Attorney's fees and fee affidavits in debt collection cases

ATTORNEY’S FEES 

When it comes to attorney’s fees, Texas follows “The American Rule”, meaning that each party pays its own fees. Until the arrival of the expedited action rule this year, that it. But even under the American (as opposed to British/European rule) plain and simple, attorney fees could be awarded if the underlying contract provided for them, not to mention that Chapter 38 of the CPRC has long provided an exception for certain types of claims, including breach of contract claims. 

The 2013 rule changes are no sea change in that regard. The most notable innovation is that the new rules give Defendants a chance for a fee award too. This should make it more attractive for attorneys to defend cases on behalf of cash-strapped consumers being dragged into court on unpaid credit card bills. After all, such cases are often dismissed or nonsuited when a consumer attorney gets involved because the plaintiff does not have adequate documentation. Now, dismissal can be sought early on, with a potential fee award for the efforts of the defendant's counsel.

Nor is Chapter 38 the only statute providing for a fee award. So, in essence, the American rule pretty much boils down no fees being available in a tort case, unless it’s based on a statutory cause of action, e.g. Theft Liability Act rather than conversion; or statutory fraud as opposed to common-law fraud. 

FEES AUTHORIZED BY CONTRACT VS FEES BASED ON STATUTE   

The main difference between a fee claim under Chapter 38 and one under a contract provision is that the Chapter 38 authorizes fees only to a successful plaintiff, i.e. one who secures an award of damages, and that it has certain other requirements, while an award of attorney’s fees based a contract provision is not so restricted. It will instead depend on what the parties agreed as revealed in the attorney fee provision of their contract. This may include an agreement that the prevailing party is entitled to such fees, including a prevailing defendant. A defendant who manages to defeat a contract claim by a debt collector cannot obtain a fee award under Chapter 38. 

PRESENTMENT REQUIREMENT 

As for the requirements for fee recovery under Chapter 38, the party relying on this chapter must first present the claim to the opposing party so as to provide that party an opportunity to pay the debt without incurring attorney’s fees. This requirement is easily met. After all, it is standard practice for debt collection attorneys to mail a dunning or demand letter.  The only questions regarding this “condition precedent” for fee recovery may be whether a copy of the demand letter is included among the summary judgment exhibits (or offered at trial) and whether it qualifies as “presentment”. In rare cases, the plaintiff’s attorney may be reluctant to produce it if it would (or arguably could) support an unfair debt collection claim under the FDCPA. 

But testimony that such a letter was sent, or an admission by the defendant that a demand letter was received, may be sufficient. According to the case law, the “presentment” does not have to be in a particular form; nor is there a prescribed form or stock verbiage (as there is, for example, for a business records affidavit, or a sworn account affidavit). Additionally, the defendant would have to specifically deny in the answer that “all conditions precedent have been met or satisfied” if the plaintiff includes that verbiage in its original or amended petition.

The best way for a debt suit defendant to avoid being saddled with attorney’s fees is to win the case. If that is not feasible, or not a likely prospect, it may be worth quibbling about the amount, particularly when it seems unreasonable. 

What is reasonable or not is not so clear, so there is plenty of room for disagreement; not to mention the defendant’s attorney should be equally qualified to opine on reasonableness of fees, and can produce conflicting testimony for her own the occasion, if warranted. In cases brought by certain debt collection attorneys of certain law firms it is highly warranted because their sworn testimony of what is reasonable (in cases that are invariably based on stock pleadings and motions) falls on the far right end of the spectrum. 

VARIATION IN AMOUNTS OF FEES PLEADED FOR 

These days, many debt plaintiffs do not plead for attorney’s fees at all. Others routinely claim $400-$500 not including court costs; but some ask, and have their attorneys swear to the reasonableness of, much higher amounts. 

Some debt collection firms compute the attorney’s fee amount as a percentage of the amount of the debt. James Hull, for example, routinely pleads for a third of the amount in controversy, and Anh Regent uses a percentage likewise (although the amount appears in a request for admissions, rather than within the attorney fee paragraph of the petition itself). Regent tries for a more modest 25%, but this can still be a hefty sum, if the amount sued for is on the upper end of the typical range. 

