3rd Circuit Holds Delaware Tolling Statute Does Not Apply to Out-of-State Resident Subject to Service of Process

The U.S. Court of Appeals for the Third Circuit recently held that under Delaware law, a debtor’s out-of-state residency alone did not toll the Delaware statute of limitations.  The Third Circuit overturned the U.S. District Court for the District of New Jersey’s grant of summary judgment in favor of the debt collector, which had dismissed the debtor’s claims brought under the Fair Debt Collection Practices Act (FDCPA) and the New Jersey Consumer Fraud Act (NJCFA).

As background, the debtor, a resident of New Jersey, incurred substantial credit card debt, upon which he subsequently defaulted.  The credit card contract contained a choice-of-law provision that specified the application of Delaware state law.  Delaware law provides a three-year statute of limitations with respect to actions to recover credit card debt.  However, another statute provides that the limitations period is tolled if a person is outside of Delaware when the cause of action accrues, until the person comes into Delaware such that the person is subject to service of process.

More than three years after the default, the debt collector sued the debtor in New Jersey to recover the debt.  When the debtor moved for summary judgment on the basis that the collections period was time-barred, the debt collector agreed to a stipulated dismissal.  The debtor then brought suit against the debt collector, alleging that the attempt to collect the debt violated the FDCPA and the NJCFA because the debt was time-barred.  The debt collector argued that its previous collection efforts against the debtor were timely under the Delaware tolling provision, because the debtor resided in New Jersey.  The New Jersey District Court ruled that the tolling provision applied because the debtor was an out-of-state resident, and so the debt was not time-barred.  It therefore granted the debt collector’s motion for summary judgment.  The debtor appealed.

For the purposes of the appeal, the parties agreed that Delaware state law applied to the transaction.  The Third Circuit noted that Delaware courts have interpreted the tolling statute not to apply to defendants that are within reach of the state’s long-arm statute, citing extensively from Hurwitch v. Adams, 155 A.2d 591 (Del. 1959).  In that case, the Delaware Supreme Court had pointed out the absurdity of applying the tolling statute to all actions involving non-residents of Delaware, in that it would basically eliminate the defense of statutes of limitations in such actions.  In contrast, Delaware cases that applied the tolling provision specifically involved out-of-state (or out-of-country) entities that could not be reasonably served with process.  In the instant case, the debtor could easily be served with process in New Jersey.  The Third Circuit therefore reversed the District Court’s decision, and remanded the case for further proceedings.

The case is Panico v. Portfolio Recovery Associates, LLC, and it is available here:  http://www2.ca3.uscourts.gov/opinarch/163852p.pdf.