21 Cal.App.5th 283
Cal. Ct. App.2018Background
- Plaintiff Edward Davidson alleges that after mortgage servicing transferred to Seterus, Seterus made repeated harassing calls (multiple times daily between the 3rd–16th of each month) demanding payments that were not due or already paid, threatened credit reporting and foreclosure, and continued after requests to stop.
- Seterus’s communications included a disclaimer calling itself a “debt collector” and saying it was attempting to collect a debt.
- Plaintiff sued Seterus and parent IBM under the Rosenthal Fair Debt Collection Practices Act (Cal. Civ. Code § 1788 et seq.) and the California Unfair Competition Law (UCL) as a putative class action.
- Defendants demurred, arguing mortgage servicers are not “debt collectors” under the Rosenthal Act and that the complaint failed to plead alter-ego/parent liability as to IBM.
- Trial court sustained the demurrer without leave to amend, dismissing both Rosenthal Act and derivative UCL claims and holding IBM not sufficiently alleged liable.
- The Court of Appeal reversed, holding the Rosenthal Act can reach mortgage servicers who engage in debt-collection practices and that the complaint sufficiently alleged IBM’s participation (not only alter-ego theory) to survive demurrer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether mortgage servicers can be “debt collectors” under the Rosenthal Act | Rosenthal Act’s definitions are broad and encompass mortgage debt/servicers collecting consumer mortgage payments | Mortgage servicing (and foreclosure-related conduct) is not debt collection under the Act; Rosenthal should mirror the narrower FDCPA definition | Rosenthal Act may apply to mortgage servicers who engage in debt-collection practices; trial court erred to rule otherwise |
| Whether mortgage debt qualifies as "consumer debt"/a "consumer credit transaction" | Mortgages are acquired without immediate payment for personal/family/household purposes and fit statutory definitions | Real-estate transactions are not typical consumer transactions; secured status and complexity should exclude mortgages | Mortgage debt can fall within Rosenthal Act’s definitions when incurred primarily for personal/family/household purposes |
| Whether federal FDCPA precedents excluding servicers control Rosenthal Act interpretation | Rosenthal Act is broader than FDCPA and Legislature omitted FDCPA’s narrower definition of "debt collector"—state law can provide greater protection | FDCPA and Rosenthal are similar; courts have often excluded servicers under both | Court rejects importing FDCPA’s exclusion; Rosenthal’s broader language controls and can include servicers |
| Sufficiency of allegations to hold IBM (parent) liable | Complaint alleges IBM directly participated, ratified, aided and abetted Seterus conduct—adequate to plead liability | Complaint fails to plead alter-ego or sufficient facts showing IBM’s control or direct involvement | Allegations that IBM participated and ratified conduct are sufficient to defeat demurrer; dismissal as to IBM reversed |
Key Cases Cited
- People ex rel. Lungren v. Superior Court, 14 Cal.4th 294 (1996) (civil statutes protecting public should be construed broadly)
- Komarova v. National Credit Acceptance, Inc., 175 Cal.App.4th 324 (2009) (Rosenthal Act is remedial and should be interpreted broadly)
- Alborzian v. JPMorgan Chase Bank, N.A., 235 Cal.App.4th 29 (2015) (treats residential mortgage collection within Rosenthal Act framework)
- Mesler v. Bragg Management Co., 39 Cal.3d 290 (1985) (two-part test for alter-ego/corporate veil piercing)
- Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523 (2000) (factors and caution in applying alter-ego doctrine)
- United States v. Bestfoods, 524 U.S. 51 (1998) (parent corporation not automatically liable for subsidiary acts)
- Blank v. Kirwan, 39 Cal.3d 311 (1985) (standard for whether demurrer should be sustained without leave to amend)
- People v. King, 38 Cal.4th 617 (2006) (statutory interpretation principles)