Demurrer (Judge Theodore C. Zayner)


Case Name: ??? Cavalry SPV I, LLC v. Amanda Portzel, et al.

Case No.:??????? 16-CV-292518

Currently before the Court is plaintiff and cross-defendant Cavalry SPV I, LLC?s (?Cavalry?) demurrer to the cross-complaint of defendant and cross-complainant Amanda Portzel (?Portzel?).

  1. Factual and Procedural Background

? ? ? ? ? ?On February 24, 2016, Cavalry filed its complaint against Portzel, in which it alleges that Portzel became indebted in the amount of $2,003.68 to its predecessor-in-interest, Synchrony Bank/Walmart (?Synchrony?), and failed to pay any and all amounts due. (Compl., ?? 18, 20, 25.) In addition, the complaint attaches an April 2015 account statement allegedly sent to Portzel. (Compl., Ex. A.) The complaint asserts two causes of action for open book account and account stated.

Portzel subsequently filed a motion to quash service of summons, which the Court denied on June 8, 2016.

On June 20, 2016, Portzel filed her cross-complaint, in which she alleges the following: On September 10, 2014, Synchrony received the last payment of the alleged debt and subsequently sold the debt to Cavalry for collection purposes. (Cross-Compl., ?? 14, 16.) Cavalry violated the California Fair Debt Buying Practices Act (the ?CFDBPA?) by filing a complaint that: (1) does not allege the nature of the underlying debt and the consumer transactions from which it is derived; (2) fails to provide an explanation of the amount, nature, and reason for all post-charge-off interest and fees; and (3) falsely states that Cavalry complied with Civil Code section 1788.52. (Cross-Compl., ?? 42-45.) In addition, Cavalry violated the federal Fair Debt Collection Practices Act (the ?FDCPA?), and the Rosenthal Fair Debt Collection Practices Act (?RFDCPA?) by: (1) making false, deceptive and misleading representations in an attempt to collect the debt; (2) misrepresenting the character, amount, or legal status of the debt; and (3) attempting to collect a consumer debt via a judicial proceeding after it knew that service of process was not legally effected. (Cross-Compl., ?? 54, 62.) The cross-complaint asserts three causes of action against Cavalry for: (1) violation of the CFDBPA; (2) violation of the FDCPA; and (3) violation of the RFDCPA.

On July 29, 2016, Cavalry filed the instant demurrer to the cross-complaint on the grounds of uncertainty and failure to state sufficient facts to constitute a cause of action. (See Code Civ. Proc., ? 430.10, subds. (e)-(f).) Portzel filed her opposition on August 25, 2016. On September 2, 2016, Cavalry filed its reply.

  1. Meet and Confer

Preliminarily, Portzel argues that Cavalry failed to meet and confer in person or by telephone before filing the instant demurrer as required by Code of Civil Procedure section 430.41. In its reply, Cavalry contends that it satisfied this requirement by sending Portzel?s counsel an e-mail.

?Before filing a demurrer ?, the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.? (Code Civ. Proc., ? 430.41, subd. (a), emphasis added.) During this process, the demurring party must identify all of the specific causes of action that it believes are subject to demurrer, the basis of the deficiencies, and legal support for its position. (Code Civ. Proc., ? 430.41, subd. (a)(1).) Should these efforts fail, the demurring party must file and serve a declaration detailing its efforts to meet and confer. (Code Civ. Proc., ? 430.41, subd. (a)(3).) If a demurring party fails to file the requisite declaration, the court may continue the hearing and order the parties to meet and confer. (Assem. Com. on Judiciary, Rep. on Sen. Bill No. 383 (2015-2016 Reg. Sess.), p. 2.)

Here, the statute requires Cavalry to ?meet and confer in person or by telephone?? and, therefore, Cavalry did not comply with this requirement by sending opposing counsel an e-mail. (Code Civ. Proc., ? 430.41, subd. (a).) Nevertheless, Portzel does not establish that she suffered any prejudice as a result of the failure to meet and confer in person or via telephone. Accordingly, in the interest of judicial economy, the Court will overlook this failure in this instance only. All parties are reminded to meet and confer in person or via telephone before filing any demurrer in the future.

III. Uncertainty

Cavalry demurs to each cause of action in the cross-complaint on the ground of uncertainty. ?A demurrer for uncertainty is strictly construed, even where a [pleading] is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.? (Khoury v. Maly?s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrer for uncertainty will be sustained only where the pleading is so incomprehensible that the opposing party cannot reasonably respond. (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.) Here, Cavalry does not articulate the basis for its contention that the complaint is uncertain. As such, the demurrer on this ground is OVERRULED.

