In Hanson v. JQD, LLC, 2014 WL 644469 (N.D.Cal. 2014), Judge Seeborg held that the Davis Sterling Act – in conjunction with the FDCPA — may constrain a third party debt collector’s right to collect unfettered costs of collection, but found that the legal theory pleaded by the Plaintiffs to be unclear.
Although no California appellate court has directly addressed whether, as here, a third-party vendor acting on behalf of a HOA can lawfully charge a delinquent homeowner fees not incurred by the HOA, the aforementioned authorities prompt a conclusion that Pro Solutions’ right to impose debt collection fees against Hanson extends no further than the Vineyard Terrace HOA’s right to do the same. Unlike the vendor fees challenged in Brown, Berryman, and Fowler, Pro Solutions’ fees apparently are neither incurred nor paid by the HOAs that contract for the company’s “no cost” services. If California law nonetheless entitled Pro Solutions to impose the fees of its choosing against homeowners like Hanson, the company would wield unchecked power to extract a cascade of fees and costs from a HOA’s delinquent members. . . . While Hanson persuasively argues that the Davis–Stirling Act may, in theory, constrain Pro Solutions’ ability to collect homeowner debt, it is difficult to ascertain which specific aspects of defendant’s actions are being targeted by Hanson’s complaint. In particular, it is unclear which allegations depend on the “no cost” aspect of Pro Solutions’ business practices. As described above, California law indicates that that the distinction between “no cost” and “cost incurred” debt collection models is consequential to a third-party vendor’s right to profit from collecting homeowner debt. At oral argument, however, Hanson claimed that even if Pro Solutions did charge HOAs for its collection fees, its actions would nonetheless violate the FDCPA (and, presumably, the California UCL).FN11 Although Hanson’s complaint points to numerous aspects of Pro Solutions’ business practices that allegedly run afoul of federal and state law, it is unclear which allegations hinge on the averment that Pro Solutions operates on a “no cost” basis. For example, in averring that Pro Solutions “overcharges” homeowners for interest and late fees on delinquent accounts, does Hanson contend that the Davis–Stirling Act would restrict even a “for cost” collector from levying fees of the sort described in her complaint? (Compl.¶ 31). Similarly, by claiming that Pro Solutions “exacerbates” homeowners’ injuries by refusing to accept partial payments, levying additional fees upon refusal, and using payments to defray vendor costs prior to satisfying the overdue assessment in full, is it her position that these acts are unlawful regardless of Pro Solutions’ “no cost” practices? To the extent Hanson contends that Pro Solutions’ acts would be impermissible even under a “cost incurred” model of the sort seen in Brown or Berryman, her underlying legal theory is difficult to discern. Because the complaint is insufficiently clear as to the distinct bases for Pro Solutions’ alleged liability under the FDCPA and the California UCL (vis-à -vis the constraints imposed on the HOA by the Davis–Stirling Act), it fails to put Pro Solutions on notice of the claims against it. See Fed.R.Civ.P. 8. Accordingly, Pro Solutions’ motion to dismiss is granted in part with leave to amend. If Hanson maintains that Pro Solutions’ conduct violates the law regardless of whether the HOA incurs the vendor’s costs, she can attempt to enunciate each distinct theory of liability more clearly in her amended complaint.