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ZB, N.A. v. Crapo

Supreme Court of Utah

February 24, 2017

ZB, N.A. d/b/a Zions First National Bank, Appellee,
v.
Shayne D. Crapo, Appellant.

         On Direct Appeal Third District, Salt Lake The Honorable Barry G. Lawrence No. 140907019

          James K. Tracy, Joshua L. Lee, Salt Lake City, for appellee

          Richard J. Armstrong, Jacob A. Green, Lehi, for appellant

          Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice Lee, Justice Himonas, Justice Pearce, and Judge Mortensen joined.

          Having recused herself, Justice Durham did not participate herein; Court of Appeals Judge David N. Mortensen sat.

          Durrant Chief Justice

         Introduction

         ¶ 1 This case presents the question of whether a debtor's receipt of an IRS Form 1099-C-a reporting tool designed to help the IRS track lenders' debt forgiveness-creates a genuine issue of material fact as to whether a lender has forgiven a debt or as to whether the lender is estopped from collecting on it. The IRS requires that a lender file a Form 1099-C with the IRS and issue a copy to the debtor when there has been an "identifiable event." As defined by the IRS, some "identifiable event[s]" involve an actual discharge-i.e., cancellation or forgiveness - of debt. But one "identifiable event, " called "identifiable event code H, " requires the lender to file the form upon the expiration of a 36-month period where no payments have been made on a debt, regardless of whether an actual discharge of the debt has occurred.[1]

         ¶ 2 Shayne Crapo borrowed $250, 000 from Zions First National Bank (Zions Bank). Mr. Crapo initially made payments on the loan, but he eventually defaulted. After the expiration of a 36-month period with no payments being made on the loan, Zions Bank issued Mr. Crapo a Form 1099-C. The form listed "H" as the event code, but also listed "FORGIVEN DEBT AMT 3 YRS NO PAYMENT" in the "Debt description" field, and "$250, 000.00" in the "Amount of debt discharged" field. Mr. Crapo claims that he reported the $250, 000 as income on his tax return, which increased his tax burden for that year.

         ¶ 3 Zions Bank brought a deficiency action to recover the amount due on the loan. The district court below granted summary judgment in favor of Zions Bank, holding that Mr. Crapo failed to show that the evidence created a genuine dispute of material fact as to whether Zions Bank in fact discharged the debt or as to whether it is estopped from collecting on it. The court accordingly entered judgment against Mr. Crapo for the amount of the loan, plus fees, costs, and interest. Mr. Crapo appeals, arguing that the evidence creates a genuine dispute of material fact as to both actual discharge and estoppel.

         ¶ 4 We affirm the district court on both grounds. Mr. Crapo has failed to adduce sufficient evidence to permit a reasonable fact finder to conclude that Zions Bank either actually discharged or is estopped from collecting his debt.

         Background

         ¶ 5 In December 2006, Mr. Crapo and Zions Bank entered into a "Home Equity Line Credit Agreement and Disclosure" (the Note). Mr. Crapo drew upon the line of credit the same day, withdrawing the full $250, 000 limit. The Note contains a "Delay in Enforcement" clause (Nonwaiver Clause) providing that Zions Bank "may delay or waive enforcement of any of [its] rights under" the Note "without losing that right or any other right."

         ¶ 6 Mr. Crapo made payments to cover the accruing interest until September 2010, after which he made no further payments. In October of that year, Zions Bank accelerated the balance of the Note, demanding payment in full. In January 2011, it created an internal "Charge Off Request" document (Charge Off Request) in which a Zions Bank representative requested that the balance due under the Note "be charged off due to the lack of collateral and transferred to [the] Recovery Department for further collection efforts."

         ¶ 7 As of December 31, 2013, Mr. Crapo had not made any payments on the Note in the preceding 36-month period. In January 2014, Zions Bank issued an IRS Form 1099-C to Mr. Crapo. An IRS regulation requires that a lender file a Form 1099-C whenever the lender "discharges" an "indebtedness" of at least $600.[2] The regulation defines "discharge" in a way that includes more than actual discharges. It provides that, "[s]olely for purposes of the reporting requirements of" this regulation, "a discharge of indebtedness is deemed to have occurred . . . if and only if" an "identifiable event" has occurred, "whether or not an actual discharge of indebtedness has occurred."[3] The regulation then provides eight different identifiable events. The first seven, codes A-G, correlate to events that necessarily involve an actual discharge of debt.[4] The eighth, event code H, is not tied to an actual discharge, but requires that a form be sent upon the expiration of a "non- payment testing period."[5] The regulations define the non-payment testing period as follows:

There is a rebuttable presumption that an identifiable event . . . has occurred during a calendar year if a creditor has not received a payment on an indebtedness at any time during a testing period . . . 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.[6]

         In sum, on December 31 of any given year, there is an identifiable event code H for each indebtedness on which the borrower has not made a payment during the preceding 36 months.

