Standing as consumer under the DTPA

WHO MAY SUE UNDER THE DECEPTIVE TRADE PRACTICES ACT? 

To have standing to sue under the DTPA, a party must be a consumer. TEX. BUS. & COM. CODE ANN. § 17.50(a). To be a consumer under the DTPA, a party must show that he sought or acquired goods or services by purchase or lease. Id. § 17.45(4) (defining "consumer"). And he must show that the goods or services purchased or leased form the basis of the complaint. Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 351 (Tex. 1987); Kennedy v. Sale, 689 S.W.2d 890, 892 (Tex. 1985).

The purpose of making misrepresentations actionable under the DTPA "is `to ensure that descriptions of goods or services offered for sale are accurate.'" Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 480 (Tex. 1995) (quoting Pennington v. Singleton, 606 S.W.2d 682, 687 (Tex. 1980)). The DTPA does not require the consumer to be the person who actually purchased or leased the services. Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex. 1996) ("Privity of contract with a defendant is not required for the plaintiff to be a consumer."); Kennedy, 689 S.W.2d at 892-93 (DTPA's language does not require "that the consumer must himself be the one who purchases or leases" the goods or services).

SOURCE: DALLAS COURT OF APPEALS - 05-12-01607-CV - 5/5/2014

McLeod does not cite authority for his argument that Gyr cannot establish standing to sue because he received the money he used to acquire McLeod's services from other people and did not personally lose "a dollar." Gyr testified, however, that he acquired McLeod's legal services for the purpose of filing an N-400 application to become a naturalized United States citizen, and his complaint arises from false representations made in connection with the purchase of those services. Regardless of the source of the funds or Gyr's obligation to repay them, Gyr is a consumer under the DTPA and has standing to sue McLeod. See Kennedy, 689 S.W.2d at 892-93; Bus. Staffing, Inc. v. Viesca, 394 S.W.3d 733, 742-43 (Tex. App.-San Antonio 2012, no pet.).  

DTPA claim has 2-year SoL, tolling of limitations and fraudulement concealment exceptions for such claims are specified by statute

DTPA HAS TWO-YEAR LIMITATIONS PERIOD; STATUTE ALSO CODIFIES THE DISCOVERY RULE AND FRAUDULENT CONCEALMENT EXCEPTIONS. BUT THE LATTER IS LESS GENEROUS THAN THE COMMON-LAW DOCTRINE WHICH IT RENDERS UNAVAILABLE FOR DTPA CLAIMS  

The DTPA provides that suits under the chapter “must be commenced within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered or in the exercise of reasonable diligence should have discovered the occurrence of the false, misleading, or deceptive act or practice.” TEX. BUS. & COM. CODE § 17.565.

In essence, the Legislature codified the discovery rule for DTPA claims. See KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 749 (Tex. 1999). We have explained that, “[o]nce a claimant learns of a wrongful injury, the statute of limitations begins to run even if the claimant does not yet know ‘the specific cause of the injury; the party responsible for it; the full extent of it; or the chances of avoiding it.’” Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 207 (Tex. 2011) (quoting PPG Indus., Inc. v. JMB/Houston Ctrs. Partners Ltd. P’ship, 146 S.W.3d 79, 93 (Tex. 2004)); see also KPMG, 988 S.W.2d at 749 (holding that “accrual occurs when the plaintiff knew or should have known of the wrongfully caused injury,” not when the plaintiff knows “the specific nature of each wrongful act that may have caused the injury”).

Absent the application of an equitable tolling doctrine, the evidence conclusively established that [Consumer-Plaintiff]’s DTPA claims are time barred because she brought them more than two years after discovering her injury. See KPMG, 988 S.W.2d at 750; TEX. BUS. & COM. CODE § 17.565.

SOURCE: TEXAS SUPREME COURT – No. 11-0311 - 3/29/2013  (Gonzales v. Olshan)

[Consumer-Plaintiff] contends that Olshan engaged in fraudulent concealment, making her claim timely. We disagree. The doctrine of fraudulent concealment tolls limitations “because a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations has run.” S.V. v. R.V., 933 S.W.2d 1, 6 (Tex. 1996). The DTPA establishes a 180-day limit on tolling for fraudulent concealment. TEX. BUS. & COM. CODE § 17.565 (providing that limitations “may be extended for a period of 180 days if the plaintiff proves that failure timely to commence the action was caused by the defendant’s knowingly engaging in conduct solely calculated to induce the plaintiff to refrain from or postpone the commencement of the action”). Even if limitations were tolled for 180 days on [Consumer-Plaintiff]’s DTPA claims, they would still have been filed at least two months late.

[Consumer-Plaintiff] also argues that the common-law doctrine of fraudulent concealment tolls limitations for DTPA claims and is not limited to 180 days as required by the DTPA limitations statute. We have previously rejected a similar argument. In Underkofler v. Vanasek, the plaintiff brought common-law and DTPA claims for legal malpractice against his law firm. 53 S.W.3d 343, 345 (Tex. 2001). We held that the common-law rule tolling limitations for legal malpractice claims until the underlying litigation concluded does not apply to DTPA claims. Id. at 346. We pronounced that the Legislature crafted only two exceptions to the rule that DTPA limitations begin to run when the injury occurs: the discovery rule and the fraudulent concealment rule (both specified in section 17.565 of the Business and Commerce Code). Id. at 346. Just as section 17.565 forecloses the application of the common-law tolling rule to legal malpractice claims under the DTPA, it forecloses the application of the common-law doctrine of fraudulent concealment to DTPA claims. 
  
