To state a viable cause of action under Civil Code §1788 et seq (aka “the Rosenthal Act”), a plaintiff must allege that:

(1) A debt collector (an individual, in the ordinary and regular course of a debt collection business – §1788.2(c))

(2) in an attempt to collect a consumer debt (debt owing from a natural person primarily for personal, family or household purposes – §1788.2(e))

(3) intentionally (§1788.30(e))

(4) engaged in statutorily-prohibited conduct (§1788.30(a))

(5) which was not cured after receiving written notice from plaintiff of the violation (§1788.30(d)).

See, e.g., Marseglia v. JP Morgan Chase Bank, 750 F.Supp.2d 1171, 1176-1177 (S.D. Cal. 2010).

The real issue – which the parties focus much of their attention on – is whether defendants HOA and President were collecting a “consumer debt” since the Rosenthal Act only applies to “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.” Civil Code §1788.2(f). The term “consumer credit transaction” is further defined to mean “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.” Civil Code §1788.2(e). On the one hand, collection of HOA dues does not fit neatly into the rubric of consumer debt since an HOA is not a traditional business entity. See, e.g., That v. Alders Maintenance Assn. (2012) 206 Cal.App.4th 1419, 1425. However, as alleged the monthly dues were intended to reimburse the HOA for advancing the costs of services (gardening/landscape) provided to homeowners. In other words, the homeowner was acquiring services from the HOA on credit, and expected to reimburse the HOA for that on a monthly basis. Defendants’ own warning notices to plaintiff (see TAC ¶37) included reference to the Rosenthal Act and self-described collection of dues as a debt collection under the Act. As noted in both Reyes v. Wells Fargo Bank, WL127891 at *20 (E.D. Cal. 2011), and Durham v. Continental Central Credit, Inc., WL3416114 at *7 (S.D. Cal. 2009), the determination of whether a debt falls within the Rosenthal Act turns on the facts, which are best evaluated on summary judgment.

Defendants contend that they cannot be liable for a Rosenthal Act violation because, as a matter of law, an HOA (and its president acting on its behalf) are not collecting a consumer debt. Were this a claim under the federal counterpart FDCPA, defendants might have a point. Numerous federal courts have concluded that collecting similar assessments are not consumer debts:

See Doran v. Aus, 308 Fed. Appx. 49, 51 (9th Cir. 2009); Alexander v. Omega Management, Inc., 67 F.Supp.2d 1052, 1054 (D.Minn.1999); Franceschi v. Mautner-Glick Corp., 22 F.Supp.2d 250, 253-254 (S.D.N.Y.1998); Azar v. Hayter, 874 F.Supp. 1314 (N.D.Fla.1995); Nance v. Petty, Livingston, Dawson, & Devening, 881 F.Supp. 223 (W.D.Va.1994); in accord, Day v. Continental Cent. Credit (2008) 170 Cal.App.4th 721.

However, virtually every federal Court of Appeals dealing with this issue has gone the other way, finding the FDCPA applicable:

See Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC, 698 F.3d 290, 293-294 (6th Cir. 2012); Newman v. Boehm, Pearlstein & Bright, Ltd., 119 F.3d 477, 481, 482 (7th Cir. 1997); Romea v. Heiberger & Assocs., 163 F.3d 111 (2d Cir. 1998); Ladick v. Gemert, 146 F.3d 1205 (10th Cir. 1998).

In Thies v. Law Offices of William A. Wyman, 969 F.Supp. 604 (S.D.Cal.1997), a federal district court embarked on a comprehensive analysis of HOA dues as a consumer debt under the FDCPA. After addressing several cases on both sides of the argument, the court concluded in pertinent part as follows (at 607-608):

“Plaintiffs are obligated to pay their homeowner fees because of a covenant running with their property. Because no offer or extension of credit is required, the Court finds that a transaction, for the purposes of the FDCPA, arises out of Plaintiffs’ obligation to pay dues for the services of the Association … homeowner association fees for maintenance and improvement of common areas within a housing development are a service primarily for personal, family, and household purposes. The fact that many households may use or benefit from a common area does not logically diminish the ‘primary’ nature of the service.”

The Thies rationale has been followed in Taylor v. Mount Oak Manor Homeowners Association, Inc., 11 F.Supp.2d 753, 755 (D.Maryland 1998); Caron v. Charles E, Maxwell, P.C., 48 F.Supp.2d 932, 934 (D.Ariz.1999); Fuller v. Becker and Poliakoff, P.A., 192 F.Supp.2d 1361, 1368 (M.D.Fla.2002); and Williams v. Edelman, 408 F.Supp.2d 1261, 1267 (S.D.Fla 2005). The same rationale was applied by the Court of Appeals of North Carolina analyzing a state statute very similar to ours here in California. See Reid v. Ayers, 531 S.E.2d 231, 233-234 (N.C. 2000); Davis Lake Community Association, Inc. v. Feldman, 530 S.E.2d 865, 868 (N.C. 2000).

Setting aside the uncertainty how HOA dues would be treated in a federal action, this is a claim under California’s state version, which is intended to have a broader reach than its federal counterpart. See Herrera v. LCS Financial Services Corp., WL 5062192 at *2 (N.D. Cal. 2009). Given the trend toward treating HOA dues as a consumer debt under the FDCPA, it seems that HOA dues appear to qualify as consumer debt under the Rosenthal Act – at least at the pleading stage. The evidence may show otherwise on summary judgment.

Demurrer overruled. Defendant to answer in 10 days.

Plaintiff to give notice of this ruling.