finding that Cal. Civ. Proc. Code § 426.30 barred a compulsory counterclalặng that should have sầu been brought in a previous debt collection case that had been dismissed without prejudice

Summary of this case from Agnir v. Gryphon Solutions, LLC

Scott C. Maurer, San Jose, CA, William Eric Kennedy, Law Offices of William E. Kennedy, Santa Clara, CA, Eric Wayne Wright, Law Offices of Eric W. Wright, Los Gatos, CA, for Plaintiff.

Stephen Alter Scott, Hayes Davis Ellingson McLay Scott, Redwood Shores, CA, Kathleen Mary Kushi Carter, Lindomain authority Luna, Hollins Schechter, Santa Amãng cầu, CA, for Defendants.


JAMES WARE, District Judge


Juanita Swain ("Plaintiff") brings this action against CACH, LLC ("CACH"), Hollins Schechter, LLP ("HS"), Rudy Gacha, Jr. ("Gaba"), & Vanessa Martinez ("Martinez") (collectively, "Defendants"), alleging, inter alia, violation of the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. and unfair business practices in violation of California Business and Professions Code §§ 17200, et seq. Plaintiff alleges that Defendants sued lớn collect a deficiency on a defective Notice of Intent and misrepresented the debts as credit card obligations.

Presently before the Court are Defendants" Motion khổng lồ Dismiss Plaintiff"s Complaint và Defendants" Motion khổng lồ Strike. The Court conducted a hearing on June 29, 2009. Plaintiff was represented by counsel. No one appeared on Defendants" behalf. Based on the papers submitted khổng lồ date & oral argument, the Court GRANTS in part và DENIES in part Defendants" Motion khổng lồ Dismiss & DENIES Defendants" Motion khổng lồ Strike.

(hereafter, "Motion to lớn Dismiss" and "Motion to Strike," Docket Item Nos, 6, 9.) These Motions are brought by Defendants HS and Gacha.

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In a Complaint filed on March trăng tròn, 2009, Plaintiff alleges as follows:

In October 2005, Plaintiff purchased & financed a 2003 Ford Escape from the Peninsula Ford of Sunnyvale car dealership in Sunnyvale, California. (First Amended Class kích hoạt Complaint ¶ 13, hereafter, "Complaint," Docket Item No. 5.) The dealership provided Plaintiff with financing from Bank of America under a conditional sales contract as defined & regulated by California"s Autođiện thoại Sales Finance Act ("ASFA"), California Civil Code §§ 2981, et seq. ( Id.) In January 2007, Plaintiff"s vehicle was repossessed. ( Id. ¶ 14.) Bank of America sent a notice of intent to lớn sell the vehicle ("notice of intent") that did not state all the conditions precedent to reinstatement in violation of ASFA. ( Id.) Bank of America sold the vehicle & sent a demand for the deficiency owed from Plaintiff in the amount of $7,804.84. ( Id.) No deficiency was owed because the notice of intent did not comply with ASFA. ( Id.) Bank of America subsequently assigned its rights to lớn CACH. ( Id.) On December 13, 2007, CACH, represented by HS and Gatía, filed a complaint in Santa Clara County Superior Court alleging Plaintiff owed money on her Bank of America credit card, when in fact the complaint was based on the deficiency clayên ổn. (Complaint ¶ 15.) On July 15, 2008, Plaintiff served Defendants with a verified discovery response indicating that the trương mục was not a credit thẻ and Plaintiff did not owe the debt, due khổng lồ the fact that the notice of intent was invalid. ( Id. ¶ 17.) In September 2008, HS and Gaba drafted a declaration indicating that Plaintiff used the credit thẻ and the entire balance was due & payable in full. ( Id. ¶ 18.) HS & Gatía knew or should have known that there was no credit card tài khoản when they drafted the false declaration signed by Defendant Martinez. ( Id.) On October 2, 2008, Defendants filed a false declaration and false affidavit in the Superior Court of California. (Complaint ¶ trăng tròn.) In November 2008, HS and Gabố drafted an affidavit signed by Debra Pellicaro of Bank of America indicating Plaintiff owed over $7000 pursuant lớn the thẻ thành viên agreement with Bank of America. ( Id. ¶ 19.) HS & Gabố knew or should have sầu known that there was no thẻ thành viên agreement. ( Id.) The Santa Clara County Superior Court dismissed Defendants" complaint without prejudice. ( Id. ¶ đôi mươi.)

It is not clear what affidavit is referred to lớn in the Complaint, since the Complaint states the affidavit signed by Debra Pellicaro was drafted in or around November of 2008.

