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.

 

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.

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  

Express contract as a bar to recovery under alternative quantum meruit theory

   
In the presence of a valid contract covering the transaction, recovery on an equitable theory such as quantum meruit is generally not available, but there are limited exceptions.

QUANTUM MERUIT AS A THEORY OF RECOVERY 

Quantum meruit “is founded [on] the principle of unjust enrichment.” Bashara v. Baptist Mem’l Hosp. Sys., 685 S.W.2d 307, 310 (Tex. 1985). Unjust enrichment is an implied-contract theory stating one should make restitution when it would be unjust to retain benefits received. Walker v. Cotter Props., Inc., 181 S.W.3d 895, 900 (Tex. App.—Dallas 2006, no pet.).

Unjust enrichment allows recovery “when one person has obtained a benefit from another by fraud, duress, or the taking of an undue advantage.” Heldenfels Bros., Inc. v. Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). It is “based upon the promise implied by law to pay for beneficial services rendered and knowingly accepted.” In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005) (internal quotation marks omitted).

EXPRESS CONTRACT PRECLUSION OF EQUITABLE CLAIM

But an express contract between the parties precludes a plaintiff from recovering for services rendered in quantum meruit if the contract covers those services or materials and if no exception to the general rule applies. See Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 683–84 (Tex. 2000); Pepi v. Galliford, 254 S.W.3d 457, 462 (Tex. App.—Houston [1st Dist.] 2007, pet. denied); see also Woodard v. Sw. States, Inc., 384 S.W.2d 674, 675 (Tex. 1964) (“Recovery on an express contract and on quantum meruit are inconsistent.”).

The equitable remedy of quantum meruit is therefore unavailable when an express contract covers the subject matter at issue—the party seeking compensation has a legal remedy under the contract. See id. (citing Heldenfels Bros., 832 S.W.2d at 41); see also Hester v. Friedkin Cos., Inc., 132 S.W.3d 100, 106 (Tex. App.—Houston [14th Dist.] 2004, pet. denied) (holding that express contract bar applies not just when plaintiff is seeking to recover in quantum meruit from party with whom it expressly contracted, but also when plaintiff is seeking to recover “from a third party foreign to the original contract but who benefitted from its performance”) (quoting Iron Mountain Bison Ranch Inc. v. Easley Trailer Mfg., Inc., 42 S.W.3d 149, 160 (Tex. App.—Amarillo 2000, no pet.)).
  
STANDARD OF REVIEW ON APPEAL
  
Both the existence of an express contract and federal preemption are affirmative defenses to [party's] state law quantum meruit claim. See Tricon Tool & Supply, Inc. v. Thumann, 226 S.W.3d 494, 500 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) (noting that express contract is affirmative defense to quantum meruit claim); Harrill v. A.J.’s Wrecker Serv., Inc., 27 S.W.3d 191, 194 (Tex. App.—Dallas 2000, pet. dism’d w.o.j.) (observing that preemption is affirmative defense (citing Kiefer v. Cont’l Airlines, Inc., 882 S.W.2d 496, 497–98 (Tex. App.—Houston [1st Dist.] 1994), aff’d, 920 S.W.2d 274 (Tex. 1996))). A party that asserts an affirmative defense bears the burden of proving it. Tricon Tool & Supply, 226 S.W.3d at 501. In the absence of specific jury findings on these affirmative defenses, we consider whether [party] has established each element of its defense conclusively and whether reasonable minds could not differ as to the truth of the controlling facts. See Brown v. Zimmerman, 160 S.W.3d 695, 702 (Tex. App.—Dallas 2005, no pet.); Brown v. Shores, 77 S.W.3d 884, 885 n.2 (Tex. App.—Houston [14th Dist.] 2002, no pet.). In reviewing the express contract issue, we note the jury’s findings that [party] failed to pay for medical services under the plan but was excused from doing so.

SOURCE: HOUSTON COURT OF APPEALS - 01-09-00591-CV - 12/8/2011

Christus Health d/b/a Uniform Services Family Health Plan, Appellant v. Quality Infusion Care, Inc.,

We hold that the trial court erred in awarding judgment in favor of Quality on the jury’s quantum meruit finding because the express contract rule bars a quantum meruit recovery here as a matter of law, given the jury’s implied findings that a contract existed, and express finding that Christus’s failure to comply was excused—coupled with evidence that Quality failed to seek pre-authorization for treatment, as the agreement required. See Pepi Corp., 254 S.W.3d at 462–63; see also Bado Equip. Co., Inc. v. Bethlehem Steel Corp., 814 S.W.2d 464, 473 (Tex. App.—Houston [14th Dist.] 1991, no writ) (holding that summary judgment was proper on unjust enrichment claim brought by seller of cranes [against purchaser, constructor of rig, corporation that subsequently purchased rig, and second corporation which, along with constructor, was joint owner of corporation that purchased rig] because of express contract covering goods); Econ. Forms Corp. v. Willams Bros. Constr. Co., Inc., 754 S.W.2d 451, 458–59 (Tex. App.—Houston [14th Dist.] 1988, no writ) (holding general contractor not liable in quantum meruit for unpaid party who had lease agreement with subcontractor covering materials provided by party because express contract covered materials).