The Legislature could have incorporated the common-law doctrine of fraudulent concealment into the DTPA’s limitations provision. Instead, it only incorporated the discovery rule and a version of the fraudulent concealment doctrine limited to 180 days, and “we will not rewrite the statute to add . . . a third” exception. Id. The common-law doctrine of fraudulent concealment does not apply to [Consumer-Plaintiff]’s DTPA claim, and it is time barred.
  

SOURCE: TEXAS SUPREME COURT – No. 11-0311- 3/29/2013 (Gonzales v. Olshan)

Statutory causes of actions and common-law defenses

Common-law defenses may not be used to defeat claims brought under a statute that was not designed to be a codification of the common law. See, e.g., Smith, 611 S.W.2d at 616 (DTPA not designed to be a codification of common law; DTPA was designed to "provide consumers a cause of action for deceptive practices without the burden of proof and numerous defenses encountered in a common law fraud or breach of warranty suit"); Diversified, Inc. v. Gibraltar Sav. Ass'n, 762 S.W.2d 620, 623 (Tex. App.-Houston [14th Dist.] 1988, writ denied) ("[I]t is well established that the DTPA was not designed to be a codification of the common law and any common law defenses may not be used to defeat a claim under it." (emphasis in original)); Joseph v. PPG Indus., Inc., 674 S.W.2d 862, 865 (Tex. App.-Austin 1984, writ ref'd n.r.e.) (common-law defenses "cannot be used to defeat claims under the DTPA" because DTPA was not designed to codify common law); see also Frank B. Hall & Co v. Beach, Inc., 733 S.W.2d 251, 264 (Tex. App.-Corpus Christi 1987, writ ref'd n.r.e.) (applying rule from Smith and Joseph to preclude common-law defenses to claims brought under Texas Insurance Code). We already have determined that the sections of the Texas Property Code at issue in this case do not constitute a codification of the common law.[10] Therefore, we conclude that these common-law defenses are not available to defeat claims under the statute, and we overrule [Appellant's] Issues 4-8.[11


SOURCE: FOURTEENTH COURT OF APPEALS - HOUSTON - No. 14-11-00126-CV - 5/17/12 (substituted opinion)

Unknowingly bought a termite-infested home in Texas? What cause of action provides relief?

  
A case decided by the Dallas Court of Appeals today discusses fraud by non-disclosure and DTPA in a case involving sale of a termite-infested house.
 

FRAUD, MISREPRESENTATION, FAILURE TO MAKE DISCLOSURE OF DEFECTS IN CONNECTION WITH
SALE OF RESIDENCE

ELEMENTS OF FRAUD & FRAUDULENT NON-DISCLOSURE  
  
The elements of a cause of action for fraud are: (1) that a material misrepresentation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001). Fraud also occurs when a party fails to disclose a material fact within the knowledge of that party; the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth; the party intends to induce the other party to take some action by failing to disclose the fact; and the other party suffers injury as a result of acting without knowledge of the undisclosed fact. New Process Steel Corp. v. Steel Corp. of Texas, 703 S.W.2d 209, 214 (Tex. App.-Houston [1st Dist.] 1985, writ ref'd n.r.e.). A seller is charged with disclosing such material facts as to put a buyer exercising reasonable diligence on notice of the condition of the house. Cole v. Johnson, 157 S.W.3d 856, 860-61 (Tex. App.-Fort Worth 2005, no pet.).

Under certain circumstances, a buyer's independent inspection of the property may conclusively defeat two elements of a fraud claim: causation and reliance. A buyer's independent inspection precludes a showing of causation and reliance if it reveals to the buyer the same information that the seller allegedly failed to disclose. See Lesieur v. Fryar, 325 S.W.3d 242, 246-49 (Tex. App.-San Antonio 2010, no pet.).

SOURCE: DALLAS COURT OF APPEALS - 05-10-00173-CV - 12/15/11

DECEPTIVE TRADE PRACTICES ACT (Texas DTPA)

“The DTPA grants consumers a cause of action for false, misleading, or deceptive acts or practices.”Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex.1996); see Tex. Bus. & Com. Code Ann. § 17.50(a) (West Supp. 2010); see also id. §§ 17.45(5), 17.46(b). The trial court found the Home-Sellers knowingly engaged in a misleading, deceptive act that the Homebuyers relied on to their detriment and which was a producing cause of damages to the Homebuyers. The elements of a DTPA claim are: (1) the plaintiff was a consumer; (2) the defendant either engaged in false, misleading or deceptive acts (i.e., violated a specific laundry-list provision of the DTPA) or engaged in an unconscionable action or course of action; and (3) the DTPA laundry-list violation or unconscionable action was a producing cause of the plaintiff's injury. Amstadt, 919 S.W.2d at 649; see Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 478 (Tex.1995). In our review of a DTPA claim, we must liberally construe and apply the statute to promote the underlying goals of the statute, which include protecting consumers against false, misleading, and deceptive business practices and unconscionable actions. See Tex. Bus. & Com. Code Ann. § 17.44(a) (West 2002); Latham v. Castillo, 972 S.W.2d 66, 68 (Tex.1998).
  
