The People v. Persolve, LLC , 160 Cal. Rptr. 3d 841 ( 2013 )

Filed 8/15/13
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
THE PEOPLE,
F064571
Plaintiff and Appellant,
(Super. Ct. No. CV-269263)
v.
PERSOLVE, LLC. et al., OPINION
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Kern County. Stephen D.
Schuett, Judge.
Lisa S. Green, District Attorney, and John T. Mitchell, Deputy District Attorney,
for Plaintiff and Appellant.
Ellis Law Group, Mark E. Ellis and Andrew Steinheimer for Defendants and
Respondents.
-ooOoo-
Appellant, the People of the State of California, through the Kern County District
Attorney (the People), filed a civil law enforcement action against respondents, Persolve,
LLC (Persolve), a debt collection company, and Persolve‟s attorneys, Alaine Patti-Jelsvik
and Edit Alexandryan. The People alleged that respondents repeatedly violated
California‟s Rosenthal Fair Debt Collection Practices Act (California Act) and the
Federal Fair Debt Collection Practices Act (Federal Act). (Civ. Code, § 1788 et seq.; 15
U.S.C. § 1692 et seq.) Based on these allegations, the People set forth one cause of
action for violation of California‟s Unfair Competition Law. (Bus. & Prof. Code,
§ 17200 et seq.)
The issue on appeal is whether the People‟s complaint against Persolve and its
lawyers is barred by the litigation privilege. (Civ. Code, § 47, subd. (b).) The trial court
concluded that it was because the conduct alleged to be unlawful consisted of
communications and communicative acts related to judicial proceedings. Accordingly,
the trial court sustained respondents‟ demurrer to the complaint without leave to amend
and dismissed the action.
The People contend the litigation privilege does not bar the complaint because the
unfair competition law cause of action is predicated on violations of federal and state debt
collection laws. According to the People, an exception to the litigation privilege should
be recognized here because the California Act and the Federal Act are more specific than
the privilege and would be significantly or wholly inoperable if the privilege applied.
We agree with the People insofar as the conduct at issue is specifically prohibited
by the California Act and/or the Federal Act. The People‟s unfair competition law claims
that are based on such specifically prohibited conduct are not barred by the litigation
privilege. Therefore, the judgment will be reversed.
BACKGROUND
Since the appeal is from the sustaining of a demurrer without leave to amend, the
facts are derived from the complaint. This court must give the complaint a reasonable
interpretation and assume the truth of all material facts properly pleaded. (Aubry v. Tri-
City Hospital Dist. (1992) 2 Cal. 4th 962, 966-967.) The operative pleading is the third
amended complaint.
2.
Persolve is a debt collection company. Persolve purchases old, defaulted debt in
batches of 1,000 or more accounts at a time, for which it pays pennies on the dollar.
Thereafter, Persolve sends a letter to the debtors demanding payment. These letters are
sent to the debtors by Persolve‟s attorneys, Patti-Jelsvik and Alexandryan.
According to the People, the letters Persolve sends to debtors are misleading,
unlawfully threaten postjudgment remedies to which respondents are not entitled, and fail
to make full disclosures required by the California Act and the Federal Act. Specifically,
the People allege that Persolve: violated the Federal Act‟s prohibition against false and
misleading representations by failing to accurately apprise debtors of the total amount
required to settle the account (15 U.S.C. § 1692e); violated the verification requirement
by specifying conflicting time periods of both 30 and 10 days for the debtors to respond
to letters and by threatening legal action before the expiration of the required 30-day
period (15 U.S.C. § 1692g(a)); and violated provisions of the California Act and the
Federal Act by threatening to obtain attorney fees that Persolve was not entitled to (15
U.S.C. § 1692e; Civ. Code, § 1788.17). The People further allege that when Persolve
filed collection actions in the trial court, it published personal information about the
debtors, including social security numbers and driver‟s license numbers, in violation of
the California Act and the Federal Act.