  1. Failure to State Sufficient Facts
  1. First Cause of Action

The first cause of action is for violation of the CFDBPA. ?In enacting the Fair Debt Buying Practices Act, the Legislature observed that the collection of debt purchased by debt buyers had become a significant focus of public concern due to the inadequacy of requirements for documentation to be maintained by the industry in support of collection activities and litigation. Until January 1, 2014, state law did not prescribe the specific nature of documentation that a debt buyer must maintain and produce in a legal action on the debt. Documentation used to support the collection of a debt must be sufficient to prove the individual who is being asked to pay the debt is in fact the individual associated with the original contract or agreement, and that the amount of indebtedness is accurate.? (Unifund CCR, LLC v. Dear (2015) 243 Cal.App.4th Supp. 1, 12, fn. 1.)

As relevant to this action, the complaint brought by a debt buyer on consumer debt must allege the nature of the underlying debt and the consumer transaction or transactions from which it is derived, the debt balance at charge off, and an explanation of the amount, nature, and reason for all post-charge-off interest and fees, if any, imposed by the charge-off creditor or any subsequent purchasers of the debt. (Civ. Code, ? 1788.58, subd. (a)(2), (4).) In addition, the debt buyer must attach a copy of a contract or other document evidencing the debtor?s agreement to the debt. (Civ. Code, ?? 1788.52, subd. (b), 1788.58, subds. (a)(9), (b).) If the claim is based on debt for which no signed contract or agreement exists, the debt buyer must attach a copy of a document provided to the debtor while the account was active, demonstrating that the debt was incurred by the debtor. (Civ. Code, ?? 1788.52, subd. (b), 1788.58, subds. (a)(9), (b).)? For a revolving credit account, the most recent monthly statement recording a purchase transaction, last payment, or balance transfer shall be deemed sufficient to satisfy the requirement. (Civ. Code, ?? 1788.52, subd. (b), 1788.58, subds. (a)(9), (b).) A debt buyer who violates any of these provisions is liable for actual damages, statutory damages, attorney?s fees, and court costs. (Civ. Code, ? 1788.62, subds. (a), (c).)

Cavalry first argues that it complied with Civil Code sections 1788.52, subd. (b) and 1788.58, subdivision (b) because it attached Portzel?s final billing statement to the complaint. In opposition, Portzel claims that Cavalry did not comply with the statute because the attached statement is not the most recent monthly statement recording a purchase transaction, payment, or balance transfer and was never provided to her. The cross-complaint, however, does not allege any of these facts. Instead, in merely states that the complaint ?fails to contain an attached copy of the contract or other document described in subdivision (b) of Section 1788.52?.? (Cross-Compl., ? 45.) This allegation is conclusory and therefore insufficient on its own to support a cause of action. (See Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525 [stating that a demurrer does not admit contentions, deduction or conclusions of fact or law].) Nevertheless, this allegation only forms the basis of a portion of this cause of action. As such, Portzel?s failure to allege a violation of Civil Code sections 1788.52, subd. (b) and 1788.58, subd. (b) does not render the first cause of action subject to demurrer. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2003) 108 Cal.App.4th 1028, 1047 [stating that ?[a] demurrer cannot rightfully be sustained to part of a cause of action…?]; PH II, Inc. v. Sup. Ct. (1995) 33 Cal.App.4th 1680, 1682-1683 [same].)

Next, Cavalry claims that it complied with Civil Code section 1788.58, subdivision (a)(2) because paragraph 5 of the complaint states the nature of the underlying debt and the consumer transaction or transactions from which it is derived. This argument is not well-taken because the complaint does not, in fact, contain a paragraph 5. In its reply, Cavalry acknowledges that this paragraph was omitted due to a clerical error and states, without any citation to authority, that such an error may not form the basis of a cause of action for violation of the CFDBPA. This argument is not persuasive. The CFDBPA specifically addresses a debt buyer?s liability for this type of violation in Civil Code section 1788.62, subdivision (e), which provides that ?[a] debt buyer shall have no civil liability under this section if the debt buyer shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error, and occurred notwithstanding the maintenance of procedures reasonably adopted to avoid any error.? Here, the cross-complaint does not disclose that the alleged violation was not intentional, resulted from a bona fide error, and occurred notwithstanding the maintenance of procedures reasonably adopted to avoid any error. (See Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994 [stating that the court may only consider the pleadings and facts subject to judicial notice in ruling on a demurrer].) As such, Portzel states a cause of action for the violation of the CFDBPA due to the omission of paragraph 5. Accordingly, the first cause of action is not subject to demurrer on this basis.