WHAT DAMAGES CAN BE RECOVERED UNDER THE DTPA?
 
A consumer who prevails on a claim under the DTPA may obtain the amount of economic damages found by the trier of fact. Tex. Bus. & Com. Code Ann. § 17.50(b)(1) (West Supp. 2010). If the trier of fact finds that the conduct of the defendant was committed knowingly, the consumer may also recover damages for any mental anguish found by the trier of fact. Id. A prevailing party shall be awarded reasonable and necessary attorney's fees and any other relief which the court deems proper. Id. §§17.50(d); 17.50(b)(4).
  
An award of mental anguish damages will survive a legal sufficiency challenge when the plaintiffs have introduced direct evidence of the nature, duration, and severity of their mental anguish, thus establishing a substantial disruption in the plaintiffs' daily routine. Parkway Co. v. Woodruff, 901 S.W.2d 434, 444 (Tex. 1995). Direct evidence of mental anguish may be in the form of the parties' own testimony, that of third parties, or experts. Id. There must also be some evidence to justify the amount awarded, and the amount awarded must be fair and reasonable. Saenz v. Fid. & Guar. Ins. Underwriters, 925 S.W.2d 607, 614 (Tex. 1996).
  
Direct evidence of mental anguish may be in the form of the parties' own testimony, that of third parties, or experts. Parkway, 901 S. W. 2d at 444.

SOURCE: DALLAS COURT OF APPEALS - 05-10-00173-CV - 12/15/11

BUYERS vs. SELLERS 

of termite-infested home

Firth Court of Appeals affirms judgment for Buyers
in unsuccessful appeal by Sellers

Rick and Kathy [Home-Sellers] appeal the trial court's judgment awarding Jerry and Connie [Homebuyers] damages on their claims arising out of their purchase of a termite-infested house from the Home-Sellers. In four issues, the Home-Sellers argue the evidence is factually insufficient to support the trial court's judgment, and the trial court erred by (1) declining to make findings of fact and conclusions of law, (2) rendering judgment in favor of the Homebuyers when the evidence was factually insufficient to support the judgment, (3) failing to grant the Home-Sellers' motion for judgment as a matter of law, and (4) awarding judgment for out-of-pocket expenses, loss of fair market value, mental anguish, and attorney's fees. We affirm the trial court's judgment.

NOTE: The court of appeals' opinion refers to the parties by their real names; they have here been replaced with functional labels

In the summer of 2006, the Homebuyers, interested in purchasing a property in Sherman, were driving through a residential neighborhood when they saw a for sale sign in front of the Home-Sellers' home. The Homebuyers stopped and got out to look at the house, and the Home-Sellers came out and offered to give them a tour of the house. During the tour, the Home-Sellers discussed the remodeling they had done to the house. The Homebuyers decided to buy the house and offered $125,000, which the Home-Sellers accepted. The Homebuyers hired James Langford to do a home and termite inspection before the closing. The Homebuyers and Home-Sellers were all present at the time of the inspection. In the seller's disclosure statement, the Homebuyers had seen the Seller's disclosure that the house had been “sprayed and treated in spring for termite[s]. Outside only.” The Home-Sellers had told the realtor that it was “for maintenance purposes only.” During the inspection, Langford asked where the termites were. Rick Seller did not respond to Langford's question, and Langford asked, “Where did you spray?” Rick Seller said “it was outside, out down around the old storage building.” Connie Home-Buyer “felt a concern” and asked Rick Seller if there were any termites or if there had ever been any termites. Rick Seller said no. The sale proceeded to closing.

The Homebuyers began moving into the house and found termites on September 1, 2006, nine days after closing. At that time, the interior of the home appeared freshly painted. Connie Home-Buyer set a box down and bumped into a picture and a dry erase board that the Home-Sellers had left in the kitchen. The dry erase board and picture fell down, revealing a hole in the wall behind each one. Connie Home-Buyer began removing the wallpaper in the kitchen because she knew she was “going to have to redo it” and “get that hole fixed in the kitchen.” When Connie Home-Buyer removed the “very first piece of wallpaper” she discovered what she recognized were termite holes.

The Homebuyers hired a licensed exterminator and termite inspector, Roy Reed, to perform an inspection on September 8, 2006. In the den ceiling, Reed immediately identified an area where the termites had already eaten the wood, and it was “not even wood anymore, [it was] caulk.” Reed pushed up with his thumb on the ceiling and “termites just showered down on him.” Reed told Connie Home-Buyer “what pictures to take as he was going through the inspection,” and the photos were admitted at trial. The inspection revealed termite infestation in the house, and the Homebuyers “never unpacked.” The Homebuyers got estimates on repairing the termite damage, but they could not afford to make the repairs, and they decided to move. The Homebuyers rented a place to live and sold the house approximately eight months later for $74,000, a thousand dollars less than they owed the bank. In July 2007, the Homebuyers sued the Home-Sellers and Langford. The Homebuyers settled their claims against Langford. Following a bench trial, the trial court entered judgment in favor of the Homebuyers, and this appeal followed.

