Alto Litigation Contributes to Key Appellate Ruling Impacting Secondary Debt Market
In a decision with far-reaching implications for the secondary debt market, the California Court of Appeal held last Friday that Finance Code section 22340(a), which states that licensed finance lenders “may sell promissory notes . . . to institutional investors,” does not preclude the sale of promissory notes to non-institutional investors. In the published portion of its decision in Montgomery v. GCFS, Inc., et al., the Court of Appeal wrestled with various principles of statutory construction, but ultimately found that “[t]he legislative history reveals a very specific purpose: to permit licensees under the Finance Lenders Law to sell notes secured by real property to institutional investors without having to also be licensed as a real estate broker.” Thus, “the statute does not prohibit the sale of debts to other parties.”
The ruling provides much-needed guidance to lower courts at a time when several companies whose business models turn on the purchase of consumer debt on the secondary debt market are facing similar legal challenges.
Alto Litigation took the lead in briefing and arguing the legislative history of Finance Code section 22340(a) - among other issues - on behalf of Amicus Curiae. Alto partner Bryan Ketroser argued the Amicus position before the Court.