Claim: A debt claim can be for no more than $10,000, excluding statutory interest and court costs, but including attorney s fees, if any;

Transcription

1 RULE 508 DEBT CLAIM CASES Debt Claim Rules Rule incorporating Rules ; Rule 508 applies if there is a conflict among the Rules governing small claims cases; Rule setting out requirements of a petition; and Rule governing default judgments; So Back to Basics: What is a debt claim case? It is a lawsuit brought to recover a debt. Rule For purposes of the debt collection statutes in Texas, debt collection means an action, conduct, or practice in collecting, or in soliciting for collection, consumer debts that are due or alleged to be due a creditor; Consumer debts are obligations, or alleged obligations, primarily for personal, family, or household purposes; A debt claim case is filed by certain plaintiffs: An Assignee - one to whom an assignment is made by sale or other transfer of the original owner s interest in the debt; the assignee steps into the position of the assignor and has the right to enforce the debt; A Debt collector Under Fair Debt Collection Practices Act, as applied to consumer debts, a debt collector is: any person who uses any instrumentality of interstate commerce or the mails in a business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect debts owed or due or asserted to be owed or due another; or collectors working for professional collection agencies, and attorneys hired to collect debts; Under the Texas Fair Debt Collection statute, a debt collector means a person who directly or indirectly engages in debt collection, or, in Texas, anyone trying to collect on a consumer debt; A Collection agency A Financial institution Financial institution includes a bank, savings association, or savings bank maintaining an office in Texas; FI (Banks) or, A Person/entity primarily engaged in the business of lending money at interest Claim: A debt claim can be for no more than $10,000, excluding statutory interest and court costs, but including attorney s fees, if any; Debt Claim Cases Page 1

2 Time Periods in Debt Claim Case: To compute time periods in a debt claim case: The day of the event triggering the period is excluded; Every day, including Sat., Sun., and holidays is then included; and The last day of the period is included; But, if the last day is Saturday, Sunday, or holiday, the time is extended to the next business day; And, if the court closes before 5pm on last day, the time is extended to next business day; Mailbox Rule: Remember: any document required to be filed by a given date, is considered timely filed if it is deposited in the US mail on or before that date, and received within 10 days of the due date, with a legible postmark affixed by the USPS; The judge may for good cause, extend any time period, except those relating to new trial and appeal; Rule Rule sets out the requirements for filing the petition in a debt claim case: The plaintiff must file a petition, in writing, together with a Justice Court Civil Information Sheet. In addition, to the usual information identifying the parties, the plaintiff must state whether the plaintiff consents to service of the answer and other pleadings or motions, and if so, provide an address. The plaintiff is also required to include: (v) the amount of money damages for which the plaintiff is asking; (vi) a description and the value of personal property, if any, the plaintiff seeks to recover; (vii) a description of any other relief requested; (viii) the basis for the plaintiff s claim; and, for a credit card account, revolving credit account, or open account: (x) the account name or credit card name; (xi) the account number (which may be masked); (xii) the date of issue or origination of the account, if known; (xiii) the date of charge-off or breach of the account, if known; Charge off means that the account is delinquent and is viewed as a business loss rather than as an asset; a delinquent account is usually charged-off after 6 months; Most credit card issuers stop charging interest when they charge off a debt because continuing to charge interest would mean having to send monthly statements to cardholders under the Truth in Lending Act. (xiv) the amount owed as of a date certain; and, (xv) whether the plaintiff seeks ongoing interest, including: the effective interest rate claimed; whether the interest rate is based on contract or statute; and the amount of interest claimed as of a date certain; Debt Claim Cases Page 2

3 [You may not be aware of Rule 21c (which doesn t apply to Justice Courts, but probably should): This Rule provides that sensitive data a DL number, passport number, SS number, tax ID number, or similar government issued ID number - must be redacted by using the letter X in place of each omitted digit or character, or by removing the data in such a way that indicates the data has been redacted; The filing party must retain an unredacted version of the document during the pendency of the case and appeal; The wording: Notice: this document contains sensitive data should be printed on the upper left corner of the document; Documents containing sensitive data that has not been redacted, cannot be posted on the Internet under Rule 21c;] and for a promissory note or promise to pay a specific amount as of a date certain: (x) the date and amount of the original loan; (xi) whether the repayment of the debt was accelerated, if known; When a lender invokes an acceleration clause, the borrower must immediately pay the unpaid balance of the loan s principal, as well as any interest that accumulated before the lender invoked the acceleration clause. (xii) the date final payment was due; (xiii) the amount due as of the final payment date; (xiv) the amount owed as of a date certain; and (xv) whether plaintiff seeks ongoing interest, including: the effective interest rate claimed; whether the interest rate is based on contract or statute; and the amount of interest claim as of a date certain; and for a debt that has been assigned or transferred: (x) that the debt has been transferred or assigned; (xi) the date of the transfer or assignment; (xii) the name of any prior holders of the debt; and (xiii) the name or a description of the original creditor. A debt collector may not attempt to collect interest, or a charge, fee, or expense incidental to the obligation, unless the interest or incidental charge, fee, or expense is expressly authorized by the agreement creating the obligation or is legally chargeable to the consumer; A good pleading containing a request for interest will specify the basis of the interest charged, whether contractual or statutory, and if contractual, provide the contract and its terms. FI Basic pleading requirements are set out in Rule Debt Claim Cases Page 3

