Driver’s Licenses and Perfection of Security Interests in Texas

A recent bankruptcy case in Georgia over an objection to a claim and related security interest is the basis for this month’s blog. Before your eyes glaze over because of the mention of the word bankruptcy, this month’s topic is important in the day-to-day world when a creditor files and records a financing statement and believes it has a perfected security interest.

The bankruptcy court in Georgia was faced with the issue of whether to sustain or reject the Chapter 12 debtor’s objection to the bank’s secured claim because the name used on the financing statement was the signed name of the debtor “Kenneth Pierce” on his driver’s license as opposed to the typed name of the debtor “Kenneth R. Pierce” on his driver’s license.  As a result, the debtor argued that the claim was an unsecured claim as opposed to a secured claim. In re Pierce, 2018 Bankr. LEXIS 287 (S.D. Ga. Feb. 1, 2018).

The court sustained the debtor’s objection based on Georgia’s UCC statute that states that the debtor’s name is sufficient on the financing statement “if the debtor is an individual to whom the state has issued a driver’s license that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’s license.” In re Pierce, 2018 Bankr. LEXIS 287 *10. However, the inquiry must go further because the financing statement substantially satisfies the requirements, even if there are minor omissions and errors, unless the errors or omissions make the financing statement “seriously misleading.” In re Pierce, 2018 Bankr. LEXIS 287, *10, citing, O.C.G.A. Section 11-9-506(a).

Although acknowledging that this was a case of first impression, the Georgia court noted that a seemingly-minor error in other cases has rendered the financing statement seriously misleading in other cases. It gave examples of cases where the secured party listed the debtor as “Net Work Solutions, Inc.” instead of “Network Solutions, Inc.” In re Pierce, 2018 Bankr. LEXIS 287 *11, citing, Receivables Purchasing Co., Inc. v. R & R Directional Drilling, LLC., 263 Ga. App. 649, 651-52, 588 S.E.2d 831 (2003); Bus. Corp. v. Choi, 280 Ga. App. 618, 619, 634 S.E.2d 400 (2006) (“Gu, Sang Woo” instead of “Sang Woo Gu”); see also In re Nay, 563 B.R. 535 (Bankr. S.D. Ind. 2017) (holding that filing under “Ronald Mark May” verus driver’s license name of Ronald Markt Nay was a fatal error”). The court also looked at other jurisdictions and the use of signed names, including nicknames, and came to the same conclusion that the signed name versus the typed name made the financing statement seriously misleading. In re Pierce, 2018 Bankr. LEXIS 287, *13-14. As a result, the bank’s claim was held to be unsecured.

While this was a Georgia case, a Texas courts would probably reach the same result. Texas UCC Section 9.503 (a)(4) has essentially the identical statutory language as its Georgia counterpart. Also, Texas courts, both state and bankruptcy, have taken a strict approach to the names on financing statements to determine if perfection occurred and the financing statements were not seriously misleading. The cases of Continental Credit Corp. v. Wolfe City Nat’l Bank, 823 S.W.2d 687 (Tex. App. – Dallas 1991, no writ) (holding that use of trade name was seriously misleading) and In re Jim Ross Tires, Inc., 379 B.R. 670 (Bankr. S.D. Tx. 2007) (holding that failure to include a letter “s” to include a plural in the debtor’s business name and listing debtor by business name and an expired assumed name were fatal to creditors’ claims) are the best pace to start if this issue arises in Texas. Both cases provide a lengthy discussion and analysis of the issue.

The opinions in this blog are solely the author’s and any comments, replies or suggestions should be sent to john@jrjoneslaw.com. Happy Easter!

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Demands on Time-Barred Debt and the Fair Debt Collection Practices Act

This month’s blog will discuss demand letters on time-barred debt. This raises the issue of whether sending out a demand letter on a time-barred debt automatically constitutes a violation of the Fair Debt Collection Practices Act (“FDCPA”)?  Before discussing that issue, let’s look at what needs to be proved first and the standard by which the potential violations will be measured.

