Judge: Glenn R. Salter, Case: 22-1281014, Date: 2022-12-01 Tentative Ruling
The demurrer of defendant John T. Bierman, CPA, An Accountancy Corporation, to the complaint is SUSTAINED with 20 days leave to amend.
The complaint alleges that the plaintiff hired the defendant to perform accounting services and a dispute arose between them as to what fees, if any, were due defendant for its professional services. (The precise nature of the dispute is irrelevant.)
What is relevant is that the defendant hired a debt collector, co-defendant ULRS, Inc., to collect from the plaintiff the claimed debt.
The basis of the complaint is simple: The debt collector furnished false information about the debt (the false information is that there is a debt) to a credit reporting agency in violation of Civil Code section 1785.25. The defendant accounting agency is liable for the furnishing of the false information because it “authorized” the debt collector to furnish the false information (i.e., that there was a debt) to the credit reporting agency, and it was done for an improper purpose.
Relying on the express language of subdivision (a) of section 1785.25, the defendant argues that as a matter of law it cannot be held liable under this section because there is no allegation it was the person that furnished the credit reporting agency any false or improper information about the debt. Civil Code section 1785.25 provides, in relevant part, that, “A person shall not furnish information on a specific transaction or experience to any consumer reporting agency if the person knows or should know the information is incomplete or inaccurate.” (Emphasis added.)
There does not appear to be a California case that answers whether an alleged creditor can be held liable for a false statement made by a collection agency to a credit reporting agency.
The plaintiff cites several federal cases interpreting similar federal laws, and although they may be considered for their “persuasive value,” none of them answers the precise question here.
The court is not persuaded that a creditor can avoid potential liability under section 1785.25 simply by hiring a third party—in this case, a debt collector—to furnish the improper information. The court concludes based on its reading of the statute that a person that furnishes the incomplete or inaccurate information to a third person with the intent of having the third party “furnish” the improper information to a credit reporting agency would, under any reasonable interpretation of the statute, subject that person to liability under section 1785.25.
That said, the court is not persuaded that a creditor that hires a debt collector is liable under this section for any improper information furnished by that person to a credit reporting agency.
Any other holding would effectively impose strict liability on the creditor that seems outside the intent and purpose of the statute, and it would ignore the knowledge element of the statute—that is, that the person that furnishes the information must “know or reasonably should know” that the information is incomplete or inaccurate.
With those principles in play, it becomes obvious that the complaint does not state a cause of action against this defendant, as currently pled.
First, the complaint alleges the defendant “authorized” the debt collector to furnish the improper information. It is unclear what the term “authorized” means, contextually, in this case. What did the defendant accounting agency actually do? It would seem to this court that the complaint would need to allege, at a minimum, that defendant told the debt collector to furnish information to the credit reporting agency knowing it was incomplete or inaccurate. Simply turning the matter over to a collection agency would seem not to be enough.
Second, the complaint seems to allege that the incomplete or inaccurate information is that there is a debt owed by the plaintiff to the defendant. But the complaint concedes that the defendant performed services for which professional fees would ordinarily be due. This is a judicial admission that a debt was incurred.
Although the plaintiff may allege that there is a dispute between the parties as to the value of those services, that is not an allegation that there was no debt or that defendant’s position that money is owed and unpaid is somehow inaccurate or incomplete. It would seem to this court that the complaint would need to allege, at a minimum—and even this might not be enough—the facts surrounding the dispute, and why the defendant knew or should have known, based on those facts, there was no debt owing. Simply put, a dispute about professional fees owed is not enough to allege a valid cause of action that the information furnished to the credit reporting agency was somehow incomplete or inaccurate.
Finally, the court notes that on November 23, 2022, the Fourth District Court of Appeal in San Diego decided Olson v. La Jolla Neurological Associates (D079265) 2022 DJDAR 11926. Although the primary issue there is different than the issue here, there is a discussion at the end of that opinion on the issue of agency. Its conclusion that debt collectors are independent contractors for which a hirer is, generally, not independently liable is instructive and supports this court’s conclusions above.
The defendant shall give notice.