Recently, the Supreme Court of the United States granted certiorari in the matter of Rotkiske v. Klemm. At issue is whether the discovery rule tolls the statute of limitations under the Fair Debt Collections Practices Act (FDCPA). The controversy is centered on the FDCPA statutory text, “the date on which the violation occurs,” 15 U.S.C. § 1692k(d), and whether such language governs in a dispute or the discovery rule tolls the statute of limitations. The discovery rule holds that the statute of limitations begins when the plaintiff knew or should have known of the facts giving rise to his legal claim. In granting certiorari, the Supreme Court weighs in on a split between the Third Circuit and the Fourth and Ninth Circuits.

Background

The plaintiff-petitioner’s claim arises from a debt collection action that dates back to 2008. The defendant, a third-party debt collector, initially filed suit but failed to properly serve the plaintiff because the defendant attempted service at an address where the plaintiff no longer resided. The defendant later withdrew the suit and refiled in 2009. Unbeknownst to the plaintiff, however, someone who resided at his former address accepted service of the second complaint filed in 2009. After failing to appear to defend himself, the debt collector later obtained a default judgment against the plaintiff. A lien was placed on the plaintiff’s credit report. Years later, upon discovering the lien, the plaintiff sued in the Eastern District of Pennsylvania, alleging that the default judgment was obtained in violation of the FDCPA. The defendant filed a motion to dismiss. In his response, the plaintiff argued that the discovery rule should have tolled the statute of limitations, or, alternatively, that the court should equitably toll the limitations period. The district court eventually dismissed the suit finding that the statutory language controlled, i.e., the limitations period starts “from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). On appeal, the plaintiff challenged only the district court’s holding on the discovery rule issue. After a panel hearing but before issuing an opinion, the Third Circuit ordered an en banc hearing.

A Circuit Split: Third Circuit v. Fourth and Ninth Circuits

The Third Circuit’s en banc opinion affirmed the district court’s holding that the FDCPA’s statutory plain language controlled. Judge Hardiman, writing for the court, relied on TRW Inc. v. Andrews, where the Supreme Court explained that courts must begin statutory analyses by analyzing the text itself and then consider context and structure. See 534 U.S. 19, 28 (2001). Judge Hardiman further noted that the Court in TRW recognized that Congress may “implicitly” exclude a broader discovery rule by “explicitly” including a narrower one. 534 U.S. at 28. Stated differently, the narrow plain language Congress included in the FDCPA (“the date on which the violation occurs”) controlled because it clearly foreclosed the possibility of a broader general discovery rule applying. Additionally, the court observed that the practices forbidden under the FDCPA are apparent when they occur and thus do not support the application of the discovery rule. The Third Circuit left open the possibility that equitable tolling may be appropriate under the FDCPA when there is fraudulent, misleading, or self-concealing conduct. The court, however, did not explore this issue because it was not raised on appeal.

In its Supreme Court petition, the Rotkiske plaintiff points to two cases from the Fourth[1] and Ninth[2] Circuits that contravene the Third Circuit’s reasoning. First, in Mangum, the Ninth Circuit panel held that the discovery rule applied in an FDCPA action. In reaching its conclusion, the Ninth Circuit relied on internal circuit precedent concerning the application of the discovery rule to violations of the Fair Credit Reporting Act (FCRA). That precedent was overturned by the Supreme Court in TRW v. Andrews.[3] The Ninth Circuit explained that, while the Supreme Court’s guidance in TRW did cast doubt on the Ninth Circuit’s earlier decision, the Supreme Court’s rationale did not apply in Mangum, which involved the FDCPA, an entirely different statute from the one at issue in TRW. Furthermore, the Ninth Circuit noted that it could not reject preexisting Ninth Circuit law.[4]

Second, in Lembach, the Fourth Circuit issued a non-binding per curiam opinion that also cited the Ninth Circuit’s Mangum decision. The Fourth Circuit likewise held that the general discovery rule applied in an FDCPA action. In so doing, the Fourth Circuit premised its approach on dicta from TRW – that “lower federal courts generally apply a discovery accrual rule when a statute is silent on the issue.” 534 U.S. at 27 (internal citation omitted). However, the Fourth Circuit stressed the factual circumstances that precluded plaintiffs from acting until they discovered the counterfeit signatures that had enabled debt collectors to foreclose on their home. Because Lembach involved fraud and concealment, the decision rests on a somewhat different footing from those involving a “general” discovery rule. See TRW, 534 U.S. at 27 (citing Holmberg v. Armbrecht, 327 U.S. 392 (1946) and allowing for equitable tolling as to fraud and concealment). Thus, it is not clear whether the Fourth Circuit would apply the discovery rule in an FDCPA case lacking fraud and concealment.

Takeaway

It remains to be seen whether the Supreme Court will adhere to the approach announced in TRW and uphold the Third Circuit’s conclusion. If the Supreme Court deviates from its earlier precedent, the consequences for third-party debt collectors could be far reaching. If the discovery rule applies, third-party debt collectors could see liability arise well beyond the apparent one-year statutory limit because, unlike the FCRA, the FDCPA does not include a statute of repose.

Seyfarth Shaw will continue to monitor developments in this matter.


[1] Lembach v. Bierman, 528 F. App’x 297 (4th Cir. 2013).

[2] Mangum v. Action Collection Serv., Inc., 575 F.3d 935 (9th Cir. 2009).

[3] In a separate dispute centered on the discovery rule applying to FCRA violations, the Supreme Court reversed the Ninth Circuit holding that the discovery rule applied to issues involving the FCRA. The Supreme Court explained that the FCRA was not an area of law that “cries out for application” of the discovery rule and explained that the embedded statute of limitations within the statute precluded application of the discovery rule. See 534 U.S. at 28.

[4] Although the Rotkiske plaintiff does not rely on this case, the Eighth Circuit has also found that “[t]he Supreme Court did not in TRW invalidate the presumption of reading the discovery accrual rule into federal statutes.” Maverick Transp., LLC v. U.S. Dep’t of Labor, Admin. Review Bd., 739 F.3d 1149, 1154 (8th Cir. 2014).