ACCS Loses Sovereign Immunity Case in California

The 9th U.S. Court of Appeals, San Francisco, ruled this week that a collection firm is not protected against lawsuits when it represents district attorneys in trying to collect on bad checks.

The appeals court ruled that American Corrective Counseling Services, San Clemente, Calif., is not “entitled to state sovereign immunity.”

According to court documents, the case grows out of the company’s contract with the Santa Clara County district attorney. Under the contract, ACCS was entitled to collect a $100 “class” fee, 60 percent of all administrative fees, along with various additional fees and late charges in exchange for the county’s bad check program.

The court ruled that ACCS’s contract is clear that the company is an independent contractor, yet ACCS allegedly sent a letter to a debtor purporting to be from the district attorney. The letter stated that the district attorney’s office “had received an incident report alleging that you have violated Penal Code 476 (a) of the California State Statute: Passing a Bad Check” and advising the woman to pay $265.02, including the $95.02 of her bounced check, plus fees.

When she sent in only the original amount, the debtor received a subsequent letter warning that an action could be filed in municipal court. She sued ACCS and the district attorney, claiming violations of federal and state fair debt collection laws. In response, ACCS and the DA claimed sovereign immunity, the subject of the appeals court’s ruling.

This marked the second time ACCS had sought protection via “sovereign immunity.”

In November of 2007, the U.S. Court of Appeals for the Eleventh Circuit in Atlanta ruled that ACCS was not shielded from civil cases because of its relationship with a public entity (" Court Says No Immunity for Government-Outsourced Collectors," Nov. 7, 2007). Sovereign immunity, the court said, “has never been held to apply simply because an independent contractor performs some government function.”

ACCS had previously been sued in a case related to sovereign immunity by a group of Florida consumers over fees it collected on bad checks for local prosecutors. In November 2006, a federal district court in Florida ruled in ACCS favor, deciding it had the same sovereign immunity as does the state, because ACCS is a state contractor, thereby effectively dismissing the civil case against ACCS.