March 12, 2021 - This Week at the Ninth

This Week at the Ninth: Old Debts and Flight Attendants

This week, we take a look at two cases requiring the Ninth Circuit to navigate interlocking provisions of state and federal law.  In the first case, the Court addressed how the Fair Debt Collection Practices Act applies to a creditor's attempt to collect a debt when state law was unclear that the effort was time barred.  In the second case, the Ninth Circuit examined whether and how California’s Labor Code applies to flight attendants given the interstate nature of their employment and a web of overarching federal requirements.* 

KAISER v. CASCADE CAPITAL, LLC
The Court holds that the Fair Debt Collection Practices Act’s prohibition on attempting to collect time-barred debts applies even if it was unclear at the time a debt collector sued or threatened suit whether a lawsuit was time barred under state law.

Panel: Judges Gould, Friedland, and Bough (W.D. Mo.), with Judge Friedland writing the opinion.

Key highlight: “The FDCPA takes a strict liability approach to prohibiting misleading and unfair debt collection practices, so a plaintiff need not plead or prove that a debt collector knew or should have known that the lawsuit was time barred to demonstrate that the debt collector engaged in prohibited conduct.”

Background: Michael Kaiser bought a car on an installment plan.  When he defaulted, his car was repossessed and sold.  But the proceeds failed to cover Kaiser’s outstanding balance.  More than four years later, creditor Cascade Capital tried to collect, sending a letter to Kaiser through a law firm stating that the firm “ha[d] been retained with the authority to file a lawsuit” against him, and demanding payment.  Kaiser didn’t pay, and Cascade filed suit in Oregon state court.  Kaiser argued the suit was time-barred by Oregon’s four-year statute of limitations for sale-of-goods contract claims.  Cascade argued that Oregon’s six-year statute of limitations for other contract claims applied instead.  The state court ruled for Kaiser. 

Kaiser then filed a putative class action in federal court, arguing that Cascade’s collection attempts violated the FDCPA.  The district court dismissed for failure to state a claim on the ground that Cascade did not violate the FDCPA because the state statute of limitations was unclear when Cascade first tried to collect.

Result: The Ninth Circuit reversed.  The Court first concluded that Kaiser’s debt was time-barred under Oregon law.  The Oregon Supreme Court had stated that “an action [by a creditor] for part of the purchase price is more closely related to the sale portion of the contract than it is to the security portion,” Oregon’s four-year statute of limitations derived from a part of the Uniform Commercial Code that applies to sales contracts, and a majority of states also apply the UCC statute of limitations to actions seeking to recover deficiency balances.  The Ninth Circuit thus expressed “great confidence that the Oregon Supreme Court would hold the four-year statute of limitations would apply to a suit on Kaiser’s debt.”

Next, the Ninth Circuit joined other courts of appeals in concluding that attempts to collect on time-barred debt through a lawsuit or threat of suit violate the FDCPA.  The FDCPA prohibits debt collectors from using any “unfair or unconscionable means to collect or attempt to collect any debt,” 15 U.S.C. § 1692f, and also from using “any false, deceptive, or misleading representation” to collect a debt, including any “false representation of the character, amount, or legal status of any debt” and any “threat to take any action that cannot legally be taken,” 15 U.S.C. § 1692e, (2)(A), (5).  The Court explained that lawsuits to collect time-barred debts are both unfair and misleading, violating § 1692f and § 1692e, and threats to sue on time-barred debts are at least misleading, violating § 1692e.  Such suits are unfair because they allow creditors to take advantage of overwhelming rates of default judgment in collection actions.  And both suits and threats of suit misrepresent the enforceability of debts by implicitly representing (absent a clear disclaimer) that the debt is legally enforceable. 

It would not, the Court said, matter if the debt collector did not know the debt was time barred:  “The FDCPA makes debt collectors strictly liable for misleading and unfair debt collection practices.”  In reaching that conclusion, the Court declined to rely on a proposed rulemaking by the Consumer Financial  Protection Bureau suggesting a different rule, a Sixth Circuit decision that favorably cited the proposed rule, or the fact that Cascade’s litigation conduct was not sanctionable.

