Debt Collector’s Right to Sue New Jersey Debtor Cut Off Three Years After Default When Credit Card Agreement Subject to Delaware Law

A recent case was decided in favor of a New Jersey Debtor by the Third Circuit Court of Appeals where a “Debt Collector” violated the Fair Debt Collection Practices Act (“FDCPA”) and New Jersey New Jersey Consumer Fraud Act (“CFA”) by filing suit outside of the statute of limitations under Delaware state law.   The Third Circuit reversed the District Court’s prior ruling, noting that it would create “the ‘absurd’ result of a claim surviving in perpetuity” or result in “the abolition of a statute of limitations affirmative defense.”

Debt Collectors and Defaulted Debt

Debt collectors who purchase delinquent credit card debt from banks and other lenders often file lawsuits to collect these debts long after the debtor has defaulted – i.e. failed to make their payments.  These debts – for which debt collectors pay a few cents on the dollar – are often purchased in transactions that include thousands (or tens of thousands) of accounts.  In exchange, the debt collectors receive spread sheets which contain limited information about the debtor.  Often these debts are then resold to another debt collector for an even lower price and with even less information. Therefore, it is not uncommon for a debtor to be sued years after default and by a debt collector unknown to them.

Panico v. Debt Collector

In the matter of, Panico v. Portfolio Recovery Assocs., , 879 F.3d 56, Panico, the Plaintiff, was a New Jersey resident who was sued in a New Jersey Court by a debt collector who had purchased a delinquent debt.   As the Court explained:

“Panico is a resident of the State of New Jersey, who, by early 2010, allegedly incurred substantial debt on a credit card account with MBNA America Bank (“MBNA”). As it arose from spending for personal or household purposes, Panico’s obligation qualifies as “debt” under 15 U.S.C. § 1692a(5) of the FDCPA. On June 18, 2010, MBNA regarded Panico as delinquent on his then-outstanding balance. MBNA assigned the rights to the debt to Appellee PRA, a debt collector.  Although PRA engaged in attempts to collect the debt, it did not succeed.”

Although Panico lived in New Jersey and was sued in New Jersey, the Agreement stated specifically that it was “governed” by the laws of the State of Delaware.   The credit agreement governing the relationship between Panico and MBNA provided for application of “the laws of the State of Delaware, without regard to its conflict of laws, principles, and by any applicable federal laws.”  Panico @ 57.

Panico sued PRA under the FDCPA and the CFA based on a theory that PRA had sought collection outside the statute of limitations.

Statute of Limitations on Debt Collectors

A Statue of Limitations (“SOL”) limits (i.e. cuts off) the time in which a party has the right to file a lawsuit.  New Jersey’s relevant statute of limitations for such matters requires that a party filed a lawsuit for collection of such debts within six years after “default”.   Delaware, by contrast, has a three-year statute of limitations.

Under the credit card agreement signed by Panico, Delaware law governed the enforcement of the Credit Agreement.  Thus, it would appear obvious that PRA was required to file a suit within three years of the default – as required by Delaware law.  Even if PRA did not sue for collection, any attempt by PRA to collect after the three-year SOL had run would almost certainly be a violation of the FDCPA and CFA.

District Court Suit

Panico brought a suit against PRA in federal district court claiming that PRA’s suit for collection violated the FDCPA and CFA because it had been filed after the three-year Delaware Statue of Limitations expired.   PRA argued that the running of the statue was tolled (i.e. halted) because the Panico lived outside of Delaware and could not be served within the State.

The United States District Court Judge, Hon. Brian R. Martinotti, USDJ, accepted PRA’s argument and dismissed the Panico suit:

“ the underlying State Court Action were not untimely because at the time PRA’s claims accrued, Plaintiff was “out of the state” of Delaware, not amenable to service of process in Delaware, and not subject to personal jurisdiction in Delaware. As a result, the tolling provision of Section 8117 applies by its literal terms, rendering PRA’s collection action timely under Delaware’s statute of limitations.

Panico v. Portfolio Recovery Assocs., , 2016 U.S. Dist. LEXIS 124729, *11.

Court of Appeals Reverses Dismissal

The Third Circuit Court of Appeals reversed the dismissal of the claim and expressly and emphatically disagreed with the District Court.   The Court rejected PRA’s argument that the SOL was “tolled” while the debtor was not living in Delaware and distinguished at least one case cited in the District Court where a Debtor left the United States.

In reversing the dismissal and allowing Panico to pursue his claims against PRA, the Court of Appeals found that the reasoning of the District Court, if allowed to stand, would absolutely nullify the Statute of Limitations and enable debt collectors to proceed in perpetuity:

“The only courts that have accepted arguments analogous to PRA’s here—that the Delaware tolling statute stops the Delaware statute of limitations from running—have done so in contexts where doing so would not create “the ‘absurd’ result of a claim surviving in perpetuity” or result in “the abolition of a statute of limitations affirmative defense.” Unifund CCR Partners v. Sunde, 163 Wn. App. 473, 260 P.3d 915, 925 (Wash. App. 2011); see also CACV of Colorado, v. Stevens, 248 Ore. App. 624, 274 P.3d 859 (Or. Ct. App. 2012). In both of those cases, the courts applied the forum state’s limitations period to preserve the availability of a Statute of Limitations defense.

Panico v. Portfolio Recovery Assocs., , 879 F.3d 56, 60.


This case highlights the importance of reviewing your legal rights when you are pursued for collection of debts by any “debt collector”.  We have all heard jokes about what we do with those “Cardholder Agreements” that we receive for our credit card accounts.  Protecting your rights against illegal debt collection is no joke however.   You should carefully review these rights with an experienced attorney.


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