Dana Karni and Rafiq Dhanani 2012-12-26 02:08:22
In 2012, the U.S. Supreme Court settled a split among the circuits in Mims v. Arrow Fin. Serv., L.L.C., 132 S.Ct. 740 by holding that claims under the Telephone Consumer Protection Act can be brought in federal courts as well as state courts. Arrow Financial Services argued the TCPA was meant to limit actions to state courts, but the Supreme Court held that Congress’ permissive grant of jurisdiction to state courts in no way limited federal courts from hearing private suits arising under the TCPA. In another consumer-related decision, CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), the Supreme Court reviewed a class action arising under the Credit Repair Organizations Act against a credit card provider. At issue was whether the credit card company could compel arbitration as laid out in its credit agreement. The consumers argued that language of the CROA specifically negated the Federal Arbitration Act that requires courts to enforce agreements to arbitrate unless there is an overriding command from Congress. The Supreme Court was unconvinced, reasoning that the CROA’s right-to-sue language and non-waiver provisions were not specifically meant to override the FAA. Like many other federal laws, the FAA applied to valid arbitration agreements covering claims brought under the CROA. In a consumer right’s-related bankruptcy case, Smith v. HD Smith Wholesale Drug Co. (In re McCombs), 659 F.3d 503 (5th Cir. 2011), the 5th Circuit respected Texas homestead law on exemptions. A judgment creditor was found to have an unenforceable lien against proceeds of the sale of a debtor’s home because under Texas law, a lien against a homestead is unenforceable. The court held that the fact that the Bankruptcy Act exempted only $125,000 of a homestead was irrelevant because enforceability of the lien was to be decided under Texas law, regardless of amount. Addressing debt collection, the 5th Circuit held in McMurray v. ProCollect Inc., No. 11-10291, 2012 U.S. App. LEXIS 14866 (5th Cir. July 16, 2012) that a debt collector did not violate the Fair Debt Collection Practices Act by sending a strongly worded letter to a debtor. At issue was whether the letter’s language overshadowed or was inconsistent with the FDCPA’s notice requirements. The court reasoned that the letter was understandable to an unsophisticated consumer and did not contradict notice requirements because it did not demand payment within the 30-day statutory period. The court found that the letter was not a threat, but instead was meant to encourage debtors to pay by providing information on the consequences of inaction. In Philadelphia Indem. v. SSR Hospitality, 459 Fed. App. 308 (2012), the 5th Circuit faced the question of whether the affirmative defense of unconscionability in a contract claim was to be considered under the Deceptive Trade Practices Act or the common law. The court chose common law over the DTPA citing the Texas Practice Code of Consumer Rights and Remedies §4.8 (3d ed. 2009), which explained the difference between DTPA and the common law views of unconscionability. The court ultimately found no unconscionable actions in the case. In another Deceptive Trade Practices Act case against an insurance company for using misleading sales tactics, the 5th Circuit held that a deceased husband who purchased the insurance policy was the consumer under the DTPA. Kocurek v. CUNA Mut. Ins. Soc’y, 459 Fed. App’x. 371 (5th Cir. 2012). The wife, who was only a beneficiary, was not to be considered a consumer. The wife later argued that she had a community property interest in the payments on the policy, and was therefore a consumer. However, the court did not address the question because it was deemed untimely. Texas courts also saw some new developments in consumer law. In Retherford v. Castro, ____ S.W.3d ____ (Tex. 2012) the Supreme Court of Texas analyzed the work performed by a home inspector that failed to identify serious problems in a house, resulting in damage. The Deceptive Trade Practices Act provides for an exemption for professional service under §17.49(c) when the essence of the service is advice, judgment, or opinion. The court held that a licensed home inspector is a professional, and because the Texas Occupations Code §1101(9) defines a home inspector’s report as an opinion, the professional exemption of the DTPA applied. In Cruz v. Andrews Restoration Inc., 364 S.W.3d 817 (Tex. 2012), the Supreme Court of Texas held that a consumer is only entitled to relief under DTPA §17.50(b) when the consumer prevails under §17.50(a). At trial, the jury found that the amount of damages suffered by the homeowner was zero. Therefore, the court reasoned that the homeowner was not a prevailing consumer under the DTPA and therefore not entitled to relief. “The statute’s clear language provides a cause of action only to con- sumers who have sustained damages, and the jury awarded Cruz [the homeowner] none.” Id. at 823. Additionally, the court found that the homeowner lacked proof of an element of his claim. The homeowner did not show that he relied on the deceptive acts of his restoration company to his detriment. Absent proof of reliance under DTPA §17.50(a)(1)(B), a consumer loses and is not entitled to relief under §17.50(b). Furthermore, even if the homeowner had won, he would not be entitled to rescission of the contract, as requested, without having to pay back benefits received during the transaction. Restoration under the Deceptive Trade Practices Act §17.50(b)(3) has been applied in a manner similar to the Restatement (Third) of Restitution and Unjust Enrichment §37 cmt a, §54 cmt. a, §54(5) (2011), which unwinds a transaction and restores parties to the status quo before the transaction at issue. Under the DTPA, restoration (like rescission and restitution) does not apply to the consumer alone, but to any party to the suit. It requires mutual restitution. In Bever Properties, L.L.C., v. Jerry Huffman Custom Builder, L.L.C., 355 S.W.3d 878 (Tex. App.—Dallas 2011), the 5th Court of Appeals confirmed that a Deceptive Trade Practices Act claim for unconscionable action under §17.50(a)(3) does not have an element of reliance. The summary judgment granted at trial in this case was improper because it did not address the claim of unconscionable action or course of action. In Capital One Bank v. Conti, 345 S.W.3d 490 (Tex. App.—San Antonio 2011), the 4th Court of Appeals reversed a summary judgment granted in favor of a man being sued for not paying his credit card bills because he did not conclusively prove, as a matter of law, that the statute of limitations period had run. The court reasoned that a credit card dispute is a suit on an open account, and for the cause of action to accrue and begin the limitations period, the movant had to conclusively establish that the parties’ dealings had ended. Merely establishing the last date of payment, without more, was not enough. In Arlington Home Inc. v. Peak Envtl. Consultants Inc., 361 S.W.3d 773 (Tex. App.—Houston [14th Dist.] 2012), the 14th Court of Appeals reviewed a judgment notwithstanding the verdict granted at trial on a DTPA failure to disclose claim. At issue was whether sufficient evidence was presented at trial by the consumer to support the verdict. The court held that under DTPA §17.46(b)(24) there must be direct evidence of intent to induce the consumer into a transaction, and based on the record, the trial court did not err in granting the judgment against the consumer. DANA KARNI is a sole practitioner at Karni Law Firm, P.C., in Houston. Her practice focuses on consumer rights litigation, with special attention to debt collection abuse, both in federal and state court. Karni is also an adjunct professor at the University of Houston Law Center. RAFIQ DHANANI is a partner at the law firm of Dhanani Cleveland & Chapa, P.L.L.C., and practices in the areas of consumer law, commercial and real estate transactions, and small-business litigation.
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