On February 12, the Third Circuit Court of Appeals issued a precedential opinion in which it found that a debt collector’s inclusion of the word “settlement” in a collection letter for a statutorily time-barred debt suggested to the least sophisticated debtor the debt was still legally enforceable could therefore constitute potential violation of the Fair Debt Collection Practices Act. The case is Tatis v. Allied Interstate, LLC, et al., No. 16-4022 (3d Cir. Feb. 12, 2018).
Plaintiff Michelle Tatis’ claim arose from a $1,300 debt incurred through a gym membership in 2005. In May of 2015, Allied Interstate mailed her a collection letter offering to settle the debt for $130. Tatis filed a putative class action in the District Court for New Jersey, alleging the letter’s references to “settlement” suggested she had a legal obligation to pay the debt, which constituted a misrepresentation about the legal status of the debt as well as a threat to take an action that Allied could not legally take because the statute of limitations to enforce the debt had expired.
Relying on the Third Circuit’s decision in Huertas v. Galaxy Asset Mgmt., Allied filed a motion to dismiss the complaint. Allied argued that its attempt to collect the debt from Tatis was not a violation of the FDCPA because the use of the word “settlement” does not constitute a threat of litigation. The District Court agreed with Allied and dismissed the action. The Court also found that because partial payment of the debt would not revive the statute of limitations, the collection letter was not false and misleading. Tatis appealed.
On appeal, the Third Circuit panel, composed of Judges Chagares, Jordan, and Hardiman, found the word “settlement” could imply the debt was legally enforceable; which, if proven, would constitute a false and misleading representation in violation of the FDCPA. In doing so, the Court clarified its holding in Huertas, and found that even if a debt collection letter on a time-barred debt did not threaten litigation, it could still violate the FDCPA if it included language the least sophisticated debtor could find false or misleading. The Court went on to state, “[W]e reiterate what we said both in Huertas and elsewhere: standing alone, settlement offers and attempts to obtain voluntary repayments of stale debts do not necessarily constitute deceptive or misleading practices . . . [and] [w]e do not, therefore, hold that the use of the word ‘settlement’ is ‘misleading as a matter of federal law.’”