Pace v. Link Debt Recovery

542 P.3d 979

2024 UT App 4

Amanda PACE and Kandilee Sauter, Appellants,

v.LINK DEBT RECOVERY LLC, Appellee.

No. 20220841-CA

Court of Appeals of Utah.

Filed January 5, 2024

Third District Court, West Jordan Department, The Honorable Matthew Bates, No. 210905743

Daniel Baczynski, Draper, Attorney for Appellants

Mark A. Nickel, Salt Lake City, Attorney for Appellee

Judge Ryan M. Harris authored this Opinion, in which Judges Ryan D. Tenney and Amy J. Oliver concurred.

Opinion

HARRIS, Judge:

¶1 In 2020, Link Debt Recovery LLC (Link) initiated separate debt collection lawsuits against Amanda Pace and Kandilee Sauter (collectively, the Pace Parties). In the complaints it filed, Link asserted, among other things, that it was "operating pursuant to the laws of the State of Utah." Link prevailed in both lawsuits, eventually obtaining judgments against the Pace Parties.

¶2 Later, the Pace Parties filed the instant lawsuit against Link, alleging that, at the time Link filed the collection lawsuits against them, Link was not properly registered and bonded as a debt collector as required by then-applicable Utah law. The Pace Parties asserted that Link’s actions—attempting to sue them for collection while not properly registered and bonded—-were unlawful under Utah and federal consumer protection statutes. Link asked the district court to dismiss the Pace Parties’ lawsuit, asserting that it was in fact properly registered and bonded and, alternatively, that even if it were not, its actions did not amount to unlawful activity under the relevant statutes.

¶3 The district court granted Link’s motion to dismiss on both grounds, and the Pace Parties now appeal that determination. They assert that factual questions exist regarding Link’s true registration status that may not properly be resolved on a motion to dismiss, and that Link made an affirmative misrepresentation in its complaint—that it was "operating pursuant to the laws of the State of Utah"—that is potentially actionable under the relevant consumer protection statutes. We agree with the Pace Parties that the court erred in dismissing their lawsuit at this procedural stage, and we therefore reverse the court’s dismissal order and remand the case for further proceedings.

BACKGROUND¹

¶4 In February 2020, Link filed a debt collection lawsuit against Sauter. In November 2020, Link filed a similar lawsuit against Pace. In both complaints, Link asserted, as one of its "general allegations," that it was "a duly organized and existing business operating pursuant to the laws of the State of Utah." Link also claimed that Sauter and Pace had each failed to pay a debt—Sauter had failed to pay $1,938.58 and Pace had failed to pay $1,778.00—and that Link had acquired, by assignment, the right to collect on those unpaid debts. The Pace Parties did not respond to the lawsuits, and Link was therefore able to obtain default judgments against them.

¶5 The next year, in October 2021, the Pace Parties filed the instant lawsuit against Link. In that lawsuit, the Pace Parties did not contest their liability for the underlying debts. Instead, they pointed out that, at the time Link filed its collection lawsuits against them, Utah law required debt collectors to be registered with the state and have filed a bond with the state, and they alleged that Link was not properly registered and bonded. They further alleged that they chose "not to respond to" the collection lawsuits because they believed—based on Link’s representation that it was "operating pursuant to the laws of the State of Utah"—that Link had "the legal right to sue" on the debts in question. And they asserted that Link’s actions were unlawful under both a federal consumer protection statute—the Fair Debt Collection Practices Act (FDCPA), see 15 U.S.C. §§ 1692e, 1692f—and a similar Utah statute—the Utah Consumer Sales Practices Act (UCSPA), see Utah Code § 13-11-2.

¶6 Instead of answering the Pace Parties’ lawsuit, Link filed a motion to dismiss, asking the court to dismiss the suit on two alternative grounds.² First, Link asserted that it actually was properly registered in 2020, when it filed the collection lawsuits. Second, Link asserted that, even if it wasn’t properly registered, its actions in attempting to collect the debt were not actionable under the relevant statutes in any event.

