Opinion · Court of Appeals for the Fourth Circuit
Federal Deposit Insurance Corporation v. Avery Cashion, III
Fed. Deposit Ins. Corp. v. Avery Cashion, III, 720 F.3d 169 (4th Cir. 2013)
- Type
- Opinion
- Court
- Court of Appeals for the Fourth Circuit
- Jurisdiction
- Federal
- Date
- 2013-06-19
- Topic
- general
concluding that lay person’s affidavit attesting to meaning of tax form was inadmissible at summary judgment because it was not based on personal knowledge, in violation of Federal Rule of Civil Procedure 56(c)(4) | finding that the “approach taken by a majority of the courts to consider the matter ultimately more persuasive. That analysis relies principally on the language of the IRS regulations and the purpose of a Form 1099–C.” | refusing to grant Chevron deference to an IRS interpretation expressed in an information letter but finding it otherwise relevant and persuasive | finding the majority approach “ultimately more persuasive,” relying “principally on the language of the IRS regulations and the purpose of a Form 1099-C” | affirming summary judgment 8 against borrower who only presented 1099-C form as proof of debt cancellation | finding the IRS treats the form “as a means for satisfying a reporting obligation and not as an instrument effectuating a discharge of debt or preventing a creditor from seeking payment on a debt.” | “the filing [of] a Form 1099-C is a creditor’s required means of satisfying a reporting obligation to the IRS” | “[T]he mere fact that a Form 1099-C is filed does not constitute sufficient evidence, standing alone, that a debt has been cancelled.” | “That Cashion failed to anticipate how the FDIC would respond to his reliance on the 1099-C Form does not automatically entitle him to file a surreply.” | A “genuine issue” of material fact exists when the evidence is sufficient to allow a reasonable jury to return a verdict in the non- moving party’s favor | A “genuine issue” of material fact exists when the evidence is sufficient to allow a reasonable jury to return a verdict in the non- moving party’s favor | A form 1099–C “is a creditor’s required means of satisfying a reporting obligation to the IRS; it is not a means of accomplishing an actual discharge of debt, nor is it required only where an actual discharge has already occurred.” | “the filing [of] a Form 1099-C is a creditor’s required means of satisfying a reporting obligation to the IRS; it is not a means of accomplishing an actual discharge of the debtor, nor is it required only where an actual discharge has already occurred” | describing the reasoning of the minority view
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1588
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for The
Bank of Asheville,
Plaintiff - Appellee,
v.
AVERY T. CASHION, III,
Defendant - Appellant.
Appeal from the United States District Court for the Western
District of North Carolina, at Asheville. Martin K. Reidinger,
District Judge. (1:11-cv-00072-MR-DLH)
Argued: March 19, 2013 Decided: June 19, 2013
Before MOTZ, KING, and AGEE, Circuit Judges.
Affirmed by published opinion. Judge Agee wrote the majority
opinion, in which Judge Motz joined. Judge King wrote a
dissenting opinion.
ARGUED: Edward Louis Bleynat, Jr., FERIKES & BLEYNAT, PLLC,
Asheville, North Carolina, for Appellant. Esther Elizabeth
Manheimer, VAN WINKLE, BUCK, WALL, STARNES & DAVIS, PA,
Asheville, North Carolina, for Appellee. ON BRIEF: Lynn D.
Moffa, VAN WINKLE, BUCK, WALL, STARNES & DAVIS, PA, Asheville,
North Carolina, for Appellee.
AGEE, Circuit Judge:
Avery T. Cashion, III, appeals from the district court’s
judgment in favor of the Federal Deposit Insurance Corporation
(“FDIC”), acting as receiver for The Bank of Asheville (“the
Bank”), in this action by the FDIC to recover the deficiency
owed on a promissory note executed by Cashion and payable to the
Bank. Cashion contends that the district court erred in
granting summary judgment to the FDIC because genuine issues of
material fact exist as to whether the FDIC was the holder of the
note and whether the note had been cancelled or assigned. He
also asserts the district court abused its discretion in
striking his surreply brief opposing summary judgment and an
affidavit attached to it. For the reasons set forth below, we
affirm the judgment of the district court.
I.
In August 2006, Cashion signed a promissory note (“Note”)
payable to the Bank in the original principal amount of
$2,000,000.00. Through March 2010, the Bank and Cashion entered
into a number of modifications and renewals of the Note. The
Note was originally secured by three other promissory notes, and
a fourth promissory note was added as additional collateral in
2010.
2
In September 2010, the Bank filed an action in North
Carolina state court alleging that it was the holder of the
Note, that Cashion had defaulted by failing to make the payments
due on the Note, and that it was entitled to full payment plus
interest pursuant to the Note’s terms. Cashion’s Answer
admitted “a copy of a document, which speaks for itself, is
attached to [the Bank’s] Complaint,” and that the signature on
that document “appears to be the signature of Mr. Cashion,” but
“demand[ed] that the [Bank] produce the original document that
is described as [the Note].” (J.A. 17-19.)
Before the case proceeded further, the Bank closed and the
FDIC was named receiver and liquidating agent. After the FDIC
was substituted as the real party in interest in the state
court, it removed the case to the United States District Court
for the Western District of North Carolina. 1 The FDIC then moved
for summary judgment, asserting that it had set forth a prima
facie case to recover proceeds on the Note and that no genuine
issues of material fact precluded judgment as a matter of law.
