ACCEPTED
04-15-00469-CV
FOURTH COURT OF APPEALS
SAN ANTONIO, TEXAS
10/5/2015 6:25:56 PM
KEITH HOTTLE
CLERK
NO. 04-15-00469-CV
FILED IN
4th COURT OF APPEALS
IN THE FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS
AT SAN ANTONIO, TEXAS 10/5/2015 6:25:56 PM
KEITH E. HOTTLE
Clerk
CASH BIZ, LP, CASH ZONE, LLC
D/B/A CASH BIZ and REDWOOD FINANCIALS, LLC
Appellants.
v.
HIAWATHA HENRY, ADDIE HARRIS, MONTRAY NORRIS,
and ROOSEVELT COLEMAN, JR., on behalf of
themselves and for all other similarly situated
Appellees.
From the 224th Judicial District Court for
Bexar County, Texas, No. 2015-CI-01545
APPELLEES’ RESPONSE BRIEF
HANSZEN LAPORTE
Daniel R. Dutko
State Bar No. 24054206
ddutko@hanszenlaporte.com
11767 Katy Freeway, Suite 850
Houston, Texas 77079
Telephone: (713) 522-9444
Facsimile: (713) 524-2850
COUNSEL FOR APPELLEES
ORAL ARGUMENT REQUESTED
TABLE OF CONTENTS
Table of Contents............................................................................................ ii
Index of Authorities ....................................................................................... iii
Statement of the Case ......................................................................................1
Statement of Facts............................................................................................2
Summary of the Argument ..............................................................................5
Issues Presented ...............................................................................................6
ARGUMENT ...................................................................................................7
Issue 1: Standard of Review .....................................................................7
Issue 2: Cash Biz Failed to Meet its Burden and Prove the Claims
Asserted are Within the Scope of the Agreement ......................7
Issue 3: Cash Biz Waived its Right to Arbitration and Class Action
Waiver by Substantially Invoking the Judicial Process When it
Filed Criminal Charges, Participated in the Criminal
Prosecutions, and Caused its Customers to be Arrested and
Even Jailed ............................................................................... 13
A. Cash Biz Refuses to Accept Responsibility for
its Illegal Activities Until it is Forced to Admit
Responsibility 23
B. There is Texas Case Law Supporting Waiver 29
C. Cash Biz's Illegal Activities Prejudiced Appellees 34
PRAYER ....................................................................................................... 34
CERTIFICATE OF COMPLIANCE ............................................................ 36
CERTIFICATE OF SERVICE ..................................................................... 36
ii
INDEX OF AUTHORITIES
CASES
Page
Adams v. StaxxRing, Inc.,
344 S.W.3d 641, 647 (Tex. App.—Dallas 2011, pet. denied) ..................... 13
Browning-Ferris Indus., Inc. v. Lieck,
881 S.W.2d 288, 293 (Tex. 1994) ........................................................... 28,29
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc.,
134 F. Supp. 2d 789, 795 (E.D. La. 2001) ................................................... 31
Ellman v. JC Gen. Contractors,
419 S.W.3d 516, 519 (Tex. App.—El Paso 2013, no pet.) .............................8
Griffin v. Burlington Volkswagen, Inc.,
411 N.J. Super. 515, 517, 988 A.2d 101, 102 (App. Div. 2010) ................. 31
Haddock v. Quinn,
287 S.W.3d 158, 177 (Tex.App.-Fort Worth 2009, pet. denied) ................. 14
Holmes, Woods & Diggs v. Gentry,
333 S.W.3d 650, 653 (Tex. App.—Dallas 2009, no pet.) ....................... 15,16
Inland Sea, Inc. v. Castro,
420 S.W.3d 55, 57–58 (Tex.App.-El Paso 2012, pet. Denied) .......................8
In re AdvancePCS Health L.P.,
172 S.W.3d 603 (Tex.2005) ........................................................................ 7,8
In re Bunzl USA, Inc.,
155 S.W.3d 202, 209 (Tex. App.—El Paso 2004, orig. proceeding) .............9
In re Conseco Fin. Servicing Corp.,
19 S.W.3d 562, 570 (Tex. App.—Waco 2000, no pet.) .......................... 10,11
In re Christus Spohn Health Sys. Corp.,
231 S.W.3d 475, 481 (Tex. App.—Corpus Christi 2007, no pet.) .............. 30
In re Jebbia,
26 S.W.3d 753 (Tex. App.—Houston [14th Dist.] 2000, orig. proc.) ............9
iii
In re Labatt Food Serv., L.P.,
279 S.W.3d 640 (Tex. 2009) ...........................................................................7
In re Online Travel Co.,
953 F. Supp. 2d 713, 721 (N.D. Tex. 2013) ................................................. 23
In re Ruefer,
1999 Tex. App. LEXIS 4275 (Tex. App. Amarillo June 8, 1999)............... 10
In re Service Corp. Int’l,
85 S.W.3d 171 (2002)................................................................................... 13
Jack B. Anglin Co. Inc. v. Tipps,
842 S.W.2d 266 (Tex. 1992) ................................................................... 10,12
McReynolds v. Elston,
222 S.W.3d 731 (Tex. App.—Houston [14th Dist.] 2007, no pet.) ............. 11
Perry Homes v. Cull,
258 S.W.3d 580 (Tex. 2008) ................................................................... 13,22
Petroleum Pipe Americas Corp. v. Jindal Saw, Ltd.,
575 F.3d 476 (5th Cir. 2009) ................................................................... 16,18
Pilot Travel Centers, LLC v. McCray,
416 S.W.3d 168, 183 (Tex. App.—Dallas 2013, no pet.) ....................... 22,23
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett & Associates,
CIV.A. 01-3178, 2002 WL 31528463 (E.D. La. Nov. 8, 2002) ........ 32,33,34
Southwind Group, Inc. v. Landwehr,
188 S.W.3d 730 (Tex. App. –Eastland 2006, orig. proceeding) .................. 34
Tuscan Builders, LP v. 1437 SH6 L.L.C.,
438 S.W.3d 717 (Tex. App.—Houston [1st Dist.] 2014 review denied) .... 14
Valero Energy Corp. v. Wagner & Brown,
777 S.W.2d 564 (Tex. App.--El Paso 1989, writ denied) ....................... 10,13
Williams Indus. Inc. v. Earth Development Sys. Corp.,
110 S.W.3d 131 (Tex. App. –Houston [1st Dist.] 2003, no pet.) ... 6,13,18,21
iv
STATUTES
Tex. Const. Art. 1 Sec. 18............................................................................. 8
Tex. Fin. Code § 393.201(c) ......................................................................... 8
Tex. Fin. Code § 392.301 ............................................................................. 8
Tex. R. Evid. 103 ........................................................................................ 19
v
STATEMENT OF THE CASE
The Statement of the Case of Cash Biz LP, Cash Zone, LLC d/b/a
Cash Biz and Redwood Financials, LLC (hereinafter “Cash Biz”) contains
one important inaccuracy. Cash Biz claims “After the Appellees defaulted
on the repayment obligations under their respective Loan Contracts, Cash
Biz conducted separate investigations that, in each instance, uncovered
information that led Cash Biz to believe that each Appellee had engaged in
separate, specific criminal acts during the formation and performances of
their respective Loan Contracts.” This is false because all Appellees did was
fail to repay a civil debt. Cash Biz was the one illegally using criminal
courts to collect civil debts. Cash Biz was the one who “engaged in
separate, specific criminal acts” as evidenced by the fact the Texas Office of
Consumer Credit Commissioner (“OCCC”) ordered Cash Biz to pay
$10,000 in fines, and during the investigation, Cash Biz admitted it
improperly subjected its customers to criminal prosecution for failure to
repay civil obligations. (CR, 140-141, Appendix 1).
1
STATEMENT OF FACTS
In 2012, numerous consumers in Texas began reporting that Cash
Biz, and other payday loan companies, were illegally filing criminal charges
against its customers to collect on civil debts. (CR, 151-159). Texas
Appleseed and the Texas Observer separately began investigating these
allegations. (CR, 151-159).
Texas Appleseed is a nonprofit, nonpartisan organization that works
to provide justice for children, low-income families, and those with
disabilities. (CR, 151-159). Texas Appleseed learned Cash Biz was illegally
filing criminal complaints against low-income people to collect on civil
debts. (CR, 151-159). Texas Appleseed submitted open records requests to
state regulators and several district attorneys. (CR, 151-159).
