Smith v. Weltman, Weinberg & Reis Co.

TAMMY SMITH, Plaintiff, v. WELTMAN, WEINBERG & REIS CO., L.P.A., Defendants.

Case No. 3:16-CV-1333-NJR-SCW

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS

May 30, 2017

MEMORANDUM AND ORDER

ROSENSTENGEL, District Judge:

Plaintiff Tammy Smith brings this action for an alleged violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, et seq. (Doc. 1). Defendant Weltman, Weinberg & Reis Co., L.P.A. ("WWR") now moves to dismiss the Complaint for failure to state a claim (Doc. 13). For the following reasons, the motion to dismiss is granted.

BACKGROUND

On January 15, 2016, Smith received a letter from WWR, a debt collection law firm, attempting to collect Smith's personal credit card debt in the amount of $4,319.69 (Doc. 1). The letter invited Smith to call WWR "during this tax season" to discuss using her income tax refund as a source of funds to satisfy her outstanding obligation for a reduced amount. (Id.). The letter did not offer any specific settlement amount but included the statement: "This settlement may have tax consequences." (Id.). The letter did not mention the Internal Revenue Service. According to the Complaint, Smith was insolvent at the time she received WWR's letter. She then filed for Chapter 7 bankruptcy on March 16, 2016, and obtained a discharge of her debts (Id.).

On December 12, 2016, Smith initiated this action, claiming the statement "[t]his settlement may have tax consequences" violates the FDCPA, 15 U.S.C. §§ 1692e and 1692e(10). Specifically, Smith alleges that referring to "tax consequences" in a collection letter is intimidating and misleading, suggesting to the unsophisticated consumer that failure to pay the debt will give rise to problems with the IRS (Id.). Smith asserts the language misleads the unsophisticated consumer to believe that unless the consumer pays the entire amount allegedly owed on the debt, he or she is going to be reported to the IRS and/or will have to pay taxes on the unpaid balance. Smith further claims WWR voluntarily chose to give the "tax advice" found in the letter despite no law or regulation requiring such language in collection letters. Smith argues there is no legitimate reason for referring to "tax consequences" in a collection letter directed to a consumer.

On January 31, 2017, WWR moved to dismiss Smith's Complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (Doc. 13). WWR argues the statement at issue is neither false nor misleading, as is required to state a claim under the FDCPA. Furthermore, the letter did not mention even the possibility of WWR reporting any discharge of debt to the IRS, such that an unsophisticated consumer would feel pressured to pay off the entire debt. Smith filed a response on March 3, 2017 (Doc. 15), and WWR filed a reply on March 17, 2017 (Doc. 16). The motion is now ripe for review.

LEGAL STANDARD

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is meant to "test the sufficiency of the complaint, not to decide the merits" of the case. Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990) (citation omitted). In evaluating a motion to dismiss, the Court must accept all well-pleaded allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir. 2011); Thompson v. Ill. Dep't. of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). Pursuant to Federal Rule of Civil Procedure 8(a)(2), a complaint must include a short and plain statement of the claim, showing that the pleader is entitled to relief. FED. R. CIV. P. 8(a)(2). Accordingly, the Court may grant a motion to dismiss under Rule 12(b)(6) only if a complaint lacks "enough facts to state a claim [for] relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 697, 129 S. Ct. 1937, 1960 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974 (2007)); Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010).

"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556, 127 S. Ct. at 1955). While a complaint need not include detailed factual allegations, there "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556, 127 S. Ct. at 1955). These requirements ensure that "thedefendant [receives] fair notice of what the . . . claim is and the grounds upon which it rests . . . ." Twombly, 550 U.S. at 556, 127 S. Ct. at 1964 (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 103 (2007)).

DISCUSSION

I. The Fair Debt Collection Practices Act (FDCPA)

"The purposes of the FDCPA are 'to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.'" Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 683 (7th Cir. 2017) (quoting 15 U.S.C. § 1692e). To that end, the FDCPA prohibits collectors of consumer debts from, among other things, using "any false, deceptive, or misleading representation or means in connection with the collection of any debt." Id.

"Whether a debt collection letter is deceptive or misleading is a question of fact." Everett v. Fin. Recovery Svcs., Inc., No. 116-CV-01806-JMS-MPB, 2016 WL 6948052, at *6 (S.D. Ind. Nov. 28, 2016) (citing Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 776 (7th Cir. 2007)). Dismissal is appropriate where it is "'apparent from a reading of the [debt collection] letter that not even a significant fraction of the population would be misled by it.'" Id. (quoting Zemeckis v. Global Credit & Collection Corp., 679 F.3d 632, 636 (7th Cir. 2012)). Deceptive or misleading debt collection tools include "[t]he false representation of . . . the character, amount, or legal status of any debt," "[t]he threat to take any action that cannot legally be taken or that is not intended to be taken," and "[t]he use of any false representation or deceptive means to collect or attempt to collectany debt or to obtain information concerning a consumer." 15 U.S.C. § 1692e(2)(A), (5), (10).

Whether a debt collection letter is false, deceptive, or misleading under the FDCPA must be evaluated from the perspective of the least sophisticated consumer. Evory, 505 F.3d at 774. Thus, to determine whether a representation made in a collection letter is misleading, the Court must ask whether a person of modest education and limited commercial savvy would likely be deceived. Id. "The standpoint is not that of the least intelligent consumer in this nation of 300 million people, but that of the average consumer in the lowest quartile (or some other substantial bottom fraction) of consumer competence." Id. (citations omitted). As described by the Seventh Circuit, the least sophisticated consumer "isn't a dimwit. She may be uninformed, naive, and trusting, . . . but she has rudimentary knowledge about the financial world, and is capable of making basic logical deductions and inferences." Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 645 (7th Cir. 2009). "Furthermore, while our unwary debtor may tend to read collection letters literally, he does not interpret them in a bizarre or idiosyncratic fashion." Pettit v. Retrieval Masters Creditor Bureau, Inc., 211 F.3d 1057, 1060 (7th Cir. 2000). "If a statement would not mislead the unsophisticated consumer, it does not violate the FDCPA—even if it is false in some technical sense." Wahl, 556 F.3d at 645-46.

II. Motion to Dismiss for Failure to State a Claim

WWR first argues that the statement at issue, "[t]his settlement may have tax consequences," is not objectively false as alleged by Smith in her Complaint (see Doc. 1, ¶ 29). WWR cites to various provisions of the Internal Revenue Code and IRSRegulations to assert that there very well could have been tax consequences in this case. For example, if settlement of Smith's debt resulted in a discharge of indebtedness in excess of $600, the debt owner would have been required to report such discharge to the IRS. Furthermore, WWR argues, as a general rule, a discharge of indebtedness would need to be reported to the IRS by a debtor as gross income. See 26 U.S.C. § 61(a)(12); IRS Pub. No. 4731, Screening Sheet for Nonbusiness Credit Card Debt Cancellation (2015), available at https://www.irs.gov/pub/irs-pdf/p4731.pdf. WWR asserts that while there are "various exceptions" to the rule that discharge of debt is taxable income, such as bankruptcy or insolvency, that does not make the statement at issue false.

In response, Smith argues that the statement is only a half-truth because the "various exceptions" to those tax consequences, such as bankruptcy and insolvency, are likely to apply to a majority of the unsophisticated consumers being targeted by the communications. In those circumstances, Smith claims, the law recognizes half-truths "as deceptive as outright lies."

The Court disagrees with Smith and finds that the statement is an accurate statement of the law. The IRS lists "[i]ncome from discharge of indebtedness" as a type of "gross income," 26 U.S.C. § 61(a)(12), and IRS Publication 4731 states that "the taxpayer may be required to report the canceled debt as income regardless of the amount," https://www.irs.gov/pub/irspdf/p4731.pdf. The fact that the statement may not apply to certain individuals does not make it deceptive or a lie. Indeed, recent ...