Special Interest Jurisprudence: How Intermediate Courts of Appeals Have Lowered Substantive Proof Requirements in Consumer Debt Cases in Texas

Proof of contract not necessarily required to prove breach-of-contract claim: There is another way  

A high number of consumer debt collection cases result in default judgments. Under Texas pleading rules, the contract does not have to be attached to a creditor’s petition, and when no answer is filed, the allegations in the petition are admitted except for unliquidated damages. The latter are typically “proven up” with an affidavit and at least one account statements attached to the creditor’s motion for default judgment.

That may not be so remarkable. What is more remarkable is that creditors routinely obtain judgments without proving the underlying contract even in contested cases because one intermediate court held in 2008 that proof of the contract is not required if the creditor proceeds on the alternative common-law theory of account stated. See Dulong v. Citibank (South Dakota), N.A., 261 S.W.3d 890, 893 (Tex. App.-Dallas 2008, no pet.) (Opinion by Justice Richter). 

In Dulong, the Dallas Court of Appeals fundamentally changed the common-law theory of account stated while purporting to rely on existing authority, and blessed its use for credit card debt collection. It cited a case in which the Fourteenth Court of Appeals in Houston held that an invoice for medical services provided to a patient was not enough to prove the reasonableness of charges in the absence of the patient’s agreement to the amount. See Neil v. Agris, 693 S.W.2d 604, 605 (Tex. App.-Houston [14th Dist.] 1985, no writ).

His sole attempt to prove an account stated was through his bookkeeper, who testified that she mailed appellant a bill which was never paid. There is no evidence in the record to show at the time the services were rendered or even subsequently that appellant agreed to pay $1700 to appellee for the professional services rendered. In the absence of an agreement fixing the price for the services, appellee was required to prove that the price charged for his services was usual, customary and reasonable; this he failed to do. We therefore sustain appellant's second point of error.

Several Texas courts of appeals have jumped on the bandwagon and have approved credit card debt collection without proof of the contract, blessing grant of judgments based on copies of credit card statements only. They cite Dulong, but don’t reexamine Dulong’s mistaken reliance on Neil v. Agris.

The only hold-out is the Second Court of Appeals in Fort Worth. See Morrison v. Citibank (South Dakota) N.A., 02-07-00130-CV, 2008 WL 553284 (Tex.App.-Fort Worth Feb. 28, 2008, no pet.) (mem. op.) (per curiam), an opinion with which the Dallas COA has expressly taken issue. See Compton v. Citibank (S.D.), N.A., 364 S.W.3d 415, 417-18 (Tex. App.-Dallas 2012, no pet.)(declining to follow the Fort Worth Court of Appeals' opinion in Morrison in favor of its own holding in Dulong and its reliance on that case in subsequent credit card cases).

Although there is a conflict among the appellate court, the Texas Supreme Court declined the invitation to review a credit card judgment based on account stated when a petition in such a case was filed in 2015. See Core v. Citibank, NA, No. 13-12-00648-CV, 2015 WL 1631680 (Tex. App.-Corpus Christi Apr. 9, 2015, pet. denied) (mem. op.). 

Proof of contract-formation not required to prove breach-of-contract claim: Exemptions available

Even when a creditor proceeds on a breach-of-contract theory, Texas appeals courts have gone out of their way to relax the substantive proof requirements.

Credit card agreements are typically not signed. In litigation, the legal theory of contract-formation is acceptance of credit terms by card use (or other form of credit utilization involving the account).

Although the matter is technically governed by the choice-of-law jurisdiction (Delaware for Discover Bank and FIA/BANA, Utah for American Express, South Dakota for Wells Fargo and Citibank, Virginia for Capital One), Texas common-law is typically applied because a motion for judicial notice of the other state’s law is rarely filed in collection suits.

Contractual choice of law comes up occasionally in American Express cases because of the distinct nature of the Utah statute of frauds and its statutory exceptions for credit cards, which do not fall under the statute of frauds in Texas even if the loan amount were to exceed $50,000. See TEX. BUS. & COMM. CODE ANN. § 26.02 (West, Westlaw through 2017 1st C.S.) (requiring a loan agreement exceeding $50,000 to be in writing, thus, creating a statute of frauds for certain loan agreements, but excepting (A) a credit card or charge card, and (B)  an open-end account, as that term is defined by Section 301.002, Finance Code, intended or used primarily for personal, family, or household use.).

Proof of a Meeting of the Minds on Contract Terms no longer necessary: Here is a consumer contract, you are a consumer, therefore you have agreed to it

Texas courts look to evidence of card use as shown by line items for charges on the credit card statement as proof that a contract was formed, but they do not require creditors to prove that a generic cardmember agreement attached to an affidavit is the one that was offered to and accepted by the cardholder.

In Wakefield v. Wells Fargo Bank, N.A., for example, the court of appeals found it sufficient that the defendant had the status of cardholder and that the generic agreement stated that it applied to cardholder even though the date on the agreement attached to the bank's summary judgment affidavit did not match the date attested to by the Bank’s affiant as the date of contract-formation, which was years earlier. Wakefield v. Wells Fargo Bank, N.A., No. 14-12-00686-CV, 2013 WL 6047031 (Tex. App.-Houston [14th Dist.] Nov. 14, 2013, no pet.) (mem op. by Justice Tracy Christopher).

Creditor’s affidavit testimony accepted as competent, Debtor’s dismissed as conclusory or immaterial

The matter of whether contractual rights predicated upon an unsigned contract (or terms-and-conditions document) are enforceable depends not only on the nature and quality of the proof of credit formation/acceptance, but whether the evidence is admissible.

In credit card cases, Texas courts of appeals find it sufficient when an affiant for a creditor testifies that an attached boilerplate agreement is the agreement governing the account without details regarding contract-formation, but reject or discount affidavit testimony by defendants disputing the creditor’s contentions as conclusory. See, e.g. Hay v. Citibank (S.D.) N.A., No. 14-04-01131-CV, 2006 WL 2620089, at *2 (Tex. App.-Houston [14th Dist.] Sept. 14, 2006, no pet.) (holding affidavit statement that customer "did not agree to the terms of any credit card" did not defeat summary judgment in creditor’s favor); also see Houle v. Capital One Bank (USA), N.A., No. 08-16-00234-CV, 2018 WL 6629698, at *5 (Tex.App.-El Paso Dec. 19, 2018, pet. filed) (opinion by Chief Justice Ann Crawford McClure) (concluding that defendant’s counter-affidavit disputing the bank’s claims and evidence did not raise a genuine issue of material fact).

In one recent summary judgment appeal, a Houston Court of Appeals found the creditor’s evidence “free from any contradictions or inconsistencies” even though there were only two credit card statements in the record and they had different account numbers on them. The court went so far as to cite a criminal case from a federal district court in a different state to support the factual proposition that two different account numbers can pertain to the same account to neutralize the discrepancy in the summary judgment record before it. See Germany v. Wells Fargo Bank, N.A., No. 14-17-00916-CV (Tex.App. – Houston [14^th Dist.], Feb. 7, 2019, pet. filed)(memorandum opinion by Justice Christopher). 

See -- > Beyond Judicial Notice: A Critique of Sua Sponte Speculation and Factfinding on Appeal 

By contrast, when the issue is whether a valid agreement to arbitrate exists in the employment context (which is also a matter of ordinary state contract law), much closer attention is given to the elements of contract-formation. See, e.g., Kmart Stores of Texas, L.L.C. v. Ramirez, 510 S.W.3d 559, 568-71 (Tex. App.-El Paso 2016, pet. denied)(finding fact issue regarding existence of arbitration agreement where employee testified unequivocally that she did not log in through Kmart's online portal to view an arbitration agreement, did not click on a screen acknowledging receipt of the policy, and had never been presented with an arbitration agreement at any time during her employment.); Red Bluff , LLC v Tarpley, No. 14-17-00505-CV (Tex.App. – Houston [14^th Dist.] Dec. 21 , 2018, no pet.) (mem. op by Justice Brett Busby) (arbitration agreement not formed because proper procedure not followed).

Imputation of consent upon the consumer by the Court of Appeals in the absence of evidence 

Another approach taken by at least one Texas Court of Appeals to dispose of the issue of consumer consent is to simply impute consent on the consumer without the requisite evidence in the record that the consumer consented in the manner specified by the standard terms on the loan origination documents. See Foster v. National Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] 2018, no pet.) (mem. op. by Chief Justice Radack)(invoking theory of joint construction of multiple contract documents and concluding that student-applicant consented to loan terms by signing application even though the loan terms were not yet known when she signed the application), contra 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. by Justice Harvey Brown) (“The cancelled disbursement check is evidence that the Mocks agreed to the terms of the loan as set forth in the Credit Agreement and Disclosure Statement by endorsing and depositing the check that disbursed the loan proceeds.”).

In Foster, unlike in Mock, the Trust had not produced the disbursement check as proof of acceptance of the loan itself and the terms under which the loan was being offered (which were printed on the disclosure statement that post-dated the application), so the appellate court filled the evidentiary void with an ad-hoc legal theory that flies in the face of a fundamental tenant of contract-formation: the requirement of a meeting of the minds on essential terms. 

Additionally, in Foster, the loan history exhibit did not reflect that any payments were ever made. So it could not have be argued that the evidence of installment payments was a sufficient proxy for proof of acceptance in the absence of the disbursement check as proof that the loan was made in the amount claimed by the trust, and that it was accepted on the terms stated in the TIL Disclosure Statement.  See Benser v. Citibank (South Dakota), N.A., No. 08-99-00242-CV, 2000 WL 1231386, at *5 (Tex. App.-El Paso Aug. 31, 2000, no pet.) (concluding that defendant’s use of credit card and payments to account showed he understood obligation to bank and that contract had been formed). 

Also see Research Paper on Retroactive Judicial Imputation of Consent to (Arguably) Predatory Loan Terms into a Student's Loan Application: A Critique of Foster v. NCSLT 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App. – Houston [1st Dist.] March 1, 2018, no. pet. h.). (June 13, 2018). Available at SSRN: 

https://ssrn.com/abstract=3195590 or http://dx.doi.org/10.2139/ssrn.3195590   

Variation on the arbitration theme: Amegy Bank sues customer to block arbitration

WHEN THE LITTLE GUY WANTS TO TAKE THE BIG GUY TO ARBITRATION 

Here is another rare case where an individual wanted to arbitrate a dispute with a business -- rather than the reverse -- and was thwarted in his quest: Carter v. ZB National Association d/b/a Amegy Bank, No. 14-17-00900-CV (Tex.App.- Houston [14th Dist.] May 7, 2019) (concluding that the trial court did not err in declaring as a matter of law that Carter cannot force Amegy Bank to arbitrate his dispute with the bank).

Affirmed as Modified and Opinion filed May 7, 2019.

In The

Fourteenth Court of Appeals

NO. 14-17-00900-CV

STANWYN JAY CARTER, Appellant

V.

ZB, NATIONAL ASSOCIATION D/B/A AMEGY BANK, Appellee

On Appeal from the 55th District Court

Harris County, Texas

Trial Court Cause No. 2017-56775

O P I N I O N

Opinion filed May 7, 2019.

Amy Wolfshohl, Jonna Summers, for ZB, National Association d/b/a Amegy Bank, Appellee.

Stanwyn Jay Carter, for Appellant, Pro Se.

On Appeal from the 55th District Court, Harris County, Texas, Trial Court Cause No. 2017-56775.

Affirmed as Modified.

Panel consists of Chief Justice Frost and Justices Wise and Jewell.

OPINION BY KEM THOMPSON FROST, Chief Justice.

Appellant Stanwyn Jay Carter, pro se, appeals the trial court's order granting appellee ZB, National Association d/b/a Amegy Bank ("Amegy Bank") summary judgment on its claim for declaratory relief that Carter cannot force Amegy Bank to arbitrate the dispute in an arbitration that Carter had commenced.

We modify the trial court's judgment to delete two declarations and affirm the judgment as modified.

I. FACTUAL AND PROCEDURAL BACKGROUND

Contours Community Development Corporation executed a promissory note dated September 1, 2010, in the principal amount of $544,000 (the "Note") payable to Amegy Bank. Carter signed the Note as Executive Director of Contours. Contours and Amegy Bank executed a "First Modification and Extension to Note and Deed of Trust," dated December 31, 2010 ("First Modification"). Carter signed the First Modification as Executive Director of Contours.

Paragraph 43 of the Note and paragraph 13 of the First Modification address dispute resolution and are substantially similar in all material respects. Each paragraph has a section entitled "JURY TRIAL WAIVER," and a section entitled "ARBITRATION."

In the first section, Contours and Amegy Bank waive their right to a jury trial in connection with a claim, dispute, or controversy that arises between them with respect to the Note, related agreements, or any other agreement or business relationship between them, whether or not related to the subject matter of the Note (hereinafter a "Dispute"). In the first paragraph, Contours and Amegy Bank agree that any Dispute will be resolved "BY A JUDGE SITTING WITHOUT A JURY." Contours and Amegy Bank agree that if a court determines that the jury-trial-waiver provision is not enforceable, then before trial of a Dispute but not later than thirty days after entry of the order determining the provision to be unenforceable, either party may move the court for an order compelling arbitration and staying or dismissing such litigation pending arbitration (an "Arbitration Order.").

In the second paragraph regarding arbitration, Contours and Amegy Bank agree that if a Dispute arises and only if a jury-trial waiver is not permitted by applicable law or by a court ruling, then either party may require that the Dispute be resolved by binding arbitration before a single arbitrator at the request of any party.

Carter, pro se, filed a demand for arbitration with JAMS, seeking to arbitrate claims against Amegy Bank under the arbitration provision in Paragraph 43 of the Note. When JAMS refused to dismiss the arbitration, Amegy Bank filed suit in the trial court below seeking declaratory relief, including a declaration that Carter cannot force Amegy Bank to arbitrate, and seeking to stay the arbitration proceedings. Instead of filing an answer, Carter filed a motion to compel arbitration.

Following a temporary restraining order and a temporary injunction enjoining Carter from continuing to prosecute the arbitration, Amegy Bank filed a motion for traditional summary judgment. In the motion, Amegy Bank sought various declarations as a matter of law, including a declaration that Carter cannot force Amegy Bank to arbitrate the dispute in the commenced JAMS arbitration styled Carter, Stanwyn Jay v. Amegy Bank National Association (hereinafter the "Carter Dispute"). Amegy Bank maintains that Carter improperly commenced arbitration predicated on an arbitration provision that does not authorize arbitration at this juncture. Amegy Bank attached to its motion authenticated copies of the Note and the First Modification. Carter filed a summary-judgment response, asserting various points and arguing that he raised genuine issues of material fact.

The trial court granted Amegy Bank's summary-judgment motion, making seven declarations as a matter of law. The trial court later rendered a final judgment ordering that the Carter Dispute remain stayed. In the final judgment the trial court reiterated the same seven declarations:

1. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification and Extension to Note and Deed of Trust ("First Modification"), only a court may determine the validity, enforceability, meaning, and scope of the Promissory Note and First Modification's arbitration provisions.
2. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification, arbitration cannot be commenced unless a court determines that the jury trial waiver is not enforceable.
3. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification, arbitration cannot be commenced until there is an Arbitration Order as defined in the Promissory Note and First Modification.
4. Pursuant to Paragraph 43 of the Promissory Note and Paragraph 13 of the First Modification, an Arbitration Order cannot issue unless a court determines that the jury trial waiver is not enforceable.
5. An Arbitration Order has not issued.
6. There has been no determination that the jury trial waiver is unenforceable.
7. Defendant Stanwyn Jay Carter cannot force ZB, National Association d/b/a Amegy Bank to arbitrate the dispute in the commenced JAMS arbitration styled Carter, Stanwyn Jay vs. Amegy Bank National Association.
On appeal Carter argues that the trial court reversibly erred in granting summary judgment.

II. Analysis

Liberally construing Carter's brief, we interpret Carter to assert the following points:

(1) The agreement does not require an arbitration order to issue before an arbitration may be initiated under the arbitration clause.
(2) Under their plain texts, the agreements provide for arbitration if a jury-trial waiver is not permitted by applicable law or by court ruling, and thus there is no requirement that a court determine the jury-trial waiver to be unenforceable.
(3) The jury-trial-waiver provision applies if permitted by applicable law or by a court ruling, but no summary-judgment evidence proves either proposition.
(4) Even though Carter did not sign the Note or First Modification in his individual capacity, Carter may arbitrate the Carter Dispute because he is an obligated party to an arbitration agreement that encompasses the Carter Dispute and because Amegy Bank refuses to arbitrate.
(5) The trial court erred in declaring that Carter cannot force Amegy Bank to arbitrate the Carter Dispute because the arbitration clause provides that "Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, JAMS or National Arbitration Forum . . . as selected by the initiating party."
(6) The trial court's first declaration is contrary to precedent under which attacks on the validity of the contract, as opposed to attacks on the validity of the arbitration clause, are to be resolved by the arbitrator in the first instance.
(7) Under the contracts, either the jury-trial waiver is enforceable or the arbitration clause is enforceable, and because the arbitration clause is valid, irrevocable and enforceable, the jury-trial waiver necessarily is unenforceable.

A. Standard of review

We review declaratory judgments decided by summary judgment under the same standards that govern summary judgments generally. See Tex. Civ. Prac. & Rem. Code § 37.010 (West, Westlaw through 2017 1st C.S.); Wolf Hollow I, L.P. v. El Paso Mktg., L.P., 472 S.W.3d 325, 332 (Tex. App.-Houston [14th Dist.] 2015, pet. denied). We review the trial court's grant of a summary judgment de novo. See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). In a traditional motion for summary judgment, if the movant's motion and summary-judgment evidence facially establish its right to judgment as a matter of law, the burden shifts to the nonmovant to raise a genuine, material fact issue sufficient to defeat summary judgment. M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000). In our de novo review of a trial court's summary judgment, we consider all the evidence in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not. Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006). The evidence raises a genuine issue of fact if reasonable and fair-minded jurors could differ in their conclusions in light of all of the summary-judgment evidence. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007).