It attached to the motion an affidavit from Sherry M. Martin, a
“Resolutions and Receiverships Specialist” for the FDIC who was
1
Federal courts have jurisdiction over all civil suits “to
which the [FDIC], in any capacity, is a party,” and the FDIC is
authorized to remove actions pending in state court to “the
appropriate United States district court” if the FDIC is
substituted as a party. 12 U.S.C. § 1819
(b)(2)(A)-(B).
3
“familiar with the books and records of” the FDIC and the Bank.
Martin stated in the affidavit that the information alleged in
the Complaint came from records and employees of the Bank, and
was correct and true. (J.A. 31.)
Cashion opposed the motion, asserting that two genuine
issues of material fact existed: first, whether the FDIC
satisfied its burden of proving that it was the holder of the
Note in light of its failure to produce the original Note, and
second, whether the Note had been cancelled or assigned. To
support the latter argument, Cashion included an affidavit
asserting the Note had been cancelled and attaching a copy of
the Internal Revenue Service (“IRS”) Form 1099-C that he alleged
he received from the Bank in early 2010 (“the 1099-C Form”) as
the sole basis for his affidavit. 2 The 1099-C Form, labeled
“Cancellation of Debt” in pre-printed text, had been filled out
by hand and lists the Bank of Asheville as the creditor and
Cashion as the debtor, references the Note’s account number,
reflects the “Date canceled” as “6/23/2010” and the “Amount of
2
Cashion attached copies of two different Form 1099-Cs he
claimed he received from the Bank, but only one of them lists
the same account number as the Note. While Cashion continues to
refer to both forms on appeal, our analysis considers only the
Form 1099-C bearing the Note’s account number. On its face, the
other form does not appear to relate to the Note, and Cashion
did not introduce any evidence suggesting that it in fact does.
4
debt canceled” as $1,993,222.20. The “Debt description” box
states: “Assignment of Promissory Notes.” (J.A. 42.)
The FDIC attached a supplemental affidavit from Martin to
its response in support of summary judgment in which she
reiterated her
familiar[ity] with the books and records acquired by
the [FDIC] when it was appointed Receiver for [the
Bank]. . . . The books and records in question were
made at or near the time of the matters therein
recorded and were kept in the course of [the Bank’s]
regularly conducted business activity, the regular
practice of which was to keep such books and records.
(J.A. 81.) Martin’s supplemental affidavit also stated that the
FDIC had possession of the original Note, that the copy attached
to the Complaint was “true and correct,” that the Note had not
been transferred or assigned to a third party, that the Note had
not been paid by Cashion or a third party, and that the Note had
not been cancelled or Cashion “otherwise absolved” of liability.
Martin also stated that based on the Bank’s records in the
FDIC’s possession, the 1099-C Form “appear[ed] to have been sent
to Mr. Cashion by [the Bank] prior to the” receivership. (J.A.
82.) Martin also indicated that
[t]he most likely explanation for the debt
cancellation referred to in hand-writing on the IRS
1099-C Form . . . is that “Assignment of Promissory
Notes” refers to the collateral securing the Note . .
. . The fact that [the Bank] may have issued an IRS
1099-C Form concerning the collateral that secured the
Note does not mean that [the Bank] cancelled
[Cashion’s] debt to [the Bank] reflected by the Note.
5
(J.A. 82.) Based on Martin’s supplemental affidavit, the FDIC
argued that it was the holder of the Note and was not required
to produce the original Note in order to prove that status under
North Carolina law because a true copy was sufficient. In
addition, the FDIC contended that the 1099-C Form was
inadmissible hearsay and that Cashion had not “properly
authenticated” the form for admission into evidence under any of
the exceptions to the rule against hearsay. The FDIC also
posited that the 1099-C Form did not refer to the Note, but to
the collateral for the Note. Alternatively, the FDIC asserted
that “at most,” the 1099-C Form indicated the Bank’s intent that
the Note be cancelled, but was not competent evidence of actual
cancellation.
Cashion did not move to strike Martin’s supplemental
affidavit, but instead filed an additional notice of filing in
opposition to summary judgment (hereinafter “surreply”)
countering the FDIC’s arguments regarding the admissibility and
import of the 1099-C Form. Cashion attached to the surreply an
affidavit from his business partner, Raymond M. Chapman, in
which Chapman described the 1099-C Form and then gave his
viewpoint as to what Cashion’s receipt of the 1099-C Form from
the Bank likely meant (cancellation of the Note).
The FDIC moved to strike the surreply and Chapman
affidavit, noting that “[n]othing in the [c]ourt’s Pretrial
6
Order and Case Management Plan authorize[d] the filing of a
surreply,” and Cashion had not sought leave of court to
authorize such a filing. (J.A. 127.) It further asserted that
a surreply was not appropriate under the circumstances given
that its reply had not raised any new issues. In addition, the
FDIC argued that the Chapman affidavit contained opinion
testimony from a person who was not an expert witness rather
than information based on Chapman’s personal knowledge. For
that reason, the FDIC urged the district court to strike or
disregard the affidavit. 3
For reasons summarized in context below, the district court
granted the FDIC’s motion to strike the surreply and Chapman
affidavit, denied Cashion’s motion for leave to file those
items, and then awarded summary judgment to the FDIC. The
district court entered final judgment in favor of the FDIC in
the amount of “$2,111,427.12, together with interest at the rate
of $373.73 per day from and after September 2, 2010.” (J.A.
290.)
