Third Circuit Rejects Application of Discovery Rule to Alleged FDCPA Violations

On May 15, an en banc panel of the Third Circuit Court of Appeals issued a decision finding the statute of limitations for an alleged violation of the Fair Debt Collection Practices Act begins on the date the violation occurs, not on the date the debtor discovers the violation. The ruling adds to the growing Circuit Court of Appeals split on this issue which, in addition to the Third Circuit, now involves the Fourth, Eighth, Ninth, and Eleventh circuits.

The case is Kevin Rotkiske v. Paul Klemm, et al., No. 16-1668 (3d Cir. May 15, 2018).

Plaintiff Kevin Rotkiske brought the FDCPA action in 2015, roughly one year after he discovered that Defendant Paul Klemm obtained a judgment against him in a 2009 state court debt collection action. Rotkiske claimed Klemm served the collection complaint on the wrong person, with the result that Rotkiske did not learn of the 2009 judgment until 2014, after he was rejected for a home loan due to credit reporting reflecting the outstanding judgment. Rotkiske alleged Klemm deliberately made sure that he did not receive service in order to obtain a default judgment in violation of the FDCPA. Klemm moved to dismiss the complaint, arguing Rotkiske did not bring the action within the FDCPA one-year statute of limitations. The lower court granted Klemm’s motion and Rotkiske appealed.

Relying on the Fourth Circuit’s decision in Lembach v. Bierman and the Ninth Circuit’s decision in Mangum v. Action Collection Serv. Inc. (both of which found the discovery rule applies to statutes of limitation in federal litigation, including the FDCPA), Rotkiske argued the statute of limitations was tolled until he discovered the alleged FDCPA violation in 2014. The Third Circuit panel disagreed, finding the text of the FDCPA, which states that an action for an alleged violation may be brought “within one year from the date on which the violation occurs,” plainly applies the occurrence rule. With respect to Lembach and Mangum, the Court found these decisions did not analyze the specific text of the FDCPA and it therefore rejected their application of the discovery rule.

The Third Circuit now joins the Eighth and Eleventh circuits in finding the occurrence rule applies to FDCPA actions, while the Fourth and Ninth circuits apply the discovery rule.

We will continue to monitor developments in this case, including any petition to the Supreme Court of the United States to resolve this burgeoning Circuit split.