Beyond Midland Funding v. Johnson: Calculating Limitations on Proofs of Claims – Part 2

September 7, 2017

Craig Noack*
Noack Law Firm


Editor's Note: Part 1 of this series can be found here


The U.S. Supreme Court recently weighed in on whether the filing of a proof of claim could give rise to a violation of the Fair Debt Collection Practices Act (FDCPA) if the statute of limitations on the underlying claim had expired.[1] The Court held that if the creditor had properly provided all relevant information in the proof of claim, it was not false, deceptive or misleading under the FDCPA,[2] so it looked to the greater legal sophistication of bankruptcy trustees to “minimize the risk to the debtor.”[3]

This two-part series is designed as a primer on the relevant issues related to the accurate calculation of the statute of limitations when reviewing filed proofs of claim, with an emphasis on already-defaulted consumer debt, where the chances of a limitations defense are much higher. Part One of this two-part series looked at the cause of action and limitations period start date. Part Two looks at choice-of-law analysis, as well as the tolling, renewal and revival of a limitations period.

 

Choice-of-Law Analysis

A minority of states conduct a choice-of-law analysis when determining the applicable statute of limitations period with respect to debt. This means that state courts may apply another state’s statute of limitations (typically based on the creditor’s location or the choice-of-law provision in the contract) instead of using the forum state. A full explanation of all the different potential methodologies is beyond the scope of this article. In brief, some states may apply borrowing statutes,[4] view limitations law as substantive rather than procedural law,[5] adopt a Restatement of Conflict of Laws or other theory,[6] or apply the Uniform Conflict of Laws – Limitations Act.[7]

Trustees should familiarize themselves with whether their state’s law incorporates one of these analyses. In certain instances, a trustee may need to develop a greater understanding of the creditor (or the creditor at the time of default in the case of purchased debt) in order to understand which state’s limitations period may apply.

 

Tolling, Renewal and Revival

Although § 108 of the Bankruptcy Code extends the limitations period for debts that did not expire as of the filing of the bankruptcy petition,[8] there are other occurrences that may have extended or renewed the limitations period. The most obvious action is a partial payment by the debtor, which is treated as an acknowledgement of the debt in most states and therefore begins renews the limitations period.[9] Additionally, prior unsuccessful bankruptcies by the debtor, or even the debtor’s absence from his or her home state, can extend the limitations period.[10]

Some enforceability remains to debts even after the limitations period expires. For example, if the creditor obtained a state court judgment on the debt, even dormant or expired judgments can be revived through application to the court or a writ of scire facias.[11] Whether a payment occurring after the original limitations period expired revives the limitations period is a debated topic in numerous states,[12] but in most states a written acknowledgment of the debt by the debtor can revive the limitations period at any time.[13]

 

Conclusion

The U.S. Supreme Court has decided not to create a “change in the simple affirmative-defense approach” or to “shift from the debtor to the creditor the obligation to investigate the staleness of a claim.”[14] As demonstrated, calculating the appropriate statute of limitations is often difficult and dependent upon the unique factors of each case. Although proofs of claim can be superficially reviewed using formulaic rules to help isolate claims that are potentially subject to a limitations defense, a nuanced understanding of the issues identified in this series can help carry the burden imposed by the Supreme Court’s decision.

 

*The author was prior in-house bankruptcy counsel for Midland Credit Management Inc., a parent company of petitioner in the Midland Funding LLC v. Johnson case cited infra. The opinions expressed in this article are solely the author’s and are not attributable to Midland Credit Management Inc., Midland Funding LLC, or any affiliate or subsidiary.

 

This article was originally published in the August 2017 edition of the Young and New Members Committee Newsletter. Participation in ABI's committees is one of the many benefits of becoming a member.  Committees provide networking and leadership opportunities.  For additional information on how you could become involved in ABI and our Committees please visit membership.abi.org

 

[1] Midland Funding LLC v. Johnson, No. 16-348, ___ U.S. ___ (S. Ct. May 15, 2017).

[2] Id. at *2-4.

[3] Id. at *7.

[4] See, e.g., Portfolio Recovery Assocs. LLC v. King, 927 N.E.2d 1059 (N.Y. 2010) (applied Delaware’s three-year limitations instead of New York’s six-year statute of limitations); Taylor v. First Resolution Inv. Corp., ___ N.E.3d ___, 148 Ohio St.3d 627 (Ohio June 17, 2016).

[5] See, e.g., Delrey v. Capital One Bank, No. 08-514 AP, 2009 WL 5103229 (Fla. Cir. Ct. July 7, 2009) (determines limitations to be substantive law governed by cardholder agreement choice of law provision).

[6] Nicholson v. U.S. Auto Ass’n, 111 P.3d 601, 610 (Haw. 2005) (adopts independent choice-of-law analysis); Shamrock Realty Co. v. O’Brien, 890 N.E.2d 863, 865 (Mass. App. Ct. 2008) (utilizing functional approach under Restatement (Second) of Conflicts of Laws § 142); Fiorenzano v. LVNV Funding, LLC, No. 11-178M (D.R.I. June 29, 2012) (interest weighing approach applied 10-year Rhode Island limitations instead of three-year Virginia limitations)

[7] Six states have adopted the Uniform Conflict of Laws-Limitation Act: Arkansas, Colorado, Montana, North Dakota, Oregon and Washington. For an interesting analysis of the contortions a court can go through to calculate a limitations period under this act, see CACV of Colorado, LLC v. Stevens, 274 P.3d 859 (Or. Ct. App. 2012).

[8] 11 U.S.C. § 108.

[9] See, e.g., Hickerson v. Vessels, 316 P.3d 620, 625 (Colo. 2014) (voluntary partial payment constitutes promise to pay the remaining debt); Kadrmas, Lee & Jackson, P.C. v. Bolken, 508 N.W.2d 341, 345-46 (N.D. 1993) (summarizing general rule of American law that partial payment removes or tolls limitations).

[10] N.Y. C.P.L.R. § 207 (2012) (time defendant absent from state not included in limitations period); Tex. Civ. Prac. & Rem. Code § 16.063 (same); Peterson v. Tex. Commerce Bank-Austin, 844 S.W.2d 291, 294 (Tex. App. – Austin 1992, no writ) (common law doctrine tolls limitations during bankruptcy); Lawrenson v. Global Marine, 869 S.W.2d 519, 523-24 (Tex. App. – Texarkana 1993) (limitations period had four and a half months remaining when bankruptcy petition filed; suit timely filed 59 days after bankruptcy dismissal).

[11] See, e.g., Va. Code § 8.01-251(B) (Virginia circuit court judgments renewable on motion for additional 20 years). Writs of scire facias, although abolished in federal court by Federal Rule of Civil Procedure 81(b), are still available in some states specifically to revive judgments. See, e.g., Tex. Civ. Prac. & Rem. Code § 31.006 (Texas judgment revivable by writ of scire facias up to two years after dormancy); O.C.G.A. § 9-12-61 (Georgia writ available for three years after judgment dormancy).

[12] First Hawaiian Bank v. Zukerkorn, 633 P.2d 550, 552-3 (Haw. 1981) (check can be evidence of creating a new limitations period if part payment on the debt and constituted a new promise to pay); Sutherland v. MacLeod, 41 N.E.2d 9, 12 (Mass. 1942).

[13] See, e.g., Tex. Civ. Prac. & Rem. Code § 16.065 (acknowledgment signed and in writing defeats limitations); N.Y. Gen. Oblig. Law § 17-101 (same); Cal. Civ. Proc. Code § 360 (same).

[14] Midland Funding LLC v. Johnson, No. 16-348 at *8-9.

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