In order to prevail on an FDCPA claim, a person must establish that: (1) he was the object of collection activity arising from consumer debt; (2)  that the Defendant qualifies as a “debt collector” under the FDCPA; and (3) the Defendant engaged in an act or omission prohibited by the FDCPA. Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332 (S.D. Fla. 2017), citing, Dunham v. Lombardo, Davis & Goldman, 830 F.2d 1305, 1306-07 (S.D. Fla. 2011). Violations of the FDCPA are measured under the “least sophisticated consumer” standard. The least sophisticated consumer standard “looks to the tendency of the language to mislead the least sophisticated recipients of a debt collection letter.” Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332 (S.D. Fla. 2017), citing, LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1193-94 (11th Cir. 2010)The least sophisticated consumer is presumed to possess a rudimentary amount of information and a willingness to read a collection notice with some care and has an objective component to prevent liability for bizarre interpretations of collection notices. Id.

Many debt collectors do not accept time-barred debt at all for collection. Time-barred simply means that the time period for a filing a lawsuit has passed or expired. However, there are debt collectors who do try to collect on time-barred debt. If you are one of them, the Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332 (S.D. Fla. 2017) case is an excellent example of the how to shape a demand letter on time-barred debt to avoid a violation of the FDCPA.

In Valle, the demand letter stated that “The law limits how long you can be sued on a debt. Because of the age of your debt, LVNV Funding LLC will not sue you for it, and LVNV Funding LLC will not report it to any credit reporting agency.” Paraphrasing, the demand letter then warned that taking certain actions may “renew” the debt and start the time period for the filing of a lawsuit but that debtor should determine the effects of any actions you take with respect to this debt. Valle v. First Nat’l Collection Bureau, Inc., 252 F.Supp.3d 1332, 1339-40 (S.D. Fla. 2017).

In filing the lawsuit against the debt collector, the debtor’s position was that the debt collector used false, deceptive, or misleading language in connection with debt collection because the debt-collector did not state that the debt was a”absolutely time-barred” and failed to adequately disclose the impact that making a payment would revive the debt. Id. The Debtor cited a number of cases in support of its position. The Florida District Court in Valle disagreed and held that the demand letter must be read in the proper context.

Here, the debt collector informed the Debtor that there are legal limits to how long she could be sued on the debt and that she would not be sued. The court also rejected Debtor’s arguments that the debt collector wrongfully portrayed and misrepresented the effect of settling the debt because the settling for a portion of the debt may have different tax consequences because the debt collector stated that the debtor “should determine the effect of any actions you take with respect to this debt.” Id. As a result, there was no misleading or false representation.

I commend the Valle case to everyone. It is full of other relevant topics such as the benign language exception and provides a good road map on making a demand for time-barred debt where a debt collector clearly states that no lawsuit will be filled and acknowledges the time-barred nature of the debt. The opinions in this blog are solely the author’s and any comments, suggestions or replies can be sent to john@jrjoneslaw.com.

Review of Temporary Injunctions and Temporary Restraining Orders in Texas

Every two years the Texas legislature meets and changes the rules governing practice and procedure in Texas. One of the changes this past session was the repeal of Texas Government Code Section 22.225(b), which prohibited a party from filing a petition for review in the Supreme Court of Texas after of an appeal of an order denying or granting a temporary injunction or overruling a motion to dissolve a temporary injunction. As a result, parties can now file a petition for review after a court of appeals decision on a temporary injunction order. So while discussing that change, it is important to go over the basics of reviewing temporary injunctions and a temporary restraining order.

Temporary restraining orders (“TROs”) cannot be appealed because they expire by the express terms of Texas Rule of Civil Procedure 680. TROs are good for fourteen days and can be extended only once for an additional fourteen days upon a showing of good cause (unless the parties agree to a longer extension).  There is, however, at least one reported case stating, that if an issue is of such an extreme and serious nature, that mandamus relief may be available. However, in that case, the Texas Attorney General obtained mandamus relief because the TRO would have let federal funding stop if the State of Texas was required to comply with the TRO. In re Office of the Atty. Gen., 257 S.W.3d 695, 698 (Tex. 2008). It is doubtful that there are many serious issues that will arise for mandamus to be available in an ordinary lawsuit.

On the other hand, temporary injunctions (or orders related to denial of or granting a motion to dissolve a temporary injunction) are an appealable interlocutory order. See Tex. Civ. Prac. & Rem. Code 51.014(a)(4). This would also include any orders that modify the temporary injunction if it covers the same subject matter. Appellate review of a temporary injunction is based on whether the trial court clearly abused its discretion standard. Henry v. Cox, 520 S.W.3d 28, 33-34 (Tex. 2017). A discussion of an abuse of discretion standard of review is beyond the scope of this blog. However, there is a great general resource published in 42 St. Mary’s Law Journal 3 (2010) by W. Wendell Hall entitled “Standards of Review in Texas” that will help get you started.

