Davidson v. Seterus, Inc.

Filed 3/13/18
CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

EDWARD DAVIDSON, D071502

Plaintiff and Appellant,

v. (Super. Ct. No. 37-2016-00006640-
CU-BT-CTL)
SETERUS, INC., et al.,

Defendants and Respondents.

APPEAL from a judgment of the Superior Court of San Diego County,

Joel M. Pressman, Judge. Reversed.

Capstone Law, Glenn A. Danas, Melissa Grant, Liana C. Carter and Arnab

Banerjee for Plaintiff and Appellant.

Larson O'Brien, Stephen G. Larson, Robert C. O'Brien and Paul A. Rigali and

Steven A. Haskins for Defendants and Respondents.

Wright, Finlay & Zak and Jonathan D. Fink for American Legal & Financial

Network, California Mortgage Association and California Mortgage Bankers Association

as Amicus Curiae on behalf of Defendants and Respondents.
 I.

INTRODUCTION

At issue in this appeal is whether mortgage servicers can be "debt collectors"

under California's Rosenthal Fair Debt Collection Practices Act (the Rosenthal Act; Civ.

Code,1 § 1788 et seq.). There is a split of authority among the many federal district

courts that have considered the issue, and there is a paucity of California authority

addressing the question.

In this case, the plaintiff, Edward Davidson, brought a putative class action against

Seterus and its parent company, International Business Machines, Inc. (IBM), alleging

that the defendants violated the Act and the Unfair Competition Law (UCL). The

defendants demurred to Davidson's complaint, arguing that neither of them is a " 'debt

collector' " who engages in " 'debt collection' " under the Act.2 The trial court sustained

the defendants' demurrer, concluding that the defendants "are not 'debt collectors' because

servicing a mortgage is not a form of collecting 'consumer debts.' "3

On appeal, Davidson contends that the trial court erred in determining that

mortgage servicers are not "debt collectors" under the Rosenthal Act. We ultimately

agree with Davidson's contention, in no small part due to our adherence to "the general

1 Further statutory references are to the Civil Code unless otherwise indicated.
2 IBM also demurred on the ground that the facts as alleged are insufficient to state
a cause of action as to it because the complaint does not establish that IBM was a debt
collector or that it may be held liable for Seterus's conduct.
3 The trial court also concluded that the claims against IBM failed, independently,
because Davidson failed to plead sufficient facts to hold parent company IBM liable for
the actions of its subsidiary, Seterus.
2
rule that civil statutes for the protection of the public are, generally, broadly construed in

favor of that protective purpose." (People ex rel. Lungren v. Superior Court (1996) 14

Cal.4th 294, 313, italics added; see Florez v. Linens 'N Things, Inc. (2003) 108

Cal.App.4th 447, 450.) It is clear that the Rosenthal Act is a civil statute that was enacted

for the protection of the public, and in interpreting it, we are mindful of the fact that, to

the extent that the statutory language is ambiguous, the statute should be construed

broadly in favor of protecting the public. Given this principle, and the fact that the

Rosenthal Act's definitional language is sufficiently broad to include mortgage lenders

and/or mortgage servicers within its purview, we conclude that mortgage lenders and

mortgage servicers can be "debt collectors" under the Rosenthal Act.

We therefore reverse the judgment of the trial court and remand for further

proceedings.

II.

FACTUAL AND PROCEDURAL BACKGROUND

A. Factual background

In February 2012, Davidson's lender, Suntrust, transferred the servicing of his

home mortgage to Seterus.4 In correspondence with Davidson, Seterus included the

4 According to the complaint, on March 26, 2007, IBM formed IBM Lender
Business Process Services, Inc., a wholly owned subsidiary of IBM specializing in
providing mortgage services. In July 2011, IBM Lender Business Process Services, Inc.
changed its name to Seterus, Inc. As alleged in the complaint, "[a] major component of
DEFENDANTS' mortgage servicing business entails collecting and processing monthly
mortgage payments from borrowers on behalf of the mortgage lender or current mortgage
holder." Davidson's allegations against IBM are based on its role as the parent company
3
following disclaimer: "THIS COMMUNICATION IS FROM A DEBT COLLECTOR

AS WE SOMETIMES ACT AS A DEBT COLLECTOR. WE ARE ATTEMPTING TO

COLLECT A DEBT AND ANY INFORMATION OBTAINED WILL BE USED FOR

THAT PURPOSE."

According to Davidson, immediately after Seterus began servicing Davidson's

mortgage in 2012, Seterus started making harassing and annoying telephone calls to

Davidson demanding payment of his mortgage. Davidson alleges that Seterus made

these telephone calls demanding payment before Seterus had given him his new loan

number and before his mortgage payments were due.

Davidson's mortgage payments are due on the first day of each month. His

practice was, and had always been, to pay his monthly mortgage payment online on the

first or second of each month. As Davidson alleges, "California Civil Code section

2954.4 (a) provides for a 10-day statutory grace period on residential mortgage

installment payments, such that they are not considered 'late' 'until at least 10 days

following the due date of the installment.' " Davidson further alleges that, "Plaintiff's and

other borrowers' mortgage instruments provide for either a 10-day or 15-day grace period

of Seterus, and the further allegations that both Seterus and IBM performed the acts and
omissions alleged in the complaint, so such acts and omissions were attributable to them,
and that each was "acting as the agent for the other, with legal authority to act on the
other's behalf." Davidson further alleges that each of the defendants "ratified each and
every act or omission complained of" in the complaint and that each of them "aided and
abetted the acts and omissions of each and all the other Defendants in proximately
causing the damages herein alleged." For this reason, Davidson alleges that "each of said
Defendants is in some manner intentionally, negligently, or otherwise responsible for the
acts, omissions, occurrences, and transactions alleged herein."
4
following the due date of an installment payment before a payment will be considered

'late.' "

Although Davidson had a history of timely paying his mortgage each month,

individuals identifying themselves as Seterus employees called Davidson's cell phone

two to five times per day, every day, between the 3rd and the 16th of each month,

"demanding that he pay that month's mortgage payment." If Davidson did not answer his

phone, the caller would hang up and repeatedly call again until Davidson did answer the

phone. According to Davidson, Seterus employees would also frequently hang up even if

Davidson did answer his phone.

