Credit card debt claim as breach of contract (breach of cardmember or account agreement) in Texas courts

FINANCIAL INSTITUTION'S LEGAL THEORY FOR COLLECTION OF CREDIT CARD DEBT IN TEXAS COURTS: BREACH OF CONTRACT

In Texas, collection of the amount due under a credit card agreement is treated as a claim for a breach of contract. In re Tran, 351 B.R. 440, 445 (Bankr. S.D. Tex. 2006), aff'd, 369 B.R. 312 (S.D. Tex. 2007); see Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212, 215-20 (Tex. App.-Texarkana 2005, no pet.).

ELEMENTS OF BREACH OF CONTRACT CLAIM  

To recover for breach of contract, a plaintiff must show (1) the existence of a valid contract, (2) the plaintiff performed or tendered performance, (3) the defendant breached the terms of the contract, and (4) the plaintiff suffered damages as a result of the defendant's breach. Transworld Leasing Corp. v. Wells Fargo Auto Fin., LLC, No. 04-12-00036-CV, 2012 WL 4578591, at *3 (Tex. App.-San Antonio 2012, pet. denied); McLaughlin, Inc. v. Northstar Drilling Tech., Inc., 138 S.W.3d 24, 27 (Tex. App.-San Antonio 2004, no pet.).

Thus, in this case, the Credit Union had the burden to prove each element of a breach of contract claim at trial. See Preston State Bank v. Jordan, 692 S.W.2d 740, 744 (Tex. App.-Fort Worth 1985, no writ) (affirming a take-nothing judgment in a suit to recover a credit card debt when the bank failed to present evidence of the contract between the bank and the credit card holder).

CONTRACT FORMATION, MATERIAL TERMS (CREDIT AND REPAYMENT TERMS), AND BREACH  

 

Parties form a binding contract when the following elements are present: (1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) the execution and delivery of the contract with the intent that it be mutual and binding. Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 236 (Tex. App.-Houston [1st Dist.] 2008, no pet.).

 

To be enforceable, a contract must be sufficiently certain to enable a court to determine the rights and responsibilities of the parties. T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). The material terms of a contract must be agreed upon before a court can enforce the contract. Id. A breach of contract occurs when a party to the contract fails or refuses to do something he has promised to do. West v. Triple B Services, LLP, 264 S.W.3d 440, 446 (Tex. App.-Houston [14th Dist.] 2008, no pet.).  

SOURCE: SAN ANTONIO COURT OF APPEALS - 04-12-00080-CV – 6/12/2013

Hooper v. Generations Community Federal Credit Union

Credit Union failed to prove breach-of-contract claim by failing to submit the contract under which it sought to hold the customer liable, and failing to show breach of specific terms.

 

We conclude the record discloses the complete absence of evidence of the third element of the Credit Union's breach of contract claim, i.e., that Hooper breached the terms of an agreement with the Credit Union. In the absence of evidence that Hooper failed or refused to do something he promised to do under an agreement, the Credit Union failed to prove its breach of contract claim. See Pioneer Land & Cattle Co. v. Collier, No. 07-12-00320-CV, 2013 WL 2150814, at *6 (Tex. App.-Amarillo 2013, no pet. h.) (concluding the trial court did not err in granting a no-evidence summary judgment on the plaintiff's breach of contract claim when there was no evidence of the first, third, or fourth elements of the claim). We, therefore, hold the evidence was legally insufficient to support the trial court's judgment. Hooper's second issue is sustained.
 

Winchek v. American Express: Proof requirements for Breach of contract (breach of credit card agreement)

Winchek v. Amex is a much-cited case for the elements of a breach of contract claim under Texas law, and the elements of contract formation. The case involved a credit card account, but the articulation of the relevant law applies generally, whether contracts are signed or not. American Express cardmember agreements typically have a Utah choice-of-law provision, but that rarely becomes an issue in debt collection litigation in Texas courts, which are routinely resolved under Texas law. 
  

To prove a claim for breach of contract, a party must establish: (a) a valid contract; (b) the party performed or tendered performance; (c) the opposing party breached the contract; and (d) the party was damaged as a result of that breach. Winchek v. Am. Express Travel Related Servs. Co., 232 S.W.3d 197, 202 (Tex. App.-Houston [1st Dist.] 2007, no pet.); Hackberry Creek Country Club, Inc. v. Hackberry Creek Home Owners Ass'n, 205 S.W.3d 46, 55 (Tex. App.-Dallas 2006, pet. denied).

To prevail on a breach of contract claim, a plaintiff must prove the following essential elements: (1) the existence of a valid contract, (2) performance or tendered performance by the plaintiff, (3) breach of the contract by the defendant, and (4) damages sustained as a result of the breach. Winchek v. Am. Express Travel Related Servs. Co., 232 S.W.3d 197, 202 (Tex. App.-Houston [1st Dist.] 2007, no pet.).

Parties form a binding contract when the following elements are present: (1) an offer, (2) an acceptance in strict compliance with the terms of the offer, (3) meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. Id. at 202. To be enforceable, a contract must be sufficiently certain to enable a court to determine the rights and responsibilities of the parties. Id. (citing T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992)).

When is turnover relief warranted to enforce a money judgment?

  

REQUIREMENTS FOR GRANT OF TURNOVER ORDER

  

A turnover order is proper if the conditions of section 31.002 of the Texas Civil Practice and Remedies Code are met. See Suttles v. Vestin Realty Mortg. I, Inc., 317 S.W.3d 412, 416 (Tex. App.-Houston [1st Dist.] 2010, no pet.). Among the requirements of section 31.002 is that the creditor must show that the debtor owns property, including present or future rights to property, that cannot readily be attached or levied on by ordinary legal process. See Tex. Civ. Prac. & Rem. Code Ann. § 31.002(a) (West 2012); see also Europa Int'l, Ltd. v. Direct Access Trader Corp., 315 S.W.3d 654, 656-57 (Tex. App.-Dallas 2010, no pet.).

  
SOURCE: DALLAS COURT OF APPEALS - 05-10-01161-CV – 5/16/12 

In this case, Barclay presented no evidence to show that HSM had any present or future rights to the property it sought to have turned over.

 

Is there a cause of action for predatory lending?

 
CAN YOU SUE A CREDITOR FOR PREDATORY LENDING?

  

Federal judge in Texas says ‘No’ in suit against JPMorgan Chase Bank, N.A. involving a loan made on stated-income, and declines Plaintiff’s invitation to create such a cause of action. Chase, as successor servicer to EMC Mortgage LLC f/k/a EMC Mortgage Corporation ("EMC"), removed the borrower’s action from state court and secures dismissal for failure to state a claim.  

