In Olson v. La Jolla Neurological Assocs., No. D079265, 2022 Cal. App. LEXIS 973, at *16-20 (Ct. App. Nov. 23, 2022), the Court of Appeal held that a medical service provider, with no affiliation to its third party billing service, was not subject to the Rosenthal Act.
Thus, the legal question before us is whether a medical service provider that exclusively uses an unaffiliated, third-party billing service to collect payment for services rendered to patients is a “‘debt collector'” within the meaning of the Rosenthal Act. We conclude that the answer is no. Although the Rosenthal Act applies to those who collect debts on behalf of themselves, it requires that the defendant must regularly and in the ordinary course of business “engage in” debt collection. (§ 1788.2, subd. (c).) “To engage in is to be occupied in, to be employed in.” (People v. Nocita (1954) 123 Cal.App.2d 55, 59, citing People v. Coppla (1950) 100 Cal.App.2d 766, 768; see also Black’s Law Dict. (11th ed. 2019) p. 669, col. 2 [defining “engage” to mean “[t]o employ or involve oneself; to take part in; to embark on”].) To “engage in” an activity does not ordinarily mean to hire someone else to do it; it means to take part in doing it oneself. Thus, the most natural reading of the statutory language is that a “debt collector” must personally participate in consumer debt collection—either on behalf of himself or herself or others. To the extent there is any ambiguity in the statutory language, the legislative history bolsters our interpretation. The Rosenthal Act was “intended to provide public protection against unregulated debt collectors.” (Sen. Com. on Judiciary, Analysis of Sen. Bill No. 237 (1977-1978 Reg. Sess.) as amended May 11, 1977, p. 2; hereinafter referred to as Analysis.) Before 1977, the Collection Agency Act (former Bus. & Prof. Code, § 6850 et seq.) only applied to debt collection agencies licensed by the Bureau of Collection and Investigative Services. (Analysis, at pp. 1-2.) The proponents of the Rosenthal Act were concerned that “abuses in debt collection practices” were being committed by “unregulated debt collectors,” specifically in-house collectors. (Analysis, at p. 2.) “For example, Penney’s may employ an in-house collection service which services Penney’s only. Such an in-house service is not presently regulated, yet abuses are alleged to be occurring.” (Id. at p. 3.) As explained by the Department of Consumer Affairs in an enrolled bill report: “Licensed collection agencies are responsible for about 10% of the debt collection in California. The other 90% is performed by in-house collectors (for banks, retailers, finance companies, and so on).” (Dept. Consumer Affairs, Enrolled Bill Rep. on Sen. Bill No. 237 (1977-1978 Reg. Sess.) Sept. 15, 1977, p. 1.) “The Act would thus apply to debt collectors licensed by the Bureau of Collection and Investigative Services (CIS) and to in-house collectors . . . .” (Ibid.) This legislative history confirms that the Legislature intended to expand protections against abusive debt collection practices to previously unregulated in-house debt collectors. But nothing in the language or legislative history of the statute suggests that the Legislature also intended to impose direct liability on creditors who exclusively use unaffiliated outside entities for debt collection. We conclude that such a creditor is not “engage[d] in” debt collection within the meaning of the Rosenthal Act. (§ 1788.2, subd. (c).) This result is also supported by our prior opinion in Cavalry SPV I, LLC v. Watkins (2019) 36 Cal.App.5th 1070 (Cavalry). There, we agreed with a federal district court “that a debt holding entity may be a ‘”debt collector”‘ if it indirectly collects debts through a separate entity where the two entities together form an interdependent ‘”single economic enterprise.”‘” (Id., at p. 1086, italics added & quoting Gold v. Midland Credit Mgmt. (N.D.Cal. 2015) 82 F.Supp.3d 1064, 1072.) We also found “ample evidence” that a debt holder and its associated collection agency formed such a single economic enterprise, because they operated under common ownership pursuant to an agreement under which debts purchased by the former were immediately placed with the latter for collection; they were closely related; the associated entity was acting under the direction of the debt purchaser; and the debt purchaser itself set the allegedly improper interest-charging policy. (Ibid.) Cavalry makes clear that a creditor using a separate entity to collect its debts may be treated as a debt collector if there is evidence that the creditor and debt collector are part of a single economic enterprise. (Cavalry, supra, 36 Cal.App.5th at p. 1086.) Yet Olson made no such showing here. The undisputed evidence is that Dr. Coufal and LJNA used unaffiliated, third-party billing services, which they selected based on online advertising, customer reviews, interviews, and referrals. There is no evidence that LJNA and WRS were affiliated with one another, operated under common ownership, or were otherwise part of a single economic enterprise. The mere fact that LJNA provided WRS with certain basic information for WRS to perform its billing services—such as CPT codes and time spent with each patient—does not transform LJNA itself into a debt collector. Nor does the one phone call LJNA placed to the Olson household seeking Mr. Olson’s insurance information. We therefore conclude that Dr. Coufal and LJNA met their initial summary judgment burden of demonstrating that they were not directly liable as “‘debt collector[s]'” within the meaning of the Rosenthal Act, and Olson failed to demonstrate a triable issue of material fact on this issue.