In this case, the trial court was asked to render a declaratory judgment based on the Note and the First Modification, instruments subject to the general rules of contract construction. See Marzo Club, LLC v. Columbia Lakes Homeowners Ass'n, 325 S.W.3d 791, 798 (Tex. App.-Houston [14th Dist.] 2010, no pet.). In construing a contract, our primary concern is to ascertain and give effect to the intentions of the parties as expressed in the contract. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). To ascertain the parties' true intentions, we examine the entire agreement in an effort to harmonize and give effect to all provisions of the contract so that none will be rendered meaningless. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999). Whether a contract is ambiguous is a question of law for the court. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more than one interpretation. Id. But, when a written contract is worded so that it can be given a certain or definite legal meaning or interpretation, it is unambiguous, and the court construes it as a matter of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). We cannot rewrite the contract or add to its language under the guise of interpretation. See American Mfrs. Mut. Ins. Co., 124 S.W.3d at 162. Rather, we must enforce the contract as written. See Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex. 2008).

B. Law on arbitration

A party seeking to force another party to arbitrate certain claims must establish that (1) a valid arbitration agreement exists[1] and (2) the claims at issue are within the scope of the agreement. See In re D. Wilson Const. Co., 196 S.W.3d 774, 780-81 (Tex. 2006) (orig. proceeding); In re Igloo Prods. Corp., 238 S.W.3d 574, 577 (Tex. App.-Houston [14th Dist.] 2007, orig. proceeding [mand. denied]). If the party seeking arbitration proves a valid arbitration agreement, any doubts as to whether the claims fall within the scope of the arbitration clause must be resolved in favor of arbitration. See Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995); Osornia v. AmeriMex Motor & Controls, Inc., 367 S.W.3d 707, 712 (Tex. App.-Houston [14th Dist.] 2012, no pet.). A court should not deny arbitration unless the court can say with positive assurance that an arbitration clause is not susceptible of an interpretation that would cover the claims at issue. See Prudential Sec. Inc., 909 S.W.2d at 899; Osornia, 367 S.W.3d at 712.

We presume for the purposes of our analysis that the arbitration clauses in the Note and First Modification are broad, making the presumption of arbitrability particularly applicable. See Osornia, 367 S.W.3d at 712. In such instances, absent any express provision excluding a particular grievance from arbitration, only the most forceful evidence of purpose to exclude the claim from arbitration can prevail, and Amegy Bank has the burden of showing that the claims fall outside the scope of the arbitration clauses. See id. Nonetheless, the strong policy favoring arbitration cannot serve to stretch a contractual clause beyond the scope intended by the parties or to allow the court to modify the unambiguous meaning of the arbitration clause. See id.

C. Applicable language from the Note and the First Modification

The First Modification provides in pertinent part as follows:

13. Dispute Resolution. This paragraph contains a jury waiver, arbitration clause[,] and a class action waiver. This paragraph should be carefully read.

(a) JURY TRIAL WAIVER. AS PERMITTED BY APPLICABLE LAW, EACH PARTY WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BEFORE A JURY IN CONNECTION WITH ANY DISPUTE (HEREINAFTER DEFINED), AND DISPUTES SHALL BE RESOLVED BY A JUDGE SITTING WITHOUT A JURY.[2] IF A COURT DETERMINES THAT THIS PROVISION IS NOT ENFORCEABLE FOR ANY REASON, THEN AT ANY TIME PRIOR TO TRIAL OF THE DISPUTE, BUT NOT LATER THAN THIRTY (30) DAYS AFTER ENTRY OF THE ORDER DETERMINING THIS PROVISION IS UNENFORCEABLE, EITHER PARTY SHALL BE ENTITLED TO MOVE THE COURT FOR AN ORDER COMPELLING ARBITRATION AND STAYING OR DISMISSING SUCH LITIGATION PENDING ARBITRATION ("ARBITRATION ORDER").

(b) ARBITRATION. If a claim, dispute, or controversy arises between the parties hereto with respect to [the First Modification] or the Note, related agreements, or any other agreement or business relationship between the parties hereto whether or not related to the subject matter of [the First Modification] or the Note (all of the foregoing, a "Dispute"), and only if a jury trial waiver is not permitted by applicable law or ruling by a court,[3] either party may require that the Dispute be resolved by binding arbitration before a single arbitrator at the request of any party. By agreeing to arbitrate a Dispute, each party gives up any right such party may have to a jury trial, as well as other rights such party would have in court that are not available or are more limited in arbitration, such as the rights to discovery and to appeal.

Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, JAMS or National Arbitration Forum ("Administrator") as selected by the Initiating party. If the parties agree, arbitration may be commenced by appointment of a licensed attorney who is selected by the parties and who agrees to conduct the arbitration without an Administrator. Disputes include matters [stating several matters]. However, Disputes do not include the validity, enforceability, meaning, or scope of this arbitration provision and such matters may be determined only by a court. If a third party is a party to a Dispute, each party will consent to including the third party in the arbitration proceeding for resolving the Dispute with the third party. Venue for the arbitration proceeding shall be at a location determined by mutual agreement of the parties or, if no agreement, in the city and state where lender or bank is headquartered. 

After entry of an Arbitration Order, the non-moving party shall commence arbitration. The moving party shall, at its discretion, also be entitled to commence arbitration but is under no obligation to do so, and the moving party shall not in any way be adversely prejudiced by electing not to commence arbitration. The arbitrator . . . [listing tasks that arbitrator will perform]. Filing of a petition for arbitration shall not prevent any party from [listing various actions a party may take]. The exercise of such rights shall not constitute a waiver of the right to submit any Dispute to arbitration.
Judgment upon an arbitration award may be entered in any court having jurisdiction except that, if the arbitration award exceeds $4,000,000.00, any party shall be entitled to a de novo appeal of the award before a panel of three arbitrators. To allow for such appeal, [setting forth provisions regarding the procedure for a party to exercise its right to appeal an arbitration award in excess of $4,000,000.00 to a panel of three arbitrators].
Arbitration under this provision concerns a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. This arbitration provision shall survive any termination, amendment, or expiration of [the First Modification] and the Note. If the terms of this provision vary from the Administrator's rules, this arbitration provision shall control.

The correlative parts of the Note are substantially similar in all material respects to the above-quoted text. Both the Note and the First Modification contain a provision stating that the instrument shall be governed by and construed in accordance with Texas law.

