ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTIONS TO DISMISS; GRANTING PLAINTIFFS’ MOTION FOR LEAVE TO FILE AMENDED CONSOLIDATED COMPLAINT
I. INTRODUCTION
In 1985, the California Legislature created a misdemeanor diversion program to address the growing problem of accused bad check writers inundating the state’s criminal courts. Cal. Pen.Code § 1001.60 et seq. The diversion program is intended to provide a feasible alternative to criminal prosecution by offering bad check writers a chance to pay their debts and clear the incident reports against them without risking criminal prosecution. Santa Clara County adopted the program, and District Attorney George Kennedy (“District Attorney”) subsequently contracted with American Corrective Counseling Services, Inc. (“ACCS”) to run the Santa Clara County Bad Check Restitution Program (“Bad Checks Program”).
Plaintiffs bring this class action alleging, inter alia, that Defendants engaged in a pattern of behavior in implementing the diversion program that violate their due process under the Fourteenth Amendment, 42 U.S.C. § 1983, and the California Constitution, the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, as well as other related state statutory and tort laws.
Presently before the Court are three separate motions to dismiss: 1) Defendants’ Motion to Dismiss pursuant to Fed. R. Civ. Pro. 12(b)(6) (See Docket Item No. 200); 2) Defendant American Corrective Counseling Services, Inc.’s Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(1) (See Docket Item No. 211); and 3) Individual Defendants’ Motion to Dismiss Plaintiffs’ Consolidated Complaint pursuant to Fed. R. Civ. Pro. 12(b)(6) (See Docket Item No. 214). The Court conducted a hearing on July 10, 2006. Based on the papers filed to date and oral arguments of counsel, the Court GRANTS in part and DENIES in part Defendants’ motions.
On October 10, 2006, Plaintiffs also filed a Motion for Leave to File Amended Consolidated Complaint Adding Representa
II. BACKGROUND
Plaintiffs are Elena del Campo (“del Campo”), Ashorina Medina (“Medina”), Miriam R. Campos and Lisa Johnston (collectively, “Plaintiffs”). Defendants are: American Corrective Counseling Services, Inc. (“ACCS”), Don R. Mealing (“Meal-ing”) 1 , Lynn Hasney (“Hasney”) 2 , Bruce D. Raye (“Raye”) 3 , Mr. Green, R.D. Davis, Mr. Kramer, Mrs. Lopez, 4 (collectively “Individual Defendants”), Inc. Fundamentals (“Fundamentals”), Fundamental Performance Strategies (“Strategies”), Fulfillment Unlimited (“Fulfillment”), ACCS Administration (“ACCS Admin.”), Inc., (collectively “ACCS Defendants”) and George Kennedy in his official capacity as the Santa Clara County District Attorney (“District Attorney”) (all defendants collectively “Defendants”).
A. Basic Allegations
Plaintiffs allege the following:
Defendants engaged in a pattern of behavior in implementing the diversion program that violate Plaintiffs’ constitutional and statutory rights. This pattern begins when bounced checks are referred to Defendants from various retail merchants for collection. (Consolidated Complaint, hereafter, “Compl.” ¶¶ 69-70, Docket Item No. 196.) The merchants originally refer checks to the District Attorney, who then decides whether or not the check writer should be referred to the diversion program. Upon referral, ACCS Defendants instruct the merchants not to communicate with Plaintiffs. ACCS Defendants also send Plaintiffs a letter purporting to be from the Santa Clara District Attorney’s Bad Check Restitution Program. The letter explains that Plaintiffs can avoid criminal prosecution for allegedly violating California Penal Code 476(a) by enrolling in the optional Bad Checks Program, without any admissions of guilt. (Compl. ¶¶ 72-73; Ex. 1.) The letter also instructs Plaintiffs to make checks out to the Bad Checks Program, listing fees currently owed from their bounced check, an administration fee of $35, and the diversion program fee. (Compl. ¶¶ 36, 45, 50, 56, 59; Exs. 1, 4, 6, 8, 9,11 & 12.)