ADDITIONAL TOPICS PERTAINING TO ATTORNEYS FEES IN DEBT COLLECTION CASES 

New Expedited Action rule provides for attorney fee recovery by prevailing defendants

Fee award under Chapter 38 of the Texas Civil Practice and Remedies Code

Disputing Reasonableness and Necessity of Attorney's Fees claimed in debt collection cases 
Does Texas law govern the award of legal fees in credit card debt suits filed in Texas courts? 
Fee factors per Texas Supreme Court opinion in Arthur Anderson & Co. v. Perry Equip. Corp

Debtors' affidavit in opposition to PMSJ (Plaintiff's Motion for Summary Judgment)

USE OF DEBTOR’S AFFIDAVIT TO OPPOSE CREDITOR’S MOTION FOR SUMMARY JUDGMENT  

-- Is it a good idea?

Fighting fire with fire: the use of counter-affidavits to oppose a debt plaintiff’s motion for summary judgment 

The customary way to oppose a traditional motion for summary  judgment is to file a counter-affidavit that raises a fact issue. If none is filed, some judges will remark on the absence of such an affidavit when there is an oral hearing, and wonder why. 

But the strategy of filing a counter-affidavit to defeat a debt plaintiff’s motion for summary judgment in debt collection cases is not generally very promising because the debtor usually owes the money, and has no good documentary evidence to defeat the Plaintiff’s claim. 

The few reported opinions that discuss counter-affidavit filed by credit card debt defendants highlight the low probability of success. The affidavits typically denied assertions made by the plaintiff or the plaintiff’s affiant, and lacked factual specificity sufficient to raise a genuine issue of material fact. Or so the justices opined, and what justices say in written opinions is highly consequential because trial court judges don’t like to compile a record of being reversed, and therefore pay heed. Not the mention that they are also required to follow the (case) law as pronounced in binding precedent-setting opinions by the court of appeals in their local jurisdiction. Decisions from other courts of appeals may provide more leeway for a trial court judge when cited by an collection attorney, or by his opponent, for that matter.  

Nor are credit card defendants typically in a position to offer meaningful documentary evidence that would be helpful to their effort to defeat the Plaintiff’s claim. 

In the rare case where the Defendant preserved monthly account statements, they will in all likelihood show the same account financials, even if the originals differ in appearance because (some) card issuer create account statements for litigation, and do not always use the correct forms or templates to print the information (which invariably comes from a database) when they do so. Other creditors apparently archive digital images of the original account statements in a database (or at least claim so) and therefore can print copies as litigation exhibits that are identical to the originals except perhaps for color and a line of metadata in the footer of the page (or elsewhere in the margin) that identifies the image in the database and may also include a date.  

A counter-affidavit by the debtor may nevertheless be a good idea under some circumstances 
   

That said, filing a countervailing affidavit may work under special, albeit rare, circumstances: (1) when the defendant is not the person identified by name on the bank’s account statements; (2) when the defendant is willing to admit that he owes money, but that the amount shown on monthly statement(s) or account history ledger is incorrect and the defendant has evidence to either support the claim of error (such as incorrect calculation), or evidence to support a different amount (rather than just denying that the amount is correct). If the affidavit amounts to nothing more than a sworn denial of the damages figure attested to by the plaintiff’s affiant, it will likely be excluded as conclusory. The applicability of that objection is by no means limited to the affidavits of movants for summary judgment. 

DEFENDANT’S AFFIDAVIT IN SUPPORT OF AFFIRMATIVE DEFENSE 

A client affidavit may also be advisable if it is clear that the plaintiff’s claim is time-barred. In that case, it is safe for the client to admit making the last payment in such and such month of such and such year, and that nothing has been paid since (but see --> accrual date of breach of contract claim vs. open-account claim).  Indeed, such affidavit may allow the defendant to cross-move for summary judgment in the defendant’s favor based on the statute of limitations, rather than merely raising a fact issue in that regard in order to defeat the Plaintiff’s motion (-- > Cross-motions for summary judgment by debtor).  

