Johnson v. GC Services Inc.

FRANKIE JANE JOHNSON, Plaintiff, v. GC SERVICES, INC. Defendant. No. C-96-4370 SC United States District Court Northern District Filed April 25, 1997
I. INTRODUCTION         In this action, plaintiff Frankie Jane Johnson ("Johnson") alleges that defendant GC Services, Inc. (hereinafter "GC Services") violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 ("FDCPA"), California's Robbins-Rosenthal Fair Debt Collection Practices Act, Civil Code § 1788, and California's Unfair Business Practices Act, Business and Professions Code § 17200, by engaging in abusive and unfair collection practices. GC Services now moves the court to dismiss Johnson's claim pursuant to Federal Rule of Civil Procedure 12(b)(6).

II. BACKGROUND         On December 4, 1995, GC Services sent Johnson a letter in connection with its effort to collect on a dishonored check drawn on Johnson's account in the amount of $180.20. The letter informed Johnson that her dishonored check was the basis of a collection effort, and that prompt payment of her debt was required to avoid "further collection activity."
        Johnson forwarded three documents to GC Services in response to the collection letter: 1) a letter from her bank explaining that the check at issue was part of a box of checks that had been stolen from her mailbox; 2) a letter from Johnson explaining that the box of checks had been stolen and that the check at issue had been forged; and 3) a copy of a police report recording the theft of the checks. According to GC Services' motion to dismiss, there was no further contact between the parties.
        On December 3, 1996, Johnson filed her complaint against GC Services. GC Services now moves to dismiss Johnson's action for failure to state a claim under Rule 12(b)(6).

III. DISCUSSION         A. Legal Standard
        A motion to dismiss will be denied unless it appears that the plaintiff can prove no set of facts which would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Fidelity Financial Corp. v. Federal Home Loan Bank of San Francisco, 792 F.2d 1432, 1435 (9th Cir. 1986), cert. denied, 479 U.S. 1064 (1987). All material allegations in the complaint are accepted as true and construed in the light most favorable to the non-moving party. NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). Moreover, "[t]o dismiss, it must appear to a certainty that the plaintiff would not be entitled to relief under any set of facts that could be proved." Plaine v. McCabe, 797 F.2d 713, 723 (9th Cir. 1986).

        B. Dishonored Checks Under the FDCPA
        GC Services argues that a dishonored or returned check is not a "debt" under the FDCPA, and that Johnson therefore fails to state a claim on which relief may be granted.
        The FDCPA was enacted in 1977 in order "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). The Act defines "debt" 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).
        GC Services argues that a returned check should not be considered a "debt" under the FDCPA because the writing of a check as payment does not amount to the establishment of a "credit account" with a merchant. According to GC Services, permitting a dishonored check to be considered a "debt" for purposes of the FDCPA would force a merchant accepting a personal check into an involuntary and unilateral credit agreement without allowing the merchant the benefit of a credit risk evaluation of the person offering the check.
        GC Services' interpretation of "debt" under the FDCPA is, however, the minority view. Several courts, including the Northern District of California, have held that dishonored or returned checks are considered "debts" under the FDCPA. See, e.g., Johnson v. CRA Security Sys., C-96-03476-SI (N.D. Cal. Feb. 5, 1997)(denying a motion to dismiss by defendant collection agency because a returned check is a "debt" under the FDCPA); Newman v. Checkrite California, Inc., 912 F. Supp. 1354, 1364 n.7 (E.D. Cal. 1995)(holding that collection of dishonored checks falls within the ambit of the FDCPA); Bass v. Stolper, Koritainsky, Brewster & Neider, et al., 96-2113 (7th Cir. Apr. 18, 1997).
        A smaller number of courts have followed the minority view that a dishonored check is not a debt for purposes of the FDCPA. Those courts cite the Third Circuit in Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168-9 (3d Cir. 1987), which held that for a transaction to give rise to a "debt" under the FDCPA, it must be one that involved the offer of an extension of credit to a customer to acquire money, property, insurance, or services for household purposes. In Zimmerman, the debt collector sought to collect damages from individuals who had pirated cable television signals. The court found that because the cable television provider had not voluntarily extended credit to the individuals who had illegally procured the signals, the debts which the provider was owed were not protected by the FDCPA. Several federal courts have applied the Third Circuit's definition of "debt" under the FDCPA. See, e.g., Sarver v. Capital Recovery Assoc., Inc., 951 F. Supp. 550, 553 (E.D.Pa. 1996); Cederstrand v. Landberg, 933 F. Supp. 804, 806 (D. Minn. 1996).
        The court finds the reasoning of the majority view persuasive and holds that a dishonored check is considered a debt for purposes of the FDCPA. The language of the FDCPA is not ambiguous. Rather, it clearly intends that the Act cover "any obligation" that arises from a transaction in which a customer is extended money, property, services, or insurance for personal or household purposes. Checks, dishonored or not, constitute "legal obligations to pay money arising out of a transaction when checks are the form of payment." In re Scrimpsher, 17 B.R. at 1010. Therefore, dishonored checks fall squarely within the ambit of the FDCPA. The FDCPA nowhere requires the merchant to have voluntarily established a credit relationship with the customer in order for the Act to apply.
        GC Services asks the court to look beyond the FDCPA to the Consumer Credit Protection Act ("CCPA"), 15 U.S.C. §1601, to interpret the meaning of "debt" under the FDCPA, because the FDCPA is a subsection of the CCPA. The court declines to do so, as the definition contained in the FDCPA itself is clear and sufficient on its own to support a determination that a dishonored check is a "debt" under the Act.
        Furthermore, the legislative history of the FDCPA makes clear that Congress intended to protect writers of dishonored checks when it passed the Act: "The committee intends that the term 'debt' include consumer obligations paid by check or other non-credit consumer obligations." H.R. Rep. No. 95-131, 95th Cong., 1st Sess. 4 (March 29, 1977). Additionally, according to the Federal Trade Commission's Commentary on the FDCPA, issued on December 13, 1988, one example of a "debt" under the Act is "a dishonored check that was tendered in payment for goods or services acquired or used primarily for personal, family, or household purposes." 53 F.R. 50097, 50102 (1988).
        Finally, GC Services cites Zimmerman to assert that the FDCPA does not extend to "debts" that are the result of a tort or crime. GC Services' reliance on Zimmerman is misplaced. Zimmerman did not hold that the FDCPA did not apply because the debt at issue was caused by the illegal or tortious piracy of the signals. Instead, the Third Circuit dismissed the plaintiffs' claim in Zimmerman because the cable provider had not offered or extended credit to the piraters. GC Services' argument therefore fails.
        The court holds that dishonored checks are "debts" for purposes of the FDCPA. Accordingly, GC Services' motion to dismiss Johnson's complaint for failure to state a claim is denied.

IV. CONCLUSION         In accordance with the foregoing, it is hereby ORDERED that defendant GC Services' motion to dismiss is DENIED.
        The parties shall appear before the Court for a status conference on May 2, 1997, at 10:00 a.m.

        IT IS SO ORDERED.