After receiving the letter, Plaintiffs either 1) tendered payments toward satisfying the original dishonored check, 2) tendered payments for the original check and the administration fee, or 3) did not send in any payment at all. (Compl. ¶¶ 34-68.) ACCS Defendants kept a portion of any payments tendered and informed the merchant that Plaintiffs tendered less than the full amount of the bounced check. As a result, Plaintiffs have not satisfied their debts to the merchants.
Id.
In all instances,
Plaintiffs were subsequently sent additional letters from ACCS Defendants. The letters: 1) indicated that Plaintiffs have failed to respond to the previous letters; 2) reiterated that Plaintiffs had the option of enrolling in the Bad Checks Program and paying the balance of their “cases;” and 3) warned them that failure to comply could result in the District Attorney filing a criminal complaint. In all cases, Plaintiffs have not paid the full amounts ACCS Defendants claim they owe, nor have any of the Plaintiffs been prosecuted for writing bad checks. Id.
Plaintiffs allege eight claims: violation of 1) Due Process under the Fourteenth Amendment, 42 U.S.C. § 1983 (“§ 1983”), 2) Due Process under the California Constitution, Article I, Section 7 (“Art. I, § 7”), 3) California Constitution, Article I, Section 1, 4) Fair Debt Collection Practices Act, 15 U.S.C. § 1692 (“FDCPA”), 5) California Unfair Business Practices Act, Cal. Bus. & Prof.Code §§ 17200 et seq. (“§ 17200”) and for 6) conversion, 7) fraudulent misrepresentation, and 8) negligent misrepresentation.
B. Procedural History
This case is a consolidated case between del Campo v. Kennedy, Case No. 01-21151 JW and Medina v. Mealing, Case No. 03-2611 JW. In the original suit, Plaintiff del Campo filed a class action against the Defendants for violations of her Due Process rights pursuant to §■ 1983 and Art. I, § 7. Plaintiff del Campo also alleged violations of the FDCPA and § 1700. Upon Defendants’ motion, the Court dismissed del Campo’s § 1983 and Art. I, § 7 causes of action with prejudice based on her failure to state a claim. In Medina v. Mealing, Plaintiff Medina also filed a class action against the Defendants for violations of § 1983 and Art. I § 7. . On February 1, 2006, the Court consolidated Plaintiffs’ cases into the present action. (Order Granting Motion to Consolidate Case, Docket Item No. 161.)
Before the Court are three separate motions to dismiss. All Defendants move to dismiss Plaintiffs’ allegations that they violated § 1983 and Art. I, § 7. Defendants Mealing, Hasney, Fundamentals, Strategies, and Fulfillment (“Individual Defendants”) move to dismiss all eight of Plaintiffs’ causes of action. ACCS also filed a separate motion to dismiss all eight of Plaintiffs’ claims against them on jurisdictional grounds.
III. STANDARDS
A. Dismissal Pursuant to 12(b)(1)
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides for a motion to dismiss for lack of subject matter. It is a fundamental precept that federal courts are courts of limited jurisdiction. Limits upon federal jurisdiction must not be disregarded or evaded.
Owen Equipment & Erection Co. v. Kroger,
B. Dismissal Pursuant to 12(b)(6)
A complaint may be dismissed for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). A claim may be dismissed as a matter of law for “(1) lack of a cognizable legal theory or (2) insufficient facts under a cognizable legal theory.”
Robertson v. Dean Witter Reynolds, Inc.,
IV. DISCUSSION
Defendants’ motions to dismiss focus primarily on Plaintiffs’ First, Second, Fourth and Seventh claims. Defendants ACCS and the District Attorney additionally move for dismissal of the complaint based on jurisdictional grounds.
A. State Immunity
The District Attorney and ACCS Defendants contend that they are entitled to immunity under the Eleventh Amendment of the United States Constitution.
The Supreme Court has held that the purpose of the Eleventh Amendment is to protect state sovereignty and that the Constitution never contemplated allowing federal jurisdiction over uncon-senting states.