In their first issue, the Home-Sellers argue the trial court erred in failing to make findings of fact and conclusions of law. Contrary to the Home-Sellers' assertion, the record contains the trial court's letter to the parties making findings that (1) the Home-Sellers engaged in a misleading, deceptive act that the Homebuyers relied on to their detriment and which was a producing cause of damages to the Homebuyers; (2) the Home-Sellers engaged in such conduct knowingly; and (3) the Home-Sellers committed fraud against the Homebuyers. The trial court went on to find the Homebuyers were entitled to benefit of the bargain damages, out of pocket expenses, mental anguish damages, “additional damages permitted by the DTPA,” and attorney's fees.

After the trial court files its original findings of fact and conclusions of law, any party may file a request for specified additional or amended findings or conclusions with the clerk of the court. Tex. R. Civ. P. 298;Gentry v. Squires Constr., Inc., 188 S.W.3d 396, 408 (Tex. App.-Dallas 2006, no pet.). The failure of a party to request additional or amended findings or conclusions waives the party's right to complain on appeal about the presumed finding. Gentry, 188 S.W.3d at 408. The Home-Sellers failed to request additional or amended findings and therefore have waived any complaint. We overrule the Home-Sellers' first issue.

In their second issue, the Home-Sellers argue the evidence is factually insufficient to support the trial court's judgment. The Home-Sellers argue the evidence is factually insufficient to show they made false material representations to the Homebuyers or their acts were a substantial factor in bringing about an injury to the Homebuyers.

[section on factual sufficiency challenge omitted]

The trial court found the Home-Sellers committed fraud against the Homebuyers. The elements of a cause of action for fraud are: (1) that a material misrepresentation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001). Fraud also occurs when a party fails to disclose a material fact within the knowledge of that party; the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth; the party intends to induce the other party to take some action by failing to disclose the fact; and the other party suffers injury as a result of acting without knowledge of the undisclosed fact. New Process Steel Corp. v. Steel Corp. of Texas, 703 S.W.2d 209, 214 (Tex. App.-Houston [1st Dist.] 1985, writ ref'd n.r.e.). A seller is charged with disclosing such material facts as to put a buyer exercising reasonable diligence on notice of the condition of the house. Cole v. Johnson, 157 S.W.3d 856, 860-61 (Tex. App.-Fort Worth 2005, no pet.).

“The DTPA grants consumers a cause of action for false, misleading, or deceptive acts or practices.”Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex.1996); see Tex. Bus. & Com. Code Ann. § 17.50(a) (West Supp. 2010); see also id. §§ 17.45(5), 17.46(b). The trial court found the Home-Sellers knowingly engaged in a misleading, deceptive act that the Homebuyers relied on to their detriment and which was a producing cause of damages to the Homebuyers. The elements of a DTPA claim are: (1) the plaintiff was a consumer; (2) the defendant either engaged in false, misleading or deceptive acts (i.e., violated a specific laundry-list provision of the DTPA) or engaged in an unconscionable action or course of action; and (3) the DTPA laundry-list violation or unconscionable action was a producing cause of the plaintiff's injury. Amstadt, 919 S.W.2d at 649; see Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 478 (Tex.1995). In our review of a DTPA claim, we must liberally construe and apply the statute to promote the underlying goals of the statute, which include protecting consumers against false, misleading, and deceptive business practices and unconscionable actions.See Tex. Bus. & Com. Code Ann. § 17.44(a) (West 2002); Latham v. Castillo, 972 S.W.2d 66, 68 (Tex.1998).

Here, Rick Seller testified that, at the time he filled out the seller's disclosure form, he knew that in 2004 he had found live and dead termites in the garage and the “freezer room,” a room connected to the house. The Home-Sellers called Barry Walker to treat the termites. Walker advised them to treat the entire house for termites. The termites came back in the spring of 2005, and Walker treated them again. In spring 2006, a few months before the sale of the house to the Homebuyers, termites appeared again in the garage and freezer room, and Walker treated them. The Home-Sellers did not disclose any of these treatments in the garage and freezer room attached to the house. Instead, the Seller's disclosure stated that the house had been “sprayed and treated in spring for termite[s]. Outside only.”

Connie Home-Buyer testified Rick Seller said at the time of the inspection that he sprayed for termites “outside, out down around the old storage building.” Connie Home-Buyer “felt a concern” and asked Rick Seller if there were any termites or if there had been any termites at the property. Rick Seller said no. Connie Home-Buyer testified she would not have closed on the house if she had known the Home-Sellers (1) had seen a swarm of termites outside the house in the spring of 2004, (2) had a professional treat the house for termites in 2004, and (3) had a recurrence of termites in 2005 and had a professional come out and treat the house. We conclude this evidence was factually sufficient to support the trial court's determination that the Home-Sellers made false material representations to the Homebuyers, and their acts were a substantial factor in bringing about an injury to the Homebuyers. See Plas-Tex, Inc., 772 S.W.2d at 445. Further, the evidence was factually sufficient to show the Homebuyers acted in reliance on the Home-Sellers' misrepresentations. See In re FirstMerit Bank, N.A., 52 S.W.3d at 758; Amstadt, 919 S.W.2d at 649.

