The Third Circuit holds that the discovery rule does not apply to the FDCPA’s one-year statute of limitations, but that the doctrine of equitable tolling might apply.

By Stephen J. Shapiro

In a precedential decision diverging from holdings in the Fourth and Ninth Circuits, the United States Court of Appeals for the Third Circuit, sitting en banc, held that the one-year statute of limitations in the FDCPA runs from the date the alleged violation occurs, not from the date a claimant discovers the violation. The Court noted, though, that the FDCPA’s statute of limitations may be equitably tolled under the proper circumstances.

In Rotkiske v. Klemm, a collection agency filed a lawsuit against a debtor in 2009 to collect an unpaid credit card debt. When the debtor did not respond to the lawsuit, the collection agency obtained a default judgment against him. The debtor claimed that he did not learn about the lawsuit or the judgment until September 2014 when he applied for a mortgage. Nine months later, in June 2015, the debtor brought a claim against the collection agency alleging that its actions in filing the lawsuit violated the Fair Debt Collection Practices Act (FDCPA).

The FDCPA contains a one-year statute of limitations: “An action to enforce any liability created by this subchapter may be brought in any appropriate United States district court . . . within one year from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). Because the debtor filed his claim more than six years after the alleged violation, the collection agency moved to dismiss the suit on the grounds that it was time barred. Rejecting the debtor’s argument that the FDCPA’s statute of limitations begins to run when the debtor discovers the alleged violation, the district court granted the motion to dismiss.

On appeal, the Third Circuit affirmed the dismissal. The Court held that the language “within one year from the date on which the violation occurs” in the FDCPA’s statute of limitations made clear that Congress intended the limitations period to begin running on the date of the alleged violation, not on the date of discovery of the alleged violation.

The debtor argued that the discovery rule should apply to FDCPA claims because Congress did not expressly state in the act that the discovery rule did not apply. The Court flatly rejected this argument, holding that “Congress’s explicit choice of an occurrence rule implicitly excludes a discovery rule.” The debtor also argued that application of the occurrence rule would thwart the purpose of the FDCPA because the Act is designed to protect consumers from fraudulent debt collection practices that creditors may conceal from debtors. The Court disagreed with the premise that the Act is designed to protect consumers against concealed fraudulent practices, noting that many of the actions the FDCPA proscribes (for instance, repetitive contacts by telephone or mail) “will be apparent to consumers the moment they occur.”

The Court also backed away from its dicta in Oshiver v. Levin, Fishbein, Sedran & Berman. In that Title VII case from 1994, the Third Circuit mentioned in passing the “general rule” that limitations periods in federal statutes begin to run on the date a plaintiff discovers his or her injury. The Court noted, however, that more recent United States Supreme Court decisions, such as TRW Inc. v. Andrews, suggest that the previously-cited “general rule” is not correct and that the discovery rule may not be implied into federal statutes.

The Court also refused to follow decisions from the Fourth Circuit and Ninth Circuit in which those courts held that the FDCPA’s statute of limitations contains an implied discovery rule. The Third Circuit noted that neither court analyzed the “date on which the violation occurs” language in the FDCPA’s statute of limitations, and that the Ninth Circuit relied upon the defunct “general rule” that federal limitations period run from the date of discovery. The Court also noted that the Fourth Circuit appeared to have applied the doctrine of equitable tolling rather than the discovery rule.

Finally, after pointing out that the debtor did not pursue the issue of equitable tolling on appeal, the Court explained that “our holding today does nothing to undermine the doctrine of equitable tolling for civil suits alleging an FDCPA violation” and that “our opinion should not be read to foreclose the possibility that equitable tolling might apply to FDCPA violations that involve fraudulent, misleading, or self-concealing conduct.”

Although not addressed in the Court’s opinion in Rotkiske, the Third Circuit previously has explained that “even in situations in which equitable tolling initially applies, a party must file suit within a reasonable period of time after realizing that such a suit has become necessary.” Walker v. Frank, 56 Fed. Appx. 577, 582 (3d Cir. 2003). It is possible, then, that the debtor in Rotkiske chose not to invoke the equitable tolling doctrine on appeal because he would have had difficulty arguing that his nine month delay in filing his lawsuit after he discovered the alleged FDCPA violation was “a reasonable period of time.”

In sum, debtors who wish to pursue FDCPA claims in the Third Circuit must do so within one year of the date the alleged violation occurred, or within a reasonable period of time after discovering the violation.


Joining a split among the circuits, the Fourth Circuit holds that the FDCPA permits debtors to dispute debts orally

By Stephen J. Shapiro

The Fair Debt Collection Practices Act (FDCPA), in § 1692g(a)(3), requires a debt collector to send a consumer from whom it is attempting to collect a debt a notice.  Among other things, the notice must state that “unless the consumer, within 30 days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector.”  The Fourth Circuit, joining a conflict among the circuits, recently held that a consumer may dispute a debt orally, and, therefore, a notice that purports to require a consumer to dispute a debt in writing violates the FDCPA.

In Clark v. Absolute Collection Service, Inc., after plaintiffs did not pay a debt they owed to a health care facility, the facility engaged the defendant debt collector to collect the debt.  The debt collector sent the plaintiffs a notice that stated that “ALL PORTIONS OF THIS CLAIM SHALL BE ASSUMED VALID UNLESS DISPUTED IN WRITING WITHIN THIRTY (30) DAYS.”  Plaintiffs, on behalf of a putative class of debtors who received such notices, sued the debt collector alleging that, because the FDCPA did not require them to dispute the debt in writing, the debt collector violated the FDCPA by sending them a notice stating otherwise.  The debt collector moved to dismiss, arguing that § 1692g(a)(3) of the FDCPA contained an “inherent” requirement that debtors dispute debts in writing.  The district court agreed and dismissed the case.

