Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Monday, July 18, 2011

Challenging attorney's fee affidavit in a debt collection case

Beaumont Court of Appeals finds creditor's fee proof insufficient to support summary judgment where its counsel's affidavit lacked specificity as to hours and hourly rates and Defendant -- himself an attorney and as such qualified to testify on the matter -- filed a counter-affidavit challenging the reasonableness of the amount of fees sought by American Express and the lack of substantiation.   

[ Credit card debt Defendant ] argues on appeal that the trial court erred in overruling his objections to Amex’s summary judgment proof "because said proof was conclusory." Specifically, [ Credit card debt Defendant ] argues the affidavit Amex submitted in support of its request for attorney’s fees is conclusory. [ Credit card debt Defendant ] argues that the affidavit is insufficient to support the award of fees because it "did not itemize the hours expended, or identify the attorney’s hourly rate."

[ Credit card debt Defendant ] further contends that the absence of an hourly rate and hours billed prevents the affidavit from being readily controvertible. Additionally [ Credit card debt Defendant ] contends that his own affidavit contradicted Amex’s affidavit in support of requested attorney’s fees.

Amex submitted the affidavit of its counsel of record in support of its request for attorney’s fees. Counsel averred that he was attorney of record for Amex in the underlying suit and that the statements set forth therein were based on his personal knowledge. Counsel further stated that he was familiar with the fees charged by attorneys for work of the type performed in this case and stated the following in support of Amex’s request for $2,100 in attorney’s fees:

Prior counsel and I have represented Plaintiff in its pursuit of collection [of] the indebtedness which is the subject of this cause. Prior counsel and I have reviewed the documentation provided by Plaintiff regarding the indebtedness, prepared pleadings, performed necessary and appropriate research, prepared appropriate discovery requests, and prepared a Motion for Summary Judgment and appropriate supporting affidavit(s).

All the work done in this cause has been necessary. It is my opinion that Plaintiff is entitled to recover its attorney fees in accordance with the terms of the Agreement and Texas law, in the sum of $2,100.00 in view of the work performed to date in order to collect the judgment.

In this affidavit filed with his response motion, [ Credit card debt Defendant ] stated:

. . I am a licensed attorney in the State of Texas. I am familiar with the usual and customary rates charged by attorneys in Texas. I have reviewed the attorney’s fee affidavit attached to Plaintiff’s motion for summary judgment. The affidavit does not contain the hourly rate being charged by the attorney’s billing nor does it contain the number of hours billed. In addition, the affidavit does not discuss any of the Arthur Anderson factors. As such, the attorneys’ fees are not readily controverted.
In reviewing the facts supplied by Plaintiff to recover attorney’s fees, it is my opinion that the fees sought are unnecessary and not reasonable. The entire lawsuit could have been avoided had Plaintiff supplied the necessary information previously requested. It is my expert opinion that the attorney fees Plaintiff’s attorney claims are not necessary or reasonable.

The reasonableness of attorney’s fees is generally a question of fact. Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d 545, 547 (Tex. 2009); Tesoro Petroleum Corp. v. Coastal Ref. & Mktg., Inc., 754 S.W.2d 764, 767 (Tex. App.—Houston [1st Dist.] 1988, writ denied).

However, an attorney’s affidavit may be sufficient to conclusively establish the reasonableness of attorney’s fees for purposes of summary judgment. Basin Credit Consultants, Inc. v. Obregon, 2 S.W.3d 372, 373 (Tex. App.—San Antonio 1999, pet. denied). "[A]n affidavit filed by the movant’s attorney that sets forth his qualifications, his opinion regarding reasonable attorney’s fees, and the basis for his opinion will be sufficient to support summary judgment, if uncontroverted." In re Estate of Tyner, 292 S.W.3d 179, 184 (Tex. App.—Tyler 2009, no pet.) (citing Basin Credit Consultants, 2 S.W.3d at 373).

To establish that attorney’s fees are reasonable as a matter of law, uncontroverted testimony of an interested witness must (1) be capable of ready contradiction if untrue; (2) be clear, direct, and positive, and (3) be free of circumstances tending to discredit or impeach the testimony. Rosenblatt v. Freedom Life Ins. Co. of Am., 240 S.W.3d 315, 321 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (citing Ragsdale v. Progressive Voters League, 801 S.W.2d 880, 882 (Tex. 1990)).

We conclude the affidavit submitted by Amex fails to satisfy its summary judgment burden. See Tex. R. Civ. P. 166a(c). Though counsel for Amex states that allwork performed on the case was necessary, on its face, the affidavit filed by Amex does not state an opinion that the requested fees were reasonable or otherwise provide basic objective criteria to substantiate the amount of attorney’s fees requested. It is unclear from Amex’s supporting affidavit whether the requested fees were based on an hourly rate for the work performed or based on a percentage of the judgment. [ Credit card debt Defendant ] ’s affidavit challenges the sufficiency of Amex’s supporting affidavit and states his opinion that the requested fees are not reasonable. We note that an affidavit that merely criticizes the fees sought by the movant as unreasonable without setting forth the affiant’s qualifications or the basis of his opinion will not be sufficient to defeat conclusive summary judgment evidence of reasonable fees. See Basin Credit Consultants, 2 S.W.3d at 373. However, the evidence presented by Amex is not conclusive evidence of reasonable fees.

Additionally, while [ Credit card debt Defendant's ] affidavit appears conclusory, it controverts the evidence presented by Amex on attorney’s fees. Under these circumstances, we find the trial court erred in granting summary judgment on attorney’s fees. See Rosenblatt, 240 S.W.3d at 320-21; see also Gen. Elec. Supply Co. v. Gulf Electroquip, Inc., 857 S.W.2d 591, 601-02 (Tex. App.—Houston [1st Dist.] 1993, writ denied) (holding summary judgment on attorney’s fees is improper when conflicting affidavits from opposing attorneys are presented).

We sustain issue three in part. We sever the issue of attorney’s fees from the judgment, reverse the award of attorney’s fees, and remand for further proceedings on attorney’s fees. We affirm the remainder of the trial court’s judgment. See id. at 602.

SOURCE: Beaumont Court of Appeals - 09-10-00166-CV - 7/14/11 (Summary judgment for American Express Centurion Bank in credit card debt suit affirmed except for award of attorney's fees) 
RELATED LEGAL TERMS: reasonableness of attorney's fees, evidence of reasonableness of legal fees, proving up attorney's fees claim based on breach of contract, expert fee testimony, successful appeal of reasonableness of attorney's fees, sufficiency of evidence to support award of legal fees on breach of contract claim   

Friday, July 15, 2011

TCPA: Debt collection robocalls to wrong cell-phone customer cost collector dearly

Dallas Court of Appeals affirms six-figure judgment against debt collector in suit complaining of use of automated dialing equipment to harrass cell phone customer with reassigned number who was not the person who owed the debt.  

First National Collection Bureau, Inc. [FNCB] v. Walker,
No. 05-10-00129-CV (Tex.App. - Dallas Jul. 14, 2011) (Opinion by Justice Lang)
[hot links are not part of the opinion as released by the court]


Appellee Daniele Walker filed suit against appellant First National Collection Bureau, Inc. (“FNCB”) alleging automated debt collection calls were made to her cell phone number in violation of the federal Telephone Consumer Protection Act (“TCPA”) and section 35.47(f) of the Texas Business and Commerce Code, which was in effect at that time. See 47 U.S.C.A. § 227 (West, Westlaw through July 14, 2011); Tex. Bus. & Com. Code Ann. § 35.47(f) (repealed 2007). See Footnote 1

Following a jury verdict in favor of Walker and some additional findings by the trial court, a judgment was rendered for Walker in the amount of $147,000 against FNCB. In five issues See Footnote 2 on appeal, FNCB (1) contends the trial court erred by not applying Texas law and, alternatively, applying the TCPA incorrectly and (2) challenges the sufficiency of the evidence to support the jury's verdict and the trial court's findings.

