The U.S. Court of Appeals for the Ninth Circuit recently held that the discovery rule applies equally regardless of the nature of the federal Fair Debt Collection Practices Act (FDCPA) violation alleged by a plaintiff. Therefore, according to the Ninth Circuit, the FDCPA statute of limitations begins to run in all cases when the plaintiff knows or has reason to know of the injury which is the basis of the action.

A copy of the opinion is available at:  Link to Opinion.

The plaintiff consumer filed a lawsuit against the defendant debt collector alleging it violated the FDCPA when it filed a lawsuit against her to collect a debt in Monterey County, California, even though she did not enter into a contract with the lender in Monterey County and even though she resided in San Diego County, California.

The debt collector moved to dismiss the complaint on the grounds that it was not filed within one year from the date on which the original collection action was filed. The plaintiff consumer argued that her complaint was timely because she did not know or have reason to know about the collection case against her until she was served with process, which was a date less than one year prior to the date she filed her FDCPA action.

The trial court dismissed the case as time-barred, holding that an FDCPA violation occurred when the debt collection action is filed.

As you may recall, a claim under the FDCPA must be brought within one year from the date on which the violation occurs. 15 U.S.C. §1692k(d).

The Ninth Circuit began its analysis by revisiting its holding in Mangum v. Action Collection Service Inc., 575 F.3d 935 (9th Cir. 2009), in which the plaintiff alleged that debt collection agencies violated the FDCPA by wrongfully disclosing her debt information to an outside party.  The Ninth Circuit recognized that “in general, the discovery rule applies to statutes of limitations in federal litigation, that is, federal law determines when the limitations period begins to run, and the general federal rule is that a limitations period begins to run when the plaintiff knows or has reason to know of the injury which is the basis of the action.” The Ninth Circuit there held that the discovery rule was properly applied in an FDCPA case.

The Ninth Circuit also previously applied the discovery rule in a case where an alleged FDCPA violation involved debt collection letters.  Here, the plaintiff alleged that the debt collector violated the FDCPA by filing a collection lawsuit in the wrong county.

The Court held that the fact that the alleged violation here was the wrongful filing of a collection lawsuit, rather than wrongful third party disclosure as inMagnum or a violation involving the language of debt collection letters, makes no difference to the analysis. Thus, the Ninth Circuit held that the discovery rule applies equally regardless of the nature of the FDCPA violation alleged.

Here, the plaintiff argued that she did not learn of the collection action until she received service of process, and that she had no reason to suspect that she had been sued in Monterey County. The debt collector did not contend otherwise, and thus applying the discovery rule, the Ninth Circuit found the plaintiff’s complaint to be timely filed.

The Ninth Circuit then looked to the opinion relied upon by the trial court for the assertion that the statute of limitations begins to run on the date the underlying debt collection action was filed. See Naas v. Stolman, 130 F.3d 892 (9th Cir. 1997). The Ninth Circuit found that discovery of the debt collection suit was entirely absent from its analysis in the Naas case, and therefore that the Naas case answered a different question than posed by the parties in the instant case.

The Court held that Naas stands for the proposition that, under the FDCPA, the injury which forms the basis of the action is filing the underlying collection lawsuit; its ruling in Mangum does not mean that the statute of limitations also begins to run on the filing date.

Accordingly, the Ninth Circuit reversed the ruling of the trial court.