A federal appeals court on Tuesday rejected an attempt by a New Jersey-based debt collector to escape a proposed class action lawsuit over untimely debt collection.
The U.S. Court of Appeals for the Third Circuit said in an 11-page precedential opinion that a debtor’s New Jersey residency did not work to extend the three-year window in which he could be sued under the Delaware statute of limitations.
The three-judge panel reversed a New Jersey federal judge’s decision that granted summary judgment to Portfolio Recovery Associates. PRA had argued that the debtor’s New Jersey residence—which made him an out-of-state resident under Delaware law—activated a tolling provision that paused the running of the statute of limitations.
But Judge Luis Felipe Restrepo, writing for the appeals court, rejected the reasoning based on a decades-old line of Delaware case law, which holds that statutory tolling does not stop the statute of limitations from running. Instead, Restrepo said he saw no reason to predict that the state Supreme Court would abandon its own precedent in order to allow for what would be indefinite tolling.
“For decades, the Delaware tolling statute has abrogated the state’s statute of limitations only as to defendants not otherwise subject to service of process,” Restrepo wrote for the three-member panel of the Third Circuit. “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.”
Tuesday’s ruling remanded the case to the U.S. District Court for the District of New Jersey, where a federal judge in 2016 ruled that Delaware’s tolling statute had halted the statute of limitations and allowed PRA to sue Andrew Panico in New Jersey state court, outside of Delaware’s three-year statute of limitations.
On appeal, PRA defended the decision, saying that Delaware’s tolling statute applied to out-of state consumers who signed contracts adhering to Delaware law. The tolling provision, PRA argued, stopped the statute of limitations from running because Panico had lived in New Jersey during the entire credit relationship and could not be served in the First State.
But Restrepo denied that Panico could not be served while out of the state. He pointed to the Delaware Supreme Court’s 1959 decision in Hurwitch v. Adams, which held that the tolling statute “has no tolling effect … when the defendant in the suit is subject to personal or other service to compel his appearance.” Delaware courts, he said, have since found that tolling does not stop in cases involving defendants who could reasonably be served in the First State.
Departing from that precedent, Restrepo said, would effectively eliminate federal and state laws designed to protect debtors and to regulate unfair debt-collection practices.
“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,” Restrepo wrote.
Panico is represented by Philip D. Stern and Andrew T. Thomasson of Stern Thomasson.
PRA is represented by David N. Anthony, Stephen C. Piepgrass, Amanda L. Genovese and Cindy D. Hanson of Troutman Sanders.
The case, on appeal, was captioned Panico v. Portfolio Recovery Associates.