We decide against FNCB on its five issues. The trial court's judgment is affirmed.


FNCB, a third party debt collector, assists other entities in collecting payment on delinquent accounts. In January 2008, FNCB began collection efforts on an account owed by an individual who is not a party to this litigation. However, the telephone number that “came with” that account had been reassigned to Walker's cell phone. During a period of approximately six months, FNCB and two of its vendors, Global Connect and TCN, made multiple calls to Walker's cell phone number in connection with attempts to collect that debt.

Walker filed this lawsuit on June 30, 2008. In her live pleading, Walker contended FNCB made calls to her cell phone using an “automatic telephone dialing system and/or an artificial or prerecorded voice” in violation of the TCPA. According to Walker, such violations entitled her to statutory damages of $500 per call pursuant to the TCPA and section 35.47(f), which provided for a cause of action by “[a] person who receives a communication that violates [the TCPA].” Further, Walker asserted that because FNCB had committed such violations “knowingly,” she was entitled to increased damages of up to $1,500 per violation pursuant to those statutes. FNCB filed a general denial answer.

Among the documents admitted into evidence at trial were business records of FNCB. Also, Walker and Scott Carroll, FNCB's vice president of operations and business development, testified. At the charge conference held after the presentation of evidence, the trial court refused all jury questions and instructions submitted by FNCB and overruled FNCB's objections to the charge. See Footnote 3 The charge of the court submitted to the jury contained the following three questions:


Were calls made to [the phone number in question] using an automatic telephone dialing system or an artificial voice or a prerecorded voice without the prior express consent of the called party?
. . . .

How many calls were made by [FNCB] or on its behalf to [the phone number in question] using an automatic telephone dialing system or an artificial voice or a prerecorded voice?
. . . .

Did [FNCB] willfully and knowingly make or cause to be made calls to [the phone number in question] when an automatic telephone dialing system or an artificial voice or a prerecorded voice was used?

“Willfully and knowingly” means that [FNCB] knew or should have known that it was violating the federal [TCPA] when it called or caused to be called [the phone number in question]. A finding that [FNCB] acted “willfully or knowingly” does not require a finding of bad faith, but only that [FNCB] had reason to know, or should have known, that its conduct would violate federal law.
The jury answered “yes” to questions number one and number three. The jury's response to question number two was “98.” Then, additional argument was presented by the parties and the following additional question was submitted to the jury:

What sum of money, if any, in addition to statutory damages should be awarded against [FNCB] because [FNCB]'s conduct was committed willfully and knowingly?

Please award an additional dollar amount per telephone call made. You may award between $0 and $1000 in additional damages per telephone call. Answer in dollars and cents.
The jury answered “$1000.00 per telephone call.”

FNCB filed motions for judgment notwithstanding the verdict and new trial. At a hearing on those motions, FNCB argued in part that the jury's finding as to whether additional damages should be awarded based on “willful and knowing” conduct of FNCB was immaterial because only the trial court had authority to make that decision. The trial court, over objection by Walker and without a jury present, “accepted” additional testimony offered by FNCB regarding the determination of additional damages. The trial court declined to rule at that time as to whether such additional damages were to be determined at the trial court's discretion or by the jury. After taking the matter under advisement, the trial judge proceeded to decide the issues as to additional damages and a final judgment was rendered that ordered that Walker recover $49,000 in statutory damages pursuant to the TCPA and “$98,000 in damages pursuant to the [TCPA] for willful and knowing violations,” plus court costs and interest. Additionally, the trial court denied FNCB's motions for judgment notwithstanding the verdict and new trial.

FNCB filed (1) a motion to modify, correct, or reform the judgment and (2) a request for findings of fact and conclusions of law respecting, inter alia, “[t]hose portions of the case decided by the court.” Then, Walker filed proposed findings of fact and conclusions of law pertaining to the additional damages awarded by the trial court for “willful and knowing” violations of the TCPA. FNCB filed a request for additional findings of fact and conclusions of law as to whether FNCB acted “knowingly or intentionally” pursuant to section 35.47(f). After the trial court signed findings of fact and conclusions of law pertaining to the additional damages, See Footnote 4 this appeal timely followed.


A. Standard of Review


B. Applicable Law

1. Telephone Consumer Protection Act

The TCPA provides in relevant part that it shall be unlawful for any person within the United States “to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a . . . cellular telephone service.” 47 U.S.C.A. § 227(b)(1)(A)(iii). Further, in subparagraph (b)(3)(B) of that same section, the act states “[a] person or entity may, if otherwise permitted by the laws or rules of court of a State, bring in an appropriate court of that State . . . an action to recover for actual monetary loss from such a violation, or to receive $500 in damages for each such violation, whichever is greater.” Id. § 227(b)(3)(B). If a court finds that a defendant “willfully or knowingly” violated subsection (b) or the regulations prescribed under that subsection, “the court may, in its discretion, increase the amount of the award to an amount equal to not more than 3 times the amount available under [subparagraph (b)(3)(B)].” Id. Subsection (e) of the TCPA, titled “Effect on State Law,” provides in relevant part that, with certain exceptions not at issue here, the TCPA and regulations prescribed thereunder shall not “preempt any State law that imposes more restrictive intrastate requirements or regulations on, or which prohibits . . . the use of automatic telephone dialing systems . . . [or] the use of artificial or prerecorded voice messages.” Id. § 227(e)(1).

2. Texas Business and Commerce Code

According to section 35.47(f) of the business and commerce code, which the parties do not dispute was in effect at the time of the events at issue,

A person who receives a communication that violates 47 U.S.C. Section 227, a regulation adopted under that provision, or this section may bring an action against the person who originates the communication in a court of this state for an injunction, damages in the amount provided by this subsection, or both. A plaintiff prevailing in an action for damages under this subsection is entitled to the greater of $500 for each violation or the person's actual damages, except that the court may increase the amount of the award to not more than the greater of $1,500 for each violation or three times the person's actual damages if the court finds that the defendant committed the violation knowingly or intentionally. Tex. Bus. & Com. Code Ann. § 35.47(f).

3. Supremacy Clause

According to the Supremacy Clause of the United States Constitution, “[t]his Constitution, and the Laws of the United States . . . shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any state to the Contrary notwithstanding.” U.S. Const. art. VI, cl.2. The United States Supreme Court has stated

[T]he Constitution and laws passed pursuant to it are as much laws in the State as laws passed by the state legislature. The Supremacy Clause makes those laws “the supreme Law of the Land,” and charges state courts with a coordinate responsibility to enforce that law according to their regular modes of procedure.

Howlett v. Rose, 496 U.S. 356, 367 (1990). Thus, it is generally true that states may not decline to recognize or enforce federal law. Id. at 371; see The Chair King, Inc. v. GTE Mobilnet of Houston, Inc., 184 S.W.3d 707, 712 (Tex. 2006). Further, “the federal law that states are required to enforce must be applied according to its terms.” Chair King, 184 S.W.3d at 712. State laws that conflict with federal law are generally without effect. Maryland v. Louisiana, 451 U.S. 725, 746 (1981).

4. Statutory Construction

In matters of statutory construction, courts must give effect to the unambiguously expressed intent of the legislature. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984); Galbraith Eng'g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 867 (Tex. 2009). Under settled principles of statutory construction, we must first determine whether statutory text is plain and unambiguous. Carcieri v. Salazar, 555 U.S. 379, 129 S.Ct. 1058, 1063 (2009) (citing U.S. v. Gonzales, 520 U.S. 1, 4 (1997)); see also N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995) (in determining congressional intent, analysis begins with interpretation of statutory text and “move[s] on, as need be, to the structure and purpose of the Act in which it occurs”). If it is, we must apply the statute according to its terms. Carcieri, 129 S.Ct. at 1064 (citing Dodd v. U.S., 545 U.S. 353, 359 (2005)); see also Mitchell Energy Corp. v. Ashworth, 943 S.W.2d 436, 438 (Tex. 1997) (in construing statute, court's primary objective is to give effect to legislature's intent by considering plain meaning of enactment). “A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.” Perrin v. U.S., 444 U.S. 37, 42 (1979); see also Tex. Gov't Code Ann. § 311.011 (West 2005) (“[w]ords and phrases shall be read in context and construed according to the rules of grammar and common usage”).