4 Elements of the cause of action. The most frequently filed debt claim cases are those based on credit card accounts. Generally, to prevail in a suit to recover credit card debt, the plaintiff must establish: (1) a valid, enforceable contract; (2) privity between the parties; (3) performance by the issuer; (4) breach by the defendant; (5) injury to the issuer or holder cause by the breach; An action to collect a credit card debt may be brought as an action on an open account. 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. A suit on a stated account is proper 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. So the elements of an open account are: (1) transactions between the parties, (2) creating a creditor-debtor relationship through the general course of dealing, (3) with the account still being open, and (4) with the expectation of further dealing. The essential elements of a breach of contract claim are: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of contract by the defendant; and (4) damages sustained as a result of the breach. A quantum meruit claim is proper in a credit card debt collection case where the evidence did not support the existence of a valid contract. A brief digression to discuss the identity of the parties. In debt claim cases, plaintiffs are usually business entities, and defendants are usually natural persons. Business entities may sue or be sued in their assumed names. It is wise for the judge, at some point in the proceeding, to require the plaintiff and the defendant, if appropriate, accurately to identify the business entity by the name of the person or entity who owns the business. This avoids any postjudgment issues of ownership of the judgment and the validity of assignments, if any. Proper identification of the parties also allows the judge to determine if the entity is being properly represented. Debt Claim Cases Page 4

5 Representation: In a debt claim case, an individual may represent himself/herself; or be represented by attorney; Business entities in particular, who are acting without an attorney, should be establish the authority of the person appearing on behalf of the entity. A corporation or other business entity may be represented by an employee, owner, officer, or partner of the entity who is not attorney; or a corporation may be represented by attorney; Rule Occasionally, issues will arise as to a party s right to sue or defend. For example; Assumed Name Certificate: A person must file an assumed name certificate if the person regularly conducts business or renders a professional service in this state under an assumed name other than as a corporation, limited partnership, limited liability partnership, limited liability company, or foreign filing entity. BC A corporation, limited partnership, limited liability partnership, limited liability company, or foreign filing entity must file a certificate under this subchapter if the entity: (1) regularly conducts business or renders professional services in this state under an assumed name; or (2) is required by law to use an assumed name in this state to conduct business or render professional services. BC A person's failure to file an assumed name certificate as required does not impair the validity of any contract by the person or prevent the person from defending any action in any court of this state, but the person may not maintain an action in a court of this state arising out of a contract in which an assumed name was used until an original, new, or renewed certificate has been filed as required. In an action or proceeding brought against a person who has not complied with the assumed name filing requirements, the court may award the plaintiff or other party bringing the action or proceeding expenses incurred, including attorney's fees, in locating and effecting service of process on the defendant. BC Forfeiture of corporation s right to do business. Under TX If the corporate privileges of a corporation are forfeited for nonpayment of franchise taxes, the corporation shall be denied the right to sue or defend in a court of this state; The Secretary of State may forfeit the charter, certificate, or registration of a taxable entity if the forfeited privileges are not reinstated within 120 days after the date that the privileges were forfeited. Courts have long interpreted the forfeiture provisions to preclude an entity only from filing suit after forfeiting its right to do business, not to prohibit it from continuing an action filed before its privileges were forfeited. A forfeiture of corporate privileges deprives a corporation of the capacity to sue but does not make a suit void, and the lack of capacity is waived unless challenged by a verified plea, which results in an abatement rather than a dismissal, in order to afford the corporation the opportunity to cure the defect. Debt Claim Cases Page 5

6 Service of Process: When the petition is filed, the clerk must issue a citation and deliver the citation as directed by the plaintiff. Rule The clerk must keep a copy of the citation in the file. In debt claim cases, defendants are usually natural persons - individuals, or persons doing business in the form of a sole proprietorship or partnership; The clerk cannot know how properly to direct the citation if the plaintiff does not adequately describe the defendant including the defendant s legal nature. The citation must direct the person authorized to serve the defendant in the proper manner. For example: Individuals. Citation directed to individuals is effected by delivery directly to the person. Deliver this Citation to: JOHN DOE, 1234 Main Street, Houston, Texas Sole Proprietorships. Citation directed to a sole proprietorship is directed to the owner of the business. Deliver this Citation to: Deliver this Citation to: JOHN DOE, Individually and doing business ACME SERVICES, by serving its owner, as ACME SERVICES JOHN DOE 1234 Main Street 1234 Main Street Houston, Texas Houston, Texas Citation Return: The person effecting service must endorse on the citation the day and hour the citation was received, and must execute and return the citation without delay. The return may be endorsed on or attached to the citation. The return must include: Cause number, case name, & court in which case filed A description of what was served Date and time process received for service Person or entity served, and the address For service on a business entity: the return must show that service was effected on the business entity by serving the appropriate representative, designating the representative by capacity and name, and describing the manner and location of service. Date of service or attempted service Manner of delivery of service or attempted service Name of person who served or attempted service Diligence used if citation is not served and where the defendant is to be found, if ascertained Identification number of certified process server and expiration date of certification Signature of person serving Verification or signature under penalty of perjury Any other information required by rule or law The receipt if served by certified mail Rule Debt Claim Cases Page 6