Between February 2012 and September 2015, Davidson received hundreds of

phone calls from employees of Seterus demanding mortgage payments that Davidson had

already paid or that were not yet due. Davidson alleges that Seterus employees would

call at intentionally inconvenient times, including early in the morning and while

Davidson was at work.5 As soon as the monthly due date for Davidson's mortgage

payment had passed, Seterus employees would begin making harassing and sometimes

threatening phone calls. In fact, Seterus employees would make these phone calls even

after Davidson had paid the full amount due, and before the statutory and contractual

grace period had lapsed. Davidson attempted to explain this to the callers, but the calls

continued.

5 At least one call, made on September 17, 2015, was placed at 6:48 a.m.
5
 In an attempt to put a stop to the calls from Seterus employees, Davidson began

using a " 'Western Union Speedpay' " payment method that Seterus invited borrowers to

use on its website. Davidson incurred a $5.00 transaction fee each month to utilize this

payment method. Davidson's use of the " 'Western Union Speedpay' " payment method

did nothing to abate the harassing phone calls from Seterus employees.

According to Davidson, the phone calls from Seterus employees included threats

to report negative credit information to the credit bureaus, as well as threats to foreclose

on Davidson's home.6 These threats were made despite the fact that the calls were being

made to Davidson and others during the grace period, such that it would have been

unlawful for Seterus to commence foreclosure proceedings or to report negative credit

information to the credit bureaus.

Davidson notified Seterus numerous times, both in writing and by telephone, that

he had already timely paid the full monthly payment amount and requested that the

harassing phone calls stop. Seterus employees continued to call, despite Davidson's

requests. In or around September 2015, Davidson asked an attorney to contact Seterus

and demand that the harassing and threatening phone calls cease.

Seterus employees stopped calling Davidson after Seterus received a threat of

legal action from Davidson's attorney.

6 The complaint alleges that Seterus employees made similar threats to other
members of the putative class.
6
 On August 13, 2014, Seterus sent a letter to Davidson in which it agreed to stop

contacting Davidson during the 15-day grace period, thereby implicitly acknowledging

that Seterus employees had previously been contacting him during the grace period.

Davidson alleges that Seterus's collection practices caused him and other

borrowers harm, including emotional distress and economic damages. Davidson spent

many hours each month sending Seterus requests that its employees cease calling him,

speaking to Seterus employees on the phone, and generally dealing with the harassment.

Davidson alleges that because he is self-employed and had to deal with the harassing

phone calls during regular business hours, he lost potential income.

B. Procedural background

1. The complaint

Davidson filed a putative class action on behalf of California residents who have

been subjected to the defendants' allegedly unlawful debt collection practices, in

September 2016. Davidson's complaint set forth causes of action for violations of the

Rosenthal Act and the UCL (Bus. & Prof. Code, § 17200 et seq.).

Davidson alleges that the defendants are " 'debt collectors' " who are subject to the

requirements of the Rosenthal Act, and that they were acting as " 'debt collectors' " when

they undertook the allegedly unlawful conduct described in his complaint. Davidson

alleges that the defendants' conduct violates the Rosenthal Act's prohibitions against

" '[c]ausing a telephone to ring repeatedly or continuously to annoy the person called' "

and " 'communicating by telephone . . . with the debtor with such frequency as to be

unreasonable and to constitute an harassment to the debtor under the circumstances.' "

7
(§ 1788.11, subds. (d), (e).) He further alleges that the defendants violated the

prohibition against " '[t]he false representation that information concerning a debtor's

failure or alleged failure to pay a consumer debt has been or is about to be referred to a

consumer reporting agency' " (§ 1788.13, subd. (f)), and that defendants violated the

Rosenthal Act's requirement that they comply with the federal Fair Debt Collection

Practices Act (the FDCPA; 15 U.S.C. § 1692 et seq.).

Davidson's UCL cause of action is based on the alleged violations of the Rosenthal

Act which, he asserts, constitute per se violations of the UCL.

2. The defendants' demurrer

The defendants filed a demurrer to Davidson's complaint on May 11, 2016. The

defendants argued that Davidson is unable to state facts sufficient to constitute a cause of

action under the Rosenthal Act because neither Seterus nor IBM is a " 'debt collector' "

who " 'engages in debt collection' " under the Rosenthal Act. IBM also argued that the

cause of action against IBM is too uncertain because the complaint does not allege

sufficient facts to establish that IBM is a debt collector and that it is liable for Seterus's

conduct.

After full briefing, the trial court issued a tentative ruling on the defendants'

demurrer on September 6, 2016, in which it indicated its intention to sustain the demurrer

without leave to amend. The court held a hearing on the matter on September 9, and

subsequently adopted its tentative ruling. In sustaining the demurrer without leave to

amend, the trial court acknowledged the existence of a split of authority in the federal

courts as to whether the Rosenthal Act's definition of "debt collector" includes a

8
mortgage servicer. However, the court agreed with those courts that have concluded that

a mortgage servicer may not be considered to be a "debt collector" under the Rosenthal

Act. The court determined that because Davidson's UCL claim was derivative of his

Rosenthal Act claim, the complaint failed to state a cause of action. The court also ruled,

in the alternative, that as to IBM, the complaint failed to plead sufficient facts to

demonstrate that IBM could be held liable for the actions of its subsidiary, Seterus. The

trial court further determined that no amendment could cure the deficiencies of the

complaint, and that the demurrer should therefore be sustained without leave to amend.

The trial court entered judgment in favor of the defendants on October 5, 2016.

Davidson filed a timely notice of appeal.

III.

DISCUSSION

A. Legal standards on appeal from the sustaining of a demurrer without leave to amend

We apply the following well-established law in reviewing a trial court's order

sustaining a demurrer without leave to amend: "We independently review the ruling on a

demurrer and determine de novo whether the complaint alleges facts sufficient to state a

cause of action. [Citation.] We assume the truth of the properly pleaded factual

allegations, facts that reasonably can be inferred from those expressly pleaded, and

matters of which judicial notice has been taken. [Citation.] We construe the pleading in

a reasonable manner and read the allegations in context." (Fremont Indemnity Co. v.

Fremont General Corp. (2007) 148 Cal.App.4th 97, 111 (Fremont Indemnity).)