On December 17, 2014, Texas Appleseed concluded its investigation
and found more than 1,500 cases where payday loan companies, primarily
Cash Biz, was criminally charging people to further the collection of civil
debts by misclassifying the cases as bad check cases. (CR, 151-159).
Texas Appleseed learned that not only was Cash Biz using criminal
courts to collect civil debts, they were forcing people to pay fines and even
sending people to jail. (CR, 151-159). For example, in one justice court,
where more detailed data was available, arrest warrants were issued in 42%
2
of the cases brought based on payday loan business complaints, and jail
time or jail credit applied in 5.6% of the cases. (CR, 151-159). In another
court, $131,836 was collected from 204 individuals, representing just 28%
of the complaints. (CR, 151-159). In another court, payment of $918.91 was
ordered on a bad check case for a defaulted $225 payday loan and a warrant
was issued for her arrest. (CR, 151-159).
Separately, the Texas Observer discovered Cash Biz wrongfully filed
criminal charges against thousands of people in Houston, San Antonio, and
Amarillo. (CR, 140-141, Appendix 2). One such person was Christina
McHan, who failed to repay a $200 loan from Cash Biz near Houston. (CR,
140-141, Appendix 2). In November 2012 she was arrested, assessed $305
in additional fines and court costs and spent a night in jail because of Cash
Biz’s false allegation of check fraud. (CR, 140-141, Appendix 2).
Belinda Cinque (“Cinque”), the clerk for Justice of the Peace Tom
Lawrence in Humble, Texas, discovered Cash Biz was improperly using the
Court system to collect on civil debts by claiming the debts were bad
checks. (CR, 140-141, Appendix 2). Cinque discovered the vast majority of
borrowers had either lost their jobs or had their hours reduced at work and
was quoted as saying: “Correct me if I’m wrong, but they sound like
sharks.” (CR, 140-141, Appendix 2). Cinque told the Observer she started
3
getting calls from people, some in tears, making payments to Cash Biz
through the court. (CR, 140-141, Appendix 2). She learned Cash Biz was
“threatening them that they were going to be taken to jail.” (CR, 140-141,
Appendix 2). When she found all of this out, she told Cash Biz to stop
filing hot-check complaints. (CR, 140-141, Appendix 2).
In response to these investigations, the Texas Office of Consumer
Credit Commissioner (“OCCC) ordered Cash Biz to pay $10,000 in fines.
Cash Biz admitted it improperly subjected its customers to criminal
prosecution for failure to repay civil obligations. (CR, 140-141, Appendix
1). Eamon Briggs, assistant general counsel with the OCCC, said they
inform payday loan companies, such as Cash Biz, it is illegal to use the
criminal justice system to collect civil debt and ask these companies
whether they rely on the criminal justice system to collect civil debt. (CR,
140-141, Appendix 1). But according to Eamon Briggs “people don’t
always answer that question during the examination process truthfully.”
(CR, 140-141, Appendix 1). Because of these companies’ blatant
dishonesty, the OCCC relies largely on consumer complaints, journalists,
and information supplied by consumer advocacy groups like Texas
Appleseed to catch violations. (CR, 140-141, Appendix 1).
4
Appellees filed this class action lawsuit against Cash Biz for
malicious prosecution and Cash Biz filed a motion to compel arbitration.
The arbitration clauses relied on by Cash Biz were written and insisted upon
by Cash Biz. (CR, 80-130). The arbitration agreement says all “disputes” are
to be resolved in arbitration and this includes “all federal or state law
claims”, including all disputes in criminal court. (CR, 85, RR, 13, lines 2-
10).
When Cash Biz filed criminal charges, participated in the criminal
trials, threatened to send its customers to jail, and actually sent its customers
to jail; it was solely in an attempt to collect on the debts owed to them under
the terms of the contracts.
