Newton v. American Debt Services, Inc
3:11-cv-03228
N.D. Cal.Dec 16, 2014Background
- Plaintiff Heather Newton filed a putative class action alleging California and federal law violations related to debt-settlement services.
- Global and RMBT remain as defendants after ADS and QSS defaulted; other defendants have been dismissed or defaulted.
- Newton alleged RMBT violated California’s UCL by breaching a 2009 FDIC Cease and Desist Order; she also alleged aiding-and-abetting of Proraters Law violations by Global and RMBT.
- The FDIC Order required RMBT to overhaul third-party risk practices for debt-settlement partners and monitor related compliance; the FDIC never pursued enforcement in court.
- Newton’s funds were held in a RMBT Special Purpose Account; some funds were disbursed to creditors, with defendants retaining the remainder.
- The court previously denied some claims, granted others, and Newton’s second amended complaint repleaded the Proraters Law claims which survived summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FDIC Order can support UCL unlawful prong | Newton asserts RMBT violated the FDIC Order, making the conduct unlawful under UCL. | RMBT contends the FDIC Order is not an independent law that can be borrowed for UCL liability and cannot be enforced by this court. | Yes for RMBT: unlawful prong cannot borrow the FDIC Order; barred. |
| Whether FDIC Order can support UCL unfair prong | Newton argues ongoing RMBT relationships with co-defendants are unfair, predicated on violating the FDIC Order. | RMBT argues UCL cannot enforce the FDIC Order via the unfair prong for lack of jurisdiction. | Yes for RMBT: unfair prong cannot borrow the FDIC Order; barred. |
| Whether FDIC Order can support UCL fraudulent prong | Newton contends RMBT’s alleged misrepresentation or concealment related to the FDIC Order constitutes fraud under UCL. | RMBT argues absence of response defeats fraudulent-prong liability and enforcement issues due to lack of jurisdiction. | Granted for RMBT: fraudulent prong predicated on FDIC Order dismissed; plaintiff conceded. |
| Whether RMBT and Global may be liable for aiding-and-abetting Proraters Law violations | Newton contends Global and RMBT aided and abetted ADS/QSS’s Proraters Law violations. | RMBT and Global contend there is no aiding-and-abetting UCL liability for Proraters violations. | Denied: aiding-and-abetting claims may proceed; court previously rejected this defense. |
Key Cases Cited
- Saunders v. Superior Court, 28 Cal. Rptr. 2d 1 (Cal. 1993) (UCL borrowing of other laws explained)
- Zhang v. Superior Court, 57 Cal. 4th 384 (Cal. 2013) (UCL unlawful prong may borrow common-law obligations)
- Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163 (Cal. 1999) (limits on borrowing laws for UCL liability)
- Rex v. Chase Home Finance LLC, 905 F. Supp. 2d 1111 (C.D. Cal. 2012) (Section 1818(i)(1) no bar to non-parties’ remedies; enforcement stays with regulator)
- In re JPMorgan Chase Mortgage Modification Litigation, 880 F. Supp. 2d 220 (D. Mass. 2012) (comparator on enforcement of consent orders vs. independent claims)
- CRST Van Expedited, Inc. v. Werner Enterprises, Inc., 479 F.3d 1099 (9th Cir. 2007) (unlawful prong broad interpretation under UCL)
- Hewlett v. Squaw Valley Ski Corp., 54 Cal. App. 4th 499 (Cal. App. 1997) (TRO borrowing for unlawful UCL permissible in some contexts)