Debt Buyers' Ass'n. v. Snow, Civ.A. 06-101(CKK).

• Decision Date: 30 January 2006
• Docket Number: No. Civ.A. 06-101(CKK).,Civ.A. 06-101(CKK).
• Parties: DEBT BUYERS' ASSOCIATION, Plaintiff, v. John W. SNOW, Secretary of the Treasury, et al., Defendants.
• Court: U.S. District Court — District of Columbia

Page 1

481 F.Supp.2d 1

DEBT BUYERS' ASSOCIATION, Plaintiff, v. John W. SNOW, Secretary of the Treasury, et al., Defendants.

No. Civ.A. 06-101(CKK).

United States District Court, District of Columbia.

January 30, 2006.

COPYRIGHT MATERIAL OMITTED

Deborah J. Israel, Womble Carlyle Sandridge Rice, PLLC, Washington, DC, for Plaintiff.

Jennifer Lynn Vozne, U.S. Department of Justice, Mercedeh Momeni, U.S. Attorney's Office, Washington, DC, for Defendants.

MEMORANDUM OPINION

KOLLAR-KOTELLY, District Judge.

On January 19, 2006, Plaintiff, Debt Buyers' Association, filed with this Court both a Complaint and [3] Plaintiff Debt Buyers' Association's Motion for Temporary Restraining Order and/or Preliminary Injunction and Request for Expedited Hearing ("Plaintiff's Motion for Preliminary Injunction"). In Plaintiff's Motion, Plaintiff asks the Court to enjoin Defendants, John W. Snow in his official capacity as Secretary of the Treasury, and Mark W. Everson in his official capacity as Commissioner of Internal Revenue, from enforcing Treasury Regulation § 1.6050P-2(e), which subjects certain entities to specific information reporting requirements related to the discharge of debt, with respect to Debt Buyers' Association's members. The Court held a conference call with the Parties on January 20, 2006, setting forth an expedited briefing schedule related to Plaintiffs motion. During the conference call, the Parties agreed that the Court should consider Plaintiffs requests for a temporary restraining order and preliminary injunction as one action. On January 23, 2006, Defendants filed [6, 8] Memorandum in Support of Motion to Dismiss and Opposing Motion for Temporary Restraining Order and Preliminary Injunction ("Defendants' Motion to Dismiss"), in which Defendants argue that the Court does not have subject matter jurisdiction over Plaintiffs claims because both the Declaratory Judgment Act, 28 U.S.C. § 2201(a), and the Anti-Injunction Act, 26 U.S.C. § 7421, apply to this case. Per the Court's request, on January 23, 2006, Plaintiff also filed [5] Plaintiffs Supplemental Brief in Support of Motion for Preliminary Injunction ("Plaintiffs Supplement"), which re-framed certain portions of Plaintiffs request for expedited injunctive relief. On January 24, 2006, Plaintiff filed [11, 12] Plaintiffs Reply to Defendants' Motion to Dismiss and Opposition to Motion for Temporary Restraining Order and Preliminary Injunction ("Plaintiff's Response"). After considering the aforementioned motions and Complaint as well as the relevant case law, the Court shall DENY Plaintiffs Motion for Preliminary Injunction because the Court does not have jurisdiction over Plaintiffs claims. As the Court lacks subject matter jurisdiction, it shall also GRANT Defendants' Motion to Dismiss.

I: BACKGROUND

Debt Buyers' Association, henceforth "DBA," is a tax-exempt trade organization incorporated in California with approximately 550 members. Plaintiff Debt Buyers' Association's Memorandum of Points and Authorities in Support of Motion for Temporary Restraining Order and/or Preliminary Injunction ("Pl.'s Mem.") at 3.¹ DBA brings this suit on behalf of its members,² referred to as Debt Buyers, which are in the business of purchasing and collecting delinquent consumer loans and receivables. Id. Rather than originating loans themselves, Debt Buyers generally purchase portfolios of consumer loans and receivables that have been in default for a significant period of time at a discount from lending institutions. Id.

