The U.S. Court of Appeals for the Second Circuit recently reversed dismissal of a federal Fair Debt Collection Practices Act (FDCPA) claim based on the statute of limitations, holding that an FDCPA violation occurs when a bank freezes a debtor's bank account, not when a debt collector sends a restraining notice to the bank.

In so ruling, the Court distinguished the rulings in Maloy v. Phillips, 64 F. 3d 607 (11th Cir. 1995) and Mattson v. U.S. W. Commc'ns, Inc., 967 F. 2d 259 (8th Cir. 1992), which held that an FDCPA violation occurs when the alleged unlawful debt collection notices are mailed, not when received.

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

A creditor obtained judgment against a judgment debtor.  Approximately five years later, a debt collector initiated enforcement proceedings as to the judgment, including as to the plaintiff, who was not the judgment debtor but who had a name similar to that of the judgment debtor.

The plaintiff's bank froze the plaintiff's bank account after it received a restraining notice from the debt collector.  The restraining notice named the judgment debtor, but identified the plaintiff's social security number and address. 

The plaintiff contacted the debt collector to remove the restraint, but was unsuccessful.  The plaintiff then retained counsel, who threatened legal action, and the restraining notice was withdrawn. 

Three and a half years later, the bank again froze the plaintiff's account pursuant to a second restraining notice issued by the same debt collector based on the same judgment and containing the same errors as the first restraining notice.  The plaintiff again retained counsel, who contacted the debt collector, and the restraint was again lifted. 

Thereafter, the plaintiff filed an FDCPA lawsuit against the debt collector, alleging false, deceptive, or misleading representation or means in connection with the collection of the judgement debt, and unfair or unconscionable means to collect or attempt to collect the debt.

The debt collector moved to dismiss, arguing the complaint was time-barred under the FDCPA, as it was filed more than one year after service of the restraining notices.  The district court dismissed the lawsuit, and the plaintiff appealed.

The Second Circuit reversed the dismissal, holding that the FDCPA violation occurred when the bank froze the plaintiff's bank account, not when the debt collector send the restraining notice to the bank.

As you may recall, the FDCPA provides that plaintiffs must file suit within one year from the date on which the violation occurs.  The Second Circuit noted that it is a general principal of law that a cause of action accrues when conduct that invades the rights of another has caused injury.  In addition, when the injury occurs, the injured party has the right to bring suit for all of the damages, past, present and future, caused by the defendant's acts.

The lower court had distinguished between the violations allegedly committed by the debt collector sending the notices, and the violation supposedly committed by the bank freezing the account. 

The Second Circuit rejected this notion, as the plaintiff suffered no injury prior to the freezing of the bank account and could not have filed suit.  The Court noted that counsel for the debt collector conceded at oral argument that the plaintiff could not have sued the debt collector before the bank froze his account.  According to the Court, "[b]efore that time, he had no 'complete and present cause of action' against the debt collector.

The Court also found no indication in the text of the FDCPA that Congress intended the statute of limitations to run before a FDCPA plaintiff could file suit. 

In addition, in Serna v. Law Office of Joseph Onwuteaka, P.C., 732 F. 3d 440 (5th Cir. 2013) and Johnson v. Riddle, 305 F. 3d 1107 (10th Cir. 2002), other federal appellate courts held that an FDCPA violation occurs when a plaintiff is served, not when a complaint purportedly violating the statute is filed.

The Second Circuit noted that the plaintiff could not have known the notices were sent until, at the earliest, his account was frozen.

The Second Circuit also distinguished the rulings in Maloy v. Phillips, 64 F. 3d 607 (11th Cir. 1995) and Mattson v. U.S. W. Commc'ns, Inc., 967 F. 2d 259 (8th Cir. 1992), which held that an FDCPA violation occurs when the alleged unlawful debt collection notices are mailed, not when received.

According to the Second Circuit, in Maloy and Mattson, mailing was the debt collector's last opportunity to comply with the FDCPA, and the date of the mailing was easy to determine and ascertainable by each party, yielding a rule that is easy to apply. 

However, in the context of a bank account freeze, the Second Circuit held that the mailing of the restraining notice here was not the last opportunity for the debt collector to comply, and that it is no easier to ascertain the date of mailing the restraining notice than the date of the freeze itself, which can be ascertained by looking at bank records.

Accordingly, the Second Circuit reversed the dismissal of the FDCPA claim, and remanded for a determination of when the bank froze the plaintiff's account.