On appeal, the Fourth Circuit vacated the decision and remanded the case for further proceedings.  The Court first noted that § 1692g(a)(3) on its face does not require debtors to dispute debts in writing and declined the defendant’s invitation “to read into [§ 1692g(a)(3)] words that are not there.”  The Court noted that other sections of the FDCPA explicitly require written communications, which suggests, under standard principles of statutory construction, that Congress intended to omit such a requirement from § 1692g(a)(3).

The Court also rejected the defendant’s argument that a reading of § 1692g(a)(3) that permits consumers to dispute debts orally would be absurd and inconsistent because debtors who do not dispute debts in writing waive protections afforded them by other provisions of the FDCPA.  The Court noted that, although consumers who give oral notice of a dispute would not be entitled to invoke some of the FDCPA’s protections, those consumers would not sacrifice all of the protections in the statute.  Therefore, the Court concluded, permitting debtors to dispute a debt orally would not lead to an absurd result.

In conclusion, the Court held that “[S]ection 1692g(a)(3) permits consumers to dispute the validity of a debt orally, and it does not impose a writing requirement.”  The Court noted that its holding departed from a contrary decision by the Third Circuit, but comported with decisions by the Second Circuit and the Ninth Circuit.

The Third Circuit holds that communications with debtors during bankruptcy proceedings can expose debt collectors to liability under the FDCPA

By Stephen J. Shapiro

The Third Circuit, addressing an issue of first impression in the circuit, recently held that debtors who receive communications from debt collectors in the course of bankruptcy proceedings are not barred from pursuing claims alleging that those communications violate the Fair Debt Collections Practices Act (FDCPA).  In Simon v. FIA Card Services, N.A., the plaintiffs filed for bankruptcy and FIA, one of their unsecured creditors, hired a law firm to represent its interests in the bankruptcy proceeding.  The law firm sent a letter to the Simons’ bankruptcy counsel in which it offered to refrain from initiating a proceeding to declare the debt nondischargeable if the Simons either stipulated that the debt was nondischargeable or agreed to settle the debt by paying a discounted amount.  The letter also enclosed a notice of the law firm’s intent to question the plaintiffs pursuant to Bankruptcy Rule 2004.

The Simons sued FIA and the law firm, arguing that the letter and notice violated the FDCPA.  The district court dismissed the suit because, it held, the Bankruptcy Code precluded the Simons’ FDCPA claims and because the Simons’ allegations were not sufficient to state a claim under the FDCPA.

The Third Circuit reversed.  First, the Court rejected the law firm’s argument that the FDCPA did not apply because the firm’s communication did not demand payment of a debt.  The Court held that the “FDCPA applies to litigation-related activities that do not include an explicit demand for payment when the general purpose is to collect payment,” and that “[t]he letter and notice were an attempt to collect the Simons’ debt through the alternatives of settlement . . . or gathering information to challenge dischargeability” through a Rule 2004 examination.

Next, the Court held that some of the Simons’ allegations stated viable claims for violations of the FDCPA.  Specifically, the FDCPA prohibits debt collectors from “threat[ening] to take any action that cannot legally be taken or that is not intended to be taken” and “false[ly] represent[ing] or impl[ying] that documents are legal process.”  The Court held that the Simons adequately pled that the law firm violated these prohibitions in the FDCPA by failing to comply with provisions of the Bankruptcy Rules and Federal Rules that required the firm to: (a) personally serve the Rule 2004 notice on the Simons, and (b) include in the Rule 2004 notice text explaining the duties of and remedies available to the recipient of such a notice.  The Simons also alleged that the law firm failed to include in its letter the “mini-Miranda” warning required by the FDCPA (that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose”).

The Court then addressed an issue of first impression in the Third Circuit: “[W]hether, or to what extent, an FDCPA claim can arise from a debt collector’s communications to a debtor in a pending bankruptcy proceeding.”  The Court first noted that the circuits are split on this issue.  The Ninth Circuit, Ninth Circuit Bankruptcy Appellate Panel and the Second Circuit have held that communications with a debtor in the context of a bankruptcy proceeding cannot violate the FDCPA, while the Seventh Circuit has concluded that they can.  The Court agreed with the Seventh Circuit’s analysis, and held that “[w]hen FDCPA claims arise from communications a debt collector sends a bankruptcy debtor in a pending bankruptcy proceeding . . . there is no categorical preclusion of the FDCPA claims.”  Rather, the courts must consider “whether the FDCPA claim raises a direct conflict between the [Bankruptcy] Code or [Federal] Rules and the FDCPA, or whether both can be enforced.”

Applying that inquiry to the claims before it, the Court held that the Simons’ FDCPA claims based on the law firm’s failure to personally serve the Rule 2004 notice and failure to include in the notice text describing the rights and responsibilities of the recipient did not conflict with the Bankruptcy Code or the Federal Rules and, therefore, reversed the dismissal of those claims.  However, the Court affirmed the dismissal of the FDCPA claim based on the law firm’s failure to include in its letter a warning that it was attempting to collect a debt because such a warning would have violated the Bankruptcy Code’s automatic stay provision, which forbids “any act to collect, assess, or recover a claim against the debtor . . . .”

The lesson for debt collectors in the Simon case is clear.  When communicating with a debtor in a bankruptcy proceeding, debt collectors must take the same care to comply with the FDCPA as they would when communicating with debtors outside of bankruptcy proceedings.

%d bloggers like this: