Wells Fargo Bank lawsuits on credit cards in Texas courts

ORIGINAL CREDITOR PROFILE: 

WELLS FARGO BANK, N.A. 

Wells Fargo Bank, N.A. is a major national bank headquartered in Sioux Falls, South Dakota. It is a prolific litigator in Texas courts. In Harris County, for example, a party search on the district clerk’s website yields more than 3000 cases filed in the county's civil district courts. A large proportion of these, however, are foreclosure cases, and some are garnishment cases that are docketed separately even though they arise from a previous lawsuit. 

This post will focus on credit card debt suit involving cards issued by Wells Fargo Bank, N.A. (“Wells Fargo” or “WFBNA”). It should be noted, however, that Wells Fargo also sues on Personal Loan Agreements, and that those lawsuits have a number of distinct characteristics. For one, the underlying contract and TILA disclosures look different. As is true of other major banks, there are other entities with similar sounding names. See FDIC listing below.    

WELLS FARGO COLLECTS ITS OWN DEBT

Like Discover Bank and American Express, Wells Fargo sues as original creditor to collect money owed on defaulted credit card accounts (rather than selling them off to debt buyers, a practice Chase Bank USA, N.A. is known for). Wells Fargo utilizes one major lawfirm to sue customers in Texas: VINCENT LOPEZ SERAFINO JENEVEIN, P.C. ("VINCENT"). Mark Rechner and Thomas Sellers are the attorneys on the pleadings.

WELLS FARGO CREDIT CARD AGREEMENTS

Wells Fargo cardmember agreements (which the bank calls customer agreements) are extremely verbose. A pro se litigant who appealed an adverse judgment recently complained that she could not make sense of it even though she had a college degree and other people of similar level of education could not understand it either. Card agreements, of course, are written by lawyers for other lawyers, especially the select number of lawyers known as judges. After all, banks want to make sure they win if they are sued by aggravated customers, not to mention hordes of them being rounded up for a class action. Cardmember agreements are carefully drafted, so as to give as much leverage to the creditor, but to also hold up in count. 

Wells Fargo, of course, might disagree, and point to the section of the contract that even offers translated versions in various languages as proof that it is very customer-oriented. -- > Bank documents in Spanish and other foreign languages. 

That said, once a WFB cardmember agreement becomes an exhibit in litigation, it offers a convenience factor that somewhat compensates for the excessive length: the sections are numbered, thus making it easier to reference them, if necessary to support an argument by the defense. Other CMAs, but contrast, are much harder to deal with, and are often not even legible because the font of the fine print is too small, and the quality of the reproduction poor. Chase and HSBC argreements are notorious for this problem. 

Wells Fargo Cardmember Agreement: Two Parts

A standard Wells Fargo credit card contract actually consists of the multiple parts: The cardmember agreement proper, which has the unwieldy title "CONSUMER CREDIT CARD CUSTOMER AGREEMENT & DISCLOSURE STATEMENT VISA® OR MASTERCARD®" (“Customer Agreement”), and an additional credit terms document that contains TILA disclosures and is referred to as "Important Terms Of Your Credit Card Account" (“Terms Document”), which is found on the enclosed letter/card carrier. A third component is also mentioned: any subsequent disclosures, but, depending on the age of the account by the time it went into default, there may not have been any such supplemental change notices. All accounts must have the additional Terms Document, however, because that document contains the credit terms that federal law requires to be set forth in writing when the account is opened, and the Wells Fargo customer agreements do not contain all of the material terms. -- > Truth in Lending Act (TILA) Disclosures 

The division of the contract into two components makes sense. The Customer Agreement is generic and covers a large segment of the customer base (possibly even all of them at a particular point in time), while the Terms Document will vary across the population of customers as it will reflect differential pricing (higher or lower interest rates and other terms) for individual segments reflecting different cardholders' creditworthiness and credit utilization patterns. The industry calls this risk-based pricing, but risk-management is not the only reason. Banks want to maximize profits by charging interest rates as high as the market (customers) will bear.   