If a debt plaintiff’s claim is time-barred, the admission of liability under the card agreement and the correctness of the amount shown on monthly statements are not prejudicial to the defendant because limitations is an affirmative defense that can be invoked to defeat an otherwise valid and well-documented debt claim. For the same reason, even  deemed admissions on all  essential elements of the plaintiff’s cause of action should not be a problem, unless the admissions include one to the effect that the debt claim is not time barred, or an admission that a payment was made within the four-year time span prior to the filing date.  If that is the case, it may be necessary to file a motion to strike the deemed admissions. 

Thanks to a fairly recent Texas Supreme case, the standard for having deemed admissions set aside is pretty lenient.  

It the plaintiff’s summary judgment evidence contains a series of consecutive monthly statements that reflect that the default occurred more than four years prior to the date suit was filed, it would also make no sense to challenge the authenticity and admissibility of the monthly account statement (or to attack the affiant’s qualifications to lay a proper predicate for admission of account statements as exceptions to the hearsay rule).  

COUNTER-EVIDENCE IS NOT MANDATORY TO SURVIVE TRADITIONAL SUMMARY JUDGMENT MOTION 

Under the Texas rules and caselaw, a traditional motion for summary judgment cannot be won by default because the movant must establish all essential elements of its claim against the opponent, or disprove the defendant's affirmative defense to dispose of such defense. In other words, the burden is on the movant.Therefore, if the movant for summary judgment (creditor) does not adequately support its motion with competent evidence, it does not matter whether or not the defendant filed counter-evidence. That becomes relevant only when the Plaintiff establishes a prima facie case for summary judgment in its favor, and the burden switches to the non-movant to show why summary judgment should nevertheless by denied. No-evidence motions are governed by different rules.

CASELAW SNIP ON APPLICABLE STANDARD 

Pro Se Defendants often court Defeat and Default Judgment, if not Disaster, by doing nothing or making things worse

COMMON ERRORS BY UNREPRESENTED LITIGANTS

Stasis & Default:  Not doing things that need to be done.

Debt suit defendants typically know little or nothing about the rules of procedure and thus suffer the adverse consequences for not hiring a lawyer (or not being able to afford one) to explain matter to them, or do what needs to be done on their behalf. As a result, debt collection attorney’s “win” a lot of cases simply because the case is not contested at all, or because the defendant makes a serious error that relieves the plaintiff from proving its case.   

Failure to file an answer

It does not take much to prevent a default judgment. All that is required is the filing of an answer, and the courts are very lenient when it comes to judging whether a piece of paper qualifies as an answer. Even a letter to the judge may do, although the rules that require a copy be sent to the opposing party’s attorney would still apply (and would likely be ignored).

Many defendants, however, do not only fail to hire a lawyer, but fail to take any action at all, thus inviting what in most cases is highly predictable, a default judgment. --> Default Judgment Signed, Now what? --> The challenges of appealing a judgment in collection suit without a lawyer. 

Failure to answer REQUESTS FOR ADMISSIONS

Same for requests for admissions. Doing nothing has grave consequences. Not answering them will result in deemed admissions by default. A defendant may not want to believe that they are due within 30 or 50 days as stated on the paperwork. That's understandable. After all, it's the attorney that’s suing them that says so; -- the same attorney that also may have stated that “all information obtained will be used for debt collection purposes” or something to that effect.  But the defendant’s distrust or wariness about providing information does not suspend the operation of the deemed admissions rule. It does not matter that the defendant took the FDCPA (mini-miranda) warning seriously and refused to provide the information that was requested. It's a trap for the unwary, and collection attorney deliberately set it because the want the defendants to fall into it.   

  

Unnecessary judicial admissions thanks to well-meant SOB-STORY NARRATIVES in pleadings 

Some unrepresented litigants may feel a need or urge to respond, and do so in writing. Some use it as an occasion to wail and vent. Bemoan their dire conditions and protest that they would have been paying if only they had the money. And that's understandable, but often meets with no sympathy. 

The harsh reality is that collection attorneys don't care. They have heard it all, and if it bothered them inflicting yet more misery on people already down on their luck, they wouldn't be doing it. Or not for long. Many judges don't care either. Debtors are just names and numbers. And dollar figures on judgments. To be processed. The more efficiently, the better. It will make the statistics look good. Attorneys have the upper hand because they are in court on a regular basis and interact with the staff. Not only are they lawyers, they know the ropes. How things are handled in a particular court.