See Seminole Tribe v. Florida,
1. District Attorney
The question in this case is whether the District Attorney was acting as a prosecutor when fashioning the diversion program and is thus entitled to Eleventh Amendment Immunity.
It is widely recognized that the district attorney in California fulfills the dual role of a county and state official.
See Ceballos v. Garcetti,
The California Supreme Court has held that when the district attorney is acting as a prosecutor he is doing so on behalf of the state and immunity applies.
Pitts,
Plaintiffs’ main allegations of liability rest on the District Attorney’s methods of contracting with the ACCS Defendants to administrate the Bad Checks Program. Specifically, Plaintiffs allege that the District Attorney violated their constitutional rights by allowing ACCS “blanket authorization [ ] to conduct the Bad Check Restitution Program in the District Attorney’s name without providing any meaningful supervision of, or control over, ACCS’s actions.” Plaintiffs allege that the District Attorney also allows the ACCS Defendants to send form letters in his name without knowing the contents of these letters. (Compl. ¶ 82-83.) The Court looks at the history of diversion programs and the statute at issue, California Penal Code § 1001.60, to determine whether these are state or county programs and thus, whether the District Attorney was acting as a prosecutor or a county policymaker.
In 1982, the legislature enacted two separate statutory schemes authorizing local entities to adopt various versions of a pretrial misdemeanor program codified in Title 6, Part 2 of the Penal Code. The first scheme, Title 6, Chapter 2.7, sections 1001 to 1001.9 (“Ch. 2.7”) is not directly at issue here. The second scheme, Chapter 2.9, sections 1001.50 to 1001.75 (“Ch. 2.9”) is the diversion program. Both chapters are local option schemes that leave the decision to implement such diversion programs to the county board of supervisors, conditioned on the approval of the district attor
In this case, the District Attorney’s decisions to contract with ACCS and in structuring the distribution of work between his office and ACCS in running the Bad Checks Program are purely administrative decisions that have no connection to the District Attorney’s role as a prosecutor. Those actions have no bearing on a District Attorney’s responsibilities in “prosecuting a crime, preparing to prosecute, or creating policies or training officials in this area.”
Pitts,
Based on the facts alleged and an examination of the state laws and legislative history of diversion programs, the Court finds that the District Attorney was not acting as a prosecutor but as a county policymaker in implementing certain aspects of the diversion program. As such, he is not entitled to absolute immunity for acting in his prosecutorial capacity as a state actor. The Court has jurisdiction to determine Plaintiffs’ claims against the District Attorney for his alleged actions in implementing the diversion program and contracting with ACCS Defendants to administrate it.
2. ACCS Defendants
The ACCS Defendants contend even if the District Attorney does not have immunity, they have separate immunity based on their status as “an arm of the state.”
Courts have extended Eleventh Amendment immunity to a private corporation when the corporation is determined to be an “arm of the state.”
See U.S. ex rel. Barron v. Deloitte & Touche, LLP,
In this case, ACCS Defendants contend that even as private corporations, they were acting on behalf of the state in implementing the diversion program. The Court has already determined that the diversion program in Santa Clara County is a county program and not a state program. The language and history of the statute clearly indicate that the legislature intended for the diversion program to be a county program.
See Davis,
B. First and Second Claims: Fourteenth Amendment, 42 U.S.C. § 1983 and California Constitution Art. 1, § 7
Defendants move to dismiss Plaintiffs’ 'claims that the diversion program violates the Fourteenth Amendment, 42 U.S.C. § 1983, and the California Constitution, Art. I, § 7, based on res judicata.
The doctrine of res judicata provides that a final judgment on the merits bars parties or their privies from raising additional claims on the same cause of action.
