Opinion
No. 04-07-00465-CV
Delivered and Filed April 16, 2008.
Appeal from the 111th Judicial District Court, Webb County, Texas, Trial Court No. 2006-CVF-001343-D2, Honorable Raul Vasquez, Judge Presiding.
Sitting CATHERINE STONE, Justice, SANDEE BRYAN MARION, Justice, REBECCA SIMMONS, Justice.
MEMORANDUM OPINION
AFFIRMED IN PART; REVERSED AND RENDERED IN PART
Unifund CCR Partners ("Unifund") appeals the trial court's final judgment and order imposing sanctions against it. We affirm in part and reverse and render in part.
Background
On January 17, 2005, Unifund sent Javier Villa a letter stating it had purchased an account from Bank One NA after the bank charged off Villa's debt in April 2003. On June 20, 2005, Villa and his wife filed a bankruptcy petition, listing Bank One NA as a creditor in relation to the same account. Villa and his wife were granted a discharge by the bankruptcy court on December 9, 2005. On April 3, 2006, Unifund sent Villa a second letter demanding payment in the amount of $18,338.49. Villa's credit report reflected that Unifund received a copy of Villa's credit report in response to an inquiry by Unifund on May 17, 2006. The credit report clearly stated that Villa had been discharged in a Chapter 7 bankruptcy proceeding in December 2005.
On August 14, 2006, Unifund filed a lawsuit against Villa seeking to collect the Bank One debt in the amount of $18,685.09. On August 21, 2006, Villa answered and filed a motion seeking sanctions against Unifund and its attorney pursuant to Texas Civil Practice and Remedies Code Chapter 10. On August 28, 2006, Unifund filed a motion to dismiss the underlying proceeding "for the reason that the case has been settled." Although the trial court entered an order of dismissal, it later held a hearing on Villa's motion for sanctions, following which the court ordered Unifund to pay $18,685.00 for Villa's inconvenience and harassment, and $2,871.00, for reasonable expenses and attorney's fees in presenting the motion for sanctions and defending Unifund's pleading. This appeal by Unifund ensued.
AUTHORITY TO SANCTION
In its first issue, Unifund asserts "Texas state courts do not have jurisdiction to enforce federal bankruptcy court discharge orders." The trial court in this case, however, was not attempting to enforce a bankruptcy court's order. Instead, the trial court imposed sanctions pursuant to the Texas Civil Practice and Remedies Code ("the Code") on the basis that Unifund brought the underlying proceeding for improper purposes. Although Unifund cites several federal court cases as support for its contention that Villa was required to seek relief in the bankruptcy court, the cases cited by Unifund relate to lawsuits in which a debtor has filed a claim against a creditor. See, e.g., Yaghobi v. Robinson, 145 Fed. Appx. 697, 2005 WL 1800632, at *1 (2nd Cir. Aug. 1, 2005) (debtor sued creditor for violation of bankruptcy discharge injunction); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 504 (9th Cir. 2002) (class action claim brought by debtor against creditor for violation of bankruptcy discharge injunction); MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 912 (9th Cir. 1996) (debtor sued creditor in district court for malicious prosecution of creditor's claim in bankruptcy proceeding); Jones v. Wolpoff Abramson, L.L.P., 2006 WL 266102, at *1 (E.D. Pa. Jan. 31, 2006) (debtor sued creditor for violations of debt collection statutes following her bankruptcy discharge); but see Fuqua v. Graber, 158 S.W.3d 635, 646-47 (Tex.App.-Corpus Christi 2005, pet. granted) (holding state court had jurisdiction to consider debtor's lawsuit, accruing five years after bankruptcy discharge, for malicious prosecution arising from creditor's actions in bankruptcy proceeding). In this case, Unifund, the creditor, sued Villa, and Villa sought sanctions as permitted by Chapter 10 of the Code. Unifund has not cited any case that would preclude Villa from seeking sanctions pursuant to Chapter 10 in this context, and we have found none. Accordingly, we overrule Unifund's first issue.
In its fifth issue, Unifund contends the trial court's plenary power had already expired when the sanctions order was issued because the trial court signed the dismissal order on September 6, 2006. However, the dismissal had no effect on Villa's pending motion for sanctions. See Tex. R. Civ. P. 162 ("A dismissal under this rule shall have no effect on any motion for sanctions, attorney's fees or other costs, pending at the time of dismissal, as determined by the court."); see also Fox v. Hinderliter, 222 S.W.3d 154, 157-58 (Tex.App.-San Antonio 2006, no pet.) (holding that, "as a form of sanctions, Fox's original motion to dismiss and request for attorney's fees and costs survived the Hinderliters' nonsuit pursuant to the express language of Rule 162, and remained pending even after the Hinderliters amended their pleadings to re-add Fox.").
