How Wells Fargo uses Texas courts to empty its own customers' bank accounts: By Suing Itself

WELLS FARGO BANK, NA VS. WELLS FARGO BANK, NA  

Wells Fargo regularly sues itself, styling itself both as Garnishor (Plaintiff and Judgment Creditor) and as Garnishee Bank (Defendant holding deposits of a customer/Judgment Debtor). It then agrees with itself to award all of the money from its customer's account to itself, and also agrees with itself to apportion attorney's fees to its second law firm (appearing for Wells Fargo as Garnishee) for its role in the operation.

Wells Fargo Bank N.A. vs. Wells Fargo Bank, N.A. 

All this is done through an "AGREED" JUDGMENT OF GARNISHMENT that the attorneys for both of its law firms sign off on after the account has previously been frozen through a writ of garnishment so that the customer cannot withdraw any money.

Because the judgment submitted by Wells Fargo is agreed, trial court judges routinely sign it.

In one such Wells Fargo vs. Wells Fargo case, the customer/judgment debtor obtained the help of a good consumer defense attorney and challenged the "agreed" judgment that took away his and his son's money. Wells Fargo then argued that the debtor did not have "standing" because he was not a party to the Wells Fargo vs. Wells Fargo garnishment action. The trial court ruled for the Bank.

***

Wells Fargo's two law firms see eye to eye on emptying out the customer's
Wells Fargo bank account. 

The Fort Worth Court of Appeal, however, disagreed on the standing issue, and sent the case back to the trial court, so the judgment debtor would receive a hearing. Barrow v Wells Fargo Bank, N.A., No. 02-19-00026-CV (Tex.App.-Fort Worth, Sep. 5, 2019, no pet. h.) 

In the

Court of Appeals

Second Appellate District of Texas

at Fort Worth

___________________________

No. 02-19-00026-CV 

___________________________

On Appeal from the 431st District Court

Denton County, Texas

Trial Court No. 18-8946-431

Before Sudderth, C.J.; Kerr and Birdwell, JJ.

Opinion by Chief Justice Sudderth

ADAM I. BARROW, Appellant

V.

WELLS FARGO BANK, N.A., Appellee

OPINION

Appellee Wells Fargo Bank, N.A., garnishor, filed an application for writ of
garnishment against itself as garnishee, on September 25, 2018, to collect on its
judgment against Appellant Adam I. Barrow, the judgment debtor. The writ of
garnishment issued the following day, and on October 17, Wells Fargo as garnishee
filed an answer. On November 16, Wells Fargo entered into an agreed final judgment
with itself, awarding $6,751.44 from Barrow’s Wells Fargo account to Wells Fargo,
awarding $650.00 in attorney’s fees against Barrow’s account in favor of Wells Fargo,
and assessing filing fees and court costs in the action against Barrow. On December
14, Barrow filed a motion for new trial, challenging the sufficiency of the affidavit
supporting the application and agreed judgment and asserting that some of the seized
money belonged to his 11-year-old son.

At the time the judgment was signed, no proof of service on Barrow was on
file. See Tex. R. Civ. P. 663a (providing that the judgment debtor—the “defendant”—
in a garnishment action “shall be served in any manner . . . provided in Rule 21a”); see
also Tex. R. Civ. P. 21a(a)(2) (providing that “[e]very notice required by these rules . . .
may be served by delivering a copy to the party to be served . . . in person, mail, by
commercial delivery service, by fax, by email, or by such other manner as the court in
its discretion may direct”). But in an affidavit attached to its response to Barrow’s
motion for new trial, Thomas Sellers, attorney for Wells Fargo, as garnishor, averred
that in compliance with rule 663a,1 Wells Fargo had sent Barrow the required notices
and documents by first class mail and certified mail, return receipt requested on
October 12, 2018. In its response to Barrow’s motion, Wells Fargo argued that
because Barrow was not a party to the case, he lacked standing to bring a motion for
new trial.

On January 25, 2019, after hearing argument on Barrow’s motion for new trial,
the trial court found that Barrow did not have standing. In its written order denying
the motion, which was signed on the same day, the trial court ruled, “After reviewing
the evidence, [2] the court concludes that the Motion should be denied, as Adam
Barrow does not have standing.”

In two issues, Barrow complains that he had standing to file the motion for
new trial and that the evidence was legally and factually insufficient to grant a
judgment of garnishment to Wells Fargo.

[1] On January 24, 2019, Wells Fargo filed a supplemental affidavit by Sellers,again attesting to Rule 663a service. 

[2] Notwithstanding this recitation in the written order, the trial court did not consider evidence at the hearing. After hearing only argument, the court made its oral ruling as follows,

After considering the authorities you both cited in your oral arguments
as well as your responsive brief, the Court finds that, based upon the
procedural posture of this case and the capacity in which the motion for
new trial was brought in Mr. Barrow’s name, that he does not have
standing and the motion for new trial is denied.

Garnishment is a statutory proceeding governed by civil practice and remedies
code chapter 63 and rules of civil procedure 657–679. See Tex. Civ. Prac. & Rem.
Code Ann. §§ 63.001–.008; Tex. R. Civ. P. 657–679. A post-judgment garnishment
proceeding is a quasi in rem action brought by a judgment creditor (the garnishor)
against another party (the garnishee) who holds property or funds belonging to the
judgment debtor. Bank One, Tex., N.A. v. Sunbelt Sav., F.S.B., 824 S.W.2d 557, 558
(Tex. 1992); Zeecon Wireless Internet, LLC v. Am. Bank of Tex., N.A., 305 S.W.3d 813,
816 (Tex. App.—Austin 2010, no pet.). In the garnishment action, the garnishor
seeks to have the property or funds held by the garnishee applied toward payment of
the underlying judgment against the debtor. Zeecon, 305 S.W.3d at 816.

