THE TEXAS BLUE WAVE AND STUDENT LOAN DEBTORS IN STATE COURT
All of the eighteen sitting Houston court of appeals justices are Republicans. Those that were up for reelection this year were defeated by Democratic challengers without exception.
Justice Harvey Brown is one of them. He deserves special attention on this blog because he wrote two of the three Houston appellate opinions in recent student loan collection cases brought by the National Collegiate Student Loan Trusts (NCSLT). The most recent opinion will be published case in the Southwestern Reporter:
This blog post will critique his and his follow justices' work, and place the trifecta of partial appellate wins for defendants/appellants in private student loan collection cases in perspective.
As such, Justice Brown is most directly responsible for the outcome, and the rationale offered for arriving at it. To the extent plaudits for a positive result for student loan defendants are due, he has earned them.
But one should also expect a sound judicial analysis and
consistent application of the rules of law. Sadly, that cannot be said of the
three opinions here.
Rather obviously, as becomes clear by comparing the three cases, a decision was made how they all should
come out, and they all came out the same way. Regardless of differences among
them. Based on lack of evidence of acceleration of maturity, the damages awarded by the trial courts were
reduced in all three cases to the sum of installment payments calculated based
on the amortization schedule on the TIL Disclosure statement and the date the trust
filed the lawsuit.
But that did not take into account that LIBOR dropped significantly
in 2007 and monthly installment payments necessary to amortize the loan were
therefore lower than originally projected.
Second, the calculation based on the Disclosure Statement estimates of future payment amounts was done regardless of whether the student or co-signer had made any payment. In the last case, Savoy, numerous payments had been made over several years, for which the two Defendants did not get any credit at all. In Foster and Mock, by contrast, the loan servicing record did not reflect that any installment payment was ever made in any amount. So much for equity when dispensing justice using appellate power.
Second, the calculation based on the Disclosure Statement estimates of future payment amounts was done regardless of whether the student or co-signer had made any payment. In the last case, Savoy, numerous payments had been made over several years, for which the two Defendants did not get any credit at all. In Foster and Mock, by contrast, the loan servicing record did not reflect that any installment payment was ever made in any amount. So much for equity when dispensing justice using appellate power.
While all of the defendants in the three cases received partial
relief by having their loan balances reduced on appeal, the bigger gift was bestowed
to the NCSLT student loan litigation machine.
Justice Brown graced it with a published opinion that freed TSI from the taint of the CPFB’s enforcement action (and resultant consent order) by overruling all objections to their affidavit and exhibits, finding TSI’s employees competent to lay a predicate for third-party business records without even identifying the servicer: PHEAA/AES. Knowingly receiving third-party records will do for sponsoring records under the judicially-amended Houston-Texas version of the business records rule; knowledge of the recordkeeping process of the originating entities no longer required.
Justice Brown graced it with a published opinion that freed TSI from the taint of the CPFB’s enforcement action (and resultant consent order) by overruling all objections to their affidavit and exhibits, finding TSI’s employees competent to lay a predicate for third-party business records without even identifying the servicer: PHEAA/AES. Knowingly receiving third-party records will do for sponsoring records under the judicially-amended Houston-Texas version of the business records rule; knowledge of the recordkeeping process of the originating entities no longer required.
Student loan default as a morality tale
In all three Houston cases, the issue on appeal was whether
the Trust’s evidence at trial was admissible and, if so, whether it was sufficient
to support judgment in its favor in the respective amounts. This required a detailed
analysis of the Trust’s evidence on each element of a cause of action for
breach of loan contract asserted by the Trust as assignee of the original
creditor.
In none of three cases had the Trust brought a witness to trial. Its attorneys—hired by TSI on a state-by-state basis--never do that. At least not in Texas. The Trusts had instead relied on a business records affidavit signed by a “Legal Case Manager” employed by Transworld Systems, Inc. with a assortment of exhibits attached to it. See --> Complete Record on appeal in Savoy v. NCSLT 2005-3 (ca. 7 MB pdf file).
In none of three cases had the Trust brought a witness to trial. Its attorneys—hired by TSI on a state-by-state basis--never do that. At least not in Texas. The Trusts had instead relied on a business records affidavit signed by a “Legal Case Manager” employed by Transworld Systems, Inc. with a assortment of exhibits attached to it. See --> Complete Record on appeal in Savoy v. NCSLT 2005-3 (ca. 7 MB pdf file).
But even leaving aside these more technical matters relating to the standard of proof at trial, and whether the Trust had met it, and looking at these private student loan default cases solely as morality tales, the Houston Court of Appeals cannot be said to have delivered a morally righteous and equitable result.
History of payments made by student loan obligors treated as
irrelevant, and simply ignored
On the assumption that the loan-related documents submitted
with TSI’s business records affidavit are admissible and accurate (an issue
resolved against the defendants as their evidentiary objections were all
overruled), Foster and Mock never paid anything; but the same is not true of
the Savoys. And yet, regardless of whether any installment payments were made,
all three had their loan balances reduced based on the same questionable
formula devised by the Houston Court of Appeals to deal with NCSLT cases.
In what was clearly a result-oriented disposition, the Houston
justices decided that the student loan defendants should not be held liable for
the full amount sought and obtained by the Trusts in the trial courts, but should
pay a good portion of it.
In all three cases, the Court concluded that the defendant(s)
should be held liable for the sum of the amount of the installment payments they
were supposed to make under the terms stated on the TIL Disclosure Statement
issued at the time of loan origination: Monthly installment amount times the number
of months from the date the loan went into repayment to the date the Trust
filed its lawsuit.
What’s wrong with that?
What’s wrong with that?
What is wrong with it is that the monthly installment amounts
shown on the TIL Disclosure Statements were only projections because the loan-specific
interest rate was based on the LIBOR index and therefore variable. The figures were
specifically denoted “estimates” on the Disclosure Statements, with an
explanation of the effect of interest rate changes on monthly installment amounts explained in the fine print.
The cost of individual loans varied based on the percentage
margin to be added to LIBOR to compute variable interest accrual on an ongoing
basis. Obviously, it could not be known at the time of loan origination that LIBOR
would be much lower in 2008 and in the years thereafter, and that the monthly
installment amounts necessary to amortize the loan over the standard 20-year
repayment period would therefore also be lower compared to the estimates at the
time of loan origination based on what was then the current LIBOR rate.
Judicially fixing LIBOR at historic rates
When Justice Brown and his colleagues on the panel decided
how much the defendants should pay, they essentially “froze” LIBOR at the rate LIBOR
was at the time the loan was originated, ignoring the fact that the loans were
by design variable-rate loans, and that the drop in LIBOR starting in 2007 and
thereafter worked in the student borrower’s favor rather than the creditors’.
When the students took out these loans between 2005 and 2007--many
of them high-cost, especially those originated in 2007--they were required to
assume the interest-rate risk, i.e. the risk associated with future fluctuations
of the index in the financial markets. They should accordingly also be the beneficiaries
of the diminished interest accruals based on the lower index rates in the wake
of the financial crash, rather than having LIBOR retroactively fixed at a
higher rate by judicial fiat years down the road in a collection suit.
Nor did or could the Court’s formula, being based on the repayment
terms printed on the TIL Disclosure Statement, take account of any forbearances
that might later be granted.
In the Savoy case, opinion-author Harvey Brown simply ignored the evidence of forbearances on the loan history records from AES as much as he ignored several pages of loan history reflecting credits for monthly payments diligently made over several years. As a result, the Savoys received the same judicial treatment as Foster and Mock, who may have been victims of predatory lending (given the high interest rates and origination fees on their loans), but had never paid anything. If they never made any payments on their respective loans, Foster and Mock were in effect net beneficiaries of the predatory loans (at least as long as the Trusts do not garnish their bank accounts, if any, judgments secured).
