Deemed Admissions - How it happens and what can be done about them

REQUESTS FOR ADMISSION & DEEMED ADMISSIONS 

Deemed admissions are one of the traps for the unwary; -- traps for those innocent of knowledge about how the rules of discovery and procedure operate.-- > Self-represented litigants.

Deemed admissions are different from admissions in the normal sense of the word. An admission ordinarily is a statement, either verbal or written, in which the person making it concedes that an allegation by the opponent is true. Such admissions can be made in a lawsuit, either as formal judicial admissions or as stipulations. Deemed admissions, by contrast, are not deliberate, but result from default.  All the defendant has to do to create a deemed admissions problem is do nothing, -- do nothing after having been served with requests for admissions, that is.

REQUESTS FOR ADMISSIONS AND THE HARSH CONSEQUENCES OF FAILING TO RESPOND

Requests for admissions are one of the tools of written discovery (-- > paper discovery). Their official justification is to allow the parties to narrow the issues in the litigation, and the burdens of proof associated with them, by eliminating those on which there is no real disagreement and those issues that are not really worth fighting over and wasting attorney time on.

Requests for admissions come in sets of affirmative statements that are to be either admitted or denied. A space is often provided next to or below each enumerated request for admissions for such responses, or both words (ADMITTED and DENIED) are printed after each statement, and the person answering is to check or circle the applicable one. Unlike interrogatories, the responses do not have to be sworn to. Some Creditors' law firms nevertheless create that impression by combining request for admission with interrogatories and attaching a form with blanks for "verification" of discovery responses under oath. 

Requests for admissions may be served with the original petition or separately at a later time. If they are served separately, the Defendant has 30 days to respond (and three additional days if the requests were delivered by mail). If they are served with the citation and original petition, the defendant has an additional 20 days to respond, for a total of 50 (to respond to the requests for admissions, not the lawsuit itself). It's not unheard of that the Creditor nevertheless requests are default judgment even before the 50 days are up.

The failure to meet the applicable deadline automatically results in the statements that the plaintiff requested be admitted (or denied) being considered admitted without any “yes” or “no”; “true” or “false”; or “admitted” or “denied”.  The defendant is “deemed” to have admitted everything by not affirmatively denying the statements by written response before the deadline. No court order is needed for this to happen. Deemed admissions are triggered automatically. And whether the fact statements are true or not is no longer an issue.

Deemed admissions have draconian consequences because the Plaintiff can use them as a substitute for actual proof to support its case. Assuming the admissions were properly phrased and cover all elements on which the Plaintiff has the burden of proof, the admissions alone are sufficient to support a motion for summary judgment or one for default judgment (which the Plaintiff's attorney may file in lieu of an MSJ if the Defendant never filed an answer to the lawsuit either). If the Plaintiff does not file either type of dispositive motion, it can still use the deemed admissions at trial too, -- either in lieu of evidence, or to supplement whatever other evidence it can marshal. The typical evidence at trial consists of cardmember agreement and account statements filed under business records affidavit; and -- in the case of debt suits by assignees of the original creditor - proof of transfer of title, typically a bill of sale, or several such bills of sale.

Rule 198.1 Requests for Admissions (click to enlarge image of rule text)

Rule governing Requests for Admission - Deemed Admissions - Withdrawal and Amendment

HOW TO FIX A DEEMED ADMISSIONS PROBLEM:  MOTION TO STRIKE OR “UN-DEEM” AS A REMEDY

A deemed admissions problem is not necessarily fatal because the party that ends up with such admissions by operation of the relevant rule may file a motion to have the deemed admissions struck or withdrawn. In a case decided a few years ago the Texas Supreme Court actually set the applicable standard pretty low, meaning that the excuse for failing to answer the requests for admissions in time does not have to be a very good one. The Supreme Court reasoned that cases should be decided on the merits, and on the strength of the evidence, not merely because of an oversight by one of the parties. But judges and appellate justices may find that argument more appealing in family law cases, rather than in debt collection cases. In many instances, deemed admission have been upheld as sufficient to function as a substitute for competent evidence in debt cases. 

Still, if a proper motion to strike deemed admissions is promptly filed in trial court, it may very well succeed.

Missing the deadline to respond to request for admissions will likely be considered an excusable mistake, but the problem can only be fixed if a proper motion is filed, heard, and granted.  If that does not happen, a final judgment can be based on deemed admissions even if the Plaintiff does not have good evidence and would otherwise lose. With deemed admissions, the creditor or debt buyer can still prevail because it can use the deemed admissions as a substitute for missing proof or for inadmissible or otherwise defective evidence. Sometimes even defendants with lawyers lose on the deemed admissions issue. 

Assuming they even realize the consequences of not having responded to requests for admission, unrepresented defendants typically do not know how to go about fixing the problem. That is yet another juncture in a debt suit where the benefits of legal representation come in.  If the debtor hires counsel in time, the deemed admissions can likely be dealt with. If no motion to undeem is filed, the available remedy will be waived, and the courts of appeals will almost certainly affirm the judgment even if a defendant manages to find an attorney to handle the appeal (unless there is another serious problem that provides a basis for a viable appeal).  Also see -- > failure to preserve error in the trial court; -- > frequent errors in appeals.

AFFIRMATIVE DEFENSES AND DEEMED ADMISSIONS

Deemed admissions may or may not neutralize affirmative defenses. It depends whether the requests for admission were directed at the elements of the affirmative defense, or elicited an admission that the defendant did not have any evidence to support those elements or a particular defense, such as limitations. A specific admission may also prove fatal because it negates an essential element of an affirmative defense, such as an admission that the last payment on the account was made less than four yours before the lawsuit was filed.

THE PURPOSES OF REQUESTS FOR ADMISSIONS AND THEIR MISUSE TO SUBVERT ADJUDICATION ON THE MERITS (caselaw clip)

DEEMED ADMISSIONS: AMPLIFICATION AND ADDITIONAL TOPICS 

The Deemed Admissions Rule
Are Deemed Admissions a valid substitute for evidence?
Motion for summary judgment based on deemed admissions
Motion to strike or un-deem Deemed Admissions
Disputing a claim of deemed admission on the ground that deemed admissions don't exist

OTHER CONSIDERATIONS AND OPTIONS TO DEAL WITH DEEMED ADMISSIONS

When the deemed admissions do not cover all the bases (i.e. all essential elements on which the plaintiff has the burden of proof.)

When deemed admissions contradict each other, or create a conflict with other evidence

Disputing the existence of deemed admissions by raising an issue as to service and proof of non-receipt

Escaping the effects of deemed admissions by invoking the right to arbitrate (if the underlying contract provides for arbitration)

Challenging deemed admissions based on requests for admission embedded in the Creditor's pleading.

Plaintiffs can avoid the effect of deemed admissions against them by nonsuiting the pending action, Defendants do not have that option, but could try to get the case moved to arbitration if the contract contains an arbitration clause (motion to compel arbitration) and argue in arbitration that the deemed admissions only apply in court because they arise from the Texas Rules of Civil Procedure, which do not govern the arbitration 

 

Counterclaim under the FDCPA and the Texas Debt Collection Act (or separate lawsuit against debt collector)

Fair Debt Collection Practices Act (FDCPA)

15 U.S.C. § 1692, et seq.

The FDCPA is a federal consumer protection law that governs the conduct of debt collectors, but not that of original creditors. It only applies to collection of consumer debt.