Cashion noted a timely appeal, and we have jurisdiction
pursuant to 28 U.S.C. § 1291
.
3
After the FDIC’s motion to strike was filed, Cashion filed
a motion requesting the district court grant him leave to file
the surreply. Cashion asserted that his filing of the surreply
was appropriate given the “new” issues surrounding the 1099-C
Form that he contended were raised for the first time in the
FDIC’s reply brief.
7
II.
Cashion raises three issues on appeal: (1) whether the
district court erred in granting summary judgment to the FDIC
because a genuine issue of material fact exists as to whether
the FDIC is the holder of the Note; (2) whether the district
court abused its discretion in granting the FDIC’s motion to
strike the surreply and Chapman’s affidavit; and (3) whether the
district court erred in granting summary judgment to the FDIC
because a genuine issue of material fact exists as to whether
the Note has been cancelled or assigned.
We review an award of summary judgment de novo. Adams v.
Trs. of the Univ. of N.C.-Wilmington, 640 F.3d 550, 556
(4th Cir. 2011). Summary judgment is appropriate if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. Pro. 56(a). In considering the matter, we construe the evidence in the light most favorable to the non-moving party—here, Cashion— and draw all reasonable inferences in his favor. See Adams,640 F.3d at 556
.
We review the district court’s evidentiary and scheduling
decisions for abuse of discretion. See Noel v. Artson, 641 F.3d 580, 591
(4th Cir. 2011) (stating that a district court’s evidentiary decisions are reviewed for abuse of discretion); Cray Commc’ns, Inc. v. Novatel Computer Sys., Inc.,33 F.3d 390
,
8
396 (4th Cir. 1994) (stating the district court’s decisions
regarding briefing and hearing on summary judgment motions are
reviewed for abuse of discretion).
A.
Consistent with the Note’s governing law provision, we look
to North Carolina law to determine whether the FDIC established
that it is the “holder” of the Note. The “holder” of a
negotiable instrument is entitled to enforce it. N.C. Gen. Stat. § 25-3-301
. A “holder” is the “individual, corporation, . . . or any other legal or commercial entity,”N.C. Gen. Stat. § 25-1-201
(b)(27), “in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”N.C. Gen. Stat. § 25-1-201
(b)(21). “When signatures are admitted or established, production of the instrument entitles a holder to recover on it unless the defendant establishes a defense.” L. Harvey & Son Co. v. Jarman,333 S.E.2d 47, 52
(N.C. Ct. App. 1985) (quoting formerN.C. Gen. Stat. § 25-3-307
(2), recodified using similar language atN.C. Gen. Stat. § 25-3-308
).
The district court rejected Cashion’s contention that the
FDIC had not shown that it is the holder of the Note because it
failed to produce the original Note despite Cashion’s “demand”
in his Answer that it do so. Relying on Dobson v. Substitute
9
Tr. Servs., Inc., 711 S.E.2d 728
(N.C. Ct. App. 2011), and Liles v. Myers,248 S.E.2d 385
(N.C. Ct. App. 1978), the district
court concluded that “production of the original Note is not the
only manner in which holder status can be proved” under North
Carolina law. (J.A. 277.) The district court observed that the
FDIC had proffered evidence that the Bank was the holder, that
the FDIC succeeded to all rights of the Bank when it was
appointed as the Bank’s receiver, and that a true and accurate
copy of the Note was in the record. In addition, the district
court observed that Cashion did not dispute the accuracy of the
copy but instead simply “made a ‘strict demand’ for production
of the original Note in his Answer.” 4 (J.A. 277.)
On appeal, Cashion contends the district court erred
because the FDIC had not satisfied its burden of proving, under
North Carolina law, that it was the holder of the Note due to
the failure to produce the original Note in response to
Cashion’s demand for “strict proof.” (Opening Br. 8.) Cashion
points to Liles as establishing a party’s right under North
Carolina law to demand such strict proof, and points to the
Bank’s entering into receivership as sufficient to create
uncertainty as to the content of the Bank’s records. Cashion
4
The district court also accurately noted that Cashion
“never made a formal discovery request for the production of the
[Note].” (J.A. 277 n.2.)
10
asserts that Martin’s “[c]arefully crafted affidavit[]” is
insufficient to prove holder status because it was a
“perfunctory and conclusory verification” in the face of
Cashion’s demand. (Opening Br. 18, 22.)
We readily conclude that Cashion’s argument misconstrues
the relevant North Carolina case law. In Liles, the Court of
Appeals of North Carolina held that the plaintiff failed to
introduce the promissory “note itself or any other competent
evidence” showing that the plaintiff was the current holder of
the note. 248 S.E.2d at 388
(emphasis added). Cashion’s argument ignores the court’s inclusion of the category “or any other competent evidence” in asserting that Liles permits a debtor to demand strict proof in the form of the original Note as a mandatory condition precedent before a court can determine status as a holder. Any uncertainty remaining after Liles was eliminated in Dobson, wherein the North Carolina Court of Appeals flatly rejected the same argument now made by Cashion: that a holder of a note cannot prove his status by producing a copy of a promissory note as opposed to the original.711 S.E.2d at 730
. In Dobson, the plaintiff introduced a true and correct copy of the promissory note as well as affidavits from two bank officials stating that the bank was the owner and holder of the note.Id.
