Case4:15-cv KAW Document1 Filed08/03/15 Page1 of 35

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1 Case:-cv-00-KAW Document Filed0/0/ Page of 0 Michael F. Ram, CSB #00 mram@rocklawcal.com Karl Olson, CSB #00 kolson@rocklawcal.com Susan S. Brown, CSB # sbrown@rocklawcal.com RAM, OLSON, CEREGHINO & KOPCZYNSKI Montgomery Street, Suite San Francisco, California Telephone: () - Facsimile: () - [Additional Counsel Appear on Signature Page] Attorneys for Plaintiffs IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA ANGELINA FREITAS, REBECCA LYON and MARESA KENDRICK, on their own behalf and on behalf of others similarly situated, v. Plaintiffs, BOUNCEBACK, INC., a Missouri corporation, CHECK CONNECTION, INC., a Kansas corporation, STONE FENCE HOLDINGS, INC., a Missouri corporation, and GALE KRIEG, Defendants. No. COMPLAINT FOR DAMAGES, INJUNCTIVE AND OTHER EQUITABLE RELIEF FOR VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT AND CALIFORNIA UNFAIR COMPETITION LAW CLASS ACTION DEMAND FOR TRIAL BY JURY I. INTRODUCTION. The Plaintiffs are California consumers who received a series of letters threatening them with criminal prosecution unless they paid alleged debts arising from dishonored checks. The letters all bore the seal and letterhead of a county district attorney. EQUITABLE RELIEF -

2 Case:-cv-00-KAW Document Filed0/0/ Page of 0. What the Plaintiffs did not realize was that these letters although they appeared to come from California district attorneys were actually sent by Defendant BounceBack, Inc., a private, for-profit debt-collection company. The letters stated that Plaintiffs would face criminal prosecution unless they paid the amounts owed on their checks plus more than $0 in illegal fees. BounceBack operates much like any other high-volume debt collector: It solicits business from national retailers and other merchants and then attempts to collect on dishonored checks using standardized collection notices. But there is one crucial difference: Under BounceBack s Check Enforcement Program, the company pays county district attorneys for the use of their seal and letterhead, thereby disguising its ordinary civil debt collection as law enforcement. Intimidation is BounceBack s business model. BounceBack scares consumers into believing that they are the subject of real criminal proceedings and that unless they agree to pay for an expensive diversion program, they may be arrested, prosecuted, and even imprisoned.. BounceBack s programs violate both state and federal laws aimed at protecting consumers and curbing abusive collection practices. The programs also disregard the requirements imposed by California s statute permitting bad check diversion programs for real criminal suspects. In November, the American Bar Association issued a formal ethics opinion condemning the practices of companies like BounceBack and concluding that they are engaged in the unauthorized practice of law. See ABA Formal Ethics Opinion (Nov., ), attached hereto as Exhibit. The opinion emphasizes that such practices are deceptive because they misuse the criminal justice system by deploying the apparent authority of a prosecutor to intimidate an individual, and are also abusive because they convey the impression that the machinery of the criminal justice system has been mobilized against the consumer. Earlier this year, BounceBack s major California competitor entered into to a consent order that precludes it from violating the FDCPA by sending letters on district attorney letterhead containing express or implied threats of prosecution. See Consumer Fin. Prot. Bureau v. Nat l Corrective Grp., No. :-CV-00-RDB, Dkt. No. (D. Md. Mar., ). EQUITABLE RELIEF -

3 Case:-cv-00-KAW Document Filed0/0/ Page of 0. In violation of applicable legal and ethical standards, BounceBack uses false and misleading threats of criminal prosecution to gouge Californians who have written checks that are dishonored by their bank. Plaintiffs bring this lawsuit to end Defendants unlawful practices in California and to recover for consumers the unlawful fees Defendants have collected. II. JURISDICTION AND VENUE. This Court has jurisdiction over Plaintiffs claims under the Fair Debt Collection Practices Act ( FDCPA ), under U.S.C. k(d) and U.S.C.. This Court has supplemental jurisdiction over Plaintiffs state law claims under U.S.C... Venue is proper in this District under U.S.C. (b) because a substantial part of the events giving rise to Plaintiffs claims occurred in this District and Defendants are subject to personal jurisdiction in this District. A. Plaintiffs III. PARTIES. Plaintiffs Angelina Freitas, Rebecca Lyons, and Maresa Kendrick are individuals who reside in Mendocino County, California. B. Defendants. Defendant BounceBack, Inc., is a Missouri corporation with its principal place of business at 0 N.W. Tiffany Springs Parkway, Suite 00, Kansas City, Missouri,. BounceBack s primary business is the collection of dishonored checks.. Defendant Check Connection, Inc. (Check Connection ), is a Missouri corporation with its principal place of business at 0 N.W. Tiffany Springs Parkway, Suite 00, Kansas City, Missouri,. Check Connection works in conjunction with BounceBack, Inc. in the business of collecting dishonored checks. Check Connection s primary business is the collection of dishonored checks. 0. Stone Fence Holdings, Inc., is a Kansas corporation duly registered as a foreign corporation in Missouri with its principal place of business at 0 N.W. Tiffany Springs Parkway, Suite 00, Kansas City, Platte County, Missouri,. Stone Fence Holdings is a holding EQUITABLE RELIEF -

