In this potential class action lawsuit, a consumer (Panico) residing outside of the State of Delaware signed a contract with MBNA Bank of America ("MBNA") that contained a choice-of-law provision specifying application of Delaware state law to their debtor-creditor relationship. Delaware has a 3-year statute of limitations to sue for the recovery of debts, which begins to run from the date of default.
Panico incurred charges on the credit card provided by MBNA and ultimately defaulted on the payment. MBNA then sold or assigned the account to Portfolio Recovery Associates ("PRA"), a high volume purchaser of deliquent debts. More than 3 years later PRA filed suit against Panico in the Superior Court of New Jersey. Unlike Delaware, New Jersey has a 6-year statute of limitations for filing suit to collect an unpaid debt.
Panico filed a motion for summary judgment seeking to dismiss the state court collection action as being time-barred under Delaware law. Like most states, Delaware also has a tolling statute that can be applied to extend a statute of limitations for the time period where a defendant resides outside of the state. However, the tolling statute cannot be applied to keep a cause of action alive indefinitely; rather, the plaintiff must be able to prove that the defendant could not be personally served with process while residing outside the State of Delaware. Rather than litigate the issue of whether Delaware's tolling statute applied to stop the state's 3-year statute of limitations from running as to defendants residing outside Delaware, PRA agreed to a stipulated dismissal of the state court case.
Thereafter, Panico filed a putative class action in the United States District Court for the District of New Jersey alleging violations of the Fair Debt Collection Practices Act and the New Jersey Consumer Fraud Act because PRA had attempted to collect a time-barred debt. PRA sought summary judgment on the basis that collection of Panico's debt was not time-barred based on application of Delaware's tolling statute.
The District Court granted Defendant's motion for summary judgment, after finding that a Delaware tolling statute served to prevent the Delaware statute of limitations from running as to a party residing outside the state of Delaware through the pendency of the credit relationship, default, collections attempts, and ensuing litigation. Panico successfully appealed to the Third Circuit which reversed the District Court's ruling.
The Third Circuit's Opinion provides the following reasoning:
- We have heard no evidence that the Delaware legislature intended to export the state's tolling statute into out-of-state forums so as to substantially limit the application of the Delaware statute of limitations. Departing from that precedent would also have the effect of eliminating the protections of the FDCPA, NJCFA, and other state statutes intended to protect debtors and regulate debt collection. We see no reason to predict that the Delaware Supreme Court would reject the Hurwitch line of cases in contravention of federal and out-of-state consumer protection law in a manner that would result in indefinite tolling of the state statute of limitations. Accordingly, we decline to do so.
No doubt, the Third Circuit's ruling is a wake-up call to debt collectors and their attorneys.