Stratosphere Litig. LLC v. Grand Casinos, Inc.,
The Court had previously dismissed Plaintiff del Campo’s claims against Defendants for violations of § 1983 and Art. I, § 7 with prejudice. The Court held that Plaintiff del Campo failed to state a claim that her Due Process rights were violated by Defendants because the diversion program was optional and Defendants clearly indicated and reiterated the optional aspect of the program. (Order Granting in Part and Denying in Part Defs.’ Motion to Dismiss (“Order”) at 5, Docket Item No. 23.) Additionally, if Plaintiff del Campo had chosen not to participate in the program, she would still have been entitled to a hearing had the District Attorney opted to prosecute her in municipal court. Id.
Second, Plaintiffs contend that res judicata should not apply because the Medina Plaintiffs are not in privity with Plaintiff del Campo. The Ninth Circuit has held that res judicata may also be applicable to persons not originally party to the suit if there is sufficient privity to the original plaintiffs of the first suit.
Irwin v. Mascott,
Finally, Plaintiffs attempt to save their Due Process claims by alleging in their Consolidated Complaint that Defendants violated the Equal Protection Clause of the Fourteenth Amendment. This claim necessarily fails since it is premised on the assumption that Plaintiffs were forced to pay a fee to avoid prosecution regardless of their ability to pay. (Compl. ¶ 110.) Since the Court has already found that Plaintiffs had the option of enrolling in the diversion program, Plaintiffs also had the option of paying the additional fees to enroll in the diversion program. Defendants’ conduct did not violate the Equal Protection Clause of the Fourteenth Amendment.
The Court finds that there was privity and a final judgment with respect to the Due Process claims and therefore, res ju-dicata applies. Plaintiffs’ Due Process claims under the Fourteenth Amendment and Art. 1, § 7 of the California Constitution against all Defendants are DISMISSED with prejudice.
C. Fourth Claim: Fair Debt Collection Practices Act
ACCS and the Individual Defendants move to dismiss Plaintiffs’ FDCPA claim,
6
contending that 1) criminal restitution is not “debt” and efforts to recover such restitution are not “debt collection” and 2) the individuals cannot be held personally liable as a matter of law since the Consoli
Congress enacted the FDCPA to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). “Debt” is defined as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5). A “debt collector” is defined as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6).
The Court proceeds to address Defendants’ contentions in light of these broadly worded provisions of the FDCPA.
1. The ACCS Defendants
The Court is satisfied that Plaintiffs’ obligations to honor checks written to pay for “personal, family, or household purposes” qualify as “debt” within the definition of § 1692a(5). The Court finds that ACCS is a private actor attempting to take action to collect a debt against private individuals in order to compensate third party creditors, and thus, is bound by the requirements of the FDCPA.
See, e.g., Liles v. ACCS,
2. The Individual Defendants
The Court finds that the Individual Defendants’ contentions ignore established case law in this area. Courts have held that under the plain language of the FDCPA, an individual can be considered a “debt collector” and be held personally liable without piercing the corporate veil for those acts if the individual materially participated in the debt collection activities.
See Brumbelow v. Law Offices of Bennett and Deloney, P.C.,
In cases relied upon by Defendants, only the Seventh Circuit has founded that an individual cannot be held liable for violations of FDCPA unless the corporate veil has been pierced.
White v. Goodman,
In this case, Plaintiffs base the Individual Defendants’ liability on allegations that they were actively engaged in debt collecting behavior through their direct management of ACCS and thus, have materially participated in debt collection activities. The Court had previously held that Plaintiffs have sufficiently alleged a claim against ACCS for violations of the FDCPA. (Order at 6-7.) By extension, the question of liability turns on whether the Individual Defendants’ activities were sufficient to be considered “material participation.” This is a question of disputed fact that cannot be disposed of at this stage of the litigation. The Court DENIES the Individual Defendants’ motion to dismiss Plaintiffs’ Fourth Claim.
D. Seventh Claim: Fraudulent Misrepresentation
The Individual Defendants contend that Plaintiffs have failed to plead fraud with particularity as required under Rule 9(b) of the Federal Rules of Civil Procedure. 8
Rule 9(b) provides that “in all averments of fraud ... the circumstances constituting fraud ... shall be stated with particularity.” Fed.R.Civ.P. 9(b). However, this heightened level of fraud pleading is read “in harmony” with Rule 8(a)’s “short and plain” statement requirement.