7 The Return must be signed by the authorized person who served the citation. If a constable or clerk of the court, the return does not need to be verified. The Return always was, but with the new rules, is now more than ever, a significant document. You, as the judge, have an explicit duty to ensure that service was proper. (In my opinion, this duty is a judicial duty, and cannot be delegated.) If you have any question in your mind as to whether the service was proper, you may hold a hearing to review the Return, and if appropriate, the Return may be amended. Rule Answer: The defendant s answer must be in writing, and indicate whether the defendant consents to service, with a copy served on the plaintiff. The answer is due by the end of the 14 th day after the day the defendant was served, unless the 14 th day is a Saturday, Sunday or holiday, or the court closes before 5pm, when the answer is due on the next business day; No Pleading of Defenses Necessary. The defendant may answer a debt claim case by way of general denial, which will allow the defendant to raise any defense at trial. Rule Defenses include the former verified defenses, and affirmative defenses, many of which are applicable in a debt claim case: e.g. I did not make this contract, or there is a defect of parties (Rule 93, verified defense) Statute of limitations Discharge in bankruptcy, and the like. (Rule 94, affirmative defenses) Payment (Rule 95) Prior to the new rules, limitations was an affirmative defense in Justice Courts. The creditor could sue on the debt after the limitations period expired, but the debtor could avoid a judgment by pleading limitations and proving that the limitations period has run. Now, under the justice court rules, a general denial is sufficient to put all defenses in issue; What happens when it is apparent to the court from the plaintiff s pleadings that more than 4 years have elapsed since the cause of action on the debt accrued? Can the justice court, on its own, deny recovery based on statute of limitations in a default judgment situation? Let s briefly digress, once again, and talk about the statute of limitations and accrual of causes of action: In general, suits on a debt and accounts must be brought not later than 4 years after the date the cause of action accrues. The general statute of limitations is found in Civil Practice and Remedies Code A person must bring suit on a debt not later than four years after the day the cause of action accrues. Debt Claim Cases Page 7

8 If an action to collect a credit card debt is brought as an action on an open account, a person must bring an action on an open or stated account not later than four years after the day that the cause of action accrues. CV (c). For example, the date of the last payment may determine the accrual date for the purposes of the statute of limitations. A debtor may restart the period of limitations by making a payment, or acknowledging the debt in writing and agreeing to pay. Stated account is a common law theory, allowing recovery for unpaid goods or services, without formal contract, the proof including a course of business dealings between the parties; it may include a credit card debt where the actual contract is not available; for example, a series of credit card statements showing transactions with defendant s address; The cause of action accrues on the day that the dealings in which the parties were interested together cease. An action to enforce the obligation of a party to pay a promissory note payable at a definite time must be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date. BC If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of 10 years. Not all promissory notes are negotiable instruments. A check, for example, is a type of negotiable instrument, but it is a contract. Not all promissory notes are governed by the 6 year statute of limitations. But when it applies, this 6 year statute of limitations is the more specific and would control over the general 4 year statute of limitations. What is the cause of action is it a contract, a debt, or an open account: Kaldis v. Crest Finance March 12, WL ; In this recent Harris County case, the debtor signed a business line of credit agreement; the debtor received funds on the line of credit using access checks or a debit card; the agreement provided for minimum monthly payments, with a late fee; the usual clauses for acceleration and termination were included; Debtor made timely payments until August 8, 2008; creditor continued to send monthly statements which included late fees, available line of credit which was reduced by the late fees, and outstanding balance, and new monthly payment due; There was no available credit reflected on the October 13, 2008 statement; the November statement notified the debtor that funds access was terminated; the January statement notified the debtor that the account was closed; the March 24, 2009 statement showed that the account had been charged off; The debt was assigned, and to an assignee who sued debtor on December 12, 2012, Debtor, claiming the cause of action was for a debt, asserted limitations from the date of the first payment missed, September, 2008; assignee claimed the cause of action Debt Claim Cases Page 8

