Credit card debt claim not actionable as a Sworn Account suit in Texas

CREDIT CARD DEBT SUIT CANNOT BE BROUGHT AS A SWORN ACCOUNT 

... or at least it would not be proper under controlling appellate case law.  

 
TRCP 185 SWORN ACCOUNT PROCEDURE

In the courts of the State of Texas a “sworn account” refers to a debt action brought under rule 185 of the Texas Rules of Civil Procedure (TRCP). The rule requires, inter alia, an affidavit as an attachment to the plaintiff’s original petition. Hence sworn account. But the rule is not actually titled “Sworn Account”, but “Suit on Account”.

The appellate case law even says that “sworn account” is not a cause of action in and of itself. Much rather, a sworn account is an alternative method for presenting a suit on account in a judicial forum. Because it is not a cause of action (substantive law), a sworn account would not be available in arbitration, which is governed by arbitration rules, rather than the TRCP. The sworn account rule merely provides an expedited procedure for presenting a suit on account because it establishes a prima facie case for the Plaintiff, and shifts the burden to the Defendant to rebut the presumption that the plaintiff is entitled to judgment.

This distinguishes a sworn account suit from most (if not all) other lawsuits. The general rule is that pleadings are not evidence in Texas courts. 

But a properly done sworn account pleading is an exception to this rule. Because it creates a presumption that the plaintiff is entitled to judgment for the amount sued for and supported by the sworn attachments, the sworn account pleading must be disputed with a sworn denial in order to neutralize the presumption. When that happens, the benefits of Rule 185 for the plaintiff no longer apply, and the claim is litigated and resolved in the normal manner just as other claims, under the same evidentiary standards.

WHAT THE RULE SAYS

Texas Rule of Civil Procedure 185 provides, "When any action or defense is founded upon an open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished, on which a systematic record has been kept, and is supported by the affidavit of the party, his agent or attorney taken before some officer authorized to administer oaths, to the effect that such a claim is, within the knowledge of affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed, the same shall be taken as prima facie evidence thereof, unless the party resisting such a claim shall file a written denial, under oath." Tex. R. Civ. P. 185.

CREDIT CARD DEBT CLAIM NOT VIABLE AS SWORN ACCOUNT

Half a dozen courts of appeals have held that suits for collection of credit-card debt are not suits on account under Rule 185 when the card's issuer is not also the provider of the purchased goods or services. Therefore, it is immaterial whether or not an affidavit and account statement(s) are attached to the original petition. 

"Rule 185 is a procedural tool that limits the evidence necessary to establish a prima facie right to recovery on certain types of accounts." Williams v. Unifund CCR Partners, 264 S.W.3d 231, 234 (Tex. App.-Houston [1st Dist.] 2008, no pet.).

Over the years, many debt plaintiffs have nevertheless attached affidavits to their petitions, perhaps with the intent of using them for default judgment purposes. But a motion for summary judgment based on sworn account is easily thwarted by competent counsel for Defendant. Regardless of whether the formal paperwork requirements are satisfied, if the card issuer did not sell any goods – and banks don’t – the cause of action won’t work as a matter of clearly settled law irrespective of the quality of the pleadings, affidavits, and documentary evidence in the case.    

HARMONY AND SPLITS AMONG THE COURTS OF APPEALS

In an appeal filed in 2008 one debt buyer (Resurgence Financial LLC) tried to persuade a panel of the First Court of Appeals in Houston that the cases holding that sworn account was not a viable theory for credit card debt collection were wrongly decided. The court was not impressed. In a memorandum opinion by Justice Sherry Radack, the justices rejected this request and offered an eminently sensible explanation: “We generally do not overrule precedent absent a compelling reason, especially when, as here, doing so would cause a split of authority between our sister court with which we exercise concurrent appellate jurisdiction.” Resurgence Fin., L.L.C. v. Lawrence, No. 01-08-00341-CV, 2009 WL 3248285 (Tex. App.-Houston [1st Dist.] Oct. 8, 2009, no pet.) (mem. op.).  

But the squeamishness about creating conflict with other appellate courts around the state is not always so pronounced. For example, courts of appeals do not see eye to eye on the theory of "account stated" as legal tool for credit card debt collection, and on the criteria governing admissibility of business records and business records affidavits when the sponsoring witness is a representative of the debt buyer, rather than a custodian of records or otherwise qualified witness from the bank that issued the credit card (or other original creditor). 

RESURGENCE FINANCIAL, L.L.C., Appellant,
v.
JAMES T. LAWRENCE, INDIVIDUALLY AND D/B/A GULF STATES COMMUNICATIONS, INC., Appellee.

No. 01-08-00341-CV.

Court of Appeals of Texas, First District, Houston.

Opinion issued October 8, 2009.

