Debt collectors filing suit often assume that the forum state’s statute of limitations will apply. However, a string of recent cases suggests that may not always be the case. The Ohio Supreme Court recently determined that, by virtue of Ohio’s borrowing statute, the statute of limitations for the place where the customer submits payments or where the creditor is headquartered may apply Taylor v. First Resolution Inv. Corp., 2016 WL 3345269 (Ohio Jun. 16, 2016). As noted below, however, Ohio is not the only jurisdiction to reach this conclusion.
Given the increasing number of courts and regulators that consider the filing of a time barred lawsuit to be a violation of the FDCPA, entities filing collection lawsuits should closely review trends related to the statute of limitations in each state and accurately track the statute of limitations applicable in each jurisdiction.
Analysis of Taylor v. First Resolution Inv. Corp.
In 2001, Sandra Taylor, an Ohio resident, completed a credit card application in Ohio, mailed the application from Ohio, and ultimately received a credit card from Chase in Ohio. By 2004, Ms. Taylor had fallen into default and the debt was charged off by Chase in January 2006. The debt was sold in 2008 and then again in 2009 before being sent to a law firm to file a collection suit. The debt collector in Taylor, First Resolution Investment Corporation (FRIC), ultimately filed suit on March 9, 2010, in Summit County, Ohio. While FRIC initially obtained a default judgment, that judgment was vacated two months later, and Ms. Taylor asserted several affirmative defenses, including a statute of limitations defense and counterclaims based upon alleged violations of the Fair Debt Collection Practices Act (FDCPA) and the Ohio Consumer Sales Practices Act (OCSPA) for filing a lawsuit beyond the limitations period.
After FRIC dismissed its claims without prejudice, the trial court granted summary judgment in FRIC’s favor on Ms. Taylor’s claims. The trial court held that FRIC did not file a complaint beyond the statute of limitations because Ohio’s six or 15 year statute of limitations applied to FRIC’s claim and the complaint was filed within six years of Ms. Taylor’s breach.
The case was ultimately appealed to the Ohio Supreme Court. After noting that Ohio law determines the statute of limitations because it is the forum state for the case, the Ohio Supreme Court proceeded to analyze whether Ohio’s borrowing statute applied to the case. Ohio’s borrowing statute mandated that Ohio courts apply the limitations period of the state where the cause of action accrued unless Ohio’s limitations period was shorter. As a result, Taylor hinged upon a determination of where the cause of action accrued.
The Ohio Supreme Court ultimately held that the cause of action accrued in Delaware because it was the location “where the debt was to be paid and where Chase suffered its loss.” This determination was based on the fact that Chase was “headquartered” in Delaware and Delaware was the place where Ms. Taylor made all of her payments. Because the Ohio Supreme Court held that the cause of action accrued in Delaware, FRIC’s claim was barred by Delaware’s three year statute of limitations and as a result FRIC potentially violated the FDCPA by filing a time barred lawsuit.
Unfortunately, the Taylor court did not address a number of key questions. For instance, the court’s decision to apply Delaware’s statute of limitations turned on the fact that it was the place where Chase was “headquartered” and where Ms. Taylor was required to submit her payments. The court did not, however, indicate which of these facts would be determinative in a situation in which the place of payment and the creditor’s headquarters are different—the language the court used regarding the place where Chase “suffered its loss” suggests that headquarters should be the determining factor, but that is not overtly stated in the opinion. To the extent the place of payment drives the analysis, the court did not offer any insight into how it would handle a situation in which a customer submitted payments electronically—presumably, this suggests that courts should look to the place where the creditor directs the borrower to mail payments. The court also did not provide any guidance as to how a creditor’s headquarters should be determined.
Growing Trend of Jurisdictions Using Borrowing Statutes
While Taylor may seem like an anomaly, the court in Taylor identified a number of other jurisdictions that apply a similar analysis. For instance, in Conway v. Portfolio Recover Assocs., LLC, 13 F.Supp.3d 711 (E.D. Ky. 2014), the District Court for the Eastern District of Kentucky held that, by virtue of Kentucky’s borrowing statute, Virginia’s statute of limitations applied because it was the place where the creditor “was located and expected to receive payment.” Similarly, in Hamid v. Stock & Grimes, LLP, 2011 WL 3803792 (E.D. Pa. Aug. 26, 2011), the District Court for the Eastern District of Pennsylvania determined that Pennsylvania’s borrowing statute required the court to apply Delaware’s statute of limitations because that was the location of the creditor’s post office box where it directed the customer to mail payments. And in Portfolio Recovery Assocs., LLC v. King, 927 N.E.2d 1059 (N.Y. 2010), the New York Supreme Court held that, as a result of New York’s borrowing statute, the Delaware statute of limitations applied because the creditor was incorporated in Delaware. As these cases demonstrate, there is a growing trend of jurisdictions utilizing borrowing statutes to apply the shorter statute of limitations of the forum state, the creditor’s headquarters, and the place where the creditor directs the customer to mail payments.