In their third issue, the Home-Sellers argue the trial court erred in failing to grant their “motion for verdict as a matter of law” on the Homebuyers' fraud and DTPA claims. See Footnote . Specifically, they argue “the Homebuyers' reliance on their own professional inspection negates the element of reliance.”

Under certain circumstances, a buyer's independent inspection of the property may conclusively defeat two elements of a fraud claim: causation and reliance. A buyer's independent inspection precludes a showing of causation and reliance if it reveals to the buyer the same information that the seller allegedly failed to disclose. See Lesieur v. Fryar, 325 S.W.3d 242, 246-49 (Tex. App.-San Antonio 2010, no pet.). Relying on Dubow v. Dragon, 746 S.W.2d 857 (Tex. App.-Dallas 1988, no writ), the Home-Sellers argue the Homebuyers' careful inspection of the property in this case negated the element of reliance. Based on the facts presented in Dubow, this Court concluded that “the [buyers'] 'careful' inspection of the house's condition constituted a new and independent basis for the purchase which intervened and superseded the [sellers'] alleged wrongful act.” Id. at 860. But the crucial fact in Dubow was not the buyers' procurement of an independent inspection; it was their express and exclusive reliance on the “professional opinions” they received to renegotiate the sales contract that resulted in the sale of the house. Id.; see Fernandez v. Schultz, 15 S.W.3d 648, 652 (Tex. App.-Dallas 2000, no pet.). In this case, there is no evidence that the Homebuyers relied solely on the opinion of their inspector in making their decision to purchase the house. See Fernandez, 15 S.W.3d at 652. Also, the contract here was never renegotiated in reliance on the inspection. See id. In fact, the testimony shows the Homebuyers' decision to buy the property would have been materially affected if the Home-Sellers had told them on the seller's disclosure form about the prior termites in the home. See id.

Although it may be true that their inspector's failure to discover the termites inside the house was a producing cause of the Home-Buyer's damages, there nevertheless may be more than one producing cause of damages in a case. Fernandez, 15 S.W.3d at 653. Here, the Home-Sellers' failure to disclose their knowledge of the termites was also a producing cause of the Homebuyers' damages. Id. Had the Home-Sellers informed the Homebuyers about the termites, they could have required their inspector to look more deeply for signs of termite damage. Id. Further, the evidence shows the Home-Sellers actively concealed the presence of the termites, thus making it more difficult for the inspector to discover them. Id. Accordingly, we conclude the Homebuyers' procurement of an independent inspection did not supersede the Home-Sellers' actions as a producing cause of damages. See id.We overrule the Home-Sellers' third issue.

In their fourth issue, the Home-Sellers argue the trial court erred in awarding “out-of-pocket” expenses, loss of fair market value, mental anguish damages, and attorney's fees. Specifically, the Home-Sellers argue the Homebuyers failed to present competent evidence to support any damages. In reviewing a contention of no evidence to support a trial court's finding, we must consider only the evidence and inferences tending to support the finding and disregard all evidence and inferences to the contrary. Fernandez, 15 S.W.3d at 651. If there is more than a scintilla of evidence to support the finding, it must be upheld. Id.

A consumer who prevails on a claim under the DTPA may obtain the amount of economic damages found by the trier of fact. Tex. Bus. & Com. Code Ann. § 17.50(b)(1) (West Supp. 2010). If the trier of fact finds that the conduct of the defendant was committed knowingly, the consumer may also recover damages for any mental anguish found by the trier of fact. Id. A prevailing party shall be awarded reasonable and necessary attorney's fees and any other relief which the court deems proper. Id. §§17.50(d); 17.50(b)(4).

A property owner is qualified to testify to the market value of his property. Redman Homes v. Ivy, 920 S.W.2d 664, 669 (Tex. 1996). This evidence is probative if it is based on the owner's estimate of market value and not some intrinsic or other value such as replacement cost. Id. The Home-Sellers argue a property owner has to show some familiarity with market value. Connie Home-Buyer testified she researched the market value of the property through a realtor and determined the property had to be sold in “as-is” condition. Jerry Home-Buyer testified he paid $125,000 for the house and, after the termites were discovered, he was able to sell the house for only $74,000. Connie Home-Buyer testified she had owned six houses in the past as real estate investments and sold the properties after remodeling them. Thus, the record shows the Homebuyers' testimony concerning market value was based on their estimates of market value and not some intrinsic or other value. See id.

As to out-of-pocket expenses, Jerry Home-Buyer testified he and Connie incurred expenses of $13,250 to rent a home because the house they bought from the Home-Sellers was uninhabitable, $652 to maintain insurance on the house, $404 for renters' insurance, $610.96 in moving costs, and $2401.89 in taxes. Connie Home-Buyer testified she had owned six houses “as a home investor.” She got bids to repair the house, but the bids were limited in scope to the damage visible at the time. The bids ranged from $40,000 to $60,000. The Homebuyers decided to sell the house and placed an advertisement in the newspaper. A realtor told the Homebuyers that the house had to be sold “as-is.” In eight months of trying to sell the house, the Homebuyers received only three calls from “interested” parties, and only two people looked at the house. One person made an offer of $74,000, and the Homebuyers accepted the offer.

An award of mental anguish damages will survive a legal sufficiency challenge when the plaintiffs have introduced direct evidence of the nature, duration, and severity of their mental anguish, thus establishing a substantial disruption in the plaintiffs' daily routine. Parkway Co. v. Woodruff, 901 S.W.2d 434, 444 (Tex. 1995). Direct evidence of mental anguish may be in the form of the parties' own testimony, that of third parties, or experts. Id. There must also be some evidence to justify the amount awarded, and the amount awarded must be fair and reasonable. Saenz v. Fid. & Guar. Ins. Underwriters, 925 S.W.2d 607, 614 (Tex. 1996).

The Home-Sellers cite the standard that “the evidence must show a high degree of mental pain and distress that is more than worry, anxiety, vexation, embarrassment or worry,” citing Houston Livestock Show & Rodeo, Inc. v. Hamick, 125 S. W. 3d 555 (Tex. App.-Austin 2003, no pet.). They argue that the evidence from Connie Home-Buyer showed she experienced stress, lost a little weight, felt anxiety because of her husband's drinking, and refused to take any anti-anxiety medicine. The Home-Sellers also cite Jerry Home-Buyer's testimony that some of his wife's anxiety was directly related to his issues with alcohol.

Direct evidence of mental anguish may be in the form of the parties' own testimony, that of third parties, or experts. Parkway, 901 S. W. 2d at 444. Connie Home-Buyer testified she and her husband put their life savings into a home they could neither live in nor afford to repair. She testified that it destroyed them financially. Connie Home-Buyer related how her husband had maintained his sobriety for twelve years but began drinking again because of this stress. She convinced him to go to the doctor, who prescribed medication. Jerry Home-Buyer has continued to take prescription medication for the last two years. Connie Home-Buyer testified she was unable to eat for three months after this occurred, she threw up everything she ate, and she lost fifteen pounds. Under cross examination, she stated her husband's relapse was caused by the loss of the house, and she was under a lot of mental anguish and a lot of mental pain. Jerry Home-Buyer testified how very hard emotionally this had been and that this was his only relapse in his sobriety. Evidence that Jerry Home-Buyer maintained his sobriety for twelve years and then relapsed under the financial stress of losing his home and life savings, together with evidence Connie Home-Buyer shared in this loss and was unable to eat, is evidence of much more than mere worry, anxiety, vexation, embarrassment, or anger. We conclude the evidence was sufficient to establish the nature, duration, and severity of their mental anguish. See Parkway, 901 S. W. 2d at 444.

[section on law governing award of attorney's fees and segregation requirement omitted]

The Homebuyers' attorney stated his attorney's fees were $29,944.75, and he had deleted $5477.50 from his bills relating to the proceedings against Langford. The Homebuyers' attorney testified the remaining bills were for time spent on the Home-Sellers' case involving DTPA and fraud, and he was unable to separate those bills because they were so intertwined. The Homebuyers' attorney testified $24,467.25 would be a reasonable fee for the work he performed in this case. The Homebuyers' attorney was cross examined about both the time spent on the case and the segregation of fees. The Home-Sellers stipulated that the Homebuyers' attorney was qualified when he began his testimony regarding attorney's fees. The trial court heard all the evidence and awarded attorney's fees of $20,000. The record shows the attorney's fees associated with claims against Langford were segregated. Because the record shows the legal services advanced both the fraud and DTPA claims against the Home-Sellers, the fees were so intertwined that segregation was not necessary. See Chapa, 212 S.W.3d at 313.

This record shows the Homebuyers presented competent evidence of out-of-pocket expenses, loss of fair market value, mental anguish damages, and attorney's fees. We therefore uphold the trial court's finding on these damages. See Fernandez, 15 S.W.3d at 651. We overrule the Home-Sellers' fourth issue.

We affirm the trial court's judgment.

DAVID L. BRIDGES

JUSTICE

________________________________________

Footnote:  Although the Home-Sellers also argue the trial court erred in denying their motion for judgment on the Homebuyers' negligent misrepresentation claims, the Homebuyers did not assert a claim for negligent misrepresentation, and the trial court's judgment did not award relief on a negligent misrepresentation claim. While the Homebuyers' original petition alleged certain negligence claims against Langford, all claims against Langford were dismissed prior to trial.

________________________________________

SOURCE: DALLAS COURT OF APPEALS - 05-10-00173-CV - 12/15/11

Essential Elements of a DTPA Claim in Texas

DECEPTIVE TRADE PRACTICES: 
   
What does a successful DTPA claim require? 

To prevail on a DTPA claim, the plaintiff must demonstrate (1) the plaintiff’s status as a consumer, (2) the defendant can be sued under the DTPA, (3) the defendant committed a wrongful act under the DTPA, and (4) the defendant’s actions were a producing cause of the plaintiff’s damages. Tex. Bus. & Com. Code §17.50(a) (West 2011); Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex. 1996) (“A consumer must, in order to prevail on a DTPA claim, . . . establish that each defendant violated a specific provision of the Act, and that the violation was a producing cause of the claimant’s injury.”).