4 Case:-cv-00-KAW Document Filed0/0/ Page of 0 company. On information and belief, Plaintiffs allege that both BounceBack, Inc. and Check Connection, Inc. are its wholly owned subsidiaries. Stone Fence Holdings primary business is the operation of BounceBack, Inc. and Check Connection.. Defendant Gale Krieg is an individual residing in Prairie Village, Johnson County, Kansas and at all relevant times was an officer and director of Check Connection, BounceBack, Inc., and Stone Fence Holdings. Mr. Krieg designed, developed, implements and promotes the check collection business in which the other Defendants are engaged.. At all times relevant herein, Mr. Krieg has exercised and continues to exercise ultimate authority to adopt, approve, implement and modify the business practices of BounceBack, Inc., Check Connection, Inc., and Stone Fence Holdings. On behalf of the corporate Defendants, Mr. Krieg personally solicits business, negotiates contracts, sets collection policies and practices, oversees daily operations and handles customer relations with both prosecutors and merchants, all for the purpose of facilitating the check collection business described in this lawsuit.. Plaintiffs allege on information and belief that the interests of all Defendants have been so unified that their separate personalities no longer exist and that if the acts of the corporate Defendants are treated as those of the corporation alone, an inequitable result will follow. Unless otherwise indicated, Plaintiffs refer to all Defendants jointly as BounceBack.. Each Defendant named in this Complaint uses instrumentalities of interstate commerce and the mails in a business the principal purpose of which is the collection of debts. Each Defendant regularly collects and attempts to collect, directly or indirectly, debts alleged to be due another.. Each Defendant is a debt collector within the meaning of U.S.C. a().. Defendants are not employees of any California district attorney. IV. CALIFORNIA S BAD CHECK DIVERSION ACT. In California, bad check diversion programs are governed by statute. See Bad Check Diversion Act, Cal. Penal Code 00.0 et seq. ( Diversion Act ). The Diversion Act permits county boards of supervisors to authorize county district attorneys to create bad check EQUITABLE RELIEF -

5 Case:-cv-00-KAW Document Filed0/0/ Page of 0 diversion programs if the supervisors determine that sufficient funds exist to run the program. Cal. Penal Code District attorneys may contract with private companies to conduct authorized programs. Id.. The Diversion Act permits district attorneys to refer check writers to bad check diversion programs only if there is probable cause to believe the person violated California s Bad Check Law (codified at California Penal Code a). Cal. Penal Code Under the California Penal Code, it is not a crime simply to present a check that is later dishonored. Cal. Penal Code a. Instead, a person must willfully, with intent to defraud, present a check, knowing at the time that there are not sufficient funds in the account to cover the check. Id.. The Diversion Act requires district attorneys to make two distinct and necessary individualized determinations in each and every case referred to a bad check diversion program. First, the district attorney must find probable cause to believe the check writer had the necessary fraudulent intent when he or she presented the check. Second, before referring a case to the diversion program, the district attorney must consider the five factors set forth in California Penal Code Section The Diversion Act does not permit a district attorney to make a blanket determination that all checks fitting particular criteria may be referred to a diversion program and dispense with an individualized review of the evidence in each case.. Once a district attorney properly decides to refer a particular check writer to a diversion program, the district attorney may require, as a condition of avoiding prosecution, that the check-writer participant: () complete a class; () make full restitution to the victim for the amount of the check and for bank charges incurred by the victim; and () to pay in full the diversion fees, if any, specified in Section 00.. Cal. Penal Code Section 00. authorizes two fees: () a $0 administrative fee; and () reimbursement for bank charges actually incurred by the victim, up to a maximum of $ per check. EQUITABLE RELIEF -

6 Case:-cv-00-KAW Document Filed0/0/ Page of 0 Cal. Penal Code No other charges or fees are authorized. Accordingly, a bad check diversion program may not charge a check writer more than $ in fees. V. BOUNCEBACK S CHECK ENFORCEMENT PROGRAM. BounceBack operates a computer-driven collection business, using standardized forms, demand letters, and procedures. The material difference between BounceBack s check collection business and that of their competitors is that BounceBack pays district attorneys for permission to use the name and authority of the district attorneys office. BounceBack strives to create the appearance that they are operating a criminal diversion program, not a check collection business.. Unlike real criminal diversion programs, in BounceBack s program, no prosecutor has reviewed the evidence, made a probable cause determination, or charged the check writer before he or she is offered diversion. In fact, a check writer who ignores the diversion offer is unlikely to be prosecuted. In those rare instances where prosecution is initiated, the decision to prosecute is made by the district attorney, only after BounceBack has exhausted its collection efforts.. The driving force behind BounceBack s demands is to collect its fees, including its fee for an expensive Financial Training class. Although BounceBack demands fees for the class, it does not in fact require check writers to attend the class.. BounceBack typically receives referrals directly from retailers and private collection agencies, not from district attorneys. BounceBack s major referral sources are national retailers such as Target and Safeway, and large debt collection entities such as Telecheck and Certegy. In promoting its services, BounceBack touts its competitive advantage over standard debt collectors stemming from its association with district attorneys.. Typically, BounceBack s collection process begins when retailers and collection agencies transmit electronic check information to BounceBack for the purpose of collection.. Usually, the electronically transmitted information includes little more than is available from reviewing the face of the check. Information necessary to make a probable cause determination under the California Penal Code or to weigh the mandatory factors listed in the EQUITABLE RELIEF -