D. Trial court's determination that no party can start an arbitration unless a court has determined that the jury-trial waiver is not enforceable

In its second declaration, the trial court ruled that under Paragraph 43 of the

Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced unless a court determines that the jury trial waiver is not enforceable." On appeal, Carter asserts that under the plain text of the Note and First Modification, there is no such requirement. Amegy Bank asserts that Carter waived this argument by not presenting it in his summary-judgment response in the trial court. Even if Carter did not raise this argument in his summary-judgment response, the law does not require that he have done so because his challenge constitutes a complaint that Amegy Bank's summary-judgment evidence does not prove as a matter of law Amegy Bank's entitlement to summary judgment on a traditional ground. See M.D. Anderson Hosp. & Tumor Institute v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000). Thus, Carter still can raise this complaint. See id.

Under the unambiguous wording of each instrument, the parties agree to arbitrate any Dispute, but "only if a jury trial waiver is not permitted by applicable law or ruling by a court." Thus, the arbitration agreement is triggered only if: (1) a jury-trial waiver is not permitted by applicable law, or (2) a court rules that a jury-trial waiver is not permitted. See Morgan v. Bronze Queen Mngmt. Co., LLC, 474 S.W.3d 701, 710 (Tex. App.-Houston [14th Dist.] 2014, no pet.) (construing similar language). Though such a court order does trigger the arbitration clause, it is not the exclusive trigger. See id.

In the jury-trial-waiver paragraph, the parties agree that, if a court determines that the jury-trial waiver is not enforceable for any reason, then before trial and no later than thirty days after entry of the order, either party is entitled to ask the court for an order compelling arbitration and staying or dismissing the litigation pending arbitration. This language is consistent with the language in the arbitration provision, in which the parties agree that one of two situations in which their arbitration agreement is triggered is when a court rules that a jury-trial waiver is not permitted. Yet, neither in the jury-trial-waiver provision nor in the remainder of either instrument do the parties agree that such a court ruling is the only situation in which the parties agree to arbitrate a Dispute. See id.

Under the unambiguous language of the two instruments, the arbitration clause may be triggered without any court order if a jury-trial waiver is not permitted by applicable law. See id. Therefore, the trial court erred in declaring that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced unless a court determines that the jury trial waiver is not enforceable." See id.; Marzo Club, LLC, 325 S.W.3d at 799-800.

E. Trial court's determination that no party can start an arbitration until there is an order compelling arbitration

In its second declaration, the trial court ruled that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced until there is an Arbitration Order." On appeal, Carter asserts that under the plain text of the Note and First Modification, there is no such requirement. Amegy Bank asserts that Carter waived this argument by not presenting it in his summary-judgment response in the trial court. Even if Carter did not raise this argument in his summary-judgment response, the law does not require that he have done so because he is asserting that Amegy Bank's summary-judgment evidence does not prove as a matter of law Amegy Bank's entitlement to summary judgment on a traditional ground. See M.D. Anderson Hosp. & Tumor Institute, 28 S.W.3d at 23. Thus, Carter can raise this complaint for the first time on appeal. See id.

In the jury-trial-waiver provision, the parties agree that if a court determines that the jury-trial waiver is not enforceable for any reason then before trial and no later than thirty days after the order's entry, either party may ask the court for an order compelling arbitration and staying or dismissing the litigation pending arbitration. Under the clear text of each instrument, if a court determines that the jury-trial waiver is not enforceable, then within a certain time period either party may ask the court for an order compelling arbitration, but the parties do not make an Arbitration Order mandatory.

Nothing in the Federal Arbitration Act or Texas Arbitration Act requires that parties get an order compelling arbitration, and unless the parties agree that an order compelling arbitration is a necessary prerequisite to arbitration, an arbitration may be conducted and an arbitration award may be rendered and enforced without any order compelling arbitration. See Ewing v. Act-Catastrophe Texas, L.C., 375 S.W.3d 545, 550-51 (Tex. App.-Houston [14th Dist.] 2012, pet. denied).

The parties do not state in either instrument that an order compelling arbitration must be obtained before the parties may arbitrate a Dispute. On the contrary, under the permissive language of the jury-trial-waiver section, either party may ask the court for an order compelling arbitration if a court determines that the jury-trial waiver is not enforceable, as long as the party does so before trial and within thirty days of the trial court's order determining that the jury-trial waiver is not enforceable. To construe the instruments as requiring a party to obtain an order compelling arbitration would conflict with the parties' agreement that "EITHER PARTY SHALL BE ENTITLED TO MOVE THE COURT FOR AN ORDER COMPELLING ARBITRATION."[4] Though the parties agree that "[a]fter entry of an Arbitration Order, the non-moving party shall commence arbitration," the parties do not stipulate that arbitration may be commenced only after an Arbitration Order.

Amegy Bank argues that construing the instruments as not requiring an Arbitration Order before a Dispute may be arbitrated would render superfluous the requirement that a party seek an order compelling arbitration within thirty days of the trial court's order determining that the jury-trial waiver is not enforceable. According to Amegy Bank, there would be no need for a thirty-day deadline to seek an order compelling arbitration if the parties could proceed to arbitrate a Dispute after the thirty-day deadline expired. We disagree.

A deadline for seeking an Arbitration Order after a court's order that the jury-trial waiver is not enforceable still has meaning even if parties are free to arbitrate without an Arbitration Order. If a party fails to seek an Arbitration Order within this thirty-day period and then files an arbitration demand, one of the respondents may refuse to arbitrate. In addition, if a jury-trial waiver is not permitted by applicable law, then a court order that the jury-trial waiver is not enforceable is not required, and a party may want to file an arbitration demand without seeking an order compelling arbitration.

Under the unambiguous language of the two instruments, arbitration may be started without an Arbitration Order in some circumstances. Therefore, the trial court erred in declaring as a matter of law that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "arbitration cannot be commenced until there is an Arbitration Order."

F. The trial court's declaration as to who may determine arbitrability

Carter also asserts that the trial court erred in declaring that under Paragraph 43 of the Note and Paragraph 13 of the First Modification, "only a court may determine the validity, enforceability, meaning, and scope of the [arbitration provisions in the Note and First Modification]." The parties agreed that "Disputes do not include the validity, enforceability, meaning, or scope of this arbitration provision and such matters may be determined only by a court." Under the Federal Arbitration Act, courts presume that parties to an arbitration agreement intend that courts rather than arbitrators decide issues as to the validity, scope, and enforceability of the arbitration clause. See Jody James Farms, JV v. Altman Group, Inc., 547 S.W.3d 624, 631-33 (Tex. 2018). Though Carter argues otherwise, this agreement does not contradict precedent under which attacks on the validity of the contract as a whole, as opposed to attacks on the validity of the arbitration clause, are to be resolved by the arbitrator in the first instance. Under the plain text of the instruments, the parties agreed that "only a court may determine the validity, enforceability, meaning, and scope of the [arbitration provisions in the Note and First Modification]." Therefore, the trial court did not err in making the first declaration in the final judgment. See Marzo Club, LLC, 325 S.W.3d at 799-800.

