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Judge Denies Motion to Compel Arbitration in FDCPA Case Over Tax Language

A District Court judge in New Jersey has denied a defendant’s motion to compel arbitration and strike class claims after it was sued for violating the Fair Debt Collection Practices Act by sending letters to the plaintiffs that included language regarding the possibility that the forgiveness of a debt may be reported to the Internal Revenue Service, despite the fact that the amounts being collected were below the threshold for doing so.

A copy of the ruling in Schultz v. Midland Credit Management, Inc., can be accessed by clicking here.

The plaintiffs received six separate letters from the defendant. In some of those letters, the following passage was included: “We are not obligated to renew this offer. We will report forgiveness of debt as required by [Internal Revenue Service (“IRS”)] regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case.”

However, any amount that was forgiven in the collection of the debts would not have been needed to be reported to the IRS because the debts themselves were below the $600 reporting threshold.

The District Court judge granted the defendant’s motion to dismiss, but that was overturned on appeal to the Third Circuit. Now that the case is back before the District Court judge, the defendant sought to compel arbitration pursuant to the plaintiff’s agreement with the original creditor, and strike claims that were made after the FDCPA’s one year statute of limitations ad expired.

Skipping through much of the legalese in Judge Jose Linares’s opinion, limited discovery must be conducted “on the narrow issue of whether an enforceable arbitration agreement exists between Defendant and Mr. Schultz, after which the Court ‘may entertain a renewed motion to compel arbitration,’ which it will judge under the Rule 56 standard.”

Judge Linares also denied the defendant’s motion to strike the additional claims as time-barred.

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