In Bordeaux v. LTD Fin. Servs., L.P., a Third Circuit district court granted summary judgment to the defendants in a Fair Debt Collection Practices Act (FDCPA) case. In its holding, the court emphasized Third Circuit precedent that the inclusion of 1099C language in collection letters indicating that reporting to the IRS may be required in the event of settlement on a debt for $600 or more is not false, deceptive, or misleading if there is possibility that the defendants would need to report the settlement to the IRS (i.e., that settlement could be for more than $600).
In Bordeaux, the plaintiff had an outstanding balance on a Home Depot credit card account, and defendant Advantage Assets II, Inc. (AA II, Inc.), a debt buyer, retained defendant LTD Financial Services, L.P. (LTD) to collect on the $4,528.59 debt. LTD subsequently sent four collection letters to the plaintiff that identified the creditor as “Citibank (South Dakota), N.A. Home Depot,” included offers to settle the debt obligation for lesser amounts, and included the following relevant language:
Whenever $600.00 or more of the debt is forgiven as a result of settling a debt for less than the balance owing, the creditor may be required to report the amount of the debt forgiven to the Internal Revenue Service on a 1099C form, a copy of which would be mailed to you by the creditor. If you are uncertain of the legal or tax consequences, we encourage you to consult your legal or tax advisor.
The plaintiff subsequently filed a first amended class-action complaint, asserting violations of the FDCPA arising from the alleged improper use of the 1099C language provision referenced above in the collection letters. Ultimately, the district court certified a class. After the Third Circuit denied the defendants’ petition to file an interlocutory appeal, the defendants ultimately prevailed on summary judgment before the district court.
Specifically, in its motion for summary judgment, defendants LTD and AA II, in relevant part, alleged that the plaintiff did not suffer an injury-in-fact under the FDCPA, and thus lacked Article III standing. Further, they contended that the 1099C language “accurately conveyed the potential negative tax consequences of settling a debt for less than the amount owed,” and accordingly did not violate Sections 1692e or 1692f of the FDCPA. In her cross motion for partial summary judgment, the plaintiff, in relevant part, asserted Article III standing on the basis that LTD’s letters were “‘false, misleading, or deceptive'” in attempts to collect a debt, and claimed that the alleged “deceptive practices” constituted a “violation of the FDCPA as a matter of law.”
The court rejected the defendants’ argument that the plaintiff lacked Article III standing to bring a claim under the FDCPA. It found that Third Circuit precedent establishes that that “a violation of the FDCPA ‘is the invasion of a substantive right’ which, standing alone, is a ‘concrete injury in fact sufficient for Article III standing.'”
However, it granted summary judgment to the defendants for the plaintiff’s claims that the defendants violated Sections 1692e and 1692f of the FDCPA.
Specifically, regarding Section 1692e (prohibiting debt collectors from “us[ing] any false, deceptive, or misleading representation or means in connection with the collection of any debt), the court found that the 1099C language in the collection letter was not false, deceptive, or misleading under the least sophisticated debtor standard. Indeed, distinguishing the case from precedent in Schultz v. Midland Credit Mgmt., Inc. (holding that similar language was false or misleading in a context where appellants did not owe more than $600, and so “any reporting to the IRS was an impossibility), the court emphasized that there was a “possibility that defendants would need to report the settlement to the IRS in this case, and so reporting was not ‘an event that would never occur.'” The court rejected the plaintiff’s arguments that (1) the 1099C language in the collection letter regarding “‘reporting to the IRS’ was ‘designed to intimidate’ her into paying the outstanding debt”; and (2) “reporting to the IRS is only required when $600 or more of “principal” — and not “debt” — is reported to the IRS.” Therefore, the court granted summary judgment to the defendants on the plaintiff’s Section 1692e claim.
Further, the court granted summary judgment to the defendants concerning the plaintiff’s claims that the defendants violated Section 1692f of the FDCPA (prohibiting debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt). It reasoned that the plaintiff failed to indicate any specific instances of a violation(s) of Section 1692(f), but merely premised her claim on conduct alleged to support her Section 1692e claim.
The court did not address AA II’s additional argument in its motion for summary judgment that it could not be held vicariously liable for LTD’s actions since the court granted summary judgment to the defendants on the plaintiff’s Sections 1692e and 1692f claims.