The debtor disputed the accuracy of
the copy, but offered no evidence that the photocopy was not a
11
true and correct copy. The North Carolina Court of Appeals
noted that “[u]nder similar circumstances” it had
held that where there is no evidence that photocopies
of a note or deed of trust are not exact reproductions
of the original instruments, a party need not present
the original note or deed of trust and may establish
that it is the holder of the instruments by presenting
photocopies of the note or deed of trust.
Id.
The debtor’s “bare statement” denying the authenticity of the copy and demanding production of the original was “insufficient to cast doubt on [the bank’s] evidence that [it] is the holder of the note and does not serve as evidence that the copies are not exact reproductions.”Id. at 731
.
So, too, Cashion’s demand of “strict proof” through
production of the original Note is not sufficient under
applicable North Carolina law to defeat summary judgment by
creating a genuine issue of material fact. Like the debtor in
Dobson, Cashion produced no evidence to suggest that the copy of
the Note in the record was somehow inaccurate, or anything but a
true and correct copy. Nor did he produce any evidence other
than bald speculation and his “bare statement” that the FDIC did
not possess the original Note. Cashion also failed to introduce
any facts that question the veracity of Sherry M. Martin’s
affidavit, which was based on her personal knowledge of the
Bank’s records. See In re Foreclosure by David A. Simpson,
P.C., 711 S.E.2d 165, 174-75
(N.C. Ct. App. 2011) (discussing
12
why an affiant’s factual statements, so long as they are based
on personal knowledge, are competent evidence). In short,
Cashion came forward with no facts that call into question the
FDIC’s evidence establishing that it is the holder of the Note.
See Econo-Travel Motor Hotel Corp. v. Taylor, 271 S.E.2d 54, 57
(N.C. 1980) (stating that to create a question of fact
challenging this evidence, the debtor would have to “come
forward with facts, not mere allegations, which controvert the
fact set forth in [the plaintiff’s] case”). The copy of the
Note, coupled with Martin’s affidavit, is sufficient “other
competent evidence” to prove the FDIC’s status as holder of the
Note under North Carolina law. The district court thus did not
err in concluding that no genuine issue of material fact existed
as to the FDIC’s status as holder of the Note.
B.
The district court granted the FDIC’s motion to strike the
surreply and Chapman’s affidavit. It characterized the FDIC’s
arguments regarding the 1099-C Form as “responses” and
“rebuttal[s]” to issues raised in Cashion’s response in
opposition to summary judgment, rather than “‘new’ matters
raised for the first time in the Reply.” (J.A. 274.) As such,
it concluded Cashion “had ample opportunity to present all of
his arguments and evidence regarding the [1099-C Form] in his
13
Responses to the FDIC’s Motion for Summary Judgment,” and could
have done so at that time. (J.A. 275.) The court also
concluded that Chapman’s affidavit provided interpretations of
the 1099-C Form, but because Chapman was not put forward as an
expert witness, such testimony was not admissible as it went
beyond his personal knowledge.
Cashion contends these decisions constituted reversible
error given that both the surreply and Chapman’s affidavit
address the important matter of showing why the 1099-C Form was
competent evidence. He explains that because the surreply and
Chapman affidavit “were offered to aid, rather than hamper, the
decision making process,” Opening Br. 46, and were offered in
response to an argument made for the first time in the reply
brief (that the 1099-C Form was inadmissible and referred to the
collateral for the Note), the district court should not have
stricken them.
On this record, we cannot say that the district court
abused its discretion in granting the motion to strike Cashion’s
surreply. Surreplies are generally not permitted under the
local rules of the Western District of North Carolina, Local
Rule 7.1(E), and the parties’ briefing schedule did not
authorize filing one. Cashion relied on the 1099-C Form in
opposing summary judgment. The FDIC’s reply brief then
challenged both the admissibility and weight of this evidence in
14
considering summary judgment. The reply brief therefore did not
raise a new legal theory or new evidence, but instead responded
to Cashion’s own argument and evidence. That Cashion failed to
anticipate how the FDIC would respond to his reliance on the
1099-C Form does not automatically entitle him to file a
surreply. Nor can we discern any other reason that would make
the district court’s decision inequitable.
As to the decision to strike Chapman’s affidavit, Federal
Rule of Civil Procedure 56(c)(4) requires that “[a]n affidavit
or declaration used to support or oppose a motion [for summary
judgment] must be made on personal knowledge, set out facts that
would be admissible in evidence, and show that the affiant or
declarant is competent to testify on the matters stated.”
Chapman’s affidavit gives his lay opinion about the meaning of
the 1099-C Form and challenges Martin’s interpretation of it.
Cashion has failed to show how that testimony reflects Chapman’s
“personal knowledge” of the 1099-C Form, nor can he; it is
speculative and expresses Chapman’s opinion. 5 For these reasons,
the district court did not abuse its discretion in striking the
surreply and Chapman’s affidavit.
5
To the extent Cashion argues that Martin’s affidavit
should have been stricken because it, too, went beyond the scope
of Rule 56(c), we note that Cashion failed to move to strike her
affidavit. The district court thus had no occasion to consider
that argument or rule upon it; as such, the matter is not
properly before this Court on appeal.
15
C.
The district court provided three different bases for its
conclusion that the 1099-C Form did not create an issue of
material fact as to whether the Note had been cancelled or
assigned. We need only address one of those grounds in light of
our conclusion that it was a proper basis for rejecting
Cashion’s position. 6 The district court held that “a Form 1099-C
does not itself operate to legally discharge a debtor’s
liability,” and thus “does not, standing alone, raise a genuine
issue of material fact regarding [Cashion’s] liability on the
Note.” (J.A. 283-84.) The district court held that summary
judgment in favor of the FDIC was therefore appropriate because
the Note was not “sufficient evidence for a jury to return a
verdict in [Cashion’s] favor on the issue of whether the Note .
