District Court (Cal.) Says Debt Collector Could Collect Pre-Judgment Interest without a Judgment and that Rosenthal Act Disclosures Need Not Be on Front Page; But, Finds Inconsistency in Dunning Letter Stating Creditor has “Given you all the extension of time they feel is justified”

In Provo v. Rady Children’s Hospital-San Diego, 2015 WL 3648845, at *2-3 (S.D.Cal.,2015), Judge Miller granted in part and denied in part a debt collector’s motion to dismiss an FDCPA plaintiff’s claim based on collection of a medical debt. Judge Miller found that the letter did not unlawfully seek to collect prejudgment interest without a judgment.

Plaintiffs contend that a debt collector is not entitled to add contractual interest charges to an outstanding debt without first obtaining a judgment. According to Plaintiffs, interest charges may not be assessed until the debt collector obtains a state court judgment establishing the debt. For legal support, Plaintiffs primarily rely upon Cal. Civ.Code § 3287, George v. Double D Foods, 155 Cal.App.3d 36 (1984), and Overholster v. Glynn, 267 Cal.App.2d 800, 810 (1968). The court concludes that these authorities do not prohibit the imposition of contractual interest charges. The Ninth Circuit recently rejected Plaintiffs’ theory of liability. Debt collectors are prohibited from seeking to collect any amount that is not “expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). “A debt collector does not violate this provision if the amounts it seeks are authorized by state law.” Diaz v. Kubler Corp., –––F.3d ––––, 2015 WL 2214634 (May 12, 2015). As the interest rate provision is enforceable under state law, this portion of Plaintiffs’ claim fails. . . . In Diaz, the debtor claimed, like Plaintiffs here, that the debt collector could not recover interest under state law until the debt collector obtained a judgment. After analyzing state law, the Ninth Circuit concluded that “a judgment awarding interest pursuant to 3287(a) merely vindicates a pre-existing right to interest instead of creating it. [The debt collector] might well have had a right to pre-judgment interest pursuant to section 3287(a) [ ], despite not having obtained a judgment saying so.” Id. As contractual interest rate provisions are enforceable under state law, see Indemnity Ins. Co. Of North America v. Watson, 128 Cal.App. 10, 21 (1932); Sohrakoff v. Zumwalt, 122 Cal.App. 768 (1932) (interest allowable from the time it becomes due), Plaintiffs are unable to state either a FDCPA or Rosenthal Act claim based upon the interest rate charges.

Judge Miller rejected the argument that the Rosenthal Act disclosures need to be on the front page of the dunning letter.

Plaintiffs contend that the least sophisticated debtor would be misled by the letter because the notice should have been placed on the front page, and not the second page or, at a minimum, the front page should have referred to the disclosures on the second page. Under the circumstances of this case, the court finds that the notice complies with all legal requirements.. . .The court concludes that even the least sophisticated consumer would not be deceived into thinking that one need only peruse the first page of a document to discover all relevant information. The notice is not hidden in small type or otherwise concealed. The notice appears at the top of the second page where it stands out from the other disclosures contained therein. Nothing more is required.

But, Judge Miller found the letter might be deceptive due to conflict between dunning language suggesting finality and language giving a deadline to respond.

Plaintiffs allege that the second statement contained in the January 2, 2015 letter is misleading and deceptive. The statement provides: “The above listed account has been assigned to our office for collection. Our client has given you all the extension of time they feel is justified.” (Ct.Dkt.3–3, p. 2). . . Plaintiffs’ premise is that the least sophisticated consumer, in reliance upon the statement “[o]ur client has given you all the extension of time they feel is justified,” means, in context, that they did not have until January 12, 2015, to pay the bill as the December 29, 2014 letter stated. . . .Viewed from the perspective of the gullible and ignorant, and applying the least sophisticated consumer test adopted by the Ninth Circuit, the court concludes that the statement may be misleading to the least sophisticated consumer as articulated by Plaintiffs and therefore states a claim for violation of the FDCPA and the Rosenthal Act. While it is unclear whether this statement is material, potentially caused harm or confusion to Plaintiffs, or lulled Plaintiffs into inaction, a claim is stated whenever a debt collector uses “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. As the statement may be conceptually viewed as deceptive or misleading from the perspective of the least sophisticated consumer, and is made in connection with a debt collection, nothing more is required to state a claim.