On Monday a federal judge in Pennsylvania ruled that, as a matter of law, the language in a letter sent to a consumer that discussed 1099(c) tax consequences would be considered a “false representation or deceptive means to collect or attempt to collect a debt” by the least sophisticated debtor.” The case is Balon v. Enhanced Recovery Company, Inc. (Case No. 3-16-cv-0410, U.S.D.C. Middle District of Pennsylvania).
A copy of the court’s memorandum can be found here.
On July 11, 2016 insideARM published an article about this case written by Thomas Dominczyk, Attorney at Law and member of the Maurice Wutscher law firm. That article discussed the court’s June 2, 2016 denial of a motion by Enhanced Recovery Company, Inc., (ERC) to dismiss the case. In that article, Dominczyk succinctly summarized the facts of the case:
“A consumer filed a complaint against a debt collector alleging the defendant supposedly violated the federal Fair Debt Collection Practices Act (FDCPA) by sending a letter that stated that “any indebtedness of $600.00 or more, which is discharged as a result of a settlement, may be reported to the IRS as taxable income pursuant to the Internal Revenue Code 6050 (P) and related federal law. The amount of the alleged debt at the time that the letter was sent was $798.67 and the offer to settle was for $638.94. The amount of savings if the offer was accepted would be $159.73.”
After the June 2, 2016 denial of the ERC motion there was significant activity from both parties. A sample of the activity is highlighted below.
- On December 28, 2016, ERC filed a motion to dismiss the complaint for lack of subject matter jurisdiction and brief in support.
- On January 11, 2017, Plaintiff filed a motion to remand the above-captioned action to state court.
- Plaintiff filed a motion for summary judgment, statement of undisputed material facts, and brief in support.
The three (3) motions above were pending before the Court, each of which was fully briefed by both parties. The court’s Memorandum is 42 pages long. William J. Nealon, United State District Court Judge addressed all three motions.
Defendant’s Motion to Dismiss for Lack of Subject Matter Jurisdiction
ERC’s motion to dismiss for lack of subject matter jurisdiction was based upon on a Spokeo argument that the plaintiff had not suffered a concrete injury. The court’s discussion of this issue took up 23 pages. In the end, the court determined that:
“Plaintiff’s receipt of a deceptive communication used to collect or attempt to collect a debt establishes that Plaintiff suffered a sufficiently “concrete” and “particularized” injury for purposes of Article III standing.
Based on the foregoing, Defendant’s motion to dismiss the complaint for lack of subject matter jurisdiction and Plaintiff’s motion to remand, will be denied because Plaintiff has standing to bring the instant claim.”
Plaintiff’s Motion for Summary Judgment
Having decided that plaintiff had standing to bring the claim, the court then turned to consideration of plaintiff’s motion for summary judgment.
Editor’s Note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.
ERC argued that plaintiff’s motion for summary judgment should be denied because her claim presents a question of fact that must be decided by a jury.
Plaintiff contended in her reply that “Defendant’s argument was inconsistent with binding Third Circuit precedent.” “Specifically,” plaintiff argued, “a collection letter is analyzed through the perspective of the ‘least sophisticated debtor,’ and not through the perspective of the actual plaintiff, the question of whether a debt collection letter violates the FDCPA is a question of law.”
Judge Nealon agreed with the plaintiff, noting:
“According to the Third Circuit a “majority of courts to have considered this question have . . . held that this determination involves a question of law.’
As a result, Defendant’s argument that Plaintiff’s motion for summary judgment should be denied because the present summary judgment record, specifically whether the letter at issue constitutes a false or misleading communication from the perspective of the “least sophisticated consumer,” presents a question of fact for the jury is without merit.
Therefore, the Court will address whether Defendant violated the FDCPA as a question of law and, thus, determine whether Plaintiff is entitled to summary judgment based upon the undisputed factual record.”
Judge Nealon then held:
“As established by the summary judgment record, it is undisputed that Plaintiff received a letter which stated, in relevant part, that “any indebtedness of $600.00 or more, which is discharged as a result of a settlement, may be reported to the IRS as taxable income pursuant to the Internal Revenue Code 6050 (P) and related federal law.” The letter also stated that the “Amount of Debt” was “$798.67” and the “Settlement Amount” was for “$638.94.” As a result, the amount of savings had the offer been accepted would have been $159.73.
It is determined that the challenged language addressed above, which serves as the basis for Plaintiff’s section1692e(10) claim, would be considered a “false representation or deceptive means to collect or attempt to collect any debt” by the “least sophisticated debtor.”
As a result, Plaintiff has established that no genuine issues of material fact remain as to any of the elements of the FDCPA claim she advances under section 1692e(10). Additionally, based on these undisputed facts, Plaintiff has established that she is entitled to summary judgment on her claim. As a result, Plaintiff’s motion for summary judgment will be granted. Therefore, judgment will be entered in Plaintiff’s favor.”
This case is yet another in the long line of 1099(c) disclosure cases. Results have not been consistent. insideARM has an FDCPA Resources page. Within that page is the insideARM FDCPA case law chart. A quick review of that chart will show multiple 1099(c) cases.
What should compliance professional take away from this case? Many things.
- First, 1099(c) letters are an invitation to be sued. Most of the time these letters are sent because a client mandates they be sent. To the extent a collector can convince their client not to require they send such letters, the better off a business will be. If clients still require these letters, a serious discussion with that client on indemnification is in order.
- Second, the precise language is important. A review of the 1099(c) cases in the insideARM FDCPA caselaw chart that show a positive result will shed great light on the type of language that courts have found to be acceptable.
- Third, while precise language of any disclosure is critical, this specific fact scenario (where the settlement offered was less than $600) should also be considered. One best practice solution is to never send a 1099(c) letter, regardless of the specific language, when the settlement offered is less than $600.