Banking and Finance Law Daily FDCPA claim involving restraining notice accrues when account is frozen
Tuesday, May 14, 2019

FDCPA claim involving restraining notice accrues when account is frozen


By Nicole D. Prysby, J.D.

A consumer's FDCPA claim based on an erroneous restraining notice that caused a bank to freeze his accounts accrued on the day the freeze was implemented, not the day he learned why his accounts were frozen.

For the purposes of the Fair Debt Collection Practices Act (FDCPA) one-year limitations period, a violation due to an erroneous restraining notice occurs when an individual's account is frozen, held the Second Circuit Court of Appeals. The court rejected the consumer's argument that the limitations period did not begin to run until he received notice of cause of the freeze (a restraining order that incorrectly referenced the consumer's social security number, rather than that of the true debtor). The FDCPA states that a claim must be brought “within one year from the date on which the violation occurs,” and a violation occurs when the account is frozen. The court declined to consider whether the discovery rule might apply to FDCPA claims involving an erroneous restraining notice, because in this case, the consumer's claim would be time-barred regardless because he discovered the injury on the same day it occurred and failed to file his claims until after one year had passed (Benzemann v. Houslanger & Associates, PLLC, May 13, 2019, Cabranes, J.).

Background. On April 21, 2008, the defendant law firm sent a restraining notice referencing a 2003 judgment to Citibank, N.A. The notice referenced a different individual (with the same last name) but gave the consumer's social security number and address. As a result, Citibank froze the consumer's account. After his attorney notified the law firm of the error, it withdrew the notice and the bank lifted the freeze. More than three years later (on Dec. 6, 2011), the same law firm again sent an erroneous restraining notice to Citibank, and once again, the consumer's accounts were frozen (on Dec. 13, 2011). The consumer discovered the freeze on December 13 and at first, could not get information as to the cause of the freeze. On December 14, he learned of the restraining notice and by December 15, the freeze was lifted. On Dec. 14, 2012, the consumer brought an FDCPA claim against the law firm. The district court dismissed the claim, finding the FDCPA violation claims to be untimely.

FDCPA claim is time barred. The Second Circuit previously held (in an earlier appeal in this same case) that for a claim involving a restraining notice, an FDCPA violation does not occur until the bank freezes the debtor's account (as opposed to the date the restraining notice is sent) because only then did the consumer have notice of the violation. The consumer asserted that the court intended that the limitations period did not begin until he received notice that Citibank had frozen his accounts pursuant to the unlawful restraining notice that the law firm prepared. But the court rejected the consumer's interpretation of its earlier holding and stated that to the extent the earlier decision created any confusion, it now makes clear that an FDCPA violation occurs, triggering the statute of limitations, when an individual is injured by unlawful conduct.

The court determined that while the use of the date the restraining notice is sent is not appropriate to start the limitations period (because the consumer has not yet been injured), whether the consumer is aware of the violation is not relevant. The statutory text of the FDCPA states that a claim must be brought “within one year from the date on which the violation occurs.” Under the consumer's theory, if an individual never received such notice, a breach of the law never took place—no matter that the individual was in fact injured by unlawful conduct. Also, it would be difficult to administer a rule that the limitations period began when notice was received, because it is not clear what would constitute notice of the FDCPA violation (for example, when an error is not clear on the face of the restraining notice). Additionally, the court believes that the consumer's rule would invite plaintiffs to strategically delay claims.

The court rejected the consumer's argument that his claim is timely pursuant to the common?law discovery rule. The court declined to decide whether the discovery rule applies to FDCPA violations because in this case, the consumer's claim would be time-barred regardless, because he discovered the injury on December 13, the same day it occurred. The court also rejected his argument that the limitations period should be equitable tolled. He did not raise that argument in front of the district court and the argument would fail in any event because the consumer knew all of the information necessary to bring an FDCPA claim by Dec. 14, 2011, yet waited a year to commence the action.

The case number is No. 18-1162-cv.

Attorneys: Andrew J. Tiajoloff (Tiajoloff & Kelly LLP) for Alexander A. Benzemann. Robert J. Bergson (Abrams Garfinkel Margolis Bergson, LLP) for Houslanger & Associates, PLLC and New Century Financial Services.

Companies: Houslanger & Associates, PLLC; New Century Financial Services

MainStory: TopStory ConnecticutNews DebtCollection NewYorkNews VermontNews

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