A California appeals court has affirmed the dismissal of a consumer’s lawsuit that tried to erase three loan balances through a self-created “administrative process” built on the Uniform Commercial Code.
The background: The dispute grew out of three consumer loans the plaintiff later sought to discharge without paying.
- In 2019, the plaintiff signed three loan agreements with the defendant, a federal credit union: an auto loan, a personal loan, and a credit card.
- By 2023 she had fallen behind on all three, and the lender sent past due notices. At that point she owed past due balances of roughly $800 on the auto loan, $377 on the personal loan, and $9,500 on the credit card.
- Rather than pay, the plaintiff mailed the lender a series of “non-negotiable notices of acceptance.” She took the detachable payment stubs from the notices, wrote the full outstanding balance in the “amount enclosed” box, marked each one “Accepted,” and demanded that the accounts be discharged and the negative credit reporting removed.
- When the lender stayed silent, she sent more notices declaring it in default, then claimed that its silence meant it had “tacitly agreed” the balances were now zero. She later had a notary issue a “certificate of dishonor” and filed a UCC financing statement with the state naming the credit union as the debtor and herself as the secured party owed $128,625.
- The plaintiff then sued, alleging a single cause of action for “judgment for satisfaction of lien and damages,” and asked the court to declare all three loans paid in full and award her the $128,625.
The ruling: The Appeals Court affirmed the trial court’s ruling, which had dismissed the case after the plaintiff declined to amend her pleading.
- Justice Frank J. Menetrez of the Court of Appeal, who wrote that the lone claim, “judgment for satisfaction of lien and damages,” is not a recognized cause of action, and that the plaintiff pointed to no authority establishing that such a claim exists.
- Because she chose not to amend, the judge noted, her pleading was presumed to state the strongest case she could make. A consumer cannot unilaterally rewrite a loan agreement to wipe out the balance, and mailing notices that a lender ignores does not turn an unpaid debt into a satisfied one.
- The most striking passage concerned the plaintiff’s own brief, which the judge flagged as containing “citations to cases that do not exist,” along with quotations that appeared nowhere in the authorities cited. The judge wrote that this bore the hallmarks of AI hallucinations.
- Self-represented litigants, like attorneys, may use generative AI to help draft briefs, the judge added, but they must verify that every case cited actually exists and that any quoted material is accurate.
- Citing the plaintiff’s roughly 16-year litigation history and a string of prior losses, the judge directed the trial court on remand to weigh whether to declare her a vexatious litigant and enter an order requiring court permission before she files future suits.