Because garnishment was unknown at common law and is “purely a creature of
statute,” id., the Texas Supreme Court has held that garnishment proceedings “cannot
be sustained unless they are in strict conformity with statutory requirements.” Beggs v.
Fite, 106 S.W.2d 1039, 1042 (Tex. 1937); see also Zeecon, 305 S.W.3d at 816 (observing
that the supreme court has held that garnishment proceedings cannot be sustained
without strictly conforming to the statutory requirements and related rules governing
such proceedings). This is because the remedy of garnishment is “summary and
harsh.” Beggs, 106 S.W.2d at 1042.

To ensure a debtor’s due process right to not be deprived of his property
without notice and opportunity to be heard, rule 663a requires a garnishor to serve the
debtor with notice of the garnishment and of his rights to regain his property. Tex. R.
Civ. P. 663a; see also Hering v. Norbanco Austin I, Ltd., 735 S.W.2d 638, 639–41 (Tex.
App.—Austin 1987, writ denied) (noting that in 1978, the Texas Rules of Civil
Procedure relating to garnishment actions were amended in response to prejudgment
garnishment procedures that were declared unconstitutional based on U.S. Supreme
Court holdings in Sniadach v. Family Fin. Corp., 394 U.S. 337, 89 S. Ct. 1820 (1969), and
Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983 (1972)). Thus, a garnishor’s failure to
strictly conform with rule 663a’s notice requirement will result in a void judgment. See
Zeecon, 305 S.W.3d at 818–20 (holding that “failure to properly serve the debtor
deprived the trial court of jurisdiction over the debtor’s property—the res,” but
pointing out that a “mere irregularity” is waivable and will not render the garnishment
judgment void).

The supreme court has identified “three parties” to a garnishment action: (1) a
creditor (the garnishor), (2) a debtor (also referred to as “the defendant”), and (3) a
third person who possesses the debtor’s funds or owes money to the debtor (the
garnishee). 3  Orange Cty. v. Ware, 819 S.W.2d 472, 474 (Tex. 1991) (op. on reh’g).
Thus, while the judgment debtor (the defendant) is not a “necessary party”
4 to the

[3] Although the rules of civil procedure provide that the garnishment action is docketed with the garnishor as plaintiff and the garnishee as defendant, see Tex. R. Civ.P. 659, in the rules, the term “the defendant” refers to the debtor, and the garnishee is referred to as “the garnishee.” See Tex. R. Civ. P. 658–679.  

[4] Rule of civil procedure 39, the “necessary party” rule, describes the necessary party and the circumstances for joinder of a necessary party as follows:

proceeding, he is nevertheless a party to the proceeding who has rights in the process.
Hering, 735 S.W.2d at 642; see also Tex. R. Civ. P. 663a (providing the right to notice),
664 (providing the right to replevy), 664a (providing the right to have the writ of
garnishment vacated, dissolved, or modified).5

[5] Wells Fargo cites to Missouri Pacific Railway Co. v. Whipker, 13 S.W. 639, 639(Tex. 1890), as “well-established” authority for the proposition that a judgment debtor is not a party to a garnishment proceeding. We note that Whipker predates the enactment of the rules of civil procedure and the civil practice and remedies code,which govern modern-day garnishment actions, and it predates Orange County by almost a hundred years. Because the law has changed in the intervening century, we decline to follow Whipker. We also decline to follow our sister court’s holding in Mullins v. Main Bank & Trust, 592 S.W.2d 24, 26 (Tex. App.—Beaumont 1979, no writ)—also cited by Wells Fargo in support of its position that Barrow was not a party to the garnishment proceeding—because it, too, predates Orange County.

As the judgment debtor, or “defendant” in the garnishment action, Barrow had
standing to participate in the proceeding. He had standing to replevy or to file a
motion seeking to have the garnishment vacated, dissolved, or modified. See Tex. R.
Civ. P. 664–664a. But first and foremost, he had the right to notice of the

A person who is subject to service of process shall be joined as a party in
the action if (1) in his absence complete relief cannot be accorded
among those already parties, or (2) he claims an interest relating to the
subject of the action and is so situated that the disposition of the action
in his absence may (i) as a practical matter impair or impede his ability to
protect that interest, or (ii) leave any of the persons already parties
subject to a substantial risk of incurring double, multiple, or otherwise
inconsistent obligations by reason of his claimed interest. If he has not
been so joined, the court shall order that he be made a party. If he
should join as a plaintiff but refuses to do so, he may be made a
defendant, or, in a proper case, an involuntary plaintiff.
Tex. R. Civ. P. 39(a).

garnishment action. See Tex. R. Civ. P. 663a; see also Hering, 735 S.W.2d at 641 & n.3
(considering, without deciding, whether a defendant in a post-judgment garnishment
action has a due process right or merely a rule-created right to notice). On appeal,
Barrow complains of defects in service of the garnishment action.

Wells Fargo makes an interesting argument: that Barrow was required to
intervene in the garnishment proceeding to acquire standing but that it was too late
for Barrow to intervene once the agreed judgment had been signed. Whether Wells
Fargo’s approach is correct appears to be a matter of first impression. But as we see
it, Wells Fargo’s position, were we to adopt it, would create a quintessential catch-22
for defendants in garnishment actions.

In considering Wells Fargo’s argument, we note as a practical matter that
complaints regarding defective service normally occur postjudgment because that is
when a judgment debtor who has not been properly served would become aware of
the consequences of the garnishment action. To require a garnishment defendant to
intervene in a garnishment action at a time prior to acquiring proper notice of the
proceeding would render meaningless the right to notice of the proceedings in the
first place because most garnishment-action defendants would learn of improper
service only after it was too late to complain. Such a paradox in the law should be
avoided. See Whittlesey v. Miller, 572 S.W.2d 665, 668 (Tex. 1978) (explaining that its
holding “corrects a paradox in the law of this state”).

