Castro v. Collecto Inc.

Citation634 F.3d 779
Decision Date24 February 2011
Docket NumberNo. 09–50975.,09–50975.
PartiesNemesio CASTRO, on behalf of himself and all others similarly situated, Plaintiff–Appellant,v.COLLECTO, INC., doing business as Collection Company of America; U.S. Asset Management, Inc., Defendants–Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

OPINION TEXT STARTS HERE

Daniel A. Edelman (argued), James O. Latturner, Edelman, Combs, Latturner & Goodwin, L.L.C., Chicago, IL, for Castro.Glenn B. Manishin (argued), Duane Morris, L.L.P., Washington, DC, William Keith Wier, Bush & Ramirez, L.L.C., Houston, TX, for DefendantsAppellees.Appeal from the United States District Court for the Western District of Texas.Before DENNIS, OWEN and SOUTHWICK, Circuit Judges.

DENNIS, Circuit Judge:

This class action arises out of an allegedly unlawful attempt to collect a debt arising from an unpaid mobile phone bill. The named plaintiff, Nemesio Castro, a debtor, sued two debt collectors (collectively the defendants) for allegedly violating the Fair Debt Collection Practices Act (“the FDCPA”), 15 U.S.C. § 1692 et seq., by sending letters that, he claimed, threatened to sue on an approximately three-year-old debt, as to which the applicable statute of limitations had elapsed. The district court certified a class consisting of all individuals with Texas addresses who, during a certain time period, received a letter like that sent to Castro, seeking to collect a cellular telephone debt that became delinquent more than two years prior to the sending of the letter. The district court (1) granted the defendants' motion to dismiss, or alternatively, for judgment on the pleadings; and (2) denied Castro's motion for partial summary judgment. The district court reasoned that the Texas statute of limitations period of four years under § 16.004(a)(3) of the Texas Civil Practice & Remedies Code,1 rather than the federal statute of limitations period of two years under 47 U.S.C. § 415(a) of the Federal Communications Act (“the FCA”), 47 U.S.C. § 151 et seq.,2 applies to the debts in the instant case, and thus that the defendants had not threatened to sue on time-barred debts.3 Because we agree that Texas law provides the applicable limitations period for the debts in this case, we affirm the district court's judgment.

BACKGROUND

The named plaintiff in this class action, Nemesio Castro, a resident of Texas, received two letters regarding a debt he allegedly owed to the mobile phone company Sprint PCS, based on unpaid phone bills. The letters were sent by Collecto, Inc., doing business as Collection Company of America, Inc., on behalf of U.S. Asset Management, Inc. Castro sued both companies. The defendants are in the debt collection business: U.S. Asset buys debts, and Collecto attempts to collect them. It is undisputed that the defendants are both debt collectors for the purposes of the FDCPA.4

The plaintiffs in this case received these letters more than two years, but less than four years, after their debts became past due. The parties dispute whether actions to collect debts based on mobile phone bills are governed by a two-year statute of limitations under the FCA or a four-year statute of limitations under Texas law. The plaintiffs argue that the two-year limitations period applies, and that the letters at issue are such that an unsophisticated consumer would interpret them as threatening a lawsuit. Therefore, the plaintiffs argue, the defendants have violated the FDCPA's prohibition on using “any false, deceptive, or misleading representation or means in connection with the collection of any debt,” 15 U.S.C. § 1692e, including “the threat to take any action that cannot legally be taken,” id. § 1692e(5), and “the use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer,” id. § 1692e(10). The plaintiffs also contend that the defendants have violated the FDCPA's provision prohibiting debt collectors from “us[ing] unfair or unconscionable means to collect or attempt to collect any debt.” Id. § 1692f.

Castro sued the defendants, alleging that they had violated the FDCPA in this manner, and moved for class certification. The district court granted the motion and certified a class consisting of all individuals with Texas addresses who received letters from the defendants between June 16, 2007, and July 6, 2008, like those sent to Castro, seeking to collect a cellular telephone debt that became delinquent more than two years prior to the sending of the letter. In its order granting the motion for class certification, the district court held that 47 U.S.C. § 415(a) sets a two-year limitations period for actions by “carriers”5 to recover charges, and that § 415(a) preempts any state statute of limitations.