In the Savoy case, opinion-author Harvey Brown simply ignored the evidence of forbearances on the loan history records from AES as much as he ignored several pages of loan history reflecting credits for monthly payments diligently made over several years. As a result, the Savoys received the same judicial treatment as Foster and Mock, who may have been victims of predatory lending (given the high interest rates and origination fees on their loans), but had never paid anything. If they never made any payments on their respective loans, Foster and Mock were in effect net beneficiaries of the predatory loans (at least as long as the Trusts do not garnish their bank accounts, if any, judgments secured).
The same cannot be said of the Savoys, however. At least
one of them (the records do not reflect whether it was the student or the
co-signer) had faithfully made installment payments for several years. That
would count in her favor if Savoy were ever to file for bankruptcy and seek
discharge of otherwise non-dischargeable educational debt under the Brunner
test, but this evidence of good-faith effort to meet student loan payment obligations
carried no weight with Justice Brown and his colleagues.
The matter of default and charge-off
In an even more striking contrast with Mock and Foster, the
loan history records in Savoy reflected that the Savoys had not only been making
payments for years, but had been making payments in the months prior to what Justice
Brown concluded was a charge-off of their loan based on their delinquency in
January of 2014. But the reader of Justice Brown’s opinion would not know of these
payments because there is simply no mention of them.
 |
| Last page of Savoy payment history exhibit |
While Justice Brown’s opinion in Savoy dutifully recites the
elements of breach of contract, it omits the discussion of the element of
breach (evidence of when what required payments was not made), not to mention nonpayment
for a period of six month, which would be the standard period if the Trusts
were subject to the Federal Reserve’s uniform charge-off policy. But the Trusts
are not financial institutions; nor are they corporations or even going
concerns. The trusts are merely static investment vehicles established under
Delaware’s statutory trust act with no management and no employees. And the trust-related
agreements do not even provide for chargeoff, whether by the trust’s servicer,
the trust’s administrator, or any trustee. Instead, the governing documents
required guaranty agency TERI to assume defaulted student loans.
All private student loans under the National Collegiate Trust
securitization scheme were guaranteed by TERI
Under the TERI guaranty, the trusts would be held harmless
because TERI was required to pay the full amount of principal and accrued
interest on defaulted loans for which it had provided a guaranty. That applied
to all of them because it was an essential credit enhancement for the securitization
and made the private student loans non-dischargeable in bankruptcy, thereby
reducing credit risk for investors in bonds issued in the name of the trusts to
acquire the loans from the originating banks. TERI would attempt to collect and
rehabilitate the loans on which TERI’s indemnity obligation had been triggered
by the obligor’s default, and rehabilitated loans were eligible to be returned
to the pool of trust assets.
TERI went bankrupt, of course, and the TERI guaranty funds
set aside for payment of claims by the trusts were eventually liquidated and
distributed to the various trust’s collection accounts, but neither the Court,
nor the attorneys in their appellate briefing in any of the three Houston cases,
went into the ramifications of that development. The fact that the bondholders
received some material financial benefit from the TERI guaranty agreements covering
the securitized student loans notwithstanding the TERI fracas at the time of
the financial crisis and its aftermath went unmentioned.
Unlike the NCSLT bondholders, the student obligors did not
benefit from the TERI guaranty, however. In Savoy, Justice Brown expressly
overruled the argument that the defendants were not liable because the ending balance
on the loan history documentation produced by TSI was zero, reflecting payoff
by TERI pursuant to its guaranty obligation rather than chargeoff to loss/profit
by the Trust suing as creditor.
It could nevertheless be said that the student debtors
benefited too, albeit by other means, and in a manner utterly unrelated to the
fact that the TERI had guaranteed their loans (thereby insulating them from
bankruptcy discharge), and likewise unrelated to the fact that a TERI guaranty
fees had been part of the cost of loan origination which had been added to the
principal loan balances at the front end, making them part of the loan balance
to be repaid by the borrowers.
No evidence of proper acceleration of maturity
The student loan defendants in the case before the court benefited because
the Houston appellate court concluded that the trusts had failed to adduce
evidence that the maturity of these private student loans, all of which have a
standard amortization period of 20 years, had been validly accelerated in their
specific cases.
From the perspective of defensive litigation strategy, this was not a bad argument,
and the attorneys for the debtors had asked for partial reversal based on
nonacceleration as a fallback, should their bid for outright reversal and
rending of a take-nothing judgment on appeal based on evidentiary or
sufficiency issues fail.
As already discussed, however, the Houston Court of Appeal miscalculated
the amount of the reductions of the amounts awarded by the trial courts that
were necessary to properly reflect the plaintiffs’ failure to accelerate
maturity, and this error resulted in an inflated amount for three distinct
reasons: (1) because the Court implicitly used a historically higher LIBOR rate
and treated it as a fixed rate by employing the estimated monthly installment
amount figure shown on the TIL Disclosure Statement created at the time of loan
origination; (2) because the Court did not make allowance for forbearance
periods (during which no regular installment payments were due), and (3) because the Court did apply any credits for
payments made by the debtors to the sum of monthly installment amounts calculated
through the date the Trust filed the lawsuit.
In all three student loan collection cases, the amount the breach-of-contract damages which the First Court of Appeals found to be supported by the evidence was therefore overstated, and the overstatement was particularly egregious in the Savoy case because the Court did not acknowledge and give credit for the numerous monthly installment payments the loan history records from AES showed as having been made. The Savoys did not have to submit evidence of installments payments because the creditor’s own loan-specific records already reflected them. And as defendants, the Savoys did not have the burden to prove that the trust had actually sustained the amount of damages it alleged in its pleadings.
In all three student loan collection cases, the amount the breach-of-contract damages which the First Court of Appeals found to be supported by the evidence was therefore overstated, and the overstatement was particularly egregious in the Savoy case because the Court did not acknowledge and give credit for the numerous monthly installment payments the loan history records from AES showed as having been made. The Savoys did not have to submit evidence of installments payments because the creditor’s own loan-specific records already reflected them. And as defendants, the Savoys did not have the burden to prove that the trust had actually sustained the amount of damages it alleged in its pleadings.
Savoy v. National Collegiate Student Loan Trust 2005-3. No. 01-17-00345-CV, ___ S.W.3d ___ (Tex.App.- Houston [1st Dist.] Aug. 9, 2018, no pet.).
Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op.)
Foster v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (mem. op.)
THE PROOF-OF-ASSIGNMENT ISSUE IN THE HOUSTON STUDENT LOAN
TRUST CASES
The loan origination documents in NCSLT cases are not conventional
promissory notes, not to mention negotiable instruments. That’s why the trusts,
bringing collections suits based on loans that fall into default, have to prove
all elements of a conventional breach of contract (loan contract) cause of
action plus a valid assignment of the loan by the originating bank, called the
program lender.
In three cases it has decided so far, the Houston Court of
Appeals resolved the evidentiary challenges to the assignment proof offer through
the TSI business records affidavit against the student loan defendants, and refrained
from citing two earlier cases decided by the Fort Worth Court of Appeals which student
defendants had won based on each trust’s failure to adduce sufficient evidence
to prove that it had received the right to sue on the loans from the program
lenders. See Gillespie v. National Collegiate Student Loan Trust 2005-3, No.
02-16-00124-CV, 2017 WL 2806780 (Tex. App.-Fort Worth June 29, 2017, no pet.)
(mem. op.); Nat'l Collegiate Student Loan Trust 2006-2 v. Ramirez, No.