Michaels Bldg. Co. v. Ameritrust Co., N.A.,
However, there is an exception in cases of corporate fraud where the false and misleading information is conveyed in the form of a “group published document” and a plaintiff alleges that the defendants “either participated in the day-to-day corporate activities, or had a special relationship with the corporation.”
Decker v. GlenFed, Inc. (In re GlenFed, Inc., Sec. Litig.),
In this case, while the circumstances of fraud have been pled with sufficiency, Plaintiffs have not specifically attributed the fraudulent activity to each of the Individual Defendants in their Consolidated Complaint. However, Plaintiffs have alleged that Defendants’ form letters constitute the fraudulent circumstances. The Court finds that by applying the “group published document theory,” Plaintiffs have met the requirements of Rule 9(b). The form letters are allegedly produced by ACCS in the course of business and constitute the alleged fraudulent misrepresentation. Plaintiffs have sufficiently pled that Defendants Mealing and Hasney were involved in the day-to-day operations and had complete control of ACCS and the other corporate Defendants. (Compl. ¶¶ 9-10, 15-21, & 24.) Even if form letters are akin to analyst reports and oral statements, the reasoning in those cases does not apply to form letters. For example, with respect to the analyst reports, courts have held that since one would have to presume that the individual defendant provided the false information to the analyst, it cannot be considered a “group published document” to alleviate the pleading burden.
In re Network Equip. Technologies, Inc.,
V. CONCLUSION
The Court GRANTS in part and DENIES in part Defendants’ Motions to Dismiss as follow:
1. All federal claims for violations of Due Process under 42 U.S.C. § 1983 and Article I, § 7 of the California Constitution — Plaintiffs’ First and Second Claims — against all Defendants are DISMISSED with prejudice.
2. The ACCS Defendants’ motion is otherwise DENIED.
3. It does not appear to the Court that Plaintiffs’ Third, Fifth, Sixth, Seventh and Eight Claims are asserted against the District Attorney. Accordingly, the Court DISMISSES District Attorney George Kennedy from the case. To avoid confusion, future filings shall be captioned as: “Elena del Campo, et al. v. American Corrective Counseling Services, Inc., et al.”
Additionally, the Court GRANTS Plaintiffs’ Motion for Leave to File an Amended Consolidated Complaint Adding Representative Plaintiff as follows:
1. The Court’s ruling on all of Defendants’ motions shall apply to the Amended Consolidated Complaint and all named Plaintiffs.
2. The Amended Consolidated Complaint shall not contain any claims that have been dismissed with prejudice.
3. The Amended Consolidated Complaint shall not contain any claims against any Defendants who have been dismissed with prejudice.
4. The Amended Consolidated Complaint shall clearly identify which claims are asserted against which Defendants.
5. The Amended Consolidated Complaint shall be filed no later than twenty (20) days from the date of this Order.
Notes
. Defendant Mealing, as alleged, is or was employed as President of ACCS.
. There is no allegation as to who Defendant Raye is or was.
. Defendant Hasney, as alleged, is or was employed by ACCS as Executive Vice President of Operations.
. The docket reflects that Defendants Green, Davis, Kramer and Lopez have not been served.
. Although the legislature labeled the district attorney a "prosecutor” in giving him the approval power over the implementation of diversion programs, this does not necessarily indicate that the alleged acts fall within the district attorney’s prosecutorial role. Courts cannot rely merely on a label. Instead, the proper analysis requires a review of state law and the function the district attorney fulfills.
McMillian,
. ACCS Defendants filed a Joinder of Motion with the Individual Defendants' Motion to Dismiss. (See Docket Item No. 214.)
. The District Attorney is exempted from liability under the FDCPA.
. Individual Defendants did not identify in their motion which of Plaintiffs’ claim they are addressing. The Court assumes Defendants are referring to Plaintiffs' fraudulent misrepresentation claim.