While closing one door, the Supreme Court opened another door today for debtors to argue that the statute of limitations does not begin to run until discovery of the existence of a claim under the federal Fair Debt Collection Practices Act, or FDCPA, 15 U.S.C. § 1692-1692p.
In 2008, a debt collector filed suit on a defaulted credit card debt. Later that year, the debt collector withdrew the suit because the complaint had been served on someone who was not the debtor at a home where the debtor was no longer living.
In 2009, the debt collector sued a second time, again serving someone not the debtor at the same address where the debtor was no longer living. There being no answer, the debt collector got a default judgment.
The debtor did not learn about the second suit until 2014, when he was denied a mortgage on account of the default judgment. Less than one year after discovery, the debtor filed suit, raising a claim under the FDCPA because the debt was allegedly time-barred. He contended that the one-year statute of limitations under the FDCPA was equitably tolled because the debt collector used a manner of service designed to ensure that the debtor would not receive service.
The Circuit Split
The district court dismissed the suit under the statute of limitations and was upheld in the Third Circuit. The Supreme Court granted certiorari to resolve a split of circuits.
In 2009, the Ninth Circuit had applied the so-called discovery rule in holding that limitations periods in federal practice generally begin to run when the plaintiff knows or has reason to know of the injury. Mangum v. Action Collection Serv., Inc., 575 F.3d 935 (9th Cir. 2009).
En banc, the Third Circuit rejected the Ninth Circuit’s holding by ruling that the statute begins to run when the violation occurs.
The Majority Opinion
Ostensibly, the case was governed by Section 1692k(d) of the FDCPA, which provides that suit must be brought “within one year from date on which the violation occurs.”
Justice Clarence Thomas upheld the judgment of the Third Circuit in an opinion on December 10. Based on “dictionary definitions” of the words “violation” and “occurs,” he said that the statute “unambiguously sets the date of the violation as the event that starts the one-year limitations period.”
Justice Thomas described the Ninth Circuit’s “discovery rule” as a “bad wine of recent vintage,” citing a concurring opinion by the late Justice Antonin Scalia. According to Justice Thomas, “‘Atextual judicial supplementation is particularly inappropriate when, as here, Congress has shown that it knows how to adopt the omitted language or provision.”
In his brief, the debtor argued for the Court to follow a fraud-specific discovery rule with roots in 19th century Supreme Court precedent. Bailey v. Glover, 21 Wall. 342 (1875).
Justice Thomas did not reach the fraud-specific discovery rule. He said the debtor had not preserved the issue in the Ninth Circuit and did not raise the question in his petition for certiorari.
The Ginsburg Dissent
Justice Ruth Bader Ginsburg dissented from the judgment affirming the Third Circuit. She believes the debtor had preserved the issue in the appeals court and adequately raised the question in the certiorari petition.
Justice Ginsburg described the debt collector as having “employed fraudulent service to obtain and conceal the default judgment that precipitated [the debtor’s] FDCPA claim.”
“That allegation, if proved,” she said, “should suffice under the fraud-based discovery rule, to permit adjudication of [the debtor’s] claim on its merits.”
The Sotomayor Concurrence
For future litigation on the FDCPA’s statute of limitations, the concurring opinion by Justice Sonia Sotomayor is the most significant.
Justice Sotomayor agreed with the majority that the statute “typically” begins to run when the violation occurs, not when the debtor discovers the violation.
Unlike Justice Ginsburg, Justice Sotomayor also agreed with the majority that the debtor had not preserved the “equitable, fraud-specific discovery rule” in the Third Circuit. She therefore concurred in the judgment.
Justice Sotomayor wrote separately, she said, “to emphasize that this fraud-specific equitable principle is not the ‘bad wine of recent vintage’ of which my colleagues speak.” Rather, she said, “the Court has long ‘recogni[zed]’ and applied this ‘historical exception for suits based on fraud.’”
Justice Sotomayor ended her concurrence by telling future litigants that “[n]othing in today’s decision prevents parties from invoking that well-settled doctrine.”
While closing one door, the Supreme Court opened another door today for debtors to argue that the statute of limitations does not begin to run until discovery of the existence of a claim under the federal Fair Debt Collection Practices Act, or FDCPA, 15 U.S.C. § 1692-1692p.
In 2008, a debt collector filed suit on a defaulted credit card debt. Later that year, the debt collector withdrew the suit because the complaint had been served on someone who was not the debtor at a home where the debtor was no longer living.
In 2009, the debt collector sued a second time, again serving someone not the debtor at the same address where the debtor was no longer living. There being no answer, the debt collector got a default judgment.
The debtor did not learn about the second suit until 2014, when he was denied a mortgage on account of the default judgment. Less than one year after discovery, the debtor filed suit, raising a claim under the FDCPA because the debt was allegedly time-barred. He contended that the one-year statute of limitations under the FDCPA was equitably tolled because the debt collector used a manner of service designed to ensure that the debtor would not receive service.