9th Cir. Holds FDCPA Preempts State Judgment Execution Laws

The U.S. Court of Appeals for the Ninth Circuit recently held that the federal Fair Debt Collection Practices Act preempted state judgment execution law insofar as it permitted debt collectors to execute on FDCPA claims.

In so ruling, the Court held that debt collectors cannot evade the restrictions of federal law by obtaining a collection judgment against the debtor, and then forcing the debtor’s FDCPA claims to be auctioned, acquiring the claims, and dismissing them.

A copy of this opinion Arellano v. Clark Cty. Collection Serv. is available at:  Link to Opinion.

The debtor incurred a medical debt, and then failed to pay it as agreed.  A debt collector sought to collect on that debt.  The debt collector sent the debtor a letter, along with a summons and state court complaint.  The complaint stated that the debtor could “[d]ispute the validity of this debt” within 30 days, but that failing to do so would result in a presumption of validity.  However, separately, in small print, the summons indicated that in order to defend the lawsuit, the debtor must file a formal written response with the court within 20 days.

The debtor filed suit and alleged that the debt collector had violated the FDCPA by stating that the debtor could dispute the debt within 30 days of receipt, when the actual summons required the filing of an answer within 20 days.

The debt collector obtained a state court judgment against the debtor for the outstanding medical debt, plus costs, prejudgment interest, and attorneys’ fees.  The debt collector then requested that the state court issue a writ of execution and direct the sheriff to collect all “claims for relief, causes of action, things in action, and choses in action in any lawsuit pending,” including the debtor’s rights in the FDCPA lawsuit.

The state court issued the writ.  The sheriff sold the debtor’s interests in the FDCPA lawsuit.  And, the debt collector acquired the debtor’s interests in the FDCPA lawsuit as the successful bidder.

The debt collector then moved to dismiss the FDCPA lawsuit for lack of standing.  The trial court granted the debt collector’s motion and dismissed the FDCPA lawsuit.  This appeal followed.

On appeal, the debt collector argued that because the FDCPA does not speak directly to the execution of claims, there can be no federal preemption.

As you may recall, federal law preempt state law where it directly conflicts with the state law.  Such conflict occurs when the operation of state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” or when it ”interferes with the methods by which the federal statute was designed to reach [its] goal.”

The Ninth Circuit rejected the debt collector’s argument and explained that conflict preemption exists where there is an actual conflict, even when Congress has not made an express statement of preemptive intent.

The Ninth Circuit then noted that the FDCPA’s purpose is “to protect vulnerable and unsophisticated debtors from abuse, harassment, and deceptive debt collection practices” and that section 1692n of the FDCPA does expressly preempt state laws “to the extent that those laws are inconsistent” with the FDCPA.

The Ninth Circuit found that the FDCPA preempted the state’s claim execution law insofar as it permitted debt collectors to execute on FDCPA claims.  The Ninth Circuit reasoned that to allow otherwise would thwart enforcement of the FDCPA and undermine its purpose.

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Patrick R. Tira is based in Maurice Wutscher's San Diego office, where he practices in the firm's Commercial Litigation, Consumer Credit Litigation, Business Formation and Transactions, Intellectual Property Litigation, and Employment Litigation groups. He has extensive litigation experience in matters involving a wide variety of complex real estate and business disputes, ranging from post-foreclosure evictions and real estate fraud to misappropriation of trade secrets claims and shareholder disputes. He is experienced in all stages of litigation and has recovered millions for his clients in judgments and arbitration awards. In addition to his success in the courtroom, Patrick advises internet and other technology companies, real estate investors, medical professionals, and other businesses on an array of transactional matters. For example, he has extensive experience counseling clients on entity formation, licensing and service-level agreements, real estate agreements, internal policies and procedures, and related matters. Patrick employs his litigation experience to appropriately structure internal policies and procedures, licensing and service-level agreements, ownership and other agreements, and also to anticipate where disputes may arise in the future. He strives to enable his clients to achieve their goals and to avoid potential litigation.