SUMMARY OF THE ARGUMENT
Appellees are not suing on the contract. The allegations in this case
relate solely to Cash Biz’s illegal use of the criminal justice system to
enforce a civil debt. Cash Biz’s illegal use of the criminal justice system
occurred after the expiration of any contracts entered into by Appellees. All
of the damages are solely related to criminal fines, jail time, and loss of
reputation suffered by Appellees’ criminal convictions. The law is very
clear the arbitration clause and class action waiver relied on by Cash Biz are
5
not applicable in this case and Cash Biz’s request to enforce the arbitration
clauses and class-action waivers should be denied.
Cash Biz waived its right to arbitration by substantially invoking the
judicial process when it filed criminal charges against Appellees,
participated in criminal trials, obtained criminal judgments, threatened to
send people to jail, sent people to jail, and attempted to collect from
Appellees. The law is clear that substantially invoking the judicial process
can occur when the proponent of arbitration actively tried to achieve a
satisfactory result in litigation before turning to arbitration. Williams Indus.
Inc. v. Earth Development Sys. Corp., 110 S.W.3d 131, 139-40 (Tex. App. –
Houston [1st Dist.] 2003, no pet.). That is exactly what Cash Biz did in the
criminal courts, and has thus waived its right to enforce the arbitration
clause and class actions waiver. Id.
ISSUES PRESENTED
1. Did Cash Biz meet its burden and prove the claims asserted by
Appellees are within the scope of the agreement even though the
claims are only based on Cash Biz’s wrongful prosecution in criminal
courts?
2. Did Cash Biz waived its right to arbitration by substantially invoking
the judicial process when it filed criminal charges against Appellees,
participated in criminal trials, obtained criminal judgments,
threatened to send people to jail, sent people to jail, and attempted to
collect from Appellees even though the contract stated that all claims,
whether civil or criminal, are required to be arbitrated?
6
ARGUMENT
Issue 1 – The Standard of Review
This Court should review a ruling denying a motion to compel
arbitration for an abuse of discretion. Perry Homes v. Cull, 258 S.W.3d 580,
601 (Tex. 2008). Under this standard, this Court should defer to the Trial
Court's factual determinations if they are supported by the evidence and
review its legal determinations de novo. In re Labatt Food Serv., L.P., 279
S.W.3d 640, 643 (Tex. 2009).
The issues regarding whether the claims asserted are within the scope
of the agreement and whether Cash Biz waived its right to assert the
arbitration and class action waiver are to be reviewed de novo. See Perry
Homes, 258 S.W.3d at 598. However, the factual determinations of the Trail
Court regarding Cash Biz’s amount of participation in the criminal
prosecutions should be reviewed pursuant to the abuse of discretion
standard. See Perry Homes, 258 S.W.3d at 643.
Issue 2 – Cash Biz Failed to Meet its Burden and Prove the
Claims Asserted are Within the Scope of the Agreement.
A party seeking to compel arbitration must (1) establish the existence
of a valid arbitration agreement; and (2) show that the claims asserted are
within the scope of the agreement. See In re AdvancePCS Health L.P., 172
7
S.W.3d 603, 605 (Tex.2005); Inland Sea, Inc. v. Castro, 420 S.W.3d 55,
57–58, 2012 WL 1715242 at *2 (Tex.App.-El Paso 2012, pet. denied). Only
after these two showings are made does the burden shift to the party
resisting arbitration to present a valid defense to the agreement. See In re
AdvancePCS, 172 S.W.3d at 607; Ellman v. JC Gen. Contractors, 419
S.W.3d 516, 519 (Tex. App.—El Paso 2013, no pet.).
The reason why Cash Biz is pushing arbitration in this case is because
there is no dispute Cash Biz’s actions violated Texas law and the Texas
Constitution. The Texas Bill of Rights in the Texas Constitution states: “No
person shall ever be imprisoned for debt.” See Tex. Const. Art. 1 Sec. 18.
Texas Finance Code, Section 393.201(c) states: “...a person may not
threaten or pursue criminal charges against a consumer related to a check or
other debit authorization provided by the consumer as security for a
transaction in the absence of forgery, fraud, theft, or other criminal
conduct.” See Tex. Fin. Code § 393.201(c). Texas Finance Code, Section
392.301 is entitled “THREATS OR COERCION” and states: “(a) In debt
collection, a debt collector may not use threats, coercion, or attempts to
coerce that employ any of the following practices:..(2) accusing falsely or
threatening to accuse falsely a person of fraud or any other crime.” See Tex.