7 Case:-cv-00-KAW Document Filed0/0/ Page of 0 Diversion Act is not provided. Unless BounceBack has explicit information that a referred check fails to meet the very broad intake criteria, BounceBack will commence the collection process. 0. In some counties, prior to attempting collection of an individual s check, BounceBack engages in the charade of obtaining the district attorney s purported approval for diversion by sending the district attorney a list of new checks. BounceBack will begin collections unless the district attorney pulls a check from the list within a few days. In other counties, months sometimes pass without BounceBack reporting any information about its collection activities to the district attorney.. BounceBack begins its uniform collections process by using the check information it receives to generate form collection letters.. In the California counties in which it operates, BounceBack sends check writers a series of form collection letters that are substantially the same: a. Each letter is on the official letterhead of a district attorney with whom BounceBack has contracted. The letters appear to be official communications from the district attorney s office. The only material differences in the letters BounceBack sends to check writers in different counties is the name of the district attorney, letterhead, and seal that appears on the letters; b. BounceBack seeks unlawful fees in each letter, including a Financial Training class fee; c. Each letter contains either an explicit or an implicit threat to prosecute the check writer if he or she fails to pay all fees associated with BounceBack s Check Enforcement Program.. In addition to the form letters, BounceBack makes collection calls to check writers, frequently repeating or amplifying its prosecution threats.. Despite its official appearance, the collection effort is driven and controlled by BounceBack, which seeks to maximize the fees it can extract from the Californians it deceives and intimidates. EQUITABLE RELIEF -

8 Case:-cv-00-KAW Document Filed0/0/ Page of 0. Although the amounts may vary from county to county, BounceBack demands the following categories of fees in all counties: Program fee: $ 0.00 Financial Training fee: $0.00 Bank Charges fee: $.00 Payment Plan fee: $.00 Credit/Debit Card fee: $.00. None of these fees are lawful because BounceBack s program does not comply with the Diversion Act s prerequisites.. Even if BounceBack s program was otherwise lawful, only a $0 administrative fee and $ bank charge fee are permitted by the Diversion Act.. Typically, BounceBack agrees that it will pay the contracting district attorney s office a fee of $.00 from the fees it collects from each check writer.. BounceBack s letters provide a toll-free number for check writers with questions to call. That number connects callers to BounceBack s offices, where calls are answered by BounceBack s employees. office. 0. Check writers are led to believe that they are calling their local district attorney s. When responding to check writer calls, BounceBack routinely make express and implicit threats of prosecution to check writers with whom they speak.. When BounceBack threatens prosecution, it does not know that the district attorney will prosecute if the check writer refuses to participate in its program or pay the fees BounceBack demands. In some cases, BounceBack knows the district attorney will not initiate prosecution because the amount of the check falls below the district attorney s established threshold for even considering prosecution.. Plaintiffs allege, on information and belief, that very few check writers to whom BounceBack sends collection letters will ever be prosecuted, even if the check writer makes only partial payment or no payment at all. EQUITABLE RELIEF -

9 Case:-cv-00-KAW Document Filed0/0/ Page of 0 VI. BOUNCEBACK INTIMIDATED AND DECEIVED PLAINTIFFS A. Angelina Freitas. Angelina Freitas is a -year-old widow, who has lived in Fort Bragg, California for decades. Prior to retirement, she frequently provided translation services to law enforcement agencies in the Fort Bragg area. She lives on a fixed income. In the last few years, she has often been hospitalized.. Ms. Freitas believes that in early she wrote a $. check to her local Safeway store to pay for groceries for her personal use. According to BounceBack, the check did not clear. On or about March,, BounceBack printed and mailed Ms. Freitas a letter, on the official letterhead of the Mendocino County District Attorney. The letter was titled, in large, boldfaced type. WARNING OF CRIMINAL CHARGES The letter included a warning that she had ignored the demand made by the original creditor, which could constitute criminal intent for which a Warrant for your arrest can be issued. The letter further provides: It is still possible to avoid a CRIMINAL CONVICTION. According to BounceBack s letter, Ms. Freitas could avoid possible criminal action by paying the check amount plus BounceBack s fees, and completing a Check Writer s Financial Training Course. BounceBack demanded the following fees in order to avoid possible criminal action : Bank Charges: $.00 Program Fees: $ 0.00 Financial Training: $.00 Debit/Credit Card Fee : $.00 A copy of this letter is attached hereto as Exhibit.. Because of her medical problems and hospitalizations, Ms. Frietas does not always read her mail immediately; she did not realize that her check to Safeway had not cleared until she received BounceBack s collection demand. EQUITABLE RELIEF -