State courts have the authority to render binding decisions based on their interpretation of federal law unless a federal statute provides for exclusive federal jurisdiction. See ASARCO, Inc. v. Kadish, 490 U.S. 605, 617 (1989); In re Devon Energy Corp., 332 S.W.3d 543, 549 (Tex. App.-Houston [1st Dist.] 2009, orig. proceeding). Texas state courts interpret federal law independently, though “we typically seek guidance from among the decisions of the lower federal courts.” Hassan v. Greater Houston Transp. Co., 237 S.W.3d 727, 731 (Tex. App.-Houston [1st Dist.] 2007, pet. denied) (citing Kiefer v. Cont'l Airlines, Inc., 882 S.W.2d 496, 502 (Tex. App.-Houston [1st Dist.] 1994), aff'd, 920 S.W.2d 274 (Tex. 1996)). Although decisions of the federal courts of appeals do not bind Texas courts, we receive them “with respectful consideration.” Id.; see also Christus Health Gulf Coast, Inc. v. Aetna, Inc., 237 S.W.3d 338, 343 n.8 (Tex. 2007).

5. Preservation of Error


 C. Analysis

1. Applicability of TCPA and Section 35.47(f) to Debt Collection Calls

We begin with subpart (a) of FNCB's first issue and subpart (a) of FNCB's second issue, which we address together. In those two points, FNCB contends (1) “Texas law does not apply the [TCPA] to debt collection activities” and (2) “[t]he TCPA does not apply to debt collection calls.” Walker asserts, in part, that FNCB has failed to preserve these points for appeal because FNCB made no objections during the charge conference challenging the applicability of the TCPA and section 35.47(f) to debt collection activities. We agree.

The record shows FNCB made no objection on such grounds during the charge conference. In its motions for new trial and to modify, correct, or reform the judgment, FNCB challenged the application of both statutes to debt collection calls. However, those challenges came too late. See Tex. R. Civ. P. 272 (any charge objections not presented before charge is read to jury “shall be considered as waived”); Kirkpatrick v. Mem'l Hosp. of Garland, 862 S.W.2d 762, 769 (Tex. App.-Dallas 1993, writ denied) (“Objections to the charge in a motion for new trial are untimely and preserve nothing for review.”); see also Tex. R. App. P. 33.1(a). Accordingly, we conclude FNCB has not preserved error as to subpart (a) of its first issue or subpart (a) of its second issue.

Texas Construction Trust Fund Act & Priority of Contractors' Claims

Contractors' Claims under the Texas Construction Trust Fund Act

The Texas Construction Trust Fund Act, located in chapter 162 of the property code, provides that any funds to a contractor, subcontractor, or supplier made in payment of labor and materials are held in trust for all parties in the construction chain. Tex. Prop. Code Ann. §§ 162.001-.033 (West 2007 & Supp. 2010); Vulcan Materials Co. v. Jack Raus, Inc., 157 B.R. 592, 597 (Bankr. W.D. Tex. 1993) (finding that "once the owner makes a payment to either the general contractor or to a subcontractor, that payment gives rise to a trust for all parties in the subcontract chain").

Purpose of the Act

The statute was enacted to protect materialmen, laborers, contractors, and subcontractors and should be given a broad construction to effectuate its protective purposes. Vulcan Materials, 157 B.R. at 597. In accordance with the act, all funds owed by Constructors to Tedco under the subcontracts were trust funds as a matter of law held for the benefit of the suppliers. See Tex. Prop. Code Ann. §§ 162.001-.002.

Trust funds may only be distributed for purposes unrelated to the construction project after all current or past due obligations to the supplier beneficiaries have been paid. See id. § 162.031. There are no procedural requirements for a subcontractor or supplier to qualify for protection under the Texas Construction Trust Fund Act. See In re Waterpoint Int'l, LLC, 330 F.3d 339, 345 (5th Cir. 2003).

Claim priorty of construction trust funds generally and in bankruptcy

When two competing claims exist, one under the construction trust fund act and the other as an assignee money lender, the trust fund claim takes priority. See Stone Fort Nat'l Bank v. Elliott Elec. Supply, Inc., 548 S.W.2d 441, 446 (Tex. Civ. App.--Tyler 1977, writ ref'd n.r.e.) ("[U]nder the statute and the authorities, [the materialman] was entitled to the trust funds in preference to the [secured lender]."); Panhandle Bank & Trust Co. v. Graybar Elec. Co., Inc., 492 S.W.2d 76, 81 (Tex. Civ. App.--Amarillo 1973, writ ref'd n.r.e.) (stating that case law established "the preferred position of materialmen and laborers over assignee money lenders in ascertaining priorities as to the distribution of retained funds under construction contracts"). This priority does not disappear in bankruptcy, as trust funds are not part of the bankruptcy estate. See Begier v. I.R.S., 496 U.S. 53, 59 (1990) (stating that money held in trust for another is not property of debtor for purposes of bankruptcy code preferences); In re N.A. Flash Found. Inc., 298 Fed. Appx. 355, 360 (5th Cir. 2008) (concluding that in hypothetical bankruptcy, trust funds under Texas Construction Trust Fund Act gave subcontractor priority claim to funds).
SOURCE: Austin Court of Appeals - 03-10-00357-CV - 7/14/11

Thursday, July 14, 2011

Challenging Restrictive Covenant prohibiting non-residental use of property


When does restrictive covenant governing land-use become unenforceable or can otherwise be avoided?

