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August 16, 2013

People v. Persolve (2013) 218 Cal.App.4th 1267

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The Fifth District holds unfair practices proscribed by the Federal and California Debt Collection Acts are not protected by the litigation privilege. 

Persolve, a debt collection company, purchased old, defaulted debt.  Its attorneys sent letters to debtors demanding payment, which the Kern County District Attorney charged were misleading, unlawfully threatened unavailable remedies, and failed to make disclosures required by California and Federal Debt Collection Acts.  Persolve and its counsel were sued in a civil action for injunctive relief and fines under California’s Unfair Competition law.  The trial court sustained a demurrer to the complaint without leave to amend on the basis the letters were protected by the litigation privilege. 

California’s Unfair Competition law prohibits unlawful, unfair, or fraudulent business acts or practices. The unfair competition law can “borrow” violations of other laws and treat them as unlawful practices independently actionable.  When legislation offers a “safe harbor” for particular conduct, the unfair competition law cannot apply.  The trial court found Civil Code § 47(b), commonly known as the litigation privilege, provided a “safe harbor” for Persolve and its attorneys. 

The Court of Appeal noted the absolute litigation privilege applies to any communication made in judicial or quasi-judicial proceedings to achieve the objects of litigation. The privilege covers communications inside or outside the courtroom with some connection or logical relation to an actual or contemplated action.  The privilege encourages free access to the courts and finality of judgments by limiting tort claims, and favoring sanctions within the original lawsuit. It bars all tort claims other than malicious prosecution, and can preclude constitutional and statutory causes of action. It applies to derivative suits brought by parties not involved in the underlying litigation. 

Exceptions to the litigation privilege apply under rules of statutory construction that mandate particular provisions prevail over general provisions.  If a statute more specific than the litigation privilege would be significantly or wholly inoperable if the privilege applied, the privilege will not shield violations of the statute.  For example, the litigation privilege does not apply to perjury, subornation of perjury, false report of a criminal offense, or attorney solicitation through the use of runners or cappers. 

Precedent establishes the litigation privilege cannot shield violations of the California Fair Debt Collection Practices act.  Applying the privilege would effectively vitiate the Act and render its protections meaningless.  As the more specific statute, the Act trumps the litigation privilege.  This reasoning applies equally to the Federal Act.

Persolve asserted since the People were prosecuting under the unfair competition law, the litigation privilege applied.  The broad scope of the unfair competition law is subject to the litigation privilege when its application does not render the prohibitions underlying the unfair competition claims significantly or wholly inoperable.  Here, the charges were based on specific provisions of the California and Federal Acts.  Where an unfair competition claim is premised on a specific statutory prohibition, the litigation privilege is not a bar. 

Comment:  This decision could potentially significantly weaken the litigation privilege, given California’s voluminous statutory proscriptions.    

 

 

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