Verdini, A. v. First National Bank of Pennsylvania

J-A22044-15
2016 Pa. Super. 56
ANTHONY AND PAULA VERDINI, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellants
v.
FIRST NATIONAL BANK OF
PENNSYLVANIA,
Appellee No. 248 MDA 2015
Appeal from the Order Entered January 13, 2015
in the Court of Common Pleas of York County
Civil Division at No.: 2013-SU-002909-89
BEFORE: BOWES, J., JENKINS, J., and PLATT, J.*
OPINION BY PLATT, J.: FILED MARCH 03, 2016
Appellants, Anthony and Paula Verdini, appeal from the order entered
on January 13, 2015 that denied their motion for summary judgment and
granted the motion for summary judgment of Appellee, First National Bank
of Pennsylvania. We affirm.
The trial court aptly set forth the background facts of this case as
follows:
A complaint was filed by [Appellants] on August 15, 2013.
The circumstances alleged in [the] complaint are as follows:
[Appellants] obtained a second non-purchase money mortgage
(“the debt”) . . . and later defaulted on the debt; on or about
December 31, 2012, [Appellee] . . . issued [Appellant] Anthony
Verdini a 1099-C form; in 2013, [Appellants] requested the debt
be marked satisfied so that the [subject] property . . . could be
____________________________________________
*
Retired Senior Judge assigned to the Superior Court.
J-A22044-15
sold and [Appellee] refused to do so until $37,744.73 was paid;
[Appellants] paid the amount requested. As a result of their
payment of the debt, which they assert [Appellee] had cancelled
months prior, [Appellants] raised several claims: (1) breach of
contract; (2) violation of the Fair Credit Extension Uniformity Act
(hereinafter “FCEUA”); (3) violation of the Unfair Trade Practices
and Consumer Protection Law (hereinafter “UTPCPL”); and (4)
unjust enrichment.
On September 26, 201[3], [Appellee] answered the
complaint.
On September 9, 2014, [Appellee] filed a motion for
summary judgment . . . . [Appellants] filed a response . . . and
cross-motion for summary judgment on September 17, 2014 . . .
.
(Trial Court Opinion, 1/13/15, at unnumbered pages 1-2) (some
capitalization omitted).
On January 13, 2015, the court granted Appellee’s motion for
summary judgment and denied Appellants’ cross-motion after argument
thereon. Appellants timely appealed.1
Appellants raise nine issues for our review:
A. Whether the trial court erred by granting summary judgment
for [Appellee], and denying summary judgment for [Appellants?]
B. Whether [Appellee] cancelled [the debt?]
C. Whether [Appellee] had a duty to satisfy the mortgage on
[Appellants’] residence after [it] cancelled the [debt?]
____________________________________________
1
Appellants filed a timely statement of errors complained of on appeal on
February 13, 2015 pursuant to the court’s order. See Pa.R.A.P. 1925(b).
The trial court filed a Rule 1925(a) opinion on February 13, 2015 in which it
relied on the opinion filed on January 13, 2015 in support of its summary
judgment decision. See Pa.R.A.P. 1925(a).
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D. Whether [Appellee] violated the [FCEUA] by harassing,
oppressing and abusing [Appellants] in violation of FCEUA
§[]2270.4(4), by collection of the [debt] after [it] had been
cancelled by [Appellee?]
E. Whether [Appellee] violated FCEUA by falsely representing
the character or legal status of the [debt] after its cancellation
by [Appellee] in violation of FCEUA §[]2270.4(5)[?]
F. Whether [Appellee] violated FCEUA by the use of unfair or
unconscionable means to collect the [debt] in violation of FCEUA
§[]2270.4(6)[?]
G. Whether [Appellee] violated the [UTPCPL] by [its] violations
of FCEUA[?]
H. Whether [Appellee] was unjustly enriched when it obtained
payment of the [debt] after [it] cancelled the [debt?]