To prove a DTPA action for failure to disclose information, the plaintiff must show (1) a failure to disclose, (2) which was known at the time of the transaction, (3) which was intended to induce the plaintiff into a transaction, and (4) that the plaintiff otherwise would not have entered the transaction if the information had been disclosed. Colonial Cnty. Mut. Ins. Co. v. Valdez, 30 S.W.3d 514, 517–18 (Tex. App.—Corpus Christi 2000, no pet.).

SOURCE: HOUSTON COURT OF APPEALS - 01-10-00672-CV - 12/1/11

Limitations Period for Claim under the Texas Deceptive Trade Practices Act (DTPA)

The statute of limitations for a DTPA claim is two years. Tex. Bus. & Com. Code Ann. § 17.565 (West 2011). A DTPA claim accrues when (1) the false, misleading, or deceptive act or practice occurred, or (2) the consumer discovered or in the exercise of reasonable diligence should have discovered the false, misleading, or deceptive act or practice. Id.

SOURCE: HOUSTON COURT OF APPEALS - 01-10-00672-CV - 12/1/11 

WHEN A BORROWER IS NOT A CONSUMER UNDER THE DTPA 

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,

v.

MIDLAND FUNDING LLC, MIDLAND CREDIT MANAGEMENT, INC., and ENCORE CAPITAL GROUP, INC., Defendants.

IN THE DISTRICT COURT OF HARRIS COUNTY, TEXAS
[165th] JUDICIAL DISTRICT

PLAINTIFF'S ORIGINAL PETITION
AND APPLICATION FOR TEMPORARY AND PERMANENT INJUNCTION

TO THE HONORABLE JUDGE OF SAID COURT:

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:

[...]

IX. FACTUAL BACKGROUND

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.

[...]

X. FALSE, MISLEADING, AND DECEPTIVE ACTS

AND PRACTICES

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.
 

XI. VIOLATIONS OF THE TEXAS FINANCE CODE

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.

MEDIA RESPONSE

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 ...

TEXT OF TX ATTORNEY GENERAL'S PRESS RELEASE ANNOUNCING LAW SUIT AGAINST MIDLAND AND ENCORE CAPITAL GROUP FOR DECEPTIVE DEBT COLLECTON PRACTICES INVOLVING FRAUDULENT AFFIDAVITS

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.


TEXT OF PRESS RELEASE FROM MINNESOTA AG'S ACTION AGAINST MIDLAND

Press Release - Monday, March 28, 2011

ATTORNEY GENERAL LORI SWANSON CHARGES ONE OF NATION’S LARGEST “DEBT BUYERS” WITH DEFRAUDING MINNESOTA COURTS AND CITIZENS BY FILING “ROBO-SIGNED” AFFIDAVITS

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.

RELATED TERMS: robo-signed affidavits, summary judgment affidavits, affidavits of claim, personal knowledge requirement, authentication of business records, third-party records, authenticity and admissibility, business records exceptions to the hearsay rule, evidentiary issues, challenge to affidavit, motion to strike testimony by affidavit 

DTPA Claim in Texas: What is actionable?

   
What can bad actors (businesses) be sued for by consumers? 
   
The DTPA prohibits “[f]alse, misleading, or deceptive acts or practices in the conduct of any trade or commerce.” TEX. BUS. and COMM. CODE ANN. § 17.46(a) (West 2011).
 
DTPA Violations Laundry list 
 
Section 17.46(b) contains a laundry list of specifically prohibited acts. Included in that laundry list are (1) “representing that goods or services have characteristics which they do not have,” (2) “representing that goods or services are of a particular . . . quality, . . . if they are of another, ” (3) “representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve,” (4) “representing that a guarantee or warranty confers or involves rights or remedies which it does not have or involve,” and (5) “failing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed.” Id. § 17.46(b)(5), (7), (12), (20) and (24). Actionable representations may be oral or written. Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 502 (Tex. 2001). Intent to make a misrepresentation is not required to recover under section 17.46 (b)(5), (7), and (12). See id.
 
What damages are available? 
 
Under section 17.50(a), a DTPA plaintiff may recover “economic damages” for which the defendant’s misconduct was a producing cause. TEX. BUS. and COM. CODE ANN. § 17.50(a) (West 2011). Economic damages include both benefit-of-the-bargain damages similar to those recoverable for breach of contract and out-of-pocket damages. See W.O. Bankston Nissan, Inc. v. Walters, 754 S.W.2d 127, 128 (Tex. 1988) (explaining that out-of-pocket and benefit-of-the-bargain are two measures of damages under the DTPA, and noting that a plaintiff may recover the greater of the two measures). Additionally, “recovery under the DTPA is not exclusively limited to only these two types of damages.” Manon v. Tejas Toyota, Inc., 162 S.W.3d 743, 754 (Tex. App.—Houston [14th Dist.] 2005, no pet.). Rather, the consumer may recover its “total loss sustained . . . as a result of the deceptive trade practice,” including “related and reasonably necessary expenses.” Id.; see D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d at 662, 663–64 (Tex. 1998) (explaining that a plaintiff can recover, in addition to out-of-pocket-expenses, any loss otherwise suffered as a consequence of misrepresentations); Henry S. Miller Co. v. Bynum, 836 S.W.2d 160, 162 (Tex. 1992) (holding that DTPA damages include recovery for “lost capital investment”). In other words, the consumer is “permitted [to recover] other damages to ensure that the plaintiff is made whole.” Bynum, 836 S.W.2d at 162.
 