Most defendants don’t know that under the Texas pleading rules they can answer with a general denial and then wait and see if the creditor files a motion for summary judgment or takes some other action. Instead they volunteer information that is superfluous under the pleading rules, and may amount to judicial admissions that can be used against them later. 

Luckily, the Texas Rules of Procedure are very liberal with respect to amendments. If a pro se litigant were to have filed an inappropriate answer but retains a lawyer before a dispositive motion is filed and heard, or the case goes to trial, the error can be fixed by filing an amended answer. Even if the deadline for amendment set by the seven-day rule or a docket control order has passed, a newly-retained attorney can file a motion for leave to amend the pleadings, which the court will probably grant. 

Arbitration vs Litigation - PROs and CONs in credit card collection context

Can an arbitration clause work in favor of the consumer sued on a debt? 

BENEFITS OF ARBITRATION TO THE DEBT SUIT DEFENDANT 

 
The official rationale for the public policy preference in favor of arbitration, and ADR in general, is that is provides a more efficient and less expensive mechanism for resolution of disputes in a private setting.   

Unlike mediation, however, which will result in a resolution only upon consent of both parties to the terms of a settlement facilitated by the mediator acting as a disinterested third party, the arbitrator renders a decision (arbitration award) that is binding upon the parties whether they like it or not. The arbitrators essentially performs the role of a judge, but is not a public official. 

Arbitration thus bears great resemblance to a court proceeding, but it still offers a number of distinct advantages over a court proceeding. At least for one party to an arbitration clause within a contract.   
   
Providing a benefit to customers was likely not the motivation for most credit card issuers to write arbitration provisions into account agreements. But the fact is that most such agreements still contain them, and they are equally available to both parties. Even if a credit issuer substituted a new cardmember agreement that omits arbitration to replace an earlier version, this may not cancel the right to arbitrate if the prior agreement contained an arbitration clause that was irrevocable. 

By filing a debt collection suit, the bank or its assignee has already expressed a preference for litigation over arbitration. But the defendant still has a choice, assuming there is no dispute as to the identity of the contract that governs the parties’ relationship (-- > existence of arbitration agreement; -- > contract formation).

ARBITRATION BEFORE AND AFTER INITIATION OF A DEBT COLLECTION SUIT

If the consumer has a choice to opt for arbitration prior to a lawsuit being filed, he or she can avoid a public record of a lawsuit having been filed in which he is the defendant (though that may eventually also happen after an arbitration, if the consumer loses, does not pay the debt, and the creditor files a suit to confirm arbitration award.)  

But even when a debt collection lawsuit is already on file, the Defendant should in most cases be able to better protect privacy by moving for arbitration because the creditor will then have to make its case privately in arbitration, rather than publicly in court. Court proceedings always create a public record and motions to seal the record are virtually unheard-of in debt collection cases. So, if a debtor does not want to have a public record, arbitration would seem to be the better forum, or will at least delay the creation of a public record. These days, of course, Creditors simply file collection suits en mass and do not bother with arbitration. 

Protection of Privacy Interests

If a motion for summary judgment is filed in a credit card debt suit, it often entails years worth of spending on credit cards becoming a matter of public record as summary judgment exhibits. Some defendants may not care if copies of credit card statements are filed in court, but others may not wish to have their spending history revealed to anyone who might be interested. In many court systems, exhibits are now accessible over the web along with pleadings and other court-filed documents.  

Additionally, sensitive information, such as social security numbers, birth dates, income and employment data, may make into the court’s file also (and possibly on-line), even if such information is supposed to be redacted. Plaintiffs' attorneys and their law office staff do not always take care to remove or blacken out protected information. Sensitive information of this nature typically appears on credit applications. Though not routine, some plaintiffs include an application for a credit card among their exhibits. In other types of debt collection litigation – such as on lines of credit and promissory notes – the inclusion of the application for credit as a summary judgment or trial exhibit is even more common.

Discovery Burdens 

The normal rules of discovery that govern a lawsuit filed in a Texas court do not apply in arbitration. The same is true of such matters as deadlines as they are found on court-issued docket control orders.  To the extent a creditor’s attorney has a policy of serving a load of discovery requests, the defendant can avoid the hassle of having to respond to it, and would not face a motion to compel or a motion for sanctions that would otherwise be authorized under the discovery rules.

