Sunday, December 15, 2013

Sufficiency of the Pleadings: Was the bank's debt claim properly stated in plaintiff's petition?


Fair Notice Standard applies to pleadings in Texas Courts

The quality and specificity of pleadings filed by debt collection attorneys varies considerably; but even at the lower end of the spectrum, a pleading will probably pass muster in most circumstances because the pleading rules in state court are more relaxed, compared to federal court. This is true for plaintiffs as well as defendants.

Texas courts apply the fair notice standard to pleading by the plaintiff, and do not require the defendant to admit or deny specific factual allegations in the numbered paragraphs of the Plaintiff's petition.

Nor is the defendant required to provide specific facts supporting affirmative defenses when filing an answer. The identification of the relevant defense(s) by name is generally sufficient. Rule 94 lists defenses that must be pleaded expressly, and Rule 93 specifies which matters require verified (sworn) answer.
But see -- > Requests for admissions are sometimes embedded in the pleadings, which is not proper under the rules governing pleadings and discovery, and can create confusion.

The bank's petition mentioned credit card account and default. Was the cause of action properly identified? 

While it was not one of the main issues in the case, the Texarkana Court of Appeals, in Tully v Citibank, addressed the issue of pleading sufficiency with respect to breach of contract. Although Citibank's attorney had not expressly pleaded breach of contract as a cause of action in the trial court, the appellate court held that it had nevertheless satisfied the fair notice standard, which applies to trial court pleadings in Texas courts.

The higher court noted that Citibank had stated in its petition that the suit was based on a credit card debt. More specifically, Citibank alleged that Tully "defaulted in making the payments required by the terms of the Card Agreement. Due to Defendant's breach of the terms of the agreement....". The "cardmember agreement" is indisputably a type of contract, and the allegation of "default" amounts to an allegation of "breach" under a contract governing extension of credit and repayment of amounts loaned. Construing the petition liberally, the court concluded that it gave fair notice that Citibank was asserting a cause of action for breach of contract. The Tully v Citibank case stands for the proposition that a suit for collection for a credit card debt is a breach of contract suit, and is cited for this legal point.

Challenging the other party's pleadings with Special Exceptions  

In Texas, pleading deficiencies may be attacked through a motion by another name: Special Exceptions. The rule governing this procedure, which essentially involves a motion for an order requiring the opponent to re-plead, is rule 91 of the Texas Rules of Civil Procedure (TRCP 91). It must be read in conjunction with Rule 90, which addresses waiver of such defects in form.

Normally, it is not worth mounting this type of challenge because it requires a hearing, and the payoff, even in the best-case scenario will be meager. The debt collection case cannot be resolved favorably for the defendant based solely on special exception without the plaintiff being given an opportunity to amend and thereby correct the error. Only if an attempt at amendment would be futile, can the trial court dismiss a petition on special exceptions and close the case. A motion for summary judgment, by contrast, can seek a final disposition. -- > No evidence motion for summary judgment by the defendant.

In contrast to special exceptions, a summary judgment motion does not afford the non-movant a safe harbor, or second chance, after the motion has been heard and granted (except a motion for reconsideration or new trial, which applies generally).

Pleading sufficiency review in the default judgment context 

Sometimes, however, a defective pleading can become a controlling issue; particularly in the context of an appeal from a default judgment. Texas courts have held that the examination of the pleading as a basis for a judgment under such circumstances is more rigorous. The caselaw on this issue is supported by rule 90, which essentially says that all complaints of pleading deficiencies are waived if not made the subject of special exceptions except that the rule does not apply against a party against whom a default judgment is rendered. See TRCP 90.

This makes sense. After all, in the default judgment context, the defendant did not (by definition) appear and was not in a position to challenge the plaintiff's pleading or assert any objections.

Case in point from the Beaumont Court of Appeals 

In 2012 the Ninth Court of Appeals, sitting in Beaumont, handed down an interesting opinion on the subject of pleading sufficiency when presented with the issue after default judgment was rendered against a consumer in a case in which the plaintiff had sued two. Hankston v. Equable Ascent Financial, 382 S.W.3d 631 (Tex.App.- Beaumont - 2012)

Applying the more exacting standard applicable to review of default judgments, the court held, in an opinion written by Justice David Gaultney, that the debt buyer's pleadings did not support the various theories that the creditor's attorney urged on appeal.

Petition did not sufficiently allege elements of account-suit theories 

As for the theory of open and stated account, the petition did not include an allegation that the defendant had agreed that the balance alleged as due was correct, in addition to equivocating on how much was due by conceding that the pleaded-for amount may not reflect all payments made.

Even though an affidavit was attached to the pleading, it did not qualify as a sworn account because the affidavit did not state that the  "claim is, within the knowledge of affiant, just and true...." See Tex.R. Civ. P. 185, and therefor did not meet the minimum requirements of a sworn account suit under Rule 185. Nor did the petition contain any allegation that the account was "for goods, wares and merchandise," for material furnished, for personal services rendered, or for labor done or furnished. See Tex.R. Civ. P. 185.

As for the quantum meruit claim, there was no allegation that the plaintiff provided valuable services or materials. The court also noted that a quantum meruit claim is not available when there is an express contract, as was also alleged in the petition. -- > Express contract renders recovery in quantum meruit unavailable.

But the breach of contract claim was defective too, because the plaintiff tried to impose liability on two defendants, but the body of the petition referred only to one, and did not say which one opened the account or signed the contract. Nor did it even identify the original creditor, which is an additional proof requirement for a plaintiff suing as an assignee.


Theories of recovery in Texas debt collection suits
Breach of contract as the proper theory to collect a credit card debt
Account suit theories: Open account, account stated, and sworn account
Challenging default judgments after the fact

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