9
 Where the complaint fails to allege facts sufficient to state a cause of action and

the trial court has sustained a demurrer without leave to amend, "we decide whether there

is a reasonable possibility that the defect can be cured by amendment: if it can be, the

trial court has abused its discretion and we reverse; if not, there has been no abuse of

discretion and we affirm. [Citations.] The burden of proving such reasonable possibility

is squarely on the plaintiff." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

B. The trial court erred in concluding that a mortgage servicer can never be a "debt
collector" under the Rosenthal Act

1. Statutory interpretation standards

This case hinges on the proper interpretation of the Rosenthal Act. "The basic

rules of statutory construction are well established. 'When construing a statute, a court

seeks to determine and give effect to the intent of the enacting legislative body.'

[Citation.] ' "We first examine the words themselves because the statutory language is

generally the most reliable indicator of legislative intent. [Citation.] The words of the

statute should be given their ordinary and usual meaning and should be construed in their

statutory context." [Citation.] If the plain, commonsense meaning of a statute's words is

unambiguous, the plain meaning controls.' " (People v. King (2006) 38 Cal.4th 617,

622.)

"If, however, 'the statutory language may reasonably be given more than one

interpretation, " ' "courts may consider various extrinsic aids, including the purpose of the

statute, the evils to be remedied, the legislative history, public policy, and the statutory

10
scheme encompassing the statute." ' " ' " (People v. Cornett (2012) 53 Cal.4th 1261,

1265.)

2. Statutory and legal framework

The Rosenthal Act was enacted "to prohibit debt collectors from engaging in

unfair or deceptive acts or practices in the collection of consumer debts." (§ 1788.1,

subd. (b).) The Rosenthal Act is " 'a remedial statute [that] should be interpreted broadly

in order to effectuate its purpose.' " (Komarova v. National Credit Acceptance, Inc.

(2009) 175 Cal.App.4th 324, 340 (Komarova), italics added.) It was enacted in 1977, the

same year that its federal counterpart, the FDCPA, was enacted. (In re Landry (Bankr.

E.D.Cal. 2013) 493 B.R. 541, 570 (Landry).)7 In addition to its other requirements and

prohibitions, the Rosenthal Act generally requires debt collectors to comply with the

provisions of the FDCPA. (§ 1788.17.)

The Rosenthal Act defines a "debt collector" as "any person who, in the ordinary

course of business, regularly, on behalf of himself or herself or others, engaged in debt

collection." (§ 1788.2, subd. (c), italics added.) The Rosenthal Act defines the term

"debt collection" as follows: "any act or practice in connection with the collection of

consumer debt." (§ 1788.2, subd. (b).)

7 The purpose of the FDCPA is "to eliminate abusive debt collection practices by
debt collectors, to insure [sic] that those debt collectors who refrain from using abusive
debt collection practices are not competitively disadvantaged, and to promote consistent
State action to protect consumers against debt collection abuses." (15 U.S.C. § 1692,
subd. (e).) "A basic tenet of the Act is that all consumers, even those who have
mismanaged their financial affairs resulting in default on their debt, deserve 'the right to
be treated in a reasonable and civil manner.' " (Bass v. Stolper, Koritzinsky, Brewster &
Neider, S.C. (7th Cir.1997) 111 F.3d 1322, 1324.)
11
 The Rosenthal Act defines "consumer debt" and "consumer credit" as "money,

property or their equivalent, due or owing or alleged to be due or owing from a natural

person by reason of a consumer credit transaction." (§ 1788.2, subdivision (f).) The

Rosenthal Act further defines the phrase "consumer credit transaction" as "a transaction

between a natural person and another person in which property, services, or money is

acquired on credit by that natural person from such other person primarily for personal,

family, or household purposes." (§ 1788.2, subd. (e).)

Thus, a debt collector is a person who regularly engages in the act or practice of

collecting money, property or their equivalent that is due or owing by a natural person as

a result of a transaction between that person and another person, in which the natural

person acquired property, services, or money on credit, primarily for personal, family, or

household purposes.

3. Analysis

The Rosenthal Act is silent with respect to whether it applies to persons or entities

attempting to collect mortgage debt; the definitions of "debt collector," "consumer debt,"

and "consumer credit transaction" make no reference to mortgage lenders and/or servicers

or to mortgage debt. Given that mortgage debt is neither expressly included nor excluded

from the definition of "consumer debt," and that a mortgage transaction is neither

expressly included nor excluded from the definition of "consumer credit transaction," we

look to the words of the statute to determine whether they can be understood to either

include or exclude from the statute's purview mortgage debt or mortgage lenders and/or

12
servicers, keeping in mind that the Rosenthal Act " 'should be interpreted broadly in order

to effectuate its purpose.' " (Komarova, supra, 175 Cal.App.4th at p. 340.)

The phrase, "consumer credit transaction" includes any "transaction between a

natural person and another person in which property, services or money is acquired on

credit by that natural person from such other person primarily for personal, family, or

household purposes." (§ 1788.2, subd. (e), italics added.) The Rosenthal Act does not

define the phrase "on credit" or the word "credit." The Oxford English Dictionary

defines the phrase "on credit" as "[w]ith an arrangement to pay later." (Oxford English

Dict. (2018) [as of Mar. 12,

2018].) It also defines "credit" as "[t]he ability of a customer to obtain goods or services

before payment, based on the trust that payment will be made in the future." (Oxford

English Dict. (2018) [as of Mar. 12,

2018].) The American Heritage Dictionary defines "credit" as "a. An arrangement for

deferred payment of a loan or purchase . . . . [¶] b. The terms governing such an

arrangement . . . . [¶] c. The time allowed for deferred payment." (The American

Heritage Dict. of the English Language (2018)

[as of Mar. 12, 2018].)8

Based on these definitions, we conclude that the "ordinary and usual meaning" of the

phrase "on credit" can be stated as obtaining something of value without immediate

payment on the promise to make a payment or payments in the future. We may thus

8 Courts often consult dictionaries in an effort to determine the usual and ordinary
meaning of a word. (Coburn v. Sievert (2005) 133 Cal.App.4th 1483, 1499.)
13
construe section 1788.2, subdivision (e) as providing that a "consumer credit transaction"

is "a transaction between a natural person and another person in which property, services

or money is acquired [without immediate payment and with the promise to pay in the

future] by that natural person from such other person primarily for personal, family, or

household purposes."

The obtaining of a mortgage involves a transaction in which a natural person

acquires property by way of borrowing the funds used to obtain the property from another

person or entity without full immediate payment and with the promise to pay back those

funds. It is readily apparent that persons who obtain mortgages very often do so in order

to purchase a primary or even secondary residence, which may be considered to be a

"personal, family, or household purpose[ ]." (§ 1788.2, subd. (e).) Further, there is

nothing in the statutory definition of "consumer debt" or "consumer credit transaction"

that would exclude a debt that otherwise comes within the terms of the Rosenthal Act

merely because the debt is secured by real or personal property. At least one other

California appellate court has permitted a Rosenthal Act claim to go forward against a

lender who was attempting to collect on a residential mortgage loan secured by a junior

lien. (See Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29

(Alborzian).)9

9 Although the Alborzian court did not directly address the issue whether a
mortgage lender comes within the Rosenthal's Act's definition of a "debt collector," the
court clearly treated mortgage debt as falling within the framework of the Rosenthal Act's
protections. (See Alborzian, supra, 235 Cal.App.4th at pp. 36–38.)
14
 Interpreting the Rosenthal Act in this way furthers the purpose of the legislation,

which is to prohibit entities who are attempting to collect on a debt from "engaging in

unfair or deceptive acts or practices in the collection of [those] debts." (§ 1788.1, subd.

(b).) Although Seterus's disclaimer in its correspondence with Davidson that it is a

" 'debt collector' " that is " 'attempting to collect a debt' " (capitalization omitted) is not

itself dispositive of the issue, the fact that the defendants indicate to consumers that the

activities that they are undertaking with respect to mortgage servicing involves debt

collection is in line with our interpretation of the Rosenthal Act. Further, the conduct that

Davidson alleges that the defendants engaged in—i.e., the harassing telephone calls at all

hours of the day, and the threats of negative credit reporting and threats to foreclose—is

precisely the type of conduct that the Legislature wanted to protect consumers against

when it enacted the Rosenthal Act. (See, e.g., Sen. Com. on Judiciary, Rep. on Sen. Bill

No. 237 (1977–1978 Reg. Sess.), as amended May 11, 1977 ["This bill would prohibit

any person from engaging in certain debt collection practices" including a "list of

prohibited threatening, abusive and deceptive practices"]; Assem. Com. on Judiciary, Bill

Digest for Sen. Bill No. 237 (1977–1978 Reg. Sess.), as amended June 24, 1977, hearing

date Aug. 4, 1977 ["This measure governs all debt collection practices arising from the

extension of credit if the credit was obtained primarily for personal, family, or household

We reject the defendants' attempt to distinguish the debt at issue in Alborzian,
which was no longer secured by the property because of the foreclosure process, from
Davidson's debt or a debt secured by a first mortgage. We see nothing in the Rosenthal
Act that would allow debts that were acquired for personal, family, or household
purposes to be treated differently under the Rosenthal Act on the ground that one debt
remains secured by real property while the other does not.
15
purposes" and prohibits, among other things, the "caus[ing] a telephone to ring

repeatedly"].)

In arguing that the Rosenthal Act does not apply here, the defendants suggest that

mortgage debt is not debt " 'obtained primarily for personal, family, or household

purposes.' "10 However, defendants fail to explain why this would be so. We

acknowledge that the phrase "consumer," when used as an adjective to modify other

nouns, has often been understood in common parlance to relate to transactions that

involve retail purchases, as opposed to transactions involving real estate. However, when

one examines the definitions provided in the Rosenthal Act, it becomes clear that the

focus of the Rosenthal Act is not whether a given transaction involves personal property

as opposed to real property, but rather, whether the transaction was engaged in by a

natural person for personal purposes, as opposed to by a corporation or natural person for

business purposes. It is clear that a large number, if not the vast majority, of individuals

who obtain a mortgage do so for the purpose of purchasing a personal or family

residence. This would fall within the literal terms of Rosenthal Act's definition of debt

10 Although their contention is not at all clear to this court, defendants appear to
suggest this by stating that the "Rosenthal Act, as its plain language reveals, governs debt
collection only where the credit was 'obtained primarily for personal, family, or
household purposes,' " and then arguing that "[t]he Landry[, supra, 493 B.R. 541]
decision takes for granted that mortgage payments fall into the consumer category,
without justification." The implication of these statements is that in defendants' view, the
Landry court was incorrect in concluding that mortgage payments are payments made to
pay off debt that was obtained for "personal, family or household purposes."
16
that is acquired "for personal, family, or household purposes" (§ 1788.2, subd. (e)).11

Indeed, mortgage debt has been held to constitute consumer debt, the collection of which

may be governed by the FDCPA. (See McLaughlin v. Phelan Hallinan & Schmieg, LLP

(3d Cir. 2014) 756 F.3d 240, 245–246 [letter sent to consumers by attorneys representing

mortgage lender constituted attempt at "debt collection" under the FDCPA]; Reese v.

Ellis, Painter, Ratterree & Adams, LLP (11th Cir. 2012) 678 F.3d 1211, 1216–1217

[same].)12

Although the defendants concede that "secured debt could still be a 'consumer

debt,' " they nevertheless argue that this "does not mean a mortgage debt is a consumer

debt." The defendants explain that, in their view, "[t]he deciding factor is not whether the

debt is 'secured,' but whether the debt was obtained in exchange for goods or services

11 The Ninth Circuit Court of Appeals has concluded that a secured mortgage debt
may be a consumer debt under the Bankruptcy Code. (See In re Kelly (9th. Cir. 1988)
841 F.2d 908, 913 (Kelly).) In reaching this conclusion, the court in Kelly noted that the
Bankruptcy Code "defines 'consumer debt' as 'debt incurred by an individual primarily for
a personal, family, or household purpose' " (Kelly, supra, at p. 912, italics added), the
same language used in the Rosenthal Act with respect to a "consumer credit transaction."
The Kelly court explained that, "[although] secured debt is not automatically excluded
from consumer debt, it is not automatically included either. We must look to the purpose
of the debt in determining whether it falls within the statutory definition." (Id. at p. 913,
italics added.) In assessing the "purpose" of the debt at issue in the case before, the Kelly
court stated: "It is difficult to conceive of any expenditure that serves a 'family . . . or
household purpose' more directly than does the purchase of a home and the making of
improvements thereon." (Ibid., italics added.)
12 The FCRPA defines the term "debt" in a manner similar to the way in which the
Rosenthal Act defines a "consumer credit transaction." "[D]ebt" under the FCRPA
"means any obligation or alleged obligation of a consumer to pay money arising out of a
transaction in which the money, property, insurance, or services which are the subject of
the transaction are primarily for personal, family, or household purposes, whether or not
such obligation has been reduced to judgment." (15 U.S.C.A. § 1692a, subd. (5), italics
added.)
17
with a 'personal, family, or household purpose.' " The defendants' reference to "goods or

services" is inapt. The Rosenthal Act covers transactions beyond those involving

consumer goods or services. The Act specifies that it covers debt that is incurred to

acquire property, without any limitation as to the nature of that property, as well as to

services or even money. (§ 1788.2, subd. (e).) We therefore decline to look to other