The Texas counterpart to the FDCPA is the Texas Debt Collection Act , TEX. FIN. CODE § 392.001, et seq. It has a broader scope and covers original creditors. Plaintiffs suing debt collectors in Texas courts will typically plead both.

Like the DTPA at the state level, the FDCPA contains a laundry list of prohibited conduct. The specific items are typically referred to by section/subsection number (in the United States Code), rather than by descriptive labels. See -- > FDCPA violations

Section 15 U.S.C. 1692e of Title 15 of the U.S.C., for example, states that "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." This section contains a non-exhaustive list of representations and collection methods that violate this provision. Subsection 1692e(10) makes it unlawful to "use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer."

COUNTERCLAIM VS. SEPARATE LAWSUIT IN STATE COURT OR FEDERAL DISTRICT COURT 

A claim of a FDCPA violation (or several violations) can be asserted as a counterclaim in a debt collection case, but it is often brought as a separate lawsuit. In a separate lawsuit, of course, there will be a role reversal:  the consumer will appear as the plaintiff, and the debt collector/creditor will be the defendant.

A lawsuit alleging an FDCPA violation by a company covered by it can be filed in state or federal court. But if the plaintiff’s preference is state court, the defendant can override that election by removing it to federal court because the basis for the lawsuit is a federal statute. Defendants often prefer federal court.

The right to removal does not apply when the consumer invokes the FDCPA for purposes of a counterclaim in a pending debt collection suit in which he or she is a defendant. Such debt suits are always filed in state courts because there is no basis for federal jurisdiction (nor does the amount in controversy exceed the threshold amount for diversity jurisdiction purposes, except in the rarest of cases).

DAMAGES AVAILABLE UNDER THE FDCPA 

The FDCPA provides for a statutory penalty of up to $1,000, plus actual damages and attorneys’ fees. In the credit card debt suit context, there will rarely be actual damages, which means that even a proven FDCPA action will hardly yield a windfall, and will rarely exceed the amount of the debt. Attorneys’ fees are another matter -- they may run into thousands of dollars -- but defendants in FDCPA actions will often settle, thus cutting short the amount of litigation activity, and the amount of attorney’s fees that would otherwise be incurred in discovery, trial preparation, motions for summary judgment, and actual trial. Like any other litigant, an FDCPA plaintiff cannot be forced to settle, of course, but defendants can invoke the offer-of-settlement procedure, and thereby limit their potential damages exposure, should they lose on the merits following the rejection of a settlement offer by the Plaintiff.

ATTORNEY'S FEES AUTHORIZED FOR SUCCESSFUL PLAINTIFF UNDER FDCPA 

When a consumer prevails against a debt collector with a FDCPA claim, he or she is entitled to recover attorneys fees on a showing that the amount claimed for fees is reasonable. This is what makes it worthwhile for attorneys to take FDCPA cases, which typically yield at most $1,000 in actual damages unless the conduct was egregious and mental anguish damages can be proven.

Depending on the complexity of the case, and the amount of discovery and pre-trial motion acitvity, the attorneys fees may add up to tens of thousands of dollars. The amount is typically computed by the "loadstar" method involving multiplication of attorney time legitimately devoted to work on the case times reasonable hourly rate for an attorney of like skills and experience. Other factors may be taken into account to deviated from the loadstar amount either upwards or downwards.

Any and all attorneys fees in a FDCPA action must be awarded to the plaintiff (client), not directly to the consumer's attorney. A judgment that awards such fees directly to the attorney is subject to reversal on appeal for nontrivial error.

STATUTE OF LIMITATIONS APPLICABLE TO FDCPA CLAIMS: 1 YR ONLY  

FDCPA claims must be brought promptly and many are lost, or not even filed by an attorney who would otherwise do so, simply because too much time has passed since the date of the violation or apparent violation. While a creditor has the right to sue within four years of default, the statute of limitations for FDCPA claims is only one year.

RELATED POSTS ON FAIR DEBT COLLECTION ENFORCEMENT AND REMEDIES 

Who is a debt collector under the federal FDCPA?
What is a consumer debt as defined by the FDCPA?
FDCPA and TDCA compared: What are the most significant differences and their implication for suing / counter-suing collectors
Enforcement of fair debt collection statute by the Texas AG's office by civil suit for injunction and penalties in the public's interest;
Texas Attorney General suit against Samara Portfolio:
State of Texas v Samara Portfolio Management, LLC et al; Cause No. 2013-35721 in the 80th Judicial District Court of Texas (Harris County)

OPINION SNIPPETS 

Texas Debt Collection Practices Act 

Choice of Law Clauses in CMAs (credit card agreements)

CONTRACTUAL CHOICE OF LAW – THE CASE OF CREDIT CARD AGREEMENTS (CMAs) 

Choice of law provisions are a universal feature of credit card agreements issued by major banks. They typically state that federal law controls, and that a specified state’s law controls to the extent that state law applies. The relevant state is typically the home state of the issuer.

The actual language varies, but they are typically much shorter than the arbitration agreements that most cardmember agreements also contain.

An arbitration clause is a particular form of a forum-selection clause. Choice-of-law clauses, by contrast, apply in any forum, whether a court (in Texas, justice court, county court, or district court) or an arbitral forum. They only pertain to substantive law, not the procedures of the particular forum in which the dispute is pending. Sometimes, the characterization of an issue as procedural or substantive (such as the statute of limitations defense) itself becomes an issue in litigation.

VARIATION IN THE FORM OF CHOICE OF LAW PROVISIONS 

Most choice of law clauses identity the chosen jurisdiction by name. If the choice-of-law provision or paragraph does not do so, it will at least identity the state by reference to some other document, such a separate terms document, a letter of approval. It may, for example, refer to the applicable state as the “LPO state”, which refers to the state in which the Loan Production Office (“LPO”) that originated the loan is located. The address of the LPO will be printed on the promissory note, additional terms document, or on some other related loan document.

WHICH STATE?

Typically the chosen state will be the home state of the bank that issues the card, but there may be confusion in that regard. Washington Mutual Bank, for example, which is now defunct, had a Nevada choice of law clause in its agreements, rather than one stipulating Washington State law as applicable to the account.

Citibank is generally thought to be New York bank. It originated there, and still has its headquarters there. But Citibank broadly speaking (Citigroup Inc.) is a bank holding company, and the credit card operations are conducted through a subsidiary. Citibank set up its credit card arm as Citibank (South Dakota), N.A. in South Dakota, as indicated by the bank's name. It has been succeeded by Citibank, N.A..

American Express Travel Related Services is a New York corporation, but both of its affiliated banks, American Express Centurion Bank, and American Express Bank, FSB, call Utah their home state. Centurion is a state bank organized under Utah law, and American Express Bank, FSB, is a federal savings bank, as indicated by the acronym appended as a suffix to its name.