10 Case:-cv-00-KAW Document Filed0/0/ Page0 of 0. Ms. Freitas believed the letter was really from the Mendocino County district attorney, and that the Check Enforcement Program was a lawful program operated by the district attorney. She was frightened and intimidated by the letter and believed that whether or not she had committed a crime, the best way to avoid becoming involved with the county criminal justice process was to pay the fees demanded. To avoid possible criminal action, Ms. Freitas paid the entire amount that BounceBack demanded.. In January, Ms. Freitas learned the true facts, that the Check Enforcement Program was operated by BounceBack, Inc., a private, for-profit debt collector, that BounceBack operated with little or no supervision by the Mendocino County district attorney, that there was little or no chance she would ever be charged with a crime, and that some or all of the fees she had paid were not permitted by law. B. Rebecca Lyon 0. Rebecca Lyon is a married mother of four who lives in Willits, California. She has an associate degree in child development and is working towards a four-year college degree.. In approximately December, Ms. Lyon wrote two checks to Safeway for groceries for her family. One check was in the amount of $.. The other check was in the amount of $0.. According to BounceBack, the checks did not clear.. On or about January 0,, BounceBack printed and mailed Ms. Lyon a letter, on the official letterhead of the Mendocino County District Attorney, in connection with the check for $.. The threats and demands in this letter were the same as those in the letter sent to Ms. Freitas. A copy of this letter is attached hereto as Exhibit. BounceBack sought a total of $.00 in fees for this check.. On or about February,, BounceBack printed and mailed Ms. Lyon a letter, on the official letterhead of the Mendocino County District Attorney, in connection with the first check for $. and the second check for $0.. The threats and demands in this letter were the same as those in the letter sent to Ms. Freitas. A copy of this letter is attached hereto as Exhibit. BounceBack sought a total of $.00 in fees for the two checks. EQUITABLE RELIEF - 0

11 Case:-cv-00-KAW Document Filed0/0/ Page of 0. Because of the threats in the letters, Ms. Lyon was afraid she would be arrested if she did not pay all the money BounceBack demanded and take BounceBack s Financial Training class. She therefore paid BounceBack s fees and took the class online through BounceBack s website, hotchecks.net. C. Maresa Kendrick. Maresa Kendrick is a married mother of two who lives in Willits, California. She has a graduate degree in early childhood development, and is a supervisor at the Head Start program in Willits. In approximately late, Ms. Kendrick wrote a $0 check to the local Safeway store.. BounceBack printed and mailed Ms. Kendrick a letter, on the official letterhead of the Mendocino County District Attorney, in connection with her check. The threats and demands in this letter were the same as those in the letter sent to Ms. Freitas and Ms. Lyon. In February, she paid BounceBack the check amount, plus the following fees: Bank Charges: $.00 Program Fees: $ 0.00 Financial Training: $.00 Debit/Credit Card Fee : $.00. Ms. Kendrick believed that the letter was really from the Mendocino County district attorney and that the Check Enforcement Program was a lawful program, operated by the district attorney. She was upset and intimidated by the letter and believed that whether or not she had committed a crime, the best way to avoid becoming involved with the county criminal justice process was to pay the fees demanded. To avoid possible criminal action, Ms. Kendrick paid the entire amount that BounceBack demanded.. In September, Ms. Kendrick learned the true facts, that the Check Enforcement Program was operated by BounceBack, Inc., a private, for-profit vendor, that BounceBack operated its Check Enforcement Program with little or no supervision from the Mendocino County district attorney, that there was little or no chance she would ever be charged with a crime, and that some or all of the fees she had paid were not permitted by law. EQUITABLE RELIEF -

12 Case:-cv-00-KAW Document Filed0/0/ Page of 0 VII. FACTS COMMON TO PLAINTIFFS AND THE CLASS. BounceBack subjected Plaintiffs and class members to the standardized collection procedures described above. 0. Merchants and debt collectors who refer unpaid checks to BounceBack seek to recover money, not report a crime. Most referrals consist of electronic check data obtained from the face of the check. The referrals do not contain sufficient information to determine whether the checks meet a district attorney s criteria for accepting checks, whether diversion is appropriate pursuant to the Diversion Act, or to make a probable cause determination.. The form letters BounceBack sent to Plaintiffs and class members contain numerous material misrepresentations and omissions, including, but not limited to, the following: a. The district attorney operates and controls a Check Enforcement Program that is authorized by California law; b. The letter was prepared and mailed by the district attorney, and is official correspondence from the district attorney who has reviewed evidence and determined that, absent diversion, prosecution is warranted; c. Communications to the toll-free phone number and address printed on the letter will be received and considered by the district attorney; d. The check writer has been accused of a crime; e. To avoid probable prosecution, the check writer must pay the check amount, plus all demanded fees and attend the Financial Training class.. The true facts are as follows: a. The Check Enforcement Program is operated for profit by BounceBack. As a rule, the district attorney has no meaningful involvement with individual cases, and the Program does not meet the Diversion Act s requirements; b. BounceBack, not employees of the district attorney, prepare and send the form letters, BounceBack sends the letters without anyone in the district attorney s office reviewing EQUITABLE RELIEF -