"federal and state statutes that apply only to purchases of 'consumer' goods, such as

California's Song-Beverly Consumer Warranty Act or the federal Magnuson-Moss Act"

in interpreting the definitions provided in the Rosenthal Act, as the defendants' request.

We also reject the conclusory argument in defendants' briefing that a real estate

transaction simply cannot be considered to be a "consumer" transaction. The defendants

contend, in essence, that a "real estate transaction" is an "economic transaction for a fixed

and permanent asset," and usually involves "relative complexity" and a "mountain of

paperwork, only some of it related to the actual funding of the transaction." According to

the defendants, these facts somehow mean that such a transaction cannot be considered to

be a "consumer transaction." As we have explained, however, the Legislature provided a

specific definition of a "consumer credit transaction," and that definition is sufficiently

broad to include transactions that involve real property; there is no indication in the text

of the provision that it is intended to exclude transactions that involve real property or the

use of real property as security for the debt, nor is there any indication that the statute

excludes transactions that are complex or involve "a mountain of paperwork."

Further, to the extent that the defendants are advocating an interpretation of the

Rosenthal Act's definition of "consumer debt" that would exclude debt secured by a deed

18
of trust to real property, such an interpretation is undermined by the fact that there is no

express exemption in the Act for a debt secured by a deed of trust, and also by the fact

that elsewhere in the Act, the Legislature has expressly provided for a very limited

exemption with respect to transactions involving a debt secured by a deed of trust.

Specifically, section 2924, subdivision (b) provides a statutory exemption from the

Rosenthal Act for a trustee under a deed of trust as follows:

"In performing acts required by this article, the trustee shall incur no
liability for any good faith error resulting from reliance on
information provided in good faith by the beneficiary regarding the
nature and the amount of the default under the secured obligation,
deed of trust, or mortgage. In performing the acts required by this
article, a trustee shall not be subject to Title 1.6c (commencing with
Section 1788) of Part 4."

The Legislature carefully crafted this exemption to apply only to a trustee under a

deed of trust, and only to that trustee's performance of the acts required under Article 1 of

Chapter 2 of Title 14 of the Civil Code. In enacting this exemption from the Rosenthal

Act, the Legislature has expressly limited it to the acts of a trustee exercising the trustee's

powers under a deed of trust. If the Legislature did not intend for the Rosenthal Act to

apply to collection efforts for debts that are secured by a deed of trust to real property or

for which foreclosure proceedings could be commenced or were being prosecuted, there

would have been no reason to enact the exemption found in section 2924, subdivision (b).

The defendants assert that "the majority of federal courts analyzing the Rosenthal

Act have excluded mortgage servicing from the definition of debt collectors," to support

their position. (Some capitalization omitted.) However, many of the authorities that the

defendants cite as support for this assertion in fact address a slightly different issue.

19
Specifically, many of the cases on which the defendants rely hold that foreclosing on a

deed of trust does not constitute "debt collection" under the Rosenthal Act. (See Pittman

v. Barclays Capital Real Estate, Inc. (S.D.Cal., Apr. 24, 2009, No. 09 CV 0241 JM

(AJB)) 2009 WL 1108889, at *3; see Morgera v. Countrywide Home Loans, Inc.

(E.D.Cal., Jan. 11, 2010, No. 2:09-CV-01476-MCE-GGH) 2010 WL 160348, at *3

[stating that "California courts have declined to regard a residential mortgage loan as a

'debt' under the RFDCPA" by citing authorities that had concluded that foreclosing

pursuant to a deed of trust does not constitute debt collection]; Padayachi v. Indymac

Bank (N.D.Cal., Apr. 9, 2010, No. C 09-5545 JF (PVT)) 2010 WL 1460309, at *6

["numerous courts have held that foreclosure on a deed of trust does not trigger the

protections of the Rosenthal Act"].)13 However, whether the act of foreclosing on a

mortgage loan constitutes "debt collection" is a different question from the question that

we are addressing, which is whether a mortgage lender or a mortgage servicer may ever

be considered to be a "debt collector" under the act.14

13 In a footnote, the defendants also cite the following authorities, which similarly
address the question whether foreclosing on a deed of trust is "debt collection" under the
Rosenthal Act: Ricon v. Recontrust Co. (S.D.Cal., Aug. 4, 2009, No. 09CV937-IEG-
JMA) 2009 WL 2407396, at *4 [Rosenthal Act "does not apply to lenders foreclosing on
a deed of trust"]; Hepler v. Washington Mut. Bank, F.A. (C.D.Cal., Apr. 17, 2009, No.
CV 07-4804 CAS (EX)) 2009 WL 1045470, at *4 [" 'foreclosure does not constitute debt
collection under the RFDCPA' "]; Gardner v. American Home Mortg. Servicing, Inc.
(E.D.Cal. 2010) 691 F.Supp.2d 1192, 1198 ["Further, 'foreclosure pursuant to a deed of
trust does not constitute debt collection under the [Rosenthal Act]' "].
14 Some federal courts have explained that conduct associated with a nonjudicial
foreclosure typically does not constitute a "debt collection activity" giving rise to a cause
of action under the Rosenthal Act. (See Sipe v. Countrywide Bank (E.D.Cal. 2010) 690
F.Supp.2d 1141, 1151 [" '[t]he law is clear that foreclosing on a deed of trust does not
20
 Some of the federal authorities that the defendants cite, and on which the trial

court relied, have, albeit minimally, addressed the question raised by this appeal, i.e.,

whether a mortgage lender and/or mortgage servicer can be a "debt collector" under the

Rosenthal Act, and have concluded that the answer to that question is "no." (See Lal v.