The opinions in this blog are solely the author’s and any comments, suggestions, or replies can be sent to john@jrjoneslaw.com.

 

Apex Depositions and the Crown Central Guidelines in Texas

The Supreme Court of Texas first adopted the apex deposition guidelines in Crown Central Petroleum Corp. v. Garcia, 904 S.W.2d 125 (Tex. 1995). Apex deposition guidelines apply when a party seeks to depose a corporate president or other high level corporate official. Id. at 128.  The apex doctrine prevents the needless deposition of high level officials who are noticed solely because of the official’s position within the organization and is equally applicable to government organizations. In re Titus Cty, 412 S.W.3d 28, 35 (Tex. App.-Texarkana 2013, orig. proceeding) (quoting Simon v. Bridewell, 950 S.W.2d 439, 442 (Tex. App. – Waco 1997, no pet.) (per curiam)). Once a party  receives a deposition notice for a high ranking official, what should the party do?

To prevent an apex deposition, a party needs to initiate the Crown Central guideline proceedings by filing a motion and moving for protection and filing the corporate official’s affidavit denying any knowledge of relevant facts. The trial court must then evaluate the motion by deciding if the party seeking the deposition has “arguably shown the official has any unique or superior personal knowledge of discoverable information.” If the party seeking the deposition cannot show that the official has any unique or superior personal knowledge, the trial court should not allow the deposition to go forward without a showing, after a good faith effort to obtain the discovery through less intrusive means, that (1) there is a reasonable indication that the official’s deposition is calculated to lead to the discovery of admissible evidence, and (2) that the less intrusive methods of discovery are unsatisfactory, insufficient, or inadequate. Crown Central Petroleum Corp. v. Garcia, 904 S.W.2d 125, 128 (Tex. 1995).

A mere showing that the official has knowledge of discoverable information is not sufficient. The Crown Central guidelines require that the official have unique or superior personal knowledge of discoverable information. Otherwise, the apex guidelines would be meaningless if simple knowledge was all that had to be shown. In re Alcatel USA, Inc., 11 S.W.3d 173, 177 (Tex. 2000), citing, AMR Corp. v. Enlow, 926 S.W.2d 640 (Tex. App.-Fort Worth 1996, no writ) (applying apex guidelines and denying plaintiff’s request to depose Robert Crandall, American Airlines, Inc. CEO).

The apex guidelines do have some limits. If an official is named as a defendant based on some dispute that is unrelated to his status as a high-level official, then a plaintiff may have the right to depose the official as any other party. In re Titus Cty, 412 S.W.3d 28, 35 (Tex. App.-Texarkana 2013, orig. proceeding) (holding the doctrine only applies when the deponent has been noticed solely because of his corporate position).

Happy New Year’s to all our loyal readers. Your support and comments have been tremendously encouraging to us as we have now completed our fifth year as a blog. The opinions of this blog are solely the author’s and your comments, suggestions and replies should be sent to john@jrjoneslaw.com.

 

The Mailbox Rule in Texas under Rule 5

Attorneys and law firms face numerous deadlines. Sometime filings are delayed and done at the last minute due to circumstances beyond our control. As a result, courts have created the mailbox rule. The mailbox rule is set out in Texas Rule of Civil Procedure 5 entitled “Enlargement of Time.” Rule 5  defines when a filing is deemed filed in time.

The mailbox rule provides that if a document is sent to the proper clerk by first class United States mail in an envelope or wrapper properly addressed and stamped and is deposited in the mail on or before the last day of filing and received by the clerk not more than ten days tardily (i.e. 10 days past the deadline), it shall be filed by the clerk of the court and be deemed received in time. In applying the mailbox rule, courts have effectively treated the United States Postal Service as a branch of the court clerk’s office for the purposes of filing pleadings only when the provisions of Rule 5 are met. Pediatrix Med. Servs. v. De La Q, 368 S.W.3d 34, 38-39 (Tex. App. – El Paso 2012, no pet.). More importantly, Rule 5 only applies to deadlines in the Texas Rules of Civil Procedure. Morris v. Aguilar, 369 S.W.3d 168, 171 (Tex. 2012).

