Iowa Court Of Appeals: Five-Year Statute of Limitations Applies to Debt Buyer Lawsuits
Friday, September 09, 2011 Filed in: Collections
by Thomas K. Bleyhl
In Iowa and elsewhere, there has been an explosion of collection lawsuits involving credit-card debt in recent years due to people struggling to pay their debts in a bad economy. Some of these lawsuits are brought by the credit card companies themselves. Others are brought by debt buyers. Debt buyers are companies that purchase the right to collect a debt allegedly owed by individuals to credit card companies. They often buy these debts for a small percentage of the amount they will try to collect from the debtor. Debt buying is a lucrative business, because many people will end up paying what the debt buyers say they owe, even though they may have had valid defenses that could have defeated the debt buyer in court.
One of the most common valid defenses to a credit card lawsuit is the statute of limitation defense. All civil lawsuits must be brought within a certain time period prescribed by law. If a lawsuit is brought after the statute of limitations expires, the defendant can get the lawsuit dismissed. In Iowa, there is a ten year statute of limitations for lawsuits brought to enforce a written contract (Iowa Code § 614.1(5)). However, the statute of limitations for lawsuits based on unwritten contracts is only five years (Iowa Code § 614.1(4)). Often, debt buyers bring lawsuits in Iowa on credit card debts wherein the last payment on the original account occurred at least five years before the date the lawsuit gets filed. Defendants can get those lawsuits thrown out if the shorter limitation period applies. Accordingly, debt buyers argue that the longer limitation period should apply to such lawsuits. Small claims court judges and trial court judges in Iowa have been faced with this issue quite a bit recently, and have come to opposite conclusions. The Iowa Court of Appeals faced this issue for the first time on September 8, 2011. Gemini Capital Group v. New, No. 1-521/10-1096 (Iowa Ct. App. Sep. 8, 2011), available at http://www.iowacourts.gov/court_of_appeals/Recent_Opinions/20110908/1-521.pdf (publication decision pending).).
In Gemini Capital Group v. Neu, a debt buyer sued an credit card holder in small claims court for a claimed debt of $3,016.48 on a Sears credit card. The last payment on the card was made in 2004, more than five years before the lawsuit was filed. The cardholder filed an answer to the lawsuit, his defense was that the lawsuit was barred by the statute of limitations. At trial, the debt buyer produced a generic cardholder agreement (not signed by anyone), a statement of the amount that was owed and how the interest was calculated, and documents showing that Gemini Capital Group was the owner of the debt. The debt buyer did not produce any agreement signed by the cardholder. The small claims magistrate found that the debt buyer proved that the defendant owed the debt, and that the applicable statute of limitations was ten years. Judgment was granted in favor of the debt buyer. The cardholder appealed, and a district court judge affirmed the small claims judgment. The Court of Appeals examined the issue after an application for discretionary review by the cardholder was granted.
The Court of Appeals reversed the judgment in favor of the debt buyer, holding that a five year statute of limitations applied and that the lawsuit was time barred. The Court relied on a 1984 decision of the Iowa Supreme Court (Matherly v. Hanson, 359 N.W.2d 450 (Iowa 1984)), which held that for the ten year limitation period to apply, the essential facts establishing defendant’s liability must be shown by a writing. In other words, if evidence other than a contract or other document attributable to defendant is necessary to prove that the defendant owes money under the contract, then the statute of limitation for unwritten contracts applies. In this case, the debt buyer only produced a generic cardholder agreement. It did not produce anything signed by the cardholder showing that he owed the debt. Because a written contract was not proven, the debt was time barred.
At the time this article was written, the debt buyer still had the option of asking for a rehearing before the Court of Appeals, or further review with the Iowa Supreme Court. But assuming this case is not overturned, and the Court decides to make it an officially published decision, it will provide the definitive answer under Iowa law to the question of what statute of limitation applies to credit card agreements. Theoretically, if a credit card company or debt buyer could produce a written contract signed by the cardholder, then the ten year limitation period would apply. But in our experience defending lawsuits of this nature, we have never seen that. What we usually see is a generic cardholder agreement of the sort produced in this case by the debt buyer. Usually the debt buyer can produce no evidence that the agreement was ever agreed to by the cardholder, or even that it has anything to do with their particular case. While the Court of Appeals did not rule on whether such a generic document is sufficient to prove a case, it did rule that it is not enough to prove a written contract. Because they never have enough evidence to prove a written contract, it is unlikely in our opinion that a credit card company or debt buyer will ever win another case where the account is more than five years old. Assuming the defendant in the lawsuit properly raises the issue.
The bottom line for those sued by debt buyers? The first line of defense, if you are sued by a debt buyer, is to prevent them from getting a default judgment against you. A default judgment will likely be granted against you if you do not answer the lawsuit, even if you have a valid defense like the statute of limitation defense discussed in this article. Instead, consult a lawyer as soon as you see the lawsuit. Iowa debt collection defense attorneys George Qualley IV and Tom Bleyhl of Qualley & Bleyhl, P.L.C. may be able to assist you with your case, you may contact them here.