02-16-00059-CV, 2017 WL 929527 (Tex. App.-Fort Worth, Mar. 9, 2017, no pet.)
(mem. op.).
THE CONTRACT-FORMATION ISSUE: PICKING THE THEORY TO FIT THE PREFERRED
CONCLUSION
In all three Houston cases, the Court of Appeals correctly
recited the relevant caselaw: That to form a valid contract, an offer must be
accepted in the manner specified if the manner is specified, but it did not
apply this unremarkable legal rule consistently.
In the case of private student loans under the NCSLT
program, the standard terms attached to the loan application provides that the
loan-specific credit terms (cost terms) will to be disclosed on a forthcoming TIL
Disclosure Statement (if the loan was going to be approved) and that those cost
terms were to be accepted by the loan applicant by endorsing and cashing the
disbursement check upon its receipt. Otherwise the check or the money would
have to be returned.
The cancelled disbursement check signed by student and
cosigner was duly attached the TSI’s affidavit in the Mock case, thus proving disbursement
and acceptance of both funds and loan terms, but it was not attached in the
other two cases.
So how did the First Court handle this evidentiary deficit
in those other two cases? It held that the proof of the specified manner of
acceptance (i.e., the disbursement check) was not really needed, and that the evidence
that a valid contract was formed was sufficient anyhow. In other words, the
controlling legal rule was correctly applied in the case where its application suited
the creditor, but it was not applied where it would have worked against the
creditor because the critical evidence was missing; it was not applied in a case in which its absence
would have warranted a take-nothing judgment in favor of the defendants for
failure by the plaintiff to adduce sufficient evidence of contract formation, the
first essential element for a viable breach-of-contract claim.
Across its three cases, the Houston Court’s actions do not inspire
confidence in the equal application of applicable law.
Paradoxically, Foster v. NCSLT 2007-4 has already been cited
for the general proposition that the contract may be accepted by conduct, with
no mention of the fact that the relevant contract language in Foster specified
the manner of acceptance, thus precluding acceptance in a different manner. See
Law Office of Thomas J. Henry v. Jonathan Cavanaugh, No. 05-17-00849-CV
(Tex.App. – Dallas, May 7, 2018, pet filed).
Specifically, "[i]f one party signs a contract, the other party may accept by his acts, conduct, or acquiescence to the terms, making it binding on both parties." Foster v. Nat'l Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760, at *9 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet. h.) (mem. op.).
Further, in Foster, the loan history records from AES did
not reflect that any installment payments were ever made (a circumstance noted
in the Court’s opinion), so how can the absence of payments by the defendant (conduct
other than a signature) establish that the defendant accepted the contract term
by making payments, a proposition that has previously been accepted by
appellate courts to establish contract-formation in credit card debt collection
cases.
The Houston appeals court fudged the issue regarding
acceptance of the essential loan terms that were only stated on the TIL Disclosure Statement by effectively
treating the TIL Disclosure Statement as an “executed” instrument to be read
and construed together with the signed application. This, even though the cost terms
were not yet known when the student signed the application, and even though
there was no evidence produced by TSI to show that the Disclosure Statement or the
disbursement check were subsequently mailed to the student.
Clearly and disturbingly, the Houston Court of Appeals held
the trusts to their burden of proof only in the Mock case, and exempted the
trusts from having to satisfy their identical burden of proof on the
contract-formation element in the cases of Savoy and Foster.
THE COURT'S DISPOSITION OF THE EVIDENTARY ISSUES IN NCSLT LITIGATION
The Houston Court’s treatment of the evidentiary issues, alas,
does not inspire belief in the equal and neutral application of the procedural
law either.
In Foster, the Court rejected the granulated arguments challenging the Trust’s evidence in the student loan defendant's appellate brief on the ground that the same objections were not first
made in the trial court.
In Savoy, however, in which the two defendants were represented
by the same law firm and had better prepared for trial, the applicable objections
were properly presented to the trial court—many even in writing--and were thus
not waived.
Those objections included the objection to affidavit
testimony by TSI’s “Legal Case Manager” as hearsay at trial. The appellate Court
nevertheless relied liberally on the affidavit testimony of TSI’s employee to
beef up the conclusion that the data sheet TSI had inserted between the Pool
Supplement and the Deposit and Sale Agreement proved that the specific loan at
issue in the case was part of the pool-level transaction involving many loans, and that the data sheet was
a redacted copy of the omitted Schedule referenced by the Pool Supplement as
containing identifying information on the affected loans.
Note that the admissibility and sufficiency of the loan-specific
evidence of transfer from the program lender to the securitization trust had
been the very issue on which the decisions of the Fort Worth Court of Appeal
pivoted in Ramirez and Gillespie. As noted, the Houston court of appeals did
not even acknowledge them as contrary case law, and instead ruled that the Trust
had validly proven the assignments and the loan-specific chain of title, overruling
all well-preserved fully briefed evidentiary objections.
DEBT COLLECTOR TRANSWORLD SYSTEMS INC. (TSI) RECEIVES A JUDICIAL
WHITEWASH FOLLOWING CFPB ENFORCEMENT ACTION IN 2017
In both Foster and Savoy, the Defendants had argued in the trial
court that the employee of TSI who signed the business records affidavit was
not qualified to sponsor business records created by other entities. The
Houston court rejected this argument as unpreserved in Foster and responded to
it in Savoy by citing its earlier holding in Simien v. Unifund CCR Partners, 321 S.W.3d 235, 240-41 (Tex. App.-Houston [1st Dist.] 2010, no pet.), in which it had
permitted a representative of a debt buyer to lay a predicate for admission of
business records created by the original creditor, based on the proposition
that a major bank’s records must be trustworthy, lest the bank get in trouble
with regulators.
Also see --> Simien v Unifund CCR Partners' shaky premise - U.S. Comptroller of the Currency (OCC) enforcement action against Chase Bank punctures presumption of trustworthiness of credit card debt records established by Houston Court of Appeals in 2010
LEGAL STANDARDS LOWERED ONCE MORE TO HELP DEBT COLLECTORS
Rather than sticking to its own already out-of-the-mainstream
prior holding in Simien, the First Court of Appeals in Savoy went one step
further in finding it sufficient for TSI’s affiant to attest to knowledge of
the “receiving” of hearsay records to establish a proper predicate for the
truth of what is stated on them under the business records exception to hearsay.
Under the Court’s latest loosening of the requirements of the BRA rule, employees of debt collection
agencies can now sponsor account records as long as they state—meaninglessly--that
they rely on the accuracy of those records. What else can collectors do when
they have no independent ability to evaluate the reliability of such
transferred records and run no risk of perjuring themselves in any event?
When robo-signing receives its official seal of approval, it is no longer a problem. TSI must be having second thoughts about settling with the Consumer Financial Protection Agency and agreeing to civil penalties over its abuses in affidavit production and debt collection/litigation practices found abusive by the federal agency before it had been commandeers by new leadership that is no longer committed to consumer protection.
When robo-signing receives its official seal of approval, it is no longer a problem. TSI must be having second thoughts about settling with the Consumer Financial Protection Agency and agreeing to civil penalties over its abuses in affidavit production and debt collection/litigation practices found abusive by the federal agency before it had been commandeers by new leadership that is no longer committed to consumer protection.
As for consumers in Texas, the lesson is bleak. If business-friendly
appellate courts are ready to change existing law to make consumers lose
under newly-made law, it ts a no-win situation. No amount or quality of lawyer assistance will make any difference.