Fin. Code § 392.301.
8
In this case, Cash Biz put people in jail, threatened criminal charges,
and falsely accused people of a crime. (CR, 151-159). Cash Biz violated the
Texas Constitution and Section 393.201(c) and 392.301 of the Texas
Finance Code. See Tex. Const. Art. 1 Sec. 18; Tex. Fin. Code § 393.201(c);
Tex. Fin. Code § 392.301.
All of the claims made by Plaintiffs in this case relate solely to Cash
Biz’s illegal use of the criminal justice system to enforce a civil debt. (CR,
15-26). Cash Biz’s illegal use of the criminal justice system occurred after
the expiration of any contracts entered into by Plaintiffs and all of the
damages are solely related to criminal fines, jail time, and loss of reputation
related to Plaintiffs’ criminal convictions. (CR, 15-26). Plaintiffs did not sue
for breach of contract or for any relief under the contract. (CR, 15-26).
In deciding whether the parties have agreed to arbitrate, the courts do
not resolve doubts or indulge a presumption in favor of arbitration. In re
Bunzl USA, Inc., 155 S.W.3d 202, 209 (Tex. App.—El Paso 2004, orig.
proceeding); In re Jebbia, 26 S.W.3d 753, 757 (Tex. App.—Houston [14th
Dist.] 2000, orig. proceeding).
The arbitration clause and class action waiver in this case can only be
enforced against Appellees if this Court determines Appellees claims are so
interwoven with the agreements that they could not stand alone,. See Jack B.
9
Anglin Co. Inc. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992); Valero Energy
Corp. v. Wagner & Brown, 777 S.W.2d 564, 567 (Tex. App.--El Paso 1989,
writ denied); In re Ruefer, 1999 Tex. App. LEXIS 4275 (Tex. App.
Amarillo June 8, 1999). If Appellees’ claims are independent of the
agreements and could be maintained without reference to the agreements,
then arbitration is improper and the class action waiver does not apply. Id.
The arbitration clause and class action waiver must be “inextricably
intertwined” with the contract in order for this Court to grant Cash Biz’s
request to compel arbitration and enforce the class action waiver. Id.
Appellees’ claims are based solely on Cash Biz’s wrongful criminal
prosecution of Appellees, and Cash Biz’s illegal use of the criminal justice
system to punish Appellees for a civil debt. (CR, 15-26). The only link to
the contract is the fact the civil debt stems from the contract, nothing else.
This is not “inextricably intertwined” as set forth by Texas law. See Jack B.
Anglin Co. Inc. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992); Valero Energy
Corp. v. Wagner & Brown, 777 S.W.2d 564, 567 (Tex. App.--El Paso 1989,
writ denied); In re Ruefer, 1999 Tex. App. LEXIS 4275 (Tex. App.
Amarillo June 8, 1999).
Appellants’ reliance on In re Conseco, shows their confusion
regarding the facts in this case. The Plaintiffs in In re Conseco, filed suit
10
against Conseco based solely on violations of the Debt Collection Act and
Conseco's alleged improper efforts to collect the amounts due under the
terms of the agreement. In re Conseco Fin. Servicing Corp., 19 S.W.3d 562,
570 (Tex. App.—Waco 2000, no pet.).
This case is easily distinguishable from In re Conseco, because in this
case Appellees’ claims are not based on Cash Biz’s actually collecting the
debt owed. Appellees did not file suit under the Debt Collect Act or based
on Cash Biz’s improper and illegal collection of the debts owed. This case is
based solely on Cash Biz’s wrongful criminal prosecution of Appellees.
(CR, 15-26). It is true Cash Biz wrongfully tried to collect on the debts
owed by criminally threatening and prosecuting its customers. However,
Appellees did not sue for improper debt collection, like the Plaintiffs in In
re Conseco. Instead, Appellees sued for malicious and wrongful criminal
prosecution.
When determining whether a claim is within the scope of an
arbitration agreement, courts focus on the factual allegations of the
complaint rather than the legal causes of action asserted. McReynolds v.