Sample choice of law provision in cardmember agreement for Optima Card
issued by American Express Centurion Bank 

CONTRACTUAL CHOICE OF LAW AS AN ISSUE IN DEBT LITIGATION 

Few credit card debt plaintiffs make an issue of the choice of law. The same is true of the relatively small percentage cardholders who retain counsel when they are sued. Even if the choice-of-law issue is raised, it generally requires a motion for judicial notice of the law of the other state, accompanied by copies of applicable provisions.

Among high-volume litigators who file motions for judicial notice of foreign law are the following: Michael J Adams (Delaware law in suits by FIA on Bank of America accounts, and Utah law in Amex suits); and Allen L. Adkins (in debt collection suits filed on behalf of Citibank). Donald DeGrasse also discusses the contract formation issue under Utah law in his motions for summary judgment in Amex suits, but does not expressly move for summary judgment under Utah law, presumably because that might undercut the effort to obtain a summary judgment under Texas law under the alternative theory of account stated, which he also invokes as a legal basis of recovery.

A motion for judicial notice of foreign law would be unwarranted if the law of the other state does not differ in material ways, i.e. in a way that has a bearing on the issue in the case. The burden is on the proponent of the application of the foreign law. If the party raising the issue or requesting application of foreign law does not meet the substantive or procedural requirements, the trial court may presume the other state’s law is no different from Texas law.

HOW DOES OTHER STATES’ LAW DIFFER IN MATERIAL RESPECTS? 

With respect credit cards, the most important difference among states concerns interest rate regime. Some states have statutory limits on rates; others do not (or only in the sense that the rate must have been agreed to by the bank and the customer, and is thus “fixed” by contract, but with no upper limit on how it may be). States may also regulate other finance charges, such as late fees, overlimit fees, and other fees, and differ in their respective restrictiveness.

States also differ with respect to whether or not credit card agreements are subject to statute of frauds, or special exceptions thereto that take them out of the statute of frauds.

In Texas, the statute of frauds only applies to loans above a certain amount, and even in that scenario, credit cards are exempted from its reach.

In Utah, however, all loan contracts are covered by the statute of frauds as a general rule, and the bank must have complied with the credit card exception written into the Utah statute of frauds to be able to enforce a credit card agreement that is not signed by the party to be charged.

If the statute of frauds applies, alternative theories should not be available for as a legal basis for debt collection suits, at least not to the extent they authorize recovery without proof of the underlying contract and its terms. Account Stated is such a theory in Texas.

Since the statute of frauds does not even bar an oral loan contract, the absence of the cardmember agreement is immaterial, which makes the theory attractive to debt buyers and their attorneys, especially when they have trouble locating the applicable card agreement from the original creditor.

But original creditors such as Citibank invoke it too. Indeed, a highly prolific litigator for Citibank  – Allen L. Adkins -- promoted the account stated theory for credit card debt collection in the first instance, and convinced a number of Texas courts of appeals to approve it, and thereby alter the applicable case law precedents.

SAMPLE "GOVERNING LAW" CLAUSES IN CREDIT CARD CONTRACTS 

U.S. Bank National Association, ND

American Express Centurion Bank (a Utah state bank)

Arbitration Provisions in Credit Card Agreements and in Related Litigation

ARBITRATION AGREEMENTS IN CREDIT CARD DISPUTES 

Which credit card issuers have contracts with arbitration clauses? 

All but a few of the major issuers of credit cards draft cardmember or account agreements with arbitration clauses. Typically, they take up several paragraphs and have their own subheadings.

If a credit card agreement has a table of contents (such as a typical CARDMEMBER AGREEMENT of Discover Bank), "Arbitration of Dispute" or "Dispute Resolution" will be one of the items on it, with a reference to the corresponding page on which the relevant paragraphs are located. Typically, the arbitration agreement extends over several paragraphs, which makes the terms arbitration "clause" technically incorrect.

Sometimes, the arbitration agreement is a separate document that is referenced by the card member agreement. Capital One Customer Agreements pre-dating 2010, for example, consist of two pages, with the last paragraph on the second page referring to an arbitration agreement and incorporating it by reference. The arbitration agreement itself consist of a single page of fine print.

When Capital One sues, it typically produces both documents. Agreements from 2010 and later, however, will likely not contain any arbitration provisions, and do not reference any in the form of a separate document either. For older accounts, this raises an intriguing issue: Can a new version of a cardmember agreement that omits any reference to arbitration eliminate an arbitration agreement that was part and parcel of the prior agreement, the one that was in effect when the superseding one was issued?  

Stand-alone arbitration agreements 

The reason some creditors have separate arbitration agreements may be the absence of an arbitration clause in the original cardmember agreement. Some accounts may have been established long before the insertion of arbitration clauses into cardmember agreements became widespread industry practice.

Credit card banks may, of course, change the terms of the account agreements. They do so with change of terms notices, and sometimes such a notice is utilized to add arbitration clauses to existing agreements.

But a stand-alone arbitration agreement must be supported by consideration different from the existing agreement. Therefore, such stand-alone agreements must be reciprocal, i.e. subject both parties to mandatory arbitration if one party elects to arbitrate.

In rare cases, a consumer may even have elected to reject arbitration if they were given that option at the time the bank announced its plan to add arbitration provisions to the terms of accounts held by existing customers. See-- > Opt-out from arbitration.

Many Discover Bank Cardmember Agreements, for example, contain language in the first paragraph of the cover page informing the card holder of the right to reject arbitration, and the procedure for doing so. Change of terms notices from Citibank have similar opt-out provisions.

Credit card issuers that eschew arbitration clauses 

One major card issuer whose credit card agreements are silent on arbitration is Target National Bank. It files its own lawsuits on defaulted account (some of which were originated by Retailers National Bank, a predecessor).

In such suits, arbitration is not an issue, because the right to arbitrate is a creature of contract, and as such requires an underlying arbitration agreement.

BLOG POSTS ON RELATED TOPICS:

Benefits and Drawbacks of arbitration of debt claims as opposed to litigation
Arbitration Clause as a defense in a credit card collection suit
Waiver of the Right to Arbitrate in credit card suit
Motion to Compel Arbitration and Motion to Abate the Lawsuit Pending Arbitration
Implications of Seeking Order to Compel Arbitration in a credit card debt suit
Motion to Dismiss based on Arbitration Clause vs Motion to Abate
Interlocutory appeal of order denying arbitration in the trial court
Judicial confirmation of arbitration award
Motion or suit to set aside arbitration award

EXAMPLES OF ARBITRATION AGREEMENTS EMBEDDED WITHIN CARD AGREEMENTS: 

US Bank NA ND: North Dakota Arbitration clauses from 2008 Agreement 

Wells Fargo Bank N.A. Arb provisions in customer agreement 

WAIVER OF RIGHT TO ARBITRATION IN A CREDIT CARD CASE 

Like any other contract right, the right to arbitrate under a valid arbitration agreement may be waived. It happens routinely, even though arbitration offers certain benefits over litigation. Typically, waiver does not result from a conscious tactical choice, not to mention an express statement in a pleading.