. . had been cancelled and/or assigned by [the Bank] prior to
the institution of this action.” (J.A. 285.)
6
At the outset, the district court noted Cashion had not
established a proper foundation for admitting the Form into
evidence, given that it was hearsay and had not been
authenticated pursuant to Rule 803(6) or 902(11) of the Federal
Rules of Evidence. It then concluded that the 1099-C Form
“appear[ed] to relate not to the assignment or cancellation of
the . . . Note but rather to the assignment or cancellation of
the Note’s collateral” given that the 1099-C Form refers to
“Assignment of Promissory Notes.” (J.A. 283). Only then did
the court turn to the basis on which we affirm. Although we
note some uncertainty as to the validity of these first two
grounds, we need not examine them further given our agreement
with the district court on its third basis of decision.
16
Cashion contends here, as he did below, that the 1099-C
Form is prima facie evidence that the Note was discharged given
that actual discharge is one of the identifiable events that can
trigger the requirement to send the IRS and debtor copies of the
form. Cashion points to a handful of state and federal lower
court decisions that support his position that the district
court erred in holding that the 1099-C Form does not constitute
sufficient evidence of discharge to withstand a motion for
summary judgment. Under Cashion’s theory of the case, the 1099-
C Form is prima facie evidence of a discharge, and having
proffered this prima facie evidence, the burden of persuasion
shifted to the FDIC to rebut a presumption of cancellation.
And, he contends, the FDIC cannot successfully rebut the
presumption in this case because it has disavowed knowledge of
actions prior to when the Bank entered into receivership.
The FDIC responds that the 1099-C Form did not create a
genuine issue of material fact that would preclude summary
judgment in its favor because it is not sufficient evidence
alone upon which a jury could find in favor of Cashion. Citing
to the relevant IRS regulations, IRS statements regarding 1099-C
Forms, various state and federal lower court opinions, and an
unpublished opinion from the Fifth Circuit (some of which the
district court relied on as well), the FDIC contends that the
1099-C Form did not effectuate a discharge, did not preclude it
17
from seeking to collect the amount owed on the Note, and
evidenced at most proof of an intent to cancel rather than
actual cancellation. Accordingly, the FDIC asserts the district
court did not err in concluding that the 1099-C Form did not
create a genuine issue of material fact as to whether the Note
had been cancelled or assigned.
The question before us is relatively straightforward: did
the introduction into evidence of the 1099-C Form create a
genuine issue of material fact as to whether the Note had been
cancelled or assigned. This specific issue is one of first
impression not only before this Court, but apparently before any
federal appellate court through a published opinion. While
approximately two dozen state and federal cases discuss the
legal significance of a creditor filing a Form 1099-C with the
IRS in any analogous context, there is only one relevant federal
appellate court opinion, and it is unpublished. See Owens v.
Commissioner, No. 02-61057, 2003 U.S. App. LEXIS 12481
(5th Cir.
May 15, 2003) (per curiam) (unpublished). The other opinions,
both published and unpublished, are from the United States Tax
Court, bankruptcy courts, United States District Courts, and
various state trial and appellate courts. As discussed in the
parties’ briefs and observed above, there is no uniformity in
how these courts have resolved the central inquiry.
18
A small minority of the lower courts have held, as Cashion
urges us to do here, that filing a Form 1099-C with the IRS
constitutes prima facie evidence of an intent to discharge a
loan, at which point the burden of persuasion shifts to the
creditor to proffer evidence that it was filed by mistake or
pursuant to another triggering event in the regulations. See,
e.g., In re Welsh, No. 06-10831ELF, 2006 WL 3859233
(Bankr. E.D. Pa. Oct. 27, 2006) (unpublished); Amtrust Bank v. Fossett,224 P.3d 935, 936-38
(Ariz. Ct. App. 2009); Franklin Credit Mgmt. Corp. v. Nicholas,812 A.2d 51, 58-60
(Conn. App. 2002). These courts have generally noted that because filing a Form 1099-C has legal significance to the debtor’s income tax liability, and because the debtor faces penalties or fines for failing to comply with the obligations imposed, it would be inequitable to permit a creditor to collect the debt after having received the benefit of the “charge-off” of the debt from filing the Form 1099-C. Lastly, some—but not all—of the courts holding that a filed Form 1099-C alone is prima facie evidence of discharge have also recognized that the form can satisfy the applicable UCC provisions for when a writing constitutes an “intentional voluntary act” of discharge, and thus itself effectuates the discharge of the relevant debt. See, e.g., Franklin Credit Mgmt. Corp.,812 A.2d at 60-61
.
19
While we cannot say that the analysis summarized above
lacks any support, we find a different approach taken by a
majority of the courts to consider the matter ultimately more
persuasive. That analysis relies principally on the language of
the IRS regulations and the purpose of a Form 1099-C. E.g.,
Capital One, N.A. v. Massey, Case No. 4:10-CV-01707, 2011 WL 3299934
, *3-*4 (S.D. Tex. Aug. 1, 2011) (unpublished); In re Zilka,407 B.R. 684, 687-92
(Bankr. W.D. Pa. 2009); Lifestyles of Jasper, Inc. v. Gremore,299 S.W.3d 275, 276-77
(Ky. Ct. App.
