Unifund CCR, LLC v. Francois

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA18-111
Filed: 17 July 2018
Mecklenburg County, No. 16-CVD-20456
UNIFUND CCR, LLC, Plaintiff,
v.
ISABELLE FRANCOIS, Defendant.
Appeal by plaintiff from order entered 13 July 2017 by Judge Becky T. Tin in
Mecklenburg County District Court. Heard in the Court of Appeals 17 May 2018.
Sessoms & Rogers, P.A., by Andrew E. Hoke, for plaintiff-appellant.
No appellee brief filed.
DIETZ, Judge.
Plaintiff Unifund CCR, LLC brought a debt collection action against Defendant
Isabelle Francois and obtained an entry of default after Francois failed to appear and
respond to Unifund’s complaint.
At the default judgment hearing—where Francois again failed to appear—the
trial court, on its own initiative, denied Unifund’s motion for default judgment and
dismissed the complaint, concluding that the complaint was barred by the statute of
limitations and violated a statutory provision prohibiting debt collectors from
pursuing claims they know are barred by the statute of limitations.
UNIFUND CCR, LLC V. FRANCOIS
Opinion of the Court
We reverse and remand for entry of judgment in Unifund’s favor. As explained
below, the trial court had no authority to raise a statute of limitations defense on
behalf of a defaulting litigant who did not appear. Likewise, the court had no
authority to dismiss the complaint based on a perceived violation of a statute that
does not authorize courts to act on their own initiative, but instead creates a separate
civil enforcement mechanism for the debtor and the Attorney General.
Facts and Procedural History
In 2011, Defendant Isabelle Francois opened a credit card account with
Citibank. Francois began making purchases on the account in March 2013 and
exceeded the account’s credit limit in May 2013. Francois stopped making payments
in May 2013. Citibank then closed the account and sent Francois a final billing
statement showing a balance of $4,618.08 with a payment due date of 20 November
2013.
After six consecutive months of nonpayment, Citibank charged off the account.
Plaintiff Unifund CCR, LLC ultimately acquired the past due account.
On 14 November 2016, Unifund filed a complaint against Francois for the past
due amount owed on the account. With its complaint, Unifund filed an affidavit from
its custodian of records along with the billing records for the account, and
documentation showing Unifund’s acquisition of the account. The complaint stated
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UNIFUND CCR, LLC V. FRANCOIS
Opinion of the Court
that it was filed within the statute of limitations. Unifund served Francois with the
summons but Francois did not appear in the action or file a responsive pleading.
On 31 May 2017, Unifund moved for entry of default and for default judgment.
The Mecklenburg County Clerk of Superior Court entered default against Francois
the same day.
The trial court heard the motion for default judgment on 10 July 2017. Francois
did not appear at the hearing. Unifund presented testimony from a Citibank
custodian of records and its own custodian of records. Unifund also submitted the
account statements and documents showing the chain of ownership of the account.
Three days later, the trial court filed a lengthy order denying Unifund’s motion
for default judgment and dismissing the complaint with prejudice. The court found
that the action was “barred by the statute of limitations” and that it violated N.C.
Gen. Stat. § 58-70-115, a statute that makes it an unfair and deceptive trade practice
for a collection agency to “attempt[] to collect on a debt when the collection agency
knows, or reasonably should know, that such collection is barred by the applicable
statute of limitations.” Unifund timely appealed.
Analysis
Unifund argues that the trial court erred by denying its motion for default
judgment and dismissing its complaint sua sponte based on legal defenses not raised
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UNIFUND CCR, LLC V. FRANCOIS
Opinion of the Court
by Francois, who never appeared in the proceeding. As explained below, we agree
that the trial court erred.
We begin by addressing the trial court’s decision to deny the motion for default
judgment, and to dismiss the complaint, because Unifund’s claims are “barred by the
statute of limitations.” Rule 8 of the Rules of Civil Procedure requires that a
defendant “set forth affirmatively” a statute of limitations defense in a responsive
pleading. N.C. R. Civ. P. 8(c). Our appellate courts repeatedly have emphasized that
“the statute of limitations is a technical defense, and must be timely pleaded or it is
deemed waived.” Gragg v. W. M. Harris & Son, 54 N.C. App. 607, 609, 284 S.E.2d
183, 185 (1981). Thus, trial courts have no authority to raise the statute of limitations
defense on their own initiative; the defendant must assert this affirmative defense or
it is waived.
Moreover, “[w]hen default is entered due to a defendant’s failure to answer,
the substantive allegations contained in plaintiff's complaint are no longer in issue,
and for the purposes of entry of default and default judgment, are deemed admitted.”
Luke v. Omega Consulting Grp., 194 N.C. App. 745, 751, 670 S.E.2d 604, 609 (2009).
Thus, even setting aside a trial court’s inability to raise a statute of limitations
defense sua sponte, the court lacks the authority to examine the merits of an absent
litigant’s potential defenses at the default judgment stage at all. Accordingly, the trial
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UNIFUND CCR, LLC V. FRANCOIS
Opinion of the Court
court erred by raising and addressing sua sponte a purported statute of limitations
issue at the default judgment hearing.
We next examine the trial court’s reliance on N.C. Gen. Stat. § 58-70-115, a
statute that makes it an unfair and deceptive trade practice for a collection agency to
“attempt[] to collect on a debt when the collection agency knows, or reasonably should
know, that such collection is barred by the applicable statute of limitations.” The trial
court denied the motion for default judgment and dismissed the complaint based on
its conclusion that Unifund violated this statutory provision.
As with the statute of limitations, the trial court had no authority to deny the
default judgment and dismiss the complaint on this ground. The General Assembly
selected a particular enforcement mechanism for this provision—it authorized the
debtor and the Attorney General to bring civil claims against violators to recover
actual and statutory damages. See N.C. Gen. Stat. § 58-70-130. The legislature could
have authorized trial courts to independently review debt collection claims and reject
those brought in violation of N.C. Gen. Stat. § 58-70-115. Instead, it chose a different
means of enforcement. Neither the trial court nor this Court can second-guess this
policy decision by the General Assembly. Davis v. Craven Cty. ABC Bd., __ N.C. App.
__, __ S.E.2d. __, 2018 WL 1801134, at *2 (2018). Accordingly, the trial court erred by
denying the motion for default judgment and dismissing the complaint based on N.C.
Gen. Stat. § 58-70-115.
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UNIFUND CCR, LLC V. FRANCOIS
Opinion of the Court
Conclusion
We reverse the trial court’s order and remand for entry of an appropriate
judgment in favor of Plaintiff Unifund CCR, LLC.
REVERSED AND REMANDED.
Judges TYSON and BERGER concur.
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