The California Penal Code authorizes District Attorneys to prosecute citizens for writing bad checks, when individuals know there are insufficient funds available for a transaction. In order to enforce that law, the Santa Clara County District Attorney's office contracted with American Corrective Counseling Services (ACCS) , a private corporation, to run its "bad check diversion" program in virtually every conceivable way, including contacting offenders, collecting fees, and managing instructive classes.
After Elena Del Campo bounced a check for $95.02, ACCS aggressively pursued her. A letter was sent by ACCS , on the DA's office letterhead, alerting Del Campo of her violation, urging her to attend a "bad check program" to avoid a court appearance, and, requiring her to pay $265.02.
When Del Campo sent ACCS a check for the original amount of the payment (rather than the increased amount demanded), the company sent a second letter threatening court proceedings for her failure to remit the penalty.
Not only did she refuse to pay, Del Campo filed a suit against ACCS and the Santa Clara's DA 's office. In Del Campo v. American Corrective Counseling Services , Del Campo sued on "equal protection" and "due process" grounds, citing several violations of the California Constitution, and of both the California Unfair Business Practices Act (CUBPA) and the federal Fair Debt Collection Practices Act (FDCPA) .
The United States District Court of the Northern District of California dismissed all but the CUBPA and FDCPA claims. And after a stay of several years pending a court decision in Iowa, Del Campo was allowed to amend her complaint to include allegations based on conversion, negligent misrepresentation, and fraudulent misrepresentation.
While both ACCS and the Santa Clara DA claimed "state sovereign immunity," the court found that, because the DA had not acted in a state-related capacity, immunity did not attach. But since the court had dismissed the claims asserted against the DA, the DA was no longer involved in the litigation.
Even though ACCS contended that it acted on the state's behalf when it conducted the program, the District Court denied immunity because the program was a county endeavor and not a state program and ACCS 's involvement was not "a central function of the state government."
On appeal, the Ninth Circuit Court of Appeals affirmed, but for different reasons.
While sovereign immunity applies to state governments, this protection does not extend to many "state-created and quasi-governmental" entities. Given that context, the CA9 believed it needed to be "extremely hesitant to extend this fundamental and carefully limited immunity to private parties whose only relationship to the sovereign is by contract." In fact, the CA9 went as far as to characterize it "strange" to grant immunity to such companies, merely due to their contract status.
Since ACCS lacked immunity from suit, the CA9 affirmed the District Court's order and allowed the litigation to proceed to trial on the issues raised by Del Campo.
Looks like ACCS may end up writing a few checks of its own. (Hope they're good.)
To download a copy of the CA9's decision, please use this link: Del Campo v. Kennedy