Insights

A statute of limitations can be a blessing or a curse. It does not forgive and is a trap for the unwary that, once sprung, can be damaging to the client and even more so to the attorney.  Typical questions that need to be asked include what statute applies, what triggers the statute to begin to run, and whether there is anything that could pause the running of the statute.  If those considerations were not enough, there is the additional issue of determining which state’s statute of limitations applies. This last problem is especially troubling in the realm of consumer credit card contracts.  Many of these agreements have choice of law provisions that provide for higher interest rates on the one hand while on the other hand opening the door to arguments concerning which state’s potentially shorter statutory limitations period may apply.  It cannot be assumed that the state law specified by the contract also governs the statutory limitations period; particularly when the “forum” state where suit is brought has enacted a “borrowing statute.”

A recent Federal decision from the Northern District of Ohio, Dudek v. Thomas & Thomas Attorneys & Counselors at Law, LLC, 702 F. Supp. 2d 826 (N.D. Ohio 2010) provides well-reasoned insight into what a borrowing statute is and how it may be beneficially applied.  Dudek arose out of a suit filed in an Ohio state court by a debt buyer relating to a credit card debt.  Various affirmative defenses were raised including the argument that the card debt was time-barred by the statute of limitations.  Prior to trial, and concerned that opposing counsel was about to file a Fair Debt Collection Practices Act (“FDCPA”) counterclaim, the creditor voluntarily dismissed the action.  Subsequently, the debtor filed an action against the debt buyer’s counsel, asserting an FDCPA claim.  After answering, a Motion for Judgment on the Pleadings was filed arguing that the underlying claim was not time-barred.

The debtor’s basis for the claim was that the choice of law provision in the underlying credit card contract specified application of New Hampshire law.  The New Hampshire statute of limitations was three years, as opposed to Ohio’s six-year limitations period.  The Dudek court observed that, notwithstanding a contractual choice of laws provision, the general rule as articulated by the Ohio Supreme Court incorporating the Restatement (Second) of Conflict of Laws is to apply the forum state’s limitations statute.  Importantly, effective April 7, 2005, Ohio had adopted R.C. § 2305.03, a “borrowing statute.”  A borrowing statute is an exception to the general rule described above.  It addresses “the situation where a plaintiff fails to sue within the time period allotted by the state where the action accrued, and then files in another state’s court to avoid the time bar.”  Thus, the limitations period is “borrowed” from the state where the claim accrued.  The counsel in Dudek was fortunate: although the underlying suit was filed after the effective date of the borrowing statute, the claim for the debt accrued prior to that date.  Accordingly, the Dudek court declined to retroactively apply the borrowing statute and held that the underlying claim was not time-barred.

Allegations of suing on time-barred debt have become a popular basis for FDCPA and other claims.  Recently, a Court of Appeals in Lake County, in Asset Acceptance LLC v. Caszatt, 2010 Ohio 1449, 2010 Ohio App. LEXIS 1227, ordered class certification based on this very issue, declaring “[w]e cannot conceive of a case more suited for class action treatment.”  With the potential for expensive counterclaims, it is critically important to review all potential statute of limitations issues, including the borrowing statute, prior to instituting legal action.