Arguments Preview: A Conflict Between Plain Text and Background Rules

On Wednesday, October 16, the Supreme Court will hear oral arguments in Rotkiske v. Klemm, yet another case arising from the Fair Debt Collection Practices Act. Although the FDCPA has a long history of challenging issues of statutory interpretation before judges, this case has broader implications. This forces the court to confront the question of how to read commonly used language in statutes of limitations in the context of the so-called “discovery rule”. Under the rule of discovery, the limitation period for actions based on fraud does not begin to run until a reasonable plaintiff would have discovered the fraud.

Rotkiske has accrued and defaulted on approximately $1,200 in credit card debt. His bank, like most banks do in similar situations, turned to a professional debt collection firm, Klemm & Associates. Klemm filed two lawsuits against Rotkiske to collect the debt. In the first, in March 2008, he attempted to serve Rotkiske at an address where he no longer resided. A person who did not fit Rotkiske’s physical description accepted the service. Rotkiske claims Klemm dropped that lawsuit when he couldn’t find his current address. Klemm filed a second collection action against Rotkiske in March 2009. He attempted to serve at the same address as in his 2008 case, and again someone unknown to Rotkiske accepted service. Klemm filed an affidavit claiming that an “adult responsible for the residence of the defendant(s)” accepted the service. When Rotkiske failed to appear, Philadelphia City Court entered a default judgment against him.

Rotkiske claims he was not notified of the 2009 proceedings and default judgment until he applied for a mortgage in September 2014 and was denied. Nine months later, he filed suit in the United States District Court for the Eastern District of Pennsylvania, alleging that by serving the lawsuit at an address he knew was not current, Klemm assured that Rotkiske would not be properly served. Indeed, Rotkiske claims that Klemm fraudulently obtained a default judgment against him in violation of the FDCPA.

The FDCPA regulates professional debt collectors. In its own words, the FDCPA aims both “to eliminate abusive debt collection practices by debt collectors” and “to ensure that debt collectors who refrain from using abusive debt collection practices are not at a competitive disadvantage”. Although the FDCPA is considering regulatory oversight of the industry, most of its bite comes from private causes of action. The primary provision at issue in this case is 15 USC Section 1692k(d), which provides that all actions arising under the FDCPA must be brought “within one year from the date the violation occurs.” .

Klemm sought dismissal on the grounds that the alleged breach occurred in 2009, well over a year before Rotkiske filed suit. Rotkiske countered that under the “rule of discovery”, the statute of limitations did not begin to run until September 2014, when he learned of Klemm’s default judgment. The district court denied the request, and Rotkiske appealed. In district court, he also asked the court to apply a fair toll on the statute of limitations, but oddly seems to have dropped that argument in his appeal to the United States Court of Appeals for the 3rd Circuit.

The 3rd Circuit heard arguments in January 2017, but before the panel delivered its opinion, the court, uninvited, argued for a rehearing en banc. The full court en banc ultimately upheld the district court, finding that the plain language of the FDCPA provided for a one-year statute of limitations, superseding any common law rules that may exist in the background. This decision departs from previous decisions of the United States Courts of Appeals for the 4th and 9th Circuits holding that the one-year statute of limitations under Section 1692k does not begin to run until a reasonably diligent plaintiff would not have been aware of the violation.

On the face of it, Klemm and his amici, including the United States, appear to have the easier argument in the Supreme Court. The law states that Rotkiske had to file its complaint “within one year from the date the violation occurred.” As Klemm argues, “[i]Clearly, a “breach occurs” when an accused commits the breach – not when the victim discovers it (or should have discovered it)”. While interpreters may differ in the strength of their commitment to textualism, is hard to argue that something about that language is unclear or otherwise requires the court to look beyond the law itself. took place in 2009.