Elston, 222 S.W.3d 731, 740 (Tex. App.—Houston [14th Dist.] 2007, no
pet.). In this case, the factual allegations are exclusively related to Cash
Biz’s wrongful prosecution of Appellees, not Cash Biz’s improper
11
collection of the debt. (CR, 15-26). Appellees did not allege breach of
contract, and Appellees pleadings do not even contain the words “contract”
or agreement”. (CR, 15-26). There is no dispute that Cash Biz improperly
filed criminal charges to collect a civil debt. However, none of Appellees’
claims relate to, or arise from, the collection of the civil debt. (CR, 15-26).
Instead, Appellees claims relate solely to the malicious prosecution of
Appellees and the damages sustained as a result of the malicious
prosecution. (CR, 15-26).
In fact, when the trial court looked at all the evidence presented,
including Appellees’ pleadings, it determined:
. . . the allegations in this case relate solely to Cash
Biz’s illegal use of the criminal justice system to
enforce a civil debt. Cash Biz’s illegal use of the
criminal justice system occurred after the
expiration of any contracts entered into by
Plaintiffs and all of the damages are solely related
to criminal fines, jail time, and loss of reputation
related to Plaintiffs’ criminal convictions.
Therefore, the arbitration clauses and class action
waivers relied on by Cash Biz are not applicable . .
.
It is clear Cash Biz did not meet its burden to prove that Appellees’
claims fall within the scope of the agreements because Appellees’ claims are
independent of the agreements. Therefore, Cash Biz’s Motion to Compel
Arbitration was properly denied. See Jack B. Anglin Co. Inc. v. Tipps, 842
12
S.W.2d 266, 271 (Tex. 1992); Valero Energy Corp. v. Wagner & Brown,
777 S.W.2d 564, 567 (Tex. App.--El Paso 1989, writ denied); In re Ruefer,
1999 Tex. App. LEXIS 4275 (Tex. App. Amarillo June 8, 1999).
The evidence and pleadings in this case show that the trial court was
correct and her order should be affirmed. Appellees respectfully request this
court affirm the trial court’s order and holdings.
Issue 3 – Cash Biz Waived its Right to Arbitration and Class
Action Waiver by Substantially Invoking the Judicial Process
When it Filed Criminal Charges, Participated in the Criminal
Prosecutions, and Caused its Customers to be Arrested and Even
Jailed
A party waives its right to enforce an arbitration clause if “it has
substantially invoked the judicial process to the opponent’s detriment.” In re
Service Corp. Int’l, 85 S.W.3d 171 (2002). Substantially invoking the
judicial process can occur “when the proponent of arbitration actively tried,
but failed, to achieve a satisfactory result in litigation before turning to
arbitration.” Williams Indus. Inc. v. Earth Development Sys. Corp., 110
S.W.3d 131, 139-40 (Tex. App. –Houston [1st Dist.] 2003, no pet.).
Waiver is determined by reviewing the totality of the circumstances
on a case-by-case basis. See Perry Homes, 258 S.W.3d at 591; Adams v.
StaxxRing, Inc., 344 S.W.3d 641, 647 (Tex. App.—Dallas 2011, pet.
denied). For a waiver to have occurred, the appellant “must, at the very
13
least, [have] engage[d] in some overt act in court that evince[d] a desire to
resolve the [same] arbitrable dispute through litigation rather than
arbitration.” Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717, 721
(Tex. App.—Houston [1st Dist.] 2014 review denied); Haddock v. Quinn,
287 S.W.3d 158, 177 (Tex.App.-Fort Worth 2009, pet. denied).
The arbitration clause was written and insisted upon by Cash Biz.
(CR, 80-130). The arbitration agreement says all “disputes” are to be
resolved in arbitration and this includes “all federal or state law claims.”
(CR, 85). As counsel for Cash Biz admitted during the oral hearing on Cash
Biz’s Motion to Compel Arbitration, Cash Biz was required to arbitrate
before engaging in any disputes including any disputes in criminal court:
THE COURT: But that agreement is for both sides, no?
MR. ARORA: Yes. This agreement is for – this agreement
is executed and is agreed to by both parties,
the plaintiffs and Cash Biz.
THE COURT: So all federal or state laws, including
criminal law.
MR. ARORA: All. All of it, your Honor, is included in this
arbitration provision.
(RR, 13, lines 2-10).