It has long been the law in this State that a court may nullify or void a restrictive covenant limiting property use to residential only when the party seeking to nullify or modify the restriction proves either: (1) the property owners have acquiesced in violations of the residential restriction so as to amount to an abandonment of the covenant or a waiver of the right to enforce it; or (2) as is pertinent in this case, there has been “such a change of conditions in the restricted area or surrounding it that it is no longer possible to secure in a substantial degree the benefits sought to be realized through the covenant.”  Cowling v. Colligan, 158 Tex. 458, 312 S.W.2d 943, 945 (1958).  
To justify voiding a residential restriction based on changed circumstances or conditions, the courts, including this one, have held the changed conditions must be “radical.”  Simon v. Henrichson, 394 S.W.2d 249, 254 (Tex. Civ. App.—Corpus Christi 1965, writ ref’d n.r.e.); Lebo v. Johnson, 349 S.W.2d 744, 749-750 (Tex. Civ. App.—San Antonio 1961, writ ref’d n.r.e.); Hemphill v. Cayce, 197 S.W.2d 137, 141 (Tex. Civ. App.—Fort Worth 1946, no writ); see Cowling, 321 S.W.2d at 945 (change of conditions must be “great”).  
In considering whether such a “radical” change has occurred, courts look to: (1) the size of the restricted area; (2) the location of the restricted area with respect to where the change has occurred; (3) the type of change or changes that have occurred; (4) the character and conduct of the parties or their predecessors in title; (5) the purpose of the restrictions; and (6) to some extent, the unexpired term of the restrictions.  Id.  Greater weight is given to changes that occur within the subdivision than those occurring outside the restricted area.  Simon, 394 S.W.2d at 255 (citing Lebo, 349 S.W.2d at 750). 
Moreover, a court may not void or modify a residential restriction as to a particular lot solely on the ground that a change of conditions has rendered that particular lot unsuitable for residential purposes and it would be unfair to the lot owner to enforce the restriction. Cowling, 312 S.W.2d at 945.  Rather, the fairness to the owner of the particular lot is just “one facet of the judicial inquiry.”  Id.  The fairness to the lot owner must be weighed against the fairness to the other lot owners who bought the property in reliance on the restriction and wish to preserve the character of the area.  Id. 
As stated by this court in Lebo
In every growing city it is inevitable that sooner or later commercial and business areas must come face to face with residential areas, and it is then that the restrictions are most valuable to the interior lot owners.  It is when the outer tier of lots becomes more valuable for commercial and business purposes that the restrictions come into play and prevent the residential area from being taken over by commercial establishments. 
*    *     *
The front tier lots must bear the brunt of the onslaughts of business and commerce, otherwise there would be started a system of gradual encroachment that might swallow up the entire residential area.  The other tiers of lots might fall like ten pins, once the encroachment of commerce and business was begun.  One of the best places to hold the encroachment of business and commerce upon a restricted residential area is at a highway or street. 
349 S.W.2d at 751; see also Scaling v. Sutton, 167 S.W.2d 275, 281 (Tex. Civ. App.—Fort Worth 1942, writ ref’d w.o.m.) (recognizing domino effect if single lot owner allowed to violate residential restriction); Bethea v. Lockhart, 127 S.W.2d 1029, 1033 (Tex. App.—San Antonio 1939, writ ref’d) (same). 
Additionally, Texas courts have recognized a landowner cannot rely on “changed conditions” that have already occurred by the time he acquires the property.  Seee.g.Oldfield v. City of Houston, 15 S.W.3d 219, 228 (Tex. App.—Houston [14th Dist.] 2000, pet. denied), superseded by statute on other grounds as recognized in Truong v. City of Houston, 99 S.W.3d 204 (Tex. App.—Houston [1st Dist.] 2002, no pet.); Traeger v. Lorenz, 749 S.W.2d 249, 250 (Tex. App.—San Antonio 1988, no writ) (citing Lebo, 349 S.W.2d at 750); Ortiz v. Jeter, 479 S.W.2d 752, 758 (Tex. App.—San Antonio 1972, writ ref’d n.r.e.); Davis v. Hinton, 374 S.W.2d 723, 728 (Tex. Civ. App.—Tyler 1964, writ ref’d n.r.e.). 
SOURCE: San Antonio Court of Appeals - 04-10-00725-CV – 7/13/11  

RELATED LEGAL TERMS: land use regulations, deed restrictions, zoning, enforceability of restrictive covenants

Negligence claim under a voluntary undertaking theory

Negligence – Duty of care arising from voluntary undertaking 

A cause of action for negligence arises when an actor breaches a legal duty and the breach proximately causes damages. Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 246 (Tex. 2008).

Whether a legal duty exists is a question of law. Trammell Crow Cent. Tex., Ltd. v. Gutierrez, 267 S.W.3d 9, 12 (Tex. 2008). "Texas law generally imposes no duty to take action to prevent harm to others absent certain special relationships or circumstances." Torrington Co. v. Stutzman, 46 S.W.3d 829, 837 (Tex. 2000).

The supreme court has recognized, however, that "a duty to use reasonable care may arise when a person undertakes to provide services to another, either gratuitously or for compensation." Id.; see also Carter v. Abbyad, 299 S.W.3d 892, 895 (Tex. App.--Austin 2009, no pet.) ("A party who agrees to attempt to help someone else has a duty to provide that help without negligently harming the person in need."); Keightley v. Republic Ins. Co., 946 S.W.2d 124, 129 (Tex. App.--Austin 1997, no writ) ("[T]he law places a duty of ordinary care upon any person who voluntarily enters upon an affirmative course of action affecting another's interest."). "A person's duty to exercise reasonable care in performing a voluntarily assumed undertaking is limited to that undertaking." Torrington Co., 46 S.W.3d at 837 (quoting Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 397 (Tex. 1991)).

The supreme court has cited the voluntary-undertaking test articulated in section 323 of the Restatement (Second) of Torts:

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other's person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if

(a) his failure to exercise such care increases the risk of such harm, or

(b) the harm is suffered because of the other's reliance upon the undertaking.

Id. at 838 (quoting Restatement (Second) of Torts § 323 (1965)).

Although it has been debated whether the supreme court has actually adopted this section of the Restatement, see Texas Farm Bureau Ins. Co. v. Sears, 54 S.W.3d 361, 368 (Tex. App.--Waco 2001), rev'd on other grounds, 84 S.W.3d 604 (Tex. 2002), the elements of the test the court has applied are substantially similar.

To hold a defendant liable for negligence under a voluntary-undertaking theory, the plaintiff must establish that (1) the defendant voluntarily undertook to perform services that it knew or should have known were necessary for the plaintiff's protection, (2) the defendant failed to exercise reasonable care in performing those services, and either (3) the plaintiff relied upon the defendant's performance or (4) the defendant's performance increased the plaintiff's risk of harm. Torrington Co., 46 S.W.3d at 838-39.

SOURCE: Third Court of Appeals (Austin) - 03-09-00566-CV - 7/12/11

Is there a private cause of action for violations of NYSE, NASD rules?

Chief Justice Woodfin Jones
Addressing an issue on which there is little Texas state appellate case law, the Third Court of Appeals, in an opinion written by its chief justice, says there is no private cause of action for violations of NYSE and NASD rules.

Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc. 
(Tex.App.- Austin, July 12, 2011)(Opinion by Chief Jones) 

Violation of NASD and NYSE Rules 

In his first two issues, Fernea asserts that the trial court erred in granting summary judgment on his claim that Merrill Lynch violated three securities-industry rules--two promulgated by the NASD and one by the NYSE. He argues that he is entitled to bring a private cause of action against Merrill Lynch for its alleged violations and that a fact question exists as to whether Merrill Lynch violated the rules in question. [Fn3] In its motion for summary judgment, Merrill Lynch argued that Congress did not intend to create a private cause of action for a violation of NASD and NYSE rules or, in the alternative, that its evidence conclusively proved that no violation took place.
Private Cause of Action
The San Antonio Court of Appeals is the only Texas appellate court that has addressed whether there is a private cause of action for violation of securities-industry rules. Relying on a federal district court opinion from the Southern District of Texas, and without further discussion, the court of appeals held that "there is no independent cause of action for NASD violations." Milan v. Dean Witter Reynolds, Inc., 90 S.W.3d 760, 767 (Tex. App.--San Antonio 2002, pet. denied) (citing Porter v. Shearson Lehman Bros., Inc., 802 F. Supp. 41, 63 (S.D. Tex. 1992)). The Fifth Circuit has not addressed the issue, see Lang v. French, 154 F.3d 217, 222 n.26 (5th Cir. 1998), and federal district courts in Texas are split, compare Cook v. Goldman, Sachs & Co., 726 F. Supp. 151, 156 (S.D. Tex. 1989) (implied private cause of action exists), with Porter, 802 F. Supp. at 63 (implied private cause of action does not exist), and Lange v. H. Hentz & Co., 418 F. Supp. 1376, 1383 (N.D. Tex. 1976) (same).

Fernea relies on two cases to support his assertion that Congress intended to create a private cause of action: Buttery v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 410 F.2d 135, 142 (7th Cir. 1969), and Cook, 726 F. Supp. at 156. The great weight of authority, however, holds against inferring a private cause of action for violations of NASD and NYSE rules. We find the cases Fernea cites for the opposite view unpersuasive.Buttery, a Seventh Circuit case, was decided prior to three key Supreme Court decisions setting forth the test for implying statutorily based private causes of action. See Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15 (1979) ("The question whether a statute creates a cause of action, either expressly or by implication, is basically a matter of statutory construction."); Touche Ross & Co. v. Redington, 442 U.S. 560, 568 (1979) ("As we recently have emphasized, the fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person. Instead, our task is limited solely to determining whether Congress intended to create the private right of action." (internal quotation marks omitted)); Cort v. Ash, 422 U.S. 66, 78 (1975) (establishing four-factor test later compressed and refined by Touche Ross and Transamerica). Despite being handed down a decade after Transamerica, Cook, a Texas federal district court opinion, relied heavily on Buttery, its progeny, and other cases that pre-date Cort. The Cook court did not discuss whether Buttery was still good authority considering that Transamerica largely rejected the test that the Buttery court had employed. See Transamerica, 444 U.S. at 15-16 ("While some opinions of the Court have placed considerable emphasis upon the desirability of implying private rights of action in order to provide remedies thought to effectuate the purposes of a given statute, what must ultimately be determined is whether Congress intended to create the private remedy asserted, as our recent decisions have made clear."). Thus, like Buttery, Cook's authority is questionable.