13 Case:-cv-00-KAW Document Filed0/0/ Page of 0 evidence and determining there is probable cause to believe the check writer wrote a check, knowing it would not clear, with the intent to defraud the merchant; c. District attorneys rarely review the facts related to the dishonored checks referred to BounceBack and, if a district attorney does investigate a case, he or she does so only after BounceBack s collection efforts are complete; d. The address, website, and phone number on the form letters are contact points for BounceBack, not the district attorney; e. The fees that BounceBack demands are not permitted by California law and BounceBack does not require check writers to attend the Financial Training class for which it demands fees. BounceBack does not send files to district attorneys for prosecution review if the check writer has paid all the fees demanded but has not attended the Financial Training class. VIII. CLASS ACTION ALLEGATIONS. This action is brought as a class action, as follows: Umbrella class: All persons to whom BounceBack sent a collection demand in connection with a returned check, purporting to be a letter from a California county district attorney, within four years preceding the filing of this Complaint. FDCPA Subclass: All members of the umbrella class, from whom BounceBack attempted to collect, or collected money, within one year preceding the filing of this Complaint, for checks written for personal, family, or household purposes.. Plaintiffs allege the umbrella class and FDCPA subclass (collectively Class ) are so numerous that joinder of all members is impractical. The umbrella class contains in excess of 0,000 class members and the FDCPA subclass includes thousands of class members.. The numerous questions of law and fact common to the Class include: a. Whether BounceBack made demands to all Class members that are the same or similar to the demands made to Plaintiffs; b. Whether BounceBack falsely represents that its collection letters are lawfully authorized, issued, or approved by a state official; c. Whether the FDCPA governs BounceBack s collections practices; EQUITABLE RELIEF -

14 Case:-cv-00-KAW Document Filed0/0/ Page of d. Whether BounceBack s collections practices are unfair, fraudulent, or unlawful; e. Whether BounceBack fails to provide the validation notice required by the FDCPA; f. Whether BounceBack fails to provide the debt collection warning required by the FDCPA; 0 g. Whether BounceBack threatens to take any action that cannot legally be taken or that is not intended to be taken; h. Whether BounceBack falsely represents the character, amount, or legal status of debts; i. Whether BounceBack represents or implies that nonpayment of debts will result in the arrest or criminal prosecution of check writers when such action is not intended; j. Whether BounceBack collects or attempts to collect fees that are not permitted by law; k. Whether BounceBack uses any business, company, or organization name other than BounceBack s true name; and l. Whether BounceBack is engaged in the unauthorized practice of law.. Plaintiffs claims are typical of the claims of the Class. All claims of Plaintiffs and the Class are based on the same facts and legal theory.. Plaintiffs will fairly and adequately protect the interests of the Class. They have retained counsel who are experienced in handling class actions and consumer debt cases. Neither Plaintiffs nor their attorneys have any interests that may conflict with the interests of the Class.. The Class can be certified under Federal Rule of Civil Procedure (b)() because BounceBack acts on grounds generally applicable to the Class such that declaratory and injunctive relief with respect to the Class as a whole is appropriate.. The Class can also be certified under Rule (b)() because: EQUITABLE RELIEF -

15 Case:-cv-00-KAW Document Filed0/0/ Page of 0 a. Questions of law and fact common to the members of the class predominate over any questions affecting an individual member; and b. A class action is superior to other available methods for the fair and efficient adjudication of the controversy. 0. Plaintiffs request certification of the Class pursuant to Rule (b)(), or, in the alternative, a hybrid class combining the elements of Rule (b)() for monetary damages and Rule (b)() for declaratory and equitable relief, including injunctive relief and restitution. IX. CLAIMS FOR RELIEF COUNT I (Fair Debt Collection Practices Act). Plaintiffs reallege and incorporate by reference each and every allegation set forth in the preceding paragraphs.. The FDCPA prohibits debt collectors from using false, deceptive or misleading communications to collect a debt, U.S.C. e, e(0), or from using unfair or unconscionable means to collect a debt, U.S.C. f. BounceBack s Check Enforcement Program is grounded in deception and unfairness, in violation of these general prohibitions.. Additionally, BounceBack violate specific FDCPA provisions by disguising who they are, how much a check writer owes, and what will happen if a check writer does not pay, as follows: a. FALSE IDENTITY: BounceBack s standard practice is to send collection letters on official district attorney letterhead to convey the false impression that its letters were sent by a law enforcement agency, rather than by BounceBack, in violation of U.S.C. e() and (). BounceBack s standard form letters include the false representation that BounceBack is a law office, namely, the office of the county district attorney, in violation of U.S.C. e(). Additionally, BounceBack violates U.S.C. d() by placing telephone calls to subclass members without any meaningful disclosure of its identity. EQUITABLE RELIEF -

16 Case:-cv-00-KAW Document Filed0/0/ Page of 0 b. FALSE THREATS: BounceBack s standard form letters include the false threat that the failure to pay all amounts demanded will result in the arrest or imprisonment of the check writer, in violation of U.S.C. e() (). BounceBack has neither the authority, nor the intent to initiate a prosecution, and most check writers from whom BounceBack attempts to collect are never prosecuted, even if the check writer pays less than the full amount demanded. c. UNLAWFUL FEES: The fees that BounceBack charges for its Check Enforcement Program are not permitted by California law. BounceBack violates U.S.C. e()(a) and f() by collecting and attempting to collect these fees. d. MISSING WARNINGS AND DISCLOSURES: The initial form letter that BounceBack sends to check writers, of which Exhibits and are examples, does not contain the validation notice required by U.S.C. g(a), nor does BounceBack provide the validation notice within five days of the initial communication. None of the collection letters that BounceBack sends contain the debt collection disclosure notice required by U.S.C. e().. As a direct and proximate cause of BounceBack s violations of the FDCPA, Plaintiffs and the Class have suffered actual damages, including unlawful collection charges and other monetary losses. In addition, Plaintiffs and the Class are entitled to recover statutory damages of up to $,000 for each named plaintiff, and such amounts as the court may allow for all other class members not to exceed the lesser of $00,000 or one percent of the net worth of each debt collector, plus the costs of the action, including reasonable attorneys fees. COUNT II (Cal. Bus. & Prof. Code 0 et seq.). Plaintiffs reallege and incorporate by reference each and every allegation set forth in the preceding paragraphs.. The California Unfair Competition Law, ( UCL ), California Business & Professions Code 0, et seq., prohibits business acts or practices that are (a) unlawful, (b) unfair, or (c) fraudulent. The UCL provides that a court may order equitable relief, including injunctive relief and restitution to affected members of the general public as remedies for any violations of the UCL. EQUITABLE RELIEF -