I. Whether the trial court failed to view the record in the light
most favorable to the non-moving party, [Appellants], by
granting [Appellee’s] motion for summary judgment[?]
(Appellants’ Brief, at 4-5).
We will address Appellants’ first two questions first because they are
related where, in addressing them, they argue2 that the court erred when it
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2
The argument section of Appellants’ brief violates Pennsylvania Rule of
Appellate Procedure 2119(a) in that “[t]he argument [is not] divided into as
many parts as there are questions to be argued[.]” Pa.R.A.P. 2119(a); (see
also Appellants’ Brief, at 12-31). Specifically, the argument portion of the
brief contains only eight sections. (See Appellants’ Brief, at 12-31).
Indeed, the contents of the arguments under the first two headings,
“summary of the trial court’s decision[,]” and “the majority view[,]” both
address Appellants’ second issue, which does not have an express section of
its own. (Id. at 12, 18 (capitalization omitted)). However, because we can
(Footnote Continued Next Page)
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found there was no issue of material fact, and granted summary judgment in
favor of Appellee on the basis that Appellants failed to prove that Appellee
cancelled the debt.3 (See id. at 4, 12-22; Trial Ct. Op., at unnumbered
pages 8-10).
Our standard of review of a court’s order granting or denying summary
judgment is well-settled:
A reviewing court may disturb the order of the trial court
only where it is established that the court committed an error of
law or abused its discretion. As with all questions of law, our
review is plenary.
In evaluating the trial court’s decision to enter summary
judgment, we focus on the legal standard articulated in the
summary judgment rule. Pa.R.C.P. 1035.2. The rule states that
where there is no genuine issue of material fact and the moving
party is entitled to relief as a matter of law, summary judgment
may be entered. Where the non-moving party bears the burden
of proof on an issue, he may not merely rely on his pleadings or
answers in order to survive summary judgment. Failure of a
nonmoving party to adduce sufficient evidence on an issue
essential to his case and on which it bears the burden of proof
establishes the entitlement of the moving party to judgment as a
matter of law. Lastly, we will view the record in the light most
favorable to the non-moving party, and all doubts as to the
existence of a genuine issue of material fact must be resolved
against the moving party.
Byoung Suk An v. Victoria Fire & Cas. Co., 113 A.3d 1283, 1287-88 (Pa.
Super. 2015) (case citation omitted).
_______________________
(Footnote Continued)
discern Appellants’ arguments, we will not deem their claims waived for the
technical non-compliance with the briefing requirements.
3
All of the causes of action in the complaint required evidence that Appellee
cancelled Appellants’ debt. (Complaint, 8/15/13, at 3-5 ¶¶ 10, 12, 15, 18).
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Here, the trial court granted summary judgment on the basis that
“charging off the debt . . . did not cancel the debt. Similarly, the issuance of
a 1099-C form is not an admission that the debt has been cancelled and the
issuance of the form does not discharge [Appellants] from further liability.” 4
(Trial Ct. Op., at unnumbered page 9). We agree.
As a preliminary matter, we observe that this is an issue of first
impression in this Court. Our review of the caselaw has revealed no case in
either the Pennsylvania Superior or Supreme Court that has addressed the
legal consequences of the charge-off of a debt on the debtor’s responsibility
to pay a remaining balance, or whether issuing an IRS Form 1099-C
evidences a debt’s cancellation. However, In re Zilka, 407 B.R. 684 (W.D.
Pa. 2009),5 provides persuasive, well-reasoned analysis that is consistent
with the majority of courts in the United States, and we cite it with approval.
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4
It is well-settled that:
. . . A trial court’s application of a statute is a question of
law that compels plenary review to determine whether the court
committed an error of law. This Court has reviewed code
provisions similarly. As with all questions of law, the appellate
standard of review is de novo and the appellate scope of review
is plenary.
Ramalingam v. Keller Williams Realty Group, ___ A.3d ___, 2015 WL
4927797 at *4 (Pa. Super. filed Aug. 18, 2015) (citations omitted).
