Government contractor not entitled to immunity

The long arm of the law reaches only so far, according to a federal appeals court.

In a win for consumers, a three-judge panel of the 9th U.S. Circuit Court of Appeals ruled this week that a San Clemente debt collection company could be sued for alleged overly aggressive tactics, even when the company is working on behalf of prosecutors.

The appeals court ruled in a lawsuit against American Corrective Counseling Services Inc., which contracts with prosecutors around the country, notifying people who have written bad checks that they may risk criminal prosecution unless they pay collection fees.

Under its arrangement with the Santa Clara County district attorney’s office, the company collects fees and late charges from people who bounce checks at grocery stores, dry cleaners or other commercial establishments. The company, and others like it, typically split their fees with the contracting government agency.

After Elena Del Campo bounced a check for $95.02 that she wrote at a Fry’s Electronics store in Palo Alto, American Corrective wrote her on district attorney’s office letterhead, demanding $265.02 in payment and warning that she had violated state law, Del Campo said in her lawsuit.

After Del Campo sent payment just for the amount of the check, she received a second letter warning that unless she paid the penalties and fees, the district attorney could take legal action, her suit said.

In her suit, she claimed that the company and the district attorney’s office had violated the Fair Debt Collection Practices Act and state statutes. She asked for unspecified damages and an injunction ending the collection practice.

The company moved to dismiss the suit, arguing that as the county’s representative it had immunity. The trial court dismissed parts of Del Campo’s suit but took her side on the debt collection act claim. The company appealed.

In its ruling, the three-judge appeals panel said that “the law makes clear that state sovereign immunity does not extend to private parties.”

The case will go back to U.S. District Court for trial.

Neither the company nor the Santa Clara County district attorney’s office returned calls.

Deepak Gupta, who argued del Campo’s case on behalf of the Washington-based consumer group Public Citizen, said the case could end the practice of hounding bad-check writers with criminal prosecution.

“It’s essentially a criminalization of civil debt collection without a determination that there’s any criminal intent,” he said. “Making a mistake when you bounce a check is not a crime; it’s only a crime when there’s criminal intent.”

Gupta predicted the decision could apply to a “wide range of private contractors” that operate under color of state authority, including private prison operators and security guards as well as debt collectors.

Charles Jenkins, the lawyer for American Corrective, defended the company’s practices. District attorneys require merchants to go through several steps to collect on a bad check before they turn to a contractor, he said, adding, “Before that letter goes out, there’s some very strong indication that the [consumer] intended to defraud.”

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molly.selvin@latimes.com