Finally, the Court pointed out that “Cascade may nonetheless be able to avoid liability through the FDCPA’s affirmative defense for bona fide errors.”  As a matter of first impression, the Court held that a mistake about the time-barred status of a debt under state law could qualify as a bona fide error within the meaning of the FDCPA. Expressing no opinion on the merits, the Court remanded to the trial court, where “Cascade may attempt to invoke the bona fide error defense.”

BERNSTEIN v. VIRGIN AMERICA, INC.
The Court holds that California’s labor laws govern the employment relationships between and airline and its California-based flight attendants.

Key highlight:  “[B]ecause California labor law’s application is based upon the parties’ various contacts with the state . . . , a claim that a proliferation of similar state laws would substantially burden Virgin is dubious. Virgin does not have anything like the number of contacts with any other state that it has with California, and it fails to proffer evidence of any burden it allegedly suffers from doing business in other states with different regulations.” 

The panel:  Judges Wallace, M. Smith, and Lasnik (W.D. Wa.), with Judge M. Smith writing the opinion. 

Background:  Three California-based flight attendants sued their employer, Virgin America, alleging that it had violated various provisions of the California Labor Code governing minimum wages, overtime compensation, meal breaks, and similar matters.  The district court certified a class of California-based Virgin flight attendants.  It then granted plaintiffs’ motion for summary judgment in large part, holding that the cited Labor Code provisions applied to these flight attendants and were not preempted or otherwise precluded by federal law.    

Result:  The Ninth Circuit affirmed in part and reversed in part.  First, the Court rejected Virgin’s argument that the dormant Commerce Clause precluded application of California labor law to plaintiffs’ claims.  Virgin did not contend that California law discriminated against interstate commerce, but rather that it “undermined a compelling need for national uniformity.”  The Court, however, concluded that Virgin had not shown that it was forced to “comply with different and incompatible state requirements” or that such “compliance is substantially burdensome.”  As the Court emphasized, Virgin had identified no other state laws with which it might be compelled to comply, let alone any law that would conflict with California law and cause Virgin a substantial burden.

The Court then turned to each of the various alleged California Labor Code violations.  The Court first concluded that Virgin had not contravened California’s minimum-wage provisions, as Virgin instead permissibly compensated the class members by rotation rather than hours worked.  The Court therefore reversed the district court’s grant of summary judgment on that point. 

Next, the Court concluded that California’s overtime provision governed Virgin’s relationships with the members of the plaintiff class, given their connections to California.  Virgin did not dispute it had contravened this provision.

Addressing the plaintiffs’ meal and rest break claims, the Court first rejected Virgin’s argument that FAA regulations preempted these state-law requirement.  As the Court explained, while Congress may have intended the FAA to occupy the field in the area of aviation safety, that did not mean that any and all state laws applicable to flight attendants were necessarily preempted.  The Court deemed any connection between California’s meal-break requirements and safety to be “too tenuous” to support preemption, and further concluded that none of the more specific FAA regulations Virgin cited (which, for example, prohibited duty periods of more than fourteen hours) indicated any intent to preclude concurrent state regulation on this subject.  The Court also rejected Virgin’s separate argument that the Airline Deregulation Act precluded plaintiffs’ claims, holding that the relevant Labor Code provisions were not “related to a price, route or service of an air carrier,” as required for preemption under that statute.  Finally, the Court held that these California provisions applied as a matter of California law given the class members’ connection to the state. 

Turning to plaintiffs’ challenges to Virgin’s failure to provide them with a required “wage statement” and for waiting time penalties, the Court held that both Labor Code provisions were applicable.  It reasoned that while plaintiffs may not have worked the majority of their time in California, they had been designated as California based, and they did not work for more time in any other state. 

Finally, the panel reversed the district court’s judgment holding Virgin subject to heightened penalties under California’s Private Attorneys General Act. As the Court explained, such penalties are unavailable where there is “[a] good faith dispute” that the employers must comply with the relevant Labor Code provisions.  Here the Court concluded, until the district court’s summary judgment order, Virgin was not “notified by the [California] Labor Commissioner or any court that it was subject to the California Labor Code.”

 

*While the latter decision was issued last month, the Court published an amended version of the opinion this week, thus narrowly satisfying the (strict) criteria for inclusion in our This Week updates.