Ninth Circuit: California Law Allows Prejudgment Interest Demand Without Judgment on Debt

FDCPA Debt Collection

On May 12, the Ninth Circuit held that a debt collection letter did not violate the FDCPA or California’s Rosenthal Act where the amount of the debt was certain, even though the debt collector had not yet obtained a judgment. Diaz v. Kubler Corp., 2015 WL 2214634 (9th Cir. May 12, 2015). The debt collector sent a collection letter demanding that the debtor pay an amount reflecting the principal owed plus interest at an annual rate of 10%, which was the rate set forth in California law for contracts that do not stipulate a legal rate of interest. The district court granted summary judgment, holding that the debt collector could not seek to collect prejudgment interest at the statutory rate without first obtaining a judgment for breach of contract. Therefore, the court held, the debt collector had violated the FDCPA and the Rosenthal Act by attempting to collect an amount not authorized by the contract creating the debt or permitted by law. The Ninth Circuit reversed, holding that California Civil Code §3287(a) allows recovery of prejudgment interest from the time that the creditor’s right to recover is “vested,” which occurs at the time “the amount of damages become certain or capable of being made certain, not the time liability to pay those amounts is determined.” Damages “become certain or capable of being made certain” when “there is essentially no dispute between the parties concerning the basis of computation of damages if any are recoverable but where their dispute centers on the issue of liability giving rise to damage.” At that time, prejudgment interest becomes available as a matter of right. Accordingly, the debt collector’s demand for prejudgment interest did not violate the FDCPA or the Rosenthal Act.