2009).
The Internal Revenue Code (“IRC”) sets forth certain
reporting requirements to the IRS, 26 U.S.C. § 6050P, which the
IRS regulations have implemented through the Form 1099-C filing
requirement:
any applicable entity . . . that discharges an
indebtedness of any person . . . must file an
information return on Form 1099-C with the Internal
Revenue Service. Solely for purposes of the reporting
requirements of [the applicable statute and this
regulation], 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.
26 C.F.R. § 1
.6070P-1(a) (emphasis added). Subsection (b)(2) of26 C.F.R. § 1
.6070P-1 lists eight “identifiable events” that
trigger the reporting obligation. The identifiable events
include discharge through the debtor’s filing for bankruptcy,
20
the expiration of the statute of limitations for collection,
discharge by agreement of the parties, a creditor’s decision “to
discontinue collection activity and discharge debt,” and
“expiration of the non-payment testing period.” § 1.6070P-
1(b)(2)(i).
Tracking the plain language of the regulation, a creditor
may be obligated to file a Form 1099-C even though an actual
discharge of indebtedness has not yet occurred or is not
contemplated. Cf. Subsection (a). Moreover, the identifiable
event triggering the obligation may not involve an actual
discharge of the debt; rather, the event may be deemed to
constitute a “discharge” “[s]olely for purposes of” determining
the Form 1099-C reporting obligation. Cf. id. and subsection
(b).
The plain language of the regulation leads us to conclude
that filing a Form 1099-C is a creditor’s required means of
satisfying a reporting obligation to the IRS; it is not a means
of accomplishing an actual discharge of debt, nor is it required
only where an actual discharge has already occurred. This
understanding of the creditor’s obligation to file a Form 1099-C
is also clearly expressed in the IRS’s own interpretation of the
regulations. Two IRS Information Letters issued in October 2005
addressed concerns regarding the impact of a creditor’s
compliance with the Form 1099-C reporting obligation and the
21
continuing liability of a debtor on the subject debt. I.R.S.
Info. 2005-0207, 2005 WL 3561135
(Dec. 30, 2005); I.R.S. Info. 2005-0208,2005 WL 3561136
(Dec. 30, 2005). In the first, the
IRS addressed a creditor’s concern that filing the Form 1099-C
would constitute a written admission that it had discharged the
debt and would therefore make debtors unwilling to pay on their
obligations. Citing subsection (a) of the regulations discussed
above, the IRS responded that it “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.” I.R.S. Info. 2005-0207. In
the second letter, the IRS assured a concerned creditor that
filing a Form 1099-C satisfies the reporting requirements of
statute and implementing regulations, neither of which “prohibit
collection activity after a creditor reports by filing a Form
1099-C.” I.R.S. Info. 2005-0208.
The IRS, the administrative agency charged with the
obligation of implementing IRC § 6050P through its regulations,
thus treats the Form 1099-C as a means for satisfying a
reporting obligation and not as an instrument effectuating a
discharge of debt or preventing a creditor from seeking payment
on a debt. Moreover, as the IRS correctly noted in the
foregoing Information Letters, nothing in the relevant statute
or regulations prohibits collection following the filing of a
22
Form 1099-C. 7 Although the IRS’ interpretation is expressed in
an information letter rather than a regulation or ruling, and
thus is not subject to Chevron 8-style deference, it is
nonetheless “entitled to respect . . . to the extent that [its]
interpretations have the power to persuade.” Christensen v.
Harris County, 529 U.S. 576, 587
(2000) (internal quotation marks omitted); see Dominion Res., Inc. v. United States,219 F.3d 359, 366
(4th Cir. 2000). We find the IRS’s view
persuasive because it fully encompasses the purpose of a Form
1099-C as an IRS reporting document and follows the plain
language of the relevant regulation.
As noted, several courts have expressed a similar
interpretation of the filing of a Form 1099-C, and although none
of their opinions are binding on us, we note the reasoning
expressed in some of them. In Owens v. Commissioner, No. 02-
61057, 2003 U.S. App. LEXIS 12481
(5th Cir. May 15, 2003) (per curiam) (unpublished), the Fifth Circuit observed that a Form 1099-C was not evidence that the creditor had actually cancelled a debt, but rather reflected at most an intention to cancel the debt in the future.Id.
at *11-*12. It thus criticized the IRS
7
While some of the circumstances triggering the obligation
to file a Form 1099-C may bar collection, it is that separate
circumstance and not the fact of filing a Form 1099-C that acts
as the bar.
8
Chevron U.S.A. Inc. v. Natural Res. Defense Council, Inc.,
467 U.S. 837
(1984).
23
for not “bother[ing] to follow up on the intention . . . to
verify actual cancellation” and instead relying solely on the
issuance of a Form 1099-C when it charged the taxpayers with
being deficient on their income taxes. Id. at *12.
In a case more similar in setting to that at bar, in
Capital One, N.A. v. Massey, No. 4:10-CV-01707, 2011 WL 3299934
(S.D. Texas Aug. 1, 2011) (unpublished), the United States District Court for the Southern District of Texas “adopt[ed] the view that a 1099-C does not discharge debtors from liability” because the form is “issued to comply with IRS reporting requirements” and the IRS does not view it “as a legal admission that a debtor is absolved from liability for a debt.”2011 WL 3299934
, at *3. Accordingly, the Capital One court held that “the fact that [a creditor] issued a 1099-C in relation to the Borrowers’ indebtedness is irrelevant and does not raise a genuine issue of material fact” as to whether the debt had been cancelled.Id.
