Calif. App. Court (6th Dist) Holds Alleged Misidentification of ‘Charge-Off Creditor’ Not ‘Material’

The California Court of Appeal, Sixth Appellate District, recently affirmed the dismissal of a consumer’s California Rosenthal Fair Debt Collection Practices Act claim based on an alleged violation of the federal Fair Debt Collection Practices Act and the California Fair Debt Buying Practices Act in supposedly failing to properly identify the “charge-off creditor.”

In so ruling, the Sixth District held that: (1) A consumer plaintiff seeking to establish a prima facie violation of the Rosenthal Act premised on a misrepresentation in connection with the collection of a debt must show the alleged violation is material, where the alleged state law violation is premised on enumerated provisions of the FDCPA; and (2) Although the collection action complaint at issue was incorrect and did not “reasonably identify” the charge-off creditor in violation of Cal. Civ. Code 1788.58(a)(6), this error did not constitute a de facto “false representation of” the “character, … or legal status of the debt” under 15 U.S.C. § 1692e(2)(A). In other words, the purported misidentification of the charge-off creditor did not implicate the debt’s “character, amount, or legal status.” 15 U.S.C. § 1692e(2)(A).

A copy of the opinion in Aguilar v. Mandarich Law Grp. is available at:  Link to Opinion.

A consumer incurred debt on a consumer credit account with a consumer lender.  The debt was sold and assigned to a trustee, and was eventually sold to a debt buyer, which sued to collect the charged-off debt. The debt buyer dismissed that action without prejudice following the consumer’s attempt to file a cross-complaint (counterclaim) alleging violations of the Rosenthal Act, premised on incorporated provisions of the FDCPA, and an alleged violation of the California Fair Debt Buying Practices Act (CFDBPA) based on the debt buyer’s apparent misidentification of the charge-off creditor as the consumer lender rather than the trustee.

The consumer sued the debt buyer and its counsel, alleging false or misleading representations in the collection action, in violation of the Rosenthal Act. The defendants filed an anti-SLAPP (strategic lawsuit against public participation) motion under California Code of Civil Procedure section 425.16 to strike the Rosenthal Act claim from the consumer’s complaint.

California Code of Civil Procedure section 425.16, commonly known as the anti-SLAPP statute, provides that a cause of action arising from an act in furtherance of a person’s constitutional right of petition or free speech in connection with a public issue is subject to a special motion to strike, unless the plaintiff establishes a probability of prevailing on the claim. Cal. Code Civ. Proc., § 425.16, subd. (b)(1).

A court evaluates a special motion to strike in two steps. The first examines the nature of the conduct that underlies the plaintiff’s allegations to determine whether it is protected by Code of Civil Procedure section 425.16; the second assesses the merits of the plaintiff’s claim. Barry v. State Bar of California (2017) 2 Cal.5th 318, 321.

The trial court granted the defendants’ anti-SLAPP motion and struck the Rosenthal Act claim. The consumer timely appealed.

On appeal, the consumer argued that he met his prima facie burden and the trial court erred in finding otherwise. He contended that in granting the defendants’ anti-SLAPP motion, the court erred by considering the defendants’ unauthenticated hearsay evidence, improperly weighing that evidence, and making a “materiality” determination based on case law interpreting the federal FDCPA, which he maintained is not a proper consideration under the Rosenthal Act.

Section 1788.17 of the Rosenthal Act provides that “every debt collector collecting or attempting to collect a consumer debt shall comply with the provisions of [15 U.S.C. s]ections 1692b to 1692j, inclusive . . . and shall be subject to the remedies in [15 U.S.C. s]ection 1692k . . . .” § 1788.17. The Rosenthal Act, through section 1788.17, thus “incorporates by reference the [federal] FDCPA’s requirements . . . and makes available the FDCPA’s remedies for violations.” Riggs v. Prober & Raphael (9th Cir. 2012) 681 F.3d 1097, 1100.

The FDCPA regulates the conduct of debt collectors by prohibiting “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. It is a violation of the FDCPA to falsely represent “the character, amount, or legal status of any debt,” id., § 1692e(2)(A), or to “use . . . any false representation or deceptive means to collect or attempt to collect any debt.” Id., § 1692e(10). A false or misleading statement is not actionable under the FDCPA unless it is material. Afewerki v. Anaya Law Group (9th Cir. 2017) 868 F.3d 771, 773.

Here, the claimed false statement in contravention of the FDCPA (specifically, sections 1692e(2)(A) and e(10)) and comprising the alleged section 1788.17 violation was based on the collection action complaint’s alleged misidentification of the charge-off creditor, which the consumer contended violated section 1788.58(a)(6) of the CFDBPA.

The consumer contended that the trial court erred in finding that his Rosenthal Act claim lacked minimal merit under the applicable anti-SLAPP standards. He asserted that the failure of the collection action complaint to comply with the charge-off creditor disclosure requirement set forth in the CFDBPA (§ 1788.58 (a)(6)) was “patent” when comparing the collection action complaint with the verified discovery responses from the collection action which supplied the relevant debt assignment information.

