In a recent opinion issued by the U.S. District Court for the Southern District of Indiana in Everett v. Financial Recovery Services, Inc. (United States District Court, S.D. Indiana, Case No. 16-01806), Judge Jane Magnus-Stinson granted a Joint Motion to Dismiss by collection agency Financial Recovery Services, Inc. (FRS) and its client, LVNV Funding, LLC (LVNV), for failure to state a claim under the Fair Debt Collection Practices Act (FDCPA). Plaintiff had alleged that the defendants had violated the FDCA because of a misleading communication regarding potential tax consequences.

A copy of the opinion can be found here.


In 2014, plaintiff Valerie Everett defaulted on payments for her Citibank credit card. Citibank charged off the debt, which was purchased by LVNV. Afterward, LVNV hired FRS to collect from Everett.

FRS sent a letter to the plaintiff on March 3, 2016, offering several options for settling the debt. After the options for settlement were listed, FRS included this statement: “This settlement may have tax consequences. Please consult your tax advisor.”

Everett filed suit on July 6, 2016, claiming the following:

“Ms. Everett alleges that Defendants violated 15 U.S.C. §§ 1692d, 1692e, and 1692f by ‘invoking the possibility of tax consequences in the March 3, 2016 collection communication.’ She alleges that the Internal Revenue Code did not require Defendants to report cancellation of debt because ‘the largest amount Defendants proposed to forgive was $399.87, well below the $600.00 reporting requirement.’ She alleges that Defendants ‘needlessly and falsely invoking the possibility of tax consequences had the natural effect of harassing [her].’

Ms. Everett also alleges that ‘Defendants intended to elevate [her] concern over and response to the collection communication, increasing the likelihood of payment on the subject consumer debt.’ She alleges that Defendants breached their ‘duty not to make false and misleading statements to consumers they seek payment from.’ She alleges that she ‘has been harmed and suffered damages as a result of Defendants’ false and deceptive actions.’”

The plaintiff sought actual and statutory damages in addition to attorneys’ fees and costs. The defendants moved to dismiss the complaint for a lack of standing and a failure to state a claim under the FDCPA.


Judge Magnus-Stinson began discussion of the case by noting the burden of proof is on the plaintiff to show that standing exists with respect to the claims made in the complaint. The defendants claim that in this case, the plaintiff failed to demonstrate any concrete harm or injury as a consequence of the letter. Everett responded to this argument by claiming otherwise:

“Ms. Everett argues that she ‘is a medically fragile individual’ who suffers from several mental disorders, takes lithium daily, and is unable to work. She asserts that upon reading the Letter – and specifically the statement that a settlement may have tax consequences – she ‘became distressed because she believed the IRS would become involved,’ and her medical conditions were ‘exacerbated.’ She argues that she has standing to assert her claims because she suffered an injury in fact, which was concrete and particularized, and the injury was not hypothetical.”

In response, the defendant argued that Everett’s above claims did not appear in the complaint, and that the claims of attorneys’ fees and costs and “the threat of concrete harm” are “too vague to confer standing.”

Citing Spokeo v. Robins, 136 S. Ct. 1540 (2016), Judge Magnus-Stinson says “the Court will only consider whether the allegations in the Complaint itself confer standing” and “will not consider Ms. Everett’s allegations in her response brief that the Letter exacerbated her medical conditions.”

However, the Court said that the plaintiff did have Article III standing, because “Ms. Everett has sufficiently demonstrated that she suffered a particularized and concrete injury when she received the Letter.”

After finding that Everett had standing, Judge Magnus-Stinson considered the other arguments raised by the defendants:

  • Failure to State a Claim Under § 1692e: the Motion to Dismiss is granted because the letter “would not plausibly deceive or mislead even the unsophisticated consumer.”
  • Failure to State a Claim Under § 1692d: the Motion to Dismiss is granted because “defendants’ statement did not threaten or harass Ms. Everett because it is a true and accurate statement” and because “the Court cannot construe the statute to find a cause of action based on the Tax Consequences Language at issue here.”
  • Failure to State a Claim Under § 1692f: the Motion to Dismiss is granted because “the Court will not construe § 1692f so broadly as to find a cause of action for ‘unfair or unconscionable’ conduct when the Tax Consequences Language is an accurate statement of the tax code, and especially when a consumer may be unaware – as appears to be the case here – that the discharged amount of indebtedness may be considered gross income by the IRS.”

In short, the Court ruled that the plaintiff failed to state a viable claim under the FDCPA, and that the defendants’ Joint Motion to Dismiss was granted and that the plaintiff’s claims were dismissed with prejudice.

insideARM Perspective

InsideARM contacted Brian Bowers, President of FRS to ask for comment on the case. Bowers provided the following:

“We decided to make a stand on these types of cases that clearly misrepresent the facts and in this case we were pleased with the stance of the court. Our organization researched the ‘Tax Consequences Language’ topic thoroughly prior to the inclusion of the language on the letters and the fact that the court agreed with our position on the language is an illustration of the effectiveness of the due diligence process in our organization. I hope others in the industry can use this ruling as a guideline and I commend those that choose to fight for what is right and just in our industry.”

insideARM congratulates FRS and Bowers for their successful defense of this case and the positive result for the industry.

That said, cases involving 1099(c) disclosures have led to mixed results in the recent past. Examples of similar cases covered recently by insideARM which led to a negative result include the following:

In today’s Debt Collection Drill, attorneys John Rossman and Michael Poncin provide greater insight into the Everett case. insideARM recommends listening to that podcast for their always interesting analysis.

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