Consumer Finance Insights
May 22, 2018

Third Circuit Holds Discovery Rule Does not Apply to FDCPA Limitations Period

On May 15, 2018, the United States Court of Appeals for the Third Circuit issued an important decision regarding the statute of limitations under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, et seq.  In Rotkiske v. Klemm, No. 16-1668 (3d Cir. May 15, 2018), on appeal from the Eastern District of Pennsylvania, the Third Circuit held that the FDCPA’s statute of limitations is not subject to a discovery requirement.  Instead, adopting the plain meaning of the statute, the Court, in an opinion written by Judge Thomas Hardiman, held that the one-year limitations period begins to run when the alleged violation occurs.  The Court noted, however, that equitable tolling may apply in certain circumstances.  This decision creates a split among the circuit courts, as the Ninth and Fourth Circuits have held that the FDCPA’s statute of limitations only begins to run when the alleged violation is discovered.

Appellant Kevin Rotkiske had accumulated credit card debt between 2003 and 2005, when his bank referred the arrearage to debt collector Klemm & Associates.  Klemm sued Rotkiske for payment and attempted service at an address where he no longer lived in 2008, eventually withdrawing the suit.  Klemm refiled and tried again at the same address in 2009, where a resident accepted service on Rotkiske’s behalf.  Klemm obtained a default judgment, which Rotkiske did not discover until September 2014.  Rotkiske sued Klemm and others in June 2015 for violations of the FDCPA.

The Defendants moved to dismiss the lawsuit as untimely, and the Eastern District of Pennsylvania granted the motion, holding that the statute began to run on Defendants’ “last opportunity to comply with the statute,” and not when Rotkiske discovered the alleged violation.  Rotkiske v. Klemm, E.D. Penn., No. 15-CV-03638, March 14, 2016.  Moreover, the Eastern District held that Rotkiske’s request for equitable tolling was duplicative of his argument for the discovery rule, which the “actual statutory language” did not allow.

Rotkiske appealed from the District Court’s decision.  Oral argument was heard on January 18, 2017.  On September 7, 2017, before issuing an opinion and judgment, the Court ordered rehearing en banc, and further argument was heard on February 21, 2018.

The relevant section of the FDCPA, 15 U.S.C. § 1692k(d), reads:  “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.”  (Emphasis added.)

The Third Circuit agreed with the District Court that the “language spoke clearly” and focused on the direct meaning of the words in section (d).  It declined to “read the statute to imply a discovery rule,” as the Ninth and Fourth Circuits have done.

In its analysis, the Court reviewed “the two basic models that ‘a legislature may choose’” when setting a statute of limitations:  (1) the statute runs from the date of the actual injury, known as the “occurrence rule”; and (2) the statute runs from the date the injured party knew or should have known of the violation, known as the “discovery rule.”  The Court noted that “[s]ometimes Congress clearly picks one model or the other.”  When Congress specifies that the statute runs on the date when the violation actually occurs, “the occurrence rule plainly applies.”  Here, the Court found that the FDCPA was subject to the occurrence rule, due to the wording of section 1692k(d).  “Accordingly, we hold that § 1692k(d)’s one-year limitations period begins to run when a would-be defendant violates the FDCPA, not when a potential plaintiff discovers or should have discovered the violation.”

Rotkiske argued that the text of the FDCPA is silent on the discovery rule, so it can be implied; that the remedial basis for the FDCPA mandates a discovery rule; and that the Eastern District’s ruling was inconsistent with the Ninth and Fourth Circuits.  The Third Circuit roundly rejected each of these arguments.  First, the Court reasoned that the wording of section 1692k(d) makes clear that no discovery rule was implied, and “it is hard to imagine how Congress could have more clearly foreclosed the discovery rule.”  Second, the Court held that the lack of a discovery rule does not thwart the remedial policy of the FDCPA.  Most violations are obvious to aggrieved victims and do not involve deceptive practices; and for those that do, equitable tolling will apply in appropriate circumstances.  Third, the Third Circuit declined to follow the holdings of the Fourth and Ninth Circuits, in part because neither circuit had analyzed the “violation occurs” language of the FDCPA or relied upon its plain meaning.

The Third Circuit emphasized that its holding “does nothing to undermine the doctrine of equitable tolling.”  However, it did not analyze equitable tolling, because Rotkiske neglected to raise it on appeal.  Consequently, the “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.”  The preservation of equitable tolling in FDCPA cases may give limited comfort to those who allege that they were unknowing victims of fraud who could not have discovered an FDCPA violation until after the statute of limitations has run.  This concept will no doubt be further illuminated in future Third Circuit holdings.

The primary takeaway from the Rotkiske decision is that the discovery rule does not apply to FDCPA cases in the Third Circuit, which must be filed within one year from the violation date.  This is in contrast to the Ninth and Fourth Circuits, and the split may ultimately be resolved by the Supreme Court.