Thinking About Delaware Can Make Me Money? Tell Me More!

Debt Collection:

You've probably never before today asked yourself the question Why should I care what Delaware does? That's understandable: who thinks about Delaware if they don't absolutely have to? And who absolutely has to think about Delaware?

Another thing you've probably never done is read the fine print on your credit card agreement. As I've noted before, nobody ever reads anything they should be reading.

Like not thinking about Delaware, not reading your credit card agreement is understandable, too -- it's all fine print and it's hidden behind the good stuff (the card!) or behind the bad stuff (the bill!) in the envelope, and it's a lot of legal mumbo-jumbo that nobody understands, anyway.

Well, thank God for lawyers, is all you should be saying now, because if it wasn't for lawyers, nobody would ever read the fine print on credit card agreements, and nobody would ever sit around wondering what Delaware was up to, and you'd all be getting sued for debts you might not have had to pay.

It turns out that Delaware and credit card agreements have a lot in common, and it turns out that what they have in common might help you quite a bit, even though you've never thought about Delaware or read your credit card agreement.

Delaware, you see, is the state of incorporation for a lot of companies. When companies "incorporate," they create (and sell) stock become a "corporation," a separate legal entity that is considered a person by the law. Companies can choose to incorporate in a given state and frequently make that choice based on the laws of that state. If your state is one that tends to let the directors and managers of a corporation have a lot of leeway in how they run the corporation, then corporations are more likely to "incorporate" in your state.

Delaware is one of those states. Delaware makes it easier for corporations to be run without actually paying much attention to what the stockholders want the corporation to do, and as a result, Delaware has become a popular state for corporations to incorporate in.

Delaware also has some laws that are popular with creditors and credit card companies, and so some companies that offer credit opt to incorporate in Delaware and then they opt to put a clause into your credit card agreement that applies Delaware law to your deal with them.

So you might be living in, say, California, and take out a credit card, and you might -- if you ever read the fine print-- find out that your credit card company is a Delaware corporation and that Delaware laws apply to your agreement with your credit card company.

That's what happened to Pamela Chambers. Pamela was a California resident who took out a credit card, and who then stopped paying on that card, for one reason or another. She stopped paying in about 2003. As happens so often, Pamela's credit card company didn't bother trying to collect the $10,000 it was owed from her, but instead "assigned" the debt to a debt collection company -- in this case, "Resurgence Financial, LLC."

Resurgence Financial, LLC, then sued Pamela, in 2007, and won a judgment of more than $10,000. But Pamela appealed her case and argued that Resurgence had sued her too late... under Delaware law.

All states have laws called "statutes of limitation," a time limit on how long you have to sue someone for something. California's "statute of limitation" for breach of contract -- the claim that's made when you don't pay your credit card -- would have allowed Resurgence to sue Pamela.

But Pamela, or her lawyer, had actually read the fine print on the contract, and had wondered What is Delaware up to? It turns out what Delaware was up to was setting a law itself, a law that said that a claimant had only three years to sue for breach of contract.

So, Pamela said, Resurgence had only three years to sue; her contract said that Delaware law applied and Delaware said that Resurgence had three years to sue, and Resurgence had sued her more than three years after she stopped paying... so...

She won.

The California Court of Appeals agreed with her: Delaware law applied, just like the contract said it should, and that law said three years to sue, and Resurgence took more than three years to sue, so its claim was dead in the water.

As an added benefit, Pamela might be able to turn the tables on Resurgence and sue them -- the Federal Fair Debt Collection Practices Act prohibits debt collectors from making claims they have no legal right to make, and can result in awards of attorneys' fees and damages against those who violate it.

So Pamela, because she (or her lawyer) thought about Delaware and read the fine print, saved herself $10,000, and maybe could make some money.

Now, maybe you'll spend a little more time in the future reading that fine print, or wondering what Delaware is up to. But if you don't, make sure you hire a lawyer who will.

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