Tully vs Citibank: Credit card debt collection claim is breach of contract claim

Jack Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212 (Tex.App. - Texarkana 2005, no pet.)

Significance of the Tully v. Citibank case: What is is proper legal theory for collection and what must the creditor prove?  

In Tully v Citibank, a summary judgment in favor of Citibank was reversed on all three theories on which the motion was based (albeit for different reasons).

Breach of contract cause of action 

This  claim failed on the merits because there was no evidence on an agrement on interest rates; wherefore the bank could not meet the summary judgment standard on the first element of a viable breach of contract claim. Interest rates are one essential element of a contract involving the loaning of money.

Noncontract theories

Citibank's attorney, Anh Regent, had also pleaded sworn account and quantum meruit. Summary judgment on those theories was overturned for purely legal (rather than evidence-based) reasons:

A credit card claim is not viable as a sworn account claim because no good or services are sold by the creditor to the debtor; and the quantum meruit claim could not succeed because the presence of the contract (in the form of Citibank's cardmember agreement, albeit on without interest rate term) precluded recovery under an equitable theory because the latter are only available in the absence of a contract. -- > Equitable relief not available when legal remedy available for breach of contract.

Other rerversible error 

Attorney’s fees on appeal were not conditioned on unsuccessful appeal by consumer (i.e. successful defense of the judgment rendered in the bank’s favor) as required; and dismissal of Tully's conterclaim for usury was improper also because Citibank had not disproven that claim. Even though Citibank's home state, South Dakota, does not have usury limits on interest, another limitation on interest still applied: The rate or rates must be authorized by the parties' agreement that governs the account.

Disposition on appeal 

Because none of the legal theories on which Citibank had moved for summary judgment could support the judgment (account stated was not pleaded), it was reversed, and the case was sent back to the court that had entered the faulty judgment.

The appeal was taken from a summary judgment in favor of Citibank; not from a bench trial resulting in a final judgment. Therefore, upon its reversal as improperly granted, the appellate court remanded the case to the trial court for further proceedings consistent with the opinion. The court could not render judgment for Tully because he had not cross-moved for summary judgment in his favor.

CITE FOR THE OPINION ISSUED BY THE COURT OF APPEALS IN THIS CASE

Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212, 216 (Tex.App.-Texarkana 2005, no pet.)

Docket sheet for Cause No. 06-05-00027-CV on the Texarkana Court of Appeals' web site, which has link to on-line HTML version of the opinion in Tully v Citibank (South Dakota). N.A. by Justice Carter.

Tully v Citibank (South Dakota) N.A. - Appellate Docket Sheet 

173 S.W.3d 212 (2005)

Jack TULLY, Appellant,
v.
CITIBANK (SOUTH DAKOTA), N.A., Appellee.

No. 06-05-00027-CV.

Court of Appeals of Texas, Texarkana.

Submitted June 6, 2005. Decided September 9, 2005.

215*215 Ron Adkison, Welborn Houston, LLP, Henderson, for appellant.

Anh H. Regent, Regent & Associates, LLP, Houston, for appellee.

Before MORRISS, C.J., ROSS and CARTER, JJ.

OPINION

Opinion by Justice CARTER.

Jack Tully appeals the granting of Citibank (South Dakota), N.A.'s motion for summary judgment for collection on a delinquent credit card debt. Citibank issued a credit card to Tully. Tully alleged that some of the charges contained in the account statements were inaccurate and that Citibank, rather than correct its statements, charged interest on the "incorrect and disputed amounts" at rates of almost twenty-five percent.^[1] Citibank sued Tully alleging Tully had failed to make payments due, which had accelerated that maturity of the amounts due. Tully denied Citibank's allegations and filed a counterclaim alleging that Citibank was in bad faith and that the suit was brought for the purpose of harassment. Tully also alleged Citibank attempted to collect interest, fees, or expenses without authorization. The trial court granted Citibank's traditional motion for summary judgment.

Tully raises three issues on appeal: 1) Citibank is not entitled to summary judgment because it failed to plead or prove grounds to support the summary judgment and failed to prove there are no genuine issues of material fact; 2) Citibank is not entitled to summary judgment because it failed to prove Tully's counterclaim was pre-empted or disproved the counterclaim; and 3) the summary judgment erroneously makes an unconditional award of appellate attorney's fees. We reverse and remand this case to the trial court for proceedings consistent with this opinion.

1) Genuine Issues of Material Fact Exist Concerning the Amount of Damages Due to the Breach of Contract

In his first point of error, Tully argues the trial court erred in granting the summary judgment. Citibank's traditional motion for summary judgment argued it was entitled to summary judgment based on either a suit on a sworn account, quantum meruit, or breach of contract. Tully challenges all three of these theories. We 216*216 agree for the following reasons: a suit on a credit card debt cannot be recovered through a suit on a sworn account; because the summary judgment evidence conclusively established that a contract existed, Citibank could not recover under its quantum meruit theory; and a fact issue exists concerning the amount owed based on breach of contract.