17 Case:-cv-00-KAW Document Filed0/0/ Page of 0. The Diversion Act, California Penal Code 00.0, et seq., provides the exclusive authorization for Bad Check Diversion Programs. BounceBack s Check Enforcement Program does not comply with the requirements of the Act.. The Diversion Act only authorizes diversion programs where a district attorney conducts an individualized review of evidence and determines there is probable cause to conclude that an individual has violated Penal Code section a, by writing a check, knowing it would not clear and intending to defraud the check payee. When a district attorney makes a probable cause determination, he or she is then required to consider each of the five factors listed in Penal Code section 00. and decide whether referral to a diversion program is appropriate.. The Diversion Act authorizes only a $0 administrative fee, and the returned check fee actually charged by the check recipient s bank, up to a maximum of $. No class fee may be charged unless ordered by a court after a check writer has actually been charged and convicted for intentionally writing a dishonored check. Cal. Penal Code 00.(b). 0. BounceBack routinely violates the FDCPA and fails to conform to the requirements and limitations of the Diversion Act.. California Business and Professionals Code section prohibits the unauthorized practice of law. The American Bar Association has investigated the practice of private companies like BounceBack sending collection letters on the letterhead of prosecutors. The ABA has determined that this conduct is deceptive and that the companies that send such letters are engaged in the unauthorized practice of law. See Exhibit. By sending letters on the letterhead of the office of local district attorneys, BounceBack holds itself out as a law office, despite holding no license to practice law, and is engaged in a deceptive and unlawful practice.. BounceBack s collection practices are fraudulent because they are likely to deceive the public. BounceBack s false assertion of official authority; incomplete description of bad check criminal liability under California law; warning of nonexistent criminal charges ; false threats of prosecution; demands for unlawful fees in order to avoid prosecution, regardless of the facts of a EQUITABLE RELIEF -

18 Case:-cv-00-KAW Document Filed0/0/ Page of 0 particular case; and all the other false and misleading aspects of BounceBack s collection scheme are likely to deceive the public.. The acts and practices complained of herein constitute unfair business practices because these acts and practices are patently unfair, substantially injurious to the general public, and offensive to public policy.. Each Plaintiff has lost money or property as a result of BounceBack s multiple violations of the UCL.. Plaintiffs are entitled under the UCL to enjoin these acts and practices and to obtain restitution of all funds obtained by BounceBack through the use of these unlawful, deceptive and fraudulent acts and practices. Pursuant to the UCL, Plaintiffs, individually and on behalf of all members of the general public have been, or may be, subjected to BounceBack s unlawful and fraudulent business acts and practices are entitled to declaratory and preliminary and permanent injunctive relief prohibiting such practices in the future, and other orders as may be necessary to restore to any person in interest, any money or property, real or personal, which BounceBack acquired by means of such unlawful, unfair and fraudulent business practices.. In addition, Plaintiffs and the Class are entitled to recover reasonable attorneys fees, costs, and expenses incurred in bringing this action under California Code of Civil Procedure 0.. COUNT III (Fraudulent Misrepresentation). Plaintiffs reallege and incorporate by reference each and every allegation set forth in the preceding paragraphs.. A district attorney may not refer a person for diversion under the Diversion Act unless there is probable cause to believe the check writer committed a violation of Section a. Cal. Penal Code 00.0, et seq.. The fees that a district attorney may collect from a check writer who is participating in a lawfully operated bad check diversion program are limited by statute. Cal. Penal Code EQUITABLE RELIEF -

19 Case:-cv-00-KAW Document Filed0/0/ Page of , et seq. The statute does not permit any fees other than an administrative fee and a returned item fee. 0. Beginning more than four years prior to the filing of this lawsuit, BounceBack, Inc., Mr. Krieg, Stone Fence Holdings, and Check Collection shared authority to determine and approve the content of the form letters and other communications sent to Plaintiffs and the Class in connection with the operation of BounceBack s Check Enforcement Program. They made a conscious decision to approve these communications.. BounceBack knows about a consistent line of decisions issued by courts in California for more than the last ten years, holding that entities operating programs materially the same as the Check Enforcement Program are engaged in debt collection, and that it is a misrepresentation to state that a check writer risks prosecution when no prosecutor has reviewed evidence regarding the check writer and determined that prosecution is likely if the check writer fails to participate in a diversion program. BounceBack knew or should have known that in Schwarm v. Craighead, F. Supp. d 0 (E.D. Cal. 0), the district court ruled that class fees and other fees not expressly authorized in the Diversion Act are not permitted by law. BounceBack also knew or should have known that on June, 0, in del Campo v. American Corrective Counseling Service, Inc., F. Supp. d (N.D. Cal. 0), the court ruled that collection letters printed on district attorney letterhead by a private debt collector were misleading because they contained false threats of prosecution and demanded fees for financial training courses not permitted by law.. The standard form letters BounceBack sent to check writers throughout the class period contain multiple implied and express representations that there is a likelihood that the check writer will be prosecuted if he or she does not pay the fees BounceBack demands, which fees far exceed those permitted by law. BounceBack also makes these representations in verbal communications with check writers.. The standard form letters that BounceBack has sent throughout the class period contain the following misrepresentations: EQUITABLE RELIEF -