Panel consists of Chief Justice RADACK and Justices BLAND and MASSENGALE.

MEMORANDUM OPINION

SHERRY RADACK, Chief Justice.

After a bench trial, the trial court rendered a take-nothing judgment against appellant, Resurgence Financial, L.L.C. ("Resurgence"), in its suit against appellee, James T. Lawrence, individually and d/b/a Gulf States Communications, Inc. ("Lawrence"), to collect unpaid credit-card debt. In its sole issue, Resurgence contends that the trial court erred in doing so because its suit was properly brought as a suit on account under Texas Rule of Civil Procedure 185. See Tex. R. Civ. P. 185. We affirm.

BACKGROUND

Resurgence sued appellee Lawrence for the balance due on a credit-card account that it alleged had been acquired from Wells Fargo Bank. Resurgence alleged claims for breach of contract and for quantum meruit. Resurgence attached to its petition the affidavit of John H. Over, Resurgence's "designated agent." The affidavit tracked the requirements of Rule 185 for a suit on account and attached a one-page "statement of account," but not the credit-card contract. Lawrence answered with an unsworn general denial, which also asserted that a plaintiff seeking recovery of credit-card debt was "not entitled to proceed on a sworn account theory," i.e., that such suits were not those for which the procedures of Rule 185 were available.

The case was tried to the court. The trial court admitted into evidence Lawrence's answer and his responses to requests for disclosure and requests for admissions, in the last of which he admitted to "breach[ing] the contract made a basis of" Resurgence's petition, but not to the amount due and owing or to the interest rate. The court excluded, however, a "business records affidavit and business records," which were records from Wells Fargo Bank concerning the account. Resurgence declined the trial court's offer for it to nonsuit to "redo the affidavit," indicating that it would prefer to proceed to trial, and offered no further evidence. After the trial court had taken judicial notice of its file, it announced "judgment for the defendant" because Lawrence's admissions were not sufficient to prove up the amount owed.

The trial court rendered a take-nothing judgment against Resurgence and signed findings of fact and conclusions of law, which included the following:

a finding that the only evidence admitted (the answer and discovery responses) did not establish the amount of damages;

a finding and conclusion that the court properly denied admission of Resurgence's business records affidavit and attachments;

a conclusion that "the credit card account at issue was not subject to a sworn account theory under Rule 185"; and

a conclusion that "[g]iven the absence of any presumption under [Texas Rule of Civil Procedure] 93(10) and the sustaining of the objection to the affidavit . . . and related documents, Plaintiff presented no admissible evidence as to the amount of its damages."

The trial court denied Resurgence's motion for new trial.

ANALYSIS

In its sole issue, Resurgence contends that the trial court erred in rendering a take-nothing judgment, asserting that because appellee did not file a verified denial, it was entitled to judgment based on Rule 185.

A. Standard of Review

When, as here, the only issue under review involves a pure question of law, the standard of review is de novo. In re Humphreys, 880 S.W.2d 402, 404 (Tex. 1994); City of Pasadena v. Gennedy, 125 S.W.3d 687, 691 (Tex. App.-Houston [1st Dist.] 2003, pet. denied).

B. Applicable Law

Rule 185 provides:

When any action or defense is founded upon an open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished, on which a systematic record has been kept, and is supported by the affidavit of the party, his agent or attorney taken before some officer authorized to administer oaths, to the effect that such claim is, within the knowledge of the affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed, the same shall be taken as prima facie evidence thereof, unless the party resisting such claim shall file a written denial, under oath. A party resisting such a sworn claim shall comply with the rules of pleading as are required in any other kind of suit, provided, however, that if he does not timely file a written denial, under oath, he shall not be permitted to deny the claim, or any item therein, as the case may be. No particularization or description of the nature of the component parts of the account or claim is necessary unless the trial court sustains special exceptions to the pleadings.

Tex. R. Civ. P. 185 (emphasis added). "Rule 185 is a procedural tool that limits the evidence necessary to establish a prima facie right to recovery on certain types of accounts." Williams v. Unifund CCR Partners, 264 S.W.3d 231, 234 (Tex. App.-Houston [1st Dist.] 2008, no pet.).

C. Analysis

Five courts of appeals, including this Court, have held that suits for collection of credit-card debt, when the card's issuer is not also the provider of the purchased goods or services, are not suits on account under Rule 185. See, e.g., id. at 234-35. A sixth court of appeals has noted the same rule. See Dulong v. Citibank (South Dakota), N.A., 261 S.W.3d 890, 893 n.3 (Tex. App.-Dallas 2008, no pet.) (noting that suit on sworn account is not proper for credit-card collection suit). In Williams, we reasoned that "[r]ule 185 applies only `to transactions between persons, in which there is a sale upon one side and a purchase upon the other, whereby title to personal property passes from one to the other, and the relation of debtor and creditor is thereby created by general course of dealing. . . .'" Williams, 264 S.W.3d at 234 (quoting Meaders v. Biskamp, 316 S.W.2d 75, 78 (Tex. 1958)). Because "no title to personal property passes from the bank to the cardholder," we concluded that "[a]n unpaid bank credit card account . . . creates a cause of action for the bank's money or credit advanced as a loan, but not for goods or services sold or delivered to the cardholder," rendering Rule 185 inapposite. Id. at 234-35.