The standards for reviewing a "traditional" motion for summary judgment are well settled. We will review this summary judgment based on the standards set forth in Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985).

First, Citibank cannot collect a credit card debt through a suit on a sworn account. A suit on a sworn account is permitted only if the claim is "founded upon an open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished...." TEX.R. Civ. P. 185. "A sworn account applies only to transactions between persons, in which there is a sale upon one side and a purchase upon the other, whereby title to personal property passes from one to the other, and the relation of debtor and creditor is thereby created by general course of dealing—it does not mean transactions between parties resting upon special contract." Bird v. First Deposit Nat'l Bank, 994 S.W.2d 280, 282 (Tex. App.-El Paso 1999, pet. denied). Because no title to personal property passes from the bank to the cardholder, a credit card debt is not a sworn account as contemplated by Texas Rule of Civil Procedure 185. Id. Citibank was not entitled to summary judgment based on its suit on a sworn account theory.

Second, because Citibank proved the existence of an express contract, Citibank cannot recover under the theory of quantum meruit. "Quantum meruit is an equitable theory of recovery which is based on an implied agreement to pay for benefits received." Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex.1992). The doctrine of quantum meruit requires the plaintiff to establish: "1) valuable services and/or materials were furnished, 2) to the party sought to be charged, 3) which were accepted by the party sought to be charged, and 4) under such circumstances as reasonably notified the recipient that the plaintiff, in performing, expected to be paid by the recipient." Id. However, the summary judgment evidence establishes the existence of a contract between the parties. In general, recovery under quantum meruit is limited to only when there is no express contract covering the services or materials furnished. Vortt Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex.1990); Academy Corp. v. Interior Buildout & Turnkey Constr., Inc., 21 S.W.3d 732, 741 (Tex.App.-Houston [14th Dist.] 2000, no pet.). Because the summary judgment evidence established the existence of a contract as a matter of law, Citibank cannot recover under the theory of quantum meruit.

Third, Citibank failed to prove the amount due based on the breach of contract argument.^[2] Although Tully's affidavit 217*217 failed to raise a fact issue,^[3] Citibank failed to prove it was entitled to summary judgment. Specifically, Citibank failed to prove that the interest rate charged was agreed on by Tully.^[4] The contract introduced into evidence does not specify the interest rate that was agreed on. Further, there were no notices of interest rate increases introduced into evidence. The only evidence concerning the rate of interest are the rates specified on the copies of the monthly statements Citibank sent to Tully.^[5] Citibank failed to prove its damages as a matter of law. Because a genuine issue of material fact issue exists concerning the interest rates agreed on, the trial court erred in granting summary judgment.

When a trial court's order granting summary judgment does not specify the ground or grounds relied on for the ruling, summary judgment will be affirmed on appeal if any of the theories advanced are meritorious. State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex.1993). Citibank, though, failed to prove it was entitled to summary judgment concerning any of the three theories advanced in its motion for summary judgment. A credit card debt is not a sworn account. Since the summary judgment evidence proved the existence of a contract, Citibank was not entitled to collect on its quantum meruit theory. Because Citibank failed to prove Tully agreed to the interest rates Citibank charged, Citibank failed to prove 218*218 its amount of damages under the breach of contract theory. We sustain Tully's first point of error. We decline to address the remaining arguments advanced by Tully because the above arguments are dispositive.

2) Citibank Failed To Disprove Tully's Counterclaim

In his second point of error, Tully argues Citibank failed to prove that his counterclaim was pre-empted or otherwise invalid. Tully argues the interest charged was usurious under Texas law. In the alternative, Tully argues Citibank has failed to prove that the interest charged is authorized by South Dakota Law.

Tully argues that, under Texas law, a charge of interest in excess of ten percent is in most cases considered usurious.^[6] However, the National Bank Act pre-empts state usury laws. Marquette Nat'l Bank v. First Omaha Serv. Corp., 439 U.S. 299, 313, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978); see Smiley v. Citibank, 517 U.S. 735, 744, 116 S.Ct. 1730, 135 L.Ed.2d 25 (1996) (holding that late fees were interest under the National Bank Act). The National Bank Act provides that national banks may charge interest "at the rate allowed by the laws of the State ... where the bank is located, or...."^[7] Assuming that Citibank is a national bank located in South Dakota,^[8] Citibank has proven as a matter of law that Texas usury law is pre-empted and that it may charge interest at the rate authorized by South Dakota.

However, merely proving that Texas usury laws are pre-empted by federal law does not establish that the charges were authorized. Tully's counterclaim was not limited to Texas usury laws; the counterclaim was that the interest rates were not authorized. If Texas usury laws are pre-empted, Tully argues Citibank has failed to prove that the interest rates are authorized under South Dakota law. Although Citibank did not respond to this argument on appeal, Citibank argued to the trial court that Section 54-3-1.1 of the South Dakota Codified Laws authorized the interest in this case. Section 54-3-1.1 of the South Dakota Codified Laws provides as follows:

Unless a maximum interest rate or charge is specifically established elsewhere in the code, there is no maximum interest rate or charge, or usury rate restriction between or among persons, corporations, limited liability companies, 219*219 estates, fiduciaries, associations, or any other entities if they establish the interest rate or charge by written agreement. A written agreement includes the contract created by § 54-11-9.