Post-Transamerica decisions employing that case's reasoning consistently hold that Congress did not intend to create a private cause of action for violations of self-regulating organizations' rules. See, e.g., In re Verifone Sec. Litig., 11 F.3d 865, 870 (9th Cir. 1993) (dismissing claims for violations of NASD and NYSE rules because "[i]t is well established that violations of an exchange rule will not support a private claim"); Hosworth v. Blinder, Robinson & Co., 903 F.2d 186, 200 (3rd Cir. 1990) (no private right of action for violation of NASD rules); Craighead v. E.F. Hutton & Co., 899 F.2d 485, 493 (6th Cir. 1990) (same); Thompson v. Smith Barney, Harris Upham & Co., 709 F.2d 1413, 1419 (11th Cir. 1983) (same); Jablon v. Dean Witter & Co., 614 F.2d 677, 681 (9th Cir. 1980) ("Based upon the standards in Touche Ross and Transamerica, we conclude there is no implied right of action for an NASD rule violation."); Porter, 802 F. Supp. at 63; Emmons v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 532F. Supp. 480 (S.D. Ohio 1982) (under Cort, no implied right of action under NYSE or NASD rules); Klitzman v. Bache Halsey, 499 F. Supp. 255 (S.D.N.Y. 1980) (no private right of action under NASD rules). Even the NASD's own arbitration panel has recognized that no private cause of action exists for violating its rules. See Penzer v. Advest, Inc., No. 92-00400, 1993 WL 603507, at *5 (NASD Nov. 5, 1993) ("[C]ase law supports the conclusion that no private right of action exists for breach of NASD rules." (citing SSH Co. v. Shearson Lehman Bros., Inc., 678 F. Supp. 1055, 1058 (S.D.N.Y. 1987))).

We agree. Although we need not revisit here the detailed analyses performed in the cases cited above, we will briefly summarize them. The relevant inquiry is to determine whether Congress intended to create a private cause of action for a violation of NASD and NYSE rules in the Securities and Exchange Act of 1934 by employing the usual rules of statutory construction. See Transamerica, 444 U.S. at 15; Jablon, 614 F.2d at 681; see also Touche Ross, 442 U.S. at 568 (describing inquiry in determining Congressional intent). As the Jablon court and others have noted, Congress specifically provided for private causes of action for violations of some securities rules, yet did not provide a cause of action for violations of NASD and NYSE rules. See Jablon, 614 F.2d at 681. Accordingly, we conclude that Congress did not intend to create a private right of action here.Id. at 680-81; see also Touche Ross, 442 U.S. at 568 ("The source of plaintiffs' [private right of action] must be found, if at all, in the substantive provisions of the 1934 Act which they seek to enforce . . . .").

Because there is no private cause of action for violation of NYSE and NASD rules, the trial court did not err in granting summary judgment in favor of Merrill Lynch as to that claim. We overrule Fernea's first and second issues.

Fn 2. The NASD is a "a self-regulatory organization overseeing securities transactions." In re Next Fin. Group, Inc., 271 S.W.3d 263, 265 (Tex. 2008) (per curiam). Although the NASD "absorbed the enforcement arm of the New York Stock Exchange and became the Financial Industry Regulation Authority (FINRA) on July 30, 2007," see McArdle v. Jack Nelson IRA, No. 03-08-00057-CV, 2010 WL 1253571, at *1 n.1 (Tex. App.--Austin Mar. 31, 2010, no pet.) (mem. op.), we will still refer to the NASD and the NYSE for convenience. Pursuant to SEC regulations, licensed securities brokers must register with and abide by the organization's guidelines. Id.; see also 17 C.F.R. § 240.15b7-1 (2009).

Fn 3. Although Fernea does not state whether his private cause of action arises under federal securities law or Texas law, self-regulating securities organizations are entities created and governed by federal statute and regulation. Accordingly, we assume that any private cause of action would arise from federal securities law. 

SOURCE: Austin Court of Appeals -  03-09-00566-CV  - 7/12/11
CASE STYLE: David Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc.
Appeal from 200th District Court of Travis County

Monday, July 11, 2011

Takings / inverse condemnation claims: When is the govermental entity immune?

Dallas Court of Appeals analyzes the current state of the law on governmental takings

Dallas City Hall
The City of Dallas v. CKS Asset Management, Inc.  

The Texas Constitution provides that “[n]o person's property shall be taken, damaged, or destroyed for or applied to public use without adequate compensation . . . .” Tex. Const. art. I, § 17(a). Therefore, to establish a takings or inverse-condemnation claim, a claimant must show: (1) an intentional act by the government (2) in a taking of the claimant's property (3) for public use. State v. Holland, 221 S.W.3d 639, 643 (Tex. 2007); see also City of Dall. v. VRC, LLC, 260 S.W.3d 60, 65 Tex. App.-Dallas 2008, no pet.) (inverse condemnation); Brownlow v. State, 251 S.W.3d 756, 760 (Tex. App.-Houston [14th Dist.] 2008) (claimant must also have compensable interest in the property at issue), aff'd, 319 S.W.3d 649 (Tex. 2010). By this express constitutional waiver, governmental immunity does not shield a municipality from an action for compensation under the takings clause. Sw. Bell Tel., L.P. v. Harris Cnty. Toll Rd. Auth., 282 S.W.3d 59, 61 (Tex. 2009). Whether particular facts are sufficient to constitute a taking is a question of law. Brownlow, 251 S.W.3d at 760.

Friday, July 8, 2011

Robosigners Beware: Texas AG Greg Abbott brings suit against Midland Funding, Midland Credit Mgmt, and Encore Group,Inc. for submitting fraudulent mass-produced affidavits in credit card debt suits against tens of thousands of Texans

Also see --> Subsequent Texas AG Enforcement Action against Debt Collectors

No new opinions from the Texas Supreme Court this Friday, but the AG is bound to make news instead by suing Midland Funding LLC, Midland Credit Management, Inc. and Encore Capital Group, Inc. for using robo-signed affidavits and obtaining thousands of default judgments for breach of contract without producing the contracts or much else, relying instead on false affidavits to establish their credit card debt collection claims, which were bought in bulk and with little or no documentation from major card issuers.

The lawsuit was filed by the Texas Attorney General on behalf of the State of Texas and in the public interest in Harris County earlier today and was randomly assigned to Hon. Josefina Rendon, presiding judge of the 165th District Court. The petition against the Midland entities and their corporate parent alleges violations of the DTPA and the Texas Debt Collection Act (TDCA). It seeks injunctive relief in addition to substantial monetary penalties and restitution [disgorgement] of funds collected by fraudulent means from victimized consumers.

The Texas Debt Collection Act is the state-law counterpart to the federal FDCPA and is part of the Texas Finance Code. It has a tie-in with the Texas DTPA (Deceptive Trade Practices Act).

This is not the first consumer protection lawsuit by a state attorney general against a major debt collector/assignee of charged-off credit card debt.

In March 2011, Minnesota's Attorney General, Lori Swanson, also brought an action against Midland for defrauding Minnesota courts and citizens by filing false and deceptive “robo-signed” affidavits—generated at its offices in St. Cloud, Minnesota—to collect on old consumer debts that it purchased from credit card companies and others for about three cents on the dollar.

