Despite a cardholder agreement that contained a choice-of-law provision that would otherwise require the application of Delaware’s statute of limitations (SOL), an Oregon appellate court recently held that a debt buyer’s collection action against an Oregon cardholder was not subject to Delaware’s three-year SOL, and instead was timely under Oregon’s six-year SOL.

In its March 14, 2012, decision in CACV of Colorado, LLC v. Stevens, the Oregon Court of Appeals initially found that because the cardholder agreement had a Delaware choice-of-law provision, under Oregon conflict of law rules, both Delaware’s three-year SOL and its nonresident tolling statute applied to the debt buyer’s action. The effect of the tolling statute, according to the court, was to toll the Delaware SOL as to a nonresident defendant like the cardholder who, when the cause of action accrued, was outside Delaware and not otherwise subject to service of process there.

The court also noted that the venue provisions of the Fair Debt Collection Practices Act precluded the debt buyer from suing the cardholder in Delaware until such time, if ever, that she became a Delaware resident. The cardholder contended that the Delaware legislature could not have intended for the Delaware SOL to be tolled indefinitely as to a nonresident defendant sued outside of Delaware. Accordingly, the cardholder urged the court to find that the debt buyer’s action was untimely based on the three-year Delaware SOL.

Concluding that Delaware courts would apply the tolling statute literally, the Oregon appeals court subsequently found that Delaware’s three-year SOL was tolled indefinitely as to the debt buyer’s action. The court then determined that, as a result of such tolling, Oregon conflict of law provisions compelled use of Oregon’s six-year SOL instead.

Those provisions—referred to as an “escape clause” by the appeals court—require application of Oregon’s SOL instead of another state’s SOL when such other state’s SOL (1) is substantially different from the Oregon SOL period, and (2) imposes an unfair burden on the defendant in defending against the claim. The appeals court found that the two requirements were met because Oregon’s SOL period was six years while Delaware’s could run indefinitely and deny the cardholder an SOL defense.

Although it affirmed the trial court’s conclusion that the debt buyer’s action was timely under the Oregon SOL, the appeals court reversed the trial court’s award of attorney’s fees to the debt buyer, which had also been based on Oregon law. The appeals court found that the trial court had erroneously applied Oregon law, which does not place a monetary limit on attorney fee awards, when it should have applied the provision of Delaware law that limits attorney fee awards in actions to enforce various written instruments to 20 percent of the principal and interest recovered in the action.

More specifically, the court found that the circumstances required under Restatement (Second) of Conflict of Laws Section 187(2) for disregarding the Delaware choice-of-law provision did not exist because Delaware had a substantial relationship to the card issuer and Oregon did not have fundamental policy against the imposition of a limit on attorney’s fees. 

The court also rejected the debt buyer’s argument that it was entitled to recover its attorney’s fees under a different provision of Delaware law applicable to bank revolving credit plans that contains no monetary limit, finding— wrongly, in our opinion—that such provision’s use of the term “bank” created a statutory right to attorney’s fees that did not apply to a debt buyer.

The debt collection industry, and creditors attempting to collect their own debts, are currently facing a rash of documentation-related challenges that have spread from mortgage foreclosures to encompass all manner of collection actions, including those involving credit card, student loan, and other types of non-mortgage debt. To assist clients in responding proactively to such challenges, Ballard Spahr’s Consumer Financial Services Group’s recently formed Collection Documentation Task Force conducts extensive audits of collection procedures and counsels on best documentation practices. The task force brings together litigators in the group with experience defending mortgage lenders and other consumer lenders in documentation-related lawsuits nationwide and regulatory lawyers in the group with deep knowledge of the Office of the Comptroller of the Currency’s national bank foreclosure review process and federal and state debt collection laws.

Lawyers in Ballard Spahr’s Consumer Financial Services Group have vast experience in defending FDCPA lawsuits and related claims, including attempts by debtors’ counsel to invoke SOL defenses to defeat collection actions, and regularly consult with lenders and creditors on drafting choice-of-law provisions to anticipate such challenges. In addition, the group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

The group also produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right. For more information, please contact Practice Leader Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Practice Leader Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; Martin C. Bryce, Jr., 215.864.8238 or bryce@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; or Christopher J. Willis, 678.420.9436 or willisc@ballardspahr.com.

 


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