Attorney General Ken Paxton's Phony Defense
of Texas Consumers
On July 14, 2017 State District Judge Larry Weiman in Houston awarded the State a judgment for more than $25 million based on a verdict delivered by a Harris County jury a few weeks earlier against local attorney Joseph O. Onwuteaka and his company and law firm for code violations committed in the course of collecting consumer debt: Most notably, suing consumers in a distant venue and failing to redact sensitive personal information.
Attorney General Ken Paxton was quick to take credit.
Attorney General Ken Paxton was quick to take credit.
Not that Paxton had done the work on the enforcement case, which had been dragging on since 2013 and had already made a trip to the 14th Court of Appeals in Houston and the Texas Supreme Court, albeit on ancillary issues. Nor was it even filed under his watch. Ironically, even though the State’s petition was amended during trial, it was still stating that Samara Portfolio Management LLC and the co-defendants were being sued by Greg Abbott, now Texas Governor.
That didn’t stop Ken Paxton from rising to the occasion. Before the final judgment and permanent injunction was even posted on the Harris County District Clerk’s website for all the world to behold, Paxton issued a press release with a hotlink to an early-bird copy of the signed judgment, gloating about having thrown the books at Joseph Onwuteaka and procured a $25 Million judgment for the State for illegal debt collection.
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| Ken Paxton's $25mil press release - Original here |
Onwuteaka is a Houston-area debt collection attorney, who had gotten himself into the business of squeezing dollars form defaulting debtors after buying up charged-off accounts from creditors who had given up on collecting on those account themselves. He put those debts into the name of an LLC owned by him and his wife, and then hired his own lawfirm to collect the stale debts, with himself serving as attorney of record and attorney in charge.
In 2013, Paxton’s predecessor in office, Greg Abbott, decided to go after Onwuteaka, the debt-purchasing outfit set up by him (Samara Portfolio Management, LLC) and Onwuteaka’s law firm, for suing debtors in a county in which they do not live and where they hadn’t signed the contract that is the basis for the debt claim, -- that county being Harris County (Houston). Abbott sued through the Consumer Protection Division and also alleged violations of the State's privacy law protecting sensitive personal information from disclosure.
It’s a picture-perfect case of the pot calling the kettle black
Onwutaka would sue scores of people living elsewhere in the State for his own convenience in a JP Court in Downtown Houston and finally got clobbered by the Attorney General after putting up a hell of a fight.
The irony is that Ken Paxton does the same thing that he brought Onwuteaka to justice for, as it were.
He goes after people owing money on state-sponsored student loans in Travis County courts, just a few blocks from his Downtown Austin office. Also rather convenient. He isn’t personally involved, of course, but everything is done in his name.
He goes after people owing money on state-sponsored student loans in Travis County courts, just a few blocks from his Downtown Austin office. Also rather convenient. He isn’t personally involved, of course, but everything is done in his name.
Paxton presides over a well-oiled litigation machine that churns out debt collection lawsuits by the hundreds, in assembly-line fashion. Highly effective, highly efficient. But the cost-savings aren’t passed on to consumers. To the contrary. Debtors are a business opportunity to fatten up the revenue flow, just as they were for Onwuteaka.
Sitting ducks to be milked, if it may please the blawgosphere to mix metaphors.
Onwuteaka is now on the hook for millions in penalties for wrongful treatment of Texans owing debt, but for Paxton it’s legal. How so? It's perfectly okay for Paxton because he is the beneficiary of a special venue law that says that suit on all Texas Higher Education Coordinating Board loans is to be filed in Austin, no matter where the debtor or the parent who co-signed the promissory note might live or may have signed the note.
Paxton routinely even sues them out-of-state, using the Secretary of State for long-arm service of process. A few lucking ones even get Paxton’s greetings on a debt suit citation while residing abroad. As far away as Japan.