Resurgence recognizes this authority, but contends that it was wrongly decided, urging us to overrule Williams and to depart from the holdings of our sister courts of appeals. We decline to do so. We generally do not overrule precedent absent a compelling reason, especially when, as here, doing so would cause a split of authority between our sister court with which we exercise concurrent appellate jurisdiction. See Howeth Investments, Inc. v. City of Hedwig Village, 259 S.W.3d 877, 901 (Tex. App.-Houston [1 Dist.] 2008, pet. denied) (declining to overturn 33-year-old precedent interpreting statute that would result in split with the Fourteenth Court of Appeals, when no compelling reason existed to do so). Moreover, abrogating this holding of Williams would put into doubt far older precedent of this Court, in which we applied the same reasoning from Meaders to hold that a suit for breach of a lease for realty is not covered by Rule 185. See Meineke Discount Muffler Shops, Inc. v. Coldwell Banker Prop. Mgmt. Co., 635 S.W.2d 135, 138 (Tex. App.-Houston [1st Dist.] 1982, writ ref'd n.r.e.); accord Schorer v. Box Serv. Co., 927 S.W.2d 132, 134-35 (Tex. App.-Houston [1st Dist.] 1996, writ denied) (following this holding of Meineke, despite concurring opinion arguing that Meaders did not limit Rule 185's application).

Resurgence contends that a compelling reason to overrule Williams exists. The parties agree that the Texas Supreme Court's decision in Meaders was the ultimate source for the line of authority concerning credit-card debt and Rule 185. Accordingly, Resurgence contends that the common-law definition of a "sworn account" adopted in Meaders should not have been applied to Rule 185 because the Meaders court was not interpreting Rule 185; rather, it was interpreting an attorney's fees statute that at that time contained the term—whereas Rule 185 does not contain the term in its text, although its title at the time was "Suit on a Sworn Account." Ignoring Meaders,Resurgence then argues that the plain language of the rule is broad enough to cover credit-card suits. Specifically, it argues that a credit-card-collection suit is either an "open account" or a "claim for a liquidated money demand based upon written contract."

Resurgence ignores the language modifying these terms: the rule describes an "open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties . . . ." Tex. R. Civ. P. 185. Thus, a reading of the entire rule is not inconsistent with Meaders's holding. Much of the authority on which Resurgence relies either considered statutes with language materially different from that in Rule 185^[1] or did not base the holding on Rule 185.^[2] And the remaining authority on which Resurgence relies did not concern credit-card-collection suits and has not been followed by the courts considering the rule's application in that context.^[3] We conclude that Resurgence has offered no compelling reason to overrule Williams, to put into question Meineke or Schorer, or to depart from our sister courts' well-established interpretation of Meaders and Rule 185. Accordingly, we overrule Resurgence's sole issue.

CONCLUSION

We affirm the judgment of the trial court.

[1] See Facility Ins. Corp. v. Employers Ins. Of Wausau, 357 F.3d 508, 513 (5th Cir. 2004) (considering term "open account" in context of limitations statute); Livingston Ford Mercury, Inc v. Haley, 997 S.W.2d 425, 427 (Tex. App.-Beaumont 1999, no pet.) (same).

[2] See Rowlands v. Unifund CCR, No. 14-05-01122-CV, 2007 WL 1395101, at *2, 3 (Tex. App.-Houston [14th Dist.] 2007, no pet.) ("Thus, it was not necessary for Unifund to rely upon the evidentiary effect of the pleaded sworn account; the admissions alone established Unifund's entitlement to prevail based on Rowland's breach of the Account Agreement."); Haley, 997 S.W.2d at 427 ("The dealership does not contend, either below or on appeal, that the account alleged by KETX does not fall within the confines of Tex. R. Civ. P. 185. Consequently, we do not address that issue.").

[3] See Larcon Petroleum Inc. v. Autotronic Sys., Inc., 576 S.W.2d 873, 875-76 (Tex. Civ. App.-Houston [14th Dist.] 1979, no writ); Seisdata, Inc. v. Compagnie Generale de Geophysique, 598 S.W.2d 690, 691 (Tex. Civ. App.-Houston [14th Dist.] 1980, writ ref'd n.r.e.).

Last revised: 12/8/2018