20 Case:-cv-00-KAW Document Filed0/0/ Page of 0 a. A misrepresentation that its letters to check writers are official communications from the local district attorney or from persons employed within the district attorneys office and directly supervised by attorneys within that office; b. A misrepresentation that, preceding the communication to the consumer, the district attorney named in the notice received a crime report alleging that the consumer engaged in criminal conduct, that the district attorney reviewed evidence and determined the report has merit, and that the district attorney is now contacting the check writer about alleged criminal activity; c. A misrepresentation that the consumer meets the legal definition of a person who can be put into a bad check diversion program and has been properly referred to such a program by a district attorney; d. A misrepresentation that the fees demanded are authorized by an official bad check diversion program, that the fees must be paid to avoid the risk of prosecution, and that a district attorney is demanding the fees; e. A misrepresentation that a failure to pay all the fees demanded and to attend a financial education class will likely trigger criminal prosecution, which could result in arrest or imprisonment; f. Each Defendant knew, at all times when determining and approving the content of the letters, that the representations regarding the fees owed and the risk of prosecution, were, and are false, or were made with reckless disregard for the truth or falsity of those representations; g. BounceBack made these representations with the intention that the check writers rely on the representation and pay the fees that BounceBack demand. Plaintiffs and Class members who paid fees did, in fact, rely on these representations; and h. As a result of the misrepresentations described herein, Plaintiffs and members of the Class have paid unlawful fees to BounceBack totaling millions of dollars. EQUITABLE RELIEF -

21 Case:-cv-00-KAW Document Filed0/0/ Page of 0 COUNT VI (Negligent Misrepresentation). Plaintiffs reallege and incorporate by reference each and every allegation set forth in the preceding paragraphs.. In communicating with check writers in connection with its Check Enforcement Program, BounceBack assumed a duty to be truthful in its statements to check writers. Complaint.. BounceBack breached this duty by making the false representations described in this. Relying on these representations, Plaintiffs and the Class have paid money that they did not owe, including, but not limited to class fees, returned item fees, administrative fees and other assessments.. The Class has paid millions of dollars in these unlawful fees. X. PRAYER FOR RELIEF For these reasons, Plaintiffs request that judgment be entered for them and for members of the Class, against the BounceBack as follows: UCL;. A declaration that BounceBack s collection practices violate the FDCPA and the. A preliminary and permanent injunction prohibiting BounceBack, its officers, employees, agents, affiliates and all those acting in concert with them, from: a. Participating in the collection of checks pursuant to the Bad Check Diversion Act unless all requirements of the statute are met, b. Communicating with check writers without disclosing in each communication that it is a debt collector, not a district attorney s office, to, class fees, and c. Seeking to collect, or collecting, any unlawful fees, including, but not limited d. Making false representations in their communications with check writers;. Certification of the proposed umbrella class and subclass set forth in this Complaint; EQUITABLE RELIEF -

22 Case:-cv-00-KAW Document Filed0/0/ Page of 0. Appointment of Plaintiffs as representatives of the Class;. Appointment of the undersigned counsel as counsel for the Class;. Actual damages;. Restitution;. Statutory damages pursuant to U.S.C. k;. Punitive damages; 0. Costs and reasonable attorneys fees;. Leave to amend this Complaint to conform to the evidence presented at trial; and. Such other and further relief as the Court deems proper. XI. DEMAND FOR TRIAL BY JURY Plaintiffs demand trial by jury under Rule (b) of the Federal Rules of Civil Procedure of all issues triable of right by a jury. EQUITABLE RELIEF - Respectfully submitted, Dated: August, By: /s/ Michael F. Ram Michael F. Ram, SBN 00 mram@rocklawcal.com Karl Olson, SBN 00 kolson@rocklawcal.com Susan S. Brown, SBN sbrown@rocklawcal.com RAM, OLSON, CEREGHINO & KOPCZYNSKI Montgomery Street, Suite San Francisco, California Telephone: () - Facsimile: () - Beth E. Terrell, CSB # bterrell@tmdwlaw.com TERRELL MARSHALL DAUDT & WILLIE PLLC North th Street, Suite 00 Seattle, Washington 0- Telephone: () -0 Facsimile: () 0-

23 Case:-cv-00-KAW Document Filed0/0/ Page of 0 Paul Arons, SBN 0 LAW OFFICE OF PAUL ARONS lopa@rockisland.com Spring Street, Suite 0 Friday Harbor, Washington 0 Telephone: (0) - Facsimile: (0) - Deepak Gupta deepak@guptawessler.com GUPTA WESSLER PLLC th Street, NW Washington, DC 00 Telephone: () - Facsimile: () - Attorneys for Plaintiffs EQUITABLE RELIEF -