Depositing the filing with United States Postal Service is not enough to have the filing deemed filed in time. The filing is only “conditionally effective” because the mailing still has to arrive to the proper clerk’s address within 10 days to perfect the filing. Stokes v. Aberdeen Ins., 917 S.W.2d 267, 268 (Tex. 1996). However, what do you do when there is a challenge to a timely filing and the use of the mailbox rule?

Rule 5 states that a legible postmark affixed by the United States Postal Service “shall be” prima facie evidence of the date of mailing if there is a challenge to a filing that is relying on the mailbox rule to be deemed filed in time. Lofton v. Allstate Ins., 895 S.W.2d 693, 693-694 (Tex. 1995). Texas courts have also allowed the use of an attorney’s uncontroverted affidavit as evidence of the date of mailing when the postmark is not available.  Lofton v. Allstate Ins., 895 S.W.2d 693, 693-694 (Tex. 1995); see also Landers v. State Farm Lloyds, 257 S.W.3d 740, 745 (Tex. App. – Houston [1st Dist.] 2008, no pet.).

Efiling and eservice in Texas courts may ultimately cause changes to the mailbox rule. However, it is still an important procedural rule because many courts in Texas have not converted to efiling especially at the justice court level. Mailing a pleading and keeping copies of the mailing with a legible postmark may provide the proof needed to overcome a challenge to whether the document was filed in a timely manner. The opinions in this blog are solely the author’s and any comments, suggestions and replies can be sent to john@jrjoneslaw.com.

 

The Sham Affidavit Doctrine in Texas

Much has been written about the sham affidavit doctrine in Texas and other jurisdictions. Texas courts are divided on the applicability of the sham affidavit doctrine. Compare Del Mar College Dist. v. Vela, 218 S.W.3d 856 (Tex. App. – Corpus Christi 2007,  no pet.), with  Fred Loya Ins. Agency v. Cohen, 446 S.W.3d 913 (Tex. App. – El Paso 2014, no pet.). The sham affidavit doctrine arises when a person is deposed and after the deposition, a party files a motion for summary judgment using the deponent’s testimony as support for a position in the motion for summary judgment. In response to the motion for summary judgment, the nonmoving party attaches an affidavit from the deponent that directly contradicts his deposition testimony in order to raise a genuine issue of fact to prevent the motion for summary judgment from being granted. See Gaines v. Hamman, 163 Tex. 618 (Tex. 1962); Randall v. Dallas Power & Light Co, 754 S.W.2d 4 (Tex. 1988) (conflicting inferences can be drawn from deposition and affidavit and a fact issue is presented and summary judgment should be denied); see generally, Notes: Reconsidering the Sham Affidavit Doctrine, 50 Duke Law Journal 261 (2000).

Since Randall, many of the Texas courts have now held that such an affidavit merely creates a sham issue and cannot be used to avoid summary judgment. See Pando v. Southwest Convenience Stores, LLC, 242 S.W.3d 76, 79 (Tex. App. – Eastland 2007, no pet.); Fred Loya Ins. Agency v. Cohen, 446 S.W.3d 913 (Tex. App. – El Paso 2014, no pet.). Both the courts in Pando and Fred Loya, set out various elements to consider when asking the court to apply the sham affidavit doctrine to a summary judgment response that includes an affidavit that contradicts the prior deposition testimony.

To argue an affidavit is a sham affidavit, a party must show the following: 1). the affidavit was executed after the deposition; 2). there is a clear contradiction; 3). on a material point; 4). without explanation. Pando v. Southwest Convenience Stores, LLC, 242 S.W.3d 76, 79 (Tex. App. – Eastland 2007, no pet.). If those elements are met, the sham affidavit doctrine can be applied and the contradictory statements in the affidavit may be disregarded. If a party does file an affidavit that contradicts his prior deposition testimony, it is clear that he must explain for the change in the testimony as to why there is a direct contradiction. Without an explanation for the change in the testimony, courts may assume that the sole purpose of the affidavit was to avoid summary judgment and as such, it merely presents a “sham” fact issue. Farroux v. Denny’s Rests., Inc., 962 S.W.2d 108, 111 (Tex. App.-Houston [1st Dist.] 1997, no pet.).