SOURCE: OPINION FROM HOUSTON COURT OF APPEALS - - 12/8/2011

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:

Sworn Account under TRCP 185 & Breach of Contract: Basic Requirements for each

How to recover on Sworn Account and for Breach of Contract:

There are differences. Rule 185 is limited to certain types of claims and imposes additional procedural requirements.

What is a sworn account? - Sworn Account Suit defined

A suit on a sworn account is “a procedural tool that limits the evidence necessary to establish a prima facie right to recover on certain types of accounts.” Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 234 (Tex. App.—Houston [1st Dist.] 2008, no pet.); see Tex. R. Civ. P. 185.

Rule 185 Suit on Account requisites

To establish a claim under Rule 185 of the Rules of Civil Procedure, a plaintiff must allege that: it sold and performed services for the defendant; the claim is due; the charges were just and true; all lawful offsets, payments, and credits were applied; and the damages are liquidated. The plaintiff must also include in its petition a systematic record of the services provided, which shows with a reasonable degree of certainty the name, date, and charge for each item and provides details on how the total amount was determined. Meaders v. Biskamp, 316 S.W.2d 75, 78 (Tex. 1958); Hou–Tex Printers, Inc. v. Marbach, 862 S.W.2d 188, 190 (Tex. App.—Houston [14th Dist.] 1993, no writ).

Elements of Breach of Contract claim generally

To prevail on its breach of contract claim, [ Plaintiff ] must prove the essential elements of a breach of contract claim, which are: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of contract by the defendant; and (4) damages sustained as a result of the breach. Williams, 264 S.W.3d at 235–36 (citing Winchek v. Am. Express Travel Related Servs. Co., 232 S.W.3d 197, 202 (Tex. App.—Houston [1st Dist.] 2007, no pet.)).

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

Collection of a Promissory Note - Multiple Instruments pertaining to the obligationa

Collection of a Promissory Note: Essential elements the creditor must prove 

To collect on a promissory note, a plaintiff m ust establish: (1) that the note exists; (2) that the defendant signed the note; (3) that the plaintiff is the owner and holder of the note; and (4) that a certain balance is due and owing on the note. Cadle Co. v. Regency Homes, Inc., 21 S.W.3d 670, 674 (Tex. App.—Austin 2000, pet. denied); see also Clark v. Dedina, 658 S.W.2d 293, 295–96 (Tex. App.—Houston [1st Dist.] 1983, writ dism’d).

Business and Commerce Code Section 3.117

Business and commerce code section 3.117, titled “Other Agreements Affecting Instrument,” states in relevant part that

the obligation of a party to an instrument to pay the instrument may be modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same transaction giving rise to the agreement. To the extent an obligation is modified, supplemented, or nullified by an agreement under this section, the agreement is a defense to the obligation.

Tex. Bus. & Com. Code Ann. § 3.117 (West 2002). “The separate agreement might be a security agreement . . . that contradicts the terms of the instrument.” Id. § 3.117 cmt. 1 (West Supp. 2010)

Multiple instruments / documents can be given effect as if they were one

Additionally, where two or more instruments, executed contemporaneously or at different times, pertain to the same transaction, the instruments will be read together, even though they do not expressly refer to each other. Bd. of Ins. Comm’rs v. Great S. Life Ins. Co., 150 Tex. 258, 267, 239 S.W.2d 803, 809 (1951); see also Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000) (stating that it is “well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties’ intent”).

SOURCE: Fort Worth Court of Appeals - 02-10-00296-CV - 8/4/11

Summary Judgment Based on Guaranty Agreement

ELEMENTS OF SUIT ON PERSONAL OR CORPORATE GUARANTY AGREEMENT

To obtain summary judgment on a guaranty agreement, a party must conclusively prove: (1) the existence and ownership of the guaranty contract, (2) the performance of the terms of the contract by plaintiff, (3) the occurrence of the condition on which liability is based, and (4) guarantor's failure or refusal to perform the promise. Barclay v. Waxahachie Bank & Trust Co., 568 S.W.2d 721, 723 (Tex.Civ.App.--Waco 1978, no writ).

SOURCE: Amarillo Court of Appeals - 07-10-0027-CV - 7/26/11


RELATED TERMS AND PHRASES: guaranteeing payment, signing loan documents for another, agreeing to be held liable for the debt of a loan applicant, borrower in the event of default

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   

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

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

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

OPINION 

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

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

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

I. FACTUAL AND PROCEDURAL BACKGROUND

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

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

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

QUESTION NO. 1:

Were calls made to [the phone number in question] using an automatic telephone dialing system or an artificial voice or a prerecorded voice without the prior express consent of the called party?
. . . .
QUESTION NO. 2:

How many calls were made by [FNCB] or on its behalf to [the phone number in question] using an automatic telephone dialing system or an artificial voice or a prerecorded voice?
. . . .
QUESTION NO. 3:

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

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

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

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

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

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

II. FNCB'S ISSUES

A. Standard of Review

[omitted]

B. Applicable Law


1. Telephone Consumer Protection Act

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

2. Texas Business and Commerce Code

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

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

3. Supremacy Clause

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

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

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

4. Statutory Construction

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

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

5. Preservation of Error

[omitted]


 C. Analysis

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

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

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

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