Here, Cashion claims that the 1099-C Form is prima facie
evidence, in and of itself, that the Note has been cancelled.
We disagree. As noted earlier, the IRS did not create the form
as a means of effectuating the discharge of a debt. It is,
instead, a reporting mechanism to the IRS. Moreover, because a
creditor can be required to file a Form 1099-C even where a debt
has not been cancelled, the mere fact that a Form 1099-C is
24
filed does not constitute sufficient evidence, standing alone,
that a debt has been cancelled. Without more, it is impossible
for a court to know what the existence of a filed Form 1099-C
means. It may mean the debt has been discharged; it may mean
the creditor intended to discharge the debt in the future; or it
may mean that another of the “identifiable events” in the
regulation occurred apart from an actual discharge.
Furthermore, it may also have simply been filed by mistake. The
bare Form 1099-C alone, which is Cashion’s sole evidence of debt
discharge in this case, does not provide any of the contextual
clues needed to decide between these alternatives.
Summary judgment is appropriate if the record shows that
“there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). A “genuine issue” of fact exists “when the
evidence would allow a reasonable jury to return a verdict for
the nonmoving party.” News & Observer Publ’g Co. v. Raleigh-
Durham Airport Auth., 597 F.3d 570, 576
(4th Cir. 2010) (citing Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 248
(1986)). The nonmoving party “‘may not rely merely on allegations or denials in [his] own pleading’ but must ‘set out specific facts showing a genuine issue for trial.’”Id.
(quoting Fed. R. Civil Pro.
56(e)).
25
Cashion’s claim of cancellation or assignment of the Note
is based solely on the 1099-C Form. He never proffered a reason
for cancellation or any evidence beside the 1099-C Form he
received to prove cancellation. Cashion admitted he had not
paid the Note.9 Only Cashion’s bald speculation ties his receipt
of the 1099-C Form to a specific reason as to why the Bank would
have issued it. As a matter of law, a jury could not have
rendered a verdict in Cashion’s favor that the Note was
cancelled or assigned when the sole evidence put forth was the
1099-C Form. As such, there is no genuine issue of material
fact in this case. See Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87
(1986) (In the context of
whether an issue of fact is “genuine,” an opponent of summary
judgment “must do more than simply show that there is some
metaphysical doubt as to the material facts.” He “must come
forward with ‘specific facts showing that there is a genuine
issue for trial.’ Where the record taken as a whole could not
lead a rational trier of fact to find for the nonmoving party,
there is no ‘genuine issue for trial.’”).
In so holding, we are careful to note the specific
circumstances of this case and the narrowness of our holding.
9
Significantly, Cashion never sought discovery related to
the issuance of the 1099-C Form or attempted to develop the
record beyond the mere existence of the form as support for his
argument.
26
The case at bar is likely an oddity, where the 1099-C Form is
the only evidence of debt discharge before the Court. 10 This is
not a situation where the evidentiary value of a Form 1099-C is
considered in conjunction with other competent evidence
regarding the circumstances surrounding its filing. In another
case, where a properly authenticated Form 1099-C is introduced
into evidence along with other circumstantial evidence of
cancellation of the debt, the Form 1099-C could be properly
considered by the trier of fact under the totality of the
circumstances on the ultimate issue of whether the debt in
question was, in fact, cancelled. But here, because Cashion has
not come forward with evidence that creates a genuine issue of
material fact as to whether the Note has been cancelled or
assigned, the district court did not err in granting the FDIC’s
motion for summary judgment. 11
10
As the dissent observes, the affidavit Cashion submitted
attested that the Bank had cancelled the Note. The affidavit
plainly represents that Cashion’s only basis for this belief is
the 1099-C Form he received from the Bank. He offers no basis
in the affidavit as proof of cancellation except the 1099-C Form
itself. As such, Cashion’s affidavit does not change the
relevant evidence that was before the district court when
considering whether a genuine issue of material fact existed as
to the Note’s cancellation.
11
Cashion repeatedly refers to the 1099-C Form as being
evidence of cancellation and/or assignment. However, he does
not raise any separate argument as to why the district court
erred in concluding the 1099-C Form did not raise a genuine
issue of material fact as to the Note’s assignment than he does
(Continued)
27
III.
For the reasons set forth above, the judgment of the
district court in favor of the FDIC is
AFFIRMED.
as to its being evidence of cancellation. As such, our analysis
need not extend further.
28
KING, Circuit Judge, dissenting:
With all respect for my distinguished colleagues, I would
vacate the judgment below and remand for trial. In ruling on
the summary judgment motion, the district court improperly
disregarded admissible evidence which, viewed in the light most
favorable to Cashion, creates a genuine dispute of material fact
as to whether Cashion’s $2 million debt to the Bank of Asheville
has been discharged.
As my friends emphasize, a Form 1099-C does not necessarily
prove the discharge of a debt. It is of little moment, however,
that IRS regulations specify that a Form 1099-C may be created
“whether or not an actual discharge of indebtedness has
occurred.” See 26 C.F.R. § 1
.6070P-1(a). In the district
court, Cashion presented the handwritten Form 1099-C,
referencing the sum of more than $1.9 million, in opposition to
the FDIC’s summary judgment motion. Contemporaneously
therewith, Cashion filed his own affidavit asserting, inter
alia, that “the Bank cancelled the alleged debt,” and that “the
Bank . . . has acknowledged that the debt which is a subject of
this lawsuit has been cancelled and assigned.” (J.A. 32, 38.)