S.D. CODIFIED LAWS § 54-3-1.1 (2005). Even if no other maximum rate is established elsewhere in the laws of South Dakota, Citibank has failed to show that the interest rate is authorized. Section 54-3-1.1 only applies if the parties "establish the interest rate or charge by written agreement." Id. The summary judgment evidence lacks any evidence as to the interest rate authorized by the credit card contract. The contract introduced into evidence does not specify the interest rate that was agreed on.^[9] There were no notices of interest rate increases introduced into evidence. When no interest rate is provided in the agreement, South Dakota law limits the maximum interest rate to considerably less than the rates charged by Citibank. See S.D. CODIFIED LAWS §§ 51A-12-13, 54-3-4, 54-3-5 (2005). We note that a credit card issuer may change the terms of the card agreement on sufficient written notice to the cardholder. S.D. CODIFIED LAWS § 54-11-10 (2005). The summary judgment evidence, though, contains no written notices specifying the interest rates other than the copies of the statements. There are genuine issues of material fact concerning whether the interest rates Citibank charged Tully are authorized by South Dakota law.

Because Citibank failed to prove the contractual interest rate, Citibank has failed to prove it was entitled to summary judgment. We sustain Tully's second point of error. Because we find the above issue dispositive, we decline to address Tully's remaining arguments contained in his second point of error.

3) The Trial Court Erred in Awarding Unconditional Appellate Attorney's Fees

In his third point of error, Tully argues the trial court erred in not conditioning the award of attorney's fees in the event of an appeal on the success of that appeal. An award for attorney's fees should be conditioned on a successful appeal. Westech Eng'g, Inc. v. Clearwater Constructors, Inc., 835 S.W.2d 190, 205 (Tex.App.-Austin 1992, no writ). While the award of attorney's fees being conditioned on a successful appeal is probably implied in the trial court's judgment, we reform the judgment to reflect that Citibank is only eligible to receive attorney's fees if the appeal is successful. See J.C. Penney Life Ins. Co. v. Heinrich, 32 S.W.3d 280, 290 (Tex.App.-San Antonio 2000, pet. denied).

4) Conclusion

Because Citibank failed to prove the contractual amount of the interest, Citibank failed to prove there were no genuine issues of material fact concerning the amount of its damages or concerning whether the interest rates charged were authorized under South Dakota law. Therefore, the trial court erred in granting summary judgment. We reform the trial court's judgment to condition the award of attorney's fees on the success of the appeal. Because we have held that the trial court erred in granting the summary judgment, Citibank is not eligible to receive attorney's fees for this unsuccessful appeal.

220*220 We reverse and remand this case to the trial court for further proceedings consistent with this opinion.

[1] The interest rates charged vary dramatically among the statements introduced into evidence. Most of the statements reflect interest around twenty-five percent. For a couple of the statements, the interest approached seventy percent—possibly due to transaction, late, or other fees. Late fees are considered interest under South Dakota Law. S.D. CODIFIED LAWS § 51A-12-13 (2005).

[2] We note that Tully argues Citibank failed to plead breach of contract. The sufficiency of the pleadings is judged based on whether they provide the opponent with fair and adequate notice. Roark v. Allen, 633 S.W.2d 804, 809-10 (Tex.1982); see Southwestern Bell Tel. Co. v. Garza, 164 S.W.3d 607 (Tex.2004). "Fair notice" requires that "an opposing attorney of reasonable competence" can ascertain the nature and basic issues of the controversy. City of Alamo v. Casas, 960 S.W.2d 240, 251 (Tex.App.-Corpus Christi 1997, pet. denied); Daniels v. Conrad, 331 S.W.2d 411, 415 (Tex.Civ. App.-Dallas 1959, writ ref'd n.r.e.). Citibank pled in its petition that the suit was based on a credit card debt. More specifically, Citibank alleged that Tully "defaulted in making the payments required by the terms of the Card Agreement. Due to Defendant's breach of the terms of the agreement...." Liberally construed, the pleading gives fair notice that Citibank was pleading a cause of action for breach of contract.

[3] Tully contends that, at a minimum, his affidavit raises a fact issue. However, the affidavit filed by Tully was conclusory and failed to allege specific facts of a nature that could be effectively countered by Citibank. See Chhim v. Univ. of Houston, 76 S.W.3d 210, 216 (Tex. App.-Texarkana 2002, pet. denied); Haynes v. City of Beaumont, 35 S.W.3d 166, 178 (Tex. App.-Texarkana 2000, no pet.); Rizkallah v. Conner, 952 S.W.2d 580, 587 (Tex.App.-Houston [1st Dist.] 1997, no pet.).