By having the debt matter dealt with in arbitration, the consumer can also avoid being subpoenaed through the court system, on pain of contempt of court for noncompliance with the subpoena.

Depositions are rarely taken in debt collection suits. But it does happen occasionally and private court reporters that transcribe the question-answer-session are expensive. If the deponent loses, the cost of the deposition, which may run into the hundreds of dollars or more, qualifies as a part of the “taxable cost” of the lawsuit, and the looser becomes liable for it in addition to the amount of the judgment.

Grace period to weigh options and improve settlement posture

Although arbitration is touted as a quicker method of dispute resolution, this may not be the case. Particularly when the creditor and the lawfirm it retains for litigation are not set up to arbitrate cases on a large scale and in an efficient manner. 

If the diversion to arbitration results in a delay, it may provide the defendant additional time to earn or otherwise raise funds for a settlement, or to contemplate whether or not to file for bankruptcy. A delay in the resolution of a debt case may be of particular benefit to a debtor who is unemployed, but not unemployable, assuming continued improvement in the relevant job market enhances the prospect of improving his or her financial condition.

Additionally, if a defendant insists on arbitration, and this causes inconvenience to the Creditor or its lawyers, the chances of settlement on more favorable terms may improve.

Enforceability

An arbitration award constitutes a final authoritative resolution of the case, just like a judgment, but it is not enforceable as a judgment unless and until it is confirmed by a court of competent jurisdiction. This requires a return back to court and a proper motion to confirm (if a case was filed in court first and abated) or an independent lawsuit filed for the sole purpose of confirming the arb award and turning it into a judgment, with all the consequences such a judgment entails, -- such as execution and recording of an abstract of judgment in the county’s real estate records, and garnishment of bank accounts. 

DISADVANTAGES OF OPTING FOR ARBITRATION OF A DEBT SUIT

The Texas Rules of Civil Procedure and Rules of Evidence do not apply in arbitration because arbitration organizations have their own rules of procedure.

Therefore, in cases in which these rules could be invoked to secure a resolution in the defendant’s favor in court, they may not be effective in arbitration notwithstanding the applicability of the substantive law regardless of whether the case is in judicial or arbitral forum. The procedural aspects and admissibility issues are a different matter.

Examples would be objections to authenticity of documents and challenges to the competency and qualifications of affiants, particularly in the case of debt collection suits brought by downstream debt-buyers at the end point of a chain of assignments.  Such evidentiary objections are often successful in court in defeating a motion for summary judgment, and may also prove effective at trial. On the other hand, many arbitrators were previously judges, and may be receptive to evidentiary arguments because have had plenty of occasion to deal issues of authenticity and admissibility while on the bench.  

AVOIDING THE EFFECT OF DEEMED ADMISSIONS - "PLAN B" FALL-BACK 

That said, a motion to compel arbitration might be an alternative method to deal with deemed admissions because the deemed admissions would not be valid as a substitute for evidence in another proceedings. 
  
Since the Texas Supreme Court has set the standard for withdrawing (or striking) inadvertent deemed admissions rather low, however, a move for arbitration to avoid the consequences of not having answered requests for admission in a timely fashion will often be unnecessary. Still, it may provide a Plan-B option should the trial court, contrary to expectations, rule against the defendant’s motion to strike deemed admissions, which is the proper mechanism to deal with this type of problem.

A plaintiff avoid the effects of deemed admission (i.e. its failure to answer requests for admission served on it by the Defendant’s counsel) by non-suiting the pending action and causing it to be dismissed without prejudice to re-filing it later. 

But a non-suit is not an option for the defendant. Even if the Defendant had become a plaintiff by asserting a counterclaim for wrongful debt collection practices, a nonsuit by the Defendant as Counter-Plaintiff would only dispose of the counterclaim. It would not make the Creditor's claim go away. 
  Stated differently, the Defendant has no equivalent mechanism to terminate the lawsuit unilaterally and return the parties to their original positions. But a motion to compel arbitration might be a way to get the case into a different forum. To avoid claims of waiver, however, such a motion should not be filed late in the game. --> Waiver of the Right to Arbitrate by Litigation Conduct 

Last updated: 12/9/2018