SANCTIONS
In its second and third issues, Unifund asserts the trial court erred in imposing sanctions because: (1) Unifund had a legitimate dispute with regard to whether the debt was owed; and (2) there was insufficient evidence that Unifund had actual knowledge of the bankruptcy discharge when it filed the underlying lawsuit. A trial court's award of sanctions is reviewed under an abuse of discretion standard. Loeffler v. Lytle Ind. Sch. Dist., 211 S.W.3d 331, 347 (Tex.App.-San Antonio 2006, pet. denied). The determination of whether sanctions constitute an abuse of discretion requires an examination of the entire record. Id. A trial court abuses its discretion in imposing sanctions if the order is based on an erroneous view of the law or a clearly erroneous assessment of the evidence. Id. at 347-48. As such, an appellate court will view the conflicting evidence in the light most favorable to the trial court's ruling and will draw all reasonable inferences in favor of the trial court's judgment. Id. at 348.
Villa filed a motion for damages asserting we should not consider Unifund's issues because Unifund did not properly brief the applicable abuse of discretion standard of review. However, this court must research and apply the proper standard of review in deciding an appeal regardless of the briefing. Accordingly, Villa's motion for damages is denied.
With regard to whether Unifund had actual knowledge of the bankruptcy discharge, the trial court considered the credit report, which indicated (1) the December 2005 bankruptcy discharge and (2) Unifund had received a copy of the credit report in response to its inquiry on May 17, 2006. Although Unifund's attorney argued that the notation on the credit report was not sufficient to establish Unifund's actual knowledge of the bankruptcy discharge, we view the evidence in the light most favorable to the trial court's ruling and draw all reasonable inferences in favor of the trial court's judgment. See id. Because the trial court's findings are not based on a clearly erroneous assessment of the evidence, we conclude the trial court did not abuse its discretion in determining that Unifund had actual knowledge of the bankruptcy discharge when it filed the underlying lawsuit. See id. at 347-48.
Unifund also contends it had a legitimate dispute about whether the debt had been discharged because Villa listed Bank One NA as the creditor in the bankruptcy petition and not Unifund. The trial court rejected this argument, finding that Unifund had failed to: (1) contact Villa's bankruptcy attorney, whose name was listed on the credit report, to make further inquiry; and (2) consult with a bankruptcy attorney to obtain advice on the effects of the bankruptcy discharge. The case law addressing the effectiveness of the discharge even though Bank One NA was listed as the creditor instead of Unifund was readily obtainable, and Unifund did not assert or attempt to argue that any of the exceptions to a discharge were applicable. See In re Musgraves, 129 B.R. 119, 121 (Bankr. W.D. Tex. 1991) (noting that scheduling or not scheduling a creditor has no impact on whether that creditor's claim is discharged under the Bankruptcy Code and noting various exceptions to discharge). Therefore, the trial court did not abuse its discretion in determining that Unifund's purported dispute about the discharge of the debt was not "formed after reasonable inquiry" or "warranted by existing law or a nonfrivolous argument for the extension, modification or reversal of existing law or the establishment of new law." Tex. Civ. Prac. Rem. Code Ann. § 10.001 (Vernon 2002).
AMOUNT OF SANCTIONS
In its fourth issue, Unifund asserts the amount of the sanction was excessive. Unifund does not challenge the $2,871.00 sanction awarded for the reasonable expenses and attorney's fees incurred by Villa in presenting the motion for sanctions and defending Unifund's pleading. Instead, Unifund contends that imposing the additional sanction of $18,685.00 for Villa's inconvenience and harassment caused by the litigation is excessive and unjust. On this record, we agree the sanction of $18,685.00 is excessive.
Chapter 10 of the Code permits a trial court to award the prevailing party all costs for inconvenience, harassment, and out-of-pocket expenses incurred or caused by the subject litigation. Tex. Civ. Prac. Rem. Code Ann. § 10.002(c). A sanction must be limited to "what is sufficient to deter repetition of the conduct or comparable conduct by others similarly situated." Id. at § 10.004(b). The amount of a sanction awarded by a trial court is limited by the trial court's duty to exercise sound discretion. Low v. Henry, 221 S.W.3d 609, 619 (Tex. 2007). Among the factors a trial court should consider when assessing monetary sanctions are (1) the nature and extent of prejudice, apart from out-of-pocket expenses, suffered by the offended person as a result of the misconduct; and (2) the impact of the sanction on the offended party, including the offended person's need for compensation. See id. at 620-21; TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 920 (Tex. 1991) (Gonzalez, J., concurring).
Here, the lawsuit was on file a total of two weeks and, within one week of Villa's answer, Unifund sought to dismiss its suit. However, the trial court found that $18,685 in sanctions "shall encompass Villa's costs for inconvenience and harassment caused by the subject litigation. . . ." However, the only evidence concerning harassment was Villa's testimony that he did not have any information that Unifund "did this just to harass you. . . ." As for inconvenience, Villa testified, without elaboration, that he was "worried," and Mrs. Villa testified she "got very upset," "started worrying," and "started yelling at [Mr. Villa]." We conclude, on this record, that the trial court erred in assessing an $18,685 sanction for "inconvenience and harassment."
