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9th Circuit remands case against company running bad-check diversion program

NORTHERN CALIFORNIA RECORD

Friday, November 22, 2024

9th Circuit remands case against company running bad-check diversion program

Law money 10

SAN FRANCISCO — The case against a private company that runs a program for fraudulent check writers will continue after the 9th Circuit Court of Appeals dismissed its motions to strike claims under the anti-strategic lawsuit against public participation (SLAPP) statute and to compel arbitration. 

Several plaintiffs sued Victim Services Inc. (VSI) in 2014, claiming they were sent notices by the company violating multiple federal and state statutes by leading them to believe they would be arrested or imprisoned if they did not comply with the instructions, according to the appeal court's opinion.

The 9th Circuit Court of Appeals dismissed VSI’s appeal to have the suit dismissed as SLAPP on Dec. 27. Justice Mary M. Schroeder, who authored the opinion, said that the appellate court did not have jurisdiction to overturn the district court’s decision to deny VSI’s motion to strike claims under California’s Anti-SLAPP law 

“The Anti-SLAPP statute does not provide immunity from suit, and denials of Anti-SLAPP motions to strike are no longer immediately appealable,” Schroeder wrote.

The 9th Circuit said a district court was also correct to deny the company's motion to compel arbitration for the consolidated case with the one plaintiff that had decided to enroll in VSI’s program. Noting the very specific circumstances, Schroeder wrote “this would likely exceed the scope of Congress’s commerce power.”

The plaintiffs said that VSI’s programs “shirk the requirements imposed under the very state statutes governing bad check diversion programs.” VSI sent letters to the plaintiffs informing them that if they wanted to avoid being prosecuted under California’s bad-check statute, they could participate in the financial-education program, requiring payment of specific fees, according to the opinion.

VSI, like similar companies, contracts with state and district attorney offices to provide this program to individuals who have written fraudulent checks after a prosecuting attorney has reviewed their case. The letters sent are on official letterhead, and VSI receives a cut of the fees collected, according to the opinion. But the plaintiffs have alleged that no prosecutor reviewed the files of those who received the letter, and that “very few bad check writers sent collection letters from VSI will ever be prosecuted, even if they make only partial payment or no payment at all.”

The plaintiffs claim that VSI should not send letters on official district attorney letterhead, which creates a false threat that the letters are not only sent by law enforcement but that the individuals will be subject to arrest or jail time if they don’t pay the fees. The plaintiffs also claimed the letters did not inform them of their right to dispute allegations of bad-check violations.

The plaintiffs claim that the conduct of VSI, a company that runs a program to supposedly help educate people who have written fraudulent checks, is unlawful and seek an injunction against it.

The district court had denied VSI’s motion to strike on SLAPP and concluded that an arbitration of the type in their case was not provided for according to the Federal Arbitration Act (FAA). VSI disagreed that state law would prohibit compelling arbitration. The appellate court affirmed the reasoning, emphasizing the primary purpose of the act is to ensure enforcement of private agreements to arbitrate. 

“We agree with the district court that Congress never intended the FAA to apply to agreements between citizens and prosecutors resolving an individual’s potential criminal liability…VSI, of course, can point to a steady march of Supreme Court cases affirming the broad reach of the FAA, but all the underlying disputes arose from privately negotiated agreement…. None even remotely suggest the FAA’s application in the criminal law context," Schroeder wrote.

The case has been remanded back to district court for further proceedings.

VSI is represented by Sean M. Hardy and Michael A. Taitelman of Freedman & Taitelman LLP in Los Angeles.

The plaintiffs are represented by Deepak Gupta and Matthew W.H. Wessler of Gupta Wessler PLLC in Washington, D.C.; Paul Arons of the Law Offices of Paul Arons in Friday Harbor, Washington; and Beth E. Terrell and Blythe Chandler of Terrell Marshall Law Group PLLC in Seattle.

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