And not only do they lose their case. They will have helped establish new precedent for the benefit of the court’s favored category of litigants in similar types of case in the future. That’s precisely what happened in Simien v. Unifund a few years ago, when the First Court of Appeals held that the sponsoring witness did not have to be familiar with the record-keeping practices of the entity that had created those records. It was a big gift to out-of-state mass litigation collections firms suing Texas for thousand of dollars on junk debt that the original creditor had long written off and sold for pennies on the nominal dollar, balances often inflated by assessment of interest at rates of 30% or even higher after the cardholders had made a monthly payment late or had stopped making regular payments altogether.
--> Pitfalls of Consumer Debt Defense in Texas: Taylor v. Discover Bank (Tex. App. - Austin 2018)
And not only do they lose their case. They will have helped establish new precedent for the benefit of the court’s favored category of litigants in similar types of case in the future. That’s precisely what happened in Simien v. Unifund a few years ago, when the First Court of Appeals held that the sponsoring witness did not have to be familiar with the record-keeping practices of the entity that had created those records. It was a big gift to out-of-state mass litigation collections firms suing Texas for thousand of dollars on junk debt that the original creditor had long written off and sold for pennies on the nominal dollar, balances often inflated by assessment of interest at rates of 30% or even higher after the cardholders had made a monthly payment late or had stopped making regular payments altogether.
THE END OF CREDITOR-ACCOMMODATING REPUBLICAN JURISPRUDENCE?
It all smacks of results-oriented agenda-driven jurisprudential
injustice against which there is no remedy because the state’s highest court is
likewise under the iron-clad control of like-minded jurists of the same political
party.
The Supreme Court of the United States is split between
liberal and conservative factions and generates lively debate and vigorous dissents.
Many of its decision come down 5 to 4. The supreme court’s counterpart in Texas,
however, is an echo chamber populated by a single group with shared political
and ideological commitments and industry sympathies. Sitting members resign before
their terms are up so the Republican Governor gets to appoint another Republican,
not infrequently a close associate in the executive branch. Former members of the High Court will in due course return
to argue cases for private clients if they do not serve in other high office, regaling their former peers with citations to precedents they have themselves applied if not
decided while sitting on the bench with them.
Sitting members of the supreme court will cite their own
prior decisions as binding authority, just as the Houston Court has done in
Savoy, a case in which it self-referentially relied on its recent decisions in Foster
and Mock, while ignoring the opinions handed down by the Fort Worth Court of
Appeals in Ramirez and Gillespie. Those cases happen to conflict with the Houston justices own preferred
way to deal with private student loan mass litigation, and would interfere with
the Houston Appeals Court's approach to creating of a creditor-friendly jurisprudence to guide the trial courts
below.
Hopefully, the arrival of new justices of the Democratic
persuasion will pose a proper counterweight even if some of them have lesser experience
and credentials than long-serving Republican incumbents; Hopefully the arrival of
the new crop of appellate jurists will foster a more lively exchange of thoughts
and greater intellectual honesty. Hopefully, the impending change in the partisan
makeup of the major metropolitan courts of appeals will reign in the practices
of creating—in an ad hoc fashion—new caselaw to accommodate special interests at
the expense of individuals and at the expense of equal and fair application of
law; under a court system that has been rejuvenated and has shed the heavy burden
of many years of unassailable Republican hegemony.
CITES FOR PRIVATE STUDENT LOAN APPELLATE CASES IN TEXAS COURTS OF APPEALS
Savoy v. National Collegiate Student Loan Trust 2005-3. No. 01-17-00345-CV, ___ S.W.3d ___ (Tex.App.- Houston [1st Dist.] Aug. 9, 2018, no pet.).
Mock v. Natational Collegiate Student Loan Trust 2007-4, No. 01-17-00216-CV, 2018 WL 3352913 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (memorandum opinion)
Foster v. National Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (memorandum opinion).
See Gillespie v. National Collegiate Student Loan Trust 2005-3, No. 02-16-00124-CV, 2017 WL 2806780 (Tex. App.-Fort Worth June 29, 2017, no pet.) (mem. op.); Nat'l Collegiate Student Loan Trust 2006-2 v. Ramirez, No. 02-16-00059-CV, 2017 WL 929527 (Tex. App.-Fort Worth, Mar. 9, 2017, no pet.) (mem. op.).
REBECCA V. SAVOY AND THERESA SAVOY, Appellants,
No. 01-17-00345-CV
Opinion issued August 9, 2018.
See Gillespie v. National Collegiate Student Loan Trust 2005-3, No. 02-16-00124-CV, 2017 WL 2806780 (Tex. App.-Fort Worth June 29, 2017, no pet.) (mem. op.); Nat'l Collegiate Student Loan Trust 2006-2 v. Ramirez, No. 02-16-00059-CV, 2017 WL 929527 (Tex. App.-Fort Worth, Mar. 9, 2017, no pet.) (mem. op.).
REBECCA V. SAVOY AND THERESA SAVOY, Appellants,
v.
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-3, Appellee.
Court of Appeals of Texas, First District, Houston.
On Appeal from the County Civil Court at Law No. 2, Harris County, Texas, Trial Court Case No. 1076548.
Panel consists of Justices Keyes, Brown, and Lloyd.
OPINION
HARVEY BROWN, Justice.
This is an appeal from a final judgment in favor of National Collegiate Student Loan Trust 2005-3 in its suit against Rebecca and Theresa Savoy for breach of a student loan agreement and personal guaranty.[1] In three issues, the Savoys contend that (1) the trial court abused its discretion in admitting the Trust's exhibits under the business-records exception to the hearsay rule, (2) there is legally and factually insufficient evidence to support the trial court's judgment, and (3) the Trust did not have standing to sue because the loan's other guarantor, The Education Resources Institute, Inc., assumed and paid off the debt after the Savoys defaulted. We suggest a remittitur of damages. Conditioned on that suggestion, we affirm the trial court's judgment.
Background
In August 2005, Rebecca Savoy, as borrower, and Theresa Savoy, as cosignor, took out a student loan from JPMorgan Chase Bank, N.A. to finance Rebecca's education at the University of Houston. Over ten years later, in April 2016, the Savoys were sued by a Delaware statutory trust,[2] National Collegiate Student Loan Trust 2005-3, for defaulting on the loan.[3]
The Trust alleged that it acquired the note from JPMorgan Chase before the Savoys' first payment date, when the loan was still in good standing. The Trust further alleged that, after the loan's deferral period, the Savoys failed to make payments as agreed, causing a default. The Trust then sent the Savoys a letter demanding payment in full, but the Savoys failed to pay the note. The Trust asserted claims for breach of contract and breach of personal guaranty, seeking damages of $20,492.05 for the unpaid balance and $2,004.15 for accrued and unpaid interest.
The case was tried to the bench. The Trust did not call any live witnesses. Instead, it offered into evidence the affidavit of Alicia L. Holiday, a legal case manager for the Trust's loan subservicer, Transworld Systems, Inc., and seven attached exhibits.
The first exhibit was a Subservicer Confirmation letter, which showed that TSI is a subservicer for the Trust and the custodian of records for all student loan accounts owned by the Trust. The second exhibit consisted of two documents relating to the origination of the loan: (1) a "Loan Request/Credit Agreement" and (2) a "Note Disclosure Statement." The third exhibit consisted of three documents relating to JPMorgan Chase's assignment of the loan through an intermediary to the Trust: (1) a "Pool Supplement," dated October 12, 2005, (2) a redacted copy of Schedule 1 to the Pool Supplement, and (3) a "Deposit and Sale Agreement," also dated October 12, 2005. The fourth, fifth, sixth, and seventh exhibits consisted of four documents relating to the loan's repayment history: (1) a "Loan Financial Activity" Report, (2) a "Deferment/Forbearance" Summary, (3) a "Repayment Schedule," and (4) a "Loan Payment History Report."