For the plaintiff, the decision to file suit constitutes a choice in favor of litigation rather than arbitration, which makes it likely that the plaintiff would oppose litigation if the defendant wanted to go that route.

But most defendants do not make an issue of arbitration. They waive the right to arbitrate that they may possess, by failing to take any action to enforce it. This can be done in a number of ways: By asserting the existence of an arbitration clause as an affirmative defense; by filing a motion to dismiss based on arbitrability of the claim, or by filing a motion to compel arbitration.

Each option is the subject of a separate blog post.

Arbitration as a Defense in Credit Card Debt Suit & Waiver of Right to Enforce Arb Clause

ARBITRATION CLAUSE AS A DEFENSE 

Merely asserting arbitration (or arbitrability) as a defense in the defendant's original answer - rather than filing a motion for an order to compel arbitration -- does not require the court to do anything with respect to arbitration; including putting the case on hold (abatement).

It follows that the right to arbitrate, if any, may still be lost if the defendant does not take any further action with respect to arbitration, and instead embraces litigation. Under the existing case law it is not entirely clear at what point a party that has the right to arbitrate loses that right.

On the topic of waiver, the Texas Supreme Court has announced a “totality of the circumstances” test that is really not a standard at all, because it allows for the consideration of numerous factors and provides little or no guidance as to how to weigh their relative importance.

Suffice it to say that the more eagerly the defendant litigates, without taking action to enforce the arbitration clause, the more likely the right to arbitrate will be forfeited under the doctrine of waiver.

The starkest scenario is for the defendant to wait until after trial or an adverse summary judgment has been rendered, and then raise the issue after suffering defeat.

In Devine v. American Express Centurion Bank, the debtor (who now sits on the Texas Supreme Court), did just that. He lost in the trial court, and then argued on appeal that his right to arbitrate should have been respected. Too late, said the Ninth Court of Appeals (Beaumont), and reversed only the award of attorney’s fees. Devine had filed a counter-affidavit on the matter of amount and reasonableness of the Plaintiff’s fees, which created a fact issue unsuitable for resolution by summary judgment. But it affirmed the trial court’s judgment on Amex’s principal claim.

RELATED POSTS:

Debt collections lawsuits by American Express

Attorneys' fees and fee affidavits in debt suits
 

Motion to Compel Arbitration & Motion to Abate the Lawsuit

MOTION TO COMPEL ARBITRATION 
and 
MOTION TO ABATE THE PENDING LAWSUIT 

The obvious vehicle to give effect to an arbitration agreement when a lawsuit is already under way is a motion to compel arbitration, which is often combined with a motion to abate.

Public policy, both as the state level and at the federal level, favors arbitration, and the case law is also very favorable for parties that want to put a stop to litigation and arbitrate.

In order to be entitled to an order compelling arbitration, the proponent must prove two elements: (1) that a valid arbitration agreement exists between the parties in the lawsuit, and (2) that dispute in the lawsuit fall within its scope. The courts treat such a motion as similar to a motion for summary judgment.

The first element is far more significant in credit card debt litigation than the second. Why?
Because the arbitration agreement is contained in a cardmember agreement that is not signed by the Defendant; which implicates the question whether it is the correct agreement.

With respect to the second element, by contrast, there will rarely be any doubt at all that a failure to make payments on the account is covered by the scope as revealed in the wording of the arb provisions. The latter is a matter contract construction that requires an examination of the contract language; the former, however, requires extrinsic proof, and creditors and assignees don’t always have that kind of proof.

It is part of the creditor’s burden to prove that a particular unsigned agreement is the agreement under which the Defendant is liable. The Defendant can therefore assert in a response to a motion for summary judgment that the Plaintiff has not met that burden unless the plaintiff adduces contract-formation evidence to prove offer and acceptance with other evidence. Other evidence is need because there is no signature on the contract document to signify assent, and in most cases the cardholder’s name is not printed on the form contract either. Nor does the account number appear on it to establish a connection to the account on which the plaintiff sues. (Recent Amex  agreements are an exception in that regard).

If the Defendant wishes to move to enforce arbitration, he or she will have to either admit that the contract produced by the plaintiff is the correct one, or the defendant will have to come forth with the correct contract that was actually mailed by the card issuer, -- likely years earlier. Most consumers, of course, don’t keep monthly statements and other mailings from credit card companies. It is almost always the creditors or their assignees that produce a contract and claim it is the correct one, and sometimes do not do so either, be it for tactical reasons, or because they cannot locate the relevant agreement.

A move by the defendant or defendant’s counsel to enforce arbitration will make it necessary to waive any complaint about the contract produced by the Plaintiff not being the correct one, or about there being insufficient evidence to that effect (particularly under the summary judgment standard, which is higher than the one that applies at trial).

CONTINGENT ASSERTION OF ARBITRATION AS A DEFENSE, AND MOTION TO COMPEL 

A way of avoiding the concession -- and treating the version of a card agreement produced by the debt plaintiff as being the correct one -- would be to offer the arbitration argument as a fallback. It would go something like this:

Should the court determine that the Plaintiff has established that the cardmember agreement offered by it as a summary judgment exhibit is the one that governs the parties’ relationship, despite the absence of conclusive evidence of contract-formation, the court should give effect to defendant’s right to have the dispute resolved by arbitration, instead of litigation. 

But a motion to compel arbitration is only one option. Attorneys representing defendants may consider moving for outright dismissal instead, based on the plaintiff's reliance on a credit card agreement that contains an arbitration clause (or, more likely, an arbitration agreement consisting of several paragraphs, rather than merely a single clause comparable to a choice-of-law clause).

Moving for arbitration in a credit card debt suit - Implications

What are the ramifications of moving for arbitration of the credit-card dispute? 

MOTION TO COMPEL ARBITRATION REQUIRES PROOF OF THE CONTRACT AND ITS TERMS 

It is clear under a mountain of caselaw that the proponent of arbitration has the burden to prove arbitrability.

It is not enough for the defendant in credit card debt suit to express a preference for  arbitration. Assuming the plaintiff is opposed, as can be expected, the defendant will have to meet the two substantive requirements: (1) prove that an arbitration agreement exists, which requires proof of the cardmember agreement that contains both the arb provisions and all the other terms (unless the arbitration agreement is in the nature of a stand-alone agreement); and (2) that the arb provision in that card agreement is broad enough to cover the dispute.

The second element will hardly ever be in doubt, but it still requires reference to the contract language. A defendant cannot expect to convince a judge to grant a motion to compel arbitration merely by asserting that the original creditor’s card agreement always contain arbitration provisions. After all, there may be exceptions; the defendant would not be qualified to testify about “all” card agreements of a particular bank; nor are all arbitration agreements alike in regard to specifics. For example, they may specify particular arbitration entities, or specific procedures governing the resort to arbitration, such as notice of claim requirements and a time-table.

