5th Cir. Holds That The Mere Threat of A Lawsuit to Collect A Partially Time-Barred Debt Does Not Violate the FDCPA
Last year, in Daugherty v. Convergent Outsourcing, Inc., the Fifth Circuit held that the federal Fair Debt Collection Practices Act (FDCPA) was violated when a letter merely offered to settle a time-barred debt, even though there was no threat of a lawsuit being filed.
In Mahmoud v. De Moss Owners Ass’n Inc., No. 15-20618 (July 28, 2017), the Fifth Circuit, in a split decision, ruled that attorneys representing a condominium association did not violate the FDCPA when they threatened non-judicial foreclosure on a debt that was partially but not fully time barred. Can these decisions be reconciled?
In Mahmoud, the plaintiffs sued their condominium association, its management company and its collection lawyers regarding their efforts to collect delinquent assessments and other charges. In a letter to the plaintiffs, the defendant law firm threated to file a lawsuit on the unpaid assessments which plaintiffs alleged violated the FDCPA because some, but not all the debt was beyond the Texas four-year statute of limitations.
The Fifth Circuit felt the facts in Mahmoud were distinguishable from Daugherty. First, unlike Daugherty, only a small portion of the debt was alleged to be time-barred. Second, in Daugherty there was no dispute that the limitations period applicable to the entire debt had expired; however, in Mahmoud it was uncertain whether the limitations period had run. Finally, and interestingly, the Fifth Circuit felt that, because the letter in Daugherty did not disclose that a payment made after the debt was time barred could restart the limitations period, the letter could mislead the consumer into taking an action adverse to their interests. In Mahmoud, however, the plaintiffs were not misled because the condominium was ultimately foreclosed for the amount that was demanded. It is also important to note that the Fifth Circuit focused on the nature of the debt at issue (i.e. real estate debt). It may be that a different outcome will be achieved if the debt involved were of another type, e.g., credit card. Debt.