Based on these alleged violations of the state and federal debt collection acts, the
People set forth a single cause of action for violation of the unfair competition law
against respondents.1 The People sought an injunction restraining respondents from
violating the California Act and Federal Act and orders requiring respondents to pay civil
penalties and restitution.
1 Only the person who owes the debt or is otherwise obligated to pay the debt has
standing to assert violations under the California Act and the Federal Act. (Civ. Code,
§§ 1788.2, subd. (h), 1788.30, subd. (a); 15 U.S.C. § 1692a(3); Sanchez v. Client
Services, Inc. (N.D. Cal. 2007) 520 F. Supp. 2d 1149, 1155, fn 3.)
3.
Respondents demurred to the complaint on the ground that every claim comprising
the cause of action for violation of the unfair competition law was barred by the litigation
privilege. The trial court agreed and sustained the demurrer without leave to amend. The
trial court noted the parties did not dispute that the complaint was based solely on
communications and communicative acts related to judicial proceedings and concluded
that no exception to the litigation privilege applied.
DISCUSSION
1. The Unfair Competition Law.
The unfair competition law forbids acts of “unfair competition.” “Unfair
competition” includes “any unlawful, unfair or fraudulent business act or practice.” (Bus.
& Prof. Code, § 17200.)
Because the unfair competition law is written in the disjunctive, it establishes three
varieties of unfair competition. The acts or practices may be unlawful, or unfair, or
fraudulent. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.
(1999) 20 Cal. 4th 163, 180 (Cel-Tech).) “„“In other words, a practice is prohibited as
„unfair‟ or „deceptive‟ even if not „unlawful‟ and vice versa.”‟” (Ibid.) For example, a
“fraudulent” practice does not refer to the common law tort of fraud. Rather, to state an
unfair competition law claim “one need only show that „members of the public are likely
to be deceived.‟” (Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254, 1267.)
“Unlawful” business activity under the unfair competition law, as is alleged in this
case, includes “„anything that can properly be called a business practice and that at the
same time is forbidden by law.‟” (Barquis v. Merchants Collection Assn. (1972) 7 Cal. 3d
94, 113.) Thus, the unfair competition law “„“borrows” violations of other laws and
treats them as unlawful practices‟ that the unfair competition law makes independently
actionable. [Citations.]” (Cel-Tech, supra, 20 Cal.4th at p. 180.) Accordingly, the unfair
competition law‟s scope is broad.
4.
However, the unfair competition law‟s scope is not unlimited. Courts may not
simply impose their own notions as to what is fair or unfair. (Cel-Tech, supra, 20 Cal.4th
at p. 182.) If the Legislature has permitted certain conduct or considered a situation and
concluded no action should lie, courts may not override that determination and declare
the conduct unfair. “When specific legislation provides a „safe harbor,‟ plaintiffs may
not use the general unfair competition law to assault that harbor.” (Ibid.) However, the
Legislature‟s mere failure to prohibit an activity does not prevent a court from finding it
unfair. Accordingly, while plaintiffs may not “„plead around‟” a “„safe harbor‟” by
recasting the cause of action as one for unfair competition, the “„safe harbor‟” must be
more than the absence of danger. (Id. at pp. 182, 184.) Here, the trial court found that
the litigation privilege under Civil Code section 47, subdivision (b), provided such a
“safe harbor” for respondents.
2. The litigation privilege.
A “publication or broadcast” made as part of a “judicial proceeding” is privileged
under Civil Code section 47, subdivision (b). In general, this privilege applies to any
communication that is made in judicial or quasi-judicial proceedings by litigants, or other
participants authorized by law, to achieve the objects of the litigation. Further, the
privilege covers communications that have some connection or logical relation to the
action. (Silberg v. Anderson (1990) 50 Cal. 3d 205, 212.) Thus, the privilege covers
communications made “to achieve the objects of the litigation, even though the
publication is made outside the courtroom,” including communications having some
relation to an anticipated lawsuit that is contemplated in good faith and under serious
consideration. (Silberg, supra, 50 Cal.3d at p. 212; Rubin v. Green (1993) 4 Cal. 4th
1187, 1194-1195 (Rubin).) Moreover, the privilege is absolute in nature, applying “„to
all publications, irrespective of their maliciousness.‟” (Action Apartment Assn., Inc. v.