On the basis of the allegations outlined above, Plaintiff alleges three causes of action: (1) Violation of the Federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq.; (2) Violation of the California Unfair Competition Law ("UCL"), Cal. Civ. Code §§ 17200, et seq.; and (3) Declaratory Relief. (Complaint at 8-11.)

Plaintiff has since dismissed the clalặng for Unjust Enrichment. ( See Opposition to Defendants" Motion lớn Dismiss at 9, hereafter, "Opposition," Docket Item. No. 12.)

Presently before the Court are Defendants" Motions to lớn Dismiss and to lớn Strike.


Pursuant lớn Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed against a defendant for failure to lớn state a clayên ổn upon which relief may be granted against that defendant. Dismissal may be based on either the lachồng of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep"t, 901 F.2d 696, 699 (9th Cir. 1990); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). For purposes of evaluating a motion to dismiss, the court "must presume all factual allegations of the complaint khổng lồ be true and draw all reasonable inferences in favor of the nonmoving party." Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). Any existing ambiguities must be resolved in favor of the pleading. Walling v. Beverly Enters., 476 F.2d 393, 396 (9th Cir. 1973).

However, mere conclusions couched in factual allegations are not sufficient to state a cause of action. Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); see also McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988). The complaint must plead "enough facts to state a clayên ổn for relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Courts may dismiss a case without leave sầu to amkết thúc if the plaintiff is unable to lớn cure the defect by amendment. Lopez v. Smith, 203 F.3d 1122, 1129 (9th Cir. 2000)


A. Motion to Dismiss

Defendants move khổng lồ dismiss Plaintiff"s Complaint on three grounds: (1) Plaintiff has not suffered the loss of money or property necessary for standing to pursue the UCL claim; (2) Plaintiff"s cause of action for declaratory relief does not seek relief for activity specifically alleged against HS & Gaba; và (3) Plaintiff"s class action Complaint for "Class A" fails because Plaintiff"s claims are neither common nor typical of the proposed class members, and Plaintiff is inadequate lớn be a representative of the proposed class. (Motion to Dismiss at 4-8.) The Court addresses each issue in turn.

1. Plaintiff"s Standing to Bring a UCL Claim

Defendants move sầu to dismiss Plaintiff"s UCL clayên on the ground that Plaintiff did not suffer any loss of money or property that is eligible for restitution, which is necessary for standing under the UCL. (Motion khổng lồ Dismiss at 6.) Plaintiff contends that she was forced khổng lồ defend Defendants" invalid deficiency lawsuit, which required her to lớn expend money on a defense. (Opposition at 4.)

The UCL prohibits "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. Prof. Code § 17200. To have sầu standing to bring a cause of action under the UCL, a plaintiff must have sầu "suffered injury in fact & <> lost money or property as a result of the unfair competition." Cal. Bus. Prof. Code § 17204. More specifically, under section 17204, a plaintiff must show "either prior possession or a vested legal interest in the money or property allegedly lost." Walker v. USAA Cas. Ins. Co., 474 F.Supp.2d 1168, 1172 (E.D.Cal. 2007), aff"d, Walker v. Geiteo Gen. Ins. Co., 558 F.3d 1025 (9th Cir. 2009). As such, "ny person may pursue representative sầu claims or relief on behalf of others only if the claimant meets the standing requirements of § 17204. . . ." Cal. Bus. Prof. Code § 17203.

The California Supreme Court has stated that "the primary khung of relief available under the UCL khổng lồ protect consumers from unfair business practices is an injunction, along with ancillary relief in the form of such restitution `as may be necessary khổng lồ restore to lớn any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition."" In re Tobacco II Cases, 46 Cal.4th 298, 93 Cal. Rptr.3d 559, 207 P.3d 20 (2009) (quoting § 17203).

The parties" dispute in this case centers on whether UCL standing carries the additional requirement that Plaintiff"s loss of money or property be the type of loss that can be remedied by restitution. (Motion to lớn Dismiss at 5; Opposition at 6.) Defendants cite to Citizens of Humanity, LLC v. Costteo Wholesale Corp., in which the Court of Appeal stated that, "ecause remedies for individuals under the UCL are restricted lớn injunctive sầu relief & restitution, the import of the requirement is to lớn limit standing to lớn individuals who suffer losses of money or property that are eligible for restitution." 171 Cal.App.4th 1, 22, 89 Cal. Rptr.3d 455 (quoting Buckland v. Threshold Enters. Ltd., 155 Cal.App.4th 798, 817, 66 Cal.Rptr.3d 543 (2007)). Plaintiff, in contrast, contends that there is no such restitutionary injury requirement in the plain language of section 17204. This position finds tư vấn in a recent decision by Judge Chesney of this District. In Fulford v. Logitech, Inc., No. C 08-2041, 2009 WL 1299088 (N.D.Cal. May 8, 2009), Judge Chesney found UCL standing in a case where the defendant argued that the injury claimed by the plaintiff was not capable of being remedied through restitution. The defendant in Fulford contended that Buckland và Walker both stood for the proposition that UCL standing requires allegation of an injury that is eligible for restitution. 2009 WL 1299088, at *1.