American Home Servicing, Inc. (E.D.Cal. 2010) 680 F.Supp.2d 1218, 1224 (Lal) ["This

Court finds that the RFDCPA does in fact mirror . . . the FDCPA, their intentions were

the same and exclusive, and, as such, a loan servicer is not a debt collector under these

acts" given that "[t]he law is well settled that FDCPA's definition of debt collector 'does

not include the consumer's creditors, a mortgage servicing company, or any assignee of

the debt' "]; Abels v. Bank of America, N.A. (N.D.Cal., May 31, 2012, No. 11-CV-208

YGR) 2012 WL 1980858, at *2 [dismissing Rosenthal Act claim both because

"foreclosure on a residential mortgage is not 'debt collection' under the Act," but also

invoke the statutory protections of the [Rosenthal Act]' " (italics added)]); see also, e.g.,
Rosal v. First Federal Bank of California (N.D.Cal. 2009) 671 F.Supp.2d 1111, 1135;
Izenberg v. ETS Services, LLC (C.D.Cal. 2008) 589 F.Supp.2d 1193, 1199.) However, it
has also been well-recognized that debt collection activities outside of the foreclosure
process itself may give rise to Rosenthal Act claims. (See Walters v. Fidelity Mortg. of
CA (E.D.Cal. 2010) 730 F.Supp.2d 1185, 1203; see also Sau King Chan v. J.P. Morgan
Chase, N.A. (S.D.Cal., May 5, 2017, No. 16CV2403-WQH-MDD) 2017 WL 1807947, at
*3 (Sau King Chan) ["courts must determine whether the plaintiff has alleged facts
sufficient to demonstrate that the bank was engaged in debt collection activities that fall
outside of the ordinary foreclosure process" (italics added)].) We have no need to
consider, in this case, whether a mortgage lender or mortgage servicer may be sued under
the Rosenthal Act for any activity that the mortgage servicer undertakes with respect to a
mortgage, or only for those activities that are not part of the ordinary foreclosure process.
This case does not involve foreclosure allegations, and the parties have raised no
contention with respect to the sufficiency of the complaint with respect to the activities
alleged in the complaint. Rather, the sole issue raised by the parties with respect to the
Rosenthal Act is whether a mortgage lender or servicer comes within the Rosenthal Act's
definition of "debt collector."
21
stating, without analysis, that "a loan servicer is not a debt collector regulated by the

Act"]; Glover v. Fremont Inv. and Loan (N.D.Cal., Dec. 18, 2009, No. C-09-03922

(JCS)) 2009 WL 5114001, at *8 (Glover) [concluding, without any analysis of the

Rosenthal Act, that a mortgage loan servicer "is not a 'debt collector' within the meaning

of the debt collection statutes"—i.e., the FDCPA and the Rosenthal Act]; Mannello v.

Residential Credit Solutions, Inc. (C.D.Cal., Jan. 7, 2016, No. 2:15-CV-07674-CAS-AJW)

2016 WL 94236, at *5 (Manello) [dismissing plaintiff's FDCPA and Rosenthal Act

claims, without separate analysis of the Rosenthal Act, because plaintiff failed to

sufficiently allege that the defendant loan servicer was "a 'debt collector' for purposes of

the FDCPA"]; Hepler v. Washington Mut. Bank, F.A. (C.D.Cal., Apr. 17, 2009, No. CV

07-4804 CAS (EX)) 2009 WL 1045470, at *4 [concluding, without analysis of the

language of the Rosenthal Act, that mortgage lender "is not a debt collector pursuant to

15 U.S.C. § 1692a or Cal. Civ. Code § 1788.2 and therefore [lender] is entitled to

summary judgment on plaintiff's FDCPA and [Rosenthal Act] claims"].)

The defendants rely on these and the other cases that involve slightly different

issues to support their assertion that the "majority" of federal courts have "excluded

mortgage servicing from the definition of debt collectors." We are unconvinced of this

proposition. A number of other federal authorities have concluded that mortgage

servicers and/or mortgage lenders can and do fall within the definition of "debt collector"

under the Rosenthal Act. (See, e.g., Sau King Chan, supra, 2017 WL 1807947, at *3

[" 'courts have reasoned that a mortgage servicer may be a debt collector under the

Rosenthal Act' "]; Sudhir v. PHH Mortgage Corporation (N.D.Cal., Jan. 19, 2017,

22
No. C 16-06088 WHA) 2017 WL 219681, at *2–3 (Sudhir) [Rosenthal Act's definition of

"debt collector" is not "as restrictive as its counterpart in the FDCPA," and concluding

that a mortgage servicing company may be a debt collector under the Rosenthal Act];

Castillo v. Nationstar Mortgage LLC (N.D.Cal., Nov. 22, 2016, No. 15-CV-01743-BLF)

2016 WL 6873526, at *5 [plaintiffs had established that Nationstar was a " 'debt

collector' under the [Rosenthal Act]" by showing that Nationstar "regularly billed them

and collected payments on their mortgage loan debt"]; Cavender v. Wells Fargo Bank

(N.D.Cal., Sept. 6, 2016, No. 16-CV-00703-KAW) 2016 WL 4608234, at *8 [in the

course of dismissing plaintiff's Rosenthal Act claim on different grounds, acknowledging

that " 'a mortgage servicer may be a "debt collector" under the Rosenthal Act even if it is

the original lender, whereas, such an entity would be excluded from the definition of debt

collector under the federal act' "]; Wilkins v. Bank of America, N.A. (E.D.Cal., Aug. 19,

2016, No. 2:15-CV-02341-KJM-EFB) 2016 WL 5940082, at *7 ["A mortgage servicer

and an original lender may be 'debt collectors' under the Rosenthal Act"]; Reyes v. Wells

Fargo Bank, N.A. (N.D.Cal. Jan. 3, 2011, No. C-10-01667 JCS) 2011 WL 30759, at *19

["[a]s a number of courts have recognized, the definition of 'debt collector' is broader

under the Rosenthal Act than it is under the FDCPA," and "a mortgage servicer may be a

'debt collector' under the Rosenthal Act even if it is the original lender, whereas, such an

entity would be excluded from the definition of debt collector under the federal act"];

Walters v. Fidelity Mortg. of CA (E.D.Cal. 2010) 730 F.Supp.2d 1185, 1203 [mortgage

servicer that regularly billed plaintiff and collected payments on her mortgage debt was a

23
"debt collector" under the Rosenthal Act]; Herrera v. LCS Fin. Services Corp., (N.D.Cal.,

Dec. 22, 2009, No. C09-02843 TEH) 2009 WL 5062192, at *2.)