Finally, Cavalry argues that it complied with Civil Code section 1788.58, subdivision (a)(4) because the complaint alleges the debt balance at charge off and does not seek any post-charge-off interest or fees. In opposition, Portzel persuasively argues that the complaint seeks post-charge-off fees or interest as it requests not only the principal amount of debt but also ?any and all applicable costs, fees, and/or interest, for a balance due on an account stated for money paid, lines of credit extended, and/or funds expended by or for [Cavalry].? (Compl., ? 26.) Since the complaint does not explain the amount, nature, or reason for these fees and/or interest, the first cause of action is not subject to demurrer on this basis either.

In light of the foregoing, the demurrer to the first cause of action on the ground of failure to state sufficient facts to constitute a cause of action is OVERRULED.

  1. Second and Third Causes of Action

The second and third causes of action are for violation of the FDCPA and RFDCPA. To allege a claim under the FDCPA or the RFDCPA, a plaintiff must establish that (1) the plaintiff is a consumer; (2) the debt arises out of a transaction primarily for personal family or household purposes; (3) the defendant is a debt collector; and (3) the defendant violated a provision of the respective acts. (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 997; see also Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29, 36 [stating that the RFDCPA incorporates the FDCPA?s standards].) One such provision of the RFDCPA prohibits a debt collector from collecting or attempting to collect ?a consumer debt by means of judicial proceedings when the debt collector knows that service of process, where essential to jurisdiction over the debtor or his property, has not been legally effected.? (Civ. Code, ? 1788.15.) In addition, it is well-established that ?sewer service,? that is, ?failing to serve a debtor and filing a fraudulent affidavit attesting to service so that when the debtor later fails to appear in court, a default judgment is entered against him? constitutes a violation of the FDCPA. (Freeman v. ABC Legal Services Inc. (N.D. Cal. 2011) 827 F.Supp.2d 1065, 1068, fn. 1, 1075; Holmes v. Electronic Document Processing, Inc. (N.D. Cal. 2013) 966 F.Supp.2d 925, 935; Long v. Nationwide Legal File & Serve, Inc. (N.D. Cal., Sept. 17, 2013, No. 12-CV-03578-LHK) 2013 WL 5219053, at *14-15.)

Cavalry contends that the second and third causes of action fail because they are based on the alleged improper service of the complaint and the Court previously denied Portzel?s motion to quash service of the summons. As such, Cavalry argues that the Court?s ruling precludes Portzel from asserting causes of action based on the insufficient service of process.

Under the issue preclusion component of res judicata, a prior judgment operates as an estoppel or conclusive adjudication as to issues in the second action that were actually litigated and determined in the first action. (South Sutter, LLC v. LJ Sutter Partners, L.P. (2011) 193 Cal.App.4th 634, 660?661.) To establish this defense, a party must demonstrate that: (1) the issue is identical to that decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the issue was necessarily decided in the prior proceeding; (4) there is a final decision on the merits; and (5) the party against whom the defense is asserted was a party or in privity with a party to the prior proceeding. (Id. at pp. 661-662.) Ordinarily, issue preclusion does not apply to motion proceedings where the parties are not permitted to produce oral testimony, compel depositions, or cross-examine witnesses. (Groves v. Peterson (2002) 100 Cal.App.4th 659, 667-668.) However, preclusion may apply if the record of the prior proceedings shows the moving party was in fact given a hearing on the motion that was the equivalent of a trial with oral testimony. (Id. at p. 668.)

Here, Cavalry makes no attempt to establish that each of the elements of issue preclusion apply. As such, the demurrer to the second and third causes of action is not well-taken on this basis alone. (See Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166 [declining to determine whether preclusion barred a claim where defendant failed to develop one of the elements of the defense].) In any event, even if Cavalry did address these elements, it does not demonstrate that the hearing on the motion to quash was the equivalent of a trial with oral testimony. (See Groves, supra, 100 Cal.App.4th at p. 668.) As such, Cavalry fails to establish that issue preclusion is applicable under these circumstances.

In light of the foregoing, the demurrer to the second and third causes of action on the ground of failure to state sufficient facts to constitute a cause of action is OVERRULED.