Court Rules Collection Law Firms May Use “Account Stated” Cause of Action in California Without Running Afoul of the FDCPA

The use of alternative causes of action, even if such causes of action are inconsistent, is routine in litigation. Legal collection firms are no different. Prudent collection lawyers may assert more than one legal theory as a basis to collect on a defaulted debt in order to ensure their client’s collection of a validly owed amount. Recently, this area of practice has been the subject of attack by consumer attorneys, who allege that the use of alternative causes of action is misleading or deceptive to unsophisticated debtors. In a case filed in the Southern District of California, two clients of MS recently faced such an attack. MS clients, an asset purchaser and law firm, were sued in a federal action alleging that the use of an “account stated” cause of action as an alternative legal theory to collect a defaulted credit card debt was misleading, deceptive, and otherwise unconscionable under the Fair Debt Collection Practices Act, 15 U.S. C. §1692 et seq. Plaintiff argued that Defendants conduct was deceptive because an account stated cause of action requires the creation of a new contract, which never existed in the case.

MS took the offensive in filing an early motion for judgement on the pleadings and arguing that Plaintiff had failed to plead facts stating a plausible cause of action. The Court granted MS’ motion agreeing that the law “embraces the use of common counts to recover unpaid credit card debt.” The Court further found that Plaintiff’s allegations in his complaint relevant to the purpose and merits of the state court suit were nothing more “than conclusory allegations not entitled to the assumption of the truth.” In adopting MS’ arguments as to the frivolous nature of Plaintiff’s claims, the Court noted that it would entertain a defense request for sanctions in the even Plaintiff attempted to file a similarly deficient amended complaint.

To view or download a copy of the opinion click here. Please contact Nicole M. Strickler, (312) 334-3442, with any questions regarding the opinion.