Portal of Modern Harris County Civil Courthouse
(which houses probate, county, and district courts)
Excerpts from the Original Petition in State of Texas vs. Midland et al, filed in Harris County District Court Friday, July 8, 2011. 

NO. 201140626

STATE OF TEXAS, Plaintiff,






Plaintiff the STATE OF TEXAS, acting by and through Attorney General of Texas Greg Abbott, complains of MIDLAND FUNDING, LLC, MIDLAND CREDIT MANAGEMENT,INC., and ENCORE CAPITAL GROUP INC., Defendants, and for cause of action would respectfully show as follows:


9.1 Defendants are one of the largest third party consumer debt collector companies in the country. Defendants purchase large portfolios of consumer debts from issuers of consumer credit such as VISA, Mastercard, Bank of America, Bank One, and Citibank, comprising millions of consumer accounts, such as credit card debts and defaulted auto loans and cellular phone plans.

Defendants pay pennies on the dollar for these accounts. In 2010 alone, Defendants paid $362 million to acquire consumer debt portfolios with a face value of $10.9 billion for an average price of approximately 3.3 cents per dollar of debt acquired. For 2010 alone, Defendants reported -$49 million in profits. Every year, Defendants purchase hundreds of thousands of accounts involving Texas consumers.

9.2 When Defendants purchase these consumer debt portfolios, generally these accounts have been "charged off' by the original creditors. The original creditors or their agents have exhausted their own debt collection efforts and determined that the account needs to be "charged off', which allows for the creditor to take the loss as a tax deduction.

9.3 The electronic portfolios of these charged off accounts acquired by Defendants contain limited categories of information about the debt. Typically, Defendants do not acquire the underlying credit agreements, payment history, or statements (or "media") but retain the right to purchase the documentation from the original creditor at a later date.

9.4 Defendants' collection activities prefer "efficiency" and profits over compliance with Texas debt collection laws. Defendants chum out millions of collection letters and millions of telephone calls from its call centers in Arizona, Minnesota and India, often using incomplete and/or inaccurate electronic information purchased from original creditors. Consumers complain Defendants have targeted the wrong person for collection or are attempting to collect debts that have been fully or partially paid or settled. Consumers also complain that Defendants pursue them for collection of old debts for which they do not have any records and are beyond the statute of limitations and credit reporting periods. Defendants' form collection letters contain very little information about the debt, no supporting documentation, and no proof that ownership of the debt has been transferred to Defendants. When a citizen contacts Defendants to dispute a debt or the amount of the balance owed, or to ask for additional information, little or nothing is done to investigate or verify the legitimacy of the debt.

9.5 Consumers complain that when they tell Defendants they do not owe the debt Defendants refuse to provide documentation to verify the debt and turn the tables on the consumer to prove the debt is not owed or not owed in the amount alleged. Consumers complain that this practice has resulted in loss of credit rating, inability to refinance their homes, and even loss of job opportunities, in addition to the aggravation of being harassed by a debt collector who refuses to verify the debt. Some consumers pay Defendants just to avoid a false report to the credit reporting agencies or avoid the harassment of a lawsuit. The Better Business Bureau reports that over 15,000 consumers have filed complaints regarding Defendants' collection practices.

Typical Midland Affidavit from a
more recent case [not from AG's law suit]
Robo-Signed Affidavits.

9.6 When a consumer does not respond to collection efforts, Defendants may refer the account to law firms to file a lawsuit on their behalf. Since 2002, Defendants have filed over 60,000 debt collection lawsuits in Texas courts.

9.7 These lawsuits vary slightly depending upon the law firm that is engaged by Defendants; however, typically Defendants' debt collection lawsuit includes a boilerplate form petition, with Midland Funding as named plaintiff, for breach of contract and makes demand for principal, interest, costs, and attorneys' fees. The petition often contains gross errors such as alleging (falsely) that Midland Funding sold goods or services to the consumer, or stating that a copy of the credit agreement is attached to the petition (but is not). The boilerplate petition contains requests for admissions that often include obviously false statements or self-serving legal conclusions such as admit or deny

• that true and correct copies of the terms and conditions of the use of the credit account are attached to the Original Petition (no such terms and conditions are attached);

• that the plaintiff [Midland Funding] extended credit to the consumer (which is contradicted by the face of the petition which states that Midland Funding is the assignee of the original creditor);

• that defendant [the consumer] has no defense to this suit, and judgment should be granted as prayed for;
• that plaintiff should be awarded reasonable attorney's fees;

• the affidavit attached to the petition is fully legal and correct.

9.8 Defendants typically attach a one page form "affidavit" or sworn statement to the petition. Under Texas law an affidavit is a written, factual statement signed by the person making it, sworn to before an officer authorized to administer oaths, and officially certified by the officer under seal of office. Tex. Gov't Code §312.011(l). The affidavit must show that it was made by a person who is competent to testify. Tex. R. Evid. 601(a). The affidavit must be based on the affiant's personal knowledge and must state that the facts in it are true. Tex. R. Evid. 104(b), 602. If statements made in an affidavit are false, they may be grounds for perjury.

9.9 A typical mass-produced form affidavit used by Defendants against Texas citizens prior to 2009 is called a "Form 425 (Texas) Affidavit." (A sample is attached as Ex. A hereto.) In Form 425, the affiant swears under oath (i) that the affiant has ''personal knowledge" of the "facts herein" from his or her review of records of Midland Credit Management, (ii) that the underlying "claim" is "within the personal knowledge" of the affiant, and (iii) that the affiant has "personal knowledge of relevant financial information" concerning the underlying account, including that the defendant failed to make payments on the account, that demand has been made, and that the affiant retained attorneys in the case to collect the debt.

9.10 These form affidavits attached to Defendants' form petitions are used by Defendants to "prove up" the debt when moving for default judgment or summary judgment against the consumer. In granting default judgment or summary judgment in a liquidated damages case, the courts rely upon affidavits as evidence that the plaintiff has actually verified the debt is owed by the consumer who is being sued, that the balance owed is correctly stated, and that any interest or other charges are correctly stated according to the underlying credit agreement.

9.10 From 2002 through 2009, it is undisputed that Defendants filed thousands of false affidavits in their collection suits throughout Texas. Three Midland Credit employees have testified in depositions that during their employment, they signed 300 to 400 form affidavits per day at their offices in Minnesota, that they did little to nothing to review the contents of their affidavits before signing, that they did not review any documentation regarding the account before signing, that they did not review any exhibits before signing, and that they did not sign the affidavits before a notary. They also testified that they did not have any contact of any kind with the debtor. One employee testified that he simply picked up stacks of affidavits off of the computer, signed them (hundreds at a time) and forwarded them to the notary for signature and to be mailed to the law firm filing the lawsuit. The employees/affiants also testified that they had no knowledge about the sale of the debt portfolios from the original creditors to Midland Funding, how Midland Funding came to be the successor in interest on the debt, or how Midland Funding retained its attorneys (although they attest to having personal knowledge in their affidavits).

9.12 The end result of these robo-signed affidavits is that the default judgments and summary judgments entered by the courts are based on affidavits that are false. The courts are misled into concluding that the affiant has actually verified the debt, the correct balance owed, the interest rate that is applicable, and the identity of the debtor, when in fact none of it has been verified by the affiant. Since approximately 90% of all of Defendants' collection cases result in a default judgment against an unrepresented person, the affidavits themselves are rarely challenged. These mass-produced judgments are then used by Defendants as leverage against unrepresented individuals.

