Robert F. Cavoto v. Mary Lou Hayes

After examining the briefs and records, we have concluded å
that oral argument is unnecessary. Thus, these appeals are
submitted on the briefs and records. See FED. R. APP. P. 34(a)(2).
In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2681
ROBERT F. CAVOTO,
Plaintiff-Appellant,
v.
MARY LOU HAYES,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 08 C 6957—David H. Coar, Judge.
SUBMITTED FEBRUARY 16, 2011 —DECIDED FEBRUARY 28, 2011å
Before BAUER, ROVNER and SYKES, Circuit Judges.
PER CURIAM. Mary Lou Hayes sent the Internal
Revenue Service a Form 1099-C declaring that she had
discharged an unpaid $30,000 debt owed to her by her
former son-in-law, Robert Cavoto. He disputed that

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2 No. 10-2681
there ever was a debt and sued under 26 U.S.C. § 7434(a),
claiming that Hayes had willfully filed a fraudulent
“information return.” Hayes counterclaimed for pay-
ment of the debt. After a bench trial, the district court
held that the Form 1099-C was not fraudulent and that
Hayes was entitled to her $30,000. See Cavoto v. Hayes,
No. 08 C 6957, 2010 WL 2679973, at *4-*5 (N.D. Ill. July 1,
2010). Cavoto appeals and challenges both verdicts in
favor of Hayes. We conclude that his complaint fails to
state a claim and should have been dismissed with-
out a trial, but we uphold the verdict for Hayes on her
counterclaim and thus affirm the judgment of the
district court.
Cavoto and his then-wife, Susan, were in financial
trouble. To help them out, Hayes allowed the Cavotos
to rack up over $30,000 on her American Express credit
card. The Cavotos then separated and eventually divorced.
After the separation, Cavoto e-mailed Hayes, told her
that he anticipated receiving more than $30,000 from
receivables due his recruitment and consulting firm, and
said he would use those funds to repay her. Payment
never came. Hayes cancelled the credit card, paid the
balance due, and tried to recoup her $30,000 from Robert.
These attempts were unsuccessful. Hayes’s other daugh-
ter, a certified public accountant, advised her to take a
nonbusiness bad-debt deduction, see 26 U.S.C. § 166(a), and
file a Form 1099-C with the IRS reporting that she had
discharged the $30,000 debt, see id. § 6050P. Under the
Internal Revenue Code, financial entities that discharge
indebtedness of $600 or more must file a Form 1099-C,
a type of “information return” which identifies the

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No. 10-2681 3
amount of the debt and the person whose debt has been
discharged. Id. §§ 6050P(a), 6050P(c), 6724(d)(1)(B)(ix);
Treas. Reg. § 1.6050P-1(a)(4). A debtor who receives a
discharge must report the amount as income. 26 U.S.C.
§ 61(a)(12); Colonial Sav. Ass’n & Subsidiaries v. Comm’r, 854
F.2d 1001, 1004 (7th Cir. 1988). Thus, a Form 1099-C
allows the IRS to compare the amount of discharged
debt claimed by a lending institution with the amount
of income reported by the person whose debt was dis-
charged. Debt Buyers’ Ass’n v. Snow, 481 F. Supp. 2d 1, 9
(D.D.C. 2006). Hayes followed her daughter’s advice
and filed a Form 1099-C in 2007. On her 2006 federal
income tax return she also claimed a nonbusiness bad-
debt deduction.
The Form 1099-C prompted the IRS to send Cavoto
notice that he might be liable for $11,000 in additional
taxes, interest, and penalties for 2006. He filed an objec-
tion with the IRS and then, two months later, sued
Hayes under § 7434. That statute creates a private right
of action against anyone who “willfully files a fraudulent
information return with respect to payments purported
to be made” to the plaintiff. See Mikulski v. Centerior
Energy Corp., 501 F.3d 555, 563 (6th Cir. 2007). After
Cavoto filed suit, though, the IRS notified him that it
would not pursue collection of any additional income
or penalties. Yet Cavoto pressed on with the litigation
to recover his outlay for attorney’s fees and other ex-
penses. He argued that, because only financial entities and
not individuals are required to file a Form 1099-C,
see 26 U.S.C. § 6050P(c), Hayes must have acted with
fraudulent intent because her only possible motive was
to cause him to incur additional taxable income. He