The Savoys made numerous written and oral objections to Holiday's affidavit and the attached exhibits. The trial court overruled the Savoys' objections and admitted the seven exhibits into evidence under the business-records exception to the hearsay rule. The trial court rendered judgment for the Trust on both its claims, awarding it damages in the amount of $20,492.05, plus costs and interest.
The Savoys appeal.
Admissibility of Evidence
In their first issue, the Savoys contend that the trial court abused its discretion in admitting the Pool Supplement, Pool Supplement Schedule, Deposit and Sale Agreement, Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule into evidence under the business-records exception to the hearsay rule. The Savoys contend that none of the documents satisfy the requirements of the business-records exception. And they further contend that three of the documents—the Pool Supplement, Pool Supplement Schedule, and Deposit and Sale Agreement—were not properly authenticated.
A. Standard of review
We review a trial court's decision to admit or exclude evidence for an abuse of discretion. Simien v. Unifund CCR Partners, 321 S.W.3d 235, 239 (Tex. App.-Houston [1st Dist.] 2010, no pet.). A trial court abuses its discretion when it acts without reference to any guiding rules and principles. Id. We must uphold the trial court's evidentiary ruling if there is any legitimate basis for the ruling. Id.
B. Whether documents meet requirements of Rule 803(6) to qualify as business records
Hearsay is an out-of-court statement offered into evidence to prove the truth of the matter asserted. TEX. R. EVID. 801(d). Hearsay is inadmissible unless a statute or rule provides otherwise. TEX. R. EVID. 802. The proponent of hearsay has the burden to show that the testimony fits within an exception to the general rule prohibiting the admission of hearsay evidence. Simien, 321 S.W.3d at 240.
Rule 803 establishes various exceptions to the hearsay rule, including an exception for certain business records. Under the business-records exception, a record of an act, event, condition, or opinion is not excluded by the hearsay rule if:
(A) the record was made at or near the time by—or from information transmitted by—someone with knowledge;
(B) the record was kept in the course of a regularly conducted business activity;
(C) making the record was a regular practice of that activity;
(D) all these conditions are shown by the testimony of the custodian or another qualified witness, or by an affidavit or unsworn declaration that complies with Rule 902(10); and
(E) the opponent fails to demonstrate that the source of information or the method or circumstances of preparation indicate a lack of trustworthiness.
TEX. R. EVID. 803(6).
"A document authored or created by a third party may be admissible as business records of a different business if: (a) the document is incorporated and kept in the course of the testifying witness's business; (b) that business typically relies upon the accuracy of the contents of the document; and (c) the circumstances otherwise indicate the trustworthiness of the document." Simien, 321 S.W.3d at 240-41.
In her affidavit, Holiday testified that TSI is the Trust's loan subservicer and the designated custodian of records for the Savoys' educational loan; that she is employed by TSI and authorized by the Trust to make the representations in her affidavit and to testify about the Savoys' educational loan; and that she has personal knowledge of the business records maintained by TSI as custodian of records and the business records attached to her affidavit. See TEX. R. EVID. 903(6)(D). She stated that the records are created, compiled, and recorded as part of regularly conducted business activity at or near the time of the event and from information transmitted by a person with personal knowledge of the event and a business duty to report it, or from information transmitted by a person with personal knowledge of the accounts or events described within the business records. See TEX. R. EVID. 803(6)(A), (C). She further stated that the records are created, kept, maintained, and relied upon in the course of ordinary and regularly conducted business activity. See TEX. R. EVID. 803(6)(B). And she stated that it is TSI's regularly conducted business practice to incorporate prior loan records and documentation into TSI's business records and that she is familiar with the process by which TSI receives prior account records, including origination records from the time the loans are requested and the funds disbursed. See Simien, 321 S.W.3d at 240-41 (stating circumstances under which document authored or created by third party may be admissible as business record of different business).
Thus, Holiday's affidavit provided the testimony necessary to show that the attached business records comply with the general requirements of Rule 803(6). Nevertheless, the Savoys argue that the Pool Supplement, Deposit and Sale Agreement, Pool Supplement Schedule, Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule did not qualify as business records because they were not trustworthy for various reasons.
1. Pool Supplement and Deposit and Sale Agreement
First, the Savoys argue that the Pool Supplement and Deposit and Sale Agreement did not qualify as the Trust's business records because they were retrieved from the SEC's online database, EDGAR. Assuming the Pool Supplement and Deposit and Sale Agreement were retrieved from EDGAR, these documents were nevertheless admissible as business records of the Trust because the Trust showed (a) the documents are incorporated and kept in the course of the Trust's business, (b) it typically relies upon the accuracy of the contents of these documents, and (c) the circumstances otherwise indicate that the documents are trustworthy. Id. Holiday averred that it is TSI's regularly conducted business practice to incorporate prior loan records and documentation into TSI's business records and that she is familiar with the process by which TSI receives prior account records. And if the Pool Supplement and Deposit and Sale Agreement came from EDGAR, then the circumstances indicate they are trustworthy. See Williams Farms Produce Sales, Inc. v. R&G Produce Co., 443 S.W.3d 250, 259 (Tex. App.-Corpus Christi 2014, no pet.) (documents printed from government websites are self-authenticating).
The Savoys further argue that the Pool Supplement was inadmissible because the copy proffered by the Trust is missing its final, fifth page. But the Savoys themselves admit that the fifth page is simply a reference to the Pool Supplement Schedule—which the Trust did proffer in redacted form. We hold that the trial court did not abuse its discretion in admitting Pool Supplement and Deposit and Sale Agreement.
2. Pool Supplement Schedule
Next, the Savoys argue that the Pool Supplement Schedule did not qualify as the Trust's business record because it was not made contemporaneously, it is not a record of the Trust but rather the Trust's indenture trustee, and it is not the schedule referenced by the Pool Supplement attached to Holiday's affidavit, as it contains information relating to only one loan rather than all the loans pooled for sale. As already discussed, in her affidavit, Holiday averred that the Pool Supplement Schedule, like the other records, was made at or near the time of the event it records. Just because the Pool Supplement Schedule is on file with the Trust's indenture trustee does not mean that it is not also on file with the Trust itself. Holiday averred in her affidavit that the Pool Supplement Schedule was on file with the Trust, and it was within the trial court's discretion to rely on that testimony. And it is unsurprising that the Pool Supplement Schedule only contains information for one loan, as Holiday's affidavit makes clear that it is a "redacted copy." That the information relating to the other loans is missing is not evidence that the Trust proffered the wrong schedule. We hold that the trial court did not abuse its discretion in admitting the Pool Supplement Schedule.
3. Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule
Finally, the Savoys argue that the Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule did not qualify as the Trust's business records because the print date on these documents (May 18, 2016) shows that they were not made contemporaneously, were not kept in the course of a regularly conducted business activity, and are untrustworthy. See TEX. R. EVID. 803(6)(A), (B), (E). The print date on these documents does not suggest that the documents were prepared on the date they were printed. Each document includes the date for each event recorded. The Loan Financial Activity Report records events from August 25, 2005 to January 8, 2014; the Deferment/Forbearance Summary records events from December 1, 2007 to February 28, 2009; and the Repayment Schedule records events from December 17, 2007 to July 2, 2013. These dates, considered together with Holiday's affidavit testimony, show that the records were kept contemporaneously and created before this litigation began to track the repayment of the loan. Rule 803(6) only requires that the information be recorded at or near the time of the event. It does not also require that the copy of the record proffered into evidence be printed near the time of the event. It is therefore irrelevant that new copies of the Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule were printed after the Trust filed its petition. We hold that the trial court did not abuse its discretion in admitting the Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule.
