A District Court judge in Wisconsin has denied class certification and granted summary judgment in favor of a defendant that was accused of violating the Fair Debt Collection Practices Act by including a reference to the requirement that the Internal Revenue Service may have to be notified of a debt cancellation in a collection letter.
A copy of the ruling in the case of Brunett v. Convergent Outsourcing, Inc., can be accessed by clicking here.
The plaintiff received a collection letter in regards to an unpaid debt of $1,012.13. The defendant offered to settle the debt for 50% of what was owed, or $506.07. The remaining $506.06 would be discharged. The letter included the following section:
Notice: The Internal Revenue Service may require financial institutions to file form 1099-C (Cancellation of Debt) to report the discharge of indebtedness of $600.00 or more.
The plaintiff filed suit, alleging the letter violated Section 1692e(5) and 1692e(10) of the FDPCA by making threats to take action that can not be legally taken and using false representations to collect or attempt to collect on a debt because the amount that would be discharged was below the threshold for needing to be reported to the IRS.
Noting that there was nothing in the letter that barred the defendant from charging off a greater portion of the debt than it was offering, Judge Lynn Adelman of the District Court for the Eastern District of Washington said that should that happen, the IRS reporting requirement could become a reality.
“The outcome implied in the notice, i.e., IRS reporting, is one that could conceivably under the circumstances come to pass,” Judge Adelman wrote. “As applied to plaintiff, therefore, the notice is not misleading on its face, and does not fall within the third Ruth category. On the other hand, if the amount of plaintiff’s debt had been less than $600.00, the notice would have implied an outcome that could not legally have come to pass, and would therefore have been misleading on its face. Thus, the IRS notice at issue was misleading on its face in the case of putative class members whose total debt was less than $600, and only plausibly misleading in the case of those whose debt exceeded $600.”
Judge Adelman ruled that the plaintiff did not provide enough evidence to prove she was an adequate representative of the class and denied certification. Judge Adelman also granted summary judgment for the defendant on the same grounds.
“It’s quite plausible that the notice in the letter in this case is misleading to the unsophisticated debtor; for example, the unsophisticated debtor might not know whether the term ‘discharge’ applies to the entire amount of a resolved debt or only that portion waived by the creditor,” Judge Adelman wrote. “But that is a jury question, and the jury needs extrinsic evidence on which to base its determination. Because plaintiff has not presented such evidence, she cannot survive defendant’s motion for summary judgment.”