Instead of offering conclusory testimony averring that the dispute is subject to an arbitration agreement, the defendant will have to produce the agreement (if available) or affirmatively  rely on the one the plaintiff has produced (assuming it did, either in discovery, or as a summary judgment exhibit, or as an attachment to its petition). Relying on the Plaintiff’s contract exhibit will waive any objection about it not being the one that governs the parties’ dispute.

After all, the defendant could not treat the very same version of a form contract to as binding with respect to arbitration, but not binding regarding contractual liability to make payments on the account. Because proof of the contract containing the arbitration clause is a prerequisite for an order compelling arbitration, success with such a motion will preclude the defendant from raising the defense that the plaintiff has not proven the correct contract before the arbitrator or the arbitration panel.

Is there a way to benefit from the arbitration clause without conceding that the Plaintiff has proven the contractual foundation of its claim?

Possibly.

A Motion to Dismiss based on the presence of an arbitration clause in the cardmember agreement produced by the credit card bank or its assignee in discovery or attached to its motion for traditional summary judgment.

Motion to Dismiss Credit Card Debt Suit Based on Arbitration Clause

MOTION TO DISMISS BASED ON PRESENCE OF ARBITRATION CLAUSE IN THE BANK'S CMA 

Instead of moving for an order compelling arbitration, and thereby triggering the requirement to prove the underlying contract that contains it, the Defendant could instead seek dismissal of the litigation, albeit without prejudice to it being brought as an arbitration claim, by invoking the arbitration clause in the agreement produced by Plaintiff in response to a request for production, or attached by the Plaintiff as an exhibit to its motion for traditional summary judgment.

The argument would go like this:

On such and such date Plaintiff produced an account agreement titled Cardmember Agreement and designated CMA18103 or whatever. The proffered agreement contains arbitration provisions. Plaintiff had the obligation to fully respond to Defendant’s request for production regarding the contractual foundation of its claim, and was required to produce all material contract documents . The document produced by Plaintiff establishes conclusively that it relies on a contract that subject the claim asserted in this lawsuit to mandatory arbitration, upon election of either party. The document is admissible against Plaintiff because Plaintiff produced it in discovery. 

 …. or … 

By moving for summary judgment with CMA 37964 Plaintiff represents to the court, and thus judicially admits, that the contract upon which it relies subjects its claim to mandatory arbitration because said version of a Cardmember Agreement contains an arbitration clause to that effect.  
Defendant hereby elects arbitration and requests that the Court dismiss this suit because no issue remains that does not fall within the scope of the arbitration clause, and is therefore a proper subject of litigation and judicial determination, as opposed to arbitration.

ABATEMENT VS. DISMISSAL 

The conventional manner to deal with arbitration in the context of a lawsuit that is already on file is to request an abatement contemporaneously with a motion to compel.

Abatement, however, does not end the lawsuit, and will likely allow either party to revive the lawsuit for the sole purpose of securing judicial confirmation of an arbitration award. If the defendant prevails in arbitration, there would be no need for judicial confirmation. The option to quickly return to court for confirmation of the award would only serve the interests of the creditor. Such confirmation would allow it invoke the remedies available for enforcement of a judgment, which are not available in the case of an arbitration award, standing by itself.

A dismissal, by contrast, would end the lawsuit. At the minimum, it would look better on the defendant’s public record, because a dismissal would not be an adjudication of the merits of either party claim or defense.

Because the court would not have reached the merits of the plaintiff’s claim, the dismissal would not be with prejudice, and would not entail res judicata or collateral estoppel effect (at least not on any issue other than arbitrability of the claim).

Assuming a dismissal without prejudice suits the defendant better than an abatement (which implies pendency), the Defendant would still have to persuade the judge to sign an order closing the case, rather than merely abating it.

Luckily, there is federal caselaw in support of dismissal being the proper disposition rather than merely abatement, at least under the Federal  Arbitration Act (FAA), to which most credit card agreements, if not all, make express reference.

TILA's implications for defending debt collection suits (Truth in Lending Act)

THE FEDERAL TRUTH IN LENDING ACT (TILA) 

TILA is an acronym for the federal Truth in Lending Act. This is a law passed by the U.S. Congress that requires, among other things, that the bank disclose the interest rate(s) or method of determining the interest rate(s) (such as a margin added to an index or prime rate) and other financial terms in writing when consumers open credit accounts. It applies to consumer credit, not to business accounts.

While the TILA also provides a statutory cause of action for violations, its relevance in debt collection litigation consists primarily in the fact that the written terms are a federal regulatory requirement, and that a debt claims based on accounts subject to this law are necessarily predicated on written contract terms.

The federal law mandates disclosure so as to put the consumer in a position to accept or reject those terms, and to shop around for the best offer, and the best deal, based on meaningful comparisons. This regulatory requirement tracks the elements of contract formation under state law: first the offer, then the acceptance, assuming there is an agreement (“meeting of the minds”) on the terms. (See  -- >  contract formation).

TILA does not require a signed contract; what it requires is written disclosures of credit terms. Thus, when a creditor sues, the best evidence of the contract terms are the TILA disclosures, whether embedded in the cardmember agreement or in the form of a separate document (such as a Rates and Fees Table or Schedule) or a combination of both. If the terms changed (as shown on credit card statements), there must have been a notice of change in terms pursuant to TILA.

Arguably, the required disclosures under TILA should limit the creditor to breach of contract as a theory of recovery of consumer debt, but this issue has yet to be litigated in the courts of appeal. In the meantime, some courts of appeals in Texas have approved the use of alternative theories for debt collection, even if they do not require proof of the underlying contract/TILA disclosures. Under the state-law theory of Account Stated, as modified by some Texas courts of appeals, the creditor can seek a judgment for damages in the form of accrued interest (either as part of the account balance or claimed as a separate item of damages), without proving the credit terms that were offered and allegedly accepted by the consumer. Arguably, this is inconsistent with, and undermines, federal law, but it is not a violation that gives rise to the kind claim authorized by TILA itself.

For violations actionable under TILA, i.e. the creditor’s failure to make required disclosures to the consumer, the applicable statute of limitations is quite short: one year.

TILA’S LEGISLATIVE RATIONALE (CONGRESSIONAL PURPOSES AND INTENT) 

TILA's purpose is to promote the informed use of consumer credit by requiring disclosures about its terms and costs, and regulations give consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling." A person is a TILA consumer if the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes. 15 U.S.C. § 1602(h)

The TILA requires creditors to disclose all of the credit terms to the consumer before the extension of credit is made, which allows the consumer to make an informed decision about the credit options that are available as well as serves as a way in which to prevent the consumer from being obligated to pay possible hidden and unreasonable charges unknowingly. 15 U.S.C. § 1601.

The TILA also requires lenders to issue new disclosures within a specified amount of time in the event that an interest rate adjustment occurs. 12 C.F.R. § 226.20(c)(1)-(5).

The purpose of TILA is to promote the informed use of credit by mandating a meaningful disclosure of credit terms to consumers.

The Federal Reserve Board (commonly known as "The FED") is charged with implementing and interpreting TILA. 15 U.S.C. § 1604; see also 12 C.F.R. Pt. 26 ("Regulation Z").