The consumer argued that the verified discovery responses and collection action complaint together satisfied his burden to make a prima facie showing of facts to support a judgment in his favor because the section 1788.58 violation “necessarily also constitutes a false statement in an attempt to collect a debt” under the federal FDCPA.

As a preliminary matter, the Sixth District concluded that the consumer did not meet his initial burden to demonstrate that his prima facie showing was enough to win a favorable judgment on his Rosenthal Act claim.

The Sixth District found that the purpose of the CFDBPA, as set forth in the uncodified legislative findings and declarations, is to regulate “the adequacy of documentation required to be maintained by the [debt buying] industry in support of its collection activities and litigation,” Stats. 2013, ch. 64, § 1, subd. (a), and to ensure the “[d]ocumentation used to support the collection of a debt [is] sufficient to prove that the individual who is being asked to pay the debt is in fact the individual associated with the original contract or agreement” Id., § 1, subd. (c).

Given these statutory purposes, the Court concluded that the requirement that the collection complaint allege “[t]he name and an address of the charge-off creditor at the time of charge off … in sufficient form so as to reasonably identify the charge-off creditor,” § 1788.58(a)(6), appears intended to ensure adequate documentation to link the debt buyer’s claim to the charge-off creditor and consumer account of the debtor.

Whether the nature of the relationship between the consumer lender and the trustee was such as might satisfy the “reasonably identify” standard set out in section 1788.58(a)(6) was a factual question that the Sixth Appellate District decided it need not resolve for purposes of this appeal. This is because the Court was not persuaded that the asserted CFDBPA violation supported a Rosenthal Act violation for false or misleading statements in connection with collection of a debt, as stated in the federal FDCPA.

Whether debt collection efforts are false, deceptive, or misleading for purposes of the federal FDCPA requires an objective analysis that “‘takes into account whether the “least sophisticated debtor would likely be misled by a communication.”’” Tourgeman v. Collins Financial Services, Inc. (9th Cir. 2014) 755 F.3d 1109, 1119. This inquiry “does not ask the subjective question of whether an individual plaintiff was actually misled by a communication. Rather, it asks the objective question of whether the hypothetical least sophisticated debtor would likely have been misled.” Afewerki, supra, 868 F.3d at p. 775.

Here, assuming that the consumer established that the consumer lender was not the charge-off creditor at the time of charge off and, as a result, the collection action complaint was incorrect and did not “reasonably identify” the charge-off creditor in violation of section 1788.58(a)(6), the Sixth District determined that there was no support for his contention that this translated into a de facto “false representation of” the “character, . . . or legal status of the debt” under title 15 U.S.C. § 1692e(2)(A). This is because the purported misidentification of the charge-off creditor did not implicate the debt’s “character, amount, or legal status.” 15 U.S.C. § 1692e(2)(A).

In the Sixth District’s view, the consumer did not show how the purported misrepresentation of the charge-off creditor was a material misrepresentation under the standard applicable to alleged FDCPA violations, let alone how it would likely mislead the hypothetical least sophisticated debtor. See Tourgeman, supra, 755 F.3d at p. 1119; Afewerki, supra, 868 F.3d at p. 775. To the contrary, unlike the identity of a consumer’s original creditor, whose “false identification in a dunning letter would be likely to mislead some consumers in a material way,” Tourgeman, supra, 755 F.3d at p. 1121, a hypothetical debtor receiving the debt buyer’s collections complaint would recognize the consumer lender as the creditor that issued and serviced the credit account until nonpayment on the account, charge-off, and sale to the debt buyer bringing the collections suit. The misidentification of the trustee in this instance fell squarely within the category of “mere technical falsehoods that mislead no one.” Donohue v. Quick Collect, Inc. (9th Cir. 2010) 592 F.3d 1027, 1034.

Insofar as section 1788.17 “incorporates the FDCPA, so that a violation of the FDCPA is per se a violation of the Rosenthal Act,” Best v. Ocwen Loan Servicing, LLC (2021) 64 Cal.App.5th 568, 576, the Sixth District concluded that the inverse was also true: a misrepresentation that is immaterial and thus not actionable under the FDCPA fails to support a prima facie violation of section 1788.17.

Furthermore, the Sixth District held that, although a court tasked with an anti-SLAPP motion “does not weigh evidence or resolve conflicting factual claims,” Baral v. Schnitt (2016) 1 Cal.5th 376, 384, where, as here, the relevant representation in connection with the collection of the debt (i.e., the collection action complaint) is not subject to conflicting factual claims and the viability of the claim is evaluated according to an independent, objective standard of review, the court can properly ascertain the plaintiff’s showing at the second step of the anti-SLAPP procedure without weighing the evidence or resolving factual disputes.

Thus, having applied the settled standard for evaluating a false statement or misrepresentation as set forth in the FDCPA, the Sixth District decided that the consumer had not met his burden to demonstrate a prima facie violation of section 1788.17 of the Rosenthal Act. Accordingly, the Court concluded that the trial court did not err in granting the defendants’ anti-SLAPP motion.