What happened with the Terms Document? (TILA Disclosures)

The first paragraph of the Customer Agreement incorporates the Terms Document by reference, but the Terms Document itself is typically omitted when Wells Fargo moves for summary judgment. Counsel for the Defendant may thus want to point out to the court that the plaintiff has failed to prove up the essential terms of the contract, and cite the Williams v. Unifund case in support. The argument may not always carry the day, but it is legally sound under existing case law, and worth making. 

Choice of law: SD

Although Wells Fargo Bank is associated with the West Coast, the contractual choice of law in its Customer Agreements is South Dakota. WFBNA moved its headquarters from SAN FRANCISCO, CA to SIOUX FALLS, SD in 2004. Other Wells Fargo entities are located elsewhere, including one in Texas. See FDIC list at the bottom of this page. The reason major national banks choose South Dakota is the favorable legal climate there: No limits on interest rates that may be contracted for. Citicorp, based in New York, did the same thing, and is running its credit card operation out of South Dakota through Citibank, N.A., and previously Citibank (South Dakota) N.A..  

The Wells Fargo choice-of-law paragraph states as follows: 

This Agreement and your account, as well as our rights and duties and your rights and duties regarding this Agreement and your account, will be governed by and interpreted in accordance with the laws of the United States and, to the extent applicable, the law of the State of South Dakota, regardless of where you reside or use your account at any time.

Arbitration clauses 

Wells Fargo credit card agreements contain arbitration provisions for arbitration under the FAA, though South Dakota law is also mentioned. Under the terms of the arbitration agreement, either the customer or the bank may submit a dispute to binding arbitration at any time notwithstanding that a lawsuit or other proceeding has been previously commenced. 

This clause allows WFBNA to opt for arbitration when the customer answers the debt suit with a counterclaim; or to quash a lawsuit when sued by a consumer independently, but it also allows the cardholder to assert the arbitration provisions as a defense in a debt collection suit brought by the bank against him or her.  -- > Invoking arbitration agreement whensued for credit card debt. 

This is what a typical arb agreement looks like:

Billing Disputes

Disputes about charges on account statements are handled through Wells Fargo Card Service with a PO address in Des Moines, Iowa.

Payments, however, must be sent to a different address for the same entity in Los Angeles, California.

 

TYPICAL ORIGINAL PETITION IN A WELLS FARGO SUIT ON CREDIT CARD ACCOUNT

In Texas, debt collection suits involving Wells Fargo credit card accounts are filed by VINCENT LOPEZ SERAFINO JENEVEIN, P.C., a lawfirm based in Dallas.

The standard VINCENT pleading typically ignores the choice-of-law issue, and invokes theories of recovery which are not even viable for collection of a credit card debt (which requires written credit terms under federal and state laws regulating the banking sector). 
  
Those theories are unjust enrichment and money had and received, but Wells Fargo's attorney does not move for summary judgment on those theories. Therefore; it is not worth complaining about them.  -- > equitable theories; -- > express contract preclusion of equitable claims; -- > special exceptions to challenge the opponent's pleadings

Legal fees in addition to the amount claimed as due on the account 

Attorney’s fees are typically also requested in petitions filed by VINCENT, based on a Texas statute, rather than a South Dakota one. The amount sought in the trial courts is typically moderate (less than $1,000), but much higher contingent attorney’s fees are requested should the consumer unsuccessfully appeal an adverse judgment ($5000 for each level of appeal). -- > Comparison of attorney fees claims in debt collection suits 

SUMMARY JUDGMENT MOTIONS FILED IN WELLS FARGO CREDIT CARD ACTIONS

WFBNA attorney Mark Rechner of VINCENT LOPEZ SERAFINO JENEVEIN, P.C., typically moves for summary judgment with an affidavit of a Wells Fargo representative located in Iowa (e.g., Jessica Rogers, Melissa J. Blair,Mandy E.L. Wagner); a copy of a CONSUMER CREDIT CARD CUSTOMER AGREEMENT & DISCLOSURES STATEMENT (see description above); and a few monthly account statements. There is no bill of sale as they appear in suits by assignees such as Midland Funding, LLC or CACH, LLC because WFBNA sues itself as original creditor on defaulted accounts (although there are exceptions). -- > Lawsuits by assignees on Wells Fargo bank debt 

The affidavit, which also functions as a business records affidavit, will normally recite the date of account creation, but the Customer Agreement will typically be of much more recent vintage (e.g., 2010). Typically, the TILA Disclosure document (the Terms Document as discussed above) will not be attached as a summary judgment exhibit even though the Customer Agreement states that it is part of the customer's contract with Wells Fargo Bank and is referenced numerous times in the small print.   

Unlike final account statements from Target NB, Capital One, and Citibank, the last Wells Fargo account statement will typically not reflect acceleration of maturity; i.e. it will show an amount due on a date a few weeks after the end of the current billing cycle that is significantly less than the amount of the revolving balance (or it may show chargeoff without prior acceleration of maturity and zero balance). Additionally, the last statement will show how much of the minimum payment amount represents the past-due amount.

If the last monthly statement is deemed admissible for the truth of what is expressly set forth on it (based on the business records affidavit), it would not support the proposition that payment was due in full. If the affiant testifies otherwise, the conflict in the evidence should preclude summary judgment, in addition to raising an issue of credibility. Wells Fargo's counsel may argue in reply that the card agreement authorizes acceleration (with reference to paragraph 25 titled "DEFAULT / IMMEDIATE REPAYMENT OF BALANCE IN FULL"), but even if the contractual basis for this lender remedy is established, the conflict in the evidence should still preclude resolution of the case by summary disposition. The last statement would only support a claim for the past-due portion of the minimum payment amount as damages caused by breach consisting in cessation of monthly payments by the cardholder. 

Additionally, if there is no showing of acceleration of maturity prior to the lawsuit, defendant's counsel may assert that the presentment requirement has not been satisfied for attorney fee purposes under Chapter 38 of the Civil Practice and Remedies Code. This issue should be raised in the answer (or amended pleading) in the form of a specific denial that Plaintiff has met the conditions precedent for fee recovery.

LINKS TO PROFILES OF OTHER MAJOR CARD ISSUERS AS PLAINTIFFS

American Express debt collection suits in Texas courts

Credit card debt suits by Discover Bank

Capital One Bank suing Texas customers on defaulted credit cards

FIA Card Services N.A. suing on Bank of America credit cards 

TD Bank now bringing debt collection suits on defaulted Target credit card accounts  

FINANCIAL INSTITUTION ENTITY INFORMATION FROM OCC AND FDIC 

Wells Fargo entities listed on FDIC web site

Wells Fargo Bank, National Association: Institutional History

Wells Fargo Bank listing on the Comptroller's National Bank List
OCC website (November 2013 version)

Choice of Law Clauses in CMAs (credit card agreements)

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

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

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

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

VARIATION IN THE FORM OF CHOICE OF LAW PROVISIONS 

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

WHICH STATE?

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

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

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

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

CONTRACTUAL CHOICE OF LAW AS AN ISSUE IN DEBT LITIGATION 

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

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

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

HOW DOES OTHER STATES’ LAW DIFFER IN MATERIAL RESPECTS? 

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

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

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

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

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

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

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

SAMPLE "GOVERNING LAW" CLAUSES IN CREDIT CARD CONTRACTS 

U.S. Bank National Association, ND

American Express Centurion Bank (a Utah state bank)

Arbitration Provisions in Credit Card Agreements and in Related Litigation

ARBITRATION AGREEMENTS IN CREDIT CARD DISPUTES 

Which credit card issuers have contracts with arbitration clauses? 

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

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

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

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

Stand-alone arbitration agreements 

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

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

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

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

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

Credit card issuers that eschew arbitration clauses 

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

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

BLOG POSTS ON RELATED TOPICS:

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

EXAMPLES OF ARBITRATION AGREEMENTS EMBEDDED WITHIN CARD AGREEMENTS: 

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

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

WAIVER OF RIGHT TO ARBITRATION IN A CREDIT CARD CASE 

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

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

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

Each option is the subject of a separate blog post.

Motion to Compel Arbitration & Motion to Abate the Lawsuit

MOTION TO COMPEL ARBITRATION 
and 
MOTION TO ABATE THE PENDING LAWSUIT 

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

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

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

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

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

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

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

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

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

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

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

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