In finding for the plaintiff, Judge Chesney distinguished Bucklvà and Walker, on the ground that both cases involved plaintiff"s that had not actually lost money or property of any sort. Id. For example, in Buckland, there was no UCL standing where the plaintiff voluntary purchased the defendant"s sản phẩm solely lớn incur an injury for purposes of bringing a UCL action "in the public interest." Buckl&, 155 Cal.App.4th at 818, 66 Cal.Rptr.3d 543. Similarly, in Walker, the district court held that a plaintiff"s clayên ổn based on an "estimate for proposed work" did not qualify hyên ổn for UCL standing. Walker, 474 F.Supp.2d at 1173. Under those facts, in which there was no clalặng for nonpayment of work actually performed, the Walker plaintiff could not show either prior possession or a vested legal interest in the money he claimed. In reviewing these decisions, Judge Chesney found that the Buckl& & Walker courts" use of the phrase "eligible for restitution" were attempts to lớn distinguish between the speculative losses claimed in those cases & the type of loss cognizable under the UCL, specifically, "a loss of money or property in which the plaintiff has either prior possession or a vested legal interest" resulting from unfair competition. Id.

The holding from Citizens of Humanity is also distinguishable from Plaintiff"s case. The court in Citizens of Humanity held that harm to a company"s goodwill does not constitute a loss of money or property sufficient lớn confer standing on the plaintiff. 171 Cal.App.4th at 22, 89 Cal.Rptr.3d 455. This holding clearly is not applicable khổng lồ the present case.

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Furthermore, Judge Chesney cited to lớn a line of California cases, in which plaintiffs had standing irrespective of any potential for restitutionary damages. Fulford, 2009 WL 1299088, at *1. These cases involved plaintiffs who alleged "loss of income," "loss of financial resources," or "economic loss." On the basis of the reasoning in these cases, Judge Chesney found standing where the plaintiff alleged that he purchased the defendant"s sản phẩm, and that had he known that the product did not possess a specific capability, he would have sầu paid less or not purchased the thắng lợi. Id. at *2.

See, e.g., White v. Trans Union LLC, 462 F.Supp.2d 1079, 1084 (C.D.Cal. 2006) (holding plaintiff"s allegations of loss of income were sufficient khổng lồ seek injunctive sầu relief under the UCL, & plaintiff did need to lớn show that the losses in question were the sản phẩm of the defendant"s wrongful acquisition of the plaintiff"s property); So. Cal. Housing Rights Ctr. v. Los Feliz Towers Homeowners Ass"n, 426 F.Supp.2d 1061, 1069 (C.D.Cal. 2005) (holding plaintiff Housing Rights Center had standing under the UCL where the plaintiff alleged loss of financial resources through its investigation of a discrimination clalặng & diversion of staff time from other cases khổng lồ investigate the discriminatory allegations); Aron v. UHaul Co. of Cal., 143 Cal.App.4th 796, 802-03, 49 Cal.Rptr.3d 555 (2006) (holding a plaintiff"s allegations of economic loss by being required lớn purchase excess fuel from a third party before returning truchồng to lớn defendant were sufficient for standing under the UCL).

The Court is persuaded by the reasoning in Fulford and finds that standing under the UCL does not require a loss of money or property that is "eligible for restitution." Accordingly, the Court finds that Plaintiff will have sầu standing if she alleges a loss of money or property in which she had prior possession or a vested legal interest, even if that loss is not eligible for restitution.

In this case, Plaintiff alleges in relevant part:

On December 13, 2007, CACH filed a complaint against Plaintiff in the Superior Court of California in Santa Clara County. (Complaint ¶ 15.) Plaintiff has suffered injury in fact và has lost money or property as a result of defendants acts of unfair competition. (Complaint ¶ 53.) Plaintiff seeks both restitution and injunctive relief under the UCL. ( Id. at 13.)

With respect khổng lồ whether these allegations are sufficient lớn confer UCL standing, the Court finds that Plaintiff"s "injury in fact" is the suit brought by Defendants on the deficiency clalặng. However, the Complaint fails lớn allege that Plaintiff has lost any money or property in which she had a vested interest as a result of that litigation. Although Defendants sued to collect a deficiency, the Complaint alleges that the state court action was dismissed without prejudice. (Complaint ¶ trăng tròn.) Thus, Plaintiff has not pleaded sufficient facts khổng lồ show standing under the UCL.