¶7 In connection with its first argument, Link acknowledged that it was not separately registered and bonded as a debt collector, as required by then-current Utah law. However, it contended that, in August 2019, before the collection lawsuits were filed, it had changed its corporate status from an "LLC" to a "dba," and that the entity under which the "dba" did business—a company known as Collection Professionals, Inc. (CPI)—was properly registered and bonded. It acknowledged that, in the complaints filed in the collection lawsuits, it had purported to be an "LLC," but it claimed that this had been a "scrivener’s error" and that its true corporate status, as demonstrated by corporate filing documents it attached to its motion, was a "dba" for CPI, a properly registered and bonded company.

¶8 The Pace Parties’ response to this, as expressed in their memorandum opposing Link’s motion to dismiss, was that Link was not telling the court the entire corporate story. They pointed out that, in late January 2020, about a week before it sued Sauter, Link changed its corporate status back to an LLC. Accordingly, at the time it filed both collection lawsuits, Link was not a dba of CPI, but instead was an independent LLC that was not registered and bonded as a debt collector.

¶9 Link’s response to this, as expressed for the first time in a reply memorandum in support of its motion, was that it had filed—on November 10, 2021, just weeks after being sued by the Pace Parties for being an unregistered debt collector, and just weeks before filing its motion to dismiss—a "Statement of Correction" (the Correction) with the state indicating that the January 2020 document converting Link back to an LLC had been "filed in error." It asserted that this Correction operated to retroactively void the earlier-filed conversion document, and that Link had therefore been a dba of CPI—and not an independent LLC—at all times after August 2019.

¶10 At oral argument on the motion, the district court gave the Pace Parties an opportunity to respond to Link’s arguments—made for the first time in reply—regarding the Correction. The Pace Parties did not contest that the Correction had been duly filed in November 2021, but they argued that discovery was necessary to determine whether there had truly been an "error" in the January 2020 filing, or whether the Correction was merely a sham document, created just weeks after being sued, that had "been filed so that [Link could] avoid liability."

¶11 At the conclusion of the oral argument, the court took the matter under advisement, and it later issued a written ruling granting Link’s motion to dismiss. First, the court determined that the corporate filings—most notably, the Correction—established that Link was a dba of CPI at all relevant times and was therefore properly registered and bonded as a debt collector. Second, and alternatively, the court ruled that, even if Link had not been properly registered and bonded, its conduct was not actionable under the consumer protection statutes as a matter of law, concluding that the Pace Parties "cannot make out a violation of the UCSPA or the FDCPA merely by alleging a violation of" Utah’s registration and bonding requirements. The court later entered judgment in favor of Link.

ISSUE AND STANDARD OF REVIEW

¶12 The Pace Parties now appeal the court’s order dismissing their lawsuit. "We review a decision granting a motion to dismiss for correctness, granting no deference to the decision of the district court." Haynes v. Department of Public Safety, 2020 UT App 19, ¶ 5, 460 P.3d 565 (quotation simplified). As part of our review, we "must accept the material allegations of the complaint as true, and the [district] court’s ruling should be affirmed only if it clearly appears the complainant can prove no set of facts in support of his or her claims." Id. (quotation simplified). "Our inquiry is concerned solely with the sufficiency of the pleadings, and not the underlying merits of the case." Id. (quotation simplified).

ANALYSIS

¶13 The district court offered two alternative grounds for dismissal of the Pace Parties’ complaint, and the Pace Parties assert that neither ground can support dismissal, at least not at this procedural stage. We agree with the Pace Parties, and we discuss each ground in turn.

I. Link’s Corporate/Registration Status

¶14 As its first reason for dismissing the Pace Parties’ complaint, the district court determined—after reviewing Link’s corporate filing documents—that Link had been a dba of CPI at all relevant times, and that Link was therefore properly registered and bonded as a debt collector when it filed collection lawsuits against the Pace Parties. In challenging this ruling, the Pace Parties acknowledge the corporate filings, and do not take issue with the court’s decision to take judicial notice of them. But they assert that, due to its "suspicious timing," the Correction "is not dispositive" and may well be "a legal fiction." And they assert that they are entitled to engage in the discovery process to test this theory. We agree.

¶15 The Utah Collection Agency Act (UCAA) states that no "person shall conduct a collection agency, collection bureau, or collection office in this state, or engage in this state in the business of soliciting the right to collect or receive payment for another of any account, bill, or other indebtedness," unless that person "is registered with the Division of Corporations and Commercial Code and has on file a good and sufficient bond." Utah Code § 12-1-1 (2022).³ In other words, the UCAA requires any person ⁴ involved in debt collection to be...