5
The decisions of the lower federal courts and other states’ courts may
provide persuasive, although not binding, authority. See Gongloff
Contracting, L.L.C. v. Architects and Engineers, Inc., ___ A.3d ___,
(Footnote Continued Next Page)
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In re Zilka involved a motion to confirm the proofs on claims filed by
the bank in a chapter seven bankruptcy action. See In re Zilka, supra at
686. The bank claimed it was owed money on an outstanding, delinquent
debt, and the debtor claimed, much like Appellants herein, that the bank
was not owed any money because it had charged-off the debt and issued
him an IRS Form 1099-C, Cancellation of Debt. See id. at 686. In
considering these positions, the court first examined whether the charge-off
of a debt is the same as cancelling it.
As an initial matter, the Court holds, as a matter of law,
that when a lender issues an account statement to its borrower
indicating that an outstanding loan balance equals $0.00
because such loan has been charged off, such “is not the legal
equivalent of forgiving [—i.e., discharging liability on—] a debt.”
Discover Bank v. Worsham, 176 P.3d 366, 368
(Okla.Civ.App.2007) (“notation on Cardholder’s August 30, 2002
statement which reads: ‘Internal charge off’ of $8,823.48
resulting in a zero balance . . . [only] reflects Discover’s
accounting procedure for removing the account from active
status”); Unifund CCR Partners v. Urban, 2005 WL 3624541
at *1 (Conn.Super.Ct.2005) (same); Mitchell Bank v.
Schanke, 268 Wis. 2d 571, 676 N.W.2d 849, 854 n. 7 (2004)
(“A ‘write off’ does not mean that the institution has forgiven the
debt or that the debt is not still owing”); Central Home Trust
Co. of Elizabeth v. Lippincott, 392 So. 2d 931, 933
(Fla.Dist.Ct.App.1980) (same). . . .[6]
_______________________
(Footnote Continued)
2015 WL 4112446, at *7 n.6 (Pa. Super. filed July 8, 2015); Huber v.
Etkin, 58 A.3d 772, 780 n.8 (Pa. Super. 2012), appeal denied, 68 A.3d 909
(Pa. 2013).
6
Appellants identify the cases cited here by In re Zilka as those that “[t]he
trial court cited . . . to support its conclusion that charging off the debt was
not the equivalent of cancelling the debt.” (Appellants’ Brief, at 13)
(citations omitted); (see also id. at 13-17). However, the cases only
(Footnote Continued Next Page)
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Id. at 687; see also Kelly v. Wolpoff & Abramson, L.L.P., 634 F. Supp. 2d
1202, 1208 (D. Colo. 2008) (observing that “‘charging off’ essentially
amounts to a ledger book reclassification and is an accounting practice” that
does not extinguish the debt) (citation omitted).
In this case, Appellee sent Appellants a notice of charge-off months
before it ultimately occurred. (See Notice of Charge-Off, 1/07/12, at 1).
The notice contained the following express language: “You are aware the
charged off balance is your responsibility. It is legally enforceable and
collectable[.]” (Id.). Therefore, based on the relevant caselaw, see In re
Zilka, supra at 686, and the language of the express notice provided to
Appellants, (see Notice of Charge-Off, 1/07/12, at 1), we conclude that the
trial court did not err when it found that Appellee’s charge-off of the debt did
not cancel their responsibility to pay it. Appellants’ argument regarding the
effect of a charge-off lacks merit.7
_______________________
(Footnote Continued)
appear in the trial court’s opinion as a parenthetical to its citation of In re
Zilka, without any discussion of, or reliance on, them. (See Trial Ct. Op., at
unnumbered page 9). Therefore, Appellants’ argument that “each of the[]
cases relied upon by the trial court is distinguishable from the facts here in
material ways[,]” is misleading. (Appellants’ Brief, at 13). Moreover,
Appellants’ attempt to distinguish the cases on their facts has no bearing on
the limited legal principle for which they were cited by In re Zilka.
