. Wolfe, J.D.

A cause of action under California’s Unfair Competition Law (Cal. UCL) brought by a district attorney on behalf of the People of the State of California and alleging violations of federal and state debt collections laws against a debt collection company and its two attorneys was not barred by California’s litigation privilege. In reversing the judgment of the California trial court, the California Court of Appeal for the Fifth Appellate District recognized an exception to California’s litigation privilege and determined that, since the debt collection conduct at issue was specifically prohibited by California’s Rosenthal Fair Debt Collection Practices Act (Cal. FDCPA) and the federal Fair Debt Collection Practices Act (FDCPA), the Cal. UCL claims based on that prohibited conduct could proceed (People of the State of California v. Persolve, LLC, et al., Aug. 15, 2013, Levy, Judge).

Background. Based on the facts set forth in the complaint, the debt collection company purchased—“for pennies on the dollar”—old, defaulted debts in batches of 1,000 or more accounts at a time. The company’s two attorneys then sent collection letters to the pertinent debtors demanding payment.

On behalf of the People of the State of California, the district attorney filed a civil law enforcement action against the company and its attorneys alleging that they repeatedly violated the FDCPA and the Cal. FDCPA by failing to provide adequate disclosures, communicating to debtors in a misleading way, and unlawfully threatening postjudgment remedies to which they were not entitled.

The complaint, which set forth one cause of action under the Cal. UCL for the alleged violations, sought injunctive relief, civil penalties, and restitution. In response, the company and its attorneys argued that the Cal. UCL claims were barred by California’s litigation privilege. The California trial court agreed, finding that the complaint was “based solely on communications and communicative acts related to judicial proceedings” and that no exception to the litigation privilege applied. The State of California appealed that ruling.

Nature of Cal. UCL claim. Under the Cal. UCL, unfair competition includes “any unlawful, unfair or fraudulent business act or practice” (Cal. Bus. & Prof. Code, §17200). In addition, the Cal. UCL “borrows” violations of other laws, treats them as unlawful practices, and makes them independently actionable. At the same time, “courts may not simply impose their own notions as to what is fair or unfair.”

Litigation privilege. Under California’s litigation privilege (Cal. Civil Code §47(b)), the privilege not only applies to any communication that is made in judicial or quasi-judicial proceedings by litigants or other authorized participants to achieve the objects of the litigation, it also has been found to apply to communications having some relation to an anticipated lawsuit that is contemplated in good faith and under serious consideration.

While the state trial court found that the litigation privilege provided the defendants with a “safe harbor” from the complaint’s claims under the Cal. UCL, the California appellate court found that it did not.

Court’s ruling. The California appellate court agreed with the trial court that the pertinent communications that served as the basis for the complaint “related to judicial proceedings” or “had some relation to anticipated litigation.” While acknowledging the importance, prevalence, and general application of the litigation privilege, the appellate court asserted that the privilege “is not without limit.”

The court determined that the complaint’s Cal. UCL claims of the defendants’ unlawful business practices, based on violations of the FDCPA and Cal. FDCPA, could be prosecuted as an exception to the litigation privilege because: (i) the alleged conduct of the collection company and the attorneys was specifically prohibited by the FDCPA and the Cal. FDCPA; (ii) the Cal. UCL borrowed violations of the FDCPA and Cal. FDCPA and treated them as unlawful practices; (iii) when the “borrowed” statute is more specific than the litigation privilege and the two are irreconcilable, the Cal. UCL claims, based on conduct specifically prohibited by the borrowed statute, are excepted from the litigation privilege; and (iv) applying the litigation privilege to unlawful practices, based on specific violations of the FDCPA and Cal. FDCPA, “would effectively render the protections afforded by those acts meaningless.”

The case is No. F064571.

Attorneys: Lisa S. Green and John T. Mitchell for plaintiff The People of the State of California. Mark E. Ellis and Andrew Steinheimer (Ellis Law Group) for defendants Persolve, LLC, Alaine Patti-Jelsvik, and Edit Alexandryan.

Companies: Persolve, LLC

Cases: StateUnfairTradePractices CaliforniaNews