Debtors Lose? 3rd Circuit Rejects “Discovery Rule,” Restricts Period to Assert Federal Debt Collection Actions in Break With 4th and 9th Circuits

In an en banc decision issued last Tuesday, the 3rd Circuit held that civil actions alleging violations of the Fair Debt Collection Practices Act (FDCPA) must be filed within one year from the date of the violation’s occurrence – and not when the violation was discovered. The 3rd Circuit’s decision in Rotkiske v. Klemm directly conflicts with 4th and 9th Circuit precedent by rejecting the "discovery rule," thus teeing up a potential Supreme Court challenge to resolve the circuit split.

Defendant Klemm & Associates (Klemm) initially sued Plaintiff Kevin Rotkiske (Rotkiske) in March 2008 to collect on debt accumulated between 2003 and 2005 and attempted service at an address where Rotkiske no longer lived. Unable to locate Rotkiske, Klemm tried again in January 2009, refiling its suit and attempting service at the same address. The then-current resident accepted service on his behalf, and Klemm obtained a default judgment against Rotkiske for around $1,500. In September 2014, Rotkiske discovered the judgment against him when he applied for a mortgage.

In June 2015, Rotkiske sued Klemm asserting that the collection efforts violated the FDCPA. The Eastern District of Pennsylvania dismissed Rotkiske’s FDCPA claim as untimely, rejecting Rotkiske’s argument that the FDCPA’s statute of limitations incorporates a discovery rule. Under a discovery rule, the statute of limitations period does not begin to run until the date the aggrieved party knew or should have known of the injury. Instead, the court found that the "occurrence rule" applied to FDCPA claims, under which the limitations period starts on the date the injury occurred.

On appeal, the 3rd Circuit declined to follow the 9th Circuit’s decision in Mangum v. Action Collection Service, Inc., 575 F.3d 935 (9th Cir. 2009), and the 4th Circuit’s decision in Lembach v. Bierman, 528 F. App’x 297 (4th Cir. 2013), both of which had applied the discovery rule to FDCPA claims. The 9th Circuit had invoked its general rule that the discovery rule applies to statutes of limitations in federal litigation. The 4th Circuit had implicitly invoked equitable tolling principles in finding that the plaintiff in that case “had no way of discovering the alleged violation.”

For its part, the 3rd Circuit noted that these other circuits had ignored the text of the limitations provision. Its reasoning focused on Section 1692k(d) of the FDCPA, which provides that “[a]n action . . . may be brought in any appropriate United States district court . . . within one year from the date on which the violation occurs.” Finding this language unambiguous, a unanimous panel rejected the discovery rule in favor of the occurrence rule, explaining that “the Act says what it means and means what it says: the statute of limitations runs from ‘the date on which the violation occurs.’”

Thus, the panel held that Section 1692k(d)’s one-year limitations period begins to run when a would-be defendant violates the FDCPA, and not when a someone discovers or should have discovered the violation. However, the court emphasized that its holding was not intended to undermine the doctrine of equitable tolling, available to plaintiffs alleging an FDCPA violation involving fraudulent, misleading, or self-concealing conduct. We will continue to monitor this case and provide updates as they occur.