We are not inclined to create such a catch-22 for garnishment defendants, and
Wells Fargo cites no authority directing us to do so.6

[6] Wells Fargo cites to Bechem v. Reliant Energy Retail Services, LLC, 441 S.W.3d839, 844 (Tex. App.—Houston [14th Dist.] 2014, no pet.), as authority for the proposition that as a nonparty, Barrow was required to intervene in the garnishment action to acquire standing. Wells Fargo’s position appears to be based upon a misreading of one sentence in the case. In Bechem, our sister court states, “A debtormay controvert the garnishee’s answer, however, or a third party may intervene claiming an interest in the garnished property.” Id. Couched in the disjunctive, Bechem does not support the proposition that a debtor must intervene in a garnishment action to acquire standing. Furthermore, as explained above, the supreme court has identified the judgment debtor as a party to a garnishment action. See Orange Cty., 819S.W.2d at 474.

Consequently, we hold that

Barrow had standing to file a motion for new trial, to be heard on the matter, and to
offer evidence in support thereof.

The trial court erred by holding otherwise.

Having sustained Barrow’s first issue, we need not reach Barrow’s second issue
challenging the sufficiency of the evidence to support the judgment. Accordingly, we
reverse the trial court’s judgment and remand the case to the trial court to hear and
consider Barrow’s motion for new trial.

/s/ Bonnie Sudderth

Bonnie Sudderth
Chief Justice

Delivered: September 5, 2019

Bankrupt(cy) Logic: TERI got paid for providing a private student loan guaranty, ergo TERI "funded" the loan program

Question Raised: Which Way Did the Money Flow?

IN RE GREER-ALLEN, Bankr. Court, D. Massachusetts July 29, 2019

The Education Resources Institute, Inc. (TERI) took fees for providing guaranties for private student loans originated by The First Marblehead Corporation (not First Marblehead Bank) under a "rent-a-charter" scheme involving numerous national banks. Late in the game, the FMC even bought a financial institution outright (UNION FEDERAL SAVINGS BANK, now defunct) to have even greater control over the make-money-quick scheme, and to get to mix its own harvest of high-interest subprime lemons into the securitization pool in 2007. That was just before the financial crash that brought on TERI's bankruptcy because the venerable nonprofit did not have sufficient reserves to cover the mounting defaults. It also ended Wall Street's appetite for Marblehead SLABS (Student Loan Asset Backed Securities).  

More than a decade down the road, a bankruptcy court in Massachusetts has now ruled that TERI "funded" the program under which the loans were originated. -- Duh! 

That (mis)characterization of TERI's role in the First Marblehead's National Collegiate Student Loan Scheme does serve a solid purpose, though: It makes the private non-federal student loans nondischargeable for former students in bankruptcy except under the "undue hardship" test. 

As for TERI's guaranty obligation to purchase defaulted loans for full on-the-books value, and thus hold bond investors harmless, TERI itself restructured in bankruptcy court, and shed its obligations under the guaranty agreements. 

The student loan debtors whose loans were guaranteed by TERI are not so lucky. 

At least TERI was good for Wall Street. 

Also see earlier post: Did TERI guaranty make NCSLT-securitized student loans nondischargeable under the Bankruptcy Code?

 In re Page, 592 B.R. 334 (8th Cir. BAP 2018).

A MORE TRADITIONAL VIEW OF "FUNDED" 

Comment on In re Page v. NCSLT 2006-1, No. 18-6011 (8th Cir. Nov. 20, 2018) (reversing summary judgment for Trust and remanding for fact determination regarding TERI's guaranty of private student loans securitized through National Collegiate Student Loan Trusts and its significance to the loan's dischargeability). 

C. TERI is a Nonprofit Institution, and it Funded the Education One Program by Guaranteeing All Loans Issued Under the Program

The third requirement is satisfied because the Education One Undergraduate Loan Program was funded in part by TERI, a nonprofit institution. This determination requires the Court to answer two questions affirmatively. First, was TERI a nonprofit institution? And second, did TERI fund, at least in part, the Education One Undergraduate Loan Program? The defendants have satisfied their burden of production on both questions; and Greer-Allen has not submitted evidence, beyond mere speculation, refuting TERI's nonprofit status or TERI's funding of the program.

1. TERI was a Nonprofit Institution

Ample evidence in the record shows that TERI was a nonprofit entity. All three loan agreements reference TERI's status as a nonprofit institution. All three trust agreements submitted by the defendants define TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws." Def.'s Mot Summ. J. Ex. F, G, H. Further, the Guaranty Agreement, submitted under seal, between TERI and Bank One, N.A. also describes TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws."

At oral argument, Greer-Allen's counsel insinuated that TERI may not have been operating as a nonprofit institution when these loans originated. However, Greer-Allen has not produced any evidence in furtherance of that claim. Summary judgment is appropriate where there is no genuine issue of material fact. Here, Greer-Allen has not put forth sufficient evidence to generate a genuine issue of material fact regarding TERI's nonprofit status.

Greer-Allen's counsel also argues that Congress understood "nonprofit institution," as the phrase is used in § 523(a)(8)(A)(i), to mean only nonprofit educational institutions. In other words, Greer-Allen contends that only educational loans made under a program funded by a nonprofit college should be excepted from discharge. Whether or not Congress intended such a meaning, this Court must give effect to the plain language Congress used. Section 523(a)(8)(A)(i) excepts loans made under programs funded by "nonprofit institutions" from discharge. The plain text is unambiguous and offers no reason to suggest that only certain nonprofit institutions satisfy the exception. Accordingly, the Court declines to adopt Greer-Allen's reading of § 523(a)(8)(A)(i).

