Almost two years after the 1099C disclosure issue hit the industry, the Eastern District of New York finally finds that a disclosure stating a “settlement may have tax consequences” does not violate the FDCPA. Ceban v. Capital Management Services, L.P., 2018 WL 451637 (Jan. 17, 2018 E.D.N.Y.).
You can read the full decision here.
Julian Ceban, the plaintiff in this matter, received a settlement offer letter from Capital Management Services, L.P. The letter contained what is known as the 1099C disclosure; specifically, “[t]his settlement may have tax consequences. If you are uncertain of the tax consequences, consult a tax advisor.” The letter, however, did not have a settlement dollar amount listed.
Ceban, represented by RC Law Group PLLC, filed a complaint against Capital Management Services on August 2, 2017, alleging that this disclosure violates the FDCPA. Specifically, the complaint alleges that this disclosure violates: section 1692(d) because it is intended to harass, oppress, or abuse the consumer; section 1692(e) because it is false, deceptive, or misleading; and section 1692(f) alleging Capital Management Services used unfair and unconscionable means to collect the debt.
Capital Management Services filed a motion to dismiss this claim last November. On January 17, 2018, Judge Allyne Ross granted the motion to dismiss.
Even though the decision found that Ceban had standing to bring the suit under Spokeo, the court dismissed all of the FDCPA claims related to the 1099C disclosure.
Judge Ross dismissed the 1692(d) claim without much analysis, plainly stating that “sending one allegedly misleading notice indicating that a settlement of plaintiff’s debt could have tax consequences” is not comparable to the non-exhaustive list of harassing, oppressive and abusive conduct prohibited by this section of the FDCPA.
As for 1692(e), the decision dismisses this claim, stating that the 1099C disclosure is not false, deceptive, or misleading. The court gave no credence to plaintiff’s argument that not including a settlement amount prevents him from determining whether 1099C reporting would be required. The court stated that the $600 threshold triggers the creditor’s—not the debtor’s—reporting requirement, noting that the debtor’s requirement of reporting debt may be triggered regardless of the amount forgiven.
Additionally, the court dismissed the argument that plaintiff may fall under the many exceptions of 1099C reporting. Since the statement was conditional (“may”), the court found that “even if plaintiff did not have to report his forgiven debt because an exception applied, the statement… would not be false.”
All in all, the court found that the plaintiff’s interpretation of the disclosure is “bizarre or idiosyncratic” and, citing another case, stated that plaintiff “has unreasonably found meaning in the language that is plainly absent.”
Finally, the court dismissed the 1692(f) claim, stating that the allegations in the complaint were a mere recitation of the 1692(e) violations with the word “misleading” replaced with “unfair and unconscionable.”
It is comforting to see the trend of well-reasoned and favorable decisions out of the Eastern District of New York, arguably one of the most contentious federal courts for the industry. These good decisions only come about when the industry decides to defend off-the-wall claims brought by plaintiffs’ counsel.
What is promising is the speed at which the court reached this decision; about five months after the case was filed in August 2017. While five months may seem like a long time to lay persons, it is a relatively quick turn-around time in the world of litigation. While not applicable for every claim, this case serves as an example of how quickly the tides can turn if weak and meritless claims are vigorously defended from the get-go.