However, the district court was subsequently persuaded that § 415(a) does not apply to the plaintiffs' debts. The court granted the defendants' motion to dismiss, or alternatively, for judgment on the pleadings, and held that § 415(a) did not apply for two reasons. First, the district court noted that § 415(a) applies only to “actions at law by carriers for recovery of their lawful charges (emphasis added), and concluded that “lawful charges” refers to charges that are based on “tariffs,” or rates that have been filed with the Federal Communications Commission (“the FCC”). All carriers were formerly required under the FCA to file tariffs, prior to amendments passed by Congress in 1993 and 1996. Second, the district court held that § 415(a) does not preempt statutes of limitations under state law in actions regarding matters such as billing practices and disputes, which are at issue in this case. The district court concluded that § 415(a) applies only to actions involving federally regulated matters, including the reasonableness of rates and phone companies' entry into the market, and not to most other matters, which are exclusively governed by state law. In addition, the district court held that even if the two-year statute of limitations of § 415(a) did apply in the instant case, the defendants would be entitled to a “bona fide error” defense under the FDCPA, 15 U.S.C. § 1692k(c), because it was clearly possible for reasonable lawyers to disagree as to the applicable limitations period. Accordingly, the district court denied the plaintiffs' motion for partial summary judgment on that issue. The plaintiffs timely appealed.

STANDARD OF REVIEW

The district court granted the defendants' motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), or alternatively, for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). “For both motions, this court's standard of review is de novo, and the well-pleaded facts are viewed in the light most favorable to the plaintiff.” Turbomeca, S.A. v. Era Helicopters, LLC, 536 F.3d 351, 354 (5th Cir.2008). The district court also denied the plaintiffs' motion for partial summary judgment, a decision which we also review de novo. Becker v. Tidewater, Inc., 586 F.3d 358, 365 (5th Cir.2009) (This court reviews the district court's denial of summary judgment de novo.”).

DISCUSSION

Castro sued the defendants for violating the FDCPA, which was enacted for the following purposes:

to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.

15 U.S.C. § 1692(k). The FDCPA bars debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt,” id. § 1692e, including “the threat to take any action that cannot legally be taken,” id. § 1692e(5), and “the use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer,” id. § 1692e(10). The FDCPA also prohibits debt collectors from “us[ing] unfair or unconscionable means to collect or attempt to collect any debt.” Id. § 1692f. Accordingly, threatening to sue on time-barred debt may well constitute a violation of the FDCPA. See, e.g., Freyermuth v. Credit Bureau Serv., 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.”); Jenkins v. Gen. Collection Co., 538 F.Supp.2d 1165, 1172 (D.Neb.2008) ([I]t may be inferred from Freyermuth that a violation of the FDCPA has occurred when a debt collector attempts, through threatened or actual litigation, to collect on a time-barred debt that is otherwise valid.”); Larsen v. JBC Legal Group, P.C., 533 F.Supp.2d 290, 303 (E.D.N.Y.2008) ( “Although it is permissible [under the FDCPA] for a debt collector to seek to collect on a time-barred debt voluntarily, it is prohibited from threatening litigation with respect to such a debt.”); Goins v. JBC & Assoc., P.C., 352 F.Supp.2d 262, 272 (D.Conn.2005) (“As the statute of limitations would be a complete defense to any suit ... the threat to bring suit under such circumstances can at best be described as a ‘misleading’ representation, in violation of § 1692e [of the FDCPA].”). Thus, in order to proceed, the plaintiffs must show that their debts—which, upon the plaintiffs' receipt of the defendants' letters, were more than two years but less than four years old—were time-barred.

Therefore, the threshold question is whether the four-year Texas statute of limitations or the two-year federal statute of limitations applies to the plaintiffs' debts. Texas Civil Practice & Remedies Code § 16.004(a)(3) requires anyone who wishes to “bring suit on” several enumerated actions, including debt, to do so “not later than four years after...

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