  

Predatory Lending Claim: no such thing, at least not yet    

  

EXCERPT FROM OPINION BY HON. JOHN McBRIDE, DISTRICT JUDGE  

  

The main thrust of plaintiff's predatory lending claim is that" [d]efendants engaged in predatory lending practices by, among other things, failing to make necessary disclosures to Plaintiff regarding their loan." Compl. at 7. Specifically, plaintiff alleges that defendants failed to provide certain disclosures allegedly required by TILA and RESPA three days after some initial meeting or submission of his loan application. Id. at 3, 7. Plaintiff, however, then alleges that he did receive disclosures at the loan's closing. Id. at 3, 7, 9. Plaintiff alleges that he "received some of these disclosures," without specifying which disclosures he received and which he did not. Id.

  

Plaintiff has not cited any state or applicable federal law, precedential or statutory, that creates a cause of action for "predatory lending." See, e.g., Brown v. Aurora Loan Servs., LLC, No. 4:11-CV-111, 2011 WL 2783992, at *4 (E.D. Tex. June 7, 2011), report and recommendation adopted at 2011 WL 2728384. Plaintiff even acknowledges that "predatory lending is not a recognized cause of action at this time." Compl. at 6.

 

Plaintiff argues that "predatory lending should be a recognized cause of action and this, a case of first impression subject to review by the Texas Supreme Court, is necessary, in order to lay the groundwork for future predatory lending claims." Id. The court is not persuaded by plaintiff's argument, as the court has found no case law in support of a cause of action for predatory lending. The court is not inclined to create a cause of action not previously recognized in Texas or federal law.

Moreover, plaintiff's conclusory allegations fail to allege sufficient facts to support his claim for "predatory lending." Plaintiff has not even stated what disclosures were not allegedly provided to him. Id. at 7. Accordingly, plaintiff's predatory lending claim must be dismissed.

SOURCE: United States District Court, N.D. Texas, Fort Worth Division. Civil Action No. 4:11-CV-812-A. DONALD BITTICK, Plaintiff, v. JPMORGAN CHASE BANK, NA, ET AL., Defendants. MEMORANDUM OPINION and ORDER of JOHN McBRYDE, District Judge. April 18, 2012. 

When is a debtor's transfer of property fraudulent under TUFTA?

 
TEXAS UNIFORM FRAUDULENT TRANSFER ACT (TUFTA)

  
TUFTA section 24.005(a) provides that a transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or within a reasonable time after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation (1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (a) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
 
(b) intended to incur, or believed, or reasonably should have believed the debtor would incur, debts beyond the debtor's ability to pay as they became due. Tex. Bus. & Com. Code Ann § 24.005(a)(1), (2) (West 2009).
 
The judgment creditor has the burden to prove the fraudulent transfer by a preponderance of the evidence. Walker v. Anderson, 232 S.W.3d 899, 913 (Tex. App.--Dallas 2007, no pet.); G.M Houser, Inc. v. Rodgers, 204 S.W.3d 836, 842 (Tex. App.--Dallas 2006, no pet.). It is the creditor's burden to offer evidence addressing the elements of fraudulent transfer as to each transfer. Walker, 232 S.W.3d at 913; G.M Houser, 204 S.W.3d at 843.
 
“Ordinarily, whether the transfer was made with the actual intent to defraud creditors is a fact question.” Walker, 232 S.W.3d at 914. Direct proof of a fraudulent intent is often unavailable, so circumstantial evidence may be used to prove fraudulent intent. Id.; G.M. Houser, 204 S.W.3d at 842; Mladenka v. Mladenka, 130 S.W.3d 397, 405 (Tex. App.--Houston [14th Dist.] 2004, no pet.). TUFTA section 24.005(b) sets out a non-exclusive list of “badges of fraud” to be considered in determining whether a transfer was made with actual intent to defraud. Walker, 232 S.W.3d at 914; G.M. Houser, 204 S.W.3d at 842. They include:

(1) the transfer or obligation was to an insider;

(2) the debtor retained possession or control of the property transferred after the transfer;

(3) the transfer or obligation was concealed;

(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

(5) the transfer was of substantially all the debtor's assets;

(6) the debtor absconded;

(7) the debtor removed or concealed assets;

(8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and

(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Tex. Bus. & Com. Code Ann § 24.005(b). Under TUFTA, “reasonably equivalent value” is defined as including, “without limitation, a transfer or obligation that is within the range of values for which the transferor would have sold the assets in an arm's length transaction.” Id. § 24.004. Value is determined as of the date of the transfer. Mladenka, 130 S.W.3d at 407.

An individual badge of fraud is not conclusive but a concurrence of many badges of fraud in the same case can make a strong case of fraud. See G.M. Houser, 204 S.W.3d at 843; see also Tex. Sand Co. v. Shield, 381 S.W.2d 48, 53 (Tex. 1964). While evidence of a transfer to an insider is one factor to consider in determining actual intent to defraud, that fact alone does not support a conclusion the transfer constitutes a fraudulent transfer. See G.M. Houser, 204 S.W.3d at 843. Fraudulent intent is deduced from facts and circumstances that “the law considers as mere badges of fraud and not fraud per se,” so “these must be submitted to the trier of fact, which draws the inference as to the fairness or fraudulent characterization of the transaction.” Flores v. Robinson Roofing & Const. Co., Inc., 161 S.W.3d 750, 755 (Tex. App.--Fort Worth 2005, pet. denied).

SOURCE: DALLAS COURT OF APPEALS - 05-10-01510-CV - 5/8/2012

Doyle did not present any evidence contesting the value of KBI's Ford F-150, Dodge Dakota, or its computer, office furniture, and equipment. She also failed to present evidence regarding the value, if any, of KBI's goodwill, or that any goodwill of KBI was transferred to Elegant without reasonably equivalent value in exchange for the transfer or obligation. As the fact finder, the trial court was the judge of the weight and credibility of Bains's testimony, so we defer to the trial court's determination. After reviewing the evidence under the appropriate standards of review, we conclude the evidence is legally and factually sufficient to support the trial court's findings that Bains did not conspire with Elegant or engage in any fraudulent transfer to Elegant. We overrule Doyle's first issue.

Suit to enforce guaranty agreement upon default on promissory note or other contract by maker or obligor

 
NATURE OF GUARANTY AND ELEMENTS OF CLAIM BASED ON IT

WHAT IS A GUARANTY AGREEMENT?
  
“A guaranty creates a secondary obligation whereby the guarantor promises to answer for the debt of another and may be called upon to perform once the primary obligor has failed to perform.” Dann v. Team Bank, 788 S.W.2d 182, 183 (Tex. App.-Dallas 1990, no writ).
 
