Amtrust Bank v. Fossett (CA1 12/15/09)

(link to opinion)

This pleasantly brief opinion about a consumer debt should have perhaps have been a bit longer.

The Fossetts obtained an auto loan from Amtrust; they defaulted and Amtrust repo’d the car. Amtrust later sent them a 1099-C, which they duly reported in their next return, indicating that the debt had been cancelled. Amtrust then sued them on the debt; they moved for summary judgment based on the 1099-C. Amtrust’s response was captioned “Response to Defendants’ Motion for Summary Judgment and Cross-Motion for Summary Judgment” even though its position was simply that questions of fact prevented summary judgment. The opinion mentions this to explain – or to try to explain, since it is otherwise hard to figure out – why the trial court granted summary judgment for Amtrust.

The question on appeal was whether the 1099-C discharged the debt under Arizona law.

The statute, 47-3604(A), says that a party can discharge an instrument “by an intentional voluntary act” or “by agreeing not to sue or otherwise renouncing rights . . . by a signed writing.” Federal regulations require the issuance of a 1099-C under certain circumstances. Even though the form is called “Cancellation of Debt,” though, not all of those circumstances involve cancellation of the debt.  The court explains in a footnote that this is confusing. Amtrust’s collection manager testified by affidavit that this was one of those non-cancellation cancellations.

The court held that the 1099-C was prima facie evidence of cancellation. (Prima facie is officially English now, since the opinion does not italicize it; we’re apparently just old-fashioned.) But Amtrust’s affidavit was, the court said, sufficient to raise a question of fact as to whether it had intended to discharge the debt.

The problem is that the Fossetts had argued the other part of the statute, “agreeing not to sue or otherwise renouncing . . . by a signed writing.”  Why is sending a form called “Cancellation of Debt,” which by the way requires the [former] debtor to pay income tax on the amount forgiven, not “otherwise renouncing . . . by a signed writing? Well, maybe the form wasn’t “signed” for these purposes, though the opinion doesn’t get into that.

The court reversed the summary judgment for Amtrust, though, finding a question of fact as to whether the 1099-C was required by federal regulation in this case. If not, “then that is a factor bearing on whether the Fossetts remain liable for the debt.” What the court presumably means is that in deciding whether Amtrust intended to discharge the debt evidence as to whether it was required to issue the 1099-C is admissible.