7
Appellants do not argue that the issuance of the Form 1099-C itself
cancelled the debt. (See Appellants’ Brief, at 18 (stating that “[Appellee]
had cancelled the [debt] before the [Form] 1099-C was issued.”)).
Therefore, because we have determined that the court properly found that
(Footnote Continued Next Page)
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Next, we turn to Appellants’ allegation that the charge-off and filing of
the Form 1099-C cannot be viewed in isolation, but instead that the trial
court erred when it found that Appellee’s issuance of a Form 1099-C was not
further evidence of the debt’s cancellation. (See Appellants’ Brief, at 18).
This claim requires us to consider whether the trial court properly
interpreted the language contained in the Internal Revenue Code tax
statute, 26 U.S.C.A. § 6050P(a). We conclude that it did.
As observed in In re Zilka:
26 U.S.C. § 6050P(a) provides, in pertinent part, that
“[a]ny applicable entity which discharges . . . the indebtedness
of any person during any calendar year shall make a return . . .
setting forth . . . the name, address, and TIN of each person
whose indebtedness was discharged . . . [, as well as] the date
of the discharge and the amount of the indebtedness
discharged.” 26 U.S.C. § 6050P(a)(1)-(2) (West 2007). The
information return just referred to shall be a Form 1099–C,
which return must be filed with the Internal Revenue Service.
See 26 C.F.R. § 1.6050P–1(a)(1) (West 2009). Every applicable
entity which makes such a return must also “furnish to each
person whose name is required to be set forth in such return a
written statement showing . . . the name and address of the
[applicable] entity . . ., and . . . the information required to be
shown on the return with respect to such person.” 26 U.S.C. §
6050P(d)(1)-(2) (West 2007). The written statement just
referred to can be copy B of the Form 1099–C. See 26 C.F.R. §
1.6050P-1(f)(2) (West 2009). 26 C.F.R. § 1.6050P–1(a)(1) also
provides that:
Solely for purposes of the reporting
requirements of section 6050P and this section, a
_______________________
(Footnote Continued)
the charge-off did not cancel the debt, our inquiry could end here.
However, for the sake of completeness, we will review the legal
consequences of the filing and issuance of a Form 1099-C.
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discharge of indebtedness is deemed to have
occurred . . . if and only if there has occurred an
identifiable event described in paragraph (b)(2) of
this section, whether or not an actual discharge
of indebtedness has occurred on or before the
date on which the identifiable event has occurred.
26 C.F.R. § 1.6050P–1(a)(1). . . .
In re Zilka, supra at 687 (emphasis added).
Pursuant to the tax regulation, an identifiable event includes “the
expiration of the non-payment testing period, as described in § 1.6050P–
1(b)(2)(iv).” 26 C.F.R. § 1.6050P-1(b)(2)(H). Section (b)(2)(iv) states, in
pertinent part, that:
There is a rebuttable presumption that an identifiable
event under paragraph (b)(2)(i)(H) of this section has occurred
during a calendar year if a creditor has not received a
payment on an indebtedness at any time during a testing
period (as defined in this paragraph (b)(2)(iv)) ending at the
close of the year. The testing period is a 36–month period[.]
26 C.F.R. § 1.6050P–1(b)(2)(iv) (emphases added).
In construing the effect of the issuance of a Form 1099-C on
outstanding debt, the court in In re Zilka reasoned that the issuance of a
Form 1099-C is not an admission of a debt’s cancellation. This is consistent
with the regulation’s plain meaning, the interpretation by the IRS itself, and
the majority of courts in the United States. See In re Zilka, supra at 688;
see also Cashion, infra at 179; Lifestyles of Jasper, infra at 277; Kelly,
infra at 1209-10. We find this interpretation persuasive.