STATUTORY CAUSE OF ACTION UNDER TILA AND STATUTE OF LIMITATIONS

TILA is a federal consumer protection statute that provides consumers with a cause of action against creditors that fail to make required disclosures.

TILA requires a borrower who does not receive certain material disclosures to initiate an action for damages within one year of the violation. 15 U.S.C. § 1640(e).

Further, any claim under TILA for rescission of the loan transaction must be brought within three years of the violation. 15 U.S.C. § 1635(f). A failure to provide the required disclosures under TILA occurs at the time the contractual relationship between the lender and the borrower is consummated, i.e., at the time the loan documents are executed. Nondisclosure is not a continuing violation for purposes of the statute of limitations.

RECOUPMENT COUNTER-CLAIM MAY BE BROUGHT IN RESPONSE TO DEBT SUIT MORE THAN ONE YEAR AFTER TILA VIOLATION

 "A one-year statute of limitations governs claims brought under the Act, running from the date of each violation." Id. (citing 15 U.S.C.A. § 1640(e)). However, section 1640(e),

does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or setoff in such action, except as otherwise provided by State law.
15 U.S.C.A. § 1640(e); see Seidner v. Citibank (S. Dak.) N.A., 201 S.W.3d 332, 336-37 (Tex. App.-Houston [14th Dist.] 2006, pet. denied) (stating that "the thrust of subsection (e) is that a violation of the [TILA] can be raised as a defense by recoupment or set-off even after the one-year statute of limitations has expired on an affirmative claim for damages or penalties") (citing Beach, 523 U.S. at 412, 417-18) (discussing meaning of subsection (e))). In Garza v. Allied Finance Co., we defined "recoupment" as a form of counterclaim that is "a demand arising from the same transaction as the plaintiff's claim." 566 S.W.2d 57, 62 (Tex. Civ. App.-Corpus Christi 1978, no writ); see Seidner, 201 S.W.3d at 337 (explaining that the defense of recoupment allows a defendant to deduct any amounts accruing to him as a result of the same transaction that forms the basis of the action against him). "Although application of the recoupment defense will decrease the plaintiff's recovery, and may even wholly defeat any recovery, it does not act as an affirmative bar to the action." Seidner, 201 S.W.3d at 337. In Garza, we also distinguished "recoupment" from "offset," which we explained as a demand arising from "a transaction different than the one forming the basis of plaintiff's claim." 566 S.W.2d at 63.

CASELAW SNIPPETS - TILA IN TEXAS COURTS 

TILA protects consumers - business loans not covered 

One year SoL for TILA violations, but exception for recoupement claims 

Recoupement claim under the Truth in Lending Act (TILA) is similar to off-set and can thereby reduce amount of damages
awardeded to the creditor in a debt collections suit 

Federal Arbitration Act (FAA) and credit card debt suits

THE FEDERAL ARBITRATION ACT (FAA) 

Most credit card agreements contain arbitration clauses, which typically provide that any qualifying claim, i.e. one that falls within the scope of the arbitration clause, is governed by the Federal Arbitration Act.

Texas has its own arbitration statute, the Texas Arbitration Act (TAA), sometimes referred to as Texas General Arbitration Act (TGAA). It is a version of the Uniform Arbitration Act and is codified in the Civil Practice and Remedies Code. To the extent there is conflict between the two, the FAA trumps the TAA under the doctrine of federal preemption.

TEXAS ARBITRATION ACT RARELY RELEVANT TO CREDITOR-DEBTOR DISPUTES IN TEXAS

The Texas counterpart to the FAA rarely comes into play, however, because most credit card agreements not only expressly reference the FAA, but additionally have a choice of law provision that specifies that the law of another state as applicable to the agreement to the extent federal law does not control. So, if the arbitration agreement does not expressly invoke the FAA, the arbitration statute of the choice-of-law state would apply instead; and that will rarely be Texas.

That said, the choice of law issue can be waived, just like the right to arbitrate is often waived. If neither party insists on application of the law specified in the choice of law and/or arbitration provision of the card agreement, Texas law may be applied simply by default, or the court will assume that the law of the applicable jurisdiction is no different than Texas law. The courts of appeals bless this approach even if the trial judge is aware of the presence of the choice of law clause in the relevant contract.  See -- > Choice of law; Presumption that other’s state’s law does not differ.

It is the courts that determine whether a claim is subject to arbitration because it is considered a “gateway” issue. When the court answers that question in the affirmative, all other issues are decided by the arbiter or by the arbitration panel, unless the parties agree to have them resolved by litigation, and thus waive the right to arbitrated in lieu of litigating.

SIGNED ARBITRATION AGREEMENT NOT REQUIRED UNDER FAA 

The Federal Arbitration Act does not require that an arbitration agreement be signed, so long as the agreement is written and agreed to by the parties.  Because arbitration agreements governing credit cards are either embedded in the cardmember agreement or incorporated into them by reference, they are subject to the same proof requirements regarding contract-formation without signature.  

The "Account Stated" theory and the lowering of proof requirements in credit card debt actions

Account stated in credit card debt suit

Account stated is a judge-made (common-law) theory of recovery with a long pedigree in reported decisions. Under this theory, merchants could obtain a judgment for the value of unpaid goods they had sold to customers if there was a history of business dealings and a final bill stating the combined balance, but no formal contract between the parties stating all terms, including price of all items sold and delivered. Under the older published appellate opinions, the customer had to have agreed that the final bill accurately "stated" the amount owed as a result of multiple prior transaction. Hence, the name for the theory:  Account Stated (or “Stated Account”, which is used interchangeably for the same theory).

This common-law theory has been adapted by some courts of appeals in Texas to permit credit card companies or their assignees (debt buyers) to prove a credit card debt claim without having to actually produce the underlying contract (whether called card agreement, cardmember agreement, account agreement or customer agreement).

Additionally, these courts do not find it inappropriate to apply the theory in a creditor-debtor relationship between a bank and customer, even though the bank does not actually sell the goods or services for which the credit card is used.

Interestingly, and inconsistently, given the common origin of suit on account and account stated, such a debt claim by a financial institution cannot be brought as a sworn account claim (under Rule 185) because the bank is not a party to a sales transaction, but instead finances the purchase of goods or services from third-party merchants. The courts of appeals are in agreement that "sworn account" is not a proper theory for collection of a credit card debt.

But account stated is a different matter.

Instead of requiring the creditor/plaintiff to prove under which terms credit was extended, and that the Defendant agreed to those terms, these courts of appeals are satisfied if the proof submitted by the creditor includes a series of credit card statements showing transactions and Defendant’s address on them, and if there is no evidence that the address was wrong or that the Defendant disputed any of these billing statements. Under the revised theory of account stated, the court essentially imputes on the consumer/card-holder an agreement and promise to pay whatever amount appears on the last statement as long as he or she received it and did not complain about it. The customer does not actually have to do anything to communicate such agreement. He or she is simply deemed to have agreed to the correctness of what the bill from the credit card company said by acquiescence.