         ¶ 8 IRS Form 1099-C itself contains a section called "Instructions for Debtor, " which explains the reason for its being sent. The form states:

You received this form because . . . a lender[] has discharged (canceled or forgiven) a debt you owed, or because an identifiable event has occurred that either is or is deemed to be a discharge of a debt of $600 or more. If a creditor has discharged a debt you owed, you are required to include the discharged amount in your income. . . . However, you may not have to include all of the canceled debt in your income.... If an identifiable event has occurred but the debt has not actually been discharged, then include any discharged debt in your income in the year that it is actually discharged . . . .

         The instructions on the form also state that "Box 6"-which is titled "Identifiable event code"-"[m]ay show the reason your creditor has filed this form." The form then provides a description of each event code, including "H - Expiration of nonpayment testing period." The form also states that "[i]f you are required to file a return, a negligence penalty or other sanction may be imposed on you if taxable income results from this transaction and the IRS determines that it has not been reported."

         ¶ 9 In the particular Form 1099-C sent to Mr. Crapo, box 6, labeled "Identifiable event code, " states "H." Box 4, labeled "Debt description, " states "FORGIVEN DEBT AMT 3 YRS NO PAYMENT." Box 1, the "Date of identifiable event" field, lists "12/31/2013." Box 2, labeled "Amount of debt discharged, " lists "$250, 000.00." Mr. Crapo alleges that he reported the $250, 000 as income, increasing his tax burden for that year. The record contains no specific evidence of the amount of tax burden this imposed on Mr. Crapo. Instead, it contains an affidavit from Mr. Crapo that states: "Following the instructions in the 1099-C, I included the full $250, 000.00 value of the loan in my gross income for the tax year 2013. As a result, my tax burden increased for that year." The record contains no indication that Mr. Crapo consulted with Zions Bank or sought advice about the implications of the Form 1099-C he received.

         ¶ 10 Zions Bank brought a deficiency action to recover the amount due on the loan, and at the close of discovery the parties filed cross-motions for summary judgment. Zions Bank argued that because Mr. Crapo's default on the debt was undisputed, the court should enter judgment against him for the amount of the loan plus costs, fees, and interest. Mr. Crapo made two arguments. First, that the Form 1099-C was prima facie evidence that Zions Bank in fact discharged the debt, and second, that Zions Bank was estopped from collecting the debt. The district court rejected both of Mr. Crapo's arguments and granted summary judgment in favor of Zions Bank. Mr. Crapo appeals that determination. On appeal, he argues that the Form 1099-C creates a genuine dispute of material fact as to both the actual discharge and estoppel issues.

         Standard of Review

         ¶ 11 "Summary judgment is appropriate when the evidence 'shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law.'"[7] "An appellate court reviews a [district] court's legal conclusions and ultimate grant or denial of summary judgment for correctness and views the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party."[8]

         Analysis

         ¶ 12 Mr. Crapo argues that summary judgment was improper on two grounds. First, he claims there is a genuine dispute of material fact as to whether Zions Bank actually discharged the Note. Second, he claims there is such a dispute regarding whether Zions Bank is estopped from collecting on the Note. We conclude that neither issue presents a genuine dispute of fact because Mr. Crapo's evidence is insufficient to permit a reasonable fact finder to conclude that Zions Bank actually discharged or is estopped from collecting the Note. We therefore conclude that the district court properly granted judgment as a matter of law for Zions Bank.

         ¶ 13 Regarding actual discharge, Mr. Crapo's evidence is reduced to merely the words "FORGIVEN DEBT" listed on a form that Zions Bank sent to satisfy an IRS reporting obligation. Mr. Crapo presents no other evidence that Zions Bank actually discharged his debt. In these circumstances, no reasonable fact finder could conclude that the debt ...


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