Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-00081/USCOURTS-casd-3_15-cv-00081-0/pdf.json

Nature of Suit Code: 480
Nature of Suit: Consumer Credit
Cause of Action: 15:1692 Fair Debt Collection Act

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CHAD and COURTNEY PROVO,

Plaintiffs,

CASE NO. 15cv0081 JM(BGS)

ORDER GRANTING IN PART AND

DENYING IN PART MOTION TO

DISMISS 

vs.

RADY CHILDREN’S HOSPITALSAN DIEGO; and CMRE

FINANCIAL SERVICES, INC.,

Defendants.

Defendant CMRE Financial Services, Inc. (“CMRE”) movesto dismiss the First

Amended Complaint (“FAC”) for failure to state a claim. Plaintiffs Chad and Courtney

Provo oppose the motion. Defendant Rady Children’s Hospital - San Diego (“Rady”)

filed an answer on March 11, 2015, and did not file a response to the motion. Pursuant

to Local Rule 7.1(d)(1), the court findsthe matters presented appropriate for resolution

without oral argument. For the reasons set forth below, the court grants in part and

denies in part CMRE’s motion to dismiss.

BACKGROUND

The FAC, filed on February 5, 2015, alleges a single federal law claim for

violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et

seq., and a single state law claim for violation of California’s Fair Debt Collection

Practices Act (“Rosenthal Act”), Cal. Civil Code §188 et seq.. Plaintiffs’ claims arise

fromthe collection efforts of Defendants related to monies allegedly owed by Plaintiffs

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for the provision of medical services to Plaintiffs’ minor son in May 2013. (FAC ¶¶15

- 18). “Plaintiffs take no position with regard to the validity of the alleged debt that

Defendants have alleged is due and owing.” (FAC ¶17). 

On October 20, 2014, Plaintiffs provided Rady with a letter containing their

cellular telephone numbers and instructing Rady not to contact them by cellular phone,

only by writing. (FAC ¶20). In alleged violation of the FDCPA, Rady contacted

Plaintiff Courtney’s cellular telephone number. On or about December 29, 2014, Rady

“informed Plaintiffs that they had until January 12, 2015 to make a payment on the

outstanding balance before turning the matter over to collection.” (FAC ¶24). 

Shortly thereafter, on January 2, 1015, Plaintiffs received a letter informing them

that the Rady account had been sent to collections and CMRE “was now contacting

Plaintiffs for the purpose [of] collecting upon the alleged debt.” (FAC ¶25). The letter

also stated that “[o]ur client has given you all the extension of time they feel is

justified.” (FAC ¶28). Plaintiffs allege that the CMRE letter also wrongfully added

interest charges to the outstanding balance in violation of the FDCPA. (FAC ¶31).

Pursuant to Federal Rule of Civil Procedure 12(b)(6), CMRE now moves to

dismiss both claims. On February 3, 2015, CMRE filed an earlier motion to dismiss

the original complaint or, alternatively, for summary judgment. (Ct. Dkt. No. 3). After

Plaintiffs filed the FAC on February 6, 2015, the court denied CMRE’s first motion to

dismiss as moot. 

DISCUSSION

Legal Standards

Federal Rule of Civil Procedure 12(b)(6) dismissal is proper only in

"extraordinary" cases. United States v. Redwood City, 640 F.2d 963, 966 (9th Cir.

1981). Courts should grant 12(b)(6) relief only where a plaintiff's complaint lacks a

"cognizable legal theory" or sufficient facts to support a cognizable legal theory. 

Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Courts should

dismiss a complaint for failure to state a claim when the factual allegations are

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insufficient “to raise a right to relief above the speculative level.” Bell Atlantic Corp.

v. Twombly, 550 U.S. 544, 555 (2007) (the complaint’s allegations must “plausibly

suggest[]” that the pleader is entitled to relief); Ashcroft v. Iqbal, 556 U.S. 662 (2009)

(under Rule 8(a), well-pleaded facts must do more than permit the court to infer the

mere possibility of misconduct). “The plausibility standard is not akin to a ‘probability

requirement,’ but it asks for more than a sheer possibility that a defendant has acted

unlawfully.” Id. at 678. Thus, “threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice.” Id. The defect must appear

on the face of the complaint itself. Thus, courts may not consider extraneous material

in testing its legal adequacy. Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 (9th

Cir. 1991). The courts may, however, consider material properly submitted as part of

the complaint. Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542, 1555

n.19 (9th Cir. 1989). 

Finally, courts must construe the complaint in the light most favorable to the

plaintiff. Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 116

S. Ct. 1710 (1996). Accordingly, courts must accept as true all material allegations in

the complaint, as well as reasonable inferences to be drawn from them. Holden v.

Hagopian, 978 F.2d 1115, 1118 (9th Cir. 1992). However, conclusory allegations of

law and unwarranted inferences are insufficient to defeat a Rule 12(b)(6) motion. In

Re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996).

The Motion

Plaintiffs assert two theories supporting their claims. First, Plaintiffs claim that 1

it is a violation of FDCPA for a debt collector to collect interest payments from a

consumer based upon the original contract between the debtor and the original creditor. 

