Austin v. Metro Development Group, LLC, 571 F.Supp.3d 1279

Jen Austin worked for Metro Development Group from 2014–2020 and was paid through Austin Marketing, LLC, which she formed; Metro issued Forms 1099 to Austin Marketing that included reimbursements for business expenses.
Austin alleged she was misclassified as an independent contractor (should have been an employee) and that the 1099s were fraudulent because they (a) mischaracterized employment status and (b) included reimbursed expenses as gross income.
Austin Marketing brought a federal claim under 26 U.S.C. § 7434 (fraudulent information returns); Jen Austin asserted state-law claims (FDUTPA, Florida Whistleblower Act, defamation, unpaid wages).
The Court previously dismissed Austin’s individual § 7434 claim for lack of standing but allowed Austin Marketing’s § 7434 claim to proceed; several affiliated entities were defendants.
Defendants moved for summary judgment; the Court granted summary judgment on the § 7434 claim and, because only state claims remained and one raised novel Florida law issues, declined supplemental jurisdiction and dismissed the state claims without prejudice.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether misclassification alone supports a § 7434 claim	Misclassification (issuing 1099 instead of W-2) makes the information returns fraudulent	§ 7434 protects against fraudulent statements about amounts paid, not employment classification	Misclassification alone is not actionable under § 7434; statute targets false amounts reported
Whether including reimbursed expenses on 1099s made the returns fraudulent	Reimbursed expenses should have been excluded from 1099 income; experts dispute	Inclusion was not prohibited; regs and § 61(a) support reporting amounts includible in gross income	As a matter of law inclusion was not clearly prohibited; inclusion did not make 1099s materially fraudulent
Whether defendants acted willfully under § 7434	Changes in reporting practice and motive to avoid employer obligations show willfulness	Accounting relied on auditors; no evidence defendants intentionally flouted tax law	Plaintiff failed to prove willfulness by the clear-and-convincing standard; summary judgment for defendants
Whether the court should retain supplemental jurisdiction over state claims	(Implicit) plaintiffs prefer federal adjudication	Defendants urge dismissal of state claims after federal claim resolved	Court declined supplemental jurisdiction (novel FDUTPA issue and dismissal of federal claim) and dismissed state claims without prejudice

Collins v. Yellen, 141 S. Ct. 1761 (2021) (interpretation of statutory prepositional phrase limits scope of cause of action)
Carlson v. United States, 754 F.3d 1223 (11th Cir. 2014) (clear-and-convincing standard in civil tax fraud context)
Fabry v. Commissioner, 223 F.3d 1261 (11th Cir. 2000) (interpretation of Internal Revenue Code is a question of law)
Butler v. Enterprise Integration Corp., 459 F. Supp. 3d 78 (D.D.C. 2020) (§ 7434 cannot be premised merely on misclassification)
Tran v. Tran, 239 F. Supp. 3d 1296 (M.D. Fla. 2017) (§ 7434 requires false or misleading amount reporting)
Liverett v. Torres Advanced Enterprise Solutions LLC, 192 F. Supp. 3d 648 (E.D. Va. 2016) (limit § 7434 to returns false as to amount paid)
United Mine Workers of America v. Gibbs, 383 U.S. 715 (1966) (factors for exercising pendent/supplemental jurisdiction)
Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343 (1988) (district courts normally decline supplemental jurisdiction after dismissing federal claims)
Ameritox, Ltd. v. Millennium Laboratories, Inc., 803 F.3d 518 (11th Cir. 2015) (prudential and comity considerations in declining supplemental jurisdiction)
Rollins, Inc. v. Butland, 951 So. 2d 860 (Fla. 2d DCA 2006) (FDUTPA analysis involves public policy and ethical considerations)