Consumer Law

Ninth Circuit: Private Debt Collectors Under Contract With Prosecutors Are Not Shielded by Sovereign Immunity

By Deepak Gupta

by Deepak Gupta

Yesterday, the U.S. Court of Appeals for the Ninth Circuit, in an opinion by Judge Marsha Berzon, ruled that American Corrective Counseling Services (ACCS), the nation's largest operator of "check diversion" programs, may not shield itself from a consumer class action over its aggresive debt-collection practices by invoking the doctrine of state sovereign immunity.  (Information about the case, including the briefs and opinion, is available here.)

I've blogged here before about so-called check diversion companies -- private debt collectors that use their contracts with prosecutors to gin out collection demands, on official prosecutor stationary, threatening consumers who have written bad checks with criminal prosecution or jail unless they pay exorbitant collection fees.  Passing a bad check is only a crime where there's knowing and intentional fraud, but these companies demand fees regardless of whether a crime has been committed. It's a lucrative and shady business that essentially criminalizes civil debt collection.

Judge Berzon's opinion is the most thorough and scholarly treatment to date on the question of private entities and sovereign immunity.  In a sweeping rejection of ACCS's arguments, the Ninth Circuit characterized sovereign immunity as ?strong medicine? that should be carefully limited, especially in the case of for-profit corporations that are not democratically accountable to the public. Quoting the philosopher Gilbert Ryle, the court called the argument that a private company could enjoy sovereign immunity a ?category error,? like ?inquiring into the gender of a rock or into which day of the week is reptilian.?

ACCS has insisted throughout the litigation that it is not a debt collector and is therefore not covered by federal law protecting consumers from abusive collection practices. But in its ruling, the court cited a case holding that companies like ACCS may be held liable under the Fair Debt Collection Practices Act, and described ACCS?s practices as ?debt collection rather than law enforcement.?

In an era of increasing privatization of public functions ? from private prisons to Blackwater in Iraq ? this decision is an important reminder that private contractors will be held accountable by the courts and cannot simply hide behind the cloak of government authority.

You can read more about the case in today's San Francisco Chronicle (here) and San Jose Mercury News (here)

Full post as published by CL&P Blog on February 07, 2008 (boomark / email).