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Dunbar v. Kohn Law Firm, S.C

United States Court of Appeals, Seventh Circuit

July 19, 2018

Amy Dunbar, Plaintiff-Appellant,
v.
Kohn Law Firm, S.C, et al., Defendants-Appellees. Tammy Smith, Plaintiff-Appellant,
v.
Weltman, Weinberg & Reis Company, LPA, Defendant-Appellee.

          Argued January 18, 2018

          Appeal from the United States District Court for the Eastern District of Wisconsin. No. 17-CV-88 - William E. Duffin, Magistrate Judge.

          Appeal from the United States District Court for the Southern District of Illinois. No. 3:16-CV-1333-NJR-SCW - Nancy J. Rosenstengel, Judge.

          Before Sykes and Hamilton, Circuit Judges, and Lee, District Judge. [1]

          Sykes, Circuit Judge.

         Amy Dunbar and Tammy Smith received collection letters offering to settle their debts at a significant discount. Both letters included the warning: "This settlement may have tax consequences." In separate suits Dunbar and Smith claimed that this statement is misleading in violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692e, because they were insolvent when they received the letters and therefore would not have incurred a tax liability for any discharged debts.

         The courts below rejected that argument and dismissed the suits on the pleadings. We consolidated the appeals and now affirm. The challenged statement is not false or misleading because "may" does not mean "will" and insolvent debtors might become solvent before settling their debt, triggering the possibility of tax consequences.

         I. Background

         In January 2016 the Kohn Law Firm, S.C., a collection law firm, sent Amy Dunbar a letter seeking to collect a debt originally owed to a bank. The letter stated that the full balance due was $4, 049.08 and offered to settle the debt for $2, 631.90, but warned: "NOTICE: This settlement may have tax consequences." Dunbar was insolvent when she received the letter and filed for bankruptcy six months later.

         That same month Weltman, Weinberg & Reis, also a collection law firm, sent Tammy Smith a collection letter seeking to collect a consumer credit-card debt. The letter stated that the balance due was $4, 319.69 and invited Smith to contact the law firm to discuss satisfying her debt obligation for a reduced amount. Like Dunbar's letter, this letter warned: "This settlement may have tax consequences." Smith too was insolvent when she received the letter and filed for bankruptcy two months later.

         Dunbar and Smith filed separate actions under § 1692e alleging that the collection letters were misleading because they were insolvent and therefore would not have had to pay taxes on any discharged debt. A magistrate judge and district judge, respectively, dismissed the cases for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). Both judges concluded that alerting debtors that a settlement "may" have tax consequences is neither false nor misleading.

         II. Discussion

         The FDCPA makes it unlawful for a debt collector to use "any false, deceptive, or misleading representation or means in connection with the collection of [a] debt." § 1692e. An objective "unsophisticated consumer" standard applies to § 1692e claims: We ask "whether a person of modest education and limited commercial savvy would be likely to be deceived" by the debt collector's representation. Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 774 (7th Cir. 2007). The objective test disregards "bizarre" or "idiosyncratic" interpretations of collection letters. Gruber v. Creditors' Prot. Serv., Inc., 742 F.3d 271, 274 (7th Cir. 2014); Durkin v. Equifax Check Servs., Inc., 406 F.3d 410, 414 (7th Cir. 2005). A collection letter can be "literally true" and still be misleading, Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1062 (9th Cir. 2011)-for example, if it "leav[es] the door open" for a "false impression," Fields v. Wilber Law Firm, P.C., 383 F.3d 562, 566 (7th Cir. 2004).

         Because this is a fact-laden inquiry, dismissal on the pleadings is proper only in "cases involving statements that plainly, on their face, are not misleading or deceptive." Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d 362, 366 (7th Cir. 2018) ...


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