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Justices Rule for Creditor in ‘Sewer Service’ Debt Dispute (1)

Dec. 10, 2019, 3:37 PMUpdated: Dec. 10, 2019, 7:33 PM

A lopsided Supreme Court majority rejected a credit card debtor’s claim that shady collections practices should have given him more time to sue, in a decision that may leave open other avenues of relief for consumers.

Justice Clarence Thomas’ 8-1 opinion on Dec. 10 said that, absent the application of an equitable doctrine, the statute of limitations in the Fair Debt Collection Practices Act begins to run on the date on which the alleged violation occurs, not the date on which the violation is discovered.

Though the court has recognized the existence of a fraud-based discovery rule, Thomas added that Rotkiske failed to properly make that fraud argument on appeal, so he can’t benefit from it now.

The decision “provides much-needed clarity and certainty in this area,” said Munger, Tolles & Olson LLP partner Elaine J. Goldenberg, who filed an amicus brief supporting the creditor, Klemm & Associates, on behalf of the Mortgage Bankers Association and the Chamber of Commerce of the United States of America.

If a discovery rule had applied to the FDCPA, she said, “then an industry actor could never have had repose—a suit based on an allegedly newly discovered violation could have been brought at any length of time from the supposed bad conduct.”

But consumers aren’t completely out of luck because they may still be able to bring fraud-based claims.

“We certainly would have liked to have seen the discovery rule preserved,” said Stuart T. Rossman of the National Consumer Law Center, which filed an amicus brief supporting Kevin Rotkiske, who sued Klemm under the FDCPA.

But Rossman said consumer advocates were concerned about preserving the ability to bring claims stemming from fraudulent collections practices in particular. That type of relief should still be available going forward, he said.

Rotkiske’s lawyer Scott E. Gant of Boies Schiller Flexner likewise focused on the fraud aspect.

“We’re gratified the Court accepted our argument that there is a fraud-based discovery rule, separate from equitable tolling,” Gant said. “While we’re disappointed the Court declined to decide whether the fraud-based discovery rule applies to either the FDCPA or Mr. Rotkiske’s particular claims, we’re optimistic a future decision will confirm that the rule does apply to the statute and to circumstances like those alleged by Mr. Rotkiske.”

Counsel for Klemm didn’t immediately respond to a request for comment.

‘Sewer Service’

The FDCPA says that actions may be brought “within one year from the date on which the violation occurs,” but Rotkiske argued that he shouldn’t be bound by that time-frame because, as Justice Ruth Bader Ginsburg noted in her partial dissent, Klemm engaged in “sewer service—intentionally serving process in a manner designed to prevent Rotkiske from learning of the collection suit.”

The dispute stemmed from Rotkiske’s approximately $1,200 credit card debt, which his credit card company referred to Klemm.

Klemm sued to collect and attempted service at an address where Rotkiske didn’t live, someone else accepted service, and the company got a default judgment in 2009. Rotkiske claimed that he first learned of the judgment in September 2014, when his mortgage application was denied.

He sued Klemm in June 2015, alleging violation of the FDCPA.

Despite the lapse in time of more than a year, Rotkiske argued for a “discovery rule” to delay the beginning of the limitations period until the date that he knew or should have known of the alleged FDCPA violation.

Rejecting that claim, Thomas wrote for the majority that it’s not the high court’s role “to second-guess Congress’ decision to include a ‘violation occurs’ provision, rather than a discovery provision.”

Justice Sonia Sotomayor wrote a concurrence agreeing that Rotkiske failed to preserve the fraud claim, but she stressed that it’s an argument available to parties going forward.

Ginsburg disagreed in her partial dissent that Rotkiske failed to preserve the fraud claim, writing that his complaint “falls comfortably within the fraud-based discovery rule’s scope.”

His fraud allegation, she wrote, “if proved, should suffice, under the fraud-based discovery rule, to permit adjudication of Rotkiske’s claim on its merits.”

The case is Rotkiske v. Klemm, U.S., No. 18-328, decided 12/10/19.

(Adds more details from opinion throughout , and comments from Goldenberg, Rossman, Gant. )

To contact the reporters on this story: Kimberly Strawbridge Robinson in Washington at krobinson@bloomberglaw.com; Jordan S. Rubin in Washington at jrubin@bloomberglaw.com; Heather Saltz in Washington at hsaltz@ic.bloomberglaw.com

To contact the editor responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com

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