[4] Tully argues on appeal that a genuine issue of material fact exists regarding the amount Tully owes Citibank under the contract. We note that Tully did not specifically argue that Citibank failed to prove the interest rate. However, Tully did argue to the trial court and in its second point of error that the interest was not authorized. Briefs are to be construed liberally. TEX.R.App. P. 38.9. This issue is intertwined with the second point of error concerning the counterclaim and necessarily applicable to the breach of contract claim. Further, Tully alleged a general point of error. Tully's first point of error states: Citibank cannot sue Tully for a credit card debt in a suit on a sworn account, and may not recover from Tully under any of the alternative theories it now advances. Under the Malooly rule, set out in Malooly Brothers, Inc. v. Napier, 461 S.W.2d 119 (Tex.1970), a point of error stating generally that the trial court erred by granting summary judgment authorizes review of all possible grounds of trial court error in granting the summary judgment. Plexchem Int'l, Inc. v. Harris County Appraisal Dist., 922 S.W.2d 930, 930-31 (Tex. 1996) (per curiam); see Star-Telegram, Inc. v. Doe, 915 S.W.2d 471, 473 (Tex.1995). In addition, "[t]he statement of an issue or point will be treated as covering every subsidiary question that is fairly included." TEX.R.App. P. 38(e). Because Tully raised a general point of error, the issue of the interest rate elsewhere in his brief, and the issue was raised at the trial court level, error was assigned for our review.

[5] Even if the bills could be construed as notice of a change of the terms of the card agreement, the change could not apply retroactively. Therefore, there would still be a fact issue as to the amount of interest owed.

[6] See TEX. FIN.CODE ANN. § 302.001(b) (Vernon Supp.2004-2005). We note, though, that Texas law may permit interest up to eighteen percent for revolving charge accounts. See TEX. FIN.CODE ANN. § 346.101 (Vernon Supp. 2004-2005).

[7] 12 U.S.C.A. § 85 (West 2001). Although Section 85 provides that, if the state provides no rate, then the interest is limited to the greater of seven percent or one percent in "excess of the discount rate on ninety-day commercial paper," the United States Supreme Court has held that, when a state allows any rate agreed on by the parties to the contract, a rate is still fixed by the state despite the lack of a maximum rate. Daggs v. Phoenix Nat'l Bank, 177 U.S. 549, 555, 20 S.Ct. 732, 44 L.Ed. 882 (1900); see Hiatt v. San Francisco Nat'l Bank, 361 F.2d 504, 507 (9th Cir.1966).

[8] Citibank argues it sufficiently proved that it was a national bank because it cited Smiley, 517 U.S. at 744, 116 S.Ct. 1730, which recognized Citibank as a national bank and because it identified itself as "Citibank (South Dakota), N.A." in its summary judgment affidavit. Only a national bank may use the word "National" in its title. 18 U.S.C.A. § 709 (West Supp.2005). For purposes of this analysis, we will assume that Citibank is a national bank located in South Dakota.

[9] We note that the contract does contain the amount of at least some of the fees charged. 

REGENT & ASSOCIATES Lawfirm review [heading for extinction in 2015]

Regents & Associates - Review of Houston Debt Collection Boutique Firm

REGENT & ASSOCIATES LAWFIRM REPRESENTS AN ARRAY OF CREDITORS, BOTH BANKS AND DEBT BUYERS

Anh Regent has his own law firm and operates out of Houston [or rather did so until recently (see April 2015 update below]. He also owned a collections firm that had its privileges to do business forfeited for failure to pay state tax. 

UPDATE: Anh Regent has lost most of his clients, who they are now his creditors in his bankruptcy case, filed in March 2015 in Houston (Southern District of Texas / Bankruptcy Court). He also owes his process server (big time - six-figure amount), venders, banks (Chase), the IRS, and numerous other creditors. He let go most or all of his staff because he could not pay them any more, and defaulted on his office lease. He also owes for unpaid salary. He is basically history in the debt collection world. His clients are now trying to collect from him and he also has a dozen-or-so lawsuits pending in which he is the named defendant himself or represented the defendant (most of them for FDCPA actions).  He is also being accused of have taken his client's money (advanced for costs of filing lawsuits) and having diverted it to unknown purposes. 

The original post continues below. Because of the lease termination, the listed address is no longer accurate. 

   

WHICH PLAINTIFFS DOES REGENT SUE FOR?

Regent & Associates handles debt collection suits for numerous banks and assignees. Among them: American Express; Bank of America (FIA); Discover Bank; LVNV Funding LLC; Portfolio Recovery Associates; Equable Ascent Financial, LLC; Hilco Receivables.

TYPICAL PLEADINGS

Mr. Regent is one of those debt collection attorneys who sues on various theories of recovery, sometimes even quantum meruit, and even mixes them up within a single paragraph. Uniquely, among his peers, he typically pleads for a judgment on a slash/slash-whatever-works theory titled “SUIT ON OPEN & STATED ACCOUNT/DEBT/BREACH OF CONTRACT" in a single paragraph. (--> Sample debt suit petition filed by Regent & Associates).

Regent also represents creditors in appellate litigation on occasion. One significant case is Tully v. Citibank(South Dakota), N.A.. In that case, it was the debtor who appealed after he ended up with a judgment in the trial court, so the appeal itself wasn’t Regent’s choice. Regent handled the defense of the summary judgment on appeal himself, however, and lost.

KEY APPELLATE CASE INVOLVED DEBT SUIT BY REGENT 

In Tully, Regent had pleaded three theories of recovery and had been successful in persuading the trial court to grant his motion for summary judgment. No one theory was specifically singled out in the judgment.  But the court of appeals reversed, holding that a credit card debt suit could not be litigated as a sworn account, that quantum meruit – an equitable theory -- was precluded in the presence of the contract, and that there was a fact issue as to the amount owed. Therefore, summary judgment on the contract claim was error also.

In Tully v. Citibank the court of appeals expressly held that the bank could not recover under its quantum meruit theory because the summary judgment evidence conclusively established that a contract existed. Though not discussed in the opinion, the contract was actually a requirement of federal law (--> TILA). The Truth in Lending Act just uses slightly different terminology: Disclosure of credit terms to the consumer (hence "TILA Disclosures", sometimes also called “TIL Disclosures”).
  

But that has not stopped Regent from invoking quantum meruit in debt litigation after the adverse outcome in Tully, at least occasionally.

LAW FIRM ADDRESS IN HOUSTON:

Anh H. Regent

            REGENT & ASSOCIATES

            2650 Fountain View Dr., Ste 233

            Houston, Texas 77057

            Fax: (713) 490-7075 

Account Stated Theory as an alternative to Breach of Contract as a cause of action in debt collection

The theory of "Account Stated" as an alternative to "Breach of Contract" as a cause of action in credit card debt suits 

Account stated is a common-law theory that some Texas courts of appeals have modified and adapted so that it is now available for collection of a credit card debt also.

A party is entitled to relief under the common law cause of action for account stated when (1) transactions between the parties give rise to indebtedness of one to the other; (2) an agreement, express or implied, between the parties fixes an amount due; and (3) the one to be charged makes a promise, express or implied, to pay the indebtedness.

Suits on account (including suits on sworn account) have their origin in sales transactions whereby goods or services were provided on credit by the merchant/seller followed by the purchaser‘s failure to make payment as promised.  The principal significance of the extension of one variety of suits of account (account stated) to the credit card business is that the bank or its assignee need not prove the terms of the underlying contract because proof of an underlying contract is not an element of the account-stated cause of action. What the claimant must show is the Defendant’s agreement to pay a certain amount that represents the final balance of prior transactions (hence “stated”), but courts have held that the agreement can be imputed on the recipient of a billing statement that he or she did not dispute.

The fact that credit card issuers do not sell goods is no longer material under the newer line of appellate cases (although it still precludes financial institutions and credit card debt buyers from bringing sworn account suits under Rule 185 of the TRCP). Not all Texas courts of appeals have signed on the revamped theory of account stated, but that could be due to a mere absence of a case that presented that issue.   

Credit card debt claim not actionable as a Sworn Account suit in Texas

CREDIT CARD DEBT SUIT CANNOT BE BROUGHT AS A SWORN ACCOUNT 

... or at least it would not be proper under controlling appellate case law.  

 
TRCP 185 SWORN ACCOUNT PROCEDURE

In the courts of the State of Texas a “sworn account” refers to a debt action brought under rule 185 of the Texas Rules of Civil Procedure (TRCP). The rule requires, inter alia, an affidavit as an attachment to the plaintiff’s original petition. Hence sworn account. But the rule is not actually titled “Sworn Account”, but “Suit on Account”.

The appellate case law even says that “sworn account” is not a cause of action in and of itself. Much rather, a sworn account is an alternative method for presenting a suit on account in a judicial forum. Because it is not a cause of action (substantive law), a sworn account would not be available in arbitration, which is governed by arbitration rules, rather than the TRCP. The sworn account rule merely provides an expedited procedure for presenting a suit on account because it establishes a prima facie case for the Plaintiff, and shifts the burden to the Defendant to rebut the presumption that the plaintiff is entitled to judgment.

This distinguishes a sworn account suit from most (if not all) other lawsuits. The general rule is that pleadings are not evidence in Texas courts. 

But a properly done sworn account pleading is an exception to this rule. Because it creates a presumption that the plaintiff is entitled to judgment for the amount sued for and supported by the sworn attachments, the sworn account pleading must be disputed with a sworn denial in order to neutralize the presumption. When that happens, the benefits of Rule 185 for the plaintiff no longer apply, and the claim is litigated and resolved in the normal manner just as other claims, under the same evidentiary standards.