9 was for open account which accrued 4 years after the day that the dealings in which the parties were interested ceased. Debtor had the burden of proof on the limitations issue. Courts have held that the elements of an open account are: (1) transactions between parties, (2) creating a creditor-debtor relationship through general course of dealing, (3) with the account still being open, and (4) with the expectation of further dealing; Courts should uphold the petition as to a cause of action that may be reasonably inferred from what is specifically stated, even if an element of the cause of action is not specifically alleged; The fact that the parties' dealings were governed by an express contract, the Business Line of Credit Agreement, does not convert this into an action for debt and the courts will construe the petition liberally, and review the course of dealings between the parties to make a reasonable inference as to the nature of the cause of action; Finding that the debtor had the right to revolve the account, or continue to pay and again borrow, until the credit was terminated, the cause of action was more in the nature of an open account; an open account allows for parties with frequent dealings to credit and debit the account without settling it. Even after default, the obligation to pay remains. The court explained a charge off: when a business represents to the IRS that a debt is uncollectible and it will be shown as an expense against revenues to reduce overall income; it is an accounting mechanism following which interest does not accrue on the debt; Dodeka, LLC v. Campos, 377 S.W.3d 726 (Tex.App.-San Antonio May 12, 2012) In another recent case, this one out of the San Antonio Court of Appeals, the assignee of a credit card issuer sued the debtor alleging breach of contract based on the debtor s failure to make payments; debtor filed counterclaim under Fair Debt Collections Practices Act alleging that assignee brought action after expiration of 4-year statute of limitations; Debtor made the last payment on the account in an amount as required on December 23, 2005; debtor resumed making payments that were less than the minimum amount required, and made a final payment on September 15, 2006; The assignee purchased the account and did not file suit until March 15, Here, the issue was breach of contract vs. open account. The only cause of action plead by assignee was breach of contract; on appeal assignee urged the court to treat the cause of action as a suit on open account because, while not plead, the debtor impliedly consented to the case being tried as open account; It is undisputed that Campos made her last payment in the required minimum amount on December 23, However, she continued to make periodic payments until September 15, 2006, which was the date of her final payment. The suit was for breach of contract, and the court concluded that, at the earliest, the date of the last payment (September 15, 2006) determined the accrual date for purposes of the statute of Debt Claim Cases Page 9

10 limitations. Because this action commenced on March 15, 2010, Dodeka brought suit within the four-year statute of limitations. The credit card agreement between Chase and Campos states: We may consider you to be in default if any of [certain actions] occurs... If we consider your account to be in default, we may close your account without notice and require you to pay your unpaid balance immediately. We may also require you to pay interest at the rate of two percent (2%) a month on the unpaid balance when we deem your account to be six or more billing cycles past due. (Emphasis added.) Chase did not exercise its right to consider Campos in default when she failed to make her next minimum payment on January 22, Instead, the account remained open for her continued use and she continued to make payments until September 15, Dodeka, LLC v. Campos, 377 S.W.3d 726 (Tex.App.-San Antonio May 12, 2012) Venue: Venue in a debt claim case is in the county and precinct in which the defendant resides, or in a suit on a written contract that promises performance at a particular place, in the county and precinct in which the contract was to be performed; Rule However, under CV , a suit by a creditor on a contract for goods, services, or loans intended primarily for personal, family, or household use may be brought only in the county and precinct in which the contract was signed or in which the defendant resides. (This venue provision may not be waived in a contract for goods, services, or loans intended primarily for personal, family, or household use); If a suit is brought in a county or precinct in which the defendant does not reside, the pleading must affirmatively show that the suit comes within an exception provided by statute (CV Chapter 15, Subchapter E. Transfer: A defendant may move to transfer the case for improper venue no later than 21 days after the answer is filed. A motion to transfer must contain a sworn statement naming the county and precinct of proper venue; The Court must hear the Motion, during which a witness may testify by telephone. If the motion is granted, the written order must state the reasons for the transfer, and the court to which the case will be transferred; The court will send the papers of the case, together with a bill of costs; if the case is transferred out of county, the transferee court must notify the plaintiff who has 14 days to pay the filing fees; If the case transferred within the county, or the motion is denied, the case may not be set for trial until at least 14 days after the ruling on the motion to transfer; A party may challenge the court s ability to provide a fair trial by the judge, or to get a fair trial within the precinct; The case may be transferred to any other justice of the peace with the written consent of all parties; Rule Debt Claim Cases Page 10

