On August 9, the Northern District of Illinois granted summary judgment to a debt collector who included 1099-C language in its collection letter. The Court held the language was not false or deceptive, and that no reasonable person could read the language otherwise.
In Moses v. LTD Financial Services I, Inc., et al., plaintiff Kirk Moses incurred a $951.29 debt, subsequently assigned to LTD for collections. LTD then sent Moses a letter offering to settle his claim for $237.82. The letter also stated: “IRS requires certain amounts that are discharged as a result of the cancellation of debt to be reported on a Form 1099-C. You will receive a copy of the Form 1099-C if one is required to be filed with the IRS.” (Emphasis added.)
Moses filed suit against LTD, claiming the 1099-C language was false, deceptive, and misleading under §1692e of the Fair Debt Collection Practices Act, alleging the letter represented that if Moses had paid the settlement, he would have received a 1099-C from the IRS. Moses further asserted that LTD violated §1692f because referencing the 1099-C language was an unfair and unconscionable means to collect the debt by threatening to take action which LTD could not take.
In analyzing this case, the Court utilized the following factors from Ruth v. Triumph P’ships, 577 F.3d 790, 799-800 (7th Cir. 2009), to determine whether the 1099-C statement was false or misleading under the FDCPA: (1) whether the statement was plain on its face and not misleading; (2) whether the statement was not misleading but might mislead or deceive the least sophisticated consumer; or (3) whether the statement was “so clearly confusing on its face that a court may award summary judgment to the plaintiff.”
Moses argued that the failure to include exceptions to the 1099-C reporting requirement was deceptive and misleading and fell into the third Ruth factor. In rejecting Moses’ argument, the Court focused on the fact that LTD was unaware of the composition of Moses’s debt. In other words, LTD did not know how much was principal and how much was interest. Because the original creditor would have forgiven $713.47 in debt had Moses accepted LTD’s settlement offer, LTD determined it was possible that the acceptance could trigger a taxable event. Therefore, the court found the inclusion of this language appropriate.
The Court also observed that the 1099-C language did not affirm a discharge definitely would be reported to the IRS. The language merely stated that it might occur, which was a true statement, and left open the possibility that reporting would not be required. Therefore, no reasonable consumer could read the letter to believe that payment would definitely require the filing of the Form 1099-C.
The Court held the language fell within the first Ruth factor and was not deceptive on its face because no reasonable consumer would believe that paying the settlement referenced in the letter would automatically trigger a reportable event to the IRS. Furthermore, since Moses provided no extrinsic evidence to the contrary, the Court granted summary judgment in favor of the debt collector.
What is notable here is the Court’s interpretation of the specific language contained in the 1099-C disclaimer. Since the collector was not saying that a taxable event will occur, but merely providing an alert to the consumer that such an event might occur, the 1099-C language used for this particular account did not violate the FDCPA. This decision could also provide a road map to defeating class action claims involving similar 1099-C letter language because, in the Court’s view, any alleged violation of the FDCPA depends on what the debt collector knew about the composition of the account balance, a particularized inquiry not generally amenable to class treatment.
We will continue to monitor and report on this and other cases addressing FDCPA liability for letters containing such 1099-C disclaimer language.