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Smith v. National Enterprise Systems, Inc.

United States District Court, W.D. Oklahoma

March 30, 2017

JEFF SMITH, on behalf of himself and all others similarly situated, Plaintiff,



         Before the Court is Defendant National Enterprise Systems, Inc.'s Motion for Judgment on the Pleadings [Doc. No. 29], filed pursuant to Fed.R.Civ.P. 12(c). Defendant moves for a judgment in its favor on all claims asserted in the First Amended Complaint, on the ground that Plaintiff's factual allegations fail to state a plausible claim under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. Plaintiff has filed a response [Doc. No. 34] in opposition to the Motion, and Defendant has replied [Doc. No. 35]. Thus, the Motion is fully briefed and at issue.

         Standard of Decision

         Motions under Rule 12(c) and Rule 12(b)(6) are governed by the same standard. See Colony Ins. Co. v. Burke, 698 F.3d 1222, 1228 (10th Cir. 2012); Aspenwood Inv. Co. v. Martinez, 355 F.3d 1256, 1259 (10th Cir. 2004). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). “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. “We accept all facts pleaded by the non-moving party as true and grant all reasonable inferences from the pleading in favor of the same.” Colony, 698 F.3d at 1228 (internal quotation omitted); see also Sprint Nextel Corp. v. Middle Man, Inc., 822 F.3d 524, 530 (10th Cir. 2016); Sanders v. Mountain Am. Fed. Credit Union, 689 F.3d 1138, 1141 (10th Cir. 2012). Limited materials outside the pleadings may be considered. See GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997); see also Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1144 (10th Cir. 2013); Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010. Viewing the factual allegations in this manner and considering only these materials, a Rule 12(c) motion should be granted if “the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.” Colony, 698 F.3d at 1228 (internal quotation omitted); Sprint, 822 F.3d at 530; Sanders, 689 F.3d at 1141.

         Plaintiff's Allegations [1]

         Defendant is engaged in the business of collecting debts and is a “debt collector” as defined by the FDCPA. See 15 U.S.C. § 1692a(6). Plaintiff is a “consumer” who had previously incurred a student loan debt. See id. § 1692a(3). He received a series of form letters from Defendant beginning with one dated April 30, 2014, regarding his debt to Sallie Mae, Inc. in the amount of $4, 517.65. The letters are attached to the First Amended Complaint, and the parties agree they may properly be considered in determining the sufficiency of Plaintiff's pleading. Plaintiff claims three of these letters, which offered to settle the debt by accepting a lesser amount, contained false, deceptive, or misleading statements in violation of § 1692e. See First Am. Compl. ¶¶ 77-80. Plaintiff also claims statements in the letters that he could save money by accepting a settlement offer - “without informing [him] that such settlement would result in additional tax liability” - constituted unfair or unconscionable conduct in violation of § 1692f. Id. ¶ 83. Although the letters invited Plaintiff to call or contact Defendant to discuss the debt, he did not do so; his claims hinge entirely on the content of the letters. Thus, they are described in detail in the discussion infra. Plaintiff seeks to recover actual and statutory damages, interest, attorney fees, and costs.[2] See 15 U.S.C. § 1692k.


         A. Violation of § 1692e - Use of False, Deceptive, or Misleading Representation

         Plaintiff claims Defendant violated § 1692e by using a “false, deceptive, or misleading representation or means” to collect a debt due to certain statements in Defendant's collection letters or the timing of them.

         1. Amount Saved by Accepting Settlement Offers

         Defendant sent three letters to Plaintiff that were identical except for dates and dollar amounts. Each contained a prominently displayed box that stated an outstanding balance owed on the debt, a lesser amount Defendant would accept as payment, and the difference between these two amounts denominated as the “Amount You Save.” For example, the first letter dated April 30, 2014, contained this legend:





$4, 517.65



$1, 395.21


$3, 122.44

First Am. Compl., Ex. A [Doc. No. 27-1]. In two subsequent letters dated June 20, 2014, and July 2, 2014 (referred to, respectively, as the third and fifth letters), the amount Defendant would accept remained the same but the outstanding balance and the amount of savings increased.[3] The body of each letter encouraged Plaintiff to pay the reduced amount to settle the account “at a tremendous savings, ” and promised Defendant would “waive your remaining debt, saving you a significant amount of money.” Id.

         Plaintiff claims Defendant misrepresented the amount of savings to be realized from the proposed settlement because the forgiven debt would be considered taxable income under federal tax law. See 26 U.S.C. § 61(a)(12) (defining gross income to include “[i]ncome from discharge of indebtedness”); id. § 108 (containing specific provisions for discharges of indebtedness). According to Plaintiff, the true amount that he would have saved by accepting a settlement offer stated in the first, third and fifth letters was less than the amounts stated as the “Amount You Save” in the letters “because this amount would be offset by the income tax Plaintiff would owe” on the discharged debt. See First Am. Compl. [Doc. No. 27], ¶¶ 22, 37, 52. Plaintiff contends each statement regarding the amount saved “is a false statement by Defendant which misleads the reader into believing the offer is better than it really is.” See Pl.'s Resp. Br. [Doc. No. 34] at 15. Thus, Plaintiff claims “Defendant violated 15 U.S.C. § 1692e by stating in the First, Third, and Fifth Letter[s] that Plaintiff would save more money by entering into a settlement agreement with Defendant than he actually would save.” See First Am. Comp. [Doc. No. 27], ¶ 77.

         The question presented is whether Defendant's statement that Plaintiff would save a certain amount of money by accepting its settlement offer - representing an “Amount You Save” as the difference between the amount due on the account and the reduced amount Defendant would accept as full payment of Plaintiff's debt - is false, deceptive, or misleading due to income tax consequences of a discharge of indebtedness. Plaintiff urges the Court to find a violation of § 1692e by applying an objective “least sophisticated consumer” standard that has been adopted to serve FDCPA's remedial purpose to protect consumers. See Pl.'s Resp. Br. [Doc. No. 34] at 11-12, 14-15.[4] Plaintiff argues that prior cases finding no FDCPA violation from a failure to disclose income tax consequences are distinguishable or wrongly decided. Id. at 17-20. Plaintiff contends a debt collector's statement “‘is deceptive when it can be reasonably read to have two or more different meanings, one of which is inaccurate'” or “if the statement is subject to an interpretation or contains an implication with the capacity to deceive.” Id. at 19 (quoting Russell v. Equifax A.R.S., 74 F.3d 30, 35 (2d Cir. 1996), and citing other cases).[5]

         The overwhelming majority of federal courts, and the only appellate court to reach the issue, have rejected Plaintiff's position that a failure to alert a consumer to possible tax liability from forgiven debt renders representations regarding the amount to be saved or discounted in settlement of a debt, deceptive or misleading. See Altman v. J.C. Christensen & Assocs., Inc., 786 F.3d 191 (2d Cir. 2015); Daugherty v. Convergent Outsourcing, Inc., Civil Action No. H-14-3306, 2015 WL 3823654 (S.D. Tex. June 18, 2015), rev'd on other grounds, 836 F.3d 507 (5th Cir. 2016); Rigerman v. Forster & Garbus, LLP, No. 14-CV-1805, 2015 WL 1223760 (E.D.N.Y. Mar. 16, 2015); Landes v. Cavalry Portfolio Servs., LLC, 774 F.Supp.2d 800 (E.D. Va. 2011); Schaefer v. ARM Receivable Mgmt., Inc., Civil Action No. 09-11666-DJC, 2011 WL 2847768 (D. Mass. July 19, 2011).[6]

         The Second Circuit emphasized in Altman that the debt collector's letter offered a savings to the consumer based on the “outstanding account balance.” See Altman, 786 F.3d at 194. The court of appeals concluded: “The fact that a debtor may then have to pay tax on the amount saved is simply not deceptive in the context of what the savings are on a debtor's ‘outstanding account balance.'” Id. The Second Circuit cited approvingly in Altman a district court's view that “‘requiring, as a matter of law, debt collectors to inform a debtor of such a potential collateral tax consequence of settling a pre-existing debt seems far afield from even the broad mandate of FDCPA to protect debtors from abusive debt collection practices.'” Id. (quoting Schaefer, 2011 WL 2847768 at *5).

         Similarly, in this case, the Court finds that a reasonable reading of Defendant's first, third and fifth letters is that they conveyed offers to compromise and settle the debt on terms that would result in a certain amount of savings to Plaintiff based on the outstanding account balance. The fact that Plaintiff might owe income tax on the amount saved (as alleged in his pleading), or that an unsophisticated consumer might be unaware of the tax consequences of forgiven debt, simply does not make representations of savings from the outstanding balance false, deceptive, or misleading. Further, Plaintiff's reading of the letters - as possibly making a representation of net savings after considering income taxes - “is objectively unreasonable under the least sophisticated consumer standard[;] it cannot form the basis for a FDCPA claim.” Id.

         Federal appellate courts have unanimously held that debt collectors are not responsible for “‘bizarre or idiosyncratic interpretations of debt collection letters.'” Id. at 194 (quoting Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir. 2005)); see Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1062 (9th Cir. 2011); Lesher v. Law Offices of Mitchell N. Kay, PC, 650 F.3d 993, 997 (3d Cir. 2011); LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1194 (11th Cir. 2010); Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009); Kistner v. Law Offices of Michael P. Margelefsky, LLC, 518 F.3d 433, 438 (6th Cir. 2008); Peters v. Gen. Serv. Bureau, Inc., 277 F.3d 1051, 1055 (8th Cir. 2002); United States v. Nat'l Fin. Servs., Inc., 98 F.3d 131, 136 (4th Cir. 1996); Gammon v. GC Servs. Ltd. P'ship, 27 ...

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