11 Trial Setting: After a defendant answers, the court will set the case for trial and provide the parties with at least 45 days notice; an earlier trial date may be set in the interest of justice; Rule Request for jury trial. A jury trial must be demanded in writing and the jury fee of $22 paid no later than 14 days before the trial setting. (A party who is unable to pay the jury fee may file a sworn statement at the time a jury trial is requested.) Rule An untimely jury demand waives the right to a jury trial, unless excused by the judge for good cause. A jury request by one party operates as to all parties. Rule Pretrial Conference: Pretrial conferences can be scheduled at the request of a party, or on the court s own directive; Pretrial issues include discovery, amendment or clarification of pleadings, admission of facts and documents to streamline the trial process; identification of undisputed facts; and of course, the possibility of mediation or settlement; Rule Discovery: As in any other case filed in Justice Court, a request for discovery, if needed, must be presented to the judge for approval by written motion; The motion must be served on the responding party; No discovery request may be served on the responding party unless the judge issues a signed order allowing the discovery; Rule Discovery imbedded in the petition, or served with the petition, is no longer acceptable in justice court, and in particular, the debt claim case. If you still have plaintiffs who serve discovery with their petition, you may choose to ignore the discovery and any response as made in disregard of the discovery rule. Summary disposition. The summary disposition procedure is particularly suitable for debt claim cases to dispose of all or part of a claim without a trial. While Rule 508.3, section (d) provides that if the defendant files an answer the judge must set the case for trial, I don t think that the way that rule is worded, precludes the court from considering a motion for summary disposition. A properly filed motion for summary disposition will set out all facts necessary to support the plaintiff s claim, and have attached to the motion, copies of all documents supporting the claim. The defendant may, but is not required to file a sworn written response to the motion; Before taking action on the motion, a motion for summary disposition must be on file for at least 14 days; The judge must hold a hearing on the motion unless the parties have agreed to allow the judge to decide the motion and any response without a hearing; The judge decides the motion based on the completeness of the motion, all necessary facts and documents, and the response, if any; After considering the motion, the judge: May enter a judgment as to the entire case; Debt Claim Cases Page 11

12 If the court finds that it cannot dispose of the entire case, the court may enter an order that specifies the facts that have been established and are no longer in dispute, and then direct the issues that will be heard at trial. Judge may develop the case. The judge may also develop the case in a debt claim case. Rule Default Judgment Rule 508 has built in certain procedural and evidentiary protections that require a plaintiff in a debt claim case to prove certain elements before a default judgment is rendered. Remember, under Rule 503.1, a judge may render default judgment without a hearing if the claim is based on a written instrument signed by the defendant, generally attached to the petition and served on the defendant, together with sworn statement by the plaintiff stating: that this is a true and accurate copy of the written instrument, that the money claimed is owed, and that all payments, offsets, or credits due have been accounted for. However, Rule specifically governs debt claim cases, and while similar, Rule is different and will control default judgments in debt claim cases. Rule Default Judgment in a Debt Claim Case. If the defendant fails to appear or answer by the answer date in a debt claim case, the judge is required promptly to render a default judgment if the plaintiff provides the required proof of the amount of damages. Reminder: Despite the requirement that default judgment be rendered promptly, the court may consider waiting until the 10 th day to allow for defendant s answer by mail. So, how does the plaintiff prove damages to support a default judgment in a debt claim case? The Texas Rules of Evidence do not apply to a debt claim case. Rule is in effect a rule of evidence for debt claim cases. It prescribes what is sufficient evidence in a default judgment situation. According to Rule 508.3, evidence of plaintiff s damages must (i) be attached to the petition and served on the defendant, or (ii) be submitted to the court after defendant s failure to answer by the answer date. Evidence of damages may be offered (i) in a sworn statement, or (ii) by live testimony. Remember: An unsworn declaration may be used in lieu of a written sworn declaration, verification, certification, oath, or affidavit required by statute or required by a rule, order, or requirement adopted as provided by law. The unsworn declaration must be in writing and subscribed under penalty of perjury; My name is, my date of birth is, and my address is Debt Claim Cases Page 12

13 . I declare under penalty of perjury that the foregoing is true and correct. Executed in County, State of, on. CV Evidence of damages must show: That the account or loan was issued to the defendant; That the defendant is obligated to pay the account or loan; That the account was closed or defendant breached the terms of the account or loan; That all payments, credits, and offsets have been applied to the account or loan; That a specified amount was due and owing on the account or loan on a date certain; So, these required elements of damages may be submitted to the court (i) by a sworn statement made a part of the petition, or (ii) a sworn statement, or at a hearing by a live witness. If the evidence includes documents, that documentary evidence may be considered if it is attached to a sworn statement made by: The plaintiff, or a representative of the plaintiff; A prior holder of the debt, or a representative of the prior holder of the debt; (An assignor, prior assignee, debt collector or collection agency) The original creditor, or a representative of the original creditor, (A financial institution, or a person primarily engaged in business of lending money at interest) and the statement includes the following: the documents were kept in the regular course of business; it was the regular course of business for an employee or representative with knowledge of the act recorded to make the record or to transmit information to be included in the record; the document was created at or near the time or reasonably soon thereafter; and the document attached is the original or an exact duplicate of the original; Hearing or not. If the plaintiff submits written evidence of damages, assuming that the judge finds the evidence sufficient, the judge may enter a default judgment without a hearing and should do so to avoid undue expense and delay. If court finds evidence insufficient, assumes that the court will notify plaintiff of denial of entry of default judgment; Otherwise, the plaintiff may request a default judgment hearing at which the plaintiff must appear to prove damages; the plaintiff s appearance may be in person, or by telephone or other electronic means; Under a portion of Rule 503.l, with permission of the court, a party may appear at a hearing by means of telephone or other electronic communication system. There does not appear to be the same requirement for the judge s permission in Rule 508.3; Debt Claim Cases Page 13