City of Santa Monica (2007) 41 Cal. 4th 1232, 1241 (Action Apartment).)
5.
The purposes of the litigation privilege are to: afford litigants and witnesses free
access to the courts without fear of being harassed by later derivative tort actions;
encourage open channels of communication and zealous advocacy; promote complete
and truthful testimony; give finality to judgments; and avoid unending litigation.
(Rusheen v. Cohen (2006) 37 Cal. 4th 1048, 1063.) In other words, the privilege seeks to
encourage free access to the courts and finality of judgments by limiting tort claims
arising out of litigation-related misconduct and by favoring sanctions within the original
lawsuit. (Ibid.) Thus, the privilege bars tort claims other than for malicious prosecution.
It has also been interpreted to preclude constitutional and statutory causes of action.
(Komarova v. National Credit Acceptance, Inc. (2009) 175 Cal. App. 4th 324, 336-337
(Komarova).) Moreover, the litigation privilege applies to derivative suits brought by
parties who were not involved in the underlying litigation. (Action Apartment, supra, 41
Cal.4th at pp. 1247-1248.)
However, the litigation privilege is not without limit. (Action Apartment, supra,
41 Cal.4th at p. 1242.) Courts have found exceptions to the litigation privilege based on
irreconcilable conflicts between the privilege and other coequal state laws. (Id. at p.
1247.) For example, the litigation privilege does not apply to perjury, subornation of
perjury, false report of a criminal offense, and “„attorney solicitation through the use of
“runners” or “cappers.”‟” (Id. at p. 1246.) The recognition of these exceptions has been
guided by the “„rule of statutory construction that particular provisions will prevail over
general provisions.‟” (Ibid.) If a statute is more specific than the litigation privilege and
would be significantly or wholly inoperable if the privilege applied, the privilege will not
shield violations of that statute. (Ibid.)
Here, as found by the trial court, the communications upon which the complaint is
based were related to judicial proceedings. At a minimum, these communications had
some relation to anticipated litigation. Thus, the litigation privilege would generally
apply. The issue is whether the unfair competition law‟s “unlawful” business practice
6.
cause of action based on claimed violations of the California Act and the Federal Act can
be prosecuted under an exception to the litigation privilege.
3. The privilege does not apply to causes of action based on violations of the
California Act and the Federal Act.
One reported California case has addressed the interplay of the California Act and
the litigation privilege. (Komarova, supra, 175 Cal. App. 4th 324.) In Komarova, the
plaintiff filed a lawsuit against the defendant debt collection company based on the
defendant‟s abusive attempts to collect a debt the plaintiff did not owe. A jury found in
the plaintiff‟s favor and awarded damages for violations of the California Act and for
intentional infliction of emotional distress. On appeal, the defendant argued that
plaintiff‟s action was barred by the litigation privilege.
The Komarova court concluded that the litigation privilege cannot be used to
shield violations of the California Act. (Komarova, supra, 175 Cal.App.4th at p. 337.)
The court noted that conduct prohibited by the California Act, such as harassing phone
calls, would be negated by the privilege. Unfair debt collection practices could be
immunized merely by filing suit on the debt. (Id. at p. 340.) Since applying the privilege
to the California Act would effectively vitiate the law and render the protections it affords
meaningless, the court found the litigation privilege and the California Act could not be
reconciled. (Id. at pp. 338-339.) The court further observed that civil statutes for the
protection of the public, such as the California Act, should be interpreted broadly in favor
of that protective purpose. (Id. at p. 340.) Accordingly, the court held that the conduct
specifically prohibited by the California Act was excepted from the litigation privilege.
The court concluded that the California Act was the more specific statute and that the
California Act would be significantly inoperable if it did not prevail over the privilege
where the two conflict. (Id. at pp. 339-340.)
