Court Rules FDCPA Statute of Limitations Begins When Violation is Discovered

On March 27, a United States District Court judge denied a request to dismiss a Fair Debt Collection Practices Act (FDCPA) case as outside the one-year statute of limitations. The judge held that the “Discovery Rule” applies and that the statute doesn’t begin to run until the plaintiff “discovers” the alleged violation, rather than from the date of occurrence of the activity that gives rise to the cause of action. 

The case is Skinner v. Midland Funding, LLC (Case No 16-4522, U.S. District Court, ND, IL). A copy of the Memorandum and Order can be found here. 

Background 

On April 21, 2016 plaintiff, Lisa Skinner, filed a two-count complaint against Midland Funding, LLC, and Midland Credit Management, Inc. (Midland) for alleged violations of the FDCPA. In her complaint Skinner alleged the following:

• She incurred a debt of $1,405.00 for goods and services on a Chase Bank consumer credit account on which she eventually defaulted.
• Chase Bank charged off her account and stopped charging interest and late fees in June 2011.
• Subsequently, Chase Bank sold the debt to defendant Midland Funding, who then assigned the debt for collection to defendant Midland Credit Management.
• From March 2014 through January 2015, Midland wrongfully charged monthly interest on the debt, which resulted in a balance of $1,589.00.
• From February 2015 through February 2016, Midland did not charge plaintiff additional interest on the debt, but continued to report the $184.00 interest previously charged to plaintiff’s account.
• That defendants had no statutory or contractual right to charge and collect interest on her debt. 

Skinner’s complaint alleged violations of 15 U.S.C §§ 1692f and 1692e of the FDCPA. She alleges that Midland attempted to collect an amount not authorized by the agreement or permitted by law, and that Midland misrepresented the amount and character of the debt and communicated false credit information to Equifax, the consumer reporting agency. 

Midland brought a motion to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure.  

Editor’s Note: A 12(b)(6) motion is based upon the argument that the complaint fails to state a claim upon which relief may be granted. In deciding a motion to dismiss pursuant to 12(b)(6), a district court is “required to accept as true all factual allegations in the complaint and draw all inferences in the facts alleged in the light most favorable to the plaintiff. 

The underlying basis of the motion was that plaintiff’s claims are barred by the FDCPA’s one-year statute of limitations because they arose in March 2014, two years before plaintiff filed her complaint.   

Skinner argued that she did not discover the FDCPA violations until she requested her credit reports in August 2015 and March 2016. She also contended that even if her § 1692f claim fails as outside the statute of limitations, her § 1692e claim survives because defendants reported varying balances in February 2016 and March 2016. 

Defendants countered that argument by contending that the conduct plaintiff challenges in February 2016 is identical to the March 2014 conduct and that plaintiff is improperly relying on the continuing violation doctrine.

The Court’s Opinion 

The court began its discussion by noting that recent decisions in the Northern District of Illinois have held that the discovery rule applies to the FDCPA. Midland argued that the discovery rule should not apply because Congress expressed a clear intent that the statute of limitations should run at the occurrence of the injury rather than the discovery of it. 

The Memorandum and Order was written by the Honorable Jorge L. Alonso, United State District Court Judge. Alonso wrote: 

“Dismissing a complaint as untimely at the pleading stage is an unusual step, since a complaint need not anticipate and overcome affirmative defenses, such as the statute of limitations.” Cancer Found., Inc. v. Cerberus Capital Mgmt., LP, 559 F.3d 671, 674 (7th Cir. 2009). However, “dismissal is appropriate when the plaintiff pleads himself out of court by alleging facts sufficient to establish the complaint’s tardiness.” Id. at 674-75. “As long as there is a conceivable set of facts, consistent with the complaint, that would defeat a statute-of-limitations defense, questions of timeliness are left for summary judgment, at which point the district court may determine compliance with the statute of limitations based on a more complete factual record. 

The rule that postpones the beginning of the limitations period from the date when the plaintiff is wronged to the date when he discovers he has been injured is the discovery rule of federal common law, which is read into statutes of limitations in federal-question cases in the absence of a contrary directive from Congress.” Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450 (7th Cir. 1990). 

Absent binding precedent that the discovery rule does not apply to the FDCPA, the Court is persuaded by the reasoning of other courts in this district and applies the discovery rule in this case. While the complaint itself does not explicitly allege when plaintiff first learned of the inaccurate debt reporting, a credit report from TransUnion (attached to the complaint as Exhibit E) run in August 2015 or later, indicates a debt of $1,589.00 (the $1,405.00 initial debt plus the disputed $184.00 in interest). Accordingly, the Court finds that this exhibit supports an inference that plaintiff did not discover the improper credit reporting until August 2015 and may be able to establish a defense to the statute of limitations. For purposes of the motion to dismiss, the Court finds that plaintiff’s complaint, filed in April 2016, is timely.” 

For the reasons set forth above, defendants Midland Funding, LLC and Midland Credit Management’s motion to dismiss is denied.” 

insideARM Perspective 

The key language of Judge Alonso’s order is this: “For purposes of the motion to dismiss, the Court finds that plaintiff’s complaint, filed in April 2016, is timely. As long as there is a conceivable set of facts, consistent with the complaint, that would defeat a statute-of-limitations defense, questions of timeliness are left for summary judgment, at which point the district court may determine compliance with the statute of limitations based on a more complete factual record.” 

This decision may be different as more facts are presented to the court. However, what would likely remain consistent is Judge Alonso’s opinion that the discovery rule applies to FDCPA cases. If that is the case, Midland will need to present evidence that the plaintiff “discovered” the alleged violation more than one year prior to the filing of the suit to prevail on the statute of limitations defense. 

The other key issue to be decided in this is whether Midland did, as alleged, “wrongfully charge interest” on the debt.