Tammy Smith v. Weltman, Weinberg & Reis Compa
896 F.3d 762
| 7th Cir. | 2018Background
- Two debt-collection law firms sent settlement-offer letters to Amy Dunbar and Tammy Smith in January 2016 offering reduced payoff amounts and stating: “This settlement may have tax consequences.”
- Both recipients were insolvent at the time they received the letters and filed for bankruptcy months later.
- Dunbar and Smith separately sued under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692e, alleging the tax-warning was misleading because insolvency would prevent tax liability on discharged debt.
- District courts dismissed both complaints under Rule 12(b)(6); the appeals were consolidated for review in the Seventh Circuit.
- The Seventh Circuit evaluated the letters under the objective "unsophisticated consumer" standard and assessed whether the literal statement could nevertheless create a misleading impression.
- The court affirmed dismissal, reasoning the warning was literally true and that “may” conveys possibility (not certainty), and insolvency can change before settlement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the statement “This settlement may have tax consequences” is false or misleading under §1692e | The statement misleads because insolvent recipients would not incur tax liability, so the warning is false or creates a misleading impression | The statement is literally true and not misleading: “may” signals possibility, and a debtor’s solvency can change; collectors need not know each debtor’s finances | The statement is not false or misleading; dismissal affirmed |
Key Cases Cited
- Taylor v. Cavalry Investment, L.L.C., 365 F.3d 572 (7th Cir.) (conditional language indicating possibility is not false when outcome may or may not occur)
- Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769 (7th Cir.) (unsophisticated consumer standard for §1692e claims)
- Gruber v. Creditors’ Prot. Serv., Inc., 742 F.3d 271 (7th Cir.) (rejecting idiosyncratic readings of collection letters)
- Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055 (9th Cir.) (literal truth can be misleading if it implies an impossible action)
- Lox v. CDA, Ltd., 689 F.3d 818 (7th Cir.) (misleading to imply authority to take actions not permitted by contract)
- Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d 362 (7th Cir.) (pleading-stage dismissal appropriate only for statements plainly not misleading)