Unlike Joe Onwuteaka, the Attorney General cannot be guilty of suing Texas consumers in a distant and inconvenient forum. For he has the blessings of the Texas Legislature. But what difference does it make to those at the receiving end of the citation whether it comes from Houston, thanks to Joseph Onwutaka, or from Austin, on orders of the Attorney General, when they don’t live in either city?
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| Paxton won't yield on Austin Venue |
Unlike Onwuteaka, who had to commute to Downtown Houston from Sugarland (at least before the advent of efiling) and is now facing millions of dollars in penalties for wrongful litigation conduct, the Attorney General has his own special-interest law that allows him to sue Texans across the State from the comfort of his high-rise office in Austin, with occasional hearings a few block down the street at the Travis County Courthouse.
But what excuse, not to mention legislative mandate, could the Attorney General conceivably have for any and all of the following:
- • Misrepresenting the amount of the student loan debt by stating a specific dollar amount in the petition, then hitting defendants with 150% or more of that amount when filing a motion for default judgment with accompanying affidavit on damages for the higher amount.
- • Pleading for no less than $750 or $1,000 in attorney’s fees in the petition served on the defendants, then filing a fee affidavit for twice, thrice, or even five times as much, depending on the number of notes and size of the loan.
- • Failing to disclose in his petitions how much interest has accrued on the loans, some very old, thanks to another special law that exempts them from the statute of limitations that applies to everyone else, and failing to break down the amounts for each loan when suing on several notes.
- • Suing student obligor and co-signer separately and getting two judgments for twice the debt amount, and twice the attorney’s fees, instead of only one judgment for the correct amount, with joint and several liability.
- • Intimidating defendants into not fighting or even answering the lawsuit and providing them with a form to waive not only service, but notice of hearing, where they can then be hit with large amounts of interest and bloated claims for attorney’s fees.
- • Submitting boilerplate affidavits with less than a handful of variable pieces of data: Name of defendant, amount of the debt, interest, and late charges. And no account or loan payment history records ever attached to support the say-so testimony of his collection division’s designated affidavit signer.
- • Submitting affidavits claiming thousands of dollars in reasonable and necessary attorney’s fees for mass-produced paperwork that takes bare minutes to generate off a computer based document production system, which is then quickly signed and efiled.
The Attorney General ostensibly went after Joseph Onwuteaka and his companies to protect the public from a notorious financial predator using heavy-handed tactics to collect on high-interest loans.
Who will protect the public from the Attorney General and his very own questionable and deceptive conduct?
Onwuteaka enriched himself on the backs of financially weak people. The Attorney General went after him, and now makes off with Onwuteaka’s ill-gotten gains, which are destined for the State’s and the Attorney General’s own coffers.
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| State's abstract of Judgment promptly filed after entry of Final Judgment against Onwuteaka et al |
What did the abused consumers get in restitution or damages while the Attorney General rewarded himself for several years of litigation culminating in a jury trial with millions of dollars while supposedly fighting the good fight for financially struggling consumers and for the good of the public?
-- Nothing.
Greg Abbott at least pleaded for restitution to consumers: "Disgorgement", legally speaking. Paxton delivered zilch on that plea for affected consumer-debtors.
The untold story here is one of untempered institutional greed following in the wake of untempered private greed by an entrepreneurial but unethical and much-disciplined member of the State Bar of Texas.
First a wayward attorney debt collector squeezes hard-earned dollars from strained family budgets with duplicitous tactics, with the help of a local assembly-line JP court letting him have his way with consumers because it’s just business as usual, then the Attorney General sweeps in from Austin, shuts down Onwuteaka’s boiler-room after parrying with him over several years, and then hoovers up the loot.