14
Cash Biz filed criminal charges, participated in criminal trials,
threatened to send its customers to jail, and even sent its customers to jail in
an attempt to collect on the debts owed to them. There can be no doubt Cash
Biz was seeking a decision on the merits before attempting to arbitrate.
In Holmes Woods & Diggs, a similar case, a law firm was not paid by
Gentry, one of its clients. Holmes, Woods & Diggs v. Gentry, 333 S.W.3d
650, 653 (Tex. App.—Dallas 2009, no pet.). The law firm filed suit to
collect unpaid fees, served Gentry with the lawsuit, and when Gentry failed
to file an answer, the law firm obtained a default judgment. The law firm
then attempted to execute on its judgment and Gentry filed a bill of review.
The bill of review was granted and the case was put back on the trial docket.
At that point, the law firm filed a motion to compel arbitration. The trial
court ruled the law firm substantially invoked the judicial process and thus
waived its right to enforce the arbitration provision. The Dallas Court of
Appeals affirmed and held that the law firm substantially invoked the
judicial process even though very little discovery was conducted in the
underlying case. Id. at 653. The Court held the law firm should not be
allowed “purposefully and unjustifiably manipulate the exercise of its
arbitral rights simply to gain an unfair tactical advantage over the opposing
party.” The Court held: “The record also reflects that the Firm attempted to
15
manipulate the process to its advantage, and this is precisely the kind of
inherent unfairness that constitutes prejudice under federal and state law.”
Id. at 656.
In the case before this Court, Cash Biz ignored the arbitration clause
that it created and forced its customers to sign, and filed criminal charges
against its customers to collect on debts. Cash Biz used criminal charges,
threatened to send people to jail, had arrest warrants issued, and even sent
people to jail to collect on a civil debt. In Holmes Woods & Diggs, the law
firm obtained a default judgment and the Court held that the law firm
“manipulated the process to its advantage” and its actions constituted
“inherent unfairness”. Id. at 656. If obtaining a default judgment constituted
manipulating the process and inherent unfairness, then filing criminal
charges and sending people to jail certainly constitutes manipulation of the
system and inherent unfairness.
In Petroleum Pipe Americas Corp. v. Jindal Saw, Ltd., 575 F.3d 476
(5th Cir. 2009), the Fifth Circuit held the defendant had substantially
invoked the judicial process by waiting to move to arbitrate until after the
trial court made pronouncements in a pretrial hearing that it favored the
plaintiff’s interpretation of a contract at issue in the case. Id. at 482. The
16
court held “A party waives arbitration by seeking a decision on the merits
before attempting to arbitrate.” Id. at 480-81.
Cash Biz filed criminal charges to seek a decision on the merits of the
debts owed. Cash Biz did not want to go through the effort of individually
arbitrating each claim, so instead it filed easy and cheap criminal charges
seeking a resolution of the debts owed. (CR, 157-159, 186-245). Now, when
faced with punishment in a civil lawsuit, Cash Biz is trying to hide behind
the arbitration provision it happily ignored. Cash Biz knew it was difficult
for people borrowing $300 to go to individual arbitration so it ruined the
lives of thousands of people without fear of punishment.
For example, Christina McHan, who failed to repay a $200 loan from
Cash Biz in Houston, was arrested, assessed $305 in additional fines and
court costs and spent a night in jail because of Cash Biz’s false allegation of
check fraud. (CR, 140-141, Appendix 2). Hiawatha Henry was wrongfully
charged with issuance of a bad check by Cash Biz, there was a pretrial
conference, and there was a bench trial at which she had to defend herself.
(CR, 186-197). Jason Hetrick was wrongfully charged with issuance of a
bad check by Cash Biz, there was a bench trial without him, he was
convicted, he was fined $150, and a warrant was issued for his arrest. (CR,
213-217) Mark Wilks was wrongfully charged with issuance of a bad check
17
by Cash Biz, there was a bench trial without him, he was convicted, and a
warrant was issued for his arrest. (CR, 218-222). Brenda Tyler was
wrongfully charged with issuance of a bad check by Cash Biz, there was a
bench trial without her, she was convicted, and a warrant was issued for her
arrest. (CR, 223-227). Janet Johnson was wrongfully charged with issuance
of a bad check by Cash Biz, there was a bench trial without her, