FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MARIBEL JUAN DE DIOS, No. 08-56288
Plaintiff-Appellant,
D.C. No.
v.
2:07-cv-05242-GPS-
INTERNATIONAL REALTY & RC
INVESTMENTS,
OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
George P. Schiavelli, District Judge, Presiding
Submitted January 11, 2011*
Pasadena, California
Filed April 11, 2011
Before: M. Margaret McKeown, William A. Fletcher, and
Richard R. Clifton, Circuit Judges.
Opinion by Judge McKeown
*The panel unanimously concludes that this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
4913
4916 DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS
COUNSEL
Yevgeniya Lisitsa, Lisitsa Law Corporation, Los Angeles,
California, for the plaintiff-appellant.
Peter L. Weinberger, Peter L. Weinberger & Associates, Los
Angeles, California, for the defendant-appellee.
OPINION
McKEOWN, Circuit Judge:
Congress passed the Fair Debt Collection Practices Act (the
“Act”) to “eliminate abusive debt collection practices by debt
collectors.” 15 U.S.C. § 1692(e). The Act broadly applies to
any business that uses an instrumentality of interstate com-
merce to collect a debt on its own or another’s behalf. Id.
§ 1692a(6). This appeal centers around one of several narrow
exclusions in the Act, which exempts as a debt collector any
person collecting “a debt which was not in default at the time
it was obtained by such person.” Id. § 1692a(6)(F)(iii)
DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS 4917
(emphasis added). We conclude that the residential property
manager in this case was not a debt collector because it
acquired the debt before default, thus exempting the manager
from the Act.
I. BACKGROUND
In 2001, Maribel Juan De Dios rented an apartment in Los
Angeles. After seeking an exemption from the rent stabiliza-
tion law, in 2006 a new landlord began increasing De Dios’s
monthly rent to amounts De Dios considered excessive. De
Dios initially paid under protest, but then ceased payment of
the increased rent.
Meanwhile, between late 2005 and June 2006, the property
was in receivership. The court-appointed receiver retained his
company, International Realty & Investments, Inc.
(“International Realty”), as the agent to manage and collect
rents on the property.1 Once the owner, Norton Community
Apartments, L.P., regained control of the property from the
receiver, Norton signed a “Property Management Agreement”
with International Realty to continue its services as the prop-
erty manager, beginning July 1, 2007.
In July 2006, various tenants, including De Dios, sued Nor-
ton in state court over the rent dispute and other claims. Nor-
ton agreed not to file an unlawful detainer action if De Dios
(and other tenants) continued to pay the pre-increase rent
amount until there was a judicial ruling on the issue (the
“Stipulated Forbearance”). Almost a year later, the Stipulated
Forbearance ended with De Dios’s excessive rent claims
being stricken and a negotiated rent increase resolving the
other claims.
1
We take judicial notice, as International Realty requests, of a legible
copy of the state court order appointing the receiver.
4918 DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS
Following resolution of the state court action, in late July
2007 International Realty sent De Dios a letter stating that the
accrued rent from August 2006 to the present was due August
15, 2007 (the “Collection Letter”). Shortly before the due date
of her accrued rent increase, De Dios filed suit in federal
court, alleging that International Realty violated various dis-
closure obligations under the Act. Eight other tenants repre-
sented by the same attorney also filed nearly identical federal
court actions.
After consolidating the nine actions sua sponte, the district
court granted International Realty’s cross-motion for sum-
mary judgment, holding that it was not a debt collector under
the Act because the debt was not “in default” at the time Inter-
national Realty acquired the debt or at the time it sent the Col-
lection Letter.
II. ANALYSIS
A. SUMMARY JUDGMENT—INTERNATIONAL REALTY WAS NOT
A DEBT COLLECTOR
[1] Under the statutory scheme, liability under the Act
requires that the defendant be a “debt collector,” which is
defined as:
[A]ny person who uses any instrumentality of inter-
state commerce or the mails in any business the prin-
cipal purpose of which is the collection of any debts,
or who regularly collects or attempts to collect,
directly or indirectly, debts owed or due . . . another.
15 U.S.C. § 1692a(6).
[2] The statute goes on to provide a series of exemptions.
Among those exemptions, for example, the person who origi-
nated the debt, such as a creditor to whom the debt was origi-
nally owed, is not considered a debt collector. Id.
DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS 4919
§ 1692a(6)(F)(ii). Significantly, the Act also excludes “any
person collecting or attempting to collect any debt owed or
due or asserted to be owed or due another to the extent such
activity . . . (iii) concerns a debt which was not in default at
the time it was obtained by such person.” Id.
§ 1692a(6)(F)(iii) (emphasis added).
International Realty claims that as a property manager it
does not fall within the primary definition of debt collector
and that, in any event, it is not a debt collector because the
debt was not “in default” when International Realty acquired
it. Rather than deciding whether a debt servicer falls under the
primary definition of a debt collector, we follow the simpler
path. Crediting the undisputed chronology related to the debt,
it becomes clear that International Realty acquired the debt
before it was payable. It follows as a matter of logic that a
debt not yet payable cannot be in default.
International Realty first entered the picture in February
2006, when the receiver retained it as the property manage-
ment company. During its tenure under the receiver, Interna-
tional Realty had the responsibility for collecting rents. That
responsibility continued when the owner signed a new con-
tract in June 2006. As a consequence of the Stipulated For-
bearance, De Dios’s rent increase obligation was held in
abeyance pending a judicial determination. Until the state
court ruled against her in July 2007, De Dios had no obliga-
tion to pay the increased rent.
[3] The Collection Letter was not sent until July 25, 2007.
That letter stated that rent was due from August 1, 2006 and
that such rent was payable August 15, 2007. International
Realty obtained the right to collect the rent long before any
of these dates. Even taking the most conservative date of
August 1, 2006—the retroactive due date specified in the col-
lection letter—the company had already been retained to col-
lect rent on behalf of the receiver and then the owner. Indeed,
by the terms of the Collection Letter itself, the rent was not
4920 DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS
due until August 15, 2007—long after International Realty
took up its role as manager and collector of the rent.2
[4] Although the Act does not define “in default,” courts
interpreting § 1692a(6)(F)(iii) look to any underlying con-
tracts and applicable law governing the debt at issue. See, e.g.,
Fed. Trade Comm’n, Advisory Op. n.2 (April 25, 1989)
(“Whether a debt is in default is generally controlled by the
terms of the contract creating the indebtedness and applicable
state law.”), available at www.ftc.gov/os/statutes/fdcpa/
letters/cranmer.htm; Berndt v. Fairfield Resorts, Inc., 339 F.
Supp. 2d 1064, 1068-69 (W.D. Wis. 2004) (examining plain-
tiff ’s timeshare purchase contract and defendant’s manage-
ment agreement to determine if overdue association fees were
in default); Skerry v. Mass. Higher Educ. Assistance Corp., 73
F. Supp. 2d 47, 52-54 (D. Mass. 1999) (applying federal regu-
lations governing student loans at issue to determine if they
were in default).3 Here, the Stipulated Forbearance held the
debt in suspension and the Collection Letter sought payment
of amounts due prospectively. Even ignoring International
2
The district court cited the statute accurately, but mistakenly focused
on whether the debt was in default when the company attempted to collect
it, rather than when the company acquired the debt. We undertake the cor-
rect inquiry, and may affirm on any ground supported by the record. Atel
Fin. Corp. v. Quaker Coal Co., 321 F.3d 924, 926 (9th Cir. 2003) (per
curiam).
3
The Act’s legislative history is consistent with construing “in default”
to mean a debt that is at least delinquent, and sometimes more than over-
due. See S. Rep. No. 95-382 (1977) (debt collector does not include those
“mortgage service companies and others who service outstanding debts for
others, so long as the debts were not in default when taken for servicing”),
reprinted in 1977 U.S.C.C.A.N. 1695, 1698; Fed. Trade Comm’n, Staff
Commentary on the Fair Debt Collection Practices Act § 803, 53 Fed.
Reg. 50097, 50103 (Dec. 13, 1988) (exemption in § 1692a(6)(F)(iii) was
intended to apply to mortgage companies and other parties “whose busi-
ness is servicing current accounts”), available at www.ftc.gov/os/statutes/
fdcpa/commentary.shtm#802 (emphasis added); accord FTC v. Check
Investors, Inc., 502 F.3d 159, 173 (3d Cir. 2007); Schlosser v. Fairbanks
Cap. Corp., 323 F.3d 534, 538 (7th Cir. 2003).
DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS 4921
Realty’s role during the receivership, by June 2006 it had
authority to collect the rent which was not yet in default.
The Seventh Circuit addressed the forbearance scenario in
Bailey v. Security National Servicing Corporation, 154 F.3d
384 (7th Cir. 1998). After plaintiffs defaulted on their mort-
gage, they signed a forbearance agreement with the U.S.
Department of Housing and Urban Development (“HUD”),
agreeing to make a series of payments over time to bring their
mortgage current. Id. at 386. HUD later sold the plaintiffs’
loan to a private lender. Id. The lender sent plaintiffs a letter
advising them of the final four payments due on the loan and
stating that they could be in default if the payments were not
made. Id. Like International Realty, the lender argued that it
was not subject to the Act because the letter was a warning
sent prior to the debt being due. Id. at 387. Agreeing, the court
noted that although the plaintiffs were in default under the
mortgage, like De Dios, they were not in default under the
forbearance agreement. Id. 387-88. The court explained:
The important letter . . . does not “demand” any pay-
ments whatsoever, but merely informs the Baileys
about “the current status” of their account. The due
dates listed in the letter are all prospective. Surely
this is not the type of dunning letter that describes a
communication related to “the collection” of a debt.
Id. at 388-89 (emphasis added).
[5] In another strikingly similar case, the district court in
Franceschi v. Mautner-Glick Corporation considered the
effect of a settlement agreement on a tenant’s rental obliga-
tion. 22 F. Supp. 2d 250, 253 (S.D.N.Y. 1998). Like the state
court determination here, a settlement agreement resolved the
amount of overdue rent. Id. at 251. Because the property man-
agement agent obtained the right to collect rents on the land-
lord’s behalf before the rent became due under the settlement
agreement, the agent was not collecting a debt in default when
4922 DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS
it sent a demand letter for the remaining, disputed portion of
overdue rent. See id. at 253. The same analysis precludes De
Dios’s claim under the Act.
De Dios’s remaining arguments are unpersuasive. The
Property Management Agreement between International
Realty and the owner was not, as De Dios claims, invalid. The
receivership order restricted the receiver from contracting
with a party to the lawsuit. International Realty was not, how-
ever, a party to the suit, and, in any event, any such restriction
ended when the receivership was effectively terminated. Nor
had the Property Management Agreement expired when Inter-
national Realty sent the Collection Letter. Rather, once Inter-
national Realty ceased being the owner’s exclusive agent after
July 2007 (when the Collection Letter was sent), the contract
continued on a non-exclusive basis until terminated by either
party. Finally, there is no support for De Dios’s argument that
the rent increases were not legitimately owed because of cal-
culation errors.
[6] In sum, International Realty is exempt from the defini-
tion of a “debt collector” under § 1692a(6)(F)(iii) because it
obtained the right to collect De Dios’s rent before the debt
was contractually overdue and before it triggered applicable
contractual conditions or state law governing default.