WHAT THE RULE SAYS

Texas Rule of Civil Procedure 185 provides, "When any action or defense is founded upon an open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished, on which a systematic record has been kept, and is supported by the affidavit of the party, his agent or attorney taken before some officer authorized to administer oaths, to the effect that such a claim is, within the knowledge of affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed, the same shall be taken as prima facie evidence thereof, unless the party resisting such a claim shall file a written denial, under oath." Tex. R. Civ. P. 185.

CREDIT CARD DEBT CLAIM NOT VIABLE AS SWORN ACCOUNT

Half a dozen courts of appeals have held that suits for collection of credit-card debt are not suits on account under Rule 185 when the card's issuer is not also the provider of the purchased goods or services. Therefore, it is immaterial whether or not an affidavit and account statement(s) are attached to the original petition. 

"Rule 185 is a procedural tool that limits the evidence necessary to establish a prima facie right to recovery on certain types of accounts." Williams v. Unifund CCR Partners, 264 S.W.3d 231, 234 (Tex. App.-Houston [1st Dist.] 2008, no pet.).

Over the years, many debt plaintiffs have nevertheless attached affidavits to their petitions, perhaps with the intent of using them for default judgment purposes. But a motion for summary judgment based on sworn account is easily thwarted by competent counsel for Defendant. Regardless of whether the formal paperwork requirements are satisfied, if the card issuer did not sell any goods – and banks don’t – the cause of action won’t work as a matter of clearly settled law irrespective of the quality of the pleadings, affidavits, and documentary evidence in the case.    

HARMONY AND SPLITS AMONG THE COURTS OF APPEALS

In an appeal filed in 2008 one debt buyer (Resurgence Financial LLC) tried to persuade a panel of the First Court of Appeals in Houston that the cases holding that sworn account was not a viable theory for credit card debt collection were wrongly decided. The court was not impressed. In a memorandum opinion by Justice Sherry Radack, the justices rejected this request and offered an eminently sensible explanation: “We generally do not overrule precedent absent a compelling reason, especially when, as here, doing so would cause a split of authority between our sister court with which we exercise concurrent appellate jurisdiction.” Resurgence Fin., L.L.C. v. Lawrence, No. 01-08-00341-CV, 2009 WL 3248285 (Tex. App.-Houston [1st Dist.] Oct. 8, 2009, no pet.) (mem. op.).  

But the squeamishness about creating conflict with other appellate courts around the state is not always so pronounced. For example, courts of appeals do not see eye to eye on the theory of "account stated" as legal tool for credit card debt collection, and on the criteria governing admissibility of business records and business records affidavits when the sponsoring witness is a representative of the debt buyer, rather than a custodian of records or otherwise qualified witness from the bank that issued the credit card (or other original creditor). 

RESURGENCE FINANCIAL, L.L.C., Appellant,
v.
JAMES T. LAWRENCE, INDIVIDUALLY AND D/B/A GULF STATES COMMUNICATIONS, INC., Appellee.

No. 01-08-00341-CV.

Court of Appeals of Texas, First District, Houston.

Opinion issued October 8, 2009.

Panel consists of Chief Justice RADACK and Justices BLAND and MASSENGALE.

MEMORANDUM OPINION

SHERRY RADACK, Chief Justice.

After a bench trial, the trial court rendered a take-nothing judgment against appellant, Resurgence Financial, L.L.C. ("Resurgence"), in its suit against appellee, James T. Lawrence, individually and d/b/a Gulf States Communications, Inc. ("Lawrence"), to collect unpaid credit-card debt. In its sole issue, Resurgence contends that the trial court erred in doing so because its suit was properly brought as a suit on account under Texas Rule of Civil Procedure 185. See Tex. R. Civ. P. 185. We affirm.

BACKGROUND

Resurgence sued appellee Lawrence for the balance due on a credit-card account that it alleged had been acquired from Wells Fargo Bank. Resurgence alleged claims for breach of contract and for quantum meruit. Resurgence attached to its petition the affidavit of John H. Over, Resurgence's "designated agent." The affidavit tracked the requirements of Rule 185 for a suit on account and attached a one-page "statement of account," but not the credit-card contract. Lawrence answered with an unsworn general denial, which also asserted that a plaintiff seeking recovery of credit-card debt was "not entitled to proceed on a sworn account theory," i.e., that such suits were not those for which the procedures of Rule 185 were available.

The case was tried to the court. The trial court admitted into evidence Lawrence's answer and his responses to requests for disclosure and requests for admissions, in the last of which he admitted to "breach[ing] the contract made a basis of" Resurgence's petition, but not to the amount due and owing or to the interest rate. The court excluded, however, a "business records affidavit and business records," which were records from Wells Fargo Bank concerning the account. Resurgence declined the trial court's offer for it to nonsuit to "redo the affidavit," indicating that it would prefer to proceed to trial, and offered no further evidence. After the trial court had taken judicial notice of its file, it announced "judgment for the defendant" because Lawrence's admissions were not sufficient to prove up the amount owed.

The trial court rendered a take-nothing judgment against Resurgence and signed findings of fact and conclusions of law, which included the following:

a finding that the only evidence admitted (the answer and discovery responses) did not establish the amount of damages;

a finding and conclusion that the court properly denied admission of Resurgence's business records affidavit and attachments;

a conclusion that "the credit card account at issue was not subject to a sworn account theory under Rule 185"; and

a conclusion that "[g]iven the absence of any presumption under [Texas Rule of Civil Procedure] 93(10) and the sustaining of the objection to the affidavit . . . and related documents, Plaintiff presented no admissible evidence as to the amount of its damages."

The trial court denied Resurgence's motion for new trial.

ANALYSIS

In its sole issue, Resurgence contends that the trial court erred in rendering a take-nothing judgment, asserting that because appellee did not file a verified denial, it was entitled to judgment based on Rule 185.

A. Standard of Review

When, as here, the only issue under review involves a pure question of law, the standard of review is de novo. In re Humphreys, 880 S.W.2d 402, 404 (Tex. 1994); City of Pasadena v. Gennedy, 125 S.W.3d 687, 691 (Tex. App.-Houston [1st Dist.] 2003, pet. denied).

B. Applicable Law

Rule 185 provides:

When any action or defense is founded upon an open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished, on which a systematic record has been kept, and is supported by the affidavit of the party, his agent or attorney taken before some officer authorized to administer oaths, to the effect that such claim is, within the knowledge of the affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed, the same shall be taken as prima facie evidence thereof, unless the party resisting such claim shall file a written denial, under oath. A party resisting such a sworn claim shall comply with the rules of pleading as are required in any other kind of suit, provided, however, that if he does not timely file a written denial, under oath, he shall not be permitted to deny the claim, or any item therein, as the case may be. No particularization or description of the nature of the component parts of the account or claim is necessary unless the trial court sustains special exceptions to the pleadings.

Tex. R. Civ. P. 185 (emphasis added). "Rule 185 is a procedural tool that limits the evidence necessary to establish a prima facie right to recovery on certain types of accounts." Williams v. Unifund CCR Partners, 264 S.W.3d 231, 234 (Tex. App.-Houston [1st Dist.] 2008, no pet.).

C. Analysis

Five courts of appeals, including this Court, have held that suits for collection of credit-card debt, when the card's issuer is not also the provider of the purchased goods or services, are not suits on account under Rule 185. See, e.g., id. at 234-35. A sixth court of appeals has noted the same rule. See Dulong v. Citibank (South Dakota), N.A., 261 S.W.3d 890, 893 n.3 (Tex. App.-Dallas 2008, no pet.) (noting that suit on sworn account is not proper for credit-card collection suit). In Williams, we reasoned that "[r]ule 185 applies only `to transactions between persons, in which there is a sale upon one side and a purchase upon the other, whereby title to personal property passes from one to the other, and the relation of debtor and creditor is thereby created by general course of dealing. . . .'" Williams, 264 S.W.3d at 234 (quoting Meaders v. Biskamp, 316 S.W.2d 75, 78 (Tex. 1958)). Because "no title to personal property passes from the bank to the cardholder," we concluded that "[a]n unpaid bank credit card account . . . creates a cause of action for the bank's money or credit advanced as a loan, but not for goods or services sold or delivered to the cardholder," rendering Rule 185 inapposite. Id. at 234-35.

Resurgence recognizes this authority, but contends that it was wrongly decided, urging us to overrule Williams and to depart from the holdings of our sister courts of appeals. We decline to do so. We generally do not overrule precedent absent a compelling reason, especially when, as here, doing so would cause a split of authority between our sister court with which we exercise concurrent appellate jurisdiction. See Howeth Investments, Inc. v. City of Hedwig Village, 259 S.W.3d 877, 901 (Tex. App.-Houston [1 Dist.] 2008, pet. denied) (declining to overturn 33-year-old precedent interpreting statute that would result in split with the Fourteenth Court of Appeals, when no compelling reason existed to do so). Moreover, abrogating this holding of Williams would put into doubt far older precedent of this Court, in which we applied the same reasoning from Meaders to hold that a suit for breach of a lease for realty is not covered by Rule 185. See Meineke Discount Muffler Shops, Inc. v. Coldwell Banker Prop. Mgmt. Co., 635 S.W.2d 135, 138 (Tex. App.-Houston [1st Dist.] 1982, writ ref'd n.r.e.); accord Schorer v. Box Serv. Co., 927 S.W.2d 132, 134-35 (Tex. App.-Houston [1st Dist.] 1996, writ denied) (following this holding of Meineke, despite concurring opinion arguing that Meaders did not limit Rule 185's application).

