Third Circuit Says Debt Collector Can Collect Out-of-Statute Debt, But Can Not Threaten Litigation

In Huertas v. Galaxy Asset Management, — F.3d —-, 2011 WL 1361568 (3d Cir. 2011), the Court of Appeals for the Third Circuit held that a debt collector can collect on out-of-statute debt, but can not threaten litigation because it has no right to do so: 

Huertas’s FDCPA claim against AMP turns on whether a debt collector may attempt to collect upon a timebarred debt without violating the statute. The FDCPA prohibits a debt collector from “us[ing] any false, deceptive, or misleading representation or means in connection with the collection of any debt,” 15 U.S.C. § 1692e, including falsely representing “the character, amount, or legal status of any debt,” id. § 1692e(2)(A). The FDCPA also prohibits debt collectors from using unfair or unconscionable means of collecting a debt. Id. § 1692f.  ¶    Although our Court has not yet addressed the issue, the majority of courts have held that when the expiration of the statute of limitations does not invalidate a debt, but merely renders it unenforceable, the FDCPA permits a debt collector to seek voluntary repayment of the time-barred debt so long as the debt collector does not initiate or threaten legal action in connection with its debt collection efforts. Compare Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (8th Cir.2001) (“[I]n the absence of a threat of litigation or actual litigation, no violation of the FDCPA has occurred when a debt collector attempts to collect on a potentially time-barred debt that is otherwise valid.”), Wallace v. Capital One Bank, 168 F.Supp.2d 526, 527–29 (D.Md.2001) (debt validation notices that were silent as to whether debt was time barred and which did not threaten collection action did not violate FDCPA), and Shorty v. Capital One Bank, 90 F.Supp.2d 1330, 1331–33 (D.N.M.2000) (sending of debt validation notice regarding time-barred debt did not violate the FDCPA), with Larsen v. JBC Legal Grp., P.C., 533 F.Supp.2d 290, 302–03 (E.D.N.Y.2008) (threatening legal action on time-barred debt violated FDCPA), Beattie v. D.M. Collections, Inc., 754 F.Supp. 383, 393 (D.Del.1991) (“[T]he threatening of a lawsuit which the debt collector knows or should know is unavailable or unwinnable by reason of a legal bar such as the statute of limitations is the kind of abusive practice the FDCPA was intended to eliminate.”), and Kimber v. Fed. Fin. Corp., 668 F.Supp. 1480, 1487 (M.D.Ala.1987) (“[A] debt collector’s filing of a lawsuit on a debt that appears to be time-barred, without the debt collector having first determined after a reasonable inquiry that that limitations period has been or should be tolled, is an unfair and unconscionable means of collecting the debt.”). We agree with the logic underlying those decisions and conclude that Huertas’s FDCPA claim hinges on whether AMP’s February 11, 2009, letter threatened litigation.

The Court of Appeals then turned to whether the debt collector’s communications inappropriately threated litigation, finding that the decision could be made at the pleadings stage.

Whether a debt collector’s communications threaten litigation in a manner that violates the FDCPA depends on the language of the letter, which “should be analyzed from the perspective of the ‘least sophisticated debtor.’ “ Brown v. Card Serv. Ctr., 464 F.3d 450, 453 (3d Cir.2006) (quoting Wilson, 225 F.3d at 354). AMP’s letter indicates that Huertas’s account has been reassigned, requests that Huertas call “to resolve this issue,” includes a privacy notice informing him that Galaxy would be accessing his private consumer information, and, as required by 15 U.S.C. § 1692g(a), indicates that, if Huertas does not dispute the debt within thirty days of receiving the letter, AMP will assume the debt is valid. (App.33.) At the bottom, the letter states, in bold, capital letters, “THIS IS AN ATTEMPT TO COLLECT A DEBT.” ( Id.)  ¶  Even the least sophisticated consumer would not understand AMP’s letter to explicitly or implicitly threaten litigation. Furthermore, the FDCPA requires debt collectors to inform a debtor “that the debt collector is attempting to collect a debt.” 15 U.S.C. § 1692e(ll). Since it is appropriate for a debt collector to request voluntary repayment of a time-barred debt, see Freyermuth, 248 F.3d at 771, it would be unfair if debt collectors were found to violate the FDCPA both if they include the mandated language (because inclusion would threaten suit) and if they do not (because failure to include a mandatory notice violates the statute). Accordingly, Huertas has not stated a claim under the FDCPA based upon AMP’s letter, and we will affirm the District Court’s dismissal of that claim. See Walker v. Cash Flow Consultants, Inc., 200 F.R.D. 613, 615–16 (N.D.Ill.2001) (following Freyermuth and granting motion to dismiss when the complaint did not allege that debt collector implicitly or explicitly threatened litigation and claim was based solely on the fact that debt collector sent collection letter after limitations period expired).