B. SANCTIONS AGAINST DE DIOS’S COUNSEL AND
ATTORNEYS’ FEES AWARD FOR VEXATIOUS MOTION
Two additional rulings by the district court are at issue in
this appeal—sanctions against De Dios’s counsel for filing
multiple identical actions, and an attorneys’ fees award to
defendant for opposing De Dios’s disqualification motion. We
review the district court’s imposition of sanctions and award
of attorneys’ fees for abuse of discretion, see P.N. v. Seattle
Sch. Dist. No. 1, 474 F.3d 1165, 1168 (9th Cir. 2007) (attor-
neys’ fees award); Holgate v. Baldwin, 425 F.3d 671, 675 (9th
Cir. 2005) (Rule 11 sanctions), and we affirm.
DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS 4923
[7] The district court did not abuse its discretion in sanc-
tioning De Dios’s counsel $500 for “vexatious litigation strat-
egy” in filing nine separate but identical actions for alleged
violations of the Act instead of a single action naming all nine
tenants as plaintiffs. In its order to show cause on sanctions,
the district court wrote:
[T]here appears to be no legitimate reason for the fil-
ing of nine individual actions rather than a single
action naming nine Plaintiffs. By filing the case as
they did, Plaintiffs’ counsel unnecessarily multiplied
the costs of litigation and the burden on the Court.
We agree. To begin, counsel failed to file a notice of
related case in violation of the local rules. As referenced in
the court’s detailed findings, counsel attempted to justify her
actions by professing that conflicts in the clients’ respective
settlement positions prevented her from filing one suit. This
argument is singularly unpersuasive. The district court point-
edly noted that “merely filing separate lawsuits does not alle-
viate the ethical issues related to collective representation.”
The district court also documented its concern that some of
the clients undertook the litigation to punish International
Realty rather than to resolve claims under the Act.
Although De Dios is correct that sanctions under 28 U.S.C.
§ 1927 do not apply to complaints or initial pleadings, see
Moore v. Keegan Mgmt. Co. (In re Keegan Mgmt. Co., Sec.
Litig.), 78 F.3d 431, 435 (9th Cir. 1996), the district court had
ample grounds on this record to impose the sanctions under
Rule 11 and its inherent authority to curb abusive litigation
practices. See Fed. R. Civ. P. 11(b)(1) (allowing sanctions for
filings that “harass, cause unnecessary delay, or needlessly
increase the cost of litigation”); Gomez v. Vernon, 255 F.3d
1118, 1133-34 (9th Cir. 2001) (imposing inherent power sanc-
tions for counsel’s abusive tactics that resulted in unnecessary
litigation).
4924 DE DIOS v. INTERNATIONAL REALTY & INVESTMENTS
[8] The district court’s additional sanctions award under 28
U.S.C. § 1927—$12,000 in attorneys’ fees to counsel for
International Realty—arose from De Dios’s motion to dis-
qualify defense counsel because of an alleged conflict of
interest in representing his client. According to De Dios, the
conflict purportedly arose in earlier litigation because defense
counsel, then representing Norton, the property owner, sug-
gested that either International Realty or the receiver, not Nor-
ton, was the proper party defendant. The district court quickly
dispatched this claim, finding that by virtue of a conflict
waiver and an indemnity agreement there was no actual con-
flict. The district court further found that the motion was pro-
cedurally defective—De Dios filed it without complying with
local meet and confer rules, see C.D. Cal. Local Rule 7-3—
and finally that De Dios lacked standing to seek disqualifica-
tion for defense counsel’s alleged breach of duties to his cli-
ent, see Kasza v. Browner, 133 F.3d 1159, 1171 (9th Cir.
1998). It is not surprising that De Dios’s counsel does not
challenge the court’s rulings, as its findings are well grounded
and legally correct. Instead, De Dios pleads that the motion
was not so vexatious as to warrant sanctions and that she was
unaware of the indemnification agreement. Given that there
was no legal basis for the motion, these after-the-fact justifi-
cations do not save the day. The district court did not abuse
its discretion in awarding sanctions under 28 U.S.C. § 1927.
AFFIRMED.