The Utah court of appeals has recently affirmed the dismissal of a plaintiff’s suit against a debt buyer based on its alleged failure to register as a collection agency prior to filing collection lawsuits. The court’s decision in Meneses v. Salander Enterprises LLC, not only holds that a violation of the Utah Collection Agency Act (UCAA) is not a deceptive or unconscionable act under state law, but also calls into question whether the UCAA ever even applied to debt buyers. As discussed here, the UCAA was repealed by the state legislature earlier this year, but cases asserting this theory of liability remain pending before state and federal courts.
The UCCA provided that “[n]o person shall conduct a collection agency, collection bureau, or collection office in this state,” or engage in other collections-related solicitation, unless “that person or the person for whom he may be acting as agent, is registered with the Division of Corporations and Commercial Code and has on file a good and sufficient bond.” Utah Code § 12-1-1. The plaintiff alleged that the defendant, a debt buyer, was required to but failed to register as a debt collector under this provision, and that filing lawsuits to collect money owed to it without that registration constituted a deceptive or unconscionable act under the Utah Consumer Sales Practices Act (UCSPA).
The plaintiff’s argument relied heavily on Lawrence v. First Financial Investment Fund V, LLC, a 2020 decision from Utah’s federal district court holding that a debt buyer was subject to the requirements of the UCAA like a “traditional” debt collector who seeks to collect debts owed to others. The Utah court of appeals expressed significant skepticism that First Financial was correctly decided, noting that “the statute is open to multiple interpretations” and that “a reading of the wider statutory scheme of the UCAA suggests that its purpose was not to protect the interests of those who owed a debt but to protect the interests of those to whom the debt was owed, which supports the position that the registration requirement applied only to those who collect debt on behalf of others.” However, the court of appeals ultimately concluded it need not decide this issue, affirming on the alternative ground that a UCAA violation, standing alone, did not support the plaintiff’s claim for deceptive or unconscionable acts under the UCSPA.
Specifically, the court of appeals concluded that, even assuming a debt buyer was required to register under the UCAA, a plaintiff does not state a claim under the UCPSA by merely alleging a defendant “engaged in the ‘business of collecting debts acquired in default and filed collection lawsuits in Utah courts’ without first having obtained ‘the mandatory license required by Utah law’ pursuant to section 12-1-1.” Instead, a plaintiff must identify some additional “act of wrongdoing,” such as an “affirmative misrepresentation” concerning whether the debt buyer was registered under the UCAA. The court of appeals rejected the plaintiff’s argument that a debt buyer’s filing of a lawsuit constitutes an “implicit[ ]” misrepresentation that the filing party is entitled to collect the debt. Rather, “Salander’s representation that it had the right to collect on a debt it owned is not the same as Salander representing that it was a debt collector operating in full compliance with the laws of Utah. Indeed, Salander — not knowing (given the UCAA’s ambiguity on the point) that it was required to register and bond — could hardly be said to have withheld its registration status since there was no information for Salander to withhold from the [plaintiff].”
The court of appeals concluded that the plaintiff’s argument was “an improper attempt to ‘transform a violation of the UCAA’ into a cause of action” that the UCAA did not itself provide. Instead, a plaintiff must identify “some other affirmative misrepresentation or attempt to conceal its registration status on the part of [the defendant]” to establish an actionable claim under the UCSPA related to a failure to register under the UCAA.
This decision should spell the end of most consumer litigation under the UCAA, particularly in light of the repeal of the statute effective as of May 3, 2023. However, several cases remain pending before the Utah court of appeals on issues related to the UCAA, and we will continue to monitor those matters for further developments.