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A district court judge in Texas late last month dismissed a class-action lawsuit against two collection agencies – a decision that has far-reaching implications on the collection of wireless communication bills.

The lawsuit, which involved unpaid cell phone bills, was filed in June of 2008 against Norwell, Mass.-based Collecto Inc. and U.S. Asset Management Inc., alleging violations of the Fair Debt Collection Practices Act (FDPCA) and the Texas Finance Code.

"It was a question of how long a consumer can decline to pay a cell bill consistent with the federal statute that governs the activity of collection agents," says Glenn Manishin, partner with Duane Morris LP, who represented the defendants in the lawsuit.

"The plaintiffs were alleging that cellular telephone bills were governed by a federal two-year statute of limitation, so if you hadn't brought a collection lawsuit within two years, then you couldn't ever do anything to collect the debt," Manishin tells Collections & Credit Risk.

The judge dismissed the case Oct. 27, ruling that the federal statute of limitations no longer applies after deregulation and that it is a matter of state law, according to Manishin. The Texas statute of limitations in this case is four years.

Manishin says plaintiffs did not file a lawsuit stating the debt was uncollectible. Instead, the lawsuit alleged that threatening a collection lawsuit if the consumer failed to pay was a violation of the FDCPA, thus entitling them to punitive damages for the entire class of consumers. "They wanted to leverage the collection action into a broader class action," Manishin says.

Although the case never reached the discovery stage, which would have revealed what was at stake monetarily, "I can tell you most assuredly it was a multimillion dollar case," Manishin says.

A court decision in favor of the plaintiffs would have had far-reaching repercussions in terms of collections and wireless communications, according to Manishin.

"Everybody would have been required to either make a deal with their customers or go up and sue them within two years. Whether that cuts in favor of the people who are collecting the bills or the people who may have gotten behind on their bills, I'm not really sure," Manishin says. "It puts pressures on both. If the plaintiffs had won, it would have encouraged collection agencies to sue sooner than they otherwise would just to preserve their legal rights."

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