Tuesday, September 5, 2023

FYI: Cal App Ct (4th Dist) Reverses Dismissal, Holds Rosenthal Act Covers Debts "Alleged to Be Due and Owing"

The Court of Appeals of California (Fourth District) recently reversed a trial court's dismissal of a putative class action alleging solar energy system provider violated the Rosenthal Act, California's parallel version of the federal Fair Debt Collection Practices Act.


In so ruling, the Fourth District concluded that the operative complaint stated a cause of action under the Rosenthal Act because the plaintiff properly alleged injury due to a "consumer credit transaction" that was "alleged to be due or owing", and not simply debt that is in fact due or owing. 


A copy of the opinion is available at:  Link to Opinion


Plaintiff purchased a home with a solar energy system. At the time of plaintiff's purchase, the prior homeowner was under contract with a company (defendant) that owned the solar energy system. The contract between defendant and prior homeowner required the prior homeowner to purchase energy produced by the system by submitting monthly payments to the company. The prior homeowner and plaintiff agreed to prepayment of all remaining monthly payments and a transfer of all solar agreement rights and obligations to plaintiff, except for the monthly payment responsibility.


In conjunction with the sale of the house, prepayment occurred and the parties entered into a transfer of the contract. After the sale of the property, defendant began sending plaintiff monthly bills.


Defendant demanded plaintiff make the monthly payments under the solar agreement. Plaintiff called defendant and explained the situation. However, plaintiff continued to receive additional bills and at least one late payment notice where defendant identified itself as a debt collector. Plaintiff contacted Defendant via phone and email but was unable to resolve the issue.


Ultimately, plaintiff filed a putative class action lawsuit against the defendant. Plaintiff alleged the defendant's conduct violated the California's Unfair Competition Law, Consumer Legal Remedies Act (CLRA) and the Rosenthal Act. The trial court dismissed Plaintiff's complaint for failure to state a claim. Plaintiff appealed.


On appeal, the Court of Appeals noted that the issue presented on appeal hinged on the statutory interpretation of certain provisions of the Rosenthal Act. Plaintiff argued the trial court erred in concluding the operative complaint did not state a cause of action under the statutory scheme because Plaintiff failed to allege a consumer credit transaction, as that term is defined by statute.


In addition, Plaintiff contended the trial court overlooked a key aspect of the statutory definitions which encompassed debt alleged to be due or owing, not simply debt that is in fact due or owing.


Defendant argued that the trial court's ruling was correct and plaintiff did not acquire anything on credit and, therefore, was not party to a consumer credit transaction to which the statutory scheme applies.


In California, the Rosenthal Act aims "to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts." (§ 1788.1, subd. (b).) A "consumer debt" is defined to be "money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction." (§ 1788.2, subd. (f).)  Additionally, it requires, "debt collector[s] collecting or attempting to collect a consumer debt" to comply with the provisions of its federal counterpart, the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. § 1692 et seq.). (§ 1788.17; Davidson, supra, 21 Cal.App.5th at p. 295.)


The Rosenthal Act also defines a debt collector as "any person who, in the ordinary course of business, regularly, on behalf of that person or others, engages in debt collection." (§ 1788.2, subd. (c).) and a "consumer credit transaction" as "a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from the other person primarily for personal, family, or household purposes." (§ 1788.2, subd. (e).


Under the Rosenthal Act, for a debt collection activity concerning money to be covered it must involve money due or owing, or alleged to be due or owing, by reason of a transaction in which property, services, or money is acquired on credit primarily for personal, family, or household purposes.


The Court of Appeals held that the allegations in plaintiff's complaint that defendant sent plaintiff bills and late payment notices about money which defendant claimed plaintiff owed satisfied the "alleged to be due or owing" component of the Rosenthal Act. It was undisputed that the plaintiff was not the individual who owed money to the defendant, but the Court of Appeals noted that this distinction did not mean that plaintiff could not state a claim against the defendant under the Rosenthal Act.


Next, the Court of Appeals noted how services under the solar agreement were services covered under the Rosenthal Act because the services were acquired on credit primarily for personal, family, or household purposes and therefore constituted a consumer credit action. See Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 294. The Court further noted that it was irrelevant that all money due under the solar agreement was already paid and irrelevant that plaintiff was not a party to the solar agreement. The Court of Appeals clarified that their focus on appeal was what defendant's debt collection practices said about the supposed debt, and how defendant alleged the debt was due owing under the solar agreement.


Accordingly, the Fourth District held that the plaintiff stated a cause of action under the Rosenthal Act, ordered the trial court's judgment reversed with instructions for the trial court to vacate the judgment with instructions to enter a new order overruling the demurrer as to the plaintiff's Rosenthal Act cause of action.




Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com


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