2. TERI Funded the Education One Program by Guaranteeing All Education One Loans

The final issue the Court must decide is whether TERI funded the Education One Undergraduate Loan Program. The defendants put forth evidence suggesting that TERI did fund the program. Greer-Allen argues that the evidence the defendants produced cannot satisfy their burden of production. The Court finds that the defendants have satisfied their initial burden of production. On the other hand, Greer-Allen has provided no evidentiary basis for her assertion that TERI did not fund the program. Greer-Allen has not shown a genuine issue of material fact relating to the issue.

The defendants produced the loan documents for each of the three loans. The first loan states:

I acknowledge that the requested loan is subject to the limitations on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code. Specifically, I understand that [Bank One, N.A.] purchased a guaranty of this loan, and that this loan is guaranteed by The Education Resources Institute, Inc., a nonprofit institution.

The second loan contains identical language, and the third loan contains substantially similar language. The language in the loan documents provide some evidence that the program was funded by TERI because they indicate that Bank One and JPMorgan Chase purchased guarantees from TERI. A guaranty helps fund a program because it encourages a lender to extend credit that may not otherwise be available. However, the language in the loan documents is not, standing alone, sufficient to prove the existence of the guarantees. Another court in this circuit has denied summary judgment when a creditor sought to prove the existence of a guaranty based only upon similar language in a promissory note. See In re Wiley, 579 B.R. at 7. Here, the defendants have produced substantially more evidence, including the relevant guaranty and the defendants' trust agreements.

The summary judgment record also contains the trust agreement of each defendant. These agreements provide further evidence of the existence of the TERI guaranty agreement and TERI's funding of the Education One Program. The agreements define "TERI Guaranty Agreements" as the "Guaranty Agreements entered into between each of the Loan Originators and TERI as set forth on Schedule D attached hereto." The trust agreements define "TERI Guaranteed Loans" as "Student Loans originated under the Student Loan Programs owned by the Trust and guaranteed by TERI pursuant to the Guaranty Agreements." Schedule D of each trust agreement lists a Guaranty Agreement between TERI and Bank One, N.A. "for loans that were originated under Bank One's . . . Education One Loan Program." (ECF #29 Ex. F, G, H).

The trust agreements and their attached schedules indicate that the Education One Loan Program was funded by TERI. Each agreement lists the Program as one guaranteed by TERI. Each defines loans made under the Program as TERI Guaranteed Loans. The trust agreements bolster the notion that TERI played a part in funding the Program by guaranteeing loans issued under the Program.

Most notably, the defendants produced a guaranty agreement, executed on April 18, 2002, between Bank One and TERI. Under the agreement, TERI promised to guaranty all loans made under the Education One Undergraduate Loan Program. Section 2.1 of the guaranty states that "TERI hereby guarantees to Bank One, unconditionally. . . the payment of 100% of the principal of and accrued interest on every Loan as to which a Guaranty Event has occurred." Loans are defined as disbursements of funds made by Bank One under the Program. Guaranty Events are triggered by the failure of a borrower to make timely monthly payments. Thus, the agreement makes clear that TERI guaranteed all loans made under the Program, and that TERI was obligated to pay Bank One in the event of any default by a student loan borrower. The sweeping breadth of the guaranty makes clear that TERI helped fund the Program. Bank One and JPMorgan Chase Bank, its successor in interest, knew that all loans issued under the Program would be guaranteed by TERI in the event of default.

Considering the guaranty between Bank One and TERI, along with the aforementioned evidence, the defendants have met their initial burden of production. While the record lacks direct evidence of payments from TERI to the program, TERI's guaranty of all loans made under the Program conclusively establishes that the Program was funded in part by TERI. The blanket guaranty allowed Bank One, and its successor JPMorgan Chase, to offer student loans to borrowers like Greer-Allen.

VI. CONCLUSION

The evidence presented shows that there are no genuine issues of material fact in this adversary proceeding. The defendants demonstrated that Greer-Allen's loans are educational loans made under the Education One Loan Program. Further, they showed that the Education One Loan Program was funded by TERI, and that TERI was a nonprofit institution. Greer-Allen has failed to produce evidence that would create a genuine issue as to any one of these facts. At the summary judgment stage, the Court must make reasonable inferences in the nonmoving party's favor. Here, however, Greer-Allen has not produced evidence that would allow a reasonable factfinder to return a verdict in her favor. Accordingly, the three student loans at issue are non-dischargeable under 11 U.S.C. § 523(a)(8)(A)(i). For the aforementioned reasons, the defendants' motion for summary judgment is GRANTED and Greer-Allen's motion for summary judgment is DENIED. Judgment shall enter accordingly.

[1] Greer-Allen does not contend that her debts fall within the undue hardship exception. 

DEFINED TERMS FROM THE INDENTURE (NCSLT 2006-3)

“TERI” means The Education Resources Institute, Inc., a Massachusetts non-profit corporation, or its successors and assigns.

“TERI Deposit and Security Agreement” means the Deposit and Security Agreement dated as of September 28, 2006, by and among the Issuer, TERI and the Administrator with respect to the issuance of the Notes hereunder.

“TERI Guaranty Agreement” means, with a respect to a Student Loan Program, a guaranty agreement between a Seller and TERI, together with the acknowledgment by TERI relating thereto. On the Issue Date, the TERI Guarantee Agreements shall be as listed on Schedule B to the Indenture.

“TERI Guaranty Amount” means, pursuant to the TERI Guaranty Agreements, Financed Student Loans are guaranteed 100% as to payment of principal and interest.

“TERI Guaranty Event” means a claim for payment on a Financed Student Loan made under any of the TERI Guaranty Agreements if: (i)(a) the Obligor has failed to make monthly principal and/or interest payments on such loan when due, provided such failure continues for a period of 150 consecutive days, (b) the Obligor has filed a Chapter 13 petition in a bankruptcy or, in a Chapter 7 proceeding has filed an adversary proceeding pursuant to 11 U.S.C. § 523(a)(8), or (c) the Obligor has died and (ii) the conditions set forth in such TERI Guaranty Agreement giving rise to an obligation on the part of TERI to make payment on such claim have otherwise been satisfied.

