Free Reply to Opposition - District Court of California - California

Case 4:05-cv-04993-SBA

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LAW OFFICES OF CLARK GAREN CLARK GAREN, CALIFORNIA BAR #50564 P. O. BOX 1790, PALM SPRINGS, CALIFORNIA 92263 TELEPHONE: (760) 323-4901 FAX: (760) 288-4080 ATTORNEYS FOR DEFENDANT CHECK RECOVERY SYSTEMS, INC.

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

) ) ) ) Plaintiff, ) ) -vs) ) CHECK RECOVERY SYSTEMS, INC., ) et. al., ) ) Defendants. ) ___________________________________)

BRANDY HUNT, on behalf of herself and others similarly situated,

Case No. C 05 4993 MJJ REPLY TO OPPOSITION TO DEFENDANTS MOTION TO: (1) DISMISS FOR LACK OF JURISDICTION; (2) TRANSFER CASE TO PENDING BANKRUPTCY COURT ADVERSARY PROCEEDING; (3) STAY ALL PROCEEDINGS PENDING RESOLUTION OF BANKRUPTCY COURT ADVERSARY PROCEEDING; Date: Time: Place: April 4, 2006 9:30 A.M. Courtroom 11, 19th Floor

I 21 LATE FILING 22 Defendant apologizes for filing this reply a few days late (10 23 days in advance of the hearing). The reason it was not filed timely 24 is that Defendant was seeking additional information from Plaintiff 25 in evaluating whether to amend its adversarial proceeding in 26 Bankruptcy Court. Plaintiff received the information on March 23, 27 2006, and, based on that information, Plaintiff filed a First 28 -1-

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Amended Complaint to deny discharge in the Bankruptcy Court on March 24, 2006. II STATUS OF THE BANKRUPTCY CASE Plaintiff correctly represents that Bankruptcy Judge Montali construed their Motion to Dismiss as a Motion for Summary Judgment and granted it, but Judge Montali also granted leave to file an amended complaint. Plaintiffs fail to disclose that the reason Judge Montali granted the motion was because the initial complaint only alleged that Defendants were holders of the check; it did not allege that Defendants were assignees and owners of the claim. Judge Montali granted leave to amend to assert the assignment of the claim. Plaintiff accurately represents that Judge Montali questioned why Defendants were pursuing a $137.00 bad check, but when

Defendants pointed out that, according to the bankruptcy schedules, Plaintiff issued 17 separate not sufficient fund checks over the period in question, Judge Montali stated he would judge the case on its merits. Judge Montali also explained that the Bankruptcy Court had, by mistake, closed the bankruptcy file. Judge Montali explained that the Court should not have closed the file because Defendants Complaint was pending, but that the mistaken closure effectively precluded any relief to deny a discharge. Thus, the First Amended Complaint only seeks to deny discharge. Judge Montali also expressed the opinion that Plaintiff lacked standing to file this F.D.C.P.A. action prior to the close of the bankruptcy case, irrespective of whether the period for objecting -2-

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to exemptions had expired. Judge Montali expressed the opinion that the F.D.C.P.A. action remained property of the estate until the case was officially closed. III JURISDICTION OVER F.D.C.P.A. CLAIMS Defendant jurisdiction agrees an that this Court claim. would ordinarily the have

over

F.D.C.P.A.

However,

pending

adversary proceeding raises a jurisdictional issue to this claim because it ruling upon Plaintiff's F.D.C.P.A. claim will

necessarily require deciding whether the debt bears interest. As is disclosed by the opposition, the basis of pending action for violation of the Federal Fair Debt Collection Practices Act is that Defendant IMPERIAL MERCHANT SERVICE, a California corporation, doing business as CHECK RECOVERY SYSTEMS, incorrectly sued herein as CHECK RECOVERY SYSTEMS, INC. sent Plaintiff a collection notice for a returned check that included a charge of $35.00 for a returned check under the authority of California Civil Code Section 1714 and a charge for interest on a common count for goods, wares, and merchandise. Plaintiff claims the imposition of interest

violates the Federal Fair Debt Collection Practices Act. The issue of whether the debt bears interest is subject to the exclusive jurisdiction of the Bankruptcy Court because it is an integral part of a Complaint to deny discharge, which is classified as a core proceeding. Plaintiff cites the case of Palmer vs. Stassinos, 348 F. Supp 2d 1070, 1083, (N.D. Cal. 2005) as authority for their argument that interest can never be charged on a N.S.F. check in California. However, the Palmer case is based on completely different facts -3-