Please note that this article is for informational purposes only, may not apply to your situation, and is not legal advice. Your reading of this article does not create an attorney-client relationship with anyone. If you need legal advice, get a lawyer.
In Iowa and elsewhere, there has been an explosion of collection lawsuits involving credit-card debt in recent years due to people struggling to pay their debts in a bad economy. Some of these lawsuits are brought by the credit card companies themselves. Others are brought by debt buyers. Debt buyers are companies that purchase the right to collect a debt allegedly owed by individuals to credit card companies. They often buy these debts for a small percentage of the amount they will try to collect from the debtor. Debt buying is a lucrative business, because many people will end up paying what the debt buyers say they owe, even though they may have had valid defenses that could have defeated the debt buyer in court.
One of the most common valid defenses to a credit card lawsuit is the statute of limitation defense. All civil lawsuits must be brought within a certain time period prescribed by law. If a lawsuit is brought after the statute of limitations expires, the defendant can get the lawsuit dismissed. In Iowa, there is a ten year statute of limitations for lawsuits brought to enforce a written contract (Iowa Code § 614.1(5)). However, the statute of limitations for lawsuits based on unwritten contracts is only five years (Iowa Code § 614.1(4)). Often, debt buyers bring lawsuits in Iowa on credit card debts wherein the last payment on the original account occurred at least five years before the date the lawsuit gets filed. Defendants can get those lawsuits thrown out if the shorter limitation period applies. Accordingly, debt buyers argue that the longer limitation period should apply to such lawsuits. Small claims court judges and trial court judges in Iowa have been faced with this issue quite a bit recently, and have come to opposite conclusions. The Iowa Court of Appeals faced this issue for the first time on September 8, 2011. Gemini Capital Group v. New, No. 1-521/10-1096 (Iowa Ct. App. Sep. 8, 2011), available at http://www.iowacourts.gov/court_of_appeals/Recent_Opinions/20110908/1-521.pdf (publication decision pending).).
In Gemini Capital Group v. Neu, a debt buyer sued an credit card holder in small claims court for a claimed debt of $3,016.48 on a Sears credit card. The last payment on the card was made in 2004, more than five years before the lawsuit was filed. The cardholder filed an answer to the lawsuit, his defense was that the lawsuit was barred by the statute of limitations. At trial, the debt buyer produced a generic cardholder agreement (not signed by anyone), a statement of the amount that was owed and how the interest was calculated, and documents showing that Gemini Capital Group was the owner of the debt. The debt buyer did not produce any agreement signed by the cardholder. The small claims magistrate found that the debt buyer proved that the defendant owed the debt, and that the applicable statute of limitations was ten years. Judgment was granted in favor of the debt buyer. The cardholder appealed, and a district court judge affirmed the small claims judgment. The Court of Appeals examined the issue after an application for discretionary review by the cardholder was granted.
The Court of Appeals reversed the judgment in favor of the debt buyer, holding that a five year statute of limitations applied and that the lawsuit was time barred. The Court relied on a 1984 decision of the Iowa Supreme Court (Matherly v. Hanson, 359 N.W.2d 450 (Iowa 1984)), which held that for the ten year limitation period to apply, the essential facts establishing defendant’s liability must be shown by a writing. In other words, if evidence other than a contract or other document attributable to defendant is necessary to prove that the defendant owes money under the contract, then the statute of limitation for unwritten contracts applies. In this case, the debt buyer only produced a generic cardholder agreement. It did not produce anything signed by the cardholder showing that he owed the debt. Because a written contract was not proven, the debt was time barred.
At the time this article was written, the debt buyer still had the option of asking for a rehearing before the Court of Appeals, or further review with the Iowa Supreme Court. But assuming this case is not overturned, and the Court decides to make it an officially published decision, it will provide the definitive answer under Iowa law to the question of what statute of limitation applies to credit card agreements. Theoretically, if a credit card company or debt buyer could produce a written contract signed by the cardholder, then the ten year limitation period would apply. But in our experience defending lawsuits of this nature, we have never seen that. What we usually see is a generic cardholder agreement of the sort produced in this case by the debt buyer. Usually the debt buyer can produce no evidence that the agreement was ever agreed to by the cardholder, or even that it has anything to do with their particular case. While the Court of Appeals did not rule on whether such a generic document is sufficient to prove a case, it did rule that it is not enough to prove a written contract. Because they never have enough evidence to prove a written contract, it is unlikely in our opinion that a credit card company or debt buyer will ever win another case where the account is more than five years old. Assuming the defendant in the lawsuit properly raises the issue.
The bottom line for those sued by debt buyers? The first line of defense, if you are sued by a debt buyer, is to prevent them from getting a default judgment against you. A default judgment will likely be granted against you if you do not answer the lawsuit, even if you have a valid defense like the statute of limitation defense discussed in this article. Instead, consult a lawyer as soon as you see the lawsuit. Iowa debt collection defense attorneys George Qualley IV and Tom Bleyhl of Qualley & Bleyhl, P.L.C. may be able to assist you with your case, you may contact them here.
Please note that this article is for informational purposes only, may not apply to your situation, and is not legal advice. Your reading of this article does not create an attorney-client relationship with anyone. If you need legal advice, get a lawyer.