The dissent states that the trial court "was informed that Unifund had over a billion dollars in assets" and "[e]vidence was presented that Unifund had eighty-four operating cases in Webb County alone." The trial court conducted the sanctions hearing on December 4, 2006. At the close of evidence, the court reset the hearing for January 26, 2007 to allow the parties to submit final briefing on the issues raised at the hearing. On January 26, 2007, the court heard arguments from Villa's attorney asking the court to enter sanctions against Unifund and/or Unifund's attorneys. Villa's attorney stated, in his argument, that Unifund had over a billion dollars in assets and eighty-four operating cases in Webb County. Counsel presented no evidence to support his contentions, nor did he define the nature of the eighty-four "operating" cases. "Normally, an attorney's statements must be under oath to be considered evidence." Banda v. Garcia, 955 S.W.2d 270, 272 (Tex. 1997). Unifund's attorney was not present at this hearing and, therefore, did not have the opportunity to object. See id. Accordingly, we do not consider the remarks by Villa's attorney as evidence supporting a sanction for "inconvenience and harassment."
CONCLUSION
We reverse that portion of the trial court's Order Imposing Sanctions and Final Judgment ordering Unifund to pay to Villa $18,685.00 and we render judgment that Villa take nothing on his claim for "costs for inconvenience and harassment caused by the subject litigation." We affirm the trial court's judgment in all other respects.
DISSENTING OPINION
The majority holds "that the trial court erred in assessing an $18,685 sanction for 'inconvenience and harassment.'" The amount of a sanction awarded by a trial court is limited by the trial court's duty to exercise sound discretion. Low v. Henry, 221 S.W.3d 609, 619 (Tex. 2007). "A trial court abuses its discretion when it acts without reference to any guiding rules and principles, not when it simply exercises that discretion in a different manner than reviewing appellate courts might." Id. Although the majority might have exercised its discretion in a different manner, I respectfully disagree that the trial court abused its discretion under the record presented in this appeal.
In its analysis, the majority lists two of the factors a trial court can consider when assessing the amount of a sanction. See Low, 221 S.W.3d at 620 n. 5. The Texas Supreme Court, however, has listed many more factors a trial court can consider in exercising its discretion, including the following:
(a) the good faith or bad faith of the offender; (b) the degree of willfulness, vindictiveness, negligence, or frivolousness involved in the offense; (c) the knowledge, experience, and expertise of the offender; (d) any prior history of sanctionable conduct on the part of the offender; (e) the reasonableness and necessity of the out-of-pocket expenses incurred by the offended person as a result of the misconduct; (f) the nature and extent of prejudice, apart from out-of-pocket expenses, suffered by the offended person as a result of the misconduct; (g) the relative culpability of client and counsel, and the impact on their privileged relationship of an inquiry into that area; (h) the risk of chilling the specific type of litigation involved; (i) the impact of the sanction on the offender, including the offender's ability to pay a monetary sanction; (j) the impact of the sanction on the offended party, including the offended person's need for compensation; (k) the relative magnitude of sanction necessary to achieve the goal or goals of the sanction; (l) burdens on the court system attributable to the misconduct, including consumption of judicial time and incurrence of juror fees and other court costs; . . . . (n) the degree to which the offended person's own behavior caused the expenses for which recovery is sought. . . .
Id. Two of the guiding rules and principles governing the trial court in exercising its discretion in considering these factors are: (1) a sanction should be sufficient to deter repetition of the conduct or comparable conduct by others similarly situated; and (2) the trial court is not required to address all of the factors that can be considered. Tex. Civ. Prac. Rem. Code Ann. § 10.004(b) (Vernon 2002); Low, 221 S.W.3d at 620.
In this case, Unifund initially demanded payment in the amount of $18,338.49 from Villa in January of 2005. In June of 2005, Villa and his wife went through a bankruptcy proceeding and received a discharge, believing that their debts had been discharged. In April of 2006, Unifund sent a second demand for payment of a debt that Villa and his wife thought had been discharged. Then, despite having actual knowledge that Villa had been discharged, Unifund sued Villa seeking to collect $18,685.09.
The trial court found that Unifund failed to conduct a reasonable inquiry and failed to exercise "due diligence" before filing the underlying lawsuit. The trial court further found that Unifund brought the claim in "bad faith" because "the real purpose of the lawsuit was to harass Villa, to intimidate him, and to coerce him into paying a debt that, by operation of federal bankruptcy law, he was not responsible for." The trial court was informed that Unifund had over a billion dollars in assets and routinely buys bad debts from banks and credit card companies and tries to collect them. Evidence was presented that Unifund had eighty-four operating cases in Webb County alone. The trial court also heard evidence that Villa and his wife were worried when they received Unifund's letter because the letter indicated that they owed the debt despite the discharge. Villa's wife testified that she could not sleep and she yelled at Villa because she thought he had not sent in all the paperwork.
In view of all of the factors that the trial court was permitted to consider, and given that Unifund had actual knowledge of the discharge when it decided to use the judicial system in its efforts to collect a discharged debt, I disagree that the trial court abused its discretion in imposing the additional sanction of $18,685.00. Because the majority holds to the contrary, I respectfully dissent.