Debt Collection Practices in California

Young v. Midland Funding, LLC

• Kacie Lynn Young filed a complaint alleging that Midland Funding, LLC and Midland Credit Management, Inc. improperly pursued a debt collection lawsuit and obtained a default judgment against her for a delinquent credit account of $8,529.93.

• Young’s Rosenthal Act cause of action was an alleged violation of section 1788.17, but she included a scattershot series of allegations citing various provisions of the Rosenthal Act as well as various provisions of the Fair Debt Collection Practices Act.

• Midland Funding and MCM each responded with a motion to strike all of Young’s causes of action under Code of Civil Procedure section 425.16, commonly known as the anti-SLAPP statute.

• The Midland parties sought to strike all of Young’s causes of action before discovery could be had, arguing variously that Young’s equitable causes of action were moot; that MCM has no liability because it did not take any action against her in the previous lawsuit; that Young cannot prevail on her Rosenthal Act cause of action because substituted service was effected.

• Young showed she would probably prevail on the merits of her Rosenthal Act cause of action.

• Young produced prima facie evidence that they falsely represented substituted service on her was effected in the debt collection lawsuit.

• Young brought three equitable causes of action to set aside the 2010 default judgment and have it declared void based on extrinsic mistake or extrinsic fraud.

• In July 2020, during the pendency of the action below, Midland Funding did not apply to renew the 10-year time period provided by statute for it to enforce the 2010 default judgment.

• Young and the Midland parties both assert that Young’s equitable causes of action are moot because of the expiration of the 2010 default judgment in July 2020, when Midland Funding did not seek to renew its time to enforce the judgment.

• The Midland parties argue mootness is a separate and independent ground for us to reject Young’s appeal regarding her equitable causes of action.

• Young’s three equitable causes of action—for setting aside the default judgment based on extrinsic mistake, setting aside the judgment based on extrinsic fraud, and a declaration that the 2010 default judgment was void—were moot because of the expiration of the 2010 default judgment.

• Young’s Rosenthal Act cause of action was not moot in light of her allegations that the Midland parties should be held liable for violations of the Act that they had already committed.Appeals Court Rules in Favor of Plaintiff in Debt Collection Case

• The case involves a lawsuit filed by a woman, Young, against debt collectors Midland Funding and Midland Credit Management (MCM) alleging violations of the Rosenthal Fair Debt Collection Practices Act.

• The defendants filed anti-SLAPP motions, which were denied by the trial court, and the defendants appealed.

• The appeals court focused on the second step of the anti-SLAPP test, which requires the plaintiff to show that their cause of action is legally sufficient and they are likely to prevail on it.

• The defendants argued that Young did not provide evidence that they met the definition of "debt collector" under the Rosenthal Act, but the court found prima facie evidence to support Young's claim that they acted as debt collectors regarding her account.

• The court found that Midland Funding purchased Young's account from a managing company in 2008 and that MCM, on behalf of Midland Funding, obtained various business records related to Young's account, including the 2005 loan agreement.

• The court also found that Midland Funding, through its retained outside counsel, filed suit against Young in 2009 and engaged in efforts to collect the debt, including garnishing Young's wages.

• The court concluded that there was prima facie evidence that Midland Funding and MCM violated the Rosenthal Act.

• The defendants argued that Young failed to show they made any representation about service that they knew was false, but the court found that Young made a prima facie showing that she was not served with process and that the defendants' representation that she was served was false.

• The court found that Young did not need to show that the defendants knew the representation was false under the Rosenthal Act.

• The court concluded that section 1788.17 of the Rosenthal Act controls over section 1788.15, subdivision (a) to the extent the two provisions might conflict.

• The case was remanded to the trial court for further proceedings.

• The ruling has implications for debt collectors and their compliance with the Rosenthal Act in California.