14 In reviewing a sworn statement, the judge may find that the sworn statement as to damages lacks trustworthiness because: (i) the source of the information provided to support damages lacks trustworthiness, or (ii) the method or circumstances of preparation of the sworn statement indicates a lack of trustworthiness. The judge may not, however, reject a sworn statement if the only reason for the rejection is that it is not made by the original creditor. The judge may not reject a sworn statement if the only reason for the rejection is because the documents made the basis of the sworn statement were created by a third party and subsequently incorporated into and relied upon by the plaintiff in its business. If the judge rejects evidence by sworn statement, in particular, the judge should immediately notify the plaintiff so that the plaintiff can schedule a hearing to prove up damages. While the Rules of Evidence don t apply, you should be aware that effective September 1, 2014, the Supreme Court adopted amendments to Rule of Evidence 902, allowing for selfauthentication of certain evidence meaning that no extrinsic evidence of authenticity (evidence other than the affidavit) is required in order to admit the documents of a regularly conducted business activity. The form promulgated by the Supreme Court states: 1. I am the custodian of records of [or] I am an employee or owner of and am familiar with the manner in which its records are created and maintained by virtue of my duties and responsibilities. 2. Attached are pages of records. These are the original records or the exact duplicates of original records. 3. Based on the regular practices of, the records were: a. made at or near the time of each act, event, condition, opinion, or diagnosis set forth in the records; b. made by, or from information transmitted by, persons with knowledge of the matters set forth; and c. kept in the course of regularly conducted business activity. 4. It was the regular practice of the business activity to make the records. And, CV offers a similar form of affidavit to prove the cost and necessity of services: Each of these affidavits meets the requisites of Rule 508.3, as to documents used to support evidence of damages. Debt Claim Cases Page 14

15 What does the evidence look like: If proof of damages is attached to the petition, there should be a verification that attests to the information, or if not attached to the petition, there should be a sworn statement filed after the defendant fails timely to file an answer, attesting to the information provided, or specific information can be presented at a hearing requested by plaintiff after the defendant fails timely to file an answer: The information provided should include: That the account or loan was issued to the defendant; That the defendant is obligated to pay the account or loan; That the account was closed or defendant breached the terms of the account or loan; That all payments, credits, and offsets have been applied to the account or loan; That a specified amount was due and owing on the account or loan on a date certain; In expanded form, testimony regarding an account or loan might show: That plaintiff is the owner and holder of the account or loan, or how plaintiff acquired rights in the account or loan, and a copy of the assignment, bill of sale, or other transfer of the account or loan; That the account or loan was issued to the defendant, including a reference to the contract language identifying the defendant; That the defendant is obligated to pay the account or loan, including a reference to the contract language delineating the obligation to pay; That the defendant accepted the benefit of the account or loan, i.e. plaintiff or original creditor extended credit or made a loan to defendant; That the defendant breached the contract, by failing to pay as required; That the account was closed or charged off, or the loan was accelerated, in response to the default by defendant; That a certain balance was due at time of default or last payment, or charge off, and that defendant continues to fail and refuse to pay the balance; The interest accrued on the debt, with a reference to the contract provisions authorizing the charging of interest and the rate of interest, and the dates and rates of accrual of interest, if appropriate; That all payments, credits, and offsets were allowed to the defendant; and as to the documents attached, That the contract and other evidence of amount due are true and correct copies of the original of the documents; That the documents were kept in the regular course of the plaintiff s business, and it was in the regular course of that business for an employee or representative with knowledge of the transaction to make the record or to transmit the information to be included; that the record was created at or near the time or reasonably soon thereafter. and as to attorney s fees, Debt Claim Cases Page 15

16 That demand for payment of the amount owing was made more than 30 days prior to filing suit; That payment for the amount due has not been tendered by the defendant; Plaintiff s attorney may also submit an affidavit supporting an award of attorney fees to which the plaintiff may be entitled. To recover attorney's fees for a breach of contract claim under Section of the Texas Civil Practice and Remedies Code, (1) the claimant must be represented by an attorney; (2) the claimant must present the claim to the opposing party or to a duly authorized agent of the opposing party; and (3) payment for the just amount owed must not have been tendered before the expiration of the 30th day after the claim is presented. The rule in Texas is presentment of the claim must be made at least 30 days before trial, even if made after the suit is filed. Considerations for the trustworthiness of a sworn statement: the following are some the recent cases construing credit card debt; some are not reported but the legal principles are relevant. 1. County Real Estate Venture v. Farmers and Merchants Bank of Long Beach (Tex.App.- Houston [1 st Dist.] WL ) Creditor Bank sued defendant to recover credit card debt based on breach of contract. Bank was required to prove: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach by the defendant; and (4) damages sustained as a result of that breach; With respect to the amount owed on the account, the Bank s affiant stated: After allowing all offsets, credits and payments, there is due and owing Bank on the contract $63, Summarizing prior holdings, the court showed examples of insufficient proof: (i) a cardholder agreement with no evidence of calculations used to reach the claimed unpaid balance; (ii) a creditor failed to direct attention to any document in the record supporting the entire claimed amounts; (iii) a creditor did not establish contract damages because it did not show how it reached the claimed damages amount nor offer monthly statement showing charges, payments, or interest calculations; (iv) a lender s failure to include any document establishing the agreed terms of a bank loan, was insufficient to establish the loan; The court gave an example of sufficient proof: Debt Claim Cases Page 16

