Ostensibly Time-Barred 'Fair Debt' Violations In Sewer Service Suit May Remain Viable Where 'Equitable Tolling' Suspends Running Of 1-Year Statute

In denying a motion to dismiss a lawsuit alleging, among other things, violations of the Federal Fair Debt Collection Practices Act ("FDCPA"), a Federal court in Brooklyn, New York ruled that consumer/plaintiffs may have viable claims under the ("FDCPA") against the defendants despite the expiration of the 1-year statute of limitations set forth in that statute, where the limitations period was 'equitably tolled' (where the existence of "extraordinary circumstances" require that the running of the statute of limitations be suspended; such a suspension will be made only in "rare and exceptional" circumstances(1)).

The FDCPA statute of limitations issue was one of several issues raised in the lawsuit, which involves allegations of a massive sewer service racket in connection with the obtaining of default judgments by the defendant, a nationwide 'zombie debt' buyer, and which also named a law firm, a process serving outfit, and others as defendants.

In making his ruling, United States Circuit Judge Denny Chin, sitting by designation in the U.S. District Court, addressed the issue of the statute of limitations in the following excerpt (at pages 10-13, court footnotes omitted; bold text is my emphasis, not in the original text):

• Defendants argue that some or all of the FDCPA claims are time-barred. To be timely, an FDCPA claim must be brought "within one year from the date on which the violation occurs." 15 U.S.C. 5 1692k(d). Plaintiffs counter that the equitable tolling doctrine preserves their claims.

• The first FDCPA violations allegedly occurred when the Leucadia and Mel Harris defendants filed the state debt collection actions. Defendants plausibly violated the FDCPA again when they subsequently applied for default judgments against plaintiffs. Even using the default judgment application dates, the claims of Sykes, Graham, and Perez would be time-barred because those dates were more than a year before December 28, 2009, when the class action allegations were asserted. Thus, it appears that absent equitable tolling, their claims would be untimely.

• The Complaint plausibly alleges that equitable tolling applies, as to most of the plaintiffs' FDCPA claims. A statute of limitations may be tolled in extraordinary circumstances, if a plaintiff establishes that: (1) the defendant concealed from him the existence of his cause of action; (2) he remained in ignorance of that cause of action until some length of time within the statutory period before commencement of his action; and (3) his continuing ignorance was not attributable to lack of diligence on his part. State of N.Y. v. Hendrickson Bros., Inc., 840 F.2d 1065, 1083 (2d Cir. 1988); see also Bailey v. Glover, 88 U.S. (21 Wall.) 342, 349-50 (1874). FDCPA claims are subject to equitable tolling. Somin v. Total Cmty. Mgmt. Corp., 494 F. Supp. 2d 153, 158 (E.D.N.Y. 2007) (citing Johnson v. Nyack Hosp., 86 F.3d 8, 12 (2d Cir. 1996)).

• Sykes and Perez have sufficiently alleged that defendants fraudulently deprived them of notice of their debt collection action. Because sewer service purposefully ensures that a party is never served, it is plausible that defendants' acts were "of such character as to conceal [themselves]" to warrant equitable tolling. Bailey, 88 U.S. at 349-50. The present class action commenced on December 28, 2009. Because Sykes and Perez allege that they discovered the default judgments entered against them after December 28, 2008, their claims would be timely under equitable tolling. The Complaint alleges, however, that Graham did receive a copy of the summons and complaint by mail from Mel Harris, LLC sometime before a default judgment was entered against her, and thus it fails to allege exercise of due diligence on her part. Thus, this prong of defendants' motion is granted with respect to Graham, but denied as to all other plaintiffs.

For the entire ruling (37 pages), see Sykes v. Mel Harris and Associates LLC.

(1) See Somin v. Total Cmty. Mgmt. Corp., 494 F. Supp. 2d 153, 158 (E.D.N.Y. 2007):

• As with any a statute of limitations, the FDCPA is subject to equitable tolling in appropriate circumstances. The doctrine of equitable tolling applies only in "rare and exceptional" circumstances. Bertin v. United States, 478 F.3d 489, 494 n. 3 (2d Cir.2007); Smith v. McGinnis, 208 F.3d 13, 17 (2d Cir.2000) (per curiam). To invoke this doctrine, a plaintiff must allege that extraordinary circumstances prevented him from acting in a timely manner. See Johnson v. Nyack Hosp., 86 F.3d 8, 12 (2d Cir.1996). Generally, equitable tolling applies only where defendant has engaged in conduct to conceal wrongdoing and, as a result, plaintiff fails to discover facts giving rise to the claim, despite the exercise of reasonable diligence. Coveal v. Consumer Home Mtge., Inc., 2005 WL 704835 *4 (E.D.N.Y.2005); see Chapman v. ChoiceCare Long Island Term Disability Plan, 288 F.3d 506, 512 (2d Cir.2002).