District Court (Cal.) Says Medical Debt is “Consumer Credit Transaction” Under Rosenthal Act; that Bona Fide Error Must Be “Reasonable”; that FDCPA and Rosenthal Act Combine to Permit Three Penalties

In Hanrahan v. Statewide Collection, Inc., No. 19-cv-00157-MMC, 2020 U.S. Dist. LEXIS 242290 (N.D. Cal. Dec. 23, 2020), Judge Chesney granted partial summary judgment to a Rosenthal Act Plaintiff.  She held that the bond fide error rule can apply to mistakes of fact, but not where the mistake occurred with respect to a well-publicized error made by the debt collector.

It is undisputed that the collection letter contains a false statement to the extent it told Hanrahan a judgment would be reported on her credit report; in July 2017, as Statewide concedes, the credit reporting agencies stopped reporting judgments. . . .The Court next considers Statewide’s contention that, as to the concededly false statement, the bona fide error defense precludes a judgment of liability. . . .

The FDCPA “excepts from liability those debt collectors who satisfy the ‘narrow’ bona fide error defense,” . . . Section 1788.30 of the Rosenthal Act contains a similar bona fide error defense. See Cal. Civ. Code § 1788.30(e) (providing “[a] debt collector shall have no civil liability . . . for a violation of this title, if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted notwithstanding the maintenance of procedures reasonably adapted to avoid any such violation”). The Court first finds such defense applies not only to clerical errors but also to “factual mistakes.” See Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 587, 130 S. Ct. 1605, 176 L. Ed. 2d 519 (2010) (noting, under bona fide error defense, “the broad statutory requirement of procedures reasonably designed to avoid ‘any’ bona fide error indicates that the relevant procedures are ones that help to avoid errors like clerical or factual mistakes”). Here, although the undisputed evidence shows the misstatement of fact in the collection letter was not made with knowledge of its falsity (see Suppl. Decl. of Troy Wilkinson (“Wilkinson Suppl. Decl.”) ¶ 6), the Court, for the reasons discussed below, finds the bona fide error defense is not, in this instance, available to Statewide. For the bona fide error  defense to apply, Statewide must have had, at the time it sent the collection letter, procedures in place that were “reasonably adapted to avoid the specific error at issue,” see McCollough, 637 F.3d at 948 (internal quotation and citation omitted), which, in this instance, was an incorrect statement regarding credit industry practice. Consequently, even assuming the above-referenced change was, as Statewide asserts, “unprecedented” (see Def.’s Suppl. Br. at 3:2-4), Statewide was required to maintain procedures “reasonably adapted” to avoid its incorrect reporting of credit industry practice, see 15 U.S.C. § 1692k(c), and, as Hanrahan points out, there is no evidence to support a finding that Statewide maintained any such procedures (see Wilkinson Suppl. Decl. ¶¶ 2-5 (describing procedures intended to ensure compliance with “federal and state laws and regulations”)). Moreover, the change was noteworthy and widely reported. (See Pl.’s Suppl. Br. at 5:11-15 (pointing to “significant number of major news outlets [that] reported the credit bureau policy change throughout 2017[,] including The New York Times, The Wall Street Journal, Forbes, Los Angeles Times, San Francisco Chronicle, Credit Reports, USA Today, NBC News, Inside ARM, and AccountsRecovery.net”); see also Suppl. Decl. of Daniel Zemel ¶¶ 3-15 (collecting relevant news articles).)5 Despite such news coverage, however, Statewide did not become aware of the change until the instant action was filed, a date more than two years after the change took place. (See Wilkinson Suppl. Decl. ¶ 7 (noting Statewide “learned that the credit reporting agencies stopped reporting civil judgments” upon “receiv[ing] [Hanrahan’s] lawsuit”).)

Judge Chesney also held that the medical debt was a “consumer credit transaction” under the Rosenthal Act.

Lastly, the Court is not persuaded by Statewide’s argument that the medical debt claimed here is not a “consumer credit transaction” and thus not covered by the Rosenthal Act. See Cal. Civ. Code § 1788.2(f) (defining “consumer debt” as “money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction”). As explained in Gouskos v. Aptos Village Garage, Inc., 94 Cal. App. 4th 754, 114 Cal. Rptr. 2d 558 (Cal. Ct. App. 2001), “there is a consumer credit transaction when the consumer acquires something without paying for it.” See Gouskos, 94 Cal. App. 4th at 759. Here, there is no dispute that Hanrahan received medical treatment in January 2016 and made no payment for such services until after she received Statewide’s collection letter in 2018. Although, in Gouskos, the Court of Appeal found the debt there at issue was not covered by the Rosenthal Act, Statewide’s reliance on such finding is misplaced, as the facts on which it was based are readily distinguishable from those presented here. See id. at 760 (finding Rosenthal Act did not apply to charges for vehicle repairs where plaintiff never regained possession of vehicle after failing to pay; noting, “in the automobile repair context[,] there rarely would exist a consumer credit transaction because repair shops typically do not release repaired vehicles without payment”). Accordingly, for the reasons stated above and on the record at the hearing, the Court finds Statewide violated the FDCPA and Rosenthal Act.

Judge Chesney also held that the Rosenthal Act and FDCPA permitted three penalties, not two.

It is undisputed that, under the FDCPA, a prevailing party may recover a maximum of $1,000 in statutory damages. See 15 U.S.C. § 1692k(a) (providing, “any debt collector who fails to comply with any provision” of FDCPA is liable for actual damages and “such additional damages as the court may allow, but not exceeding $1,000”). The parties do, however, dispute the maximum amount of statutory damages available to a prevailing party under the Rosenthal Act. The Rosenthal Act provides for statutory damages in two separate sections. First, in a section pertaining to specified violations of the FDCPA, including the violation claimed here, the Act provides that the “debt collector . . . shall be subject to the remedies in Section 1692k of [the FDCPA].” See Cal. Civ. Code § 1788.17; see also 15 U.S.C. § 1692k(a) (providing for statutory damages in an amount “not exceeding $1,000”). Second, in a general section pertaining to damages for all acts constituting violations of the Rosenthal Act, the Act provides that a “debt collector who willfully and knowingly violates this title . . . shall be liable . . . for a penalty . . ., which shall not be less than one hundred dollars ($100) nor greater than one thousand dollars ($1,000).” See Cal. Civ. Code § 1788.30(b). Based on the above three statutes, Hanrahan argues she is entitled to recover a total of $3,000. In response, Statewide argues Hanrahan is limited to recovering a maximum of $1,000 in statutory damages under the Rosenthal Act, which amount, when coupled with the $1,000 maximum under the FDCPA, results in a total potential award of $2,000. Neither party has cited to a California case addressing the question, and, to the extent the parties cite to various district court decisions, those courts are not in agreement. See, e.g., Johnson v. CFS II, Inc., No. 12-cv-01091, 2013 U.S. Dist. LEXIS 61017, 2013 WL 1809081, at *10-11 (N.D. Cal. Apr. 28, 2013) (awarding statutory damages under FDCPA and sections 1788.17 and 1788.30(b) of the Rosenthal Act); Mejia v. Marauder Corp., No. C06-00520, 2007 U.S. Dist. LEXIS 21313, 2007 WL 806486, at *11-12 (N.D. Cal. Mar. 15, 2007) (finding, where plaintiff awarded statutory damages under section 1788.30(b), plaintiff not entitled to additional award under section 1788.17). The Court, having considered the matter, finds, for the reasons set forth on the record at the hearing, Hanrahan is not precluded from recovering statutory damages under all three statutes. In particular, the language of the Rosenthal Act reflects an intent to allow recovery under both of its damages sections, see Cal. Civ. Code § 1788.17 (“Notwithstanding any other provision of this title, every debt collector . . . shall be subject to the remedies in Section 1692k.”); see also Cal. Civ. Code § 1788.32 (“The remedies provided herein are intended to be cumulative and are in addition to any other procedures, rights, or remedies under any other provision of law.”), and there is nothing in the language of the Rosenthal Act, or for that matter, in the FDCPA, suggesting a prevailing party is not entitled to seek an award of statutory damages under both the Rosenthal Act and the FDCPA