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than are now before the Court. In the Palmer case, the collection agency sought to impose treble damages. Defendant IMPERIAL MERCHANT SERVICE, a California corporation, doing business as CHECK RECOVERY SYSTEMS, incorrectly sued herein as CHECK RECOVERY SYSTEMS, INC. never sought to impose treble damages. More importantly, the Palmer case only specified the remedies available under California Civil Code Section 1719 for writing a bad check. The issue of liabilities on the underlying debt (which here is a common count for goods, wares, and merchandise) was never presented or considered by the Palmer decision. It is common for one set of facts to lead to many different remedies and permit a Plaintiff to seek recovery for on several different theories of recovery. In this case, Defendant IMPERIAL MERCHANT SERVICE, a

California corporation, doing business as CHECK RECOVERY SYSTEMS, incorrectly sued herein as CHECK RECOVERY SYSTEMS, INC. is the assignee of a check tendered for goods, wares, and merchandise. Even if Defendant IMPERIAL MERCHANT SERVICE, a California

corporation, doing business as CHECK RECOVERY SYSTEMS, incorrectly sued herein as CHECK RECOVERY SYSTEMS, INC. was not entitled to charge interest no the check, it was entitled to charge interest on the common count for goods, wares, and merchandise as evidenced by the check. The Palmer case primarily addressed the issue of punitive damages in the form of treble damages. Although it does also address the service fee, the service fee is not a penalty; it is a recovery of the actual damages sustained by the person who received -4-

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the N.S.F. check. Defendant IMPERIAL MERCHANT SERVICE, a California corporation, doing business as CHECK RECOVERY SYSTEMS, incorrectly sued herein as CHECK RECOVERY SYSTEMS, INC. sent Plaintiff a collection notice for a returned check that included a charge of $35.00 for a returned check under the authority of California Civil Code Section 1714 and a charge for interest on a common count for goods, wares, and merchandise. This conduct does not violate the F.D.C.P.A. and does not come within the holding of the Palmer Court. More importantly, the determination of this issue must be made by the Bankruptcy Court in connection with the Complaint to Deny Discharge of this debt, which is classified as a core proceeding. Therefore, this motion should be granted.

Dated: March 24, 2006

LAW OFFICES OF CLARK GAREN BY __________________________________ CLARK GAREN, ATTORNEY FOR DEFENDANT IMPERIAL MERCHANT SERVICES, INC., d/b/a CHECK RECOVERY SYSTEMS

PROOF OF SERVICE BY MAIL (1013a, 2015.5 C.C.P.) -5-

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STATE OF CALIFORNIA COUNTY OF RIVERSIDE

) )

S.S.

I am a citizen of the United States and a Resident of the County Aforesaid; I am over the age of eighteen years and not a party to the within entitled action; my business address is: 17100 NORTH INDIAN AVENUE, NORTH PALM SPRINGS, CALIFORNIA 92258 On MARCH 24, 2006, I served the within REPLY TO DEFENDATNS MOTION TO: (1) DISMISS FOR LACK OF JURISDICTION; (2) TRANSFER CASE TO PENDING BANKRUPTCY COURT ADVERSARY PROCEEDING; (3) STAY ALL PROCEEDINGS PENDING RESOLUTION OF BANKRUPTCY COURT ADVERSARY PROCEEDING; on the interested parties herein in said action by placing a true copy thereof enclosed in a sealed envelope with postage thereon fully prepaid, in the United States mail at NORTH PALM SPRINGS, CALIFORNIA addressed as follows: IRVING L. BERG, THE BERG LAW GROUP, 433 TOWN CENTER, NO. 493, CORTE MADERA, CALIFORNIA 94925 ALSO VIA FAX: (415) 891-8208 I DECLARE UNDER PENALTY OF PERJURY THAT THE FOREGOING IS TRUE AND CORRECT. EXECUTED ON MARCH 24, 2006 AT NORTH PALM SPRINGS, CALIFORNIA

15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6CLARK GAREN, DECLARANT