On September 28, 2017, a federal judge in New Jersey denied a request to dismiss a Fair Debt Collection Practices Act (FDCPA) lawsuit regarding a letter from a debt collector that included language regarding potential 1099(c) reporting. The case is Broderick v. Viking Client Services, Inc, (Case No. 17-cv-1827, U.S.D.C., District of New Jersey).
A copy of the court’s Opinion can be found here.
Editor’s Note: The court’s opinion is labeled NOT FOR PUBLICATION. An unpublished opinion is a decision of a court that is not available for future citation as precedent because the court deems the case to have insufficient precedential value.
Plaintiff brought this putative class action alleging that defendant violated the FDCPA. Specifically, plaintiff alleged:
- Defendant is a Minnesota-based collection agency and is in the business of collecting debts owed by various debtors to banks and/or other institutions, which had previously extended the debtors some form of credit.
- Defendant performs such debt collection actions by utilizing regular mail, telephone calls, and/or emails.
- She is a consumer and that defendant is a “debt collector.”
- Non-party PNC Bank placed a debt incurred by plaintiff with defendant for purposes of collection.
- The debt was in default at all times it was in defendant’s possession for collection purposes.
- On March 17, 2016 defendant sent plaintiff a letter.
- The March 17, 2016 letter contained the following language:
The Internal Revenue Service (IRS) requires financial institutions to annually report to the IRS discharges of debt in the amount of $600 or greater. If the Settlement amount that you agreed to pay results in a discharge of $600 or more of the account principal balance due on the account, the creditor may be required to report that amount to the IRS via IRS Form 1099C. A copy of this will be provided by the creditor. (Emphasis in the original)
- Discharge of an amount that consists of interest is not reportable to the IRS, but rather only the stated principal amount is reportable to the IRS upon discharge.
- The language in defendant’s letter is deceptive since it is confusing to the least sophisticated consumer because it can be read to mean the entire amount discharged will be reported to the IRS, but can also be read to mean only the stated principal balance can be reported to the IRS.
The matter came before the court by way of defendant Viking Collection Services, Inc.’s Motion to Dismiss the plaintiff’s complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
The Court’s Decision
As noted above, the court decided not to dismiss the case at this time. In deciding a motion under Rule 12(b)(6) the court must determine if the complaint contains sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.”
The opinion was written by the Honorable Jose, L. Linares, Chief Judge, United States District Court. Per Judge Linares:
“To determine the sufficiency of a complaint …….in the Third Circuit, the court must take three steps: first, the court must take note of the elements a plaintiff must plead to state a claim; second, the court should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth; finally, where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.
In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant’s claims are based upon these documents.”
Judge Linares then applied the facts presented to the above standard. He wrote:
“Plaintiff alleges that Defendant violated 15 U.S.C. § 1692d, 1692e, 1692e(2)(A), 1692e(5), 1692e(10), and 1692f, because Defendant’s debt collection letters contained “deceptive” language. Section 1 692f prohibits “unfair practices” and states in part that “[a] debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f. Meanwhile, section 1692e prohibits a debt collector from “us[ing] any false, deceptive, or misleading representation or means in connection with the collection of any debt,” 15 U.S.C. § 1692e, including: falsely representing “the character, amount, or legal status of any debt,” id. § 1692e(2)(A), “threat[ening] to take any action that cannot legally be taken,” §1692e(5), or “us[ing] any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.”
With regard to the specific language in the letter, Judge Linares wrote:
“With regards to the language in the letter, this Court finds that, at this stage in the litigation, the IRS reporting language can be confusing to the least sophisticated consumer. The first sentence of the above quoted language can be read as a definitive reporting requirement, while the second makes reporting seem like a potential, but not definite, occurrence. Additionally, the IRS reporting language fails to explain, in clear terms, whether the entire forgiven amount (including interest), or merely the stated principal balance, would be reported to the IRS if reporting is required. Hence, the Court is satisfied that Plaintiff has sufficiently pled a prima facie cause of action for violation of the FDCPA and will not dismiss her Complaint.
For the aforementioned reasons, Defendant’s Motion to Dismiss Plaintiffs Complaint is hereby denied.”
This is another in the long line of inconsistent decisions on 1099(c) disclosures in letters. insideARM has an FDCPA Resources page which contains an FDCPA case law grid. A quick review of that grid will show several 1099(c) cases.
What does this case mean to compliance professionals? insideARM would suggest that it should be viewed as fact specific. This court found this particular language to be language that would not allow the court to dismiss the case at this stage of the proceeding. The case is far from over; all that has happened is the court denied a motion to dismiss. While we would typically not write about a case at this stage, we highlight it as yet another example of the risk of including 1099(c) disclosures. We have written about this on a number of occasions in the past. Click here to see a list of the mixed decisions in 1099(c) cases over the past 24 months.
insideARM will monitor the case for future activity.