17 That the evidence included a credit card agreement, methodology used by credit card company, detailed explanation of cost of credit, and billing statements that included past due amounts owed; and statement by the credit card company that the company sent monthly statements to borrower, each statement set out debts and credits, and reflected amounts due; and affiant attested to a specific amount of damages after payments and offsets; Here, although the bank attached an account page that contained a current balance owed and charged-off amount, it was devoid of a listing of the charges, or any payments or offsets. Although the Bank s affiant avers that an attachment to the affidavit included the contract at issue and that the Bank performed all conditions of the contract and all conditions precedent to recovery on the contract, the attachments do not contain any statement of account showing past-due charges, or any calculation for the Bank's claimed outstanding balance including offsets and credits. The attachment also shows one page of a credit card application, but does not contain the credit agreement or other document establishing the agreed terms. And the bank failed adequately to establish liability and damages; 2. Davis v. American Express Bank, FSB 2014 WL (Tex.App.-Austin ); Davis failed to make payments on his AMEX card between December 2007 and February 2008 on an outstanding debt of over $58,000, and then made no payments after March 2008; When the card was cancelled, he owed $64, AMEX sued for the credit card balance, claiming breach of contract, account stated, quantum meruit, open account, and promissory estoppel; AMEX submitted the affidavit of its records custodian, to support its breach of contract claim; Davis claimed the affidavit was inadmissible hearsay. Although hearsay is generally inadmissible as evidence, records kept in the regular course of business are exceptions to the hearsay rule. Davis claimed the copies of the records violated the best evidence rule. But, a duplicate record is admissible to the same extent as an original unless the authenticity of the original is questioned or it would be unfair to admit the duplicate rather than the original. TRE American Express produced a copy of the standard cardholder agreement reflecting its terms and billing statements showing Davis's acceptance of the terms through his use of the credit card. Evidence of the credit card agreement, although not the original agreement, that reflected the terms and cardholder s acceptance of those terms by continued use of the credit card, was sufficient evidence; Debt Claim Cases Page 17

18 The appellate court found the evidence sufficient to establish the debt and support the judgment; 3. Ortega v. CACH, LLC, 396 S.W. 3d 622 (Tex.App.-Houston [14 th Dist.] 2013). In this case a collections company, as assignee, sued Ortega for breach of contract for failing to repay a debt under a consumer credit agreement originally made by MBNA, which later became Bank of America. CACH purchased the account with an outstanding balance of $13,741.73; CACH submitted a business record affidavit signed by West, as custodian of records for CACH, made with personal knowledge based on review of the documents provided by Bank of America, that balance owed was $13,741.73, and demand for payment was made more than 30 days prior to filing suit, and no payments were made; Attached to the affidavit were: Affidavits of claim and certificate of debt from Bank of America; Another affidavit, the Plummer affidavit, which stated that the agreement and account was sold and transferred to CACH on 8/18/2009; Monthly statements for November, 2008, September, 2008, and July, 2009; Statement of provisions of card member agreements; Ortega argued that the Plummer affidavit supporting the assignment was conclusory. However, a person may testify to a sale and assignment without providing any documentary evidence. Plummer could testify on personal knowledge that the account was transferred to CACH without providing any supporting documentation. (as opposed to, for example, CACH is the owner and holder of the account conclusion, unsupported by facts such as when the account was purchased;) The West Affidavit, stating that demand for payment was made more than 30 days prior to filing suit, was offered as a business record of CACH, but it is clear from the face of the document that it was prepared for the purpose of litigation. Lack of trustworthiness is most frequently found when the record was prepared in anticipation of litigation-the purpose for its creation lies outside the business s usual operations; The affidavit has the heading of a pleading and refers to CACH and Ortega as Plaintiff and Defendant, respectively. The fact that West created the affidavit only after CACH's initial collection efforts were unsuccessful shows that it was neither created nor relied upon in the course of CACH's regular debt-collection activities. Therefore, this document, which was made in anticipation of litigation, was not admissible under the business-records exception. In the business-record affidavit, to which the Plummer Affidavit is attached, West testifies that the documents from MBNA are maintained by individuals who have a business duty to make entries in the records accurately at or near the time of the event that they record. But the Plummer Affidavit is dated September 9, 2010, and asserts that Bank of America sold Ortega's account to CACH on August 18, A record of a sale made more than a year after a sale takes place is clearly not at or near the time of the event that it purports to record. The fact that the affidavit is dated about two and a half Debt Claim Cases Page 18