9.13 Thus, for years, Defendants have affirmatively and systematically deceived the Texas courts and undermined the fairness of the justice system on a massive scale. Through Defendants' illegal practices, a great deal of the State's judicial resources have been expended helping the Defendants to obtain dubious judgments based on incomplete information and supported by false and fraudulent affidavits. Defendants use these fraudulent affidavits as leverage against consumers, taking unfair advantage of their lack of knowledge about their legal defenses. The practical end result of Defendants' scheme is that Defendants are asserting judgment liens against Texans which were fraudulently obtained and in some cases were obtained against individuals who complain they do not owe the debt at all or owe an amount that is less than the amount of the judgment.
10.1 Defendants, in the course of acts and/or omissions as alleged above, have in the course of trade and commerce engaged in false, misleading, and deceptive acts and practices declared unlawful in §17.46(a) and §§17.46(b) of the DTPA. Such acts include:

A. Engaging in false, misleading, or deceptive acts in the conduct of any trade or commerce, as alleged more specifically herein, in violation of § 17.46(a) of the DTPA;

B. Causing confusion or misunderstanding as to the source, sponsorship, approval, or certification of goods or services, as alleged more specifically herein, in violation of § 17 .46(b) (2) of the DTP A;

C. Causing confusion or misunderstanding as to the affiliation, connection, or association with, or certification by another, as alleged more specifically herein, in violation of §17.46(b)(3) of the DTPA;

D. Representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve or which are prohibited by law as set forth herein in violation of §17.46(b )(12) of the DTPA.

11.1 Defendants, in the course of acts and/or omissions as alleged above, have engaged in acts in violation of Tex. Fin. Code §392.404. Such acts include:

A. Misrepresenting the character, extent, or amount of a consumer debt in violation of Tex. Fin. Code §392.404(a)(8);

B. Representing that a consumer debt may be increased by the addition of attorney's fees, investigation fees, service fees, or other charges if a written contract or statute does not authorize the additional fees or charges in violation of Tex. Fin. Code §392.404(a)(12) ;

C. Using any other false representation or deceptive means to collect a debt or obtain information concerning a consumer in violation of Tex. Fin. Code §392.404(a)(19).

NOTE: The Attorney General's Original Petition and Application for injunctive relief can be accessed by following the link provided in the press release announcing the civil action against debt buyers/collectors Midland and Encore on the OAG's website. A snippet from the announcement with hotlinked title follows below. The Harris County District Clerks online docket management system does not reflect a date for a temporary injunction hearing:

Friday, July 8, 2011
Attorney General Abbott Charges Encore Capital Group with Violating Texas Debt Collection Laws 

State’s enforcement action cites Encore for employing unlawful tactics against debtors, relying upon “robo-signers” to sign thousands of false affidavits

HOUSTON – Texas Attorney General Greg Abbott today charged Encore Capital Group, Inc. with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information, and employing unlawful and deceptive debt collection tactics. The State’s enforcement action cites the defendants for committing multiple violations of Texas debt collection laws and the Texas Finance Code. Encore, which is one of the nation’s largest debt collection companies, and its subsidiaries – Midland Funding, LLC and Midland Credit Management, Inc. – are named as defendants in the case.

According to state investigators, Midland Funding purchased debt portfolios from a broad spectrum of creditors for pennies on the dollar. As the purchaser of the debt, the defendants attempted to collect the money that was allegedly owed to various creditors. However, the defendants’ debt collection letters contained very little information about the debt they were attempting to collect, provided no supporting documentation, and included no proof that they actually acquired the debt from the original creditor. When Texans contacted the defendant to dispute the legitimacy of an alleged debt or seek additional information, the defendants made little or no effort to investigate or verify whether their collection efforts were proper.


to Texas Attorney General Greg Abbott's Judicial Enforcement Action against Encore Group, Inc, Midland Credit et al  so far (as of Friday 6PM)

Texas Charges Encore Capital with Breaking State Debt Collection Laws

KUHF-FM - Andrew Schneider - ‎39 minutes ago‎

Texas Attorney General Greg Abbott is charging Encore Capital Group, as well as subsidiaries Midland Funding and Midland Credit Management, with violating Texas' debt collection laws. Andrew Schneider has more. Attorney General Abbott is charging the ... Debt collector Encore sued by Texas

Thomson Reuters News & Insight - ‎2 hours ago‎

NEW YORK, July 8 (Reuters) - Encore Capital Group Inc was sued by the state of Texas on allegations it used illegal and deceptive tactics to collect debts from consumers. Greg Abbott, the state attorney general, announced the lawsuit three days before ... Debt-collection firm faces accusations from state

Austin American-Statesman (blog) - ‎2 hours ago‎

By American-Statesman Staff
Friday, July 8, 2011, 03:10 PM Texas Attorney General Greg Abbott has accused one of the nation's largest debt-collection companies of committing multiple violations of the state's debt collection laws and the Texas ... Debt Collector Charged by Texas Attorney General's Office for Violating State ...

News/Talk 790 KFYO - Cole Shooter - ‎3 hours ago‎

A debt collection group and its subsidiaries have been charged with violating Texas' debt collection laws. Texas Attorney General Greg Abbott today charged Encore Capital Group and subsidiaries Midland Funding, LLC and Midland Credit Management with ... Texas AG files suit against debt collector

Legal News Line - Bryan Cohen - ‎3 hours ago‎

HOUSTON (Legal Newsline) - Texas Attorney General Greg Abbott charged Encore Capital Group on Friday with state debt collection law violations. The alleged violations include attempting to collect debts based upon inaccurate or ... Attorney General Charges Debt Collector

Examiner.com - ‎5 hours ago‎

HOUSTON – Texas Attorney General Greg Abbott today charged Encore Capital Group, Inc. with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information, and employing unlawful and deceptive ... Encore Capital Group Accused of Falsifying Affdavits (ECPG)

Investor's Business Daily - ‎5 hours ago‎

Jul 08, 2011 (SmarTrend(R) News Watch via COMTEX) -- Texas Attorney General Greg Abbott charged Encore Capital Group (ECPG) with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information ...


Friday, July 8, 2011

Attorney General Abbott Charges Encore Capital Group with Violating Texas Debt Collection Laws
State’s enforcement action cites Encore for employing unlawful tactics against debtors, relying upon “robo-signers” to sign thousands of false affidavits

HOUSTON – Texas Attorney General Greg Abbott today charged Encore Capital Group, Inc. with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information, and employing unlawful and deceptive debt collection tactics. The State’s enforcement action cites the defendants for committing multiple violations of Texas debt collection laws and the Texas Finance Code. Encore, which is one of the nation’s largest debt collection companies, and its subsidiaries – Midland Funding, LLC and Midland Credit Management, Inc. – are named as defendants in the case.

According to state investigators, Midland Funding purchased debt portfolios from a broad spectrum of creditors for pennies on the dollar. As the purchaser of the debt, the defendants attempted to collect the money that was allegedly owed to various creditors. However, the defendants’ debt collection letters contained very little information about the debt they were attempting to collect, provided no supporting documentation, and included no proof that they actually acquired the debt from the original creditor. When Texans contacted the defendant to dispute the legitimacy of an alleged debt or seek additional information, the defendants made little or no effort to investigate or verify whether their collection efforts were proper.

Court documents filed by the State indicate the defendants sometimes even used incomplete or inaccurate account information, targeted the wrong individuals for collection and attempted to collect debts that had been fully or partially paid. As a result, some Texans unnecessarily suffered financial hardships, such as improperly decreased credit ratings, loss of job opportunities or the ability to refinance their home.

When individuals refused to comply with Midland Funding’s improper collection efforts, the defendants hired attorneys to sue the accused debtors. Court documents reveal that the defendants’ lawyers filed breach of contract lawsuits demanding principal, interest and attorneys’ fees. The defendants have filed more than 60,000 lawsuits in Texas since 2002. According to state investigators, the defendants’ lawsuits contained inaccurate information and used false statements to claim they were owed certain debts.