A. Debt Buyers' Role in the Lending Process

A brief summary of Debt Buyers' role in the lending process is necessary to understand Plaintiffs substantive claims. An originating lender (such, as a bank, credit card company, or finance company) will typically evaluate the creditworthiness of a potential consumer borrower, analyze any collateral, pledged as security for the loan, establish terms for the loan, and provide the underlying documentation for the lending or credit arrangement. If the originating lender chooses to make a loan and the loan becomes delinquent, the originating lender may under the terms of the loan charge interest, late fees, attorneys' fees, and other costs and expenses related to enforcing and collecting the loan. Pl.'s Mem. at 4. Customarily, if a consumer loan has been delinquent for more than 180 days, the originating lender charges off the loan (including interest and any other charges) in its books. Id. at 4-5. Ordinarily (which the Court interprets to mean not always), the originating lender transfers the loan to a book account that records the aggregate amount of the charge off without recording separately the principal, interest, and other fees associated with the charge-off. Id. at 5.

To recoup a portion of its lost investment, an originating lender may sell a charged-off consumer loan to a Debt Buyer, usually as part of a portfolio of delinquent consumer loans, for a fraction of the total amount owed to the originating lender. Pl.'s Mem. at 5. Once a Debt Buyer has purchased a portfolio of defaulted consumer loans, it may engage in collection efforts (or hire a third-party to do so), which may include locating borrowers determining whether borrowers are in bankruptcy, commencing legal proceedings, or "otherwise encouraging" payment of all or a portion of the delinquency. Id. at 6.

Relevant to the present case is that, as a matter of practice, Debt Buyers generally have received only the aggregate amount of the charge-off from the originating lender for a particular debtor and consequently do not know the component amounts of stated principal, unpaid accrued interest, late fees, and other charges. Pl.'s Mem. at 6-7. Plaintiff cites to no legal impediment to the transfer of this information from originating lenders to Debt Buyers in its Complaint, Motion for Preliminary Injunction, Supplement, or Response. See Def.s' Mot. Dismiss at 25.

B. Statutes and Regulations Related to Reporting Discharged Debt

Pursuant to the Internal Revenue Code, 26 U.S.C. § 6050P(a), "[a]ny applicable entity which discharges (in whole or in part) the indebtedness of any person during any calendar year shall make a return (at such time and in such form as the Secretary may by regulations prescribe)...." This information reporting requirement allows the IRS to compare the amount of discharged debt reported by various institutions with the amount of discharged debt reported by individuals, since under 26 U.S.C. § 61(a)(12), gross income to be reported by individuals and under certain circumstances taxed by the IRS includes "[i]ncome from discharge of indebtedness." Included in the statute's definition of "applicable entity" is an "applicable financial entity," more specifically defined as "any organization a significant trade or business of which is the lending of money." 26 U.S.C. § 6050P(c)(1)(B), (c)(2)(D). Applicable entities are also required to furnish to each person with respect to whom a return has been made a written statement showing the name and address of the entity required to make the return, as well as the information required to be shown on the return with respect to that person. 26 U.S.C. § 6050P(d). For the calendar year 2005, the required written statement must be provided to said person on or before January 31, 2006. See id.

Treasury Regulation 1 § 6050P-1 clarifies the form in which applicable entities must fulfill the reporting requirement mandated by 26 U.S.C. § 6050P(a). 26 C.F.R. § 1.6050P-1. Pursuant to Treas. Reg. 1 § 6050P-1(a), an applicable entity that discharges a debt of at least $600 of any person must file a Form 1099-C with the IRS. The trigger for the reporting requirement is described as follows:

Solely for purposes of the reporting requirements of section 6050P and this section, a 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.

Treas. Reg. 1 § 6050P-1(a). The 1099-C Form must be filed with the IRS on or before February 28 (March 31, if filed electronically) of the year following the calendar year in which the identifiable event occurs, and it must include the following information relevant to this case: the name, address, and taxpayer identification number of the person; the date on which the identifiable event occurred; the amount of indebtedness discharged; and any other information required by Form 1099-C or its instructions and current revenue procedures. Id. Form 1099-C requires, among other things, that the filer be able to distinguish between the total amount of reported discharged debt and the interest included as a portion thereof. See Pl.'s Mem. at Exh. 4 (Form and Instructions p. 3). One "identifiable event" as defined by Treas. Reg. 1 § 6050P-1(b)(2)(H)(iv) is the expiration of a nonpayment testing period:

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 increased by the number of calendar months during all or part of which the creditor was precluded from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. The presumption that an identifiable event has occurred may be rebutted by the creditor if the creditor (or a third-party collection agency on behalf of the creditor) has engaged in significant, bona fide collection activity at any time during the 12-month period ending at the close of the calendar year, or if facts and circumstances existing as of January 31 of the calendar year following...