A recent federal district court opinion highlights the potential pitfalls associated with renewals of unsatisfied default judgments. The case, Sarah Pitera v. Asset Recovery Group Inc., No. 2:22-cv-00255-TL (W.D. Wash.), serves as a reminder that judgment creditors must still tread carefully when seeking to collect on, or revive, judgments from yesteryear. Read on for more analysis.

In January 2012, Asset Recovery Group, Inc. (ARG) filed an action in Washington state court to collect on a medical debt owed by Sarah Pitera. After she was served the complaint, Pitera sent two letters to ARG’s collections counsel. The first — sent in January 2012 — disputed the debt, demanded validation, and requested documentation substantiating the debt. Unsatisfied with ARG’s response, Pitera sent a second dispute letter in February 2012, seeking the same documentation. ARG’s collections counsel responded on February 27, 2012, providing the original creditor’s name and address only and inviting Pitera to contact counsel by March 12 if she wanted to resolve the debt. “Otherwise,” the letter stated, ARG would “proceed as provided by the law.” That same day, and unbeknownst to Pitera, ARG collections counsel moved for a default judgment, which the court granted on March 5 — seven days before the deadline set forth in the February 27 letter. After contacting the original creditor, Pitera believed the debt was no longer owing. Confident that ARG could not collect on a debt that she had paid, Pitera had no further communication with ARG until February 7, 2022, when she received notice that ARG had renewed the unsatisfied 2012 default judgment.

Pitera filed suit, claiming violations of the Fair Debt Collection Practices Act (FDCPA) and the Washington Consumer Protection Act. Specifically, Pitera alleged that ARG, through counsel, failed to provide her five days’ notice of the hearing on its motion for default, despite her “appearance” in the case, which violated Washington State Superior Court Rule 55(a)(3). Pitera also alleged that the February 27 letter was deceptive because it presented an opportunity for resolution of the debt on the same day ARG moved for default. According to Pitera, ARG collection counsel’s assertion that ARG would “proceed as provided by law” was manifestly untrue given its failure to provide notice mandated by Rule 55(a)(3).

Following removal to federal court, ARG moved to dismiss Pitera’s complaint on grounds that the action was time-barred, with no equitable tolling affording relief from the FDCPA’s one-year limitations period.

Not so fast according to Judge Tana Lin of U.S. District Court for the Western District of Washington. In a 10-page opinion issued on August 26, 2022, the court held ARG was estopped from asserting a statute of limitations defense and denied the motion to dismiss. Accepting the complaint’s allegations as true, the court found that ARG’s correspondence with Pitera occurred whilst simultaneously averring to the state court that Pitera had made no appearance demonstrated ARG’s duplicity. The court reasoned that while Pitera had not entered a formal appearance in the state action, she nonetheless “appeared” by virtue of her post-litigation dispute correspondence and, therefore, was entitled to a notice of hearing on the default motion that ARG (admittedly) failed to provide. The court also “completely reject[ed]” ARG’s argument that Pitera’s reliance on ARG’s statement that it would “proceed as provided by law” was unreasonable; “Plaintiff’s reliance on Defendant proceeding as provided by law was reasonable because Defendant’s counsel — who drafted the February 27 letter — had a legal obligation and an ethical duty of candor separate and distinct from the protections provided under the FDCPA.” That ARG obtained the judgment in 2012 but took no action for 10 years also militated in favor of finding that Pitera remained ignorant of the outstanding judgment against her.

While Pitera will eventually need to prove her allegations at trial, the district court’s decision demonstrates the importance of ensuring streamlined processes to avoid unfortunate timing hiccups that can result in an asset becoming a potential liability.