The courts of appeals that have blessed the account-stated theory (including the Houston and Dallas Courts of Appeals) have thus lowered the proof requirements for mass debt collection litigation by providing creditors with an alternative theory that is easier to prove than a breach of contract claim (particularly when the relevant card agreement, or change-in-terms notice(s) modifying interest rate and other terms, went missing).

While the Fort Worth Court of Appeal in 2008 ruled against the creditor in one case in which the proof of actual receipt of the credit card statements was an issue (Morrison v. Citibank), the Dallas Court has taken a different position in several of its own cases, and expressly declined to follow the contrary case from the Fort Worth appeals court in Evans v Citibank (2013).

Citing an earlier decision of the same court, the Dallas court concluded as follows:

The facts of Compton and Dulong v. Citibank  are nearly identical to the facts of this case. Summary judgment based on Citibank's account stated claim was proper if the evidence showed the account statements were sent to Evans, charges and payments were made on the account, fees and interest were charged on the account, and there is no evidence Evans ever disputed the fees or charges reflected on the statements. Compton, 364 S.W.3d at 418; Dulong v. Citibank , 261 S.W.3d at 894. On this record, given the more than two years of credit card billing statements submitted by Citibank, the cancelled checks, and the payment stubs, we conclude Citibank established as a matter of law that Citibank and Evans had an implied agreement fixing an amount due and that Evans impliedly promised to pay Citibank that amount due. Moreover, Evans's assertion in his affidavit that "the statements were not delivered to me or my home" does nothing to raise an issue of fact because that affidavit was struck by the trial court, and we have concluded the court's ruling was not an abuse of discretion. We overrule Evans's fourth issue.

Interestingly, other institutions of governments have moved to tighten proof requirements in debt cases. The Texas Supreme Court recently raised and formalized the pleading and proof requirements for debt suit (in Justice Courts), and the Texas Attorney General took enforcement action against a major debt collection outfit (Midland Funding LLC and its servicer, Midland Credit Management Inc.) and the corporate parent (Encore Capital Group, Inc.) for violating the Texas Debt Collection Act and DTPA because of the shoddy proof they routinely submitted in countless cases filed across the state, many of which resulted in default judgments. This consumer protection action resulted in an agreed judgment in December 2011, in which Midland committed itself, among other things (including payment of damages), to improve its practices regarding account documentation and production of affidavits.

Different branches in the separation-of-powers system in Texas thus seem to be pulling in different directions, and even the courts of appeals are not in agreement about the standards to apply to those that that bring debt suits on a massive scale in the many courts across this state.

"Money Had and Received" claim in debt suit pleadings

Money Had and Received? - What is that supposed to mean?  

This is an oddly phrased common-law theory that allows a plaintiff to sue for the return of money that was received by someone who was not entitled to it. Like other common-law theories and remedies that are equitable in character, the judicial precedents upon which this legal theory rests do not allow it to be used for collection of a debt that represents money advanced or disbursed as a loan, or credit extended based on a contract or formal agreement.

If pleaded in a credit card debt suit, this theory may therefore be attacked as nonapplicable under the express-contract preclusion of equitable claims.

NATURE OF MONEY HAD AND RECEIVED AS A THEORY OF RECOVERY 
AND ESSENTIAL ELEMENTS THEREOF 

A cause of action for money had and received is not premised on wrongdoing, but looks only to the justice of the case. The critical issue is whether the defendant has received money which rightfully belongs to another. Such an action may be maintained to prevent unjust enrichment when a party obtains money which in equity and good conscience belongs to another. In short, it is an equitable doctrine applied to prevent unjust enrichment.

To prove a claim for money had and received, the plaintiff must show that a defendant holds money which in equity and good conscience belongs to the plaintiff. In defending against such a claim, a defendant may present any facts and raise any defenses that would deny a claimant's right under this theory.
Generally, when a valid, express contract covers the subject matter of the parties' dispute, there can be no recovery under a quasi-contract theory.

The quasi-contractual action for money had and received is a cause of action for a debt not evidenced by a written contract between the parties.

EXPRESS CONTRACT AND CLAIM FOR EQUITABLE RELIEF INCOMPATIBLE 

Because a credit card collection suit is always based on an underlying contract between lender and cardholder that specifies interest rate and other terms, money had and received is not a proper theory of recovery for collection of a debt incurred on a credit card.

That does not mean that debt collection attorneys do not invoke their theory in pleadings

See sample from pleading filed by Mark Rechner, a debt collection attorney with VINCENT LOPEZ SERAFINO JENEVEIN, P.C. in Dallas, in petition on behalf of Wells Fargo Bank NA:

This blawg post on money had and received as a legal theory of recovery in Texas was last modified or updated on March 14, 2014; January 21, 2014.

TEXAS CASELAW CLIP: MONEY-HAD-AND-RECEIVED CLAIM 

Money Had and Received claim under Texas law (caselaw snip)

A money had and received claim is "`equitable in nature'" and "`belongs conceptually to the doctrine of unjust enrichment.'" Fowler v. U.S. Bank Nat'l Ass'n, 2 F. Supp. 3d 965, 983 (S.D. Tex. 2014) (Lake, J.) (quoting Best Buy Co. v. Barrera, 248 S.W.3d 160, 162 (Tex. 2007), and Edwards v. Mid-Continent Office Distribs., L.P., 252 S.W.3d 833, 837 (Tex. App.—Dallas 2008, pet. denied)). To establish a claim for money had and received, Bryant must show that the "defendants hold money which in equity and good conscience belongs to him." Id. at 983.

Under Texas law, unjust enrichment "characterizes the result of failing to make restitution or benefits received under circumstances giving rise to an implied or quasi-contract." TransAmerica Natural Gas Corp. v. Finkelstein, 933 S.W.2d 591, 600 (Tex. App.—San Antonio 1996, writ denied). The purpose for the claim is to prevent unconscionable loss to the payor and unjust enrichment to the payee. Bryan v. Citizens Nat'l Bank in Abilene, 628 S.W.2d 761, 763 (Tex. 1982). An unjust enrichment claim "is based on quasi-contract and is unavailable when a valid, express contract governing the subject matter of the dispute exists." Coghlan v. Wellcraft Marine Corp., 240 F.3d 449, 454 (5th Cir. 2001) (applying Texas law); see also Finkelstein, 933 S.W.2d at 600.

Promissory Estoppel as a legal theory in debt suits

PROMISSORY ESTOPPEL THEORY 

Is promissory estoppel a viable theory for collection of a credit card debt? 

Promissory estoppel is a common-law theory that may attach binding legal consequence to a promise by one party if the other party relied on it without there being a formal contract between the parties. But if the subject of the dispute is addressed by a contract between the parties, the theory of promissory estoppel has no place in a lawsuit by the party that claims to have been wronged. Like other alternative theories of recovery (such as quantum meruit and unjust enrichment), promissory estoppel and breach of contract are also incompatible and mutually exclusive.

The elements of promissory estoppel include: (1) a promise; (2) foreseeability of reliance by the promisor; and  (3) substantial reliance by the promisee to his detriment.  Promissory estoppel is not applicable to a promise covered by a valid contract between the parties however. As an equitable theory, promissory estoppel only applies to promises outside a contract.

