Court of Appeal (Cal) Says in Unpublished Decision that “Knowledge” of Improper Service under 1788.15 Means “Constructive Knowledge” — Update: Certified for Publication 6.21.23

In Minser v. Collect Access, Nos. B318325, B321996, 2023 Cal. App. Unpub. LEXIS 3029, at *13-18 (May 24, 2023), the Court of Appeal in an unpublished decision affirmed a judgment against a debt collector arising out of alleged improper service, holding that 1788.15’s requirement that a debt collector “know” that service of process was not properly effected really means “constructive” knowledge.

A debt collector is liable under section 1788.15, subdivision (a) if it uses judicial proceedings to collect a debt when it “knows that service of process . . . has not been legally effected” (italics added). Relying solely on the statutory language, Collect Access argues that the word “knows” should be interpreted to mean actual knowledge, and contends that it therefore did not violate the statute when it continued to collect from Minser after learning of Minser’s declarations. We are not persuaded. “[T]he Act is ‘a remedial statute [that] should be interpreted broadly in order to effectuate its purpose.'” (Komarova, supra, 175 Cal.App.4th at p. 340.) In general, the use of the term “‘knowledge'” [*14] in a statute without further qualification “encompasses both actual knowledge and constructive knowledge.” (Tsasu LLC v. U.S. Bank Trust, N.A. (2021) 62 Cal.App.5th 704, 718, 277 Cal. Rptr. 3d 76 (Tsasu LLC).) The Tsasu LLC court defined these terms as follows: “‘Actual’ knowledge exists when a person is subjectively aware of a fact. (E.g., In re A.L. (2019) 38 Cal.App.5th 15, 21, 250 Cal. Rptr. 3d 572 . . . .) ‘Constructive’ knowledge exists when a person is deemed in the eyes of the law to be aware of a fact, either because (1) the person has ‘”knowledge of circumstances which, upon reasonable inquiry, would lead to that particular fact [citations]”‘ (Melendrez[ v. D & I Investment, LLC. (2005)] 127 Cal.App.4th [1258,] 1252, quoting First Fidelity Thrift & Loan Assn. v. Alliance Bank (1998) 60 Cal.App.4th 1433, 1443, 71 Cal. Rptr. 2d 295 . . .), or (2) the fact is contained in a document that has been ‘”recorded as prescribed by law.”‘ [Citations.]” (Tsasu LLC, supra, at p. 719.) We agree with Collect Access that Minser’s declaration was not sufficient to supply actual knowledge in this instance. The documentation from the hospital showed only that Minser’s mother was a patient there from November 3 to November 12, 2000. The only evidence that Minser himself was away from home on November 20, and therefore unable to receive service of process, came from the declarations of Minser and his mother. As Collect Access notes, both of these declarations were self-interested. They did not prove conclusively that the service of process form was false. . . .The same is true here. The Rosenthal Act was designed “to ensure that debt collectors and debtors exercise their responsibilities to one another with fairness, honesty and due regard for the rights of the other” (§ 1788.1, subd. (a)(2)), and “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts.” (Id., subd. (b).) If section 1788.15 were interpreted in the manner Collect Access urges, it would encourage creditors to behave as Collect Access did in this case—to wait until 14 years of interest have accrued, and evidence regarding the circumstances of the initial debt has disappeared, before finally seeking to collect. If not for the coincidence that Minser’s mother suffered a stroke less than a month before First Select purportedly served Minser, it is questionable whether Minser would have succeeded in this suit. A construction that adds the word “actual” to section 1788.15’s requirement of what the debt collector “knows” would not accomplish the Legislature’s purposes in enacting the Rosenthal Act, and would encourage debt collectors to rely on suspect documentation regarding service by discouraging if not outright excusing the consideration of any compelling contrary evidence. We note that such an interpretation of section 1788.15, subdivision (a) would not unjustly impose liability on a debt collector confronted with contradictory evidence about service of process given other safeguards in the Rosenthal Act. The Act elsewhere provides an affirmative defense to debt collectors that unintentionally violate the Act through a bona fide error. Specifically, section 1788.30, subdivision (e) provides that “A debt collector shall have no civil liability to which such debt collector might otherwise be subject for a violation of [the Act], if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted notwithstanding the maintenance of procedures reasonably adapted to avoid any such violation.” Here, Collect Access did not assert this affirmative defense, nor adduce any evidence to support it.

UPDATE:  The Court of Appeal certified the decision for publication on June 21, 2023.