As U.S. consumer solar energy use increases, so does potential exposure under state consumer protection statutes. A recent decision by the California Court of Appeals in the case of Hagey v. Solar Service Experts, LLC highlights the potential pitfalls for solar energy providers and their collections agents.
In Hagey, the plaintiff purchased a home the prior owner had equipped with a solar energy system. Under the terms of the contract (the solar contract) with the company that installed the system, the prior owner agreed to an installment payment plan whereby the prior owner would purchase energy produced by the system through monthly payments to the company. Upon sale of the home to the plaintiff, and as expressly provided for under the solar contract, the prior owner agreed to prepay all remaining amounts due under the contractual terms.
At some point following sale of the home, the plaintiff began receiving monthly bills from the defendant on behalf of the company that installed the system and to whom the prior owner owed payments under the solar contract. The plaintiff spoke to a representative of the defendant, who related that the plaintiff should not have received the bill and the issue would be resolved. Nonetheless, the plaintiff continued to receive demands for payment.
The plaintiff filed a class action lawsuit on behalf of himself and similarly situated consumers. The class action complaint alleged that the defendant violated California’s Rosenthal Fair Debt Collection Practices Act (RFDCPA) and several other state consumer protection statutes. The defendant demurred to the complaint in its entirety. The lower court granted the defendant’s demurrer but granted the plaintiff leave to amend — except for the RFDCPA claim; reasoning that because the plaintiff was not a party to the solar contract and, in fact, owed nothing to the defendant, the defendant’s collection attempts did not fall within the RFDCPA’s purview.
The plaintiff appealed, arguing that the lower court erred in finding that his RFDCPA claim failed to allege a “consumer credit transaction” as that term is defined under the statute. Specifically, the plaintiff maintained that the lower court erroneously focused on the undisputed fact that he did not owe the debt due under the solar contract; whereas the RFDCPA encompassed debts alleged to be due or owing in addition to those owed in fact.
The court of appeals agreed based on a plain reading of two key statutory definitions. First, like its counterpart, the federal Fair Debt Collection Practices Act (FDCPA), the RFDCPA defines “consumer debt” 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.” Second, the RFDPCA defines “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 the other person primarily for personal, family, or household purposes.”
Based on these definitions, the court of appeals found the “simple answer” was that the plaintiff’s complaint had sufficiently alleged a violation of the RFDPCA. In the appellate court’s view, that the plaintiff did not, in fact, owe money to defendant was of no consequence, as “[t]he plain statutory language makes clear the legislature did not choose to protect only those who owe money.” The court likened this policy goal to that of the FDCPA’s purpose of eliminating “the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid.” Further, the court had little trouble concluding that the solar contract “embodie[d] a transaction in which services were acquired on credit primarily for personal, family, or household purposes — i.e., a consumer credit transaction.” The court found it “irrelevant” that the plaintiff was never a party to the solar contract. Instead, “[t]he focus” was on “what defendant’s debt collection practices said about the supposed debt, namely that it was due and owing under” the solar contract.
The Hagey court’s construction of the term “debt” is in keeping with most courts who have found debts need not be actually due and owing to fall within the ambit of the either the FDCPA or RFDCPA. The appellate court’s reasoning with respect to the statutorily defined term “consumer credit transaction” is subject to debate, however, as the plaintiff in Hagey expressly declined to assume responsibility for payment obligations under the existing solar contract. Regardless, solar energy providers and their agents are well-advised to implement processes to ensure downstream consumers are not subject to payment obligations unassumed under sale contracts with previous homeowners.