In our view, those federal courts that have concluded that section 1788.2's

definition of "debt collector" may include mortgage lenders and mortgage servicers have

the better position under an analysis of the actual statutory language. Significantly, a

number of the federal courts that have concluded that mortgage lenders and servicers may

not be considered to be "debt collectors" under the Rosenthal Act have either not

considered the actual language of the Rosenthal Act or have relied on the fact that

mortgage lenders and mortgage servicers would not be "debt collectors" under the

FDCPA in reaching their conclusion regarding the Rosenthal Act. (See, e.g., Lal, supra,

680 F.Supp.2d at p. 1224 ["This Court finds that the [Rosenthal Act] does in fact

mirror . . . the FDCPA, their intentions were the same and exclusive, and, as such, a loan

servicer is not a debt collector under these acts. [FN] [¶] The law is well settled that

FDCPA's definition of debt collector 'does not include the consumer's creditors, a

mortgage servicing company, or any assignee of the debt' "]; Mannello, supra, 2016 WL

94236, at *4; Glover, supra, 2009 WL 5114001, at *8.) This reasoning is problematic,

however, because the FDCPA statutory definition of "debt collector" differs significantly

from the definition of "debt collector" provided under the Rosenthal Act; the definition of

"debt collector" provided in the Rosenthal Act is far broader than that provided in the

FDCPA. The Rosenthal Act does not mirror the FDCPA, and clearly does not do so with

respect to the definition of "debt collector." (Compare § 1788.2, subd. (c) with 15 U.S.C.

§ 1692a, subd. (6).)

24
 The FDCPA specifically excludes from the definition of "debt collector" "any

person collecting or attempting to collect any debt owed or due or asserted to be owed or

due another to the extent such activity . . . (ii) concerns a debt which was originated by

such person; [or] (iii) concerns a debt which was not in default at the time it was obtained

by such person . . . ." (15 U.S.C. § 1692a, subd. (6)(F).) As one federal appellate court

has explained, "[A] debt collector does not include the consumer's creditors, a mortgage

servicing company, or an assignee of a debt, as long as the debt was not in default at the

time it was assigned." (Perry v. Stewart Title Co. (5th Cir. 1985) 756 F.2d 1197, 1208.)

In contrast to the FDCPA, the Rosenthal Act does not so limit the definition of "debt

collector." Rather, the Rosenthal Act considers anyone who regularly engages in the act

or practice of collecting money, property or their equivalent that is due or owing by a

natural person as a result of a transaction between that person and another person in

which the natural person acquired property, services, or money on credit, primarily for

personal, family, or household purposes to be a "debt collector."

It is significant that although our Legislature adopted a number of the FDCPA's

provisions, including, under section 1788.17, all of the substantive provisions applicable

to debt collectors under the FDCPA, as well as the remedies for violations of those

provisions, the Legislature did not incorporate into the Rosenthal Act 15 U.S.C. § 1692a

of the federal act—i.e., the section that defines "debt collector" for purposes of the

FDCPA. The express inclusion of many provisions of the federal act, but not the

provision in question, indicates that our Legislature intended that the Rosenthal Act not

mirror the federal act in this regard. As one federal court has aptly noted, "The California

25
[L]egislature clearly intended and afforded greater protection to consumers by making

the Act applicable to more types of creditors." (Sudhir, supra, 2017 WL 219681, at *2–

3.)15 Given that the Rosenthal Act does not "in fact mirror in the FDCPA" (Mannello,

supra, at p. *4), particularly with respect to the definition of "debt collector," we decline

to take guidance from those federal authorities that have concluded, without analysis, that

the Rosenthal Act's definition of "debt collector" excludes mortgage lenders and

mortgage servicers.

The defendants concede that the FDCPA and the Rosenthal Act are not entirely

coextensive. However, they nevertheless argue that even though the Rosenthal Act "uses

a different definition of debt collector than the [FDCPA]," this does not mean that the

Rosenthal Act "regulates mortgage servicers" but the "FDCPA does not." They insist,

instead, that the "[t]he FDCPA and the Rosenthal Act, though using slightly different

language, both exclude mortgage servicers." However, it is clear that the Legislature

intended for the Rosenthal Act to provide a broader definition of "debt collector" than

that provided in the FDCPA, and, as we have explained, the Rosenthal Act's reference to

an entity that attempts to collect money that is due as a result of a consumer credit

transaction, by its express terms, would not exclude a mortgage servicer. There is no

15 In fact, the possibility that a state might adopt a more expansive definition of "debt
collector" than is provided by the FDCPA is contemplated by the FDCPA's preemption
provision, which specifically allows for a state law to provide for greater consumer
protections than the FDCPA. That provision states: "a State law is not inconsistent with
this [subchapter] if the protection such law affords any consumer is greater than the
protection provided by this [subchapter]." (15 U.S.C. § 1692n.)
26
other provision in the Rosenthal Act that would indicate that mortgage servicers are

otherwise exempt from the Act's coverage.

We therefore conclude that the Rosenthal Act's definition of "debt collector"

applies to a mortgage servicer who engages in debt collection practices in attempting to

obtain repayment of mortgage debt, and that the trial court improperly sustained the

defendants' demurrer on the ground that the Act does not apply to mortgage servicers.

Given our reversal of the court's ruling with respect to the Rosenthal Act claim, we must

also reverse the court's ruling with respect to Davidson's UCL claim, since that claim is

premised on his Rosenthal Act claim.16

C. The trial court erred in concluding that Davidson failed to plead facts sufficient to
state a cause of action against IBM on an alter ego theory

Davidson also contends that the trial court erred in its alternative basis for granting

IBM's demurrer. The trial court concluded that, as to IBM, the complaint failed to plead

sufficient facts to demonstrate that IBM could be held liable for the actions of its

subsidiary, Seterus. Essentially, the trial court determined that the complaint was

insufficient to state a cause of action against IBM because the complaint did not

sufficiently allege IBM's control of its subsidiary, Seterus.