However, in Plaintiff"s Opposition, she contends that: (1) she was the subject of pre-litigation collection efforts with respect khổng lồ an invalid deficiency claim; (2) she had khổng lồ defover a lawsuit brought by Defendants in an attempt khổng lồ collect the invalid claim; (3) she had to pay a filing fee to the court in order to lớn defkết thúc her lawsuit; and (4) Defendants filed a false declaration in state court in order khổng lồ prosedễ thương their invalid clayên, & disguised it as a clalặng that was valid. (Opposition at 4-5.) This suggests that, if given leave sầu lớn amkết thúc, Plaintiff may be able lớn allege that she expended money defending against Defendants" purportedly unlawful lawsuit.

Accordingly, the Court GRANTS Defendants" Motion to Dismiss Plaintiff"s Second Cause of kích hoạt for violation of the UCL, giving Plaintiff leave sầu khổng lồ amover lớn allege the loss of money or property in connection with Defendants" purportedly unlawful conduct.

2. Declaratory Relief

Defendants move khổng lồ dismiss Plaintiff"s declaratory relief clalặng on the ground that Plaintiff does not specifically seek relief against HS and Gabố. (Motion khổng lồ Dismiss at 6.)

The Declaratory Judgment Act, 28 U.S.C. § 2201, provides for declaratory relief in case of actual controversy. Med-Immune, Inc. v. Genentech, Inc., 549 U.S. 118, 126, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007). District courts have sầu the discretion to lớn entertain the action và grant declaratory relief. Id. at 136, 127 S.Ct. 764; California v. Oroville-Wyandotte Irrigation Dist., 409 F.2d 532, 533 (9th Cir. 1969). An actual controversy is one that is: appropriate for judicial determination; definite & concrete, touching the legal relations of parties having adverse interest; và real and substantial, admitting of specific relief through a decree of conclusive sầu character, Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 81 L.Ed. 617 (1937); MedImmune, 549 U.S. at 126, 127 S.Ct. 764.

Here, Plaintiff alleges that CACH, represented by HS & Gaba, brought a state court action lớn collect owed money on a credit card, when the complaint was actually based on the invalid deficiency claim. (Complaint ¶ 16.) This state court action allegedly included false affidavits & declarations drafted by HS và Gabố and was later dismissed without prejudice. ( Id. ¶¶ 17-18, 20.) From this, Plaintiff alleges that there is an "actual controversy" concerning her liability for the deficiency balance, and she requests a declaration from the Court that she is not liable for the deficiency balance. (Complaint ¶ 56.)

The Court finds that Plaintiff"s declaratory relief clalặng fails for two reasons. First, as to lớn her liability for the deficiency balance, the Court finds this is a compulsory counterclaim that Plaintiff should have asserted in the underlying state action when she was sued by Defendants. The California compulsory counterclayên ổn rule is contained in California Code of Civil Procedure § 426.30, which provides in relevant part:

Since the Court has raised this issue sua sponte, the Court discusses whether Plaintiff"s FDCPA clayên ổn is also a compulsory counterclayên that should have been asserted in the state action. Although the FDCPA clayên ổn is generally related lớn the subject matter of the state collection action. Plaintiff"s clalặng arise out of a different set of facts related to Defendants" alleged unfair và illegal practices in their efforts to collect on that debt. Other courts have sầu held that collection claims and FDCPA claims vì chưng not arise out of the same set of operative facts. See, e.g., Whitaker v. Ameritech Corp., 129 F.3d 952, 958 (7th Cir. 1997); Peterson v. United Accounts, Inc., 638 F.2d 1134, 1137 (8th Cir. 1981) ("Although there is some overlap of issues raised in both cases as a result of the defenses raised in the state action, the suit on the debt brought in state court is not logically related lớn the federal action initiated to enforce federal policy regulating the practices for the collection of such debts."); Sparrow v. Mazdomain authority Am. Credit, 385 F.Supp.2d 1063, 1068-69 (E.D.Cal. 2005). Accordingly, the Court finds that Plaintiff"s FDCPA claim is not a compulsory counter-clalặng.

Except as otherwise provided by statute, if a tiệc ngọt against whom a complaint has been filed & served fails lớn allege in a cross-complaint any related cause of action which (at the time of serving his answer to lớn the complaint) he has against the plaintiff, such tiệc ngọt may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded.

Cal.Civ.Proc. Code § 426.30. Plaintiff"s request for a declaration that she is not liable for the deficiency balance arise out of the same phối of operative sầu facts at issue in the collection case, namely, the ownership and enforceability of the debt. The Ninth Circuit has held that "Federal courts will not permit an action to lớn be maintained where the claims asserted should have sầu been brought as a compulsory counterclaim in an earlier action." In re Crown Vantage, Inc., 421 F.3d 963, 973 n. 7 (9th Cir. 2005) (citing Cheiker v. Prudential Ins. Co., 8đôi mươi F.2d 334 (9th Cir. 1987)). Thus, Plaintiff cannot now, in federal court, seek a declaration as lớn her liability.

Second, the Court finds Plaintiff"s request, with respect to lớn providing guidance to lớn the parties, is an attempt to secure an advisory opinion, which is not permitted under the Declaratory Judgment Act. See MedImmune, 549 U.S. at 142-143, 127 S.Ct. 764.

Plaintiff contends that a declaration "will provide guidance as khổng lồ the rights & responsibilities of the various parties involved in attempting lớn collect debts. . . . will be advised . . . to cease pre-litigation collection efforts & cease filing lawsuits." (Opposition at 8.)

Accordingly, the Court GRANTS Defendants" Motion lớn Dismiss Plaintiff"s clayên for declaratory relief.

3. Class Representative

Defendants move to dismiss Plaintiff"s "Class A" allegations because Plaintiff"s claims are neither comtháng nor typical of the proposed class members, và Plaintiff is inadequate khổng lồ be a class representative sầu for the proposed class. (Motion lớn Dismiss at 8.) Plaintiff contends that any challenge lớn the putative sầu class under Rule 23 is premature và such defects should only be raised in opposition khổng lồ a motion for class certification. (Opposition at 9.)

Rule 23(c)(1) provides that "t an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action." Fed.R.Civ.Phường. 23(c)(1). According to lớn the Ninth Circuit, "compliance with 23 is not lớn be tested by a motion khổng lồ dismiss for failure to state a clayên." Gillibeau v. City of Richmond, 417 F.2d 426 (9th Cir. 1969).

The Court finds that Defendants" Motion is premature. Here, no order has been sought lớn certify the action as a class action. Defendants" objections khổng lồ Plaintiff serving as a class representative must be resolved through a class certification motion. See Barnett v. County of Contra Costa, No. C 04-4437, 2005 WL 5095264, at *3 (N.D.Cal. Oct. 31, 2005).

Accordingly, the Court DENIES Defendants" Motion khổng lồ Dismiss Plaintiff"s "Class A" allegations.

B. Motion to lớn Strike Portions of Plaintiff"s Complaint

Defendants move sầu to lớn strike various allegations contained in Plaintiff"s Complaint on the grounds that Plaintiff"s allegations are immaterial or impertinent, & that the fraud clalặng is not pleaded with particularity under Federal Rule of Civil Procedure 9(b). (Motion to Strike at 5, 8.)

Defendants" motion to strike Plaintiff"s fraud clalặng under the UCL is moot, as a result of the Court"s granting of Defendants" Motion to lớn Dismiss Plaintiff"s UCL clayên ổn.

The Court finds that Defendants" challenges to lớn the truthfulness of portions of Plaintiff"s Complaint require the Court to make factual determinations that go to lớn merits of the case, & such challenges are not appropriate under a Rule 12(f) motion khổng lồ strike. See In re JDS Uniphase Corp. Secs. Litig., No. C 02-1486, 2005 WL 1705766, at *3 (N.D.Cal. July 21, 2005).

Accordingly, the Court DENIES Defendants" Motion to lớn Strike.


The Court GRANTS in part và DENIES in part Defendants" Motion lớn Dismiss as follows:

(1) Defendants" Motion to lớn Dismiss Plaintiff"s Second Cause of Action for violation of the UCL is GRANTED with leave to lớn amend; (2) Defendants" Motion to lớn Dismiss Plaintiff"s Third Cause of kích hoạt for Declaratory Relief is GRANTED with prejudice; (3) Defendants" Motion khổng lồ Dismiss Plaintiff"s "Class A" allegations is DENIED as premature.

The Court DENIES Defendants" Motion khổng lồ Strike.

Any amended Complaint shall be filed on or before July 31, 2009 và shall be consistent with the terms of this Order.

The parties shall appear for a Case Management Conference on September 28, 2009, at 10 a.m. On or before September 18, 2009, the parties shall file a Joint Case Management Statement. The Statement shall include, among mỏi other things, an update on the parties" mediation efforts & a good faith discovery plan with a proposed date for the cđại bại of all discovery.