Rotkiske has two main arguments for overcoming Klemm’s ordinary reading of the law. First, he, with the National Consumer Law Center as amicus, argues that reading the statute of limitations as a strict one-year rule, regardless of when the victim discovers the violation, would undermine the purpose of the law and even encourage misconduct. Certainly, many types of FDCPA violations are immediately apparent to victims. But, as NCLC explains, many of the most potentially damaging breaches stem from process service scams that allow debt collectors to obtain default judgments against unknowing victims. In one case highlighted by NCLC, the debt collector’s plan to file false affidavits of service to support default judgments was so significant that the defendant ultimately paid $60,000,000 into a settlement fund. Klemm and some amici on his side respond that reasonable consumers should see even these fraudulent lawsuits within a year if they watch their credit reports.

Klemm and his amici then point to the fair toll doctrine, which Rotkiske raised in district court but waived on appeal. The fair toll, as they explain, would stop the statute of limitations on fair grounds when potential defendants conceal their action from the victim. The 3rd Circuit seemed to agree that Rotkiske should have sought to fairly fix the statute of limitations in his case instead of grafting the discovery rule onto statutory language that appears to exclude it. As a fact-dependent, case-specific doctrine, fair tolling would potentially remedy the injustice in cases like Rotkiske’s without doing violence to the balance that Congress struck when it created a cause of private action, but limited its use to the first year after the breach. occurred.

Rotkiske’s second argument, and the one that ultimately took this case to the Supreme Court, is that the phrase “within one year from the date the violation occurred” does not eliminate the “discovery rule”, which provides that in cases that amount to fraud, the statute of limitations does not begin to run until the victim discovers the fraud. The discovery rule has a long history in the Supreme Court and has become one of those basic common law principles that Congress is supposed to legislate against. The question then is whether the limitations language in the FDCPA is specific enough to repeal the discovery rule. Rotkiske points to several cases in which the Supreme Court has endorsed the discovery rule, but lacks a clear theory on why the discovery rule should overcome the seemingly plain language of the law. And while he can show that Congress sometimes uses even more specific language to repeal the discovery rule, he doesn’t explain why the FDCPA language isn’t another example of repealing language.

Luckily for Rotkiske, he has help from the academy. Law professors Samuel Bray, David Marcus and Stephen Yeazell have filed an amicus brief in support of neither party which is a masterclass in this history of the Discovery Rule and its role in the fraud cases . They argue that the 3rd Circuit made three errors in deciding that the discovery rule does not apply to FDCPA cases. First, they explain that the 3rd Circuit misinterpreted the presence of explicit discovery rules in some statutes to imply that Congress intended to limit its application as a substantive rule in other statutes. Second, they argue that the 3rd Circuit places too much weight on the word “event” in the FDCPA. The 3rd Circuit pointed out that statutes of limitations considering when claims “arise” or “accumulate” could give way to the discovery rule, since a claim may not arise or accumulate until the victim does not. is unaware of the injury. They point out that many of the cases in which the Supreme Court approves the discovery rule have statutes of limitations that focus on the occurrence of an event, not the accrual of a claim, even though those statutes do not not use the word “occurring”. Third, they argue that the 3rd Circuit erred in assuming that the discovery rule would apply to all claims arising from the FDCPA. Instead, they argue it only applies to actions alleging fraud. They note that even Judge Antonin Scalia, who was generally skeptical of the discovery rule, approved it for actions resembling fraud.

These arguments notwithstanding, one can imagine that for court textualists it might be tempting to strictly interpret the FDCPA’s plain language as abrogating the discovery rule. After all, according to the 3rd Circuit, Rotkiske’s main obstacle to justice is his own mistake: he waived his claim for a fair toll. But law professors also throw a wrench in that argument, explaining that the fair toll can’t save plaintiffs like Rotkiske because it’s only available to plaintiffs who pursue their rights diligently — which plaintiffs who do not know they have been wronged cannot do.

At the argument, it will be interesting to see how close the judges think the fair toll is to interpreting the FDCPA’s statute of limitations. Whatever they do will ripple through the entire law, as several statutes share language similar to that of the FDCPA “within one year from the date the violation occurs.” While Congress can certainly speak more clearly in the future, what to do with these statutes in the meantime will depend on the outcome of this case.

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