19 months before CACH filed suit and over a year after the alleged date of sale suggests that it was created in anticipation of litigation rather than in the course of a regular business activity, which casts doubt on its trustworthiness. 4. Ainsworth v. CACH LLC (Tex.App.-Houston [14 th Dist.] WL CACH sued Ainsworth to recover a credit card debt. CACH had acquired the debt from Chase Bank. Ainsworth asserted every defense, including statute of limitations. CACH submitted a business-records affidavit signed by CACH employee Hwang on November 9, 2010, with several attachments incorporated. In this affidavit, Hwang states: I am the custodian of the records of Plaintiff and am familiar with the Plaintiff's business processes. Business records are kept and maintained in the ordinary course of Plaintiff's business. The Records are made and maintained by individuals who have a business duty to make entries in the Records accurately at or near the time of the event that they record, or reasonably soon thereafter, by or from information transmitted by someone with personal knowledge of the event or act. In addition, it is Plaintiff's regular business practice to obtain, integrate, and rely upon documents prepared by the original creditor of the account at issue. Plaintiff relies upon the accuracy of such documentation in its day to day business activities and such documents are considered Records of the Plaintiff. The records consist of both hard copy information and electronic information that is generated, stored and maintained by the original creditor in accordance with accepted standards in the industry by individuals that possess the knowledge and training necessary to ensure the accuracy and reliability of the records. I know from my experience in reviewing such records that those records are made and maintained by individuals who have a business duty to make entries in the records accurately at or near the time of the event that they record. Plaintiff relies upon the accuracy and reliability of said records in its day to day business. Attached to the affidavit: Bill of sale from Chase to CACH, showing the account number, debtor, SSN, DOB, original creditor, and charge off date; Another affidavit by Hwang, dated August 6, 2009, is attached to the business-records affidavit. In this affidavit, Hwang states: She is custodian of the records of CACH, LLC., has personal knowledge based upon the review of the documentation provided by the original creditor; that, after all just and lawful offsets, payments, and credits have been allowed, the total balance on the account of $4, is just and true and is due and owing; The total amount of $4, is based on the amount due at the time of placement of the account with plaintiff and post placement interest of $0; The records attached hereto are the original or exact duplicates of the original. Debt Claim Cases Page 19

20 Demand for payment of the just amount owing Plaintiff by Defendant was made upon the Defendant more than thirty (30) days prior to filing of plaintiff's original petition, and payment for the just amount owing has not been tendered. Ainsworth challenged the admission of the business-records affidavit and supporting documentation on numerous grounds, including hearsay and that the supporting documents were unreliable and not trustworthy. An exception to the hearsay rule exists for business records if the offering party shows (1) the records were made and kept in the regular course of business; (2) the business kept the records as part of its regular practice; (3) the records were made at or near the time of the event they contain; and (4) the person making the records or submitting the information had personal knowledge of the events being recorded. Finally, third-party documents can become the business records of an organization and, consequently, admissible if the records are (1) incorporated and kept in the course of the testifying witness's business; (2) the business typically relies upon the accuracy of the contents of the documents; and (3) the circumstances otherwise indicate the trustworthiness of the documents. The business-records affidavit, described above, meets these criteria. Hwang stated that she is the custodian of records for CACH and that it is CACH's regular business practice to obtain, integrate and rely upon documents prepared by the original creditor of the account at issue. She further averred that CACH relies on the accuracy of the documents in its day-to-day business activities and that the records are made and maintained by individuals who have a duty to keep the record accurately at or near the time of the event that they record. Finally, one of the documents attached to the business-records affidavit is the affidavit of sale, which is notarized. Such a notarized document is self-authenticating under the Texas Rules of Evidence. See Tex.R. Evid. 902(8). In this document, an authorized agent of Chase Bank, N.A., stated that Chase had acquired Ainsworth's account from Washington Mutual Bank, sold it to CACH in December 2008, and that the amount due on the account at the time of the sale was $4, Chase's failure to keep accurate records could result in criminal or civil penalties. See Tex. Fin.Code Ann (a)(8) (prohibiting misrepresentations of amount of consumer debt); id (providing for criminal penalties for violations of chapter 392 of Texas Finance Code); see also Fair Debt Collection Practices Act, 15 U.S.C.A. 1692e(2)(a) (prohibiting misrepresentation of amount of debt); id. And 1692 l (providing for administrative enforcement of Administrative Debt Collection Practices Act). These circumstances otherwise indicate the trustworthiness of the Chase Bank documents. Debt Claim Cases Page 20