The U.S. Court of Appeals for the Second Circuit recently affirmed the dismissal of a claim under the federal Fair Debt Collection Practices Act holding that an FDCPA violation occurs, for the purposes of the FDCPA’s one year statute of limitations, when an individual is injured by the alleged unlawful conduct.

In so ruling, the Second Circuit clarified that in Benzemann v. Citibank N.A., 806 F.3d 98 (2d Cir. 2015), it did not intend to expand the FDCPA’s statute of limitations by requiring individuals to be injured and receive “notice of the FDCPA violation.”

A copy of the opinion in Benzemann v. Houslanger & Associates, PLLC is available at: Link to Opinion.

In April 2008, the debt collector sent a restraining notice referencing a 2003 judgment against a debtor to a bank. The notice named the debtor as the judgment debtor, but it incorrectly listed the plaintiff’s social security number and address.

The bank froze the plaintiff’s account. After the plaintiff’s attorney notified the debt collector of the error, the debt collector withdrew the restraining notice and the bank lifted the freeze.

On Dec. 6, 2011, the debt collector sent the bank a second restraining notice containing similar information and the bank again froze the plaintiff’s accounts. The plaintiff again contacted the bank, and the bank lifted the freeze on Dec. 15, 2011.

On Dec. 14, 2012, the plaintiff filed a complaint alleging, among other things, violation of the FDCPA, 15 U.S.C. § 1692, et seq.

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

The trial court dismissed the FDCPA claim as untimely, concluding that the alleged violation occurred when the debt collector mailed the restraining notice on Dec. 6, 2011. The plaintiff filed a timely appeal.

On the first appeal, the Second Circuit concluded that the trial court erred because “where a debt collector sends an allegedly unlawful restraining notice to a bank, the FDCPA violation does not ‘occur’ for the purposes of the [statute of limitations] until the bank freezes the debtor’s account.” Benzemann v. Citibank N.A., 806 F.3d 98, 103 (2d Cir. 2015)

The Second Circuit also observed that “the FDCPA violation here did not ‘occur’ until [the bank] froze [plaintiff’s] account because it was only then that he had a complete cause of action and notice of the FDCPA violation.” Id.

Because the record was unclear as to whether the bank froze the plaintiff’s accounts on Dec. 13 or Dec. 14, the Second Circuit remanded for further proceedings. The Second Circuit also directed the trial court to consider, if it finds that the accounts were frozen on Dec. 13, 2011, whether the FDCPA’s statute of limitations is subject to the common law “discovery rule.”

After remand, the bank’s records indicated that it “blocked” the plaintiff’s accounts on Dec. 13, 2011. The plaintiff produced evidence indicating that he had problems accessing his account on Dec. 13, 2011, and learned of the debt collector’s restraining notice on Dec. 14, 2011 when he called the bank to access his account.

The debtor collector moved for summary judgment.

The trial court found that the alleged FDCPA violation occurred when the bank froze the plaintiff’s accounts on Dec. 13, 2011, and because the plaintiff filed suit on Dec. 14, 2012, one year and one day later, his FDCPA claim was untimely.

The trial court also found that it did not need to determine whether the discovery rule applied to FDCPA claims because the outcome of this case would be the same, as the evidence indicated that the plaintiff knew the bank had frozen his accounts on Dec. 13, 2011.

This appeal followed.

The plaintiff argued that his FDCPA claim was timely because the statute of limitations commenced when he receive notice of the violation, i.e., when he learned of the debt collector’s restraining notice on Dec. 14, 2011.

The Second Circuit acknowledged that in the first appeal it observed that the FDCPA’s statute of limitations commenced when an individual is injured by unlawful conduct and receives “notice of the FDCPA violation.”

However, the Second Circuit explained that the first appeal merely considered whether an FDCPA violation can occur, for the purposes of the statute of limitations, before the victim was injured. The Second Circuit explained that it did not examine whether the triggering of the statute of limitations also required notice of the FDCPA violation.

The Second Circuit stated that it intended to tether the commencement of the FDCPA limitations period to the date of injury “as indicated in its instructions to the district court on remand to determine the date of the freeze” to avoid an anomaly where the statute of limitations begins to run before an FDCPA plaintiff can file suit.

Moreover, in the Second Circuit’s view, the plaintiff’s interpretation undermines the policies that statute of limitations serve, which is to encourage putative plaintiffs to diligently prosecute their claims.

Thus, the Second Circuit clarified that it did not intend in the first appeal to expand the FDCPA’s statute of limitations by requiring individuals to receive “notice of the FDCPA violation.”

Next, the Second Circuit addressed the plaintiff’s argument that his claim was timely under the common law discovery rule.

As you may recall, under the discovery rule “a plaintiff’s cause of action accrues when he discovers, or with due diligence should have discovered, the injury that is the basis of the litigation.” Guilbert v. Gardner, 480 F.3d 140, 149 (2d Cir. 2007).

The Second Circuit noted that it had never decided whether the discovery rule applied to FDCPA claims, and declined to address this issue here, because the plaintiff’s claim here would be time barred even under the discovery rule.

As the Second Circuit explained, the trial court correctly determined that the plaintiff discovered his injury on the same day that the bank froze his accounts, and therefore his FDCPA claim was untimely even if the discovery rule applied to FDCPA claims.

Finally, the Second Circuit rejected the plaintiff’s equitable tolling argument because he discovered that the bank froze his account on Dec. 13, 2011 and began investigating the incident that evening, but then waited just over one year to file his lawsuit.

In the Second Circuit’s view, the plaintiff had the necessary information within 24 hours to file a lawsuit and nothing prevented him from bringing a timely action.

Accordingly, the Second Circuit affirmed the trial court’s judgment.