“TERI Pledge Fund” means the fund by the name created in the TERI Deposit and Security Agreement whereby TERI will pledge a portion of its guaranty fees to the Trust, by deposit into a special trust account with the Indenture Trustee. 
  

BACK IN 2006 WHEN SLABS WERE THE RAGE 
NCSLT 2006-3 SECURITIZATION 

[FIRST MARBLEHEAD(TM) LOGO]

[CREATING SOLUTIONS FOR EDUCATION FINANCE.]

FOR IMMEDIATE RELEASE

                FIRST MARBLEHEAD ANNOUNCES PLANNED $1.56 BILLION

                     SECURITIZATION OF PRIVATE STUDENT LOANS

BOSTON, MA, SEPTEMBER 8, 2006 - The First Marblehead Corporation (NYSE: FMD)

today announced the scheduled closing of a securitization enabling the purchase

of private student loans by The National Collegiate Student Loan Trust 2006-3

(the Trust) and the related issuance of Student Loan Asset Backed Notes by the

Trust. The National Collegiate Funding LLC, as sponsor and depositor of the

securitization, has filed with the Securities and Exchange Commission a Free

Writing Prospectus regarding this transaction. The Company expects the

transaction to close on or about September 28, 2006.

The loans were originated by several different banks under various loan programs

that were structured with the assistance of First Marblehead. The Trust expects

to raise approximately $1.56 billion from the sale of asset-backed securities,

and plans to acquire private student loans with a principal and accrued interest

balance of approximately $1.18 billion in the transaction. The Trust expects

that approximately 70% of the loans to be purchased at closing will be "Direct

to Consumer" loans, and that the remaining 30% of the loans to be purchased at

closing will be "School Channel" loans.

The loans are guaranteed by The Education Resources Institute, Inc. (TERI), the

nation's oldest and largest guarantor of private student loans.

ABOUT FIRST MARBLEHEAD

First Marblehead, a leader in creating solutions for education finance, provides

outsourcing services for private, non-governmental, education lending in the

United States. The Company helps meet the growing demand for private education

loans by providing national and regional financial institutions and educational

institutions, as well as businesses and other enterprises, with an integrated

suite of design, implementation and securitization services for student loan

programs tailored to meet the needs of their respective customers, students,

employees and members.

THE AFTERMATH IN 2019 

In re SHARLENE GREER-ALLEN, Chapter 7, Debtor.
SHARLENE GREER-ALLEN, Plaintiff,
v.
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-3, and NATIONAL COLLEGIATE STUDENT LOAN TRUST 2006-3, Defendants.

Case No. 17-12935-FJB, Adversary Proceeding No. 17-1129.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

July 29, 2019.

Sharlene Greer-Allen, Plaintiff, represented by Richard N. Gottlieb, Law Offices of Richard N. Gottlieb.

National Collegiate Student Loan Trust 2005-1, National Collegiate Student Loan Trust 2005-3, National Collegiate Student Loan Trust 2006-1 & National Collegiate Student Loan Trust 2006-3, Defendants, represented by Morgan Ian Marcus, Sessions, Fishman, Nathan & Israel, LLC, Jennifer L. Markowski & Catherine Scott, Peabody & Arnold LLP.

MEMORANDUM OF DECISION

FRANK J. BAILEY, Bankruptcy Judge.

I. INTRODUCTION

Sharlene Greer-Allen ("Greer-Allen") entered into three loan agreements, subsequently assigned to the defendants, to help finance her education at Northeastern University. After receiving a discharge under Chapter 7 of the Bankruptcy Code ("the Code"), Greer-Allen commenced the present adversary proceeding, in which she seeks a determination that her discharge extinguished the aforementioned obligations. The defendants contend that 11 U.S.C. § 523(a)(8) excepts these loans from discharge. The parties have now filed competing motions for summary judgment. Because these student loans originated under a program funded by a nonprofit institution, § 523(a)(8)(A)(i) excepts these loans from a Chapter 7 discharge. Accordingly, the defendants are entitled to summary judgment, and the Court will allow their motion and enter judgment accordingly.

II. JURISDICTION

This proceeding is one to determine the dischargeability, under § 523(a)(8) of the Bankruptcy Code, of Greer-Allen's student loan obligations. It arises under the Bankruptcy Code and in a bankruptcy case and therefore falls within the jurisdiction given the district court in 28 U.S.C. § 1334(b). By standing order of reference, the District Court has referred the matter to the bankruptcy court pursuant to 28 U.S.C. § 157(a). It is a core proceeding within the meaning of 28 U.S.C. § 157(b)(1) and (b)(2)(I) (core proceedings include determinations of the dischargeability of particular debts). The bankruptcy court accordingly has authority to enter final judgment on the complaint. 28 U.S.C. § 157(b)(1) (authorizing bankruptcy judge to enter appropriate orders and judgment as to core proceedings).

III. LEGAL STANDARDS

Summary judgment is warranted when "there is no genuine dispute as to any material fact" and "the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Creating a genuine issue of material fact requires hard proof rather than spongy rhetoric." Cowell v. Hale (In re Hale), 289 B.R. 788, 791 (1st Cir. BAP 2003) (citing Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991)). A court "must view the record in the light most favorable to the party opposing the motion, and must indulge all inferences favorable to that party." Daury v. Smith, 842 F.2d 9, 11 (1st Cir. 1988). To defeat a motion for summary judgment, the evidence presented must be sufficient to allow a reasonable factfinder to resolve an issue in favor of the nonmoving party. See Hale, 289 B.R. at 792.

In an action to determine the dischargeability of student loans, the lender bears the initial burden of showing "that the debt is of the type excepted from discharge under section 523(a)(8)." Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791, 796 (1st Cir. BAP 2010). Upon such a showing, the burden of production shifts to the debtor. The lender bears the ultimate burden of proof by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 286 (1991). Although Congress plainly intended to except certain debts from discharge, the § 523(a) exceptions should be construed narrowly. See In re Hyman, 502 F.3d 61, 66 (2d Cir. 2007).

IV. FACTUAL AND PROCEDURAL HISTORY

Beginning in 2004, Greer-Allen attended Northeastern University. Although she received financial aid in the form of both loans and grants, Greer-Allen sought out private loans in order to fully finance her education. Using a web portal maintained by First Marblehead Bank, Greer-Allen applied for and received three separate student loans. The first loan originated with Bank One, N.A. Bank One then merged with JPMorgan Chase Bank, N.A. Thus, the second and third loans originated with JP Morgan Chase, despite Greer-Allen applying for all three loans in the same manner. Each loan stated that it was made as part of the Education One Undergraduate Loan Program. Further, each loan agreement stated that "this loan is guaranteed by The Education Resources Institute, Inc. ("TERI"), a nonprofit institution."

The first loan agreement originated in 2004. Bank One loaned Greer-Allen $30,000 to help finance her attendance at Northeastern during the 2004-2005 school year. In 2004, the cost of attendance at Northeastern was $16,113. The first loan supplemented $8,034 in other forms of aid that Greer-Allen received for that academic year. Assuming that the $8,034 loan went towards educational expenses, the proceeds of the Bank One loan exceeded the cost of attendance by $21,921. Bank One subsequently assigned the first loan to defendant National Collegiate Student Loan Trust 2005-1.

Before the 2005-2006 academic year, Greer-Allen entered into a second loan agreement, this time with JPMorgan Chase Bank. While the second loan originated with JPMorgan Chase Bank, not with Bank One, the loan agreement contained identical terms. Greer-Allen received $30,000 in proceeds from the second loan, on the same terms as the first loan. That year, Greer-Allen again received $8,034 in other forms of aid, however, the cost of attendance at Northeastern had risen to $20,744. As a result, she received $17,290 in excess of the cost of attendance from the second loan proceeds. JPMorgan Chase Bank subsequently assigned the second loan to defendant National Collegiate Student Loan Trust 2005-3.

Greer-Allen received $33,792 for the 2006-2007 academic year as proceeds from the third loan. Once again, Greer-Allen received $8,034 in other aid. Although Greer-Allen increased the principal of her third loan, the cost of attendance for 2006-2007 fell to $15,259. Thus, her loan proceeds exceeded the cost of attendance by $26,567. JPMorgan Chase Bank subsequently assigned the third loan to defendant National Collegiate Student Loan Trust 2006-3.

In 2017, Greer-Allen filed her petition for relief under Chapter 7 of the Bankruptcy Code. She scheduled the amounts owed under the loan agreements as follows: $62,022.66 owed to NCSLT 2005-1 for the first loan, $55,730.50 owed to NCSLT 2005-3 for the second, and $71,803.75 owed to NCSLT 2006-3 for the third. On November 7, 2017, this Court entered an order discharging all of Greer-Allen's properly scheduled debts, excluding those excepted from discharge under 11 U.S.C. § 523(a).

V. DISCUSSION

The issue before the Court is whether the November 7, 2017 discharge order extinguished Greer-Allen's obligation to repay the debts owed to NCSLTs 2005-1, 2005-3, and 2006-3. The answer depends on whether the three loans at issue fall within the categories of student debt that, in 11 U.S.C. § 523(a)(8), Congress excepted from discharge. Because the loans were made under a program funded in part by a nonprofit institution, § 523(a)(8)(A)(i) excepts the loans from discharge. Accordingly, the defendants are entitled to summary judgment.

A Chapter 7 discharge removes a debtor's obligation to repay a wide array of prepetition debts. 11 U.S.C. § 727(b). Despite the general breadth of a Chapter 7 discharge, Congress set out certain categories of non-dischargeable debts. See generally 11 U.S.C. § 523(a). Among the debts excepted from Chapter 7 discharge are four categories of student loan obligations. 11 U.S.C. § 523(a)(8). Subject to an undue hardship exception not applicable here, the obligation to repay a debt falling within § 523(a)(8) survives the entry of a Chapter 7 discharge.

Section 523(a)(8) excepts four types of debt from discharge: first, educational loans (or benefit overpayments) made, insured, or guaranteed by a governmental unit, § 523(a)(8)(A)(i); second, educational loans (or benefit overpayments) "made under any program funded in whole or in part by a governmental unit or nonprofit institution," id; third, obligations "to repay funds received as an educational benefit, scholarship, or stipend," § 523(a)(8)(A)(ii); and fourth, qualified educational loans incurred by an individual, § 523(a)(8)(B). A loan falling within any of the four categories is non-dischargeable unless excepting it from discharge would impose an undue hardship on the debtor and the debtor's dependents.^[1]

Greer-Allen contends that her student loans fall outside the scope of all four categories. Conversely, the defendants argue that the loans are excepted from discharge under the second, third, and fourth categories. The defendants acknowledge that the loans were not made, insured, or guaranteed by a governmental unit and therefore do not fall within the first category.

Section 523(a)(8) is written disjunctively, meaning that a loan must fall within just one of the four categories in order to be non-dischargeable. If, taking all reasonable inferences in Greer-Allen's favor, the defendants show that each loan falls within one of the non-dischargeable categories, then the defendants are entitled to summary judgment. On the other hand, Greer-Allen is entitled to summary judgment only if each loan falls outside the scope of all categories, despite taking all reasonable inferences in the defendants' favor. While the parties put forth numerous theories regarding the applicability of each of the three contested categories, the record and this Court's own docket show that all three loans fall within the second category. Each of the three educational loans was made under a program funded in part by a nonprofit institution. For that reason, the defendants are entitled to summary judgment. Because the determination that these loans are non-dischargeable under § 523(a)(8)(A)(i) is dispositive, the Court declines to reach the parties' arguments relating to the third and fourth categories (subsections 523(a)(8)(A)(ii) and 523(a)(8)(B), respectively).

In order for a debt to fall within the second category, three requirements must be satisfied. 11 U.S.C. § 523(a)(8)(A)(i); Wiley v. Wells Fargo Bank, N.A. (In re Wiley), 579 B.R. 1, 6 (Bankr. D. Me. 2017). First, the debt must be for either an educational loan or an educational benefit overpayment. 11 U.S.C. § 523(a)(8)(A)(i). Courts look to the purpose of the loan in order to determine whether it is an educational loan. In re Page,592 B.R. 334, 336 (8th Cir. BAP 2018) (citing In re Murphy, 282 F.3d 868 (5th Cir. 2002)). Second, the loans must have been made under a program.^[2] Wiley, 579 B.R. at 6. Third, the program must have been funded, at least in part, by a governmental unit or a nonprofit institution. Id.

Importantly, it is the program, not the individual loan, that must have been funded by a governmental unit or nonprofit institution. In re O'Brien, 419 F.3d 104, 106 (2d Cir. 2005)("While it may be true that TERI merely guaranteed, without funding, [debtor's] particular loan, it is an entirely different question whether TERI funded the loan program under which [debtor's] loan was made."); Educ. Res. Inst., Inc. v. Taratuska (In re Taratuska),No. 07-11938-RCL, 2008 WL 4826279, at *3 (D. Mass. Aug. 25, 2008). "Congress intended to include within [section] 523(a)(8) all loans made under a program in which a nonprofit institution plays any meaningful part in providing funds." Educ. Res. Inst., Inc. v. Hammarstrom (In re Hammarstrom), 95 B.R. 160, 165 (Bankr. N.D. Cal. 1989). A nonprofit institution's guarantee of a loan made under a program serves as evidence that the program was funded by that nonprofit institution. See Taratuska, 2008 WL 4826279, at *6. This is because the existence of a guarantee plays a meaningful part in a program's ability to extend credit to student borrowers. See id.

A. These are Educational Loans Because Greer-Allen Entered Them to Fund Her Studies at Northeastern University

Greer-Allen's loans satisfy all three requirements of the second prong of § 523(a)(8)(A)(i). The three loans are educational loans because Greer-Allen entered into them to finance her studies at Northeastern University. Greer-Allen admits that she sought out the loans for this educational purpose.^[3] The loan agreements and Greer-Allen's admissions show that she entered these loans to help fund her education. For this reason, these loans qualify as educational loans under § 523(a)(8)(A)(i), notwithstanding that Greer-Allen spent some of their proceeds for non-educational purposes.

B. Bank One and JPMorgan Chase Bank Issued the Loans as Part of the Education One Undergraduate Loan Program.

All three loans were made under the Education One Undergraduate Loan Program. Greer-Allen applied for each loan through a website maintained by First Marblehead Bank. While Bank One originated the first loan and JPMorgan Chase Bank originated both subsequent loans, all three loan agreements conspicuously state that they were made under the Education One Undergraduate Loan Program. Further, the defendants submitted the affidavit of Bradley Luke, an employee of Transworld Systems, Inc. ("TSI"). Def.'s Mot. Summ. J. Ex. C. TSI is responsible for subservicing student loans held by the defendants. Luke testified that all three loans were made under a loan program. Luke Aff. ¶ 16, 23, 31. Greer-Allen has submitted no evidence calling into question the existence of the loan program. Thus, even taking all reasonable inferences in Greer-Allen's favor, the defendants have shown that these loans were made under a program.

C. TERI is a Nonprofit Institution, and it Funded the Education One Program by Guaranteeing All Loans Issued Under the Program

The third requirement is satisfied because the Education One Undergraduate Loan Program was funded in part by TERI, a nonprofit institution. This determination requires the Court to answer two questions affirmatively. First, was TERI a nonprofit institution? And second, did TERI fund, at least in part, the Education One Undergraduate Loan Program? The defendants have satisfied their burden of production on both questions; and Greer-Allen has not submitted evidence, beyond mere speculation, refuting TERI's nonprofit status or TERI's funding of the program.

1. TERI was a Nonprofit Institution

Ample evidence in the record shows that TERI was a nonprofit entity. All three loan agreements reference TERI's status as a nonprofit institution. All three trust agreements submitted by the defendants define TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws." Def.'s Mot Summ. J. Ex. F, G, H. Further, the Guaranty Agreement, submitted under seal, between TERI and Bank One, N.A. also describes TERI as "a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws."

At oral argument, Greer-Allen's counsel insinuated that TERI may not have been operating as a nonprofit institution when these loans originated. However, Greer-Allen has not produced any evidence in furtherance of that claim. Summary judgment is appropriate where there is no genuine issue of material fact. Here, Greer-Allen has not put forth sufficient evidence to generate a genuine issue of material fact regarding TERI's nonprofit status.

Greer-Allen's counsel also argues that Congress understood "nonprofit institution," as the phrase is used in § 523(a)(8)(A)(i), to mean only nonprofit educational institutions. In other words, Greer-Allen contends that only educational loans made under a program funded by a nonprofit college should be excepted from discharge. Whether or not Congress intended such a meaning, this Court must give effect to the plain language Congress used. Section 523(a)(8)(A)(i) excepts loans made under programs funded by "nonprofit institutions" from discharge. The plain text is unambiguous and offers no reason to suggest that only certain nonprofit institutions satisfy the exception. Accordingly, the Court declines to adopt Greer-Allen's reading of § 523(a)(8)(A)(i).

2. TERI Funded the Education One Program by Guaranteeing All Education One Loans

The final issue the Court must decide is whether TERI funded the Education One Undergraduate Loan Program. The defendants put forth evidence suggesting that TERI did fund the program. Greer-Allen argues that the evidence the defendants produced cannot satisfy their burden of production. The Court finds that the defendants have satisfied their initial burden of production. On the other hand, Greer-Allen has provided no evidentiary basis for her assertion that TERI did not fund the program. Greer-Allen has not shown a genuine issue of material fact relating to the issue.

The defendants produced the loan documents for each of the three loans. The first loan states:

I acknowledge that the requested loan is subject to the limitations on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code. Specifically, I understand that [Bank One, N.A.] purchased a guaranty of this loan, and that this loan is guaranteed by The Education Resources Institute, Inc., a nonprofit institution.

The second loan contains identical language, and the third loan contains substantially similar language. The language in the loan documents provide some evidence that the program was funded by TERI because they indicate that Bank One and JPMorgan Chase purchased guarantees from TERI. A guaranty helps fund a program because it encourages a lender to extend credit that may not otherwise be available. However, the language in the loan documents is not, standing alone, sufficient to prove the existence of the guarantees. Another court in this circuit has denied summary judgment when a creditor sought to prove the existence of a guaranty based only upon similar language in a promissory note. See In re Wiley, 579 B.R. at 7. Here, the defendants have produced substantially more evidence, including the relevant guaranty and the defendants' trust agreements.

The summary judgment record also contains the trust agreement of each defendant. These agreements provide further evidence of the existence of the TERI guaranty agreement and TERI's funding of the Education One Program. The agreements define "TERI Guaranty Agreements" as the "Guaranty Agreements entered into between each of the Loan Originators and TERI as set forth on Schedule D attached hereto." The trust agreements define "TERI Guaranteed Loans" as "Student Loans originated under the Student Loan Programs owned by the Trust and guaranteed by TERI pursuant to the Guaranty Agreements." Schedule D of each trust agreement lists a Guaranty Agreement between TERI and Bank One, N.A. "for loans that were originated under Bank One's . . . Education One Loan Program." (ECF #29 Ex. F, G, H).

The trust agreements and their attached schedules indicate that the Education One Loan Program was funded by TERI. Each agreement lists the Program as one guaranteed by TERI. Each defines loans made under the Program as TERI Guaranteed Loans. The trust agreements bolster the notion that TERI played a part in funding the Program by guaranteeing loans issued under the Program.

Most notably, the defendants produced a guaranty agreement, executed on April 18, 2002, between Bank One and TERI. Under the agreement, TERI promised to guaranty all loans made under the Education One Undergraduate Loan Program. Section 2.1 of the guaranty states that "TERI hereby guarantees to Bank One, unconditionally. . . the payment of 100% of the principal of and accrued interest on every Loan as to which a Guaranty Event has occurred." Loans are defined as disbursements of funds made by Bank One under the Program. Guaranty Events are triggered by the failure of a borrower to make timely monthly payments. Thus, the agreement makes clear that TERI guaranteed all loans made under the Program, and that TERI was obligated to pay Bank One in the event of any default by a student loan borrower. The sweeping breadth of the guaranty makes clear that TERI helped fund the Program. Bank One and JPMorgan Chase Bank, its successor in interest, knew that all loans issued under the Program would be guaranteed by TERI in the event of default.

Considering the guaranty between Bank One and TERI, along with the aforementioned evidence, the defendants have met their initial burden of production. While the record lacks direct evidence of payments from TERI to the program, TERI's guaranty of all loans made under the Program conclusively establishes that the Program was funded in part by TERI. The blanket guaranty allowed Bank One, and its successor JPMorgan Chase, to offer student loans to borrowers like Greer-Allen.

VI. CONCLUSION

The evidence presented shows that there are no genuine issues of material fact in this adversary proceeding. The defendants demonstrated that Greer-Allen's loans are educational loans made under the Education One Loan Program. Further, they showed that the Education One Loan Program was funded by TERI, and that TERI was a nonprofit institution. Greer-Allen has failed to produce evidence that would create a genuine issue as to any one of these facts. At the summary judgment stage, the Court must make reasonable inferences in the nonmoving party's favor. Here, however, Greer-Allen has not produced evidence that would allow a reasonable factfinder to return a verdict in her favor. Accordingly, the three student loans at issue are non-dischargeable under 11 U.S.C. § 523(a)(8)(A)(i). For the aforementioned reasons, the defendants' motion for summary judgment is GRANTED and Greer-Allen's motion for summary judgment is DENIED. Judgment shall enter accordingly.

[1] Greer-Allen does not contend that her debts fall within the undue hardship exception.

[2] The term "program" is not defined by the Code. While scores of published opinions discuss 523(a)(8) dischargeability, the Court is unaware of any case defining the parameters of a "program."

[3] Despite seeking the loans for an educational purpose, the parties suggest that Greer-Allen used some portion of the loan proceeds to purchase a home. At oral argument, Greer-Allen's counsel suggested that the use of loan proceeds for non-educational purchases forecloses their consideration as educational loans. However, "courts routinely look to the purpose of a loan to determine whether it is `educational.'" In re Page, 592 B.R. at 336. This Court finds the reasoning of In re Page persuasive and looks to the purpose for which the loans were entered in order to determine whether the loans are educational in nature.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Another approach taken by at least one Texas Court of Appeals to dispose of the issue of consumer consent is to simply impute consent on the consumer without the requisite evidence in the record that the consumer consented in the manner specified by the standard terms on the loan origination documents. See Foster v. National Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] 2018, no pet.) (mem. op. by Chief Justice Radack)(invoking theory of joint construction of multiple contract documents and concluding that student-applicant consented to loan terms by signing application even though the loan terms were not yet known when she signed the application), contra Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913, at *6-7 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op. by Justice Harvey Brown) (“The cancelled disbursement check is evidence that the Mocks agreed to the terms of the loan as set forth in the Credit Agreement and Disclosure Statement by endorsing and depositing the check that disbursed the loan proceeds.”).

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

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

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

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