As to the claim for intentional infliction of emotional distress, the Komarova court
held that it was prohibited by the litigation privilege. The court noted that this claim was
7.
the very sort of derivative suit the privilege is meant to preclude. (Komarova, supra, 175
Cal.App.4th at p. 343.)
The Komarova analysis is equally applicable to the Federal Act. Conduct
specifically prohibited by the Federal Act would also be negated by the litigation
privilege. In fact, the California Act requires compliance with a number of the Federal
Act‟s provisions. (Civ. Code, § 1788.17.)
Respondents acknowledge the holding in Komarova and concede that the litigation
privilege would not bar a claim under the Federal Act but note that this case was not
brought under the California Act or the Federal Act. Rather, the People are prosecuting
this action under the unfair competition law. According to respondents, the unfair
competition law is broad in scope and thus is not more specific than the litigation
privilege.
Respondents are correct that certain unfair competition law actions are within the
scope of the litigation privilege. In Rubin, supra, 4 Cal. 4th 1187 the court held that a
plaintiff‟s attempt to prosecute a claim for an injunction under the unfair competition law
against the opposing side‟s attorneys for wrongfully soliciting the litigation against him
was barred by the litigation privilege. (Id. pp. 1203-1204.) Although solicitation by an
attorney is unlawful under the Business and Professions Code, the court found there was
no indication the Legislature intended to immunize causes of action under that statute
from traditional privileges. (Id. at p. 1201.) Moreover, the unfair competition law action
in Rubin was collateral to the lawsuit brought by the defendants against the plaintiff
where the defendants were represented by the attorneys against whom the plaintiff was
seeking an injunction. Thus, Rubin was a case of a retaliatory suit based on litigation-
related communications. The plaintiff could not use a different label for pleading what
was in substance an identical grievance arising from identical conduct as that protected
by the privilege. (Id. at p. 1203.)
8.
Similarly, in People ex rel. Gallegos v. Pacific Lumber Co. (2008) 158
Cal. App. 4th 950 (Gallegos), the court held that an unfair competition law action filed by
a district attorney on behalf of the state against a lumber company was barred as a matter
of law by the litigation privilege. This complaint was based on allegations that the
lumber company had intentionally misrepresented and concealed crucial facts during
California‟s Environmental Quality Act (CEQA) administrative proceedings. The court
concluded that, in the context of this allegedly fraudulent business practice, the unfair
competition law was not necessarily more specific than the litigation privilege and would
not be significantly or wholly inoperable if it were barred by the litigation privilege.
(Gallegos, supra, at p. 962.) The court further noted that the state was a party to the
CEQA proceedings and, even if it had not been, there is no broad exception to the
litigation privilege for parties who did not participate in the underlying litigation.
(Gallegos, supra, at pp. 960-961.)
Here, however, conduct underlying the unlawful business claim is specifically
prohibited by the Federal Act and the California Act. As noted above, the unfair
competition law “„“borrows” violations of other laws and treats them as unlawful
practices.‟” (Cel-Tech, supra, 20 Cal.4th at p. 180.) Where, as here, the “borrowed”
statute is more specific than the litigation privilege and the two are irreconcilable, unfair
competition law claims based on conduct specifically prohibited by the borrowed statute
are excepted from the litigation privilege. Applying the privilege to unlawful practices
based on specific violations of the California Act and the Federal Act would effectively
render the protections afforded by those acts meaningless. In contrast, in both Rubin and
Gallegos, the application of the litigation privilege did not render the prohibitions
underlying the unfair competition claims significantly or wholly inoperable. Civil
statutes for the protection of the public should be interpreted broadly in favor of their
protective purpose. Accordingly, the People‟s unfair competition law claims that are
based on conduct that is specifically prohibited by the California Act and/or the Federal
9.
Act are not barred by the litigation privilege. (Komarova, supra, 175 Cal.App.4th at pp.
339-340.)
DISPOSITION
The judgment is reversed and the matter remanded for further proceedings. Costs
on appeal are awarded to appellant.
_____________________
LEVY, Acting P.J.
WE CONCUR:
_____________________
GOMES, J.
_____________________
KANE, J.
10.