Significantly, it was not Cashion’s burden to establish on the
FDIC’s summary judgment motion that his debt to the Bank was
discharged as a matter of law. Rather, Cashion was obliged to
show merely that there is a genuine dispute of material fact.
In its reply memorandum, the FDIC asserted that: (1) the
Form 1099-C constitutes inadmissible hearsay; (2) the Form 1099-
C relates only to the collateral secured by the Note; and (3)
the Form 1099-C is insufficient, on its own, to create a genuine
dispute of material fact as to whether the underlying debt has
been discharged. As the majority observes, the district court
adopted all three of the FDIC’s arguments.
First, however, the Form 1099-C is admissible as a business
record, pursuant to Rule 803(6) of the Federal Rules of
Evidence. With its reply in support of summary judgment, the
FDIC filed the affidavit of Sherry Martin, a Resolutions and
Receiverships Specialist familiar with the books and records of
the Bank. That affidavit establishes the provenance of the
Bank’s records, relating that
[t]he books and records in question were made at or
near the time of the matters therein recorded and were
kept in the course of [the Bank’s] regularly conducted
business activity, the regular practice of which was
to keep such books and records.
J.A. 81. Martin’s affidavit specifically discusses the Form
1099-C, reciting that “[b]ased on the books and records of [the
Bank], the[] [Form 1099-C] appear[s] to have been sent to Mr.
Cashion by [the Bank.]” Id. at 82
. These statements are all
30
that is required by Rule 803(6) to render admissible the Form
1099-C. 1
Second, in concluding that the Form 1099-C relates only to
the collateral secured by the Note, the district court relied on
the Form’s description of the debt as “Assignment of Promissory
Notes.” J.A. 42. However, the Form 1099-C lists its relevant
account number as 4436, the Bank’s account number for the loan
and the Note. Thus, there are competing inferences to be
resolved by a jury, not by a court on summary judgment.
Finally, contrary to the majority’s assertion, this case
does not present the question of whether the Form 1099-C,
standing alone, constitutes “sufficient evidence [on] which a
jury could find in favor of Cashion.” Ante at 17. Put simply,
the Form 1099-C cannot be considered in a vacuum. It was filed
in the district court along with Cashion’s own affidavit,
wherein he verifies that the Bank has cancelled his debt.
According to the majority, Cashion’s affidavit should be
discounted because it “plainly represents” that the Form 1099-C
provides the only basis for Cashion’s belief that the Bank
discharged his debt. Ante at 27 n.10. Though the affidavit
refers to the Form 1099-C, Cashion does not contend that his
1
If the proper foundation is established, the Form 1099-C
would likely also be admissible as the statement of an opposing
party, pursuant to Federal Rule of Evidence 801(d)(2).
31
belief is based solely on the Form. Indeed, the Form provides
no explanation (except its references to collateral and the
account number associated with the Note) for why the Bank
created and sent it to Cashion. In these circumstances, a
reasonable jury would be entitled to infer that the Form 1099-C
reflects an intent on the part of the Bank to discharge
Cashion’s debt. Such an inference is supported by the origin of
the Form 1099-C, i.e., the Bank itself, and the FDIC’s failure
to show that the circumstances of the Form’s existence “indicate
[any] lack of trustworthiness.” Fed. R. Evid. 803(6)(E). 2
The majority’s discussion of the divergent legal principles
concerning the evidentiary weight properly accorded a Form 1099-
C is, in my view, unnecessary, and the discussion simply
reinforces the proposition that “‘reasonable minds could
differ’” on this central point. Bouchat v. Balt. Ravens
Football Club, Inc., 346 F.3d 514
, 522 (4th Cir. 2003) (quoting
2
In assessing the meaning of the Form’s reference to
“Cancellation of Debt,” the jury would be entitled to view the
cancellation in several ways, such as, by way of example, a
discharge, a charge-off, a refinancing, a corrupt action by a
Bank officer, or, perhaps, a gift by the Bank. Any of these
plausible views of the record would give rise to an inference
sufficient to defeat the FDIC’s summary judgment motion, because
it bears the burden on summary judgment of showing the absence
of a genuine dispute of material fact. See Matsushita Elec.
Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986) (“[O]n
summary judgment the inferences to be drawn from the underlying
facts . . . must be viewed in the light most favorable to the
party opposing the motion.” (alterations and internal quotation
marks omitted)).
32
Anderson v. Liberty Lobby, Inc., 47 U.S. 242, 250
(1986)
(explaining that, on summary judgment, court must determine
whether “there are any genuine factual issues that properly can
be resolved . . . in favor of either party”)). As a result,
summary judgment should not be awarded.
Finally, I acknowledge that the handwritten Form 1099-C,
viewed in the context of the substantial nature of the loan and
the careful manner in which banks normally do business, could
lead a reasonable factfinder to view this particular Form with
suspicion. Indeed, if I were the factfinder, I would seriously
question the legitimacy of a handwritten Form 1099-C purporting
to cancel nearly $2 million of debt. But, as an appeals court,
we do not sit in a factfinding capacity, and neither does a
district court when resolving a summary judgment motion.
Instead, the question of how the Form 1099-C should influence
the outcome of this case is for a jury. Our proper course is
simply to vacate and remand for trial.
I respectfully dissent.
33