Does the “discovery rule” apply to toll the one-year statute of limitations in the Fair Debt Collection Practices Act?
This case asks the Supreme Court to determine whether the one-year statute of limitations in the Fair Debt Collection Practices Act (“FDCPA”) begins once a violation occurs or once the violation is discovered. Petitioner Kevin Rotkiske, whose FDCPA lawsuit was barred by the statute of limitations, argues that the Court should apply the discovery rule and determine that the limitations period begins when the violation is discovered. He argues that the FDCPA should be interpreted in light of common law and precedent which hold that the discovery rule is applicable to suspend statutes of limitations. Respondent Paul Klemm counters that the Court need only read the FDCPA’s plain language to determine that Congress intended the statute-of-limitations period to begin at the time the violation occurred. He too points to precedent that supports his argument that Congress knows how to implement the discovery rule but—based on the FDCPA’s explicit language—chose not to do so. This case has implications for the purpose and history of the FDCPA and its statute of limitations and could affect blameless victims and marginalized communities.
Questions as Framed for the Court by the Parties
Whether the “discovery rule” applies to toll the one-year statute of limitations under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq., as the U.S. Courts of Appeals for the 4th and 9th Circuits have held but the U.S. Court of Appeals for the 3rd Circuit (sua sponte en banc) has held contrarily.
Petitioner Kevin Rotkiske accrued credit card debt between 2003 and 2005. The credit card issuer then appointed the law firm Klemm & Associates, managed by Respondent Paul Klemm, to collect Rotkiske’s debt. Klemm sued Rotkiske for payment of his credit card debt in March 2008. However, Klemm unsuccessfully served Rotkiske at a residence that Rotkiske allegedly no longer lived. Klemm ultimately withdrew the lawsuit without prejudice upon the inability to locate Rotkiske.
Klemm refiled the suit in January 2009 and attempted service at that same residence. This time, an individual accepted service on behalf of Rotkiske. Rotkiske was unaware of this service or that a lawsuit was filed against him. Thus, Rotkiske failed to respond to the suit, and the court entered a default judgment against him for nearly $1,500. Rotkiske remained unaware of the judgment until September 2014, when his home mortgage application was denied because of the adverse judgment.
In June 2015, Rotkiske sued Klemm alleging that Klemm violated the Fair Debt Collection Practices Act (“FDCPA”) by wrongfully obtaining default judgment through deliberately attempting improper service on Rotkiske. The FDCPA prohibits specific debt-collection methods, such as harassing, abusing, or lying to obtain a payment. Klemm moved to dismiss Rotkiske’s suit, stating that the statute of limitations had expired based on the FDCPA’s one-year statute of limitations. Section 813(d) of the FDCPA states that an action must be brought “within one year from the date on which the violation occurs.” Rotkiske claimed that the FDCPA incorporates the discovery rule, which is an equitable tool that tolls or suspends the beginning of a statute-of-limitations period until the plaintiff discovered or should have discovered the injury. In the alternative, Rotkiske argued that the doctrine of equitable tolling should apply, which would also delay the statute-of-limitations period until the plaintiff knew or should have known of the injury.
The United States District Court for the Eastern District of Pennsylvania (the “District Court”) rejected Rotkiske’s arguments and dismissed his FDCPA claim as time-barred. The District Court reasoned that the FDCPA’s statutory text clearly states that the statute of limitations began running when the violation occurred, not when Rotkiske discovered the violation. Additionally, the District Court rejected Rotkiske’s equitable tolling argument as merely a second attempt to apply the discovery rule. On appeal, the United States Court of Appeals for the Third Circuit (the “Third Circuit”) affirmed the District Court’s judgment applying the occurrence rule—requiring the statute of limitations to begin at the date of the violation not the discovery of that violation. The Third Circuit thus held that plaintiffs must file FDCPA actions within one year of the injury and that Rotkiske’s claim was therefore untimely. The Third Circuit contrasted the discovery rule and occurrence rule, explaining that Congress knows how to explicitly indicate the applicable rule; and, here it applied the occurrence rule. The Third Circuit noted that equitable tolling doctrines may apply to such cases with facts similar to Rotkiske’s case. The Third Circuit also refused to follow the Ninth and Fourth Circuits in applying the discovery rule to FDCPA cases.
Petitioner Kevin Rotkiske argues that the Court should permit his lawsuit to proceed because the discovery rule—an equitable principle suspending a statute of limitations until the injury is discovered—applies to the FDCPA’s limitations period. Although the FDCPA imposes an explicit one-year time limit that seems to bar his lawsuit, Rotkiske maintains that statute’s text does not explicitly preclude application of the discovery rule. He maintains that the FDCPA’s limitations period functions as a “statute of limitations” and not as a “statute of repose.” Rotkiske explains that a statute of repose—which also creates a time limit on when a lawsuit can be filed—is more definitive and protective of defendants because equitable principles such as the discovery rule do not apply. Therefore, Rotkiske contends, that because the FDCPA’s explicit language does not clearly prohibit application of the discovery rule, the Court should use other means to interpret the FDCPA.
Respondent Paul Klemm, manager of the law firm Klemm & Associates, counters that the Court should bar Rotkiske’s lawsuit because it was filed after the FDCPA’s explicit limitations period. He maintains that the Court should apply the occurrence rule—starting the limitations period when the violation occurred not when the violation was discovered. Klemm urges the Court to interpret the FDCPA based on the statute’s plain language because it clearly and unambiguously illuminates Congress’ intent. For instance, Klemm explains that the FDCPA’s explicit language states that the limitations period begins to run on “the date on which the violation occurs” not on the date on which the violation is discovered. Therefore, Klemm asserts that this provides a clear congressional intent to apply the occurrence rule, not the discovery rule, and there is no need to look to evidence beyond the statute’s plain language.
Rotkiske maintains that because the FDCPA’s text does not explicitly foreclose the application of the discovery rule, the Court should look to other interpretive tools to determine if Congress intended to apply such a rule. He explains that one such tool is looking to common-law principles—or judge-made law from prior cases. He points out that there is a presumption that Congress legislates in light of such common-law principles and therefore they can be used to interpret the statute’s language. Rotkiske maintains that both the discovery rule and the doctrine of equitable tolling—suspending a statute of limitations to ensure fairness among the parties—are entrenched in the Court’s prior cases and thus it can be assumed that Congress intended that such principles would apply to the FDCPA’s limitations period. As an example, Rotkiske points to the Third Circuit’s determination that courts have discretion to apply equitable principles, such as equitable tolling, “to avoid patent unfairness.”
Klemm counters that although equitable doctrines, like equitable tolling, may apply to some FDCPA cases, they are not at issue in this case. Instead, Klemm maintains that Congress knows how to apply the discovery rule to every case arising under a statute if it wanted to and has indeed done so in other statutes. He points to other statutes that explicitly provide for the discovery rule, such as the Right to Financial Privacy Act (allowing a lawsuit to be brought “within three years from the date on which the violation occurs or the date of discovery of such violation, whichever is later,”) and the Credit Repair Organizations Act (allowing a lawsuit to be brought within 5-years of “the date of the occurrence of the violation,” or in cases of material and willful misrepresentation, within 5-years of “the date of the discovery by the consumer of the misrepresentation.”) Therefore, in light of these other Acts, Klemm contends that Congress implicitly rejected the discovery rule when it failed to include language that clearly suspended the limitations period until the violation was discovered.
PRECEDENT AS AN INTERPRETIVE TOOL
Rotkiske cites several cases to support his argument that Congress implemented the FDCPA intending to apply equitable principles, such as the discovery rule. First, Rotkiske refers to Baily v. Glover where the Court did not strictly apply a statute-of-limitations period and instead allowed a lawsuit to proceed under the discovery rule. Rotkiske explains that the Court stated it would not bar a lawsuit that sought relief from fraud, especially where the plaintiff was not at fault, or the defendant caused the plaintiff to be at fault, for filing the lawsuit after the limitations period expired. Rotkiske argues that his lawsuit is similar to the facts in Baily because his lawsuit was also aimed at relieving fraud, and that he too, is blameless for filing the lawsuit after the limitations period because Klemm did not appropriately notify him of the debt-collection lawsuit. Rotkiske also cites Holmberg v. Armbrecht where the Court applied the discovery rule, allowing an otherwise time-barred lawsuit to continue. Rotkiske emphasizes that the Court stated that the discovery rule “is read into every federal statute of limitation,” even those containing an explicit limitations period. Rotkiske therefore contends that the discovery rule is entrenched in prior cases and Congress was likely aware that the Court would apply such a principle to FDCPA cases.
Finally, Rotkiske points to a case decided shortly before Congress began drafting the FDCPA—American Pipe & Construction v. Utah. In this case, Rotkiske explains, the Court decided that the statute of limitations was suspended until the plaintiffs had filed their class-action lawsuit even though the violation occurred years earlier. Rotkiske emphasizes the Court’s statement that it will suspend statutes of limitations where an opposing party prevented the injured party from timely bringing the lawsuit. He notes that the Court added that an explicit limitations period does not automatically preclude federal courts from applying equitable principles like the discovery rule. Therefore, Rotkiske contends that the Court should interpret the FDCPA as incorporating the discovery rule, because it is a well-established doctrine that Congress likely considered and intended to include in the FDCPA.
In response to Rotkiske’s use of precedent, Klemm cites to a separate line of cases in which the Court rejected the discovery rule in light of ambiguous statute-of-limitations language. For example, in Andrews v. TRW, Klemm explains that the Court rejected the discovery rule in a lawsuit brought under the Fair Credit Reporting Act. He notes that the Act had ambiguous language that allowed a lawsuit to be filed “within two years from the date on which the liability arises” or, in cases of a material and willful misrepresentation, “within two years after discovery by the individual of the misrepresentation.” Klemm argues that the Court interpreted the phrase “the date on which the liability arises” to preclude application of the discovery rule. In contrast, Klemm contends, in the FDCPA, Congress incorporated the “strongest possible formulation” of the occurrence rule by using the language “the date on which the violation occurs,” making it less ambiguous than the language in TRW and therefore much more likely to mean the occurrence rule.
Furthermore, Klemm also cites to Gabelli v. SEC where the Court refused to apply the discovery rule to the statute of limitations. Klemm explains that the statute contained a limitations period of “five years from the date when the claim first accrued.” Klemm contends that despite this ambiguous phrase, the Court determined that the statute’s “most natural reading” was that the limitations period begins to run when the violation occurs, not when it is discovered. Therefore, Klemm argues that because the FDCPA contains much less ambiguous language than the statutes in TRW and Gabelli, the Court should interpret it to mean that the statute-of-limitations period begins to run at the date of the violation, not the date of the discovery, thereby barring Rotkiske’s lawsuit.
CONGRESS’S PURPOSE IN CREATING THE FDCPA’S STATUTE OF LIMITATIONS
Rotkiske argues that the purpose behind the FDCPA’s enactment supports the application of the discovery rule to its statute of limitations. He explains that Congress enacted the FDCPA to prevent deceitful practices by debt-collection agencies, including conduct that is “false, deceptive, misleading, unfair and unconscionable.” He adds that the chief means of enforcing the FDCPA is through private actions—lawsuits brought by individual consumers who have been harmed. Rotkiske argues that precluding application of the discovery rule could prevent the adjudication of up to tens of thousands of complaints. He argues that this creates an “odd result” in that consumers lose the right to bring a lawsuit before they even become aware of a violation, negating the FDCPA’s enforcement mechanism. Rotkiske asserts that restricting the FDCPA’s enforcement mechanism could incentivize debt collectors to further violate consumers’ rights. He explains that debt collectors will be encouraged to further deceive consumers and hide their illegal conduct to prevent plaintiffs from timely filing a lawsuit. This practice, Rotkiske points out, essentially results in debt collectors winning a default judgment—a judgment for one party because the opposing party has failed to contest the lawsuit. Therefore, Rotkiske contends that foreclosing application of the discovery rule would narrow the FDCPA’s limitations period so as to prevent its enforcement, thereby hindering the purpose and history behind the FDCPA’s enactment.
The Mortgage Bankers Association (“MBA”) and the Chamber of Commerce of the United States (“USCC”), argue that applying the discovery rule, in this case, would negate the certainty, predictability, and finality of the FDCPA’s explicit statute of limitations. The MBA and USCC assert that Congress imposes a statute of limitations to ensure finality for parties and judicial efficiency. But without a definitive time bar, they argue, adjudicating the merits of a claim would become cumbersome as evidence is lost and witnesses become less reliable over time. Further, they assert that FDCPA litigation is already burdening courts with numerous lawsuits filed each year. For example, they note that between 2016 and 2018, there were roughly 9,000 to 10,000 FDCPA complaints filed each year. They caution that plaintiffs can use such suits as delaying tactics by making non-meritorious claims in an attempt to force debt-collection agencies into settlements. Therefore, they argue, that the Court should not extend the FDCPA’s statute of limitations because it could significantly increase the number of claims and harm collection agencies through frivolous lawsuits. The MBA and USCC also maintain that the adverse effects of recognizing the discovery rule in the FDCPA would have a “ripple effect” in all other federal statutes that include a “date of the violation” statute-of-limitations period. Thus, they maintain that applying the discovery rule in the present case would require reading the discovery rule into several other federal statutes with similar statutes of limitations that would produce the same negative consequences and burdens as with the FDCPA, which was not Congress’s intent.
IMPACT ON MARGINALIZED COMMUNITIES AND “BLAMELESS” VICTIMS
The National Consumer Law Center (the “NCLC”) argues that the discovery rule should apply to ensure the detection of certain debt-collection cases, especially those involving fraudulent misrepresentations or deliberate illegal actions by collection agencies. The NCLC further asserts that allowing illegal debt-collection practices to go undetected would harm individuals who are “blameless” for not filing a lawsuit before the limitations period expired. It notes that the FDCPA’s relatively short limitations period and debt collectors’ deceitful practices disproportionately harm marginalized communities. For example, the NCLC explains that debt collectors frequently deceive consumers—often targeting the poor, elderly, or people of color—into paying other people’s debts or paying more than their actual debt. It asserts that these marginalized consumers typically lack knowledge or access to legal counsel leaving them unequipped to fight debt litigation and resulting in unfavorable judgments. It further explains that debt collectors often engage in improper or untimely service, misrepresent payment plans, and conceal information from consumers, all of which prevents consumers from realizing they have a valid FDCPA claim. The NCLC points out that these tactics cause the limitations period to lapse—especially when it’s a relatively short limitations period like the FDCPA’s one-year limit—without the consumers even being aware of it. Therefore, it contends that marginalized communities, especially people of color, are more likely to be both contacted by debt collectors and lose debt litigation because they were unaware of the lawsuit. It ultimately argues that if the FDCPA’s statutory language is read narrowly and strictly to preclude the discovery rule, then “blameless victims”—especially those in marginalized communities—will be further disadvantaged as they have a narrow and inflexible window to file a complaint.
The National Creditors Bar Association (“NCBA”) counters the argument that foreclosing application of the discovery rule would harm “blameless victims,” by pointing out that victims will often be aware of the violations immediately and will have other methods of redress. For example, the NCBA asserts that most violations are apparent to victims the instant they occur. It explains that debt-collection agencies often “overzealous[ly] or unscrupulous[ly]” phone or email consumers. During these repeated contacts, the NCBA points out, the consumer will become aware of any violations and will be able to file a lawsuit. It explains, however, that even if violations go undetected for more than the FDCPA’s one-year limit, such victims will have alternative methods to alleviate the harm, including statutes with longer limitations periods and state-law legislation. Some of these statutes with longer limitations periods, as identified by the NCBA, include the Telephone Consumer Protection Act (four-year statute of limitations) and the Fair Credit Reporting Act (five-year statute of limitations). Furthermore, the NCBA identifies state-law statutes that can also be used to address harms that no longer fall within the FDCPA’s limitations period, including Pennsylvania’s Fair Credit Extension Uniformity Act (two-year statute of limitations) and the Unfair Trade Practices and Consumer Protection Law (six-year statute of limitations). Thus, according to the NCBA, in light of these other federal and state statutes, “blameless victims” have other opportunities for redressing debt-collector violations.
- Bill Fay, Fair Debt Collection Practices Act, Debt.org (2019).
- Fair Debt Collection Practices Act: BCFP Annual Report, Bureau of Consumer Financial Protection (Mar. 2019).
- Mark Rooney, Can the FDCPA’s One-Year Statute of Limitations Be Expanded Under the “Discovery rule”? Supreme Court Will Decide, insideARM, (Feb. 12, 2019).