C. Whether documents were authenticated under Rule 902(10) or otherwise
The Savoys further contend that the Trust failed to properly authenticate the three documents relating to the assignment of the loan—the Pool Supplement, Pool Supplement Schedule, and Deposit and Sale Agreement. The Trust responds that it authenticated these documents through Holiday's business-records affidavit.
Under Rule 902(10), business records are self-authenticating and require no extrinsic evidence of authenticity if they meet the requirements of Rule 803(6) and are accompanied by an affidavit that complies with subparagraph (B) of the rule and any other requirements of law. TEX. R. EVID. 902(10). Subparagraph (B) provides a template for a sufficient affidavit, which enumerates the elements of Rule 803(6), discussed above. TEX. R. EVID. 902(10)(B).
Rule 902(10)(B) "does not require the affiant to identify the particular person who originally created the business record in order to satisfy the authentication predicate." H2O Sols., Ltd. v. PM Realty Grp., LP, 438 S.W.3d 606, 622 (Tex. App.-Houston [1st Dist.] 2014, pet. denied). "Testimony by a witness or affiant identifying the exhibits as the business records of the proponent of the evidence `is sufficient evidence to satisfy the authentication requirement of Rule 901(a), regardless of whether the witness had personal knowledge of the contents of this evidence.'" Id.(quoting Concept Gen. Contracting, Inc. v. Asbestos Maint. Servs., Inc., 346 S.W.3d 172, 181 (Tex. App.-Amarillo 2011, pet. denied) (brackets omitted).
The Savoys argue that the Pool Supplement and Deposit and Sale Agreement should have been authenticated either by a live witness or as certified copies of public records under Rule 902(4)(B). We disagree. As discussed, a proponent can authenticate a business record with an affidavit that complies with Rule 902(10), which is what the Trust did here.
The Savoys further argue that the Pool Supplement Schedule was not properly authenticated because the schedule was never identified by Holiday. Again, we disagree. In her affidavit, Holiday stated that the Pool Supplement Schedule was "a redacted copy of the Schedule of transferred loans referenced within the Pool Supplement." Thus, the Pool Supplement Schedule was sufficiently identified.
We conclude that Holiday's affidavit complies with Rule 902(10)(B). See TEX. R. EVID. 803(6), 902(10)(B). Thus, the Trust's business records—including the Pool Supplement, Pool Supplement Schedule, and Deposit and Sale Agreement—are self-authenticating and require no extrinsic evidence of authenticity to be admitted. See TEX. R. EVID. 902; Foster v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00253-CV, 2018 WL 1095760, at *6 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (mem. op.) (in similar case, holding that affidavit of employee of loan's subservicer complied with Rule 902(10)(B) and that attached business records were self-authenticating).
We overrule the Savoys' first issue.
Sufficiency of Evidence
In their second issue, the Savoys contend that there is legally and factually insufficient evidence to support the trial court's judgment.
A. Standard of review
In an appeal from a bench trial, the trial court's findings of fact have the same weight as a jury verdict. Choice! Power, L.P. v. Feeley, 501 S.W.3d 199, 208 (Tex. App.-Houston [1st Dist.] 2016, no pet.). When challenged, a trial court's findings of fact are not conclusive if there is a complete reporter's record on appeal. Id.
We review a trial court's findings of fact under the same legal-sufficiency-of-the-evidence standard used when determining whether sufficient evidence exists to support an answer to a jury question. Id. When considering whether legally sufficient evidence supports a challenged finding, we must consider the evidence that favors the finding if a reasonable factfinder could, and disregard contrary evidence unless a reasonable factfinder could not. Id. We view the evidence in the light most favorable to a finding and indulge every reasonable inference to support it. Id.
When, as here, a party attacks the legal sufficiency of an adverse finding on an issue on which she did not have the burden of proof, she must demonstrate on appeal that no evidence supports the adverse finding. Graham Cent. Station, Inc. v. Pena, 442 S.W.3d 261, 263 (Tex. 2014) (per curiam). We may sustain a legal-sufficiency challenge to a trial court's finding only when (1) the record discloses a complete absence of evidence of a vital fact, (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a mere scintilla, or (4) the evidence establishes conclusively the opposite of a vital fact. Feeley, 501 S.W.3d at 208.
The Savoys contend that there is insufficient evidence that (1) they entered into a valid student loan contract with JPMorgan Chase, (2) the loan was assigned to the Trust, (3) interest accrued at the rate alleged by the Trust, and (4) the Trust accelerated repayment of the loan. We consider each contention in turn.
B. Sufficient evidence of formation of student loan contract
First, the Savoys contend that there is insufficient evidence that they entered into a valid loan contract with the loan's originator, JPMorgan Chase. The Trust responds that the Credit Agreement and Disclosure Statement are sufficient evidence that the Savoys entered into a loan contract with JPMorgan Chase.
"To prevail on a breach of contract claim, a party must establish the following elements: (1) a valid contract existed between the plaintiff and the defendant; (2) the plaintiff tendered performance or was excused from doing so; (3) the defendant breached the terms of the contract; and (4) the plaintiff sustained damages as a result of the defendant's breach." West v. Triple B Servs., LLP, 264 S.W.3d 440, 446 (Tex. App.-Houston [14th Dist.] 2008, no pet.). The elements of a valid contract are (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. Beverick v. Koch Power, Inc., 186 S.W.3d 145, 150 (Tex. App.-Houston [1st Dist.] 2005, pet. denied). When an offer prescribes the manner of acceptance, compliance with those terms is required to create a contract. Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex. 1995). If one party signs a contract, the other party may accept by his acts, conduct, or acquiescence to the terms, making it binding on both parties. Jones v. Citibank (S.D.), N.A., 235 S.W.3d 333, 338 (Tex. App.-Fort Worth 2007, no pet.). To be enforceable, a contract must be sufficiently certain to enable a court to determine the rights and responsibilities of the parties. Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 236 (Tex. App.-Houston [1st Dist.] 2008, no pet.).
The Credit Agreement is signed by Rebecca Savoy, as borrower, and Theresa Savoy, as cosignor, and is dated August 18, 2005. It shows that the Savoys applied for a student loan in the amount of $15,000 from JPMorgan Chase under its Education One Undergraduate Loan program to finance Rebecca's education at the University of Houston for the academic period of August 2005 to May 2006.
Under the Credit Agreement, the Savoys promised to pay any loan made to them by JPMorgan Chase:
I promise to pay to your order, upon the terms and conditions of this Credit Agreement, the principal sum of the Loan Amount Requested shown on the first page of this Credit Agreement, to the extent it is advanced to me or paid on my behalf, and any Loan Origination Fee added to my loan (see Paragraph F) ("Principal Sum"), interest on such Principal Sum, interest on any unpaid interest added to the Principal Sum, and other charges set forth herein.
The Credit Agreement set forth the method by which the Savoys would agree to the terms of any loan offered by JPMorgan Chase:
By signing this Credit Agreement, and submitting it to you, I am requesting that you make this loan to me in an amount equal to the Loan Amount Requested plus any Loan Origination Fee . . . . I agree to accept an amount less than the Loan Amount Requested and to repay that portion of the Loan Amount Requested that you actually lend to me. . . . If you agree to make a loan to me, you will mail me the disbursement check (the "Disbursement Check") and a statement disclosing certain information about the loan in accordance with the federal Truth-in-Lending Act (the "Disclosure Statement"). . . . In addition to other information, the Disclosure Statement will tell me the amount of my disbursement and the amount of the Loan Origination Fee. The Disclosure Statement is part of this Credit Agreement. Upon receipt of the Disclosure Statement, I will review the Disclosure Statement and notify you in writing if I have any questions. My endorsement of the Disbursement Check or allowing the loan proceeds to be used by or on behalf of the Student without objection will acknowledge receipt of the Disclosure Statement and my agreement to be legally bound by this Credit Agreement.