The Court of Appeal found no liability under agency principles, either.
Although we have discovered no California case law on point, “[m]any [federal] courts have held that debt collectors are independent contractors for purposes of the FDCPA.” (Browning v. AT&T Corp. (N.D.Ill. 2009) 682 F.Supp.2d 832, 839-840, citing Frascogna v. Wells Fargo Bank, N.A. (S.D.Miss. Aug. 31, 2009, No. 3:07CV96DPJ-JCS) 2009 U.S.Dist.Lexis 77774 [citing cases]; see also Randolph v. IMBS, Inc. (7th Cir. 2004) 368 F.3d 726, 729 [“debt collectors are independent contractors”]; Teng v. Metropolitan Retail Recovery (E.D.N.Y. 1994) 851 F.Supp. 61, 67 (Teng) [debt collector “was an independent contractor” because “there was no evidence” that it “was in any way subject to [creditor’s] control with regard to its conduct in the actual performance of the debt collection work”].) Subject to certain exceptions not relevant here, a hirer is not vicariously liable for the conduct of an independent contractor it employs, even when the independent contractor is acting within the scope of its employment. (Bowman v. Wyatt (2010) 186 Cal.App.4th 286, 299, citing S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350 [“The distinction between independent contractors and employees arose at common law to limit one’s vicarious liability for the misconduct of a person rendering service to him.”].) Although we have acknowledged that “a creditor can be held vicariously liable for the actions of an agent collecting a debt on its behalf under the Rosenthal Act” (Cavalry, supra, 36 Cal.App.5th at p. 1085, italics added), the Act does not impose vicarious liability on a creditor for the actions of an independent contractor who is not the creditor’s agent. The most important factor in distinguishing an agent from an independent contractor is whether the principal has a right to control the manner and means by which the work is to be performed. (Wilson v. County of San Diego (2001) 91 Cal.App.4th 974, 983.) “The right to control the result is inherent in both independent contractor relationships and principal-agency relationships; it is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists.” (Wickham v. Southland Corp. (1985) 168 Cal.App.3d 49, 59.) If control may be exercised only as to the result of the work, and not the means by which it is accomplished, the relationship is an independent contractor relationship rather than an agency. (Millsap v. Federal Express Corp. (1991) 227 Cal.App.3d 425, 431.) “‘Agency and independent contractorship are not necessarily mutually exclusive legal categories . . . . In other words, an agent may also be an independent contractor.'” (Jackson v. AEG Live, LLC (2015) 233 Cal.App.4th 1156, 1184.) However, the party asserting that an independent contractor is also an agent bears the burden of proving the existence of an agency relationship. (See Inglewood Teachers Assn. v. Public Employment Relations Bd. (1991) 227 Cal.App.3d 767, 780 [burden of proving agency rests on party asserting its existence].) The law indulges in no presumption that an agency exists, but instead presumes that a person is acting for himself or herself and not as an agent of another. (Jackson, at p. 1184.) Olson presented no evidence that WRS was acting as an agent of LJNA, rather than just an independent contractor. There is no evidence in the record that WRS was subject to the control of LJNA in the manner and means of its work. Specifically, there was no showing that LJNA exercised control over WRS “with regard to its conduct in the actual performance of the debt collection work.” (Teng, supra, 851 F.Supp. at p. 67 [creditor not vicariously liable for conduct of debt collector who “was an independent contractor”].) Olson also presented no evidence of the actual agreement between LJNA and WRS or its terms. On this record, therefore, we conclude that Olson failed to meet her burden of demonstrating a triable issue of material fact on agency liability. (See Colo. Capital v. Owens (E.D.N.Y. 2005) 227 F.R.D. 181, 188 [“since [creditor’s] debt collectors are independent contractors, [creditor] cannot be held vicariously liable . . . for their actions”].) We emphasize that we are not holding a creditor may never be vicariously liable for the actions of a debt collector on an agency theory. In some circumstances, a debt collector may act as a creditor’s agent, depending on the nature of their relationship and the level of control the creditor exercises over the debt collector’s operations. But it was Olson’s burden to demonstrate a triable issue of material fact on the existence of such an agency relationship, and she failed to do so on this record.