Utah Court of Appeals Reverses Dismissal of Consumer Claims Based on Failure to Register Under Collection Agency Act

In a change of course, the Utah court of appeals has reversed the dismissal of a plaintiffs’ suit against a debt collector based on its alleged failure to register as a collection agency prior to filing collection suits. While the Utah Collection Agency Act (UCAA) was repealed by the Utah legislature last year, discussed here, cases asserting this theory of liability remain pending before state and federal courts in the state. Late last year, in Meneses v. Salander Enterprises LLC, discussed here, the court of appeals held that a violation of the UCAA was not a deceptive or unconscionable act. The court distinguished this case from Meneses by finding that the defendant made affirmative representations in the lawsuits at issue that precluded dismissal at this stage.

In Pace v. Link Debt Recovery, LLC (Link), Link initiated two separate debt collection lawsuits in 2020. In the complaints, Link asserted it was “operating pursuant to the laws of the state of Utah.” Link prevailed on both collection suits, but the debtors later filed the instant case alleging that Link was not properly registered and bonded as a debt collector and thus its collection activity was unlawful under the Fair Debt Collection Practices Act (FDCPA) and Utah Consumer Sales Practices Act (UCSPA). Link filed a motion to dismiss asserting that it was properly registered under the UCAA in 2020 and, even if it was not, its collection activities did not violate the statutes. The district court granted the motion to dismiss and the plaintiffs appealed.

As to its first argument, Link acknowledged that it was not separately registered and bonded as a debt collector, but in 2019 it had changed its corporate status from an “LLC” to a “dba,” and that the entity under which the “dba” did business was properly registered and bonded. However, the plaintiffs pointed out that in 2020 Link changed its corporate status back to an LLC so at the time it filed both collection lawsuits, Link was an independent LLC that was not registered and bonded as a debt collector. However, Link countered that in 2021, notably just weeks after the filing of the plaintiffs’ suit, it filed a Statement of Correction with the state indicating that the 2020 document converting Link back to an LLC had been “filed in error.” Link asserted that this correction operated to retroactively void the earlier-filed conversion document, and that Link had therefore been a dba of a registered entity at all relevant times. The district court concluded, that based on the correction, Link was a dba at the time it filed the suits at issue and therefore Link was properly registered and bonded as required by the UCAA. The court of appeals reversed finding that from the timing of the filings and the fact there did not appear to be any facial inaccuracy in the “corrected” document, there was a question of fact as to whether Link filed the correction not to remedy an inaccuracy but, instead, to sidestep any potential liability in this lawsuit.

Next, the appellate court turned to whether Link’s representation that it was “a duly organized and existing business operating pursuant to the laws of the State of Utah” sufficiently stated a claim under the FDCPA and UCSPA. The court acknowledged in Meneses, it held that the plaintiffs had not sufficiently alleged a violation when the debt collector’s only asserted unlawful act was “its failure to comply with the UCAA’s registration requirement,” but in that same case the court suggested that the plaintiffs might have stated a valid cause of action if the debt collector had “represent[ed] that it was a debt collector operating in full compliance with the laws of Utah.” Based on that, the court found it was premature to dismiss the case at this stage. “Link’s statement might well have been entirely benign, intended to communicate simply that it was a Utah business entity created pursuant to the laws of that jurisdiction. But the [plaintiffs’] contrary interpretation of that statement is not unreasonable, especially given our instruction in Meneses that similar representations might be actionable … and given the reality that all reasonable inferences must be drawn in the [plaintiffs’] favor at this point.” However, the court did caution that in order to succeed on the merits the plaintiffs will bear the burden of demonstrating that, when Link alleged that it was “a duly organized and existing business operating pursuant to the laws of the State of Utah,” it was intentionally or knowingly misrepresenting that it was in compliance with the UCAA.