"It is fundamental that a corporation is a legal entity that is distinct from its

shareholders." (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108.) Included in this

general principle is the concept that "a parent corporation (so-called because of control

16 The defendants concede that the UCL claim is predicated on the Rosenthal Act
claim, and that it therefore succeeds or fails based on the success or failure of the
Rosenthal Act claim.
27
through ownership of another corporation's stock) is not liable for the acts of its

subsidiaries [merely on the basis of its control through stock ownership]." (United States

v. Bestfoods (1998) 524 U.S. 51, 61.) However, where a parent corporation that owns all

of a subsidiary's stock operates that subsidiary in a manner that renders the subsidiary

merely an alter ego of its parent (and a ghost of its former, independent self), courts are

able to pierce the " 'corporate veil' " and treat the two entities as a single entity. (Sonora

Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538 (Sonora Diamond).)

In determining whether to treat a subsidiary as the alter ego of its parent

corporation, a court is to assess whether (1) there is " 'such unity of interest and

28
ownership that the separate personalities of the [subsidiary] corporation and [its parent

corporation or individual owner] no longer exist' " and (2) " 'if the acts are treated as

those of the [subsidiary] alone, an inequitable result will follow.' " (Mesler v. Bragg

Management Co. (1985) 39 Cal.3d 290, 300; CADC/RADC Venture 2011-1 LLC v.

Bradley (2015) 235 Cal.App.4th 775, 788–789.) In order to succeed on an alter-ego

theory, "the plaintiff must show 'specific manipulative conduct' by the parent toward the

subsidiary which 'relegate[s] the latter to the status of merely an instrumentality, agency,

conduit or adjunct of the former.' " (Laird v. Capital Cities/ABC, Inc. (1998) 68

Cal.App.4th 727, 742.) As is suggested by this language, the treating of one corporation

as the alter ego of another is " 'an extreme remedy, [to be] sparingly used' " (Hasso v.

Hapke (2014) 227 Cal.App.4th 107, 155 (Hasso)) and is to be "approached with caution"

(Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220,

1249).17

17 In evaluating the two requirements of the alter ego doctrine, courts look to the
totality of the circumstances bearing on the relationship between the parent and its
subsidiary. (Hasso, supra, 227 Cal.App.4th at p. 155; Greenspan v. LADT, LLC (2010)
191 Cal.App.4th 486, 513 (Greenspan); Sonora Diamond, supra, 83 Cal.App.4th at p.
539.) Those circumstances include, but are not limited to (1) whether the parent and
subsidiary commingle funds and other assets, (2) whether the parent has represented to
third parties that it is liable for the subsidiary's debts, (3) whether the parent owns 100
percent of the subsidiary's stock, (4) whether the parent and subsidiary use the same
offices and same employees, (5) whether the subsidiary is used as the " ' "mere shell or
conduit" ' " for the affairs of the parent, (6) whether the subsidiary is inadequately
capitalized, (7) whether the parent or subsidiary disregard corporate formalities such as
holding board meetings, keeping corporate records, and acting through votes of the
corporate board, (8) whether the parent and subsidiary commingle their corporate
29
 The trial court relied on these alter-ego standards in concluding that the complaint

is insufficient to state a cause of action against IBM. However, Davidson's complaint

does not rest on alter-ego allegations against IBM; the complaint does not allege liability

on IBM's part based solely on its status as Seterus's parent corporation. Rather, the

complaint asserts that IBM, itself, was actively involved in the alleged illegal conduct.

Specifically, the complaint alleges:

"16. Plaintiff is informed and believes, and thereon alleges, that each
and all of the acts and omissions alleged herein were performed by,
or are attributable to, Defendants SETERUS, INC. and
INTERNATIONAL BUSINESS MACHINES CORPORATION
and/or DOES 1 through 10 (collectively 'DEFENDANTS' or
'SETERUS, INC.'), each acting as the agent for the other, with legal
authority to act on the other's behalf. The acts of any and all
Defendants were in accordance with, and represent, the official
policy of Defendants.

"17. At all relevant times, DEFENDANTS, and each of them,
ratified each and every act or omission complained of herein. At all
relevant times, DEFENDANTS, and each of them, aided and abetted
the acts and omissions of each and all the other Defendants in
proximately causing the damages herein alleged.

"18. Plaintiff is informed and believes, and thereon alleges, that each
of said Defendants is in some manner intentionally, negligently, or
otherwise responsible for the acts, omissions, occurrences, and
transactions alleged herein."

records, (9) whether the parent and subsidiary have " 'identical directors and officers,' "
and (10) whether the parent has diverted the subsidiary's assets to the parent's uses.
(Hasso, at p. 155; Greenspan, at pp. 512–513.)
30
 Again, in addressing a demurrer, we assume that the allegations in the complaint

are true. (Fremont Indemnity, supra, 148 Cal.App.4th at p. 111.) The complaint alleges

that both Seterus and IBM were actively engaged in the offending conduct. For example,

Davidson alleges that each defendant ratified the other's acts, and that the defendants

aided and abetted each other in committing the offending acts and omissions.18

Davidson has therefore alleged that IBM, itself, was actively involved in the challenged

conduct; the complaint is not solely about the conduct of its subsidiary entity, Seterus.19

These allegations are sufficient to state a cause of action against IBM for violations of the

Rosenthal Act and the UCL. The trial court's sustaining of the demurrer as to IBM on

this basis must also be reversed.

18 There are references in the complaint to conduct undertaken by "SETERUS,
INC.," without reference to IBM as well. However, as Davidson points out, the
complaint defines the terms "DEFENDANTS" and "SETERUS, INC" as referring to the
named defendants, jointly, as well as the Doe defendants. Therefore, references in the
complaint to conduct undertaken by "SETERUS, INC." are, by definition, references to
conduct alleged to have been undertaken both Seterus and IBM.
19 We do not intend to make any comment as to whether Davidson will be able to
support these allegations with evidence as to IBM's role in the challenged conduct as the
case moves forward. We are merely addressing the nature of the allegations in the
complaint and their sufficiency for purposes of withstanding a demurrer.
31
 IV.

CONCLUSION

The judgment of the trial court is reversed. Appellant Davidson is entitled to costs

on appeal.

AARON, J.

WE CONCUR:

NARES, Acting P. J.

HALLER, J.

32