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.
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.).
* 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
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 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?
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.
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.
Court of Appeals of Texas, First District, Houston.
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.
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.
