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Fair Debt Collection Practices Act; statute of limitations; discovery rule

by | Jan 6, 2020 | Business Litigation

ROTKISKE v. KLEMM, ___ U.S. ___, No. 18-328

The Fair Debt Collection Practices Act (FDCPA) authorizes private civil actions against debt collectors who engage in certain prohibited practices.  The statute provides that a private action must “be filed within one year from the date on which the violation occurs.” 15 U.S.C. §1692k(d).

The petitioner, Rotkiske, failed to pay a credit card debt, and the credit card company referred the debt to Klemm for collection.  In 2009, Klemm sued Rotkiske for the debt.  Klemm served the summons and complaint at an address where Rotkiske no longer lived, and he served those documents on a person who did not match Rotkiske’s description.  When Rotkiske did not respond, Klemm obtained a default judgment.  Rotkiske claims that he was not aware of Klemm’s lawsuit until 2014, when he was denied a mortgage because of the default judgment against him.

Rotkiske sued Klemm in federal court for violating the FDCPA.  His claim was that Klemm’s 2009 lawsuit was barred by a state-law limitations period and, therefore, Klemm violated the FDCPA by trying to collect a debt knowing that he had no lawful right to collect.  The thrust of Rotkiske’s complaint was that Klemm’s attempt to collect was fraudulent.  That is, Klemm knowingly served the summons and complaint at an address where he knew that Rotkiske did not live and on a person whom he knew was not Rotkiske.  Thus, Klemm fraudulently acquired a default judgment against Rotkiske.  Klemm moved to dismiss because Rotkiske’s lawsuit was filed more than one year after the alleged violation occurred.  Rotkiske argued that his lawsuit was timely because he did not discover the violation of the FDCPA until 2014, and, therefore, under the “discovery rule” the limitation period did not start running until he discovered the violation.  The district court dismissed Rotkiske’s lawsuit and the Third Circuit affirmed.

The Supreme Court said that the phrase “discovery rule” has no generally accepted meaning.  According to the Court, the discovery rule implicates two distinct concepts.  (1) A court could apply the discovery rule as a principle of statutory construction.  Congress, for example, could expressly state that a limitation period does not start running until the plaintiff discovers the violation.  (2) Even if a court could not apply the discovery rule as a matter of statutory construction, a court could apply a fraud-specific discovery rule as an equitable doctrine.      

There could be a statute in which it is unclear whether Congress intended to apply the discovery rule.  The Court said that as a matter of statutory construction, if the words of a statute are unambiguous, the first step of interpretive inquiry is the last step.  If, on the other hand, there are two plausible constructions of a statute of limitations, then the Court generally adopts the construction that starts the time limit running when the cause of action accrues; and the standard rule is that the cause of action accrues when the plaintiff has a complete and present cause of action. Graham County Soil & Water Conservation District v. United States ex rel. Wilson, 545 U.S. 409, 418-419 (2005).  

Here, the Court held that the FDCPA clearly states that an action may be brought within one year of the date when the violation occurs.  The statute is not ambiguous.  As a matter of statutory construction, the Court concluded that Congress did not apply the discovery rule to private actions brought under the FDCPA.  

Rotkiske attempted to argue that the discovery rule should be invoked under a fraud-specific equitable doctrine.  The Court, however, declined to consider whether or to what extent an equitable, fraud-specific discover rule might apply in Rotkiske’s case, because Rotkiske failed to preserve that issue in the Third Circuit and in the Supreme Court.  Although Rotkiske lost, the Court’s opinion leaves the door open for a plaintiff to argue that a fraud-specific, equitable doctrine could require application of the discovery rule in an action under the FDCPA

This was an 8-to-1 decision.  Justice Ginsburg dissented, arguing that Rotkiske had preserved a fraud-based, discovery rule argument.  Justice Ginsburg’s dissent is a good summary of the legal principles applying to such a rule.

John Polk is a Special Counsel at Berenzweig Leonard, LLP. John can be reached at [email protected].