United States District Court, D. New Jersey
LYNN ANTISTA, on behalf of herself & those similarly situated, Plaintiff,
FINANCIAL RECOVERY SERVICES, INC., CAVALRY SPV I, LLC, and JOHN DOES 1 TO 10, Defendants.
WILLIAM J. MARTINI, U.S.D.J.
Lynn Antista brings this putative class action against
Defendants Financial Recovery Service (“FRS”) and
Cavalry SPV I, LLC (“Cavalry”), alleging that
Defendants violated the Fair Debt Collection Practices Act
(“FDCPA”). According to the Complaint,
Defendants' collection letter contained a “false,
deceptive, or misleading representation” by stating
that “settlement may have tax consequences.” Now
before the Court is Defendants' motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6). There was no oral
argument. Fed.R.Civ.P. 78.1(b). For the reasons set forth
below, Defendants' motion to dismiss is
GRANTED and Plaintiff's claim regarding
the potential tax consequences of settlement is
DISMISSED. Plaintiff's second FDCPA
claim is not affected by this motion and remains pending.
facts in this case are fairly straightforward. Plaintiff
defaulted on an account with HSBC Bank Nevada, N.A, during
the summer of 2011. Compl. ¶ 24. Defendant Cavalry
purchased the debt,  then hired Defendant FRS to collect.
¶ 27; Compl. Ex. A. This action arises from a collection
letter that FRS sent to Plaintiff on May 19, 2016, which
stated that Plaintiff owed $410.31. After describing three
different settlement options, the letter made the following
This settlement may have tax consequences. Please consult
your tax advisor. FRS is not a law firm and FRS will not
initiate any legal proceedings or provide you with legal
advice. The offers of settlement in this letter are merely
offers to resolve your account for less than the balance due.
For assistance, please feel free to call us at the toll free
number listed below or use our online consumer help desk.
reason that settlement “may have tax
consequences” is that canceled or discharged debt
qualifies as gross taxable income, which normally must be
reported to the IRS. Plaintiff does not dispute this general
proposition. Rather, Plaintiff alleges that the statement,
“[t]his settlement may have tax consequences, ”
is false or misleading because the particular circumstances
of Plaintiff's debt exempt her from reporting the
discharge of that debt as taxable income. Specifically, the
tax code contains reporting exceptions for debtors in
insolvency, see 26 U.S.C. § 108(a)(1)(B); debts
disputed at the time of discharge, see Zarin v.
C.I.R., 916 F.2d 110, 115 (3d Cir. 1990); and discharged
debts under $600. See 26 U.S.C. § 6050P(b).
Plaintiff argues that each of these exceptions applies and
that she therefore would have no obligation to report a
settlement. Consequently, the statement that settlement
“may have tax consequences” is false and
misleading. A second FDCPA claim-that Defendants engaged
unfair and deceptive practices by attempting to collect
time-barred debts without proper disclosure-is not addressed
in Defendants' motion and therefore remains
Rule of Civil Procedure 12(b)(6) provides for the dismissal
of a complaint, in whole or in part, if the plaintiff fails
to state a claim upon which relief can be granted. The moving
party bears the burden of showing that no claim has been
stated. Hedges v. United States, 404 F.3d 744, 750
(3d Cir. 2005). In deciding a motion to dismiss under Rule
12(b)(6), a court must take all allegations in the complaint
as true and view them in the light most favorable to the
plaintiff. See Warth v. Seldin, 422 U.S. 490, 501
(1975); Trump Hotels & Casino Resorts, Inc. v. Mirage
Resorts Inc., 140 F.3d 478, 483 (3d Cir. 1998).
a complaint need not contain detailed factual allegations,
“a plaintiff's obligation to provide the
‘grounds' of his ‘entitlement to relief'
requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not
do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007). Thus, the factual allegations must be sufficient
to raise a plaintiff's right to relief above a
speculative level, such that it is “plausible on its
face.” See Id. at 570; see also Umland v.
PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d 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.” Ashcroft v. Iqbal, 129
S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at
556). While “[t]he plausibility standard is not akin to
a ‘probability requirement' . . . it asks for more
than a sheer possibility.” Iqbal, 129 S.Ct. at
passed the FDCPA in 1977 to combat “the use of abusive,
deceptive, and unfair debt collection practices by many debt
collectors.” Lesher v. Law Offices of Mitchell N.
Kay, PC, 650 F.3d 993, 997 (3d Cir. 2011)(citing 15
U.S.C. § 1692(a)). Consumers accrue a private right of
action against “any debt collector who fails to comply
with any provision” of the FDCPA. § 1692k(a).
Included among practices the FDCPA prohibits is the use of
“false, deceptive, or misleading representation or
means in connection with the collection of any debt.”
§ 1692e. To determine whether a particular practice or
action violates the FDCPA, courts assume the perspective of
the “least sophisticated consumer.”
Lesher, 650 F.3d at 997. The “least
sophisticated consumer” is “one with some level
of understanding and one willing to read the document with
some care . . . .” Buchanan v. Northland Group,
Inc., 776 F.3d 393, 397-98 (6th Cir. 2015).
“[A]lthough the ‘least sophisticated debtor'
standard is a low standard, it ‘prevents liability for
bizarre or idiosyncratic interpretations of collection
notices by preserving a quotient of reasonableness and
presuming a basic level of understanding and willingness to
read with care.'” Lesher, 650 F.3d at 997
(quoting Wilson v. Quadramed Corp., 225 F.3d 350,
354-55 (3d Cir. 2000)(internal quotation marks and citation
taxable income includes discharged debt. Cozzi v.
C.I.R., 88 T.C. 435, 445 (1987)(“The general
theory is that to the extent that a taxpayer has been
released from indebtedness, he has realized an accession to
income because the cancellation effects a freeing of assets
previously offset by the liability arising from such
indebtedness.”). Given that taxpayers are generally
obligated to report gross income-discharged debt included- to
the IRS, the FRS letter to Plaintiff stated that settlement
of the debt “may have tax consequences.” Compl.
Ex A. The Complaint principally alleges that this statement
was “false . . . deceptive and misleading because [it]
deliberately fails to disclose that such reporting
requirement is subject to seven exceptions, ” several
of which allegedly apply to Plaintiff. ¶ 72. First, a
discharged debt is excluded from gross income if “the
discharge occurs when the taxpayer is insolvent.” 26
U.S.C. § 108(a)(1)(B). Second, a debt that remains
disputed is not taxable. See Zarin v. C.I.R., 916
F.2d 110, 115 (3d Cir. 1990)(“Under the contested
liability doctrine, if a taxpayer, in good faith, disputed
the amount of a debt, a subsequent settlement of the dispute
would be treated as the amount of debt cognizable for tax
purposes.”). Third, the requirement to file an
information return with the IRS does not apply to discharged
debts under $600. 26 U.S.C.A. § 6050P(b) (West).
is no need to determine whether these exceptions apply to
Plaintiff; even if they do, the statement that settlement
“may have tax consequences” is not false,
deceptive, or misleading. Indeed, settlement
“may have tax consequences, ” depending
on a debtor's individual circumstances. The Court must
assume that a reasonable, unsophisticated debtor can
distinguish between “may” and “must.”
See Lesher, 650 F.3d at 997; Taylor v. Fin.
Recovery Servs., Inc., 252 F.Supp.3d 344, 352 (S.D.N.Y.
2017); Moore v. Diversified Collection Servs., 843
F.Supp.2d 280, 284 (E.D.N.Y. 2012). In Eades, a
letter stated that the plaintiff “may be liable”
for an outstanding balance owed to her mother's nursing
home, and further that the creditor “may be entitled to
recover the property transferred.” Eades v.
Kennedy, PC Law Offices, 799 F.3d 161, 173 (2d Cir.
2015). The plaintiff alleged that letter was “false,
deceptive, or misleading” under the FDCPA because it
did not apprise the plaintiff of all statutory defenses
potentially available to her. Id. The Court
We conclude that even an unsophisticated consumer could not
reasonably interpret Kennedy's collection letter as
purporting to recite all relevant defenses and considerations
. . . It does not state that Eades has no defenses. It tells
her that she “may be held . . . liable”
and that it “may be ...