Specifically, the court observed:
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First, “[t]he Internal Revenue Service[, which
regulatory agency is the one that promulgated 26 C.F.R. §
1.6050P–1, and whose interpretation of the same is thus entitled
to great deference, see Chevron, U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 843–845,
104 S. Ct. 2778, 2782–2783, 81 L. Ed. 2d 694 (U.S.1984),] does
not view a Form 1099–C as an admission by the creditor
that it has discharged the debt and can no longer pursue
collection [thereon].” I.R.S. Info. Ltr. 2005–0207, 2005 WL
3561135 (Dec. 30, 2005) (next-to-last paragraph, construing 26
C.F.R. § 1.6050P–1(a)); see also I.R.S. Info. Ltr.2005–0208,
2005 WL 3561136 (Dec. 30, 2005) (Q & A # 5, 26 U.S.C.
“Section 6050P and the regulations do not prohibit collection
activity after a creditor reports by filing a Form 1099–C”); Sims
v. Commissioner, T.C. Summ.Op.2002-76, 2002 WL 1825373
at *2 (U.S.Tax Ct.2002) (evidence that Form 1099–C was issued
does not establish that petitioner’s debt was ever discharged);
Debt Buyers’ Association v. Snow, 481 F. Supp. 2d 1, 13-14
(D.D.C. 2006) (the status of a debt described on a Form 1099–C
is not falsely represented if, when providing such Form 1099–C
to a debtor, a creditor attaches thereto a notice that such
creditor plans to continue debt collection activities with respect
to such described debt).[8] Therefore, regardless of the reason
why [the bank] issued the [] Form[] 1099–C, [the bank’s]
issuance of such form[] constitutes neither an admission by [it]
that it . . . discharged the Debtor from further liability on any of
[the bank’s] [] claim[].
Id. (emphases added); see also F.D.I.C. v. Cashion, 720 F.3d 169, 179
(C.A. 4th Cir. 2013) (holding Form 1099-C is “creditor’s required means of
satisfying reporting obligation to IRS; not a means of accomplishing an
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8
We acknowledge that Appellee has not presented any evidence that it
attached a notice that it plans to continue debt collection activities to the
Form 1099-C, as the creditor did in Debt Buyers’, supra. See Debt
Buyers’, supra at 13-14; (see also IRS Form 1099-C, 12/31/12).
However, Appellee provided Appellants with notice of their continued
responsibility to pay the outstanding debt when it forwarded them a notice
of the charge-off. (See Notice of Charge-Off, 1/07/12, at 1).
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actual discharge of debt, nor is it required only where an actual discharge
has already occurred.”); Lifestyles of Jasper, Inc. v. Gremore, 299
S.W.3d 275, 277 (C.A. Kentucky 2009) (noting that “the regulations and
I.R.S. rulings make clear that Form 1099–C is to be utilized for reporting
purposes only, and not as evidence of an actual discharge of indebtedness.”)
(footnotes omitted); Kelly v. Wolpoff & Abramson, L.L.P., 634 F. Supp. 2d
1202, 1209-10 (D. Colo. 2008) (Form 1099-C reflects accounting principle of
charging off, not extinguishment of debt as matter of law).9
Here, it is undisputed that, on November 27, 2009, Appellants
obtained a $40,000.00 home equity loan from Appellee, which was secured
by a second mortgage. (See Appellants’ Brief, at 7; Appellee’s Brief, at 2).
Appellants defaulted on the loan within the first thirty-six months, and, on
January 7, 2012, Appellee sent them a notice of charge-off which contained
clear language informing them that they remained responsible for the
balance due. (See Notice of Charge-Off, 1/07/12, at 1); (see also
Appellants’ Brief, at 7). On December 19, 2012, Appellee charged-off the
loan and, on December 31, 2012, it issued to Appellants, and submitted to
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9
We are cognizant that there are a minority of cases which hold that a Form
1099-C is prima facie evidence of the creditor’s intent to cancel a debt,
requiring a lender to then provide evidence of its intent. See, e.g., Amtrust
Bank v. Fossett, 224 P.3d 935, 936-38 (Ariz. Ct. App. 2009); Franklin
Credit Mgmt. Corp. v. Nicholas, 812 A.2d 51, 60 (Conn.App. 2002), cert.
denied, 815 A.2d 136 (Conn.S.Ct. 2003). However, we find the cases in the
majority, which rely on the IRS’s interpretation of its own regulations, to be
legally persuasive.
