The age-old question of when the statute of limitations begins to run on Fair Debt Collection Practices (FDCPA) claims seems to be coming to a head. Specifically, we may soon have a definitive answer about whether the clock starts ticking when the violation occurs or when the consumer discovers the violation, also known as the “discovery rule” in common law.

Editor’s Note: Generally, common law applies unless a statute addresses the issue, in which case the statutory law applies.

Two recent developments include (1) the Second Circuit finding that the discovery rule does not apply and (2) the Supreme Court of the United States (Supreme Court) granting a petition for writ of certiorari—a request for the Supreme Court to hear a case—on the same issue.

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Second Circuit: Clock Starts Ticking When Violation Occurs

In Benzemann v. Houslanger & Associates, PLLC, et al., No. 18-1162-cv (2d Cir. May 13, 2019), the Second Circuit found that the discovery rule does not apply to FDCPA cases and that the clock begins when the violation occurs.

The underlying facts consist of a bank freezing plaintiff-apellant's accounts pursuant to a judgment collection effort by a debt collector against a different person. This freeze occured twice; the second account freeze is the subject of the FDCPA suit. The timeline of the second freeze is as follows:

  • December 6, 2011: Debt collection firm sent restraining order for plaintiff’s account.
  • December 13, 2011: Bank froze plaintiff’s account, plaintiff called bank after realizing he couldn’t access his accounts (did not get details), and plaintiff called his attorney in the evening.
  • December 14, 2011: Plaintiff learned that the bank froze his accounts.
  • December 14, 2012: Plaintiff filed the FDCPA claim.

This case went back-and-forth between the Southern District of New York and the Second Circuit. The Second Circuit’s first review of the matter resulted in a remand instructing the district court to specifically answer whether the discovery rule applied. The district court found that the common law discovery rule does not apply to FDCPA claims and that the statute of limitations begins when the violation occurred. Since the violation here—when the bank account was frozen—occurred one year and one day before the suit was filed, the district court granted summary judgment to the debt collector.

The plaintiff again appealed, but the Second Circuit affirmed the district court’s decision. The appellate court ruled that the FDCPA explicitly denounces the common law discovery rule by clearly stating that a claim must be filed within a year “from the date on which the violation occurred."

Supreme Court Agrees to Hear the Issue

The petition for the Supreme Court to hear the case, granted on February 25, 2019, arises out of a Third Circuit decision in Rotkiske v. Klemm, No. 16-1668 (3d Cir. 2018), which insideARM previously published an article about. The Third Circuit found exactly as the Second Circuit did above. Like the Second Circuit, the Third Circuit considered this a matter of statutory interpretation. Since the FDCPA explicitly defines that the statute of limitations begins to run on the date of the violation, the common law discovery rule does not apply.

The petitioner argues that consumers “blamelessly ignorant” about violations when they occur and, therefore, the discovery rule should apply.

insideARM Perspective

As insideARM previously predicted, the issue was ripe for Supreme Court review due to a jurisdictional split. The Third and now Second Circuits find that the statute is clear: the clock starts ticking when the violation occurs. The Fourth and Ninth Circuit found differently.

The Third Circuit addressed the the Fourth and Ninth Circuits' decisions, finding them erroneous. The Forth Circuit, according to the Third Circuit, did not look to the text of the statute when making its decision—a fatal flaw in the context of statutory interpretation. The Ninth Circuit went off the cuff and considered the Supreme Court’s prior case "under advisement" rather as binding authority. The Supreme Court case in question is TRW Inc. v. Andrews, 534 U.S. 19 (2001), which found that Congress may implicitly provide that the discovery rule does not apply where it spells out a more restrictive rule in a statute.

The odds of the Supreme Court finding that the discovery rule applies are slim. In statutory interpretation, the law as written is always the first consideration; any deeper dive into legislative intent and history occurs only if there is ambiguity. The FDCPA is clear: the suit must be filed within one year of the occurrence of the violation. There is no mention of discovery of the violation. By explicitly addressing when the statute of limitations begins to run (in other words, spelling out a more restrictive rule per TRW), Congress implicitly stated that the discovery rule does not apply. Considering the Supreme Court’s recent narrow interpretations of the FDCPA on other issues, it is likely to do the same on this matter.


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