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32 Case:-cv-00-KAW Document Filed0/0/ Page of AMERICAN BAR ASSOCIATION STANDING COMMITTEE ON ETHICS AND PROFESSIONAL RESPONSIBILITY Formal Opinion November, Prosecutors and Debt Collection Companies A prosecutor who provides official letterhead of the prosecutor s office to a debt collection company for use by that company to create a letter purporting to come from the prosecutor s office that implicitly or explicitly threatens prosecution, when no lawyer from the prosecutor s office reviews the case file to determine whether a crime has been committed and prosecution is warranted or reviews the letter to ensure it complies with the Rules of Professional Conduct, violates Model Rules.(c) and.(a). Introduction Debt collection companies are contracting with local prosecutors offices to use prosecutor letterhead to create and mail collection demand letters. These demand letters typically cite the criminal law allegedly violated (such as making or delivering a check with insufficient funds) and advise the debtor that she/he could avoid the possibility of further action from the prosecutor s office by paying the amount of the debt, and in a significant number of cases, a substantial additional fee to attend a mandatory debtor education course. Typically, no lawyer in the prosecutor s office reviews the case file to determine whether a crime has been committed and prosecution is warranted or reviews the letter to ensure it complies with the Rules of Professional Conduct prior to the mailing. The Committee concludes that prosecutors involved in this practice violate Model Rules of Professional Conduct.(c) and.(a). Application of the Rules of Professional Conduct to Prosecutors: Jurisdictional Statement There is no question that prosecutors are subject to the rules of professional conduct. As ABA Formal Opinion -0, Conflicts in Representing Government Entities (), explained, While lawyers who serve as public officers or employees are singled out for special treatment under a few rules, e.g., Rule. ( Successive Government and Private Employment ) and. ( Special Responsibilities of a Prosecutor ), it has generally been assumed correctly in our. For a full discussion of this country-wide practice, see Jessica Silver-Greenberg, In Prosecutors, Debt Collectors Find a Partner, NY TIMES (Sept., ), Joel Cohen, When District Attorneys Become Bill Collectors, AMERICAN LAWYER (Nov., ), Mosi Secret, Bounced Checks: How Local District Attorneys Get a Cut of the Debt Collection Business, PROPUBLICA (Mar., 0), While programs vary depending on the terms of the contract between the prosecutor s office and the collection company, one thing does not: prosecutors allow debt collection companies to misrepresent the author and sender of this threatening letter. To review a copy of a debt collection letter issued by collection companies on prosecutor letterhead see Letter from Bad Check Restitution Program, NY TIMES (Sept., ), In, the Oregon legislature passed a state bill prohibiting prosecutors from allowing collection companies to use their letterhead. OR. REV. STAT.. (), available at COMPLAINT FOR DAMAGES, INJUNCTIVE AND OTHER EQUITABLE RELIEF -

33 Case:-cv-00-KAW Document Filed0/0/ Page of Formal Opinion view that such lawyers are in most other respects subject to the same obligations in representing their client that apply to lawyers representing private clients. Prosecutors acknowledge their ethical obligations as lawyers. Most prosecutors fulfill those obligations conscientiously and live up to the even higher responsibility of a minister of justice, as prescribed by Comment [] to Rule.. However, occasionally practices have taken hold in prosecutors offices that, while driven by budgetary exigencies, fall short of their higher calling. It is such practices that have created the need for this opinion. Model Rule., Misconduct A prosecutor who enters into the type of agreement described in this opinion violates Model Rule.(c), which provides that: It is professional misconduct for a lawyer to engage in conduct involving dishonesty, fraud, deceit or misrepresentation. In, the ABA issued Formal Opinion, which determined that it would be unethical for a lawyer to allow a client to use the lawyer s stationery to deceive a debtor into believing that the debt had been referred to the lawyer and that the lawyer had written the collection letter. Specifically, the Committee noted that the practice violated Canon, which read in part: The office of attorney does not permit, much less does it demand of him for any client, violation of law or any manner of fraud or chicane. He must obey his own conscience and not that of his client. The Committee explained that a lawyer who allowed a client to send a collection letter on the lawyer s stationery was a party to deception and violated Canon. Today, Model Rule.(c) addresses this same conduct. To the same effect is a joint opinion of the New Jersey Committee on the Unauthorized Practice of Law and Advisory Committee on Professional Ethics, which determined that a lawyer who sold his name and letterhead to a collection agency in exchange for a monthly fee violated Rule.(c). The conduct enabled the debt collection agency to deceive the debtor into believing that the lawyer was about to institute proceedings to collect the alleged debt by sending a collection letter on firm stationery, giving the debtor reason to believe that there has been an evaluation by an attorney of the claim asserted with a determination by the attorney that proceedings to ensure collections are warranted. Such letters written on prosecutors letterhead are even more deceptive than the letters dealt with in ABA Formal Opinion and in the New Jersey Joint Opinions and. This is because they misuse the criminal justice system by deploying the apparent authority of a prosecutor to intimidate an individual. They carry with them the implication that the prosecutor or associates in the prosecutor s office have reviewed the facts and found that a crime has been. ABA Canons of Prof l Ethics, Canon (0).. N.J. Comm. on the Unauthorized Practice of Law & Advisory Comm. on Prof l Ethics, Joint Ops. & (). COMPLAINT FOR DAMAGES, INJUNCTIVE AND OTHER EQUITABLE RELIEF -