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the IRS, the required IRS Form 1099-C for 2012 pursuant to the taxation
requirements of 26 C.F.R. § 1.6050P–1. (See IRS Form 1099-C, 12/31/12,
at 1); (see also Appellants’ Brief, at 8).
Pursuant to the language of section 1.6050P–1 and its interpretation
by both the majority of United States federal and state courts and the IRS
itself, we conclude that the trial court properly found that issuing the Form
1099-C did not evidence a cancellation of Appellants’ debt. It was a required
IRS filing after Appellee experienced an identifiable event, i.e. Appellants’
non-payment within the testing period.10 See 26 C.F.R. § 1.6050P–
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10
Appellants’ argument that Cashion, supra, required the trial court herein
to conduct a different analysis and arrive at a finding that Appellee cancelled
the debt is not legally persuasive. (See Appellants’ Brief, at 18-22). In fact,
Cashion expressly states that the analysis taken by the majority of courts,
which “relies principally on the language of the IRS regulations and the
purpose of a Form 1099–C[,]” Cashion, supra at 178 (citations omitted),
compels a finding “that filing a Form 1099–C is a creditor’s required means
of satisfying a reporting obligation to the IRS; [and] is [not] required only
where an actual discharge has already occurred.” Id. Therefore, Appellants’
argument premised on Cashion fails.
We also find Appellants’ reliance on Jones v. Cendant Mort. Corp.,
396 B.R. 638 (W.D. Pa. 2008), to be unavailing. (See Appellants’ Brief, at
23-24). In Jones, the court considered whether, “because [a mortgagor’s]
remaining [] obligation to [the mortgagee] is zero under the law of
Pennsylvania, his income tax liability to [the] IRS . . . also is zero.” Jones,
supra at 645. However, the court’s observation that no money remained
due on the mortgage was premised on Pennsylvania mortgage law and the
mortgagee’s failure to file a petition to fix market value, not on its filing of a
Form 1099-C. See id. at 645. In fact, although the court mentioned the
mortgagee’s filing of a Form 1099-C, and the mortgagor’s allegation that it
contained incorrect information, the Form 1099-C did not in any way affect
the court’s holding. See id. at 645-46 (holding that the conclusive
(Footnote Continued Next Page)
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1(b)(2)(i)(H), (iv); In re Zilka, supra at 687-88. Further, because all of
the claims in Appellants’ complaint rely on their erroneous assertion that
Appellee cancelled the debt, (see Complaint, 8/15/13, at 3-5 ¶¶ 10, 12, 15,
18), we conclude that the trial court properly granted summary judgment in
favor of Appellee, and denied Appellants’ cross-motion. See Byoung Suk
An, supra at 1287. Appellants’ first two issues fail.11
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/3/2016
_______________________
(Footnote Continued)
presumption under Pennsylvania mortgage law that mortgagee had been
paid in full was legal fiction that was not binding for federal income tax
purposes). We do not find this case persuasive.
11
Issues three through eight also necessarily fail because they address the
individual causes of action, which, as previously stated, rely on the claim
that the debt was cancelled. (See Appellants’ Brief, at 4-5); (see also
Complaint, 8/15/13, at 3-5 ¶¶ 10, 12, 15, 18). Claim nine does not merit
relief because it relies on Appellants’ erroneous assertion that the court’s
decision involved an issue of fact that required it to view the evidence in the
light most favorable to them. (See Appellants’ Brief, at 5, 29-30).
However, the motion for summary judgment required the court’s
determination of the effect of the charge-off and IRS Form 1099-C as a
matter of law.
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