The U.S. Supreme Court on Feb. 25, 2019, granted certiorari in a Fair Debt Collection Practices Act (FDCPA) case involving a legal issue that could dramatically expand the scope of FDCPA liability. The case, Rotkiske v. Klemm, will decide whether the "discovery rule" will apply to toll the one-year statute of limitation that on its face applies to FDCPA claims.
Kevin Rotkiske had accumulated credit card debt between 2003 and 2005. The bank referred the matter to its collections counsel, Klemm & Associates, which filed suit against Rotkiske on behalf of its client in Philadelphia small claims court. After Rotkiske could not be served, the suit was withdrawn and refiled approximately one year later. Unbeknownst to Rotkiske, an incorrect addressee accepted service on Rotkiske's behalf and a default judgment was entered. When Rotkiske discovered the judgment four years later after applying for a mortgage loan, he filed a FDCPA claim in the Eastern District of Pennsylvania based on the law firm's alleged use of an address for service that it knew was incorrect.
Rotkiske's claim was dismissed by the trial court as untimely. He appealed to the U.S. Court of Appeals for the Third Circuit, and in an en banc decision, the Third Circuit affirmed, finding that the FDCPA's one-year statute of limitations was not subject to the discovery rule. 890 F.3d 422 (3d Cir. 2018). By contrast, the Fourth and Ninth Circuit Courts of Appeal previously concluded in similar cases that the discovery rule applied.
The applicable section of the FDCPA, 15 U.S.C. Section 1692k(d), provides that "[a]n action to enforce any liability created by this subchapter may be brought ... within one year from the date on which the violation occurs." The issue, therefore, is whether Rotkiske – and other consumers who do not learn of a potentially unfair debt collection attempt for more than one year after the collection effort was made – lose their right to file suit notwithstanding their lack of knowledge of the allegedly offending communication.
In ruling that the FDCPA was not subject to the discovery rule, the Third Circuit relied on TRW Inc. v. Andrews, 534 U.S. 19 (2001), a case in which the Supreme Court held that the Fair Credit Reporting Act's claim provision was not subject to the discovery rule because the statute of limitations was "embedded" within the statute, as opposed to being found in a general statute of limitations that applies to, for example, an enumerated list of state law tort claims. With respect to the argument that the result was fundamentally unfair, the Third Circuit noted that the doctrine of equitable tolling protected consumers where there was evidence that the debt collector intentionally misled the consumer and thereby prevented the consumer from acquiring knowledge sufficient to assert the claim.
It remains to be seen whether the Supreme Court will, building on TRW, use Rotkiske to emphasize that the discovery rule is, in the words of Justice Antonin Scalia's concurrence in TRW, a "bad wine of recent vintage." TRW, 534 at 37. At the same time, Rotkiske's petition argued that the case was of substantial public importance because it would permit the Court to answer the broad question: "Is there a federal discovery rule?"
However, even if the Court views the case more narrowly, if it were to find that the FDCPA's statute of limitation is subject to the discovery rule, it could potentially subject debt collectors to a range of claims based on written communications that, for whatever reason, were not readily discoverable by the debtor due to very ordinary circumstances such as a change of residence. Such a result could lead to exposure for debt collectors when a consumer discovers a communication long after it was made in an attempt to collect a debt that may have long since been written off by the creditor and even forgotten by the consumer. Furthermore, to the extent that the communication relates to a secured debt, the consumer could potentially use a newly discovered FDCPA claim as leverage in a foreclosure or bankruptcy proceeding.
Holland & Knight has extensive experience counseling clients in regards to the FDCPA. For litigation needs, contact Andrew Soven. For questions regarding regulatory issues, contact Leonard Bernstein or Bob Jaworski.
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