Does SOL Run from Date of Violation or Discovery?

THE DISCOVERY RULE: The Judge ruled that the Statute of Limitations (SOL) runs from the date of actual discovery — not when it should have been discovered and certainly not when the violation occurred.

Get a consult! 202-838-6345 to schedule CONSULT, leave message or make payments.



            On March 27, 2017 a United States District Court Judge denied a request to dismiss a Fair Debt Collection Practices Act case as outside the 1‑year statute of limitations. The essential ruling was that the “discovery rule” applies and that the statute does not begin to run until the plaintiff discovers the alleged violation, rather than from the date of occurrence of the activity that gives rise to the cause of action. This has important ramifications on wrongful foreclosure actions, FDCPA claims and Florida FCCPA claims.

According to the opinion published, the plaintiff asserted that Midland Funding attempted (a) to collect an amount not authorized by any agreement or otherwise permitted by law and (b) that the defendant Midland Credit Management misrepresented the amount and character of the debt and (c) communicated false credit information to Equifax, the consumer reporting agency. The implications are obvious. In cases like the model developed for Citi-PennyMac, Wells Fargo-US Bank, Chase Bank – WAMU, etc. the carry over of errors by one defendant can be the basis of suing the next defendant too.

The plaintiff argued that she did not discover the violations until she requested her credit reports in August 2015 and March 2016. Plaintiff also asserted that her complaint should be allowed to stand so long as there is any set of facts that if proven would establish a defense to the statute of limitations. Plaintiff quoted the case of Clark v. City of Braidwood 318 F.3d 764 (7th Cir. 2003). And plaintiff also asserted that even if her claim fell outside the statute of limitations her claims survives because defendants reported varying balances in February 2016 and March 2016.

The defendants argued that the conduct challenged by the plaintiff in February 2016 was identical to the conduct in March 2014 and that the plaintiff was improperly relying on the continuing violation doctrine.

The defendants, in another attempt to blame the victim, also argued that they had made no effort to conceal the debt reporting from the plaintiff and that she could have run her credit report (and therefore could have discovered the injury) any time before the statute of limitations ran in March 2015.

The court confronted arguments that are commonly heard in connection with cases involving FDCPA claims. The court turns to traditional doctrine and potentially applicable exceptions. The court quoted from Cancer Found., Inc. v. Cerberus Capital Management at 559 F.3d 671 (7th Cir. 2009). “Dismissing a complaint as untimely at the pleading stage is an unusual step since a complaint need not anticipate and overcome affirmative defenses such as the statute of limitations.” However the court also noted that “Dismissal is appropriate when the plaintiff pleads himself out of court by alleging facts sufficient to establish the complaint’s tardiness.”

The doctrine used by this court could have an important effect not only on FDCPA claims but also issues involving rescission under the Truth in Lending Act. It is common for the rescission to be ignored on the basis that it is obvious on its face that it falls outside of the 3‑year limitations period set forth in the statute.

But the court quotes from the same case as follows: “As long as there is a conceivable set of facts consistent with the complaint that would defeat a statute of limitations defense, questions of timeliness are left for summary judgment, at which point the District Court may determine compliance with the statute of limitations based on a more complete factual record.”

Thus beyond extending the statute of limitations for FDCPA actions, the court has followed the doctrine of requiring both pleading and proof  thus enlarging the fact pattern. If a borrower wishes to invoke the remedy of rescission we have a two edged sword here. If the notice of rescission and/or the pleading to enforce the rescission recites facts that admit to the expiration of the right to rescind, the Court will justifiably dismiss the action or enter an order vacating the rescission (which is necessary especially if the rescission is recorded but even where it is not recorded).

If the borrower were to set forth numerous facts in connection with the notice of rescission, then the borrower may risk “pleading himself out of court.” On the other hand if facts are stated in the notice of rescission contesting, for example, the lack of consummation or the time of consummation of the actual transaction in which a party loaned money to the borrower, then there would be a conceivable set of facts, consistent with the complaint, that could defeat a statute of limitations defense, in which case questions of timeliness would be left for summary judgment at which point the court would determine whether the statute of limitations applied and if so, during what period.

The court further states, quoting Cada v. Baxter Healthcare Corp. 920 F.2d 446 (7th Cir. 1990) that “The FDCPA contains no provision signaling Congressional intent to preclude the application of the discovery to that act.” Thus the court follows doctrine and the presumption that the discovery rule applies unless otherwise prohibited by law.

The moral of this story is one more reason to avoid shotgun pleadings at an early stage. Such pleadings may very well plead yourself out of court.


3 Responses

  1. Reblogged this on Deadly Clear.

  2. That brings up very specific questions, in my mind? (I’m in CA/9th Cir)

    First, lets postulate a bit …

    The 9th Circuit recently ruled in “Dowers v. Nationstar”:
    (For Publication … March 2017):

    Unlike under Sections 1692c(a)(2), 1692d, and 1692e, the definition of “debt collector” under Section 1692f(6) includes a person enforcing a security interest. 15 U.S.C. § 1692a(6).

    When contrasting Section 1692f(6) with the other FDCPA provisions, we noted that ReconTrust was clearly a debt collector for purposes of Section 1692f(6) because ReconTrust was enforcing a security interest.
    From now forward, in California and the (9th Cir), the Trustee, or substituted Trustee of a deed of trust (DOT), using non-judicial foreclosure to enforce said (DOT), is a debt-collector subject to the FDCPA.

    Up until “Dowers v. Nationstar”, debt-collection did NOT include non-judicial foreclosure activities, (in the 9th Circuit, anyway), and now it does, but, an FDCPA violation has a statute of limitations of only (1) year from the time of occurrence.

    Did [t]hat “Ruling” create [t]he discovery, so to speak, for those homeowners who already lost their homes to non-judicial foreclosure more than (1) year ago?

    Would the recent 9th Circuit ruling (above) create [t]he “Discovery” necessary to reset the statute of limitations for [prior] foreclosed-homeowners to use a simple FDCPA complaint against the selling (substituted) Trustee for unlawful debt-collection, based on the unlawful enforcement of a security-interest by a defined debt-collector?

    What are your thoughts?

  3. Reblogged this on California freelance paralegal.

Contribute to the discussion!

%d bloggers like this: