In Rotkiske, the petitioner alleged that, after he had accumulated credit card debt, his bank referred collection responsibilities to respondent Klemm & Associates. As part of those collection efforts, Klemm sued Rotkiske for payment and twice tried to serve process at an address where Rotkiske no longer lived. However, unbeknownst to Rotkiske, someone accepted service on his behalf at the old address. As a result, the court entered a default judgment against Rotkiske, who did not find out about the judgment until years later when trying to apply for a mortgage. Six years after entry of the default judgment, Rotkiske sued Klemm, arguing that the collection efforts were improper and violated the FDCPA.
Under the FDCPA, an action "may be brought in any appropriate United States District Court . . . within one year from the date on which the violation occurs." 15 U.S.C. § 1692k(d). Because the one-year period elapsed before Rotkiske learned of the collection activities, he argued that a discovery rule be applied to toll the statute of limitations until the point at which he discovered the injury. The Eastern District of Pennsylvania rejected Rotkiske's argument, holding that the FDCPA's language is clear and the statute of limitations had run. See Rotkiske v. Klemm, No. 15-cv-03638, 2016 WL 1021140 (E.D. Pa. Mar. 14, 2016). On appeal, the U.S. Court of Appeals for the Third Circuit unanimously affirmed en banc, holding in an opinion penned by Judge Hardiman that the FDCPA "says what it means and means what it says: the statute of limitations runs from 'the date on which the violation occurs.'" As a result, the Third Circuit held that Rotkiske's claim was barred by the FDCPA's statute of limitations and should be dismissed with prejudice.
The Supreme Court's decision
On December 10, 2019, the Supreme Court affirmed the decision below, 8-1, with Justice Sotomayor filing a concurrence and Justice Ginsburg filing a dissent. The majority, in an opinion written by Justice Thomas, rejected applying the discovery rule on two grounds. First, turning to the version of Webster's New International Dictionary in print at the time of the FDCPA's enactment, the Court rejected the discovery rule as a principle of statutory interpretation and concluded that the FDCPA's language "unambiguously sets the date of the violation as the event that starts" the statute of limitations. The C't held that reading a discovery provision into the FDCPA would be inappropriate where, as in this case, "Congress has shown that it knows how to adopt the omitted language or provision." Because Congress had included a "violation occurs" provision rather than a "discovery" provision, the Court stated that reading a discovery rule into the FDCPA would constitute improper "atextual judicial supplementation."
Second, the Court rejected Rotkiske's argument that the discovery rule should apply as an equitable matter consistent with a fraud-specific equitable tolling doctrine dating back to the Court's ruling in Bailey v. Glover, 21 Wall. 342 (1875). The Court acknowledged that it has endorsed a "fraud discovery rule" that is distinct from traditional equitable tolling, but that Rotkiske failed to preserve the issue before the Third Circuit and failed to raise the issue in his petition for certiorari, so he could not rely on that doctrine.
Justice Sotomayor agreed with the majority's holding, but clarified in her concurrence that nothing in the Court's ruling "prevents parties from invoking th[e] well-settled doctrine" of the fraud discovery rule. In her dissent, Justice Ginsburg disagreed that Rotkiske failed to preserve the issue of an equitable discovery rule, which applies in instances where, as alleged in this case, a party is injured by fraud and is unaware of it. Justice Ginsburg also explained that the fraud discovery rule is distinct from equitable tolling and, unlike the tolling the majority rejected, is "read into every federal statute of limitation." Thus, unlike the general discovery rule, "there is no reason to believe the FDCPA displaced the fraud-based discovery rule" and that "[t]he Court does not hold otherwise" in the majority opinion.
The Rotkiske ruling is an important one for financial institutions, law firms, and other entities that fall under the FDCPA's definition of "debt collector." By clarifying that a general discovery rule does not apply to the one-year statute of limitations, the Court has narrowed the scope of potential FDCPA claims. A bright-line rule classifying claims as stale reinforces the strength of the statute of limitations as a defense and will help support arguments for dismissal before costly discovery is undertaken with respect to when an alleged violation occurred, as well as potentially on the merits. Additionally, the reasoning of the Rotkiske ruling may be cited in the future to support arguments against the application of the discovery rule to other federal statutes of limitation with language similar to the FDCPA. With respect to the FDCPA, however, the one-year period is not set in stone in all cases. As suggested by Justices Sotomayor and Ginsburg, tolling may still apply where the plaintiff alleges that the occurrence of an FDCPA violation has been concealed by fraud.
Client Alert 2020-023