KEN PAXTON: HELMSMAN OF ASSEMBLY-LINE DECEPTIONS
On January 31, 2017, the AG filed a lawsuit against a guy named Don Ray, one of about 100 student loan collection suits filed in Travis County that month, requesting - as he does in hundreds of cases of like kind -- that “Defendant be cited to appear and answer, and that, on final hearing, Plaintiff have judgment of and from Defendant the principal sum of 5,000.00 plus interest, reasonable collection costs, and other charges which have lawfully accrued, according to the note's/notes' terms, attorney fees of not less than 1,000.00, post judgment interest, and such other and further relief to which Plaintiff may be justly entitled either at law or in equity. See Cause No. C-1-CV-17-000942 (link to docket).
According to the process server, Defendant Ray was served February 15, 2017 in Henderson County. He had co-signed the student loan note for his step-child more than twenty years earlier, in 1994, in Palestine, Texas.
Less than two months later, on April 13, 2017, the Attorney General obtained a default judgment for $14,435.99 on that note and $2,000.00 in attorney's fees. The default judgment additionally awards interest at the rate of 9% on the $14,435.99 amount that wasn’t disclosed in the petition. (The current judgment interest rate is 5%.)
Put on the defense, the Attorney General would no doubt argue that - well - the petition accurately states the principal amount of the loan was $5,000.00, which matches the amount shown on the attached promissory note with signed guaranty, and that the word "plus interest" does not rule that the accrued interest may actually be a multiple of the principal.
Regarding the interest, the Attorney General would point out that the pleading rules do not require disclosure of the rate sought when the lawsuit papers are served. And as for attorney's fees, the petition did not need to state that $2,000.00 would be sought in the default or summary judgment because it stated "not less" than $1,000.00 and therefore left open the possibility that fees might the fees might be higher, - like double or triple.
And he would be right. The petition was not technically false. It was just deceptive. And in a very clever and calculated way. In a way reminiscent of how Joe Onwuteaka and his ilk operate.
A person of ordinary intelligence would have looked at the dollar figure - rendered and bold font for emphasis - and thought he was being sued for $5,000.00, rather than for $14,435.99, almost three times as much, and more than three times the amount stated in the petition, including the attorney’s fee award.
The average co-signing parent or step-parent, now on the receiving end of a lawsuit, may have missed the dollar figure for the attorney's fees altogether because it was not shown in bold digits; but if he read the petition carefully, it would have been reasonable for him to conclude that he was being sued for $1,000.00 in attorney's fees, rather than twice that.
And he might have thought that if was best just to let the AG have his way, rather than put up a fight. After all, he was just being sued for $6,000.00 and interest.
Or so he would have thought. -- Wrongly.
"The Court [...] finds that Defendant is indebted to Plaintiff for the principal sum of $ 5,000.00, interest in the amount of $9,435.99, late charges in the amount of $0.00 for a total sum of $14,435.99 plus 9.00% interest thereon per annum from the date of this judgment until paid.”
“The Court further finds that Plaintiff is entitled to reasonable attorney's fees in the amount of $2,000.00."The Attorney General also has a perfect defense for having doubled up on the attorney's fees, which are grossly overstated given that the assistant attorney general assigned to the case did little more than sign a few papers generated from e-templates on his office’s computer system.
A judge has signed off on the default judgment he submitted and thereby declared the fees to be reasonable. $2,000.00 made in minutes. Profitable indeed. Case closed as of April 13, 2017, date of the judgment.
Gavel or no gavel. Res judicata.
The Travis County Clerk gives student loan suit defendants notice that a judgment was entered for the State, but a copy of the judgment is not attached to the mailing, so the recipient doesn’t even know that he is on the hook for much more than the amount he thought he was being sued for. As much as three times as much, as seen in Case No. C-1-CV-17-000942.
After thirty days, it’s too late to file a motion to set aside the default judgment.
ATTORNEY-GENERAL LITIGATION AS A REVENUE SOURCE
AND PROFIT CENTER
AND PROFIT CENTER
ATTORNEY FEE ENHANCEMENT
IN STUDENT LOAN COLLECTION SUITS:
PETITION AMOUNT VS. AMOUNT SOUGHT AND AWARDED IN JUDGMENT
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