ELEMENTS OF PROOF
 
To recover under a guaranty, a claimant must prove (1) the existence and ownership of the guaranty agreement, (2) the terms of the underlying contract by the holder, (3) the occurrence of the conditions upon which liability is based, and (4) the guarantor's failure or refusal to perform the promise. Marshall v. Ford Motor Co., 878 S.W.2d 629, 631 (Tex. App.-Dallas 1994, no writ).
 
SOURCE: DALLAS COURT OF APPEALS - 05-10-00693-CV - 5/8/2012

Domestication & Enforcement of Foreign Judgments [judgments entered by courts of other countries to which full-faith-and-credit clause of US constitution does not apply]

  
THE UNIFORM FOREIGN MONEY-JUDGMENTS RECOGNITION ACT   
  
When is recognition / nonrecognition proper? What are grounds for avoiding recognition?


Under the Uniform Foreign Money–Judgments Recognition Act (the “Act”), a judgment creditor may seek recognition of a foreign country judgment [6] in Texas by filing a final, authenticated copy of the foreign country judgment in the judgment debtor’s county of residence. Sanchez v. Palau, 317 S.W.3d 780, 785 (Tex. App.—Houston [1st Dist.] 2010, pet. denied) (citing TEX. CIV. PRAC. & REM. CODE ANN. §§ 36.0041–42 (Vernon 2008)).
  
The Act applies to a foreign country judgment that “is final and conclusive and enforceable where rendered, even though an appeal is pending or the judgment is subject to appeal.” TEX. CIV. PRAC. & REM. CODE ANN. § 36.002(a)(1) (Vernon 2008).
  
The Act further provides that when a qualifying foreign country judgment is filed in accord with the Act, notice of the filing is given as provided by the Act, and a foreign country judgment is not otherwise “refused recognition” under the Act, then the judgment is “is conclusive between the parties to the extent that it grants or denies recovery of a sum of money” and is “enforceable in the same manner as a judgment of a sister state that is entitled to full faith and credit.” See id. § 36.004 (Vernon 2008).
  
The Act sets forth the grounds for “nonrecognition” of a foreign country judgment. See id. § 36.005 (Vernon 2008). Relevant to the instant case, a foreign country judgment is “not conclusive” if it “was rendered under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law.” See id. § 36.005(a)(1). And a foreign country judgment “need not be recognized” if “the proceeding in the foreign country court was contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that court.” See id. § 36.005(b)(5). A party contesting recognition of a foreign country judgment may file and serve a motion for nonrecognition no later than the 30th day after the date of service of the notice of filing of judgment is provided under the Act. See id. § 36.0044(a) (Vernon 2008). The party filing the motion for nonrecognition shall include with the motion all supporting affidavits, briefs, and other documentation; the party opposing the motion must file any response, including supporting affidavits, briefs, and other documentation not later than the 20th day after the date of service on that party of a copy of the motion for nonrecognition. See id. § 36.0044(b), (c).
  
The party seeking to avoid recognition has the burden of proving a ground for nonrecognition and, unless that party satisfies his burden of proof by establishing one or more of the specific grounds for nonrecognition, the court is required to recognize the foreign country judgment. Courage Co. v. Chemshare Corp., 93 S.W.3d 323, 331 (Tex. App.—Houston [14th Dist.] 2002, no pet.). By limiting the defenses available to a judgment debtor, the Act creates standards for recognizing foreign country judgments and prevents parties from relitigating issues that were conclusively settled by courts of foreign countries, unless such issues create an exception to recognition. Beluga Chartering, B.V. v. Timber S.A., 294 S.W.3d 300, 304 (Tex. App.—Houston [14th Dist.] 2009, no pet.); Dart v. Balaam, 953 S.W.2d 478, 480 (Tex. App.—Fort Worth 1997, no writ). A trial court’s enforcement of a foreign country judgment presents a question of law, and, thus, we review de novo a trial court’s recognition of a foreign country judgment. Sanchez, 317 S.W.3d at 785; Courage Co., 93 S.W.3d at 331.
  
Recognition of a foreign country judgment under the Act “does not require that the procedures used in the courts of a foreign country be identical to those used in the courts of the United States.” The Society of Lloyds v. Webb, 156 F.Supp.2d 632, 639–40 (N.D. Tex. 2001). Rather, the Act requires only that the foreign procedures are “compatible with the requirements of due process of law” and do “not offend against basic fairness.” Id. at 640 (internal quotations and citations omitted). To establish a prima facie case that conclusive effect should be given to a foreign country judgment, courts have explained that a party may demonstrate that “the rendering court had jurisdiction over the person and subject matter, that there was timely notice and an opportunity to present a defense, that no fraud was involved, that the proceedings were according to a civilized jurisprudence are the same for both favored and nonfavored systems.” Id. (citation omitted).
  
SOURCE: HOUSTON COURT OF APPEALS - 1ST DIST - 01-11-00636-CV - 4/26/12

The record reflects that Presley appeared in the Belgium court proceedings, and the Belgium courts considered and addressed Presley’s arguments that the entire matter should be submitted to arbitration pursuant to the joint venture agreement’s arbitration clause. The record further reflects that the Belgium courts ruled that Presley’s counterclaim for breach of the joint venture agreement against Masureel should be pursued in arbitration. Although Presley disputes the Belgium court’s determination that Masureel’s request for reimbursement under the loan agreements and the other disputes arising from the joint venture agreement are not “indivisible,” we conclude that the record does not support Presley’s assertions that the Belgium courts failed to provide her with an impartial tribunal and the procedures used by the Belgium courts were “incompatible” with due process of law. Presley has not cited any authority for the proposition that a ruling like that reached by the Belgium courts under the circumstance here, in which Presley was directed to pursue her affirmative claims in accord with an arbitration clause, renders the foreign country’s procedures fundamentally unfair. [7] In sum, we hold that the trial court did not err in recognizing the Belgium court’s judgment on the ground that it was rendered under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law. See id. § 36.005(a)(1).

We overrule Presley’s first and second issues.

What is "Money Had and Received"? It does not sound like a cause of action, but ...

 
...it functions as one under Texas case law precedents:
  
ASSUMPSIT - MONEY HAD AND RECEIVED [MHnR] AS A THEORY OF RECOVERY / REIMBURSEMENT  / RESTITUTION
 
Assumpsit For Money Had And Received
 
According to legal historians, assumpsit was developed to redress circumstances involving unjust enrichment or an implied promise to pay what in good conscience defendant was bound to pay the plaintiff. Tri-State Chem., Inc. v. Western Organics, Inc., 83 S.W.3d 189, 193-94 (Tex. App.-Amarillo 2002, pet. denied). Over time, assumpsit was divided into various categories. Id. at 194.
 