This issue is getting quite a bit of attention from the Texas courts and it will not be long before the Supreme Court of Texas resolves the split between the various courts of appeals. The opinions in this blog are solely the author’s and any replies, suggestions, or comments can be sent to john@jrjoneslaw.com. Happy Halloween!

 

Attorney-Client Privilege and the Allied Litigant Doctrine in Texas

Recently, I was approached by multiple parties to represent them in potential litigation in West Texas. Immediately bells and whistles went off about attorney-client communication issues. So before visiting with the potential clients and possibly other retained counsel for other parties, I decided to review the attorney-client privilege in connection with potential multi-party litigation.

The Texas version of the attorney-client privilege is codified at Texas Rule of Evidence 503. Under Rule 503, confidential communications between client and counsel made to facilitate legal services are generally insulated from disclosure. TRE 503(b). While it is the oldest privilege for confidential communications known under common law, it is not absolute. See In re XL Specialty Ins. Co., 373 S.W.3d 46 (Tex. 2011). What is really noteworthy about the XL Specialty case is the Supreme Court of Texas’ discussion and holding with respect to the requirements for the allied litigant doctrine and the discussion of the joint client privilege, joint defense and common interest doctrines in Texas.

XL Specialty was a case where a Cintras employee was seeking workers’ compensation benefits and was being litigated in a contested case administrative hearing with the Division of Workers’ Compensation. The claim was denied and the employee sued XL Specialty, the workers’ compensation insurer, and the third-party administrator, Cambridge. During the litigation, the employee asked for communications between the insurer, XL Specialty, and Cintras, the employer, associated with the administrative hearing. XL Specialty and Cambridge asserted the attorney-client privilege under TRE 503(b)(1)(C) (i.e. the allied litigant doctrine) and asked the trial court to sustain their objection based on the attorney-client privilege. The objection was based on the allied litigant doctrine that protects communications made between a client, or the client’s lawyer, to another party’s lawyer, not to the other party itself. See In re XL Specialty Ins. Co., 373 S.W.3d 46, 52 (Tex. 2011), citing, Robert Bosch, LLC v. Pylon Mfg. Corp., 263 FR.D. 142, 146 (D. Del. 2009).

Rule 503(b)(1)(C) protects information covered by the attorney-client privilege made “by the client, the client’s representative, the client’s lawyer, or the lawyer’s representative to a lawyer representing another party in a pending action or that lawyer’s representative, if the communications concern a matter of common interest in the pending action.” The trial court denied the objection and held that the attorney-client privilege did not apply. The court of appeals denied mandamus and XL Specialty and Cambridge asked for the Supreme Court to grant relief and to hold that the attorney-client privilege applied.

The Supreme Court denied the requested relief and held that the communications between XL’s lawyer and its insured, Cintas, were not privileged or protected under TRE 503(b)(1)(C)’s allied litigant privilege because the communications were not made to a lawyer or representative representing another party in a pending action as required by the rule. Here, the communication between XL Specialty’s lawyer and a third party/employer, Cintas, who was not represented by XL Specialty’s lawyer, and was not a party to the litigation or other related pending action, was insufficient to and failed to meet the requirement that the communication be made to a lawyer or her representative representing another party in the pending actionSee In re XL Specialty Ins. Co., 373 S.W.3d 46, 53-54 (Tex. 2011).

In Texas, which has a pending action requirement, no common interest privilege extends beyond litigation. The pending action requirement limits the privilege to situations where the benefit and the necessity are at the highest. Under the allied litigant doctrine, communications made between a client, or the client’s lawyer to another party’s lawyer (but not the party itself) are protected. See In re XL Specialty Ins. Co., 373 S.W.3d 46, 52 (Tex. 2011). For the allied litigant doctrine to apply, the following elements should be present: 1). Separately represented parties; 2). a pending action; and 3). a communication involving a common legal interest made by or to a lawyer of one of the parties as communication of privileged information between the parties themselves will waive the privilege.

I recommend anyone who wants to get a snapshot of Texas’ attorney-client privilege doctrine to review TRE 503 and the XL Specialty case. The pending action requirement is much narrower than the “in anticipation of litigation” standard still used in many jurisdictions. The attorney-client privilege in Texas is a creature of statute and inadvertent waiver can occur unless all the statutory elements are met. The opinions expressed in this blog are the solely the author’s. Any comments, suggestions, or replies can be sent to john@jrjoneslaw.com.