Resurgence contends that a compelling reason to overrule Williams exists. The parties agree that the Texas Supreme Court's decision in Meaders was the ultimate source for the line of authority concerning credit-card debt and Rule 185. Accordingly, Resurgence contends that the common-law definition of a "sworn account" adopted in Meaders should not have been applied to Rule 185 because the Meaders court was not interpreting Rule 185; rather, it was interpreting an attorney's fees statute that at that time contained the term—whereas Rule 185 does not contain the term in its text, although its title at the time was "Suit on a Sworn Account." Ignoring Meaders,Resurgence then argues that the plain language of the rule is broad enough to cover credit-card suits. Specifically, it argues that a credit-card-collection suit is either an "open account" or a "claim for a liquidated money demand based upon written contract."

Resurgence ignores the language modifying these terms: the rule describes an "open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties . . . ." Tex. R. Civ. P. 185. Thus, a reading of the entire rule is not inconsistent with Meaders's holding. Much of the authority on which Resurgence relies either considered statutes with language materially different from that in Rule 185^[1] or did not base the holding on Rule 185.^[2] And the remaining authority on which Resurgence relies did not concern credit-card-collection suits and has not been followed by the courts considering the rule's application in that context.^[3] We conclude that Resurgence has offered no compelling reason to overrule Williams, to put into question Meineke or Schorer, or to depart from our sister courts' well-established interpretation of Meaders and Rule 185. Accordingly, we overrule Resurgence's sole issue.

CONCLUSION

We affirm the judgment of the trial court.

[1] See Facility Ins. Corp. v. Employers Ins. Of Wausau, 357 F.3d 508, 513 (5th Cir. 2004) (considering term "open account" in context of limitations statute); Livingston Ford Mercury, Inc v. Haley, 997 S.W.2d 425, 427 (Tex. App.-Beaumont 1999, no pet.) (same).

[2] See Rowlands v. Unifund CCR, No. 14-05-01122-CV, 2007 WL 1395101, at *2, 3 (Tex. App.-Houston [14th Dist.] 2007, no pet.) ("Thus, it was not necessary for Unifund to rely upon the evidentiary effect of the pleaded sworn account; the admissions alone established Unifund's entitlement to prevail based on Rowland's breach of the Account Agreement."); Haley, 997 S.W.2d at 427 ("The dealership does not contend, either below or on appeal, that the account alleged by KETX does not fall within the confines of Tex. R. Civ. P. 185. Consequently, we do not address that issue.").

[3] See Larcon Petroleum Inc. v. Autotronic Sys., Inc., 576 S.W.2d 873, 875-76 (Tex. Civ. App.-Houston [14th Dist.] 1979, no writ); Seisdata, Inc. v. Compagnie Generale de Geophysique, 598 S.W.2d 690, 691 (Tex. Civ. App.-Houston [14th Dist.] 1980, writ ref'd n.r.e.).

Last revised: 12/8/2018 

Open account suit: a dubious basis for credit card debt collection

Can a credit card debt suit be brought as an open account?

Some courts of appeal in Texas, but not all, have held that a credit card debt suit can be brought as an open account suit. One court reasoned that “a credit card debt may be considered an open account because, under a credit card agreement, the terms of repayment remain subject to modification, and the parties exchange credits and debits until either party settles the balance and closes the account.”

The treatment of a credit card debt claim as an “open account” claim is, however, controversial, and is subject to serious disagreement because traditionally suits on account involved sales transactions. Additionally, there are numerous recent appellate opinions that expressly say that a credit card debt claim cannot be brought as a sworn account claim.

But a sworn account suit is merely a special form of common-law suit on account.  Numerous appellate opinions from various courts around Texas hold that a sworn account suit is not proper for the collection of a credit card (bank) debt because the creditor did not sell goods or services to the customer. That applies to credit card banks generally.

It is also well-established that a suit on sworn account under Rule 185 is not an independent cause of action, but merely a different way to plead a suit on account. Therefore, the substantive elements of a sworn account suit (which include underlying sales transactions) cannot logically be distinguished from a common-law suit on account. The difference is procedural and involves the form of the evidence necessary to establish the plaintiff's right to judgment.

Additionally, if the defendant in a sworn account suit files a sworn denial, the plaintiff loses the procedural and evidentiary benefits of bringing the suit under Rule 185 (sworn account rule), and must prove the essential elements of the suit on account in the traditional manner. One of those elements is the sale of goods or services.

Until the split of appellate authorities is resolved, the validity and viability of the open account theory is questionable.  Whether or not an open account suit will succeed independent of a breach-of-contract claim may well depend in which appellate district the lawsuit is filed, and whether the defendant challenges the theory in the trial court and on appeal, if there is one.

Courts of appeals often decline to consider an otherwise worthy legal argument (or basis for reversal) if it is not properly briefed. Even one of the appellate courts that approved the open account theory noted that the consumer had not argued that “open account” is the equivalent of “sworn account”, which the court recognized as being prohibited for credit card debt collection.