A panel of the U.S. Court of Appeals for the Ninth Circuit recently held that because of the timing of a filing in a collection action against a student loan borrower, his claim that debt collectors violated the Fair Debt Collection Practices Act (FDCPA) was not time-barred, reversing the lower court’s dismissal. 

In Brown v. Transworld Systems, Inc., the panel affirmed in part and reversed in part the lower court’s dismissal, for failure to state a claim, of a lawsuit in which  Brown, a student loan borrower who had received a bankruptcy discharge, alleged that the collectors’ attempts to collect discharged debts violated the FDCPA.  In pertinent part, the panel held that as long as the date of the action is easy to determine, the FDCPA one-year statute of limitations begins to run when a collection attorney takes the last action that could independently violate the statute.  The panel also held that the determination of whether a lawyer’s conduct or communications made during a collection lawsuit violates the FDCPA is a fact-intensive inquiry that requires a case-by-case examination.

From 2003 to 2007, Brown took out ten student loans.  The purchaser of the loans hired Transworld System, Inc. to collect on the defaulted loans and Transworld subsequently filed a series of collection lawsuits in state court on behalf of the purchaser.  In support of these collection efforts, the collector filed two separate affidavits purporting to establish the purchaser’s ownership of the debts, with the second affidavit intended to replace the first affidavit after it was questioned by Brown in his summary judgment motion. The state court ruled that the second affidavit declaring that the purchaser owned the underlying student loan debts was hearsay and excluded it.  Because the purchaser could not prove its ownership of the debt, the state court granted summary judgment in favor of Brown.

On April 6, 2020, Brown filed a putative FDCPA class action in state court alleging that defendants filed “a knowingly meritless debt collection lawsuit.”  The lawsuit was removed to a Washington federal district court which dismissed the action, concluding that the FDCPA claim was time-barred “because more than one year had elapsed between when Defendants served Brown with their debt collection suit and when Brown filed his FDCPA claim.”  On appeal, the Ninth Circuit panel reversed the dismissal of the FDCPA claims based on the running of the statute of limitations.

The Ninth Circuit panel confirmed that there is no continuing violation doctrine in the FDCPA context, although a plaintiff can still sue for discrete FDCPA violations.  For consumer debt collection lawsuits, to determine whether there has been an independent violation of the FDCPA, which triggers a new statute of limitations period, the panel held that a court must consider (1) the debt collector’s last opportunity to comply with the FDCPA and (2) whether the date of the alleged violation is easily ascertainable.  The Ninth Circuit panel made clear that the debtor must allege “specific actions taken by the debt-collector that show more than another attempt to argue that a violation arising from the filing of a debt-collection suit continues as long as the suit remains pending.”  The panel reasoned that “to plausibly allege that a litigation act is a violation of the FDCPA, the debtor must aver sufficient facts to show that the debt collector’s act is a new violation of the FDCPA.”  (emphasis provided.)  The panel drew a distinction between litigating a case and committing independent FDCPA violations in the course of that litigation.

The panel held that the debtor had plausibly alleged an independent violation of the FDCPA during the litigation that fell within the one-year limitations period—submitting a second affidavit in the litigation to prove ownership of the debt.  According to the panel, “[b]y filing a new affidavit that attempted to show that the [purchaser] owned the debts, Defendants did more than ‘reaffirm’ the original complaint.  Rather, they presented a new basis—not contained in the complaint—to show that the [purchaser] owned the debts.”  By ceasing to rely on the first affidavit and moving forward with the second one, the panel found that a discrete event occurred that created a “last opportunity to comply” with the FDCPA.  Further, the filing date of the affidavit was easily ascertainable.  Accordingly, given that the filing of the affidavit constituted a discrete violation, Brown’s FDCPA claim based on the affidavit was not barred by the FDCPA statute of limitations.

Importantly, in reaching its decision, the panel also considered the distinction between service and filing.  Rejecting Tenth Circuit precedent, the panel held, 2 to 1, that when service occurs before filing, filing can constitute an independent violation of the FDCPA, reasoning that service is not a debt collector’s “last opportunity to comply” with many FDCPA prohibitions.  In the majority’s view, because filing requires an additional act that can cause new harm to the debtor, filing is the debt collector’s last opportunity to comply.  Therefore, “while service alone can constitute an FDCPA violation, the final step of filing presents a ‘last opportunity’ to comply with the FDCPA when the alleged violation is the bringing of a knowingly meritless lawsuit.” 

The majority concluded that service and filing can constitute separate FDCPA violations, each with its own one year statute of limitations.  Accordingly, the majority upheld Brown’s claim that the debt collector committed an independent FDCPA violation when it allegedly filed a knowingly meritless collection lawsuit.  (Concurring in the judgment, the other member of the panel wrote that this was an “unnecessary conclusion and failed to anticipate the intricacies” that could arise in future cases.)

Notably, while concluding that Brown had sufficiently “alleged a violation” in its reversal, the Ninth Circuit panel emphasized that it did not address the actual merits of his FDCPA claims.  This ruling highlights that ongoing collection litigation activity may, by itself, trigger independent violations of the FDCPA that can renew the statute of limitations under the FDCPA and extend well beyond the date a collection lawsuit is filed.