G. The declaration that Carter cannot force Amegy Bank to arbitrate the Carter Dispute

Carter asserts that the trial court erred in declaring that Carter cannot force Amegy Bank to arbitrate the Carter Dispute because the arbitration clause provides that "Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, JAMS or National Arbitration Forum . . . as selected by the initiating party." But, this sentence does not address the circumstances under which the parties have agreed to arbitrate or the scope of the arbitration agreement. As discussed above, under the plain text of the instruments, the parties' agreement to arbitrate turns on either (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted. In its summary-judgment motion Amegy Bank asserted that the jury-trial waiver provision is enforceable under applicable law, and Amegy cited legal authorities showing that applicable law permits a jury-trial waiver. Indeed, Texas and federal law allow jury-trial waivers. See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 132-33 (Tex. 2004); Morgan, 474 S.W.3d at 710. In addition, the undisputed summary-judgment evidence shows that no court has ruled that a jury-trial waiver is not permitted.

Even indulging the presumption that the Carter Dispute should be arbitrated and resolving any doubts as to whether the arbitration clause requires arbitration of the Carter Dispute in favor of arbitration, we can say with positive assurance that the arbitration clauses are not susceptible of an interpretation that would require arbitration of the Carter Dispute at this juncture. See Osornia, 367 S.W.3d at 712.

Under the express language of the arbitration clauses, the parties' agreement to arbitrate is conditioned on either (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted. Amegy Bank's motion and summary-judgment evidence prove as a matter of law that neither condition has occurred, so there is no agreement to arbitrate the Carter Dispute at this time. The strong policy in favor of arbitration cannot push the boundaries of a contractual provision beyond the scope intended by the parties or allow a court to modify the unambiguous meaning of the arbitration clause. See id.

Carter also asserts that under the contracts, either the jury-trial waiver is enforceable or the arbitration clause is enforceable, and because the arbitration clause is valid, irrevocable, and enforceable, the jury-trial waiver necessarily is not enforceable. This argument conflicts with the plain text of the instruments, under which the parties have not agreed to arbitrate the Carter Dispute unless (1) a jury-trial waiver is not permitted by applicable law, or (2) a court rules that a jury-trial waiver is not permitted.

Carter claims that the jury-trial-waiver provision applies if permitted by applicable law or by a court ruling, but that no summary-judgment evidence proves either proposition. In this argument, Carter does not correctly state the two conditions, which are (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted.

Under the applicable standard of review, we conclude the trial court did not err in declaring as a matter of law that Carter cannot force Amegy Bank to arbitrate the Carter Dispute. See In re Prudential Ins. Co. of Am., 148 S.W.3d at 132-33; Morgan, 474 S.W.3d at 710; Osornia, 367 S.W.3d at 712.

III. Conclusion

Under the express language of the arbitration clauses, the parties conditioned their agreement to arbitrate on either (1) a jury-trial waiver not being permitted by applicable law, or (2) a court ruling that a jury-trial waiver is not permitted. Amegy Bank's motion and summary-judgment evidence prove as a matter of law that neither condition has occurred, and therefore that there is no agreement to arbitrate the Carter Dispute at this time.

We conclude the trial court did not err in declaring as a matter of law that Carter cannot force Amegy Bank to arbitrate the Carter Dispute. Because the trial court's second and third declarations conflict with the unambiguous language of the instruments, we modify the trial court's judgment to delete these two declarations, and we affirm the judgment as modified.

[1] If all relevant parties did not sign the contract containing the arbitration agreement, this first prong may include issues as to whether a non-signatory is bound by or may enforce the arbitration agreement. See In re Rubiola, 334 S.W.3d 220, 223-24 (Tex. 2011). Though Carter, in his individual capacity, is a non-signatory, we presume, without deciding, that Carter may enforce arbitration of the Carter Dispute under the arbitration provisions of the Note and First Modification.
[2] boldface added
[3] emphasis added
[4] emphasis added

STATEMENT OF THE CASE, PER APPELLANT

PRAYER FOR RELIEF REJECTED 

Does Sub-Prime Student Loan Debt Deserve Sub-Prime Jurisprudence? Sheila Kirk v. National Collegiate Student Loan Trust 2003-1

GIVING CREDIT WHERE CREDIT IS DUE 

Democrat Richard Hightower botches his first National Collegiate Student Loan Trust case after taking office as a member of Houston Court of Appeals 

Sheila Kirk v. National Collegiate Student Loan Trust 2003-1, 

No. 01-17-00722-CV (Tex.App. - Houston [1st Dist.] Feb. 28, 2019, no pet.). 

Following affirmance of a take-nothing judgment against one of the National Collegiate Student Loan Trusts by the Fort Worth Court of Appeals and reversal of a judgment in favor of another Trust -- both decided in 2017 based on insufficient proof of assignment* -- another Texas appellate court in 2018 took a different approach to such private student loan cases. In three appeals decided that year, the First Court of Appeals pared down the amount of the damages awarded by the trial courts, and affirmed the judgments for the reduced amount after the Trust accepted the court's suggestion of remittitur, thereby avoiding reversal and remand. The Houston-based appellate court did what it did based on absence of evidence of a valid acceleration of maturity of the loans--each with a 20-year amortization period.

* 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.); 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.)

In the latest chapter of the ongoing saga involving the use of the court system to improve yields on these troubled private student loans originated and securitized before the financial crisis under the National Collegiate moniker, a panel of the same court in February 2019 ignored its own prior holdings and affirmed a judgment for the Trust. It did so based on mistaken facts and extemporized legal grounds that do not hold up upon closer scrutiny.