To protect Texans from being sued for debts they did not actually incur, the law may require that debt collectors verify the validity of their claims through “sworn affidavits.” However, the defendants submitted falsified affidavits, which the courts relied upon as proof that the debt collector properly verified the identity of the debtor and the amount owed.
The State’s investigation revealed that the defendants also employed “robo-signers” to supply the legally required verification. Court documents filed by the State indicate the defendants’ robo-signers routinely signed more than 300 affidavits per day and did not actually review the underlying credit agreements or the alleged debtor’s payment history. In sworn testimony provided to state investigators, the defendants’ robo-signers acknowledged that they also had no personal knowledge of the original debt or the defendant’s acquisition of the debt portfolios – which was contrary to the information contained in sworn affidavits that these defendants filed with the courts.

Because the court presumed the falsified affidavits were truthful, judges relied upon them to issue judgments against debtors. As a result, the Attorney General charged the defendants with defrauding the Texas judicial system by knowingly submitting false affidavits to state courts. Because 90 percent of the defendants’ lawsuits named individuals who were not represented by counsel, these purported debtors did not have lawyers to challenge the legitimacy of the defendants’ claims. As a result, default judgments were improperly entered against them based upon the defendants’ falsified affidavits.
The State’s enforcement action seekS to establish a restitution trust fund for money that the defendants unlawfully coerced from Texans. The Attorney General also seeks civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as penalties that apply under the Texas Finance Code for third-party debt collectors who violate state law.

Texans who believe they have been deceived by improper or unlawful business practices may call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov.


Press Release - Monday, March 28, 2011


Minnesota Attorney General Lori Swanson today in a legal filing accused one of the nation’s largest “debt buyers” of defrauding Minnesota courts and citizens by filing false and deceptive “robo-signed” affidavits—generated at its offices in St. Cloud, Minnesota—to collect on old consumer debts that it purchased from credit card companies and others for about three cents on the dollar.

The debt buyer—Midland Funding, LLC and its administrative arm, Midland Credit Management, Inc. (collectively Midland)—has purchased $54.7 billion in old consumer debt from credit card companies and other companies. In 2009, it filed 245,000 lawsuits against individual citizens nationwide, and it has filed over 15,000 lawsuits against citizens in Minnesota courts since 2008. Midland pays for its debt acquisitions with hundreds of millions in financing from some of the nation’s largest banks, including several that sell old debt to it.
 “The company put its thumb on the scale of justice to unfairly tilt the collection process in its favor,” said Attorney General Swanson.

The Attorney General said that debt buyers cast a wide net to find people who may owe old bills and often pursue the wrong person altogether or pursue people who paid the bills long ago. In some cases, debt buyers pursue people solely because they have the same or similar name or address as the real debtor. The Attorney General said that Midland has created false and unreliable mass-produced, “robo-signed” affidavits as supposed “proof” of consumer debts in lawsuits against individual citizens in order to obtain judgments against or extract payments from mostly unrepresented citizens, some of whom had no knowledge of any alleged debt.

Midland and its publicly-traded parent corporation, Encore Capital Group, Inc., have paid more than $1.8 billion to obtain 33 million customer accounts with a face value of about $54.7 billion, or an average cost of about three cents on the dollar, according to Encore’s 2010 Form 10-K. Midland and Encore buy electronic portfolios containing billions of dollars of old, charged-off consumer debt from credit card companies, banks, telecommunications firms, and other creditors. These include Bank of America, JPMorgan Chase, Citibank, Wells Fargo, HSBC, Providian, and Verizon Wireless, among others. Several of these banks, including Bank of America, JPMorgan Chase, and Citibank, also provided Midland with financing to pursue its debt acquisitions and collections. For example, Encore currently has a $410 million revolving credit line to acquire consumer debt from many of the same banks that have sold debt to Midland, including JPMorgan Chase, Bank of America, and Citibank.

The Attorney General alleges that Midland aggressively filed thousands of lawsuits against individual citizens for collection of old, purchased debt, often supporting those lawsuits with “robo-signed” affidavits generated at its St. Cloud offices. Midland filed the robo-signed affidavits in state courts in Minnesota and around the country to obtain judgments against individual citizens.

“Robo-signing” is the practice of signing off on mass-produced, computer-generated legal documents without reading them or verifying the accuracy of the contents in order to speed up the collection process. In recent months, the mortgage industry has come under intense national scrutiny for supporting mortgage foreclosures in court with “robo-signed” affidavits. Like the mortgage industry, some debt buyers, including Midland, have used false, robo-signed affidavits to support their debt collections lawsuits.

Because acquired debt portfolios involve old debt and because debt buyers typically only acquire an electronic file about the debt and not actual copies of underlying charge slips, account statements, signed contracts, etc., citizens regularly are hounded by debt buyers for payment of bills they do not owe. In some cases, debt buyers sue people solely because they have the same or similar name or address as the real debtor, while in other cases they pursue people for bills paid back long ago. The National Consumer Law Center (NCLC) has estimated that one out of ten lawsuits filed by debt buyers are premised on bad or incorrect information.
As noted above, since 2008, Midland filed over 15,000 lawsuits in Minnesota state courts against individual Minnesota citizens, obtaining default judgments against unrepresented citizens an estimated 98 percent or more of the time. A default judgment is obtained when the subject of the lawsuit does not have an attorney and does not appear in court to contest the lawsuit. Some citizens sued by Midland state that they did not contest the lawsuit because they were not served with it, could not afford an attorney, or did not recognize the name of the debt buyer, since they had never done business with it. Midland filed false, robo-signed affidavits as supposed “proof” of the debt so as to leverage individual citizens into settlements or to persuade courts to enter default judgments against citizens on old debts. The affidavits, however, did not constitute “proof” of the debt because they were robo-signed by people who did not read them and/or who had absolutely no knowledge about the alleged debts to which they attested.

Numerous Midland employees have admitted in sworn testimony to signing up to 400 false affidavits per day, either without reading them, without personal knowledge of their contents, and/or without verifying the accuracy of the information to which the affidavits attest. The robo-signed affidavits were then filed in court to “prove” the alleged debt to the court.

In today’s legal filing, the Attorney General’s Office took the first step in filing a lawsuit against Midland by seeking clarification from a federal court in Ohio that a pending class action settlement was not intended to bar the State’s governmental enforcement action against Midland.

Midland and Encore have their primary place of business in San Diego, California. They operate a business office in St. Cloud, Minnesota at which many of the robo-signed affidavits were generated. In 2010, Encore paid $362 million to acquire portfolios of charged-off credit card, bank, and telecommunication customer accounts with face values of $10.9 billion, for an average price of about 3.3 cents per dollar of debt acquired, according to its 2010 Form 10-K. Encore states in its 2010 Form 10-K that it has “one of the industry’s largest distressed consumer databases containing information regarding approximately 20 million consumer accounts.” In 2010, Midland and Encore subsidiaries called and sent collection letters to over 8.5 million Americans, according to the company’s 2010 Form 10-K.

The debt buying industry formed about 20 years ago, in the wake of the savings and loan scandal, and has exploded in recent years. In the 1980’s, the government liquidator of failed savings and loans auctioned off for collection over $450 billion in failed S&L assets to the private sector. Seeing a new market niche, debt buyers thereafter began to purchase other kinds of debt. In 1993 debt buyers purchased an estimated $6 billion in old debt, but by 2005 that figure spiked to over $100 billion, according to the NCLC. The Federal Trade Commission has estimated that the country’s nine largest debt buyers have acquired 75 percent of all purchased debt. The four largest publicly-traded debt buyers (including Encore) reportedly purchased almost $20 billion in receivables in 2009, according to published reports.

Attorney General Swanson said that creditors and collectors are within their rights to collect debt in a lawful fashion but may not resort to illegal behavior to do so.

The Attorney General’s website, www.ag.state.mn.us has a publication entitled “Debt Buyers” that has more information for citizens about their legal rights and options if pursued by a debt buyer. For more information or to file a complaint with the Attorney General’s Office, people may call (651) 296-3353 or (800) 657-3787. People may also download a Consumer Complaint Form from the Attorney General’s website.

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