And the Credit Agreement set forth the method by which the Savoys could cancel the loan:
If I am not satisfied with the terms of my loan as disclosed in the Disclosure Statement, I may cancel my loan. To cancel my loan, I will give you a written cancellation notice, together with my unused Disbursement Check or, if I have already endorsed and delivered the Disbursement Check to the School, a good check, payable to you, in the full amount of the Disbursement Check.
The Credit Agreement also addressed deferment periods, terms of repayment, interest, default, and acceleration.
The Disclosure Statement shows that, on August 25, 2005, JPMorgan Chase approved the Savoys' loan request and disbursed to Rebecca loan proceeds in the amount of $15,000 for Loan No. 03206792. The terms included an origination fee of $1,042.78; interest at 8.407 percent; and 240 payments of $149.95, due on the first day of each month, starting July 1, 2007.
Thus, the evidence shows that the Savoys applied for a loan from JPMorgan Chase, JPMorgan Chase offered the Savoys a loan on the terms set forth in the Credit Agreement and Disclosure Statement, and the Savoys accepted the offer by allowing the loan proceeds to be used by or on behalf of Rebecca without objection.
The Savoys nevertheless argue that the evidence is insufficient to show a valid contract because, although the Credit Agreement contains a promise, the promise was qualified as follows: "I promise to pay to your order, upon the terms and conditions of this Credit Agreement, the principal sum of the Loan Amount Requested shown on the first page of this Credit Agreement, to the extent it is advanced to me or paid on my behalf . . . ." (Emphasis added.) The Savoys contend that their promise to pay was "contingent" on the loan being approved and, because JPMorgan Chase had not yet approved the application when the Savoys signed it, there could not yet have been a meeting of the minds on the essential terms of the contract, including the amount of the loan and the cost-of-credit terms. The Savoys recognize that the terms do appear on the Disclosure Statement, but they contend that the Disclosure Statement cannot be part of the agreement because it is dated August 25, 2005, which is seven days after the date the Credit Agreement was signed. The Savoys contend that, although they signed the Credit Agreement, it does not, without more, constitute a binding contract. We disagree.
The Credit Agreement and Disclosure Statement, taken together, evince the essential terms of the loan, including the amount of the loan. The Disclosure Statement evinces the Savoys' assent to those terms. See Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913, at *6-7 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op.) (in similar case, holding that credit agreement and disclosure statement constituted sufficient evidence of essential loan terms); Foster, 2018 WL 1095760, at *10.
The Savoys' argument overlooks "well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties' intent, even if the parties executed the instruments at different times and the instruments do not expressly refer to each other." Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000). Courts may construe all the documents as if they were part of a single, unified instrument. Id.
The Savoys further argue that there is insufficient evidence that JPMorgan Chase disbursed the loan proceeds because the Trust failed to present a signed disbursement check. However, a signed disbursement check was unnecessary to prove that the proceeds were disbursed because the Trust presented the Disclosure Statement, which states that the proceeds were disbursed on August 25, 2005. The Savoys do not argue that the Disclosure Statement is inaccurate. Nor do they point us to evidence that they cancelled or attempted to cancel the loan after JPMorgan Chase deposited the loan proceeds.
We hold that there is legally and factually sufficient evidence that the Savoys entered into a student loan contract with JPMorgan Chase.
C. Sufficient evidence of assignment
Next, the Savoys contend that there is insufficient evidence that the loan was assigned to the Trust. The Trust responds that the Pool Supplement, redacted Pool Supplement Schedule, and Deposit and Sale Agreement show that the loan was assigned by JPMorgan Chase to The National Collegiate Funding LLC and then by National Collegiate to the Trust.
Under the Pool Supplement,[4] JPMorgan Chase sold and assigned to National Collegiate each student loan listed on an attached Pool Supplement Schedule. And National Collegiate, in turn, agreed to sell the loans to the Trust.
The redacted Pool Supplement Schedule contains the information for one of the loans that was sold and assigned under the Pool Supplement.[5] This information, when cross-referenced with the Credit Agreement, Disclosure Statement, and Loan Payment History Report, discussed below, shows that the referenced loan is the loan that JPMorgan Chase made to the Savoys. Among other information, the Pool Supplement Schedule identifies the loan by the lender (Bank One),[6] the loan program (Education One Undergraduate), the borrower's social security number (matching the number provided by Rebecca Savoy in the Credit Agreement), and the principal balance (matching the balance of the Savoys' loan as of the date of the Pool Supplement).
Under the Deposit and Sale Agreement, National Collegiate sold and assigned to the Trust the student loans pooled under various pool supplements listed on an attached Schedule A. Schedule A to the Deposit and Sale Agreement lists the Pool Supplement under which JPMorgan Chase sold and assigned the Savoys' loan to National Collegiate—i.e., the Pool Supplement "entered into by and among The First Marblehead Corporation, The National Collegiate Funding LLC and . . . Bank One, N.A., dated October 12, 2005, for loans that were originated under Bank One's . . . Education One Loan Program . . . ."
In sum, the Pool Supplement shows that JPMorgan Chase transferred, sold, and assigned to National Collegiate the student loans listed on the attached Pool Supplement Schedule and that National Collegiate agreed to sell those loans to the Trust. The redacted Pool Supplement Schedule shows that the loan JPMorgan Chase made to the Savoys was among those sold to National Collegiate. And the Deposit and Sale Agreement shows that National Collegiate sold and assigned to the Trust the student loans listed on each pool supplement listed on an attached Schedule A, which lists the Pool Supplement under which JPMorgan Chase assigned the Savoys' loan to National Collegiate. Thus, these three documents show that JPMorgan Chase assigned the Savoys' loan to National Collegiate, which, in turn, assigned the loan to the Trust. We hold that there is sufficient evidence that the Savoys' loan was assigned to the Trust. See Mock, 2018 WL 3352913, at *7 (holding that pool supplement, redacted loan transfer schedule, and deposit and sale agreement constituted sufficient evidence that loan was assigned to trust by originator through intermediary); Foster, 2018 WL 1095760, at *7-8 (same).
D. Sufficient evidence of interest rate
Next, the Savoys contend that there is insufficient evidence of the loan's interest rate during the term of the loan.
The Credit Agreement in paragraph D discusses in detail how interest on the Savoys' loan was to be calculated throughout its term and provides for capitalization of interest during deferment. Paragraph I also provides for capitalization of interest and fees upon default. The Disclosure Statement states an annual percentage rate of 8.407 percent, with a variable rate based on the average of the one-month LIBOR index published in the "Money Rates" section of The Wall Street Journal on the first business day of each of the three calendar months immediately preceding the first day of each calendar quarter. The Loan Financial Activity Report lists the amount of "Interest Accrued" each month on the Savoys' loan through January 8, 2014.
The Savoys provide no evidence and do not contend that the interest rate reflected in these documents is in any way incorrect. Nor do they provide any authority for their argument that the Trust was required to support its claim with calculations supporting each month's interest computation over the life of the loan.
We hold that there is sufficient evidence of the loan's interest rate. See Mock, 2018 WL 3352913, at *7 (holding that credit agreement, disclosure statement, and loan financial activity report constituted sufficient evidence of loan's interest rate); Foster, 2018 WL 1095760, at *11 (same).