Here is a litany of what went wrong in the case culminating in a memorandum opinion by Richard Hightower in Sheila Kirk v. National Collegiate Student Loan Trust 2003-1, No. 01-17-00722-CV (Tex.App. - Houston [1st Dist.] Feb. 28, 2019, no pet.). 

FACTS SHOULD NOT BE CUT & PASTED FROM ONE CASE TO THE NEXT 

As an initial matter, and leaving aside the numerous errors in spelling and grammar, which betray serious copy-editing failures prior to release, the opinion got the facts wrong as they appear in the record for this case. Apparently because the facts were taken from the first student loan trust case, rather than the case-specific appellate record for the most recent one that made it to the appellate level. The first one was 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.). 

But the opinion in Kirk does not follow Foster in the analysis and resolution of the acceleration-of-the-outstanding-balance issues; nor does it even acknowledge the existence of two opinions in other NCSLT cases that the same court had handed down in the interim: 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.), and Savoy v. National Coll. Student Loan Trust 2005-3, 557 S.W.3d 825 (Tex.App. - Houston [1st Dist.] 2018).

All four cases involved a core set of proof and legal sufficiency issues. The fourth one has now become an aberration in light of the three opinions that preceded it. Kirk stands in stark contrast to the three cases decided consistently last year, with the final one in the trilogy having precedental value as a published case.

APPELLATE COURT MUST BE FAMILIAR WITH ITS OWN PRECEDENTS BECAUSE THEY ARE BINDING ON SUBSEQUENT CASES INVOLVING THE SAME LEGAL ISSUE 

As for the reference to the first case, Kirk cites Foster for a non-doctrinal point; a supposed briefing deficiency by the same lawfirm that also handled all of the other cases for the respective appellants. The Panel opinion faults the appellant for failing to cite sufficient caselaw on the matter of the creditor's burden to substantiate the interest component of its claim with competent evidence. 

Kirk contends that the evidence is insufficient because the Trust did not provide evidence of what the LIBOR rate was for each month. In Foster v. National Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 at *11 (Tex. App.-Houston [1st Dist.] 2018, no pet.), we rejected an argument identical to Kirk's. We noted that that the appellant "provide[d] no authority for her assertion that the Trust was required to support its claim with calculations supporting each month's interest computation over the life of the loan." Id. at *11. The same is true here. Accordingly, we overrule Kirk's argument that the Trust failed to provide legally and factually sufficient evidence indicating how her loan was calculated.

Note that the opinion does not say that the court couldn’t find any authority for the proposition, based on its own research, as appellate courts sometimes do when presented with novel issues or unusual factual scenarios. There is good reason for the coyness here: There actually happens to be such caselaw, including caselaw from the Houston courts of appeal, but the Panel chose to ignore it, apparently because it would have helped the Appellant, rather than the Trust.  

In Hay v. Citibank, the Fourteenth Court of Appeals, which also sits in Houston and lords over the same trial courts in ten surrounding counties, did not merely hold that use of credit card and payments to account demonstrated existence of contract (thus ruling against the Defendant on that issue), but also reversed the judgment in part because the bank had not adduced any evidence of what the variable interest rate was at the relevant time (thereby sustaining one of the Defendant’s complaints of error raised on appeal). See Hay v. Citibank (South Dakota) N.A., No. 14-04-01131-CV, 2006 WL 2620089, at *3 (Tex.App.-Houston [14th Dist.] Sept. 14, 2006, no pet.).

In addition to purchases, the Citibank statements contain charges for late fees and over credit limit fees, the amounts of which are flat fees plainly specified in the terms and conditions in exhibit C.  However, the statements also impose finance charges, which are generally described in the terms and conditions, but neither the statements nor Citibank’s other summary judgment evidence provides an explanation showing how these amounts were calculated.  In addition, although the card agreement states that Citibank may increase the annual percentage rates on all balances to a default rate of up to 19.99% plus the applicable prime rate, nothing in the evidence establishes what the applicable prime rate was for the relevant time periods on the statements.  Citibank argues that the default rate of 24.24% reflected on some of the statements minus the 19.99% factor provided in the card agreement indicates that the applicable prime rate was 4.25%.  Although this reflects what prime rate was used, it provides no evidence of what the applicable prime rate for any date or time period actually was, such as by reference to a source of that information.  Because Citibank’s summary judgment materials are therefore insufficient to prove that Hay owed the amounts claimed for finance charges, we sustain her fifth issue as to those amounts, and we need not address her other challenges to those amounts.

Accordingly, the summary judgment is: (1) reversed as to the finance charges and remanded to the trial court for further proceedings thereon; and (2) affirmed as to the remainder of the judgment.

The First Court of Appeals itself cited Hay v. Citibank in one of the most-often cited opinions involving collection of credit card debt: Winchek v. Am. Exp. Travel Related Servs. Co., 232 S.W.3d 197, 204 (Tex. App.-Houston [1st Dist.] 2007, no pet.), but left unmentioned the partial reversal of the summary judgment in Hay for insufficient proof of the interest rate. There are several other cases from the Houston courts of appeals and elsewhere, that resulted in reversal for insufficient proof of the interest rate likewise. 

It appears that the Panel in Kirk was so committed to thwarting the appeal of the student loan debtor that it ignored its own existing jurisprudence in consumer debt cases to the extent it would favor the student loan defendant's arguments in the case before it. 

But that was not all. The Panel additionally rephrased—without offering any reason or justification--the quoted portions from the Trust’s business records affidavit. The affidavit was signed by a self-described employee of Transworld Systems, Inc., whom the Panel elevated to the status of a custodian of records for the occasion. The Panel then modified the quoted portions of the affidavit to make them refer to only one defendant--the appellant--even though there were two defendants in the trial court, and even though the affidavit referred to both of them. 

APPELLATE COURT SHOULD NOT REWRITE THE RECORD, WHICH IS WHAT HAPPENED HERE WHEN TWO DEFENDANTS WERE REDUCED TO ONE  

Does it matter? Or is it merely another instance of sloppy treatment of a consumer debt case that is considered a low priority given the small amount in controversy, compared to tort and business-vs-business cases?

There is good reason to conclude that the alteration does matter here. For it changed the nature of the case and its procedural posture on appeal. There was a second defendant (Merle Kirk), whose signature appears on the loan application as a co-signer. He was sued along with the student-borrower (Sheila Kirk), but he did not file an answer in the court below, and he did not appear for trial. After judgment was entered following a truncated trial in which the judge cut off the Sheila Kirk's attorney, who attempted to press evidentiary issues, only the student-borrower (as primary obligor) pursued an appeal.

