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Prosecutors’ Debt Hounds Fined for Unfair Practices

SACRAMENTO, Calif. (CN) - Having concluded bankruptcy proceedings, a company that collected debts owed to district attorneys' offices must open its purse strings to pay a judgment for unfair debt collection practices, a federal judge ruled.

District Attorney Technical Services contracted with prosecutors that established "bad check restitution and prosecution programs" to collect debts on behalf of merchants that received bad checks.

In 2005, lead plaintiff Kristy Schwarm filed a class action against the company and its founder, Henry Craighead, for violations of the Fair Debt Collection Practices Act. The defendants' demand letters to debtors claimed that the district attorney was investigating a criminal complaint, and the consumer might be arrested if he did not pay various fees, according to Schwarm's complaint.

After the company filed for Chapter 7 bankruptcy, the court stayed Schwarm's action in August 2006 and then lifted it as to Craighead only the following month. In 2008, U.S. District Judge William Shubb found Craighead personally liable for unfair debt collection practices.

Craighead's liability derived from his extensive role within District Attorney Technical Services, which included serving as its founder, CEO and president. His responsibilities involved designing and managing the company's automated software, marketing its products, negotiating contracts with district attorneys' offices, and other duties.

Having lifted the stay against the company, which concluded administration of its estate in bankruptcy court, Shubb ruled on Thursday that Craighead's conduct is indistinguishable from that of District Attorney Technical Services. District Attorney Technical Services did not dispute its liability for $741,000, which was based on "diversion" fees that the company collected from numerous debtors.

Shubb declined to award Schwarm summary judgment for statutory damages or attorneys' fees, and he denied Craighead's bid for reconsideration.

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