Mere Breach of Contract not a DTPA violation 
   
[W]hen a plaintiff’s claim arises solely from the failure of one of the parties to perform on a contract, a DTPA action is inappropriate. Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 14 (Tex. 1996) (per curiam); see also Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85, 92 (Tex. App.—Houston [1st Dist.] 2003, pet. denied) (holding that proof of a failure to comply with contractual promises “cannot be used to support an action under the DTPA”). In Crawford, the plaintiff sought to escape this rule based on the defendant’s misrepresentations that it would perform under the contract. The court held, however, that a misrepresentation that is based on nothing more than a failure to perform a contractual promise cannot be the basis for a DTPA claim; otherwise, every breach of contract claim would be converted into a DTPA claim. Id.
 
SOURCE: Houston Court of Appeals - 01-10-00017-CV - 6/16/11

How and when does the discovery rule provide relief against affirmative defense of limitations?

  
Discovery rule defers accrual of claim when it applies, triggering the running of the SoL at the point of discovery

“As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.” Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003). The discovery rule operates to defer accrual of a claim until the plaintiffs knew or, in the exercise of reasonable diligence, should have known of the wrongful act causing their injury. Salinas v. Gary Pools, Inc., 31 S.W.3d 333, 336 (Tex.App.--San Antonio 2000, no pet.).

The discovery rule always applies to DTPA claims. Id.; see also Tex.Bus.&Com.Code Ann. § 17.565 (stating that DTPA suits must be filed “within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered or in the exercise of reasonable diligence should have discovered the occurrence of the false, misleading, or deceptive act or practice.”). Beyond that, the discovery rule is “a very limited exception to statutes of limitations” and applies only when the plaintiffs’ injury is inherently undiscoverable and objectively verifiable. Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734 (Tex. 2001).

 “An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence.” Id. at 734-35. “Inherently undiscoverable” does not mean that particular plaintiffs did not discover their particular injuries within the limitations period. Id. at 735. The issue is whether the injury is of a type that generally is discoverable in the exercise of reasonable diligence. Id. “Knowledge of facts, conditions, or circumstances that would cause a reasonable person to make inquiry . . . is equivalent to knowledge of the cause of action for limitation purposes.” Southwest Olshan Found. Repair Co., LLC v. Gonzales, ___ S.W.3d ___, ___, 2011 WL 149870, at *4 (Tex.App.--San Antonio Jan. 19, 2011, no pet.h.).
 
When plaintiffs plead the discovery rule, a defendant who moves for summary judgment on the affirmative defense of limitations must prove as a matter of law that there is no genuine issue of material fact about when the plaintiffs should have discovered their injury in the exercise of reasonable diligence. See KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999); Salinas, 31 S.W.3d at 336. If the defendant conclusively establishes that the statute of limitations bars the plaintiffs’ claims, the plaintiffs must then submit summary judgment proof raising a fact issue in avoidance of the statute of limitations. See KPMG Peat Marwick, 988 S.W.2d at 748; Salinas, 31 S.W.3d at 336. 
 
SOURCE: El Paso Court of Appeals - 08-09-00116-CV - 4/27/11

DTPA Claim: Plaintiff Must Be A Consumer for Texas Deceptive Trade Practices Act to Apply

   
DTPA ELEMENT: Consumer Status of Complainant 
 
Consumer status is an essential element of a DTPA claim. Rivera v. S. Green Ltd. P’ship, 208 S.W.3d 12, 21 (Tex. App.—Houston [14th Dist.] 2006, pet. denied) (citing Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 478 (Tex. 1995)).
 
CONSUMER DEFINED FOR PURPOSES OF DTPA CLAIM 
 
A consumer is an individual who seeks or acquires goods or services by purchase or lease. Id.; Tex. Bus. & Com. Code Ann. § 17.45(4) (Vernon Supp. 2009) (“‘Consumer’ means an individual, partnership, corporation, this state, or a subdivision or agency of this state who seeks or acquires by purchase or lease, any goods or services, except that the term does not include a business consumer that has assets of $25 million or more, or that is owned or controlled by a corporation or entity with assets of $25 million or more.”).
 
Whether a plaintiff is a consumer under the DTPA is a question of law for the court to decide. Rivera, 208 S.W.3d at 21.
 
SOURCE: Cash Rent-A-Car v. Old American County Mutual Fire Ins. Co. No. 01-09-00021-CV (Tex.App.- Houston [1st Dist.] Jan. 14, 2009)

IS A BORROWER A CONSUMER UNDER THE DTPA DEFINITION? - IT DEPENDS 

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