Money had and received is a category of general assumpsit to restore money where equity and good conscience require refund. Amoco Prod. Co. v. Smith, 946 S.W.2d 162, 164 (Tex. App.-El Paso 1997, no writ). “The question, in an action for money had and received, is to which party does the money, in equity, justice, and law, belong.
 
All plaintiff need show is that defendant holds money which in equity and good conscience belongs to him.” Staats v. Miller, 150 Tex. 581, 584, 243 S.W.2d 686, 687-88 (1951) (quoting 58 C.J.S., Money Received § 4a). A cause of action for money had and received is “less restricted and fettered by technical rules and formalities than any other form of action. It aims at the abstract justice of the case, and looks solely to the inquiry, whether the defendant holds money which . . . belongs to the plaintiff.” Id. (quoting United States v. Jefferson Elec. Mfg. Co., 291 U.S. 386, 402-03 (1934)).
  
AN EQUITABLE REMEDY
  
A cause of action for money had and received is not premised on wrongdoing, but “looks only to the justice of the case and inquires whether the defendant has received money which rightfully belongs to another.” Amoco, 946 S.W.2d at 164. Such an action may be maintained to prevent unjust enrichment when a party obtains money which in equity and good conscience belongs to another. Everett v. TK-Taito, L.L.C., 178 S.W.3d 844, 860 (Tex. App.-Fort Worth 2005, no pet.); J.C. Penney Co., Inc. v. Pitts, 139 S.W.3d 455, 457 n.4 (Tex. App.-Corpus Christi 2004, no pet.) (citing Staats, 243 S.W.2d at 687). In short, it is an equitable doctrine applied to prevent unjust enrichment. Everett, 178 S.W.3d at 860; Hunt v. Baldwin, 68 S.W.3d 117, 132 (Tex. App.-Houston [14th Dist.] 2001, no pet.).
 
To prove a claim for money had and received, a plaintiff must show that a defendant holds money which in equity and good conscience belongs to him. Edwards v. Mid- Continent Office Distrib., L.P., 252 S.W.3d 833, 837 (Tex. App.-Dallas 2008, pet. denied). In defending against such a claim, a defendant may present any facts and raise any defenses that would deny a claimant's right under this theory. Best Buy Co. v. Barrera, 248 S.W.3d 160, 162 (Tex. 2007) (per curiam); Hunter v. PriceKubecka, PLLC, 339 S.W.3d 795, 807 (Tex. App.-Dallas 2011, no pet.).
 
A recovery under assumpsit for money had and received does not “depend on the parties' agreement or intent but rather the law's presumption of a promise of compensation if one receiving another's money would thereby be unjustly enriched.”Amoco, 946 S.W.2d at 164.
  
EXPRESS CONTRACT NORMALLY PRECLUDES RECOVERY UNDER ALTERNATIVE EQUITABLE THEORIES
   
Generally, when a valid, express contract covers the subject matter of the parties' dispute, there can be no recovery under a quasi-contract theory. Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000); McAfee, Inc. v. Agilysys, Inc., 316 S.W.3d 820, 828 (Tex. App.-Dallas 2010, no pet.). The quasi-contractual action for money had and received is a cause of action for a debt not evidenced by a written contract between the parties. See Edwards, 252 S.W.3d at 836; see also Amoco, 946 S.W.2d at 164.
  
SOURCE: DALLAS COURT OF APPEALS - 05-10-00410-CV - 1/10/12

FDCPA Alternative: Unfair debt collection & abusive tactics as an actionable common-law tort

   
CONSUMER LAW FOR LAWYERS: 
   
Debt collector abuse and harrassment of people who can't pay money they owe (or don't even owe it) as a common-law tort

  

Apparently there survives a common-law cause of action against abusive debt collectors under judicial precedents that is available along with the more commonly invoked federal and state statutes that have created a private causes of action against debt collectors who overstep the boundaries and engage in abuse and/or harassment: the Fair Debt Collection Practices Act (FDCPA) and its state counterpart: The Texas Debt Collection Act. Chapter 392 of the Texas Finance Code.

ABUSIVE DEBT COLLECTION AS A TORT AT COMMON LAW

Unfair collection practices is an intentional tort derived from the common law. EMC Mortg. Corp. v. Jones, 252 S.W.3d 857, 868 (Tex. App.—Dallas 2008, no pet.); see Duty v. Gen.Fin. Co., 154 Tex. 16, 273 S.W.2d 64, 66 (1954). The Supreme Court of Texas has not directly addressed the elements to be proven in an action for unfair collection practices. See, e.g., Duty, 273 S.W.2d at 66 (“A decision of the case before us does not require that we undertake to outline the limits to which such a creditor may go, but we do hold that resort to every cruel device which his cunning can invent in order to enforce collection when that course of conduct has the intended effect of causing great mental anguish to the debtor, resulting in physical injury and causing his loss of employment, renders the creditor liable to respond in damages.”); Moore v. Savage, 362 S.W.2d 298, 298–99 (Tex. 1962) (per curiam) (refusing to review the definition of “unreasonable collection efforts” because the issue was not preserved for appeal), ref’g appeal from 359 S.W.2d 95, 96 (Tex. Civ. App.—Waco 1962, writ ref’d n.r.e.). While the elements are not clearly defined and the conduct deemed to constitute an unreasonable collection effort varies from case to case, a plaintiff must generally prove that “[a] defendant[’s] debt collection efforts ‘amount to a course of harassment that was willful, wanton, malicious, and intended to inflict mental anguish and bodily harm.’” EMC Mortg. Corp., 252 S.W.3d at 868-69.

Texas courts have found the following evidence sufficient to state a cause of action for unreasonable debt collection: sending a large man to the plaintiff’s home, who “yelling and screaming, demanded the keys to the house, and told the [Plaintiff’s] family to get out.” EMC Mortg. Corp., 252 S.W.3d at 864, 870; falsely accusing the plaintiff of committing a crime to collect a debt, Lloyd v. Myers, 586 S.W.2d 222, 227 (Tex. Civ. App.—Waco 1979, writ ref’d n.r.e.); sending a large man to the plaintiff’s home, who stood over the plaintiff shouting, shaking his finger and calling him a liar, Credit Plan Corp. of Houston v. Gentry, 516 S.W.2d 471, 475 (Tex. Civ. App.—Houston [14th Dist.] 1974) rev’d on other grounds in Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571 (Tex. 1975); sending a representative to the plaintiff’s home, confronting and embarrassing the plaintiff’s fiancée in front of social guests, Bank of N. Am. v. Bell, 493 S.W.2d 633, 635 (Tex. Civ. App.—Houston [14th Dist.] 1973, no writ); calling the plaintiff five times in one night, with the final call including a threat of personal violence, Pioneer Finance & Thrift Corp. v. Adams, 426 S.W.2d 317, 319 (Tex. Civ. App.—Eastland 1968, writ ref’d n.r.e.).

Texas courts have also held that it is unreasonable to persist in collection efforts once the debtor has informed the collector/lender that the debt has been paid in full. See Pullins v. Credit Exch. of Dallas, Inc., 538 S.W.2d 681, 683 (Tex. Civ. App.—Waco 1976, writ ref’d n.r.e.) (holding that repeated and harassing efforts to collect $50 debt were unreasonable where plaintiff consistently asserted debt was paid).

The Fifth Circuit has observed that the tort of unreasonable collection is intended to deter “outrageous collection techniques.” McDonald v. Bennett, 674 F.2d 1080, 1089 n.8 (5th Cir. 1982).

  
SOURCE: SAN ANTONIO COURT OF APPEALS - 04-10-00551-CV – 12/07/11 

ADDITIONAL CASE CITES (2018) 

An unreasonable collection effort is an intentional tort when there was "a course of harassment that was willful, wanton, malicious, and intended to inflict mental anguish and bodily harm." EMC Mortg. Corp. v. Jones, 252 S.W.3d 857, 868 (Tex.App.-Dallas 2008, no pet.). "A recent survey of Texas decisions indicates that the tort of unreasonable collection `is intended to deter outrageous collection techniques,' particularly those involving harassment or physical intimidation." Thomas v. EMC Mortg. Corp, 499 Fed. Appx. 337, 342 (5th Cir. 2012)(quoting Hidden Forest Homeowners Ass'n v. Hern, No. 4:10-CV-00551, 2011 WL 6089881, at *4 (Tex. App.-San Antonio 2011, no pet. h.)). The course of harassment must be "willful, wanton, malicious, and intended to inflict mental anguish and bodily harm." Water Dynamics, Ltd. HSBC bank USA, Nat. Ass'n, 509 Fed. Appx. 367, 370 (5th Cir. 2013). In particular, courts have applied this cause of action based on actions that overstep the bounds of routine collection methods and rise to the level of excessive harassment. EMC Mortg. Corp, 252 S.W.3d at 864-65 (lender sent a "large, very intimidating man" who was "yelling and screaming, demanded the keys to to the house, and told [plaintiffs'] family to get out"); Bank of N. Am. v. Bell, 493 S.W2d 633, 635 (Tex. Civ. App.-Houston [14th Dist.] 1973, no writ)(harassing conduct included twenty to twenty-three phone calls in a ten-day period to the plaintiff's home and work, in addition to threatening in-person visits). In contrast, reliance on oral representations from customer-service representatives contradicted by the terms of the loan agreement and notice of foreclosure do not constitute unreasonable collection efforts. Milton, 508 Fed. Appx. at 330.

Dickey v. State Farm Bank, FSB, Dist. Court, SD Texas 2018  

Sworn Account suit requires more than a verified general denial to destroy prime-facie case if the petition conforms with TRCP 185

    
An answer in the form of a general denial does not controvert a prima-face case under Rule 185 (Suit on [sworn] Account) even if it puts all claims and facts in issue in other civil suits in Texas courts. Because the evidentiary presumption in favor of the plaintiff created by the sworn account rule is not destroyed, judgment may be had on the pleadings without the need for additional summary judgment evidence. Rule 185 provides an exception to the general rule that pleadings are not evidence and cannot support a judgment, standing alone. 
     

A SUIT ON SWORN ACCOUNT UNDER TEX. R. CIV. P. 185 IS DIFFERENT FROM OTHER CIVIL LAWSUITS

  

Under rule 185, a suit on a sworn account must contain a systematic record of the goods sold or services rendered and be supported by an affidavit stating that the “claim is, within the knowledge of affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed.” Tex. R. Civ. P. 185. This is a rule of procedure regarding the evidence necessary to establish a prima facie right of recovery.. Panditi v. Apostle, 180 S.W.3d 924, 926 (Tex. App.--Dallas 2006, no pet.). An open account .on which a systematic record has been kept and is supported by an affidavit. is prima facie evidence of a claim. Id. A plaintiff claiming a suit on a sworn account is not required to formally introduce the account as evidence of the debt. Brown Found. Repair & Consulting, Inc. v. Friendly Chevrolet Co., 715 S.W.2d 115, 116 (Tex. App.--Dallas 1986, writ ref'd n.r.e.).

The evidentiary presumption can be defeated, and the plaintiff forced to introduce proof of its claim, if the defendant files a sworn denial of the plaintiff's account supported by an affidavit denying the account as required by rule 93(10). See Tex. R. Civ. P. 93(10); Powers v. Adams, 2 S.W.3d 496, 498 (Tex. App.--Houston [14th Dist.] 1999, no pet.). But a sworn general denial does not constitute a denial of the account and is insufficient to remove the evidentiary presumption created by a properly worded and verified suit on an account. See Panditi, 180 S.W.3d at 927; Andrews v. East Tex. Med. Ctr., 885 S.W.2d 264, 268 (Tex. App.--Tyler 1994, no writ); Cooper v. Scott Irrigation Const., Inc., 838 S.W.2d 743, 746 (Tex. App.--El Paso 1992, no writ); Huddleston v. Case Power and Equipment Co., 748 S.W.2d 102, 103 (Tex. App.--Dallas 1988, no writ). Moreover, the defendant's written denial must state more than a .broad generalization that he .specially denies' each and all of the allegations . . . [and must] address the facts on which he intends to rebut the plaintiff's affidavit.. Andrews, 885 S.W.2d at 268. A defendant is not required to file a sworn denial if the plaintiff's suit on a sworn account was not properly pleaded. Panditi, 180 S.W.3d at 927.        
   

In this case, appellee sued appellant based on a sworn account for liquidated damages under rule 185. Appellee alleged that it delivered “certain goods, wares and merchandise and/or personal services” to appellant, that appellant agreed to pay appellee the sums charged, and that, after all “just and lawful offsets, payments and credits,” the sum of $775.68 was past due and owing. In addition, appellee sought $300 in reasonable attorney's fees. Appellee's petition included an affidavit from Bong Hoe Kim, president of Everbeauty, Inc. d/b/a Hair to Go, alleging that appellant's account, which was attached to the affidavit and incorporated by reference, was true and correct. Appellant's last responsive pleading, a verified “Fifth Amended Answer and Petition for Declaratory Judgement,” in addition to containing a general denial, included the following list of matters that were designated as defenses:

1. Defendant affirmatively claims defense of estoppel.

2. Defendant affirmatively claims defense of accord and satisfaction.

3. Defendant affirmatively claims defense of latches.

4. Defendant affirmatively claims defense of statute of limitations.

5. Defendant pleads defense of waiver.

6. Defendant pleads defense of satisfaction.

7. Defendant pleads defense of offsets for the returned merchandises to Plaintiff.

8. Defendant pleads defense of credit for the returned merchandises to Plaintiff.

9. Defendant pleads that he was always willing and able to pay Plaintiff any amount that was owed to Plaintiff.

10. Defendant pleads that attorney's fees requested by Plaintiff be denied because Defendant was always willing and able to pay the appropriate amount that was owed to Plaintiff.

11. Any demands for payment by Plaintiff was excessive and in bad faith. Therefore, attorney's fees for Plaintiff should be denied.

    

Attached to appellant's answer was a business records affidavit from Chu Chang Shu, the custodian of records for Q Hair Beauty Supply II, that included two collection notices, a UPS merchandise return receipt, an invoice, and a translated statement signed by appellee's salesperson on June 27, 2006.

  

At the trial held before the court on July 12, 2010, appellee's counsel requested judgment based on the rule 185 pleading and appellant's failure to file a verified denial of the account. The trial court discussed with counsel for both parties the sufficiency of appellant's answer and defenses. The court told appellant's trial counsel that appellant's answer and accompanying business records affidavit were insufficient to remove the evidentiary presumption because they did not allege any facts rebutting appellee's affidavit. The trial court heard argument from both parties before granting judgment for appellee, after which it listened to testimony from appellee's counsel regarding attorney's fees. The court did not enter findings of fact and conclusions of law.

   

Appellant now argues that the trial court “refused to hear [appellant's] defenses,” and that “failure to comply with the rule requiring sworn denials . . . does not foreclose assertion of other defenses that are not inconsistent with a true and just account for goods as delivered.” But appellant's written denial did not comply with rule of civil procedure 93(10), “which requires a special verified denial of the account to put plaintiff's claim at issue.. Huddleston, 748 S.W.2d at 103; see Tex. R. Civ. P. 93(10). Appellant denied .each and every allegation of [appellee's] [p]etition” and demanded “strict proof thereof.” This general denial, however, even though sworn to, did not constitute a denial of the account, and it was insufficient to rebut the evidentiary effect of appellee's pleadings. See Tex. R. Civ. P. 185, 93(10); Andrews, 885 S.W.2d at 268; Cooper, 838 S.W.2d at 746; Huddleston, 748 S.W.2d at103-04; see also Panditi, 180 S.W.3d at 927; Nguyen v. Short, How, Frels & Heitz, P.C., 108 S.W.3d 558, 562 (Tex. App.--Dallas 2003, pet. denied); Seisdata, Inc. v. Compagnie Generale de Geophysique, 598 S.W.2d 690, 692 (Tex. App.--Houston [14th Dist.] 1980, writ ref'd n.r.e.). As we have observed, “[a] defendant resisting a suit on a sworn account must comply with the rules of pleading and timely file a verified denial or he will not be permitted to dispute the receipt of the services or the correctness of the charges.” Panditi, 180 S.W.3d at 927 (citing, in part, rules 185 and 93(10)). “In other words, a defendant's noncompliance with rule 185 conclusively establishes that there is no defense to the suit on the sworn account.” Nguyen, 108 S.W.3d at 562.

Pursuant to the rules that govern sworn accounts, appellee presented a prima facie case and was not required to offer additional proof. The record also shows that appellant never offered evidence regarding any affirmative defenses, nor did it seek evidentiary rulings from the court, and it did not make an offer of proof or file a bill of exception. We further note that although appellant cites Cooper and Seisdata to support its argument, neither case suggests a party is free to argue that a trial court “refused to hear” its defenses when, as in this case, no effort was made to prove those defenses. See Cooper, 838 S.W.2d at 747; Seisdata, 598 S.W.2d at 691-92; see also Heggy v. Am. Trading Employee Ret. Account Plan, 123 S.W.3d 770, 778 (Tex. App.--Houston [14th Dist.] 2003, pet. denied) (“an affirmative defense does not rebut the factual proposition of the plaintiffs' pleading, but instead, allows the defendant to introduce evidence to establish an independent reason why the plaintiff should not prevail”). Accordingly, the trial court did not err by entering judgment against appellant.

   

We overrule appellant's issue.

 

We affirm the trial court's judgment.

   

SOURCE: DALLAS COURT OF APPEALS - 05-10-01268-CV -  11/22/11

Garnishment and Lien Priority: Who gets the funds in the garnished account in case of multiple competing claims?

   
THE NATURE OF GARNISHMENT PROCEEDINGS - 3-PARTY ACTION
 

A garnishment proceeding involves at least three parties: (1) the plaintiff (also known as the garnishor or creditor); (2) the defendant or debtor; and (3) the garnishee. The garnishee is a third party who owes a debt to or holds property of the debtor. The plaintiff or garnishor is a creditor of the debtor and requests the court to issue the writ of garnishment to the garnishee.
  
Garnishment is a statutory proceeding whereby property of the debtor that is in possession of the garnishee is applied to the payment of the debt owed by the debtor to the garnishor. See Tex. Civ. Prac. & Rem. Code Ann. §§ 63.001-.008 (West 2008); Tex. R. Civ. P. 657-79; Thompson v. Harco Nat. Ins. Co., 997 S.W.2d 607, 611 (Tex. App.-Dallas 1998, pet. denied), overruled in part on other grounds by John v. Marshall Health Servs., Inc., 58 S.W.3d 738, 741 (Tex. 2001) (per curiam).

      

The garnishor is subrogated to the rights of the debtor against the garnishee and may enforce, against the garnishee, any rights the debtor could have enforced had he sued the garnishee directly. See Thompson, 997 S.W.2d at 611 (citing Beggs v. Fite, 106 S.W.2d 1039, 1042 (Tex. 1937)). The garnishor, however, cannot acquire any greater rights against the garnishee than the debtor, himself, possesses. See id. (citing Phoenix Ins. Co. v. Willis, 6 S.W. 825, 830 (Tex. 1888)).

    

Where, as here, the garnishee's answer is controverted the case is then tried as other cases and a judgment will be issued according to the results of the trial. See Tex. R. Civ. P. 668, 674.
  