Second, Plaintiffs allege that the January 2, 2015 CMRE letter is false and misleading

The parties do not dispute that Plaintiffs are consumers, Plaintiffs’ debt is a

1

consumer debt, and CMRE is a third-party debt collector for purposes of the FDCPA. 

See 15 U.S.C. §1692. The parties only dispute the fourth element of a FDCPA claim: 

whether CMRE violated one of the provisions of the FDCPA.

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and in violation of the FDCPA and the Rosenthal Act.

The Interest Charges

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 NinthCircuitrecently rejected Plaintiffs’ theory ofliability. 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.

The pertinentstate laws are sections 3287 and 3289 ofthe California Civil Code.

Section 3287 allows recovery of prejudgment interest on debts under certain

circumstances: 

(a) Every person who is entitled to recover damages certain, or capable of

being made certain by calculation, and the right to recover which is vested

in him upon a particular day, is entitled also to recover interest thereon

from that day, except during which time asthe debtor is prevented by law,

or by the act of the creditor from paying the debt. This section is

applicable to recovery of damages and interest from any such debtor,

including the state or any county, city, city and county, municipal

corporation, public district, public agency, or any political subdivision of

the state.

(b) Every person who is entitled under any judgment to receive damages

based upon a cause of action in contract where the claim was

unliquidated, may also recover interest thereon from a date prior to the

entry of judgment as the court may, in its discretion, fix, but in no event

earlier than the date the action was filed.

Cal. Civ. Code §3287. Section 3289 provides that, in the absence of a contractual

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interest provision, “the obligation shall bear interest at a rate of 10 percent per annum

after a breach.” Cal. Civ. Code §3289. 

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.

2

In sum, the court grantsthe motion to dismiss this portion of the FDCPA and the

Rosenthal Act claims premised upon the alleged charging of interest.3

The Allegedly False and Misleading Letter

Plaintiffs contend that the January 2, 2015 CMRE letter contains two

misrepresentations. First, the letter placed the required Rosenthal Act disclosures on

the reverse side of the letter instead of on the first page. Second, one sentence

concerning the referral of the bill to collections “suggests that steps to force

involuntary payment are imminently forthcoming from the perspective of the least

sophisticated debtor.” (Oppo. at p.16:8-9).

a. The Rosenthal Act Disclosures

Plaintiffs do not dispute that the January 2, 2015 letter complies with the

The court notes that Plaintiffs do not dispute CMRE’s argument that state

2

contract law principles (i.e. rules of interpretation, assignment, etc.) govern the

relationship between the parties.

On May 20, 2015, Plaintiffs filed a non-opposition to this portion of their

3

claims. (Ct. Dkt. 21).

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Rosenthal Act in that it sets forth the required notice in substance and typeface. 

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.

Under section 1692e of the FDCPA, “[a] debt collector may not use any false,

deceptive, or misleading representation or means in connection with the collection of

any debt.” Courts apply the least sophisticated debtor test to determine whether the

challenged provision is “likely to deceive or mislead a hypothetical‘least sophisticated

debtor.’” Wade v. Regional Credit Ass’n, 87 F.3d 1098, 1100 (9th Cir. 1996). 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.

In sum, the court grants the motion to dismiss with prejudice that portion of the

FDCPA and Rosenthal Act claims premised upon the placement of the required

disclosures at the top of the second page.

b. The Allegedly Misleading Implied Threat Statement 

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 explain the manner in

which this statement may be misleading to the least sophisticated consumer:

When the original creditor told these least sophisticated debtors on

December 29, 2014 that they have until January 12, 2015 to pay the

alleged debt, but then the third party debt collector told them on January

2, 2015 that the original creditor has given them all the extensions it feels

is justified (which certainly implies that the original creditor has found

them to be in default), then of course the least sophisticated debtor would

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be misled and confused as to the actual due date of the alleged obligation

and would be misled and confused as to what consequences could result. 

The only reasonable conclusion that can be drawn from these

contradictions is that false and misleading statements have been uttered

by Defendant CMRE, and CMRE’s use of such false and misleading

statements is unfair and oppressive.

(Oppo. at p.23:7-16).

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. The least sophisticated consumer test “protects all

consumers, the gullible as well as the shrewd . . . the ignorant, the unthinking, and the

credulous.” Clark v. Capital Credit & Collection Services, Inc., 460 F.3d 1162, 1171

(9th Cir. 2006) (quoting Clomon v. Jackson, 988 F.2d 1314, 1318-19 (2d Cir. 1993)). 

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.

In sum, the court grants the motion to dismiss the claims premised upon the

interest charges with prejudice, grants the motion to dismiss the Rosenthal Act

disclosure claim with prejudice, and denies the motion to dismiss that portion of the

claims based, in part, upon the statement, “[o]ur client has given you all the extension

/ / /

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of time they feel is justified.”

IT IS SO ORDERED.

DATED: June 11, 2015

 Hon. Jeffrey T. Miller

 United States District Judge

cc: All parties

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