The problem is with the wording of the judgment that is the subject of Sheila Kirk’s appeal: it grants judgment for the Trust as Plaintiff, but only against one defendant, and it does not identify that single defendant by name as required by the rules. What happened to Merle Kirk? The co-defendant against who a judgment by default would normally have been entered?

THE TRIAL COURT'S JUDGMENT WAS AND REMAINS DEFECTIVE ON ITS FACE 

When a purportedly final judgment is not clear, the court of appeals would normally request clarification from the trial court or advise the parties of a possible defect affecting the court’s jurisdiction, and ask for briefing, and supplementation of the record, if appropriate. Sometimes the defect involving non-finality is cured with a nonsuit, or with an order of severance.

This did not happen here. While the Panel went out of its way to affirm the judgment for the Trust, and even endeavored to extemporize a novel construction of rule 93(12)--a pleading rule--for that purpose, it is questionable whether the Houston appellate court, and therefore the three-member panel to which the case was assigned, ever even acquired jurisdiction to reach the merits to begin with. 

GOTCHA JURISPRUDENCE

When litigants appeal without a lawyer, they are routinely rebuffed for a variety of procedural failures and blamed for not producing a brief as would be expected of appellate attorneys. They are told that they failed to preserve error in the trial court, and that they cannot raise objections and new arguments for the first time on appeal. If they did raise objection in the trial court, they are blamed for not obtaining a ruling, or for not obtaining a ruling in writing, or for not making an objection specifically enough, or for not obtaining a specific-enough written order disposing of it.

The pro-se-and-doomed-to-lose scenario did not apply to Sheila Kirk, however, who had attorney representation both at trial and on appeal. But she did not fare much better.

In the trial court, her attorney was cut off by the judge when she objected to the Trust’s business records affidavit and started to argue that the Trust had failed to establish its status as assignee with proper evidence of assignment.

On appeal, the Panel overruled her argument regarding the proffered assignment proof by distinguishing the case the Second Court of Appeals had cited when it revered a judgment in the trust’s favor.* It then refused to address Kirk’s objections to other pieces of documentary evidence on the basis that she had not first presented them to the trial court. 

* 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.), citing Jenkins v. CACH, LLC, No. 14-13-00750-CV, 2014 WL 4202518, at *6-7 (Tex. App.-Houston [14th Dist.] Aug. 26, 2014, no pet.) (mem. op.)

How could Kirk be at fault for not asserting objections in the trial court when the judge of that court prevented her from making them, cut the trial short, and granted judgment for the Trust instanter?

Worse, the Panel made short shrift of the Trust’s failure to plead that it was suing as an assignee (as opposed to original creditor), but manufactured a pleading defect for the defendant instead. It did so by re-purposing rule 93(12), which addresses notice of loss/claim in the insurance and indemnity context, and applying it for the first time to a consumer debt collection case. Unsurprisingly, the Panel cited no existing caselaw to support this deus-ex-machina stratagem to save the Trust from suffering reversal or reduction of damages as in the previous cases.   

Rejecting Kirk’s contention that the Trust had failed to meet the requirements for acceleration of loan maturity under Texas law--the same contention that had resulted in the downward adjustment of damages in the other three NCSLT cases decided in 2018—the Panel transmuted the same deficiency in the Trust’s proof into a supposed pleading deficiency on the part of the Defendant instead.

Lastly, Kirk contends that because the Trust did not produce any documents establishing that it notified Kirk that it was accelerating her loan following her failure to maintain the monthly payments, the Trust was entitled to recover past-due payments only and not the full amount. Again, Kirk waived this issue by not filing a verified denial that raised it. See TEX. R. CIV. P. 93(12) (stating that party's failure to file verified denial "[t]hat notice and proof of loss or claim for damage has not been given as alleged" results in "notice and proof . . . be[ing] presumed"); see also Brown, 414 S.W.3d at 285-86. We therefore reject Kirk's notice-of-acceleration argument.

What the Panel stooped to here is to fault Kirk for failing to follow a pleading rule that did not exist until the Panel made it up for the purpose of denying Kirk the relief that the other student loan debtors had obtained in three similar cases decided by the very same court less than a year earlier.

In all three opinions handed down in 2018, the First Court had treated proper acceleration of loan maturity under Texas law as an issue on which the Trust had the burden of proof as plaintiff suing for the full amount alleged outstanding on loans which had not yet matured by their own terms. See Savoy v. Nat. Coll. Student Loan Tr., 557 SW 3d 825 (Tex.App. – Houston [1st Dist.] 2018) (excerpt below).  

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 840*840 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 remittitur 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.

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.

[…]

 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

SHEILA C. KIRK AKA SHEILA MOON AKA CHRISTINE S. ALLEN, Appellant,
v.
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2003-1, Appellee.

No. 01-17-00722-CV 

Court of Appeals of Texas, First District, Houston.

Opinion issued February 28, 2019.

On Appeal from the County Civil Court at Law No. 4, Harris County, Texas, Trial Court Case No. 1087683.

Panel consists of Justices Lloyd, Kelly, and Hightower.

MEMORANDUM OPINION

RICHARD HIGHTOWER, Justice.

Appellee National Collegiate Student Loan Trust 2003-1 sued appellant Shelia Kirk for breach of contract following her failure to make payments on the student loan that the Trust claimed it was assigned.^[1] After a short bench trial, the trial court entered judgment in favor of the Trust. On appeal, Kirk contends that the Trust lacked standing to sue because it failed to prove that it was in fact assigned her loan, that the trial court improperly admitted the Trust's business-records affidavit and the exhibits that accompanied it, that the breach-of-contract evidence was legally and factually insufficient to support the judgment, and that the Trust's pleadings did not support the judgment.

We conclude that the Trust did submit evidence of the loan's assignment to it; that the trial court reasonably could have concluded that the business-records affidavit and its exhibits satisfied Rule of Evidence 803(6)'s requirements; that the breach-of-contract evidence was legally and factually sufficient; and that Kirk failed to adequately brief her argument that the Trust's pleadings did not support the judgment.

Accordingly, we affirm.

Background