The primary issue in a garnishment suit is whether the garnishee is indebted to, or has in its possession effects belonging to the debtor. See Buckeye Ret. Co. v. Bank of Am., N.A., 239 S.W.3d 394, 399 (Tex. App.-Dallas 2007, no pet.); Putman Putman, Inc. v. Capitol Warehouse, Inc., 775 S.W.2d 460, 463 (Tex. App.-Austin 1989, writ denied). The burden is on the garnishor to establish the amount of the debt owed to the debtor or the value of the property held by the garnishee. “If the garnishor's proof fails, he can of course recover nothing.” Putman, 775 S.W.2d at 463 (citations omitted).

   

Garnishment proceedings often involve competing claims to property that must be resolved by applying rules of lien priority. The general rule is that in a contest over rights or interests in property, the party that is first in time is first in right. See AMC Mortg. Services, Inc. v. Watts, 260 S.W.3d 582, 585 (Tex. App.-Dallas 2008, no pet.); World Help v. Leisure Lifestyles, Inc., 977 S.W.2d 662, 668 (Tex. App.-Fort Worth 1998, pet. denied). Rights under a writ of garnishment are determined by priority in time, which itself is determined by service of the writ. Small Bus. Inv. Co. v. Champion Int'l Corp., 619 S.W.2d 28, 30 (Tex. App.-Houston [1st Dist.] 1981, no writ). Service of the writ on the garnishee fixes a lien on the debtor's property or debts due him, “subject to prior valid rights and liens against such property or debt.” Hubbell, Slack & Co. v. Farmers' Union Cotton Co., 196 S.W. 681, 684 (Tex. Civ. App.-Beaumont 1917, writ ref'd) (quoting Cyclopedia of Law and Procedure) (emphasis added); United States v. Standard Brass & Mfg. Co., 266 S.W.2d 407, 408 (Tex. Civ. App.-Beaumont 1954, no writ). In garnishment proceedings, allowable claims that are prior in time are prior in right of payment. See Frankfurt's Tex. Inv. Corp. v. Trinity Sav. & Loan Ass'n, 414 S.W.2d 190, 192 (Tex. Civ. App.-Dallas 1967, writ ref'd n.r.e.).

  

SOURCE:  DALLAS COURT OF APPEALS –NATIONAL CITY BANK, A SUBSIDIARY OF NATIONAL CITY BANK CORPORATION, A DELAWARE CORPORATION TEXAS CAPITAL BANK, N.A., A NATIONAL BANKING ASSOCIATION, No. 05-10-00028-CV – 11/23/11

FOR REMAINDER OF THE FIFTH COURT OF APPEALS’ OPINION CLICK BELOW:

Suit to enforce guaranty agreement against guarantor when the principal obligor defaults

  

NATURE OF GUARANTY

A guaranty is a promise to a creditor by a third party to pay a debt on behalf of a principal in the event that the principal defaults on the original obligation. See Republic Nat’l Bank of Dallas v. Nw. Nat’l Bank of Fort Worth, 578 S.W.2d 109, 114 (Tex. 1978). A continuing guaranty covers a series of transactions, rather than just a single liability. See Sonne v. FDIC, 881 S.W.2d 789, 793 (Tex. App.—Houston [14th Dist.] 1994, writ denied); Mann v. NCNB Tex. Nat’l Bank, 854 S.W.2d 664, 667 (Tex. App.—Dallas 1992, no writ). It contemplates a future course of dealing between creditor and principal, and generally continues for an indefinite amount of time or until revoked. See Straus-Frank Co. v. Hughes, 156 S.W.2d 519, 520 (Tex. 1941); Blount v. Westinghouse Credit Corp., 432 S.W.2d 549, 553 (Tex. Civ. App.—Dallas 1968, no writ). Thus, with a continuing guaranty, the guarantor becomes liable for successive obligations as they accrue. Sonne, 881 S.W.2d at 793.

ELEMENTS OF CAUSE OF ACTION BASED ON GUARANTY

To support a claim on a guaranty, a party must show proof of (1) the existence and ownership of a guaranty contract; (2) the terms of the underlying contract by the holder; (3) the occurrence of the conditions upon which liability is based; and (4) the failure or refusal to perform by the guarantor. Lee v. Martin Marietta Materials Sw., Ltd., 141 S.W.3d 719, 720 (Tex. App.—San Antonio 2004, no pet.).

INTERPRETATION OF GUARANTY CONTRACTS BY THE COURT

When construing a guaranty agreement, our primary goal is to ascertain and give effect to the intent of the parties. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); Hasty v. Keller HCP Partners, L.P., 260 S.W.3d 666, 670 (Tex. App.—Dallas 2008, no pet.). The surest guide to the parties’ intent is the language used in the guaranty, and where the language is clear and unambiguous, we may not look to the subject matter or attending circumstances in order to give it a different construction. See Univ. Sav. Ass’n v. Miller, 786 S.W.2d 461, 462 (Tex. App.—Houston [14th Dist.] 1990, writ denied); Sw. Sav. Ass’n v. Dunagan, 392 S.W.2d 761, 767 (Tex. Civ. App.—Dallas 1965, writ ref’d n.r.e.).

SOURCE: HOUSTON COURT OF APPEALS - 14-10-00597-CV - 9/13/11 

RELATED LEGAL TERMS AND PHRASES: guarantors, personal guaranty, commercial guaranty, enforce guaranty agreement, suing guarantor of principal obligation upon default of principal obligor, borrower, creditor remedies

Sworn Account Pleading Requirements & How to Respond - TRCP 185 and 93(10)(verified denial)

  
SUIT ON SWORN ACCOUNT UNDER RULE 185

  
Pleading requirements for petition and answer - A general denial is insufficient to controvert a prima-facie case created by proper sworn account pleading, but the Plaintiff must comply with Rule 185 to take advantage of evidentiary benefits of the sworn account rule.  

  
Texas Rule of Civil Procedure 185 applies to “any claim for a liquidated money demand . . . [for] labor done or labor or materials furnished . . . .” Tex. R. Civ. P. 185. This rule is not a rule of substantive law; rather, “it is a rule of procedure regarding the evidence necessary to establish a prima facie right of recovery” on certain types of contractual account claims. See Rizk v. Fin. Guardian Ins. Agency, Inc., 584 S.W.2d 860, 862 (Tex. 1979); Smith v. CDI Rental Equipment, Ltd., 310 S.W.3d 559, 566 (Tex. App.—Tyler 2010, no pet.); Panditi v. Apostle, 180 S.W.3d 924, 926 (Tex. App.—Dallas 2006, no pet.).

Rule 185 provides that “when an action is founded on an open account on which a systematic record has been kept and is supported by an affidavit, the account shall be taken as prima facie evidence of the claim, unless the party resisting the claim files a written denial under oath.” Panditi, 180 S.W.3d at 926; see Tex. R. Civ. P. 185.

To establish a prima facie case in a suit on a sworn account, the plaintiff must strictly comply with the requirements of Rule 185. Nguyen v. Short, How, Frels & Heitz, P.C., 108 S.W.3d 558, 562 (Tex. App.—Dallas 2003, pet. denied).

The plaintiff’s petition “must contain a systematic itemized statement of the services rendered, reveal offsets made to the account, and be supported by an affidavit stating the claim is within the affiant’s knowledge and that it is ‘just and true.’” Id.; see also Panditi, 180 S.W.3d at 926 (stating requirements for sworn account petition and accompanying affidavit). If there is a deficiency in the plaintiff’s sworn account, the account will not constitute prima facie evidence of the debt. Panditi, 180 S.W.3d at 927; Nguyen, 108 S.W.3d at 562.

The defendant resisting the sworn account must also strictly comply with the requirements of Rule 185, “or he will not be permitted to dispute the receipt of the services or the correctness of the charges.” See Panditi, 180 S.W.3d at 927; see also Vance v. Holloway, 689 S.W.2d 403, 404 (Tex. 1985) (per curiam) (“Holloway failed to file a sworn denial and he has, therefore, waived his right to dispute the amount and ownership of the account.”).

Rule 185 requires the defendant to “comply with the rules of pleading” and “timely file a written denial, under oath,” or else the defendant “shall not be permitted to deny the claim, or any item therein.” Tex. R. Civ. P. 185; Panditi, 180 S.W.3d at 927 (noting that Rule 185 requires sworn denial to be written and verified by affidavit). To place the plaintiff’s sworn account claim at issue, the defendant must file a “special verified denial of the account” in accordance with Texas Rule of Civil Procedure 93. See Huddleston v. Case Power & Equip. Co., 748 S.W.2d 102, 103 (Tex. App.—Dallas 1988, no writ); see also Tex. R. Civ. P. 93(10) (“A pleading setting up any of the following matters, unless the truth of such matters appear of record, shall be verified by affidavit[:] A denial of an account which is the foundation of the plaintiff’s action . . . .”).

This sworn denial must be included in the defendant’s answer; a sworn denial in a response to a summary judgment motion does not satisfy Rule 185. See Cooper v. Scott Irrigation Constr., Inc., 838 S.W.2d 743, 746 (Tex. App.—El Paso 1992, no writ); see also Rush v. Montgomery Ward, 757 S.W.2d 521, 523 (Tex. App.—Houston [14th Dist.] 1988, writ denied) (“Only in the affidavit accompanying his response to Ward’s motion for summary judgment did appellant dispute the correctness and fairness of the charges, and demand additional proof of his liability. Because the combined effect of Texas Rule of Civil Procedure 185 and Texas Rule of Civil Procedure 93(10) required appellant to raise those claims in his answer, we hold that appellant raised his assertions too late.”).

If the defendant fails to file a verified denial to the sworn account, the sworn account is received as prima facie evidence of the debt, and the plaintiff, as summary judgment movant, is entitled to summary judgment on the pleadings. Nguyen, 108 S.W.3d at 562; see Livingston Ford Mercury, Inc. v. Haley, 997 S.W.2d 425, 430 (Tex. App.—Beaumont 1999, no pet.) (holding that when plaintiff files proper sworn account petition but defendant does not comply with Rule 185, the petition will support summary judgment and “additional proof of the accuracy of the account is unnecessary”).

“In other words, a defendant’s noncompliance with rule 185 conclusively establishes that there is no defense to the suit on the sworn account.” Nguyen, 108 S.W.3d at 562; see Whiteside v. Ford Motor Credit Corp., 220 S.W.3d 191, 194 (Tex. App.—Dallas 2007, no pet.) (“When the defendant fails to file a sworn denial and the trial court enters summary judgment on a sworn account, appellate review is limited because the defendant will not be allowed to dispute the plaintiff’s claim.”).

If, however, the plaintiff’s suit on a sworn account was not properly pleaded pursuant to Rule 185, the defendant is not required to file a sworn denial. Panditi, 180 S.W.3d at 927. In this circumstance, a general denial is sufficient to controvert the account. Tex. Dep’t of Corrs. v. Sisters of St. Francis of St. Jude Hosp., 753 S.W.2d 523, 524 (Tex. App.—Houston [1st Dist.] 1988, no writ).

SOURCE: Houston Court of Appeals - 01-10-00610-CV - 8/11/11

When can a Plaintiff recover in quantum meruit? When not?

When is quantum meruit available as a theory of recovery, when not?

EXPRESS CONTRACT VS. QUASI-CONTRACTUAL EQUITABLE THEORIES


Equitable theories are generally not available when the Plaintiff's claim involves contractual obligations, but there are exceptions to the express-contract preclusion of alternative non-contract theories. 

THE NATURE OF QUANTUM MERUIT AS A THEORY OF RECOVERY

Quantum meruit is an equitable and alternative theory of recovery intended to prevent unjust enrichment. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005). A cause of action for quantum meruit arises when a plaintiff establishes that it has provided a valuable service to the defendant, the defendant accepted the service, and the defendant had reasonable notice that the plaintiff expected to receive compensation. See Excess Underwriters at Lloyd’s v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 49 (Tex. 2008). 
However, while a party may seek alternative relief under contract and quasi-contract theories, it generally cannot recover under quantum meruit when there is a valid contract covering the services or materials furnished and no exception applies. In re Kellogg Brown & Root, 166 S.W.3d at 740. 

THREE RECOGNIZED EXCEPTIONS TO PRECLUSION OF QM BY EXPRESS CONTRACT

The Texas Supreme Court has recognized only three exceptions to the general rule that an express contract bars recovery under quantum meruit: (1) “when a plaintiff has partially performed an express contract but, because of the defendant’s breach, the plaintiff is prevented from completing the contract”; (2) “when a plaintiff partially performs an express contract that is unilateral in nature”; and (3) in a construction contract, when a breaching plaintiff may recover the reasonable value of services less any damages suffered by the defendant if the defendant accepts and retains the benefits arising from the plaintiff’s partial performance. See Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988).

SOURCE: Houston Court of Appeals - 01-10-00042-CV - 8/4/11

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.   
 
ATTORNEYS FEES ON BREACH-OF-CONTRACT CLAIM VIA SUMMARY JUDGMENT
   
[ 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   

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