New York City Debt Collection Defense Attorney

Consumer's FDCPA Claim Not Barred by "Entire Controversy" Doctrine and Choice-of-Law Issue

A consumer was sued by Midland in New Jersey state court for an allegedly delinquent debt that had originated in Pennsylvania, where the consumer had once lived. Pennsylvania contract claims are governed by a four-year statute of limitations, whereas a six-year statute governs those same claims in New Jersey. Midland filed the suit in New Jersey just a few months shy of the six-year anniversary of the consumer's alleged default. In her answer to the New Jersey lawsuit, the consumer defendant argued that Pennsylvania's four-year statute of limitations rendered the claim untimely.

Eventually, before the case was scheduled for a trial, Midland withdrew the action from the New Jersey state court. The consumer defendant then filed an action against Midland in federal court, in the District of New Jersey, for violations of the Fair Debt Collections Practices Act ("FDCPA"). Her complaint alleged that Midland violated the FDCPA when it knowingly filed a time-barred lawsuit to collect the debt. Midland moved for summary judgment, claiming that New Jersey's "entire controversy" doctrine required the consumer to raise the FDCPA claim as a counterclaim in the preceding state-court action. Because she did not bring it at that time, Midland argued, her action should now be barred. Midland also argued that the New Jersey statute of limitations applied to the state-court action thus, was not time-barred. The court disagreed on both counts, and found Midland liable when the consumer cross-moved for summer judgment as to Midland's liability. Midland appealed to the United States Court of Appeals for the Third Circuit[1].

The "entire controversy" doctrine embodies the notion that the adjudication of a legal controversy or conflict ought to occur in one litigation and in only one court, and as such, all parties involved in litigation should present in that proceeding all of their claims and defenses that are related to the underlying controversy. The factual circumstances that give rise to the controversy itself are what trigger the requirement to raise all issues.

The Court of Appeals for the Third Circuit found, just as the lower federal court before it had, that the consumer's FDCPA claim had different operative facts underlying it. While the original state-court action sought to collect a debt and would have been related to whether the defendant actually did owe the debt, this FDCPA claim is based on the fact that Midland improperly filed that state-court action against the defendant, and then withdrew the action. The withdrawal of that action completed the pattern of what Ms. Jackson considered "unfair or unconscionable means" used by Midland to collect a debt. While there is a commonality of parties, the court found that the two actions "did not arise out of a common nucleus of operative facts sufficient to trigger the necessity of creating a complete litigation as contemplated by the entire controversy doctrine." Thus, the consumer was not barred from bringing the claim.

Next, the Court of Appeals addressed Midland's challenge to the choice of law issue for determining which statute of limitations applies. As the Court noted, "in making a choice-of-law determination in a breach-of-contract case, NJ courts ask which forum has the most significant relationship with the parties and the contract." Towards that end, the following factors are considered:

  1. The place of contracting;
  2. The place of negotiation of the contract;
  3. The place of performance;
  4. The location of the subject matter of the contract; and
  5. The domicile, residence, nationality, place of incorporation, and place of business of the parties.

In applying this multi-factor test, the Court found that Pennsylvania had the more significant relationship to the claim, as the consumer purchased the original product and opened the account while living in Pennsylvania, received the product in that state, and defaulted on the account while living in that state. When Midland purchased the debt, the consumer was still living in Pennsylvania.

Because the Court agreed with the District Court on both of these counts, the District Court's holding was affirmed, and the consumer was deemed entitled to summary judgment as to Midland's liability.

[1] Jackson v. Midland Funding, LLC, 468 Fed. Appx. 123; 2012 U.S. App. LEXIS 3025; 2012 WL 50519.