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Court of Appeal:
Opinion on Strict Liability for Debt Collectors Resurfaces
Holding Is Unaltered: Plaintiff May Make Prima Facie Case Under Rosenthal Act Without Showing That
False Statements Were Made With Knowledge of the Falsity; Good Faith Is Affirmative Defense
By a MetNews Staff Writer
Div. Four of the First District Court of Appeal has declared—for the second time in the same case—that an alleged debtor may establish a prima facie case for Affirmative damages against debt collectors under the Rosenthal Fair Debt Collection Practices Act based on their pursuing efforts to gain satisfaction of a default judgment against her, although that judgment was void, without showing that they knew of the defect.
But, the court added, debt collectors have an affirmative defense of having lacked knowledge of the falsity.
The same panel so held in the case last Oct. 7. However, on Oct. 26, it granted a rehearing to consider whether its opinion, reversing the granting of anti-SLAPP motions, can be squared with the California Supreme Court’s 2016 holding in Baral v. Schnitt that the Schmitt anti-SLAPP statute, Code of Civil Procedure §425.16, may be utilized to attack only portions of a cause action, thus requiring individualized attention to the various allegations.
Acting Presiding Justice Jon B. Streeter authored the new opinion, filed Wednesday; the initial opinion last year was also his. Wednesday’s partially published opinion is basically a reissuance of the first version, but includes Streeter’s explanation that the collection companies had failed to invoke Baral below and that it need not be considered now.
“We now file this revised opinion adhering in all respects to our prior opinion,” Streeter wrote, “but providing further explanation for our determination that we need not address” the debt collectors’ “alternatively stated request for relief under Baral.”
Plaintiff’s Allegations
Plaintiff, Kacie Lynn Young, alleged that in November 2019, her employer told her of an effort to garnish her wages based on a 2010 default judgment against her; the judgment, based on a failure to repay borrowed funds, was for $8,529.93 plus interest; she had no knowledge of that judgment; it was procured based on substitute service having been purportedly effected on her in 2009 at a residence in Burlingame through leaving papers there.
The residence was her family’s home but she had not resided there since 2001, she insisted, although loan documents she signed in 2005 listed the address as where Schmitt presently lived.
She sued on various bases, including an alleged violation of the Rosenthal Act. San Mateo Superior Court Judge Nancy L. Fineman granted the defendants’ anti-SLAPP motion, pursuant to Code of Civil Procedure §425.16, holding that under the second prong of the statute, Young had not shown a probability of prevailing on the merits.
Streeter’s Opinion
Streeter said that the focus of Young’s claim under the Rosenthal Act (Civil Code §1788 et seq.) was an alleged violation of §1788.17 by falsely representing that substitute service had been effected. He declared that, contrary to Fineman’s impression, she did show a probability of prevailing on that cause of action based on not having resided at the place where the summons and complaint were, according to the process server’s declaration, handed to an unidentified male.
(There was no dispute as to the first prong of the anti-SLAPP statute—protected conduct—being met.)
Although the Rosenthal Act does not specify that a plaintiff may maintain an action without alleging that debt collectors knowingly made false representations, Streeter said, a provision of the federal Fair Debt Collection Practices Act (“FDCPA”) makes that clear.
Sec. 1788.17 provides that “every debt collector collecting or attempting to collect a consumer debt shall comply with” specified provisions of the FDCPA, including §1692e. That section declares that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt” without including a scienter requirement.
Streeter wrote:
“[W]e hold that section 1788.17, by its incorporation of title 15 United States Code section 1692e, permits a Rosenthal Act plaintiff to state a prima facie case for liability where a defendant unknowingly made or relied on a false representation about the legal status of a debt or employed a false representation as a means to attempt the collection of a debt.”
Adds Caveat
The jurist added:
“But we so hold with a caveat.”
He said that under the FDCPA, a debt collector will escape liability by establishing, by a preponderance of the evidence, that any misstatement was unintentional and uttered in good faith. This, Streeter noted, is an affirmative defense.
“So too with the Rosenthal Act,” he continued, pointing out:
“Under section 1788.30, subdivision (e), ‘A debt collector shall have no civil liability to which such debt collector might otherwise be subject for a violation of this title, if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted notwithstanding the maintenance of procedures reasonably adapted to avoid any such violation.’ ”
He noted that they debt collectors had not raised §1788.30(e) in the trial court or on appeal and that “[a] this stage, therefore, we deal only with whether Young mounted a prima facie case of liability under section 1788.17.”
The defendants are Midland Funding, LLC and Midland Credit Management, Inc., referred to by Streeter as “the Midland parties.”
He declared that “because Young made a prima facie showing that the Midland parties made a false representation that substituted service was effected on her in 2009, even if it was an unknowing false representation, the court should have denied the Midland parties’ anti SLAPP motions regarding her Rosenthal Act cause of action.”
Validity of Service
The defendants pointed to Evidence Code §647 which says:
“The return of a process server...establishes a presumption, affecting the burden of producing evidence, of the facts stated in the return.”
The presumption is overcome, Streeter said, because the address where service purportedly took place (which Young’s mother, stepfather and brother, who do reside there deny, in declarations, having occurred) was not Young’s place of residence. Too, he noted, Code of Civil Procedure §415.20(b) requires leaving papers with an adult who is “apparently in charge,” relating:
“[T]he process server attested that he served a person who was ‘a competent member of the household,’ not someone ‘apparently in charge.’ ”
The case is Young v. Midland Funding, 2023 S.O.S. 1323.
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