The Court of Appeals of California, Fourth District, recently affirmed a trial court's order requiring compliance with an investigative subpoena served by a number of county district attorney's offices.
In so ruling, the Fourth District held:
1) The subpoena respondent could not avoid investigation into whether it was subject to the California Rosenthal Fair Debt Collection Practices Act by asserting that it was not;
2) The subpoena's investigation into the respondent's interactions with certain national banks was not preempted or prohibited by the federal National Bank Act.
This action arose out of an investigation by the district attorney's offices in several counties ("DAs") in California regarding a company's ("Company") compliance with the California Rosenthal Fair Debt Collection Practices Act ("Rosenthal Act") and the federal Telephone Consumer Protection Act ("TCPA").
During the course of the investigation, DAs issued subpoenas to company seeking (1) collection services agreements, and other agreements between Company and its top five clients; (2) all of the call records of debt collection calls made by the top five clients to California residents; (3) the identity of any company that monitored/audited Company for compliance with debt collection practice laws; (4) policies and procedures related to collecting debt in California followed by Company; and (5) organizational charts regarding Company's corporate structure and specific identifying information regarding the structure.
DAs also sought information relating to a specific client ("Client") and a bank, relating to specific policies followed or dialing systems used and all call records of all debt collection calls Company made for Client and bank to residents of California.
Company served its objections and responses, arguing that the requests were a violation of Company's right to privacy and against unreasonable searches and seizures. Company also asserted it did not have any debt collection clients and thus denied having any of the requested agreements with clients, policies and procedures or call logs, relating to consumer debt collection. As to Client and bank, Company provided documents that were in its "custody, possession or control."
DAs eventually petitioned for an order compelling full compliance with the subpoena. Company opposed on the basis that as it was not a debt collector under the Rosenthal Act, and so the subpoena was invalid because it was not reasonably related to an investigation regarding debt collection.
The trial court granted DAs' petition and concluded that Company was a debt collector under the Rosenthal Act, the requests were relevant, and Company's original responses were incomplete. This appeal followed.
On appeal, Company argued that it was not a debt collector under the Rosenthal Act, and thus the trial court erred in ordering compliance with the subpoena. Company also argued that the subpoena was improper in seeking Client's call records in violation of the federal National Bank Act. The Appellate Court found both arguments lacked merit.
The Rosenthal Act defines a debt collector as "any person who, in the ordinary course of business, regularly, on behalf of that person or others, engages in debt collection." Civ. Code, § 1788.2, subd. (c). "The term 'debt collection' means any act or practice in connection with the collection of consumer debts." Civ. Code, § 1788.2, subd. (b).
Company did not dispute that DAs had the authority to investigate whether debt collectors complied with the Rosenthal Act but instead argued that because Company was not a debt collector, the information sought in the subpoena was not reasonably relevant to the authority to investigate compliance with the Rosenthal Act. To support its argument, Company claimed only one percent of its business consisted of outbound collection-related calls, and these calls were made on behalf of only four of Company's many clients.
The Appellate Court found this argument lacked merit, noting an enforcement agency has the power to investigate a matter within its jurisdiction "merely on suspicion that the law is being violated, or even just because it wants assurance that it is not." Brovelli, supra, 56 Cal.2d at p. 529. This power also allows "the authority to conduct an investigation and to subpoena records to determine whether the entity under investigation is subject to the agency's jurisdiction and whether there have been violations of provisions over which the agency has jurisdiction. Millan, Supra, 14 Cal. App: 4thh at p. 487.
Thus, the Appellate Court found that the DAs had the authority to subpoena Company to determine whether it was a debt collector under the Rosenthal Act, and that as such, Company could not resist the subpoena by claiming it was not a debt collector.
The Appellate Court rejected Company's argument that the subpoena violated the federal National Bank Act. As you may recall, the National Bank Act provides: "No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof or by any committee of Congress or of either House duly authorized." See 12 U.S.C.§ 484, subd. (a). State officials "may not exercise visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records of national banks, or prosecuting enforcement actions, except in limited circumstances authorized by federal law." See 12 C.F.R. § 7.4000(a)(1).
The parties agreed that Company was not a national bank subject to the National Bank Act, nut Company argued that the subpoena made an impermissible visitation on Client because (1) such officials were prohibited by the National Bank Act from examining the "records of national banks"; and (2) "[a]ny records [Company] possesse[d] regarding [Bank]" constituted records "of" a national bank within the meaning of the National Bank Act.
The Appellate Court found this argument implausible on its face. The Appellate Court noted the prohibition on "visitation" by state agents is for the protection of the Office of the Comptroller of the Currency's ("OCC") regulatory authority concerning national banks. The OCC however, has no authority to prosecute wrongdoing by third parties that provide services to national banks. Thus, in the view of the Appellate Court, Company's argument would curtail state law enforcement authority arbitrarily, with no federal authority to fill the gap.
The Appellate Court held that the National Bank Act regulations prohibit state officials from examining or requiring production of the records possessed by national banks, but they do not prohibit state officials from examining or requesting the production of other entities records of dealings with national banks.
Thus, the Appellate Court found the trial court's order consistent with the regulations, as it required Company to produce only records in Company's possession.
Accordingly, the Appellate Court affirmed the trial court's order compelling Company comply with the subpoena.
Ralph T. Wutscher
Maurice Wutscher LLP
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