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Court of Appeal:
C.A. Revives Suit Against Transworld Services Over Allegedly Unethical Collection Policies
Opinion Says Exception for Lawsuits ‘Brought Solely in Public Interest’ Applies to Shield Class Action Complaint From Anti-SLAPP Law
By Kimber Cooley, associate editor
Div. One of the Fourth District Court of Appeal has held that a trial judge improperly granted an anti-SLAPP motion in a case brought by a student loan borrower against two agencies alleging that they engaged in unethical debt collection practices in violation of state and federal law, finding that the public interest exception applies to the action.
At issue is Code of Civil Procedure §425.17 which recites that it was enacted following a “disturbing abuse of Section 425.16, the California Anti-SLAPP Law, which has undermined the exercise of the constitutional rights of freedom of speech and petition for the redress of grievances.” The section creates an exception to the application of the anti-SLAPP law for any action brought solely in the public interest” if certain conditions exist.
The necessary conditions are that the plaintiff does not seek “any relief greater than or different from the relief sought for the general public,” that the successful prosecution of the action “would enforce an important right affecting the public interest, and…confer a significant benefit…on the general public,” and that “[p]rivate enforcement is necessary and places a disproportionate financial burden on the plaintiff.”
Debt Collection Efforts
Appealing an order granting the motion was Aleksia Lindsey, who faced debt collection efforts after she fell behind on student loan payments. After she defaulted, Lindsey received demands for payment from two trusts that claimed to have acquired the loans.
When Lindsey requested further information, Transworld Systems Inc. indicated that it was acting on behalf of the trusts and supplied her with incomplete and inaccurate information. Transworld then directed the law firm of Patenaude & Felix APC, which specializes in debt collection efforts, to initiate two lawsuits against Lindsey.
After she became aware that multiple regulatory and state bodies have challenged some of Transworld’s collection practices, Lindsey requested leave to file a cross-complaint in the pending lawsuits against her. Transworld and Patenaude caused their lawsuits to be dismissed then followed up with another demand for payment.
Class Action
Lindsey responded by filing the class action complaint against both entities, asserting claims under the federal Fair Debt Collective Practices Act (the “FDCPA”) and California’s Rosenthal Fair Debt Collection Practices Act, found at Civil Code §1788 et seq., and Unfair Competition Law (“UCL”), codified at Business and Professions Code §17200.
The complaint alleges:
“This is a putative class action arising from the Defendants’ alleged coordinated efforts to enforce consumer debts through the use of affidavits that allege to be based on personal knowledge when they are not; and through the presentation of documents that have been altered by the addition of information that was not part of the original documents, creating the purported debts and their transfers from the original creditors. In sum, Defendants’ conduct amounts to an effort to lead consumers and the courts to believe that the Defendants have the right to collect consumer debts when they cannot show a satisfactory factual basis for their claims.”
On behalf of herself and the proposed class, Lindsey seeks actual and punitive damages as well as injunctive relief “enjoining Defendants…from continuing the unlawful practices…and directing Defendants…to identify, with Court supervision, victims of its conduct and pay them restitution.”
Anti-SLAPP Motion
San Bernardino Superior Court Judge David S. Cohn sided with the defendants and granted the anti-SLAPP motion, saying that “[b]ecause Plaintiff seeks actual and punitive damages, the claim was not brought solely in the public interest.”
Justice Julia C. Kelety authored the opinion, filed Nov. 27 and certified for publication yesterday, reversing the order. Acting Presiding Justice Joan K. Irion and Justice Jose S. Castillo joined in the opinion.
Kelety said:
“Although the trial court was correct in its observation that Lindsay seeks damages, that circumstance in and of itself does not preclude a conclusion that the action was ‘brought solely in the public interest or on behalf of the general public’ within the meaning of section 425.17, subdivision (b). Indeed, ‘California courts are clear that plaintiffs can still invoke the public interest exemption even if their lawsuit seeks monetary relief.’ ”
Third Condition
Turning to the three conditions set forth in §425.17, she noted that the crux of the defendants’ argument is that Lindsey fails to show that her complaint meets the third requirement of the public interest exception—that “[p]rivate enforcement is necessary and places a disproportionate financial burden on the plaintiff.”
Kelety noted that the Legislature allows for a “private attorney general” approach for the enforcement of violations of the FDCPA and the UCL and opined that “[t]hus, private enforcement of such actions ‘is within the ambit of the public interest exemption’ and ‘fully consistent both with Congress’s intent in enacting [the] FDCPA and the Legislature’s intent in enacting the UCL and section 425.17.’ ”
As to the financial burden, she said:
“As for the disproportionate financial burden component of the public interest exception’s condition number three, we note Lindsay ‘could reasonably have expected to incur significant litigation costs in attempting to prove that respondents violated the FDCPA and that injunctive relief was an appropriate remedy to deter future violations.’…We note further that she also ‘could reasonably have anticipated that [she] might be found liable for an adverse award of costs.’….The prospect of such litigation expenses and cost awards, relative to Lindsay’s personal stake in the action, warrants a conclusion that the public interest exception’s disproportionate financial burden requirement had been met.”
Defendants’ Arguments
Kelety pointed out that “[t]he sum and substance of Patenaude and Transworld’s showing with regard to condition number three is a three-sentence footnote in their brief” in which they argue that “[w]hen there is a public entity enforcing the same rights plaintiffs seek to vindicate, the private action is not necessary.”
The defendants argue that Lindsey’s “acknowledgment of and reliance on the regulatory enforcement actions brought by the [U.S. Consumer Financial Protection Bureau] and the New York Attorney General to redress alleged ‘unlawful debt collection practices’ demonstrates private enforcement in this case is neither necessary nor appropriate.”
Unpersuaded, the jurist said:
“[The defendants] undercut this argument by conceding elsewhere in the same brief that the public regulatory and enforcement actions to which Lindsay has referred in the complaint do not govern her loans or enforce the rights of the class of persons on whose behalf her complaint seeks redress….In light of this concession, we cannot conclude that the public regulatory and enforcement actions to which Lindsay has referred in the complaint render private enforcement unnecessary or that condition number three has not been met.”
Noting that Transworld and Patenaude do not dispute that the first two conditions set forth in §425.17 are met, she declared that “[b]ecause Lindsay’s action satisfied each of the requirements of the public interest exception to the anti-SLAPP law, we conclude the action was exempt from application of the anti-SLAPP law.”
The case is Lindsey v. Patenaude & Felix, 2024 S.O.S. 3851.
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