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4 No. 10-2681
also asserted that Hayes’s filing was nevertheless fraudu-
lent because he did not owe her anything. Hayes counter-
claimed for the amount of the debt, claiming breach of
a loan contract.
The district court rejected Cavoto’s contention that a
Form 1099-C filed by someone other than a financial entity
is necessarily fraudulent. Although Hayes was not re-
quired to file a Form 1099-C, the court explained, she
was not prohibited from doing so. Moreover, the court
added, filing a Form 1099-C is not equivalent to filing a
false return, so long as the information in the form is
accurate. Cavoto v. Hayes, No. 08 C 6957, 2009 WL 3380664,
at *3-*4 (N.D. Ill. Oct. 19, 2009). The district court then
conducted a bench trial to resolve the competing claims.
At trial the district court heard testimony from Hayes,
Cavoto, and his ex-wife. The district court found that
Cavoto had agreed with Hayes that she would loan
him the $30,000 and in return he would repay the entire
sum. Cavoto, 2010 WL 2679973, at *5. Because Cavoto
agreed to reimburse Hayes, according to the court,
she had a good-faith belief that when she filed the
Form 1099-C she was cancelling a bona fide debt, and this
meant that the Form 1099-C was not fraudulent. Id. at *4.
The district court also found that Hayes had shown
Cavoto had breached the contract by failing to repay
her, and thus found for her on this claim as well. Id. at *5.
Although the parties had counsel in the district court,
they are both pro se in this court. On appeal, Cavoto
takes issue with the district court’s decision that he was
on the hook for the full $30,000, and he thus implies that

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No. 10-2681 5
the Form 1099-C was indeed fraudulent. But, as it turns
out, whether or not the Form 1099-C was misleading is
irrelevant. The remedy created by § 7434 is limited in
scope. The types of false “information returns” for which
an injured taxpayer may recover are limited to the nine
listed in 26 U.S.C. § 6724(d)(1)(A). See 26 U.S.C. § 7434(f);
34 AM. JUR. 2D Federal Taxation ¶ 71735 (2010); 20A
FEDERAL PROCEDURE, LAWYERS EDITION § 48:1492 n.1
(2009). Those nine do not include returns relating to
the cancellation of indebtedness, i.e., a Form 1099-C.
This limitation was overlooked by the district court,
which should have dismissed Cavoto’s lawsuit outright
under Federal Rule of Civil Procedure 12(b)(6) for
failure to state a claim.
Cavoto also attacks the district court’s decision on the
breach-of-contract claim, arguing that the district court
misjudged Hayes’s credibility. We upset a factfinder’s
credibility determination only for clear error. Xodus v.
Wackenhut Corp., 619 F.3d 683, 686 (7th Cir. 2010); Kanter v.
Comm’r, 590 F.3d 410, 417 (7th Cir. 2009). We do not
second-guess a district court’s resolution of conflicting
evidence or credibility determinations. Anderson v. City
of Bessemer City, N.C., 470 U.S. 564, 575 (1985); RK Co. v.
See, 622 F.3d 846, 852 (7th Cir. 2010). Here, Cavoto inap-
propriately slings insults at the district judge and Hayes
in his brief, but otherwise points to no reason why the
court should have credited his version over Hayes’s.
Last, he asks that we reverse and remand because,
he says, his lawyer was ineffective. This argument is
frivolous. A retrial is not a proper remedy for deficient

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6 No. 10-2681
representation in a civil action. See Stanciel v. Gramley,
267 F.3d 575, 581 (7th Cir. 2001); Hutcherson v. Smith,
908 F.2d 243, 245 (7th Cir. 1990).
AFFIRMED.
2-28-11

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