CMA PRECLUDES PROMISSORY ESTOPPEL 

Because a credit card debt claim always arises from a contractual relationship between creditor and consumer that is even subject to federal law (TILA), which requires disclosure of credit terms in writing, a promissory estoppel claim is not a proper theory in debt collection litigation.

If a creditor or debt-buyer nevertheless pleads promissory estoppel, and moves for summary judgment on it, the theory, and basis for the motion, should be attacked as non-viable as a matter of law. Prior to the plaintiff filing its motion for summary judgment, the theory could also be challenged by special exceptions, or by a matter-of-law motion for summary judgment brought by the Defendant.

ELEMENTS OF PROMISSORY ESTOPPEL WHEN THE THEORY IS NOT BARRED 

Under circumstances in which the theory is not precluded due to the presence of an express contract, the plaintiff must plead and prove the following elements: (1) a promise, (2) foreseeability of reliance thereon by the promisor, and (3) substantial reliance by the promisee to his detriment.

Additionally, to be actionable under the theory of promissory estoppel, the underlying promise must have been made with the requisite specificity to create a justifiable expectation of fulfillment.  While a specific, detailed promise might support a promissory estoppel claim, relying on a vague, indefinite promise – such as of future business --  is unreasonable as a matter of law.

The statute of limitations for promissory estoppel  as a cause of action for affirmative relief is four years.

Unjust Enrichment as a legal theory in collection litigation

UNJUST ENRICHMENT AS A THEORY OF RECOVERY 
   
    Is it a viable cause of action for collection of a debt? 
   
Unjust enrichment seemingly refers to reprehensible and abusive conduct that accrues to someone’s financial advantage, but it is also the name of a legal theory that provides an equitable remedy for it occurrence, either prospectively or retrospectively. The typical remedy is in the form of restitution of the money to which the defendant  -- the party that was "enriched" -- was not entitled.  
    
The unjust enrichment theory is an equitable theory of recovery that is incompatible with a contractual relationship, and therefore not available when the parties’ dispute is governed by an express contract. 

When this theory appears as theory of recovery in a debt collection suit involving a credit card debt, it can and should be attacked on the ground that it does not apply in that context, and is simply not available as a matter of law regardless of the quality of the financial records or any other evidentiary issue.
  
UNJUST ENRICHMENT AS A CAUSE OF ACTION UNDER TEXAS LAW
  
There is some disagreement as to whether unjust enrichment even amounts to a “cause of action” in its own right, -- in the legal sense of the term. What contributes to the confusion is the fact that it rests on prior judicial decisions, and is discussed in connection with other theories such as quantum meruit, which likewise can be said to afford the plaintiff a remedy for unjust enrichment, albeit deriving from the failure to pay for valuable services. In other words, there are other causes of action that share the underlying purpose of preventing unjust enrichment.
 
The Texas courts of appeals' decisions involving claims of unjust enrichment are not consistent. Also see the theory of “money had and received” and quantum meruit.
    
There is another uncertainty also. A lawsuit premised on unjust enrichment may be subject to the two-year limitations period, rather than four-your period that applies to debt claims generally, as well as to quantum meruit. --> Statute of limitations defense.
 
It can be argued, at least in some factual contexts, that the money at issue in an unjust enrichment claim, is not in the nature of a debt, at least not debt as it is normally defined. 
 
Additionally, the theory may not even be viable if asserted independently of any other legal theory, but how this matter gets decided by the trial court may depend on where in the state the case is being litigated.    
  
TEXAS COURT OF APPEALS ARE SPLIT ON VIABILITY OF UNJUST ENRICHMENT THEORY - SUPREME COURT COULD RESOLVE THE CONFLICT, BUT WILL IT?
 
The First Court of Appeals in Houston stated in 2008 that unjust enrichment is a viable legal theory in its own right, but also said that it had not been pleaded in that case. See Pepi Corporation v Galliford, 254 S.W.3d 457 (Tex.App. - Houston [1st Dist.] 2008).

Excerpt from Pepi Corp. v Galliford re unjust enrichment theory

  
In 2014, a litigant in Forth Worth who had renovated and improved a house he believed he owned that the bank later foreclosed on, cited the appellate case from Houston to support his claim against the bank, but the Fort Worth Court of Appeals rejected it, pointing to its own prior decisions on the issue. See Davis v OneWest Bank N.A. No. 02-14-00264-CV. (Tex. App. - Fort Worth, April 9, 2015)(unjust enrichment not an independent cause of action). 

The viability of unjust enrichment as an independent cause of action is now pending in the Texas Supreme Court, a petition for review in the case from Fort Worth having been filed in May 20, 2015. For current status, see Supreme Court docket under No. 15-0381.



Texas Supreme Court asked to decide: Is unjust enrichment an independent cause of action?







The uncertain nature of the unjust enrichment theory, and its inconsistent treatment by the courts of appeals, has attracted the attention of legal scholars also.

See, e.g., George P. Roach, Unjust Enrichment in Texas: Is it a Floor Wax or Dessert Topping?,
65 Baylor Law Review 153 (2013); David Dittfurth, Restitution in Texas: Civil Liability for Unjust Enrichment, 54 S. Tex. L. Rev. 225, 238 (2012).

George P. Roach Law Review Article on Unjust Enrichment Theory under Texas Law
in Baylor Law Review (Table of Contents)

Also see -->  summary of pre-publication version of this paper.

NATURE OF UNJUST ENRICHMENT AND EQUITABLE REMEDY FOR IT 

Unjust enrichment occurs when the person sought to be charged has wrongfully secured a benefit or has passively received one which it would be unconscionable to retain.  A person is unjustly enriched when he obtains such a benefit by fraud, duress, or the taking of an undue advantage. 

The unjust enrichment doctrine applies principles of restitution to disputes where there is no actual contract and is grounded in principles of equity. 

ONE OR THE OTHER: THE EXPRESS CONTRACT DEFENSE 

The doctrine of unjust enrichment applies the principles of restitution to disputes that are not governed by a contract between the parties. Therefore, when a contract addresses the matter at issue, the theory is not available under the general principle that the presence of a contract precludes relief premised on an equitable theory. --> Express contract preclusion of equitable theories and claims  
 
Generally, when a valid, express contract covers the subject matter of the parties' dispute, there can be no recovery under a quasi-contract theory, such as money had and received.  The courts reason that parties should be bound by their express agreements, and when a valid agreement already addresses the matter, recovery under an equitable theory is generally inconsistent with the express terms of the agreement.  

ADDITIONAL CASELAW CLIP ON UNJUST ENRICHMENT CLAIM WITH CITES 

Dallas Court of Appeals does not recognize unjust enrichment as cause of action



Unjust enrichment cause of action in Texas (caselaw snippet) 

Excerpt from US District Court Opinion Order with cites on Texas unjust enrichment cases



EDITORIAL NOTE: This blog post was last updated on 6/2/2015. Material on the court-of-appeals split on UNJUST ENRICHMENT as an independent theory of recovery under Texas common law, and currently-pending case in the Texas Supreme Court, was added at that time.