E. Insufficient evidence of acceleration
The Savoys contend that there is insufficient evidence that the maturity of the loan was accelerated.
The Disclosure Statement reflects that the Savoys agreed to pay the loan over a period of 20 years, with payments beginning in July 2007. The Credit Agreement states that, to the extent permitted by law, in the event of a default on the loan, the Trust "will have the right to give [the Savoys] notice that the whole outstanding principal balance, accrued interest, and all other amounts payable to [the Trust] under the terms of this Credit Agreement are due and payable at once."
"Where the holder of a promissory note has the option to accelerate maturity of the note upon the maker's default, equity demands notice be given of the intent to exercise the option." Ogden v. Gibraltar Sav. Ass'n, 640 S.W.2d 232, 233 (Tex. 1982). "The accelerated maturity of a note, which is initially contemplated to extend over a period of months or years, is an extremely harsh remedy." Allen Sales & Servicenter, Inc. v. Ryan, 525 S.W.2d 863, 866 (Tex. 1975). A creditor "must give the debtor an opportunity to pay the past due installments before acceleration of the entire indebtedness; therefore, demand for payment of past due installments must be made before exercising the option to accelerate." Williamson v. Dunlap, 693 S.W.2d 373, 374 (Tex. 1985) (emphasis omitted). The note holder must also notify the maker both of its intent to accelerate and of the acceleration. Ogden, 640 S.W.2d at 233-34.
There is no evidence in the record before us that the Trust provided the Savoys with either of the required notices. The Trust alleged in its petition that, as a prerequisite to acceleration, it served the Savoys with a letter demanding payment in full. However, the demand letter is not part of the record, and pleadings are not evidence.
We hold that the evidence is legally and factually insufficient to support the full amount of actual damages awarded. See Mock, 2018 WL 3352913, at *8 (holding that evidence was insufficient to show acceleration when trust presented no evidence that it provided debtor with notice of acceleration); Foster, 2018 WL 1095760, at *11-12 (same).
When acceleration is invalid, the plaintiff is entitled to judgment against the defendant only "for past due installments plus accumulated interest as provided in the note." Williamson, 693 S.W.2d at 374.
The Savoys request that we "reform the judgment to an amount commensurate with the sum of missed installment payments through the date the petition was filed" or, alternatively, "suggest a remittiture to accomplish a proper adjustment of the amount of contract damages proven by the admissible evidence as having been caused by breach of contractual duties." The evidence shows that, the sum of all monthly payments due, beginning on July 1, 2007, as stated in the Disclosure Statement, through the date of the filing of suit, April 15, 2016, is $15,894.70.[7]
A court of appeals may suggest a remittitur when there is insufficient evidence to support the full amount of damages awarded but sufficient evidence to support a lesser award. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat'l Dev. & Research Corp., 299 S.W.3d 106, 124 (Tex. 2009); see TEX. R. APP. P. 46.3. If part of a damage verdict lacks sufficient evidentiary support, the proper course is to suggest a remittitur of that part of the verdict, giving the party prevailing in the trial court the option of accepting the remittitur or having the case remanded for a new trial. Akin, Gump, 299 S.W.3d at 124.
As set out above, the record contains some evidence that breach-of-contract damages exist, but, without evidence of notice of acceleration, the evidence does not support the full amount awarded by the trial court. The evidence does, however, allow us to determine a lesser award. See ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 877-78, 880 (Tex. 2010) (holding there was "legally sufficient evidence to prove a lesser, ascertainable amount of lost profits with reasonable certainty," and remanding case to court of appeals to consider suggestion of remittitur).
Based on the record, the evidence is legally and factually sufficient to support a lesser damages finding of $15,894.70, which represents the sum of all monthly payments due, beginning on July 1, 2007, as stated in the Disclosure Statement, through the filing of suit on April 15, 2016. See Mock, 2018 WL 3352913, at *9 (suggesting remittitur when plaintiff-trust failed to prove acceleration of loan's maturity); Foster, 2018 WL 1095760, at *12 (same); see also PNS Stores, Inc. v. Munguia, 484 S.W.3d 503, 513 (Tex. App.-Houston [14th Dist.] 2016, no pet.)(suggesting remittitur to "the highest amount of actual damages supported by the evidence").
We sustain in part and overrule in part the Savoys' second issue.
Standing
In their third issue, the Savoys argue that the Trust lacked standing to sue because the loan was paid in full by the loan's second guarantor, The Education Resources Institute, Inc. TERI is a nonprofit organization that provides guaranties for private education loans. The Credit Agreement states that JPMorgan Chase "purchased a guaranty" from TERI. According to the Savoys, the last entry in the Loan Financial Activity Report reflects a principal balance of zero dollars, which shows that TERI assumed and paid the debt after the Savoys defaulted. We disagree.
The Loan Financial Activity Report reflects that the principal balance decreased to zero when a $20,492.05 "transaction" occurred in January 2014. The Loan Payment History Report reflects that the "transaction" did not refer to TERI paying the debt; rather, it referred to the Trust charging off the debt. The Savoys have failed to proffer any evidence that, contrary to these reports, the principal balance decreased to zero because the debt was paid by TERI. See Mock, 2018 WL 3352913, at *9 (holding that borrowers failed to show debt was paid by TERI when they failed to proffer evidence of such payment).
We overrule the Savoys' third issue.
Conclusion
We conclude that the evidence is insufficient to support the trial court's award of actual damages in the amount of $20,492.05 but is sufficient to support an award of actual damages in the amount of $15,894.70. Thus, we suggest a remittitur of the actual damages award to $15,894.70. In accordance with Rule 46.3 of the Texas Rules of Appellate Procedure, if the Trust files with this Court, within fifteen days of the date of this opinion, a remittitur to that amount, the trial court's judgment on damages will be modified and affirmed. See TEX. R. APP. P. 46.3. If the suggested remittitur is not timely filed, the trial court's judgment will be reversed and the cause will be remanded for a new trial on liability and damages. See Rancho La Valencia, Inc. v. Aquaplex, Inc., 383 S.W.3d 150, 152 (Tex. 2012)(holding that if party rejects remittitur, court of appeals must remand for new trial on liability and damages).
[1] This appeal is one of several recent appeals involving Delaware statutory trusts that have acquired student loan debt and subsequently asserted claims against defaulting borrowers and guarantors. See, e.g., Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op.); Foster v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (mem. op.). Although the cases involve different borrowers and different trusts, the lawyers are the same and the issues are similar.
[2] See DEL. CODE tit. 12, §§ 3801-26.
[3] Unlike common law trusts, statutory trusts may sue and be sued. See TEX. BUS. & COM. CODE § 9.102 cmt. 11 (statutory trust is juridical entity that may sue and be sued); cf. Ray Malooly Tr. v. Juhl,186 S.W.3d 568, 570 (Tex. 2006) (stating general rule that suit against common law trust must be brought against trustee).
[4] The Pool Supplement is a supplement to two earlier Amended and Restated Note Purchase Agreements—one dated May 1, 2002 and the other dated July 26, 2002—by and between The First Marblehead Corporation and Bank One, N.A. (Columbus Ohio) by its successor by merger, JPMorgan Chase Bank, N.A.
[5] In her affidavit, Holiday describes the document as "a redacted copy of the Schedule of transferred loans referenced within the Pool Supplement."
[6] In July 2004, Bank One merged with JPMorgan Chase. In some parts of the record, the loan's originator is identified as Bank One, while in others, it is identified as JPMorgan Chase.
[7] Calculated as $149.95 in monthly payments over 106 months.
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