In Brown v. Mandarich Law Group, LLP, 2014 WL 2860631 (N.D.Cal. 2014), Judge Corley allowed a creditor to offset an FDCPA case against a previously obtained state court judgment on the debt itself. The facts were as follows:

On an unknown date, Plaintiff incurred a financial obligation in the form of a consumer credit account with MBNA America N.A. (Dkt. No. 1 ¶ 12.) The debt was later sold, assigned or otherwise transferred to Defendant CACH for collection from Plaintiff. (Dkt. No. 13 at 3.) Defendant CACH, represented by Defendant Mandarich Law Group, LLP, brought suit against Plaintiff in the Superior Court of California, Alameda County, and on April 30, 2012, obtained judgment against Plaintiff for $7,809.07, plus post judgment interest. (Dkt. No. 40–1.) Defendants contend, and Plaintiff does not dispute, that he has failed to make payments or arrangements towards that judgment and that Plaintiff is insolvent or has no intention of paying.  ¶   On October 9, 2013, Plaintiff brought this FDCPA action against Defendants Mandarich and CACH based on a collection letter on the judgment sent directly to Plaintiff instead of his attorney. The Court subsequently entered judgment against Defendants jointly and severally, pursuant to a stipulated judgment awarding Plaintiff $2,000.00 in statutory damages. (Dkt. No. 26.) Later, on April 2, 2014, the Court granted Plaintiff’s motion for Attorney Fees in the amount of $8,002.86. (Dkt. No. 39.)

The District Court allowed the debt collector to offset the state court judgment against the statutory damages under the FDCPA, but not against the Plaintiff’s attorneys’ fee award.

Offsetting Plaintiff’s statutory damages award by Defendant’s previously obtained judgment does not inherently conflict with these legislative principles: it would neither remove the incentive for future plaintiffs to bring claims, nor would it discourage attorneys from representing them.  ¶  As an initial matter, the Court notes that the offset would only be as to the statutory damages owed by Defendant CACH, because there is no offset sought as to Defendant Mandarich; thus, Plaintiff can recover the full judgment from Mandarich regardless of the outcome of Defendant CACH’s motion.  ¶  In any event, Plaintiff’s public policy arguments rest on inapposite cases. Plaintiff cites cases that consider whether to join FDCPA claims with state law counterclaims brought by defendant creditors. See Reed v. Global Acceptance Credit Co., No. 08–01826–RMW, 2008 WL 3330165, at *7 (N.D.Cal. Aug. 12, 2008) (noting that courts rarely allow setoff counterclaims in FDCPA actions as such claims are contrary to the policies underlying the FDCPA); Sparrow v. Mazda Am. Credit, 385 F.Supp.2d 1063, 1071 (E.D.Cal.2005) (“[S]trong policy reasons exist to prevent the chilling effect of trying FDCPA claims in the same case as state law claims for collection of the underlying debt”); Campos v. Western Dental Serv., Inc., 404 F.Supp.2d 1164, 1170 (N.D.Cal.2005) (holding that “strong public policy reasons exist for declining to exercise jurisdiction over defendant Western’s counterclaim” for the underlying debt in a FDCPA suit); Leatherwood v. Universal Bus. Serv. Co., 115 F.R.D. 48, 50 (W.D.N.Y.1987) (concluding that it would violate the FDCPA’s legislative purpose to allow counterclaims by defendant creditors for underlying debt in FDCPA actions because it “would impede expeditious enforcement of the federal
penalty”). These courts reason that joining counterclaims for underlying debt in an FDCPA action violates public policy because, in defiance of congressional intent, it inappropriately creates a venue for creditors to litigate outstanding debts, thus removing the incentive for plaintiffs to bring FDCPA claims against creditors. These cases are distinguishable, however, as Defendant is not seeking to bring a counterclaim for an alleged debt; rather, Defendant seeks enforcement of a previously obtained judgment. Thus, the courts’ concern with creating a forum for an FDCPA defendant to obtain a judgment on the debt is inapplicable here. . . . ¶ . . . Permitting an offset of statutory damages here does not take the sting out of the FDCPA damages against Defendant. Defendant CACH collects $2,000.00 less of the judgment legally owed by Plaintiff, representing a substantial penalty that will deter Defendant from repeating the same actions in the future. Further, Plaintiff can still recover the statutory damages owed by Defendant Mandarich. In sum, while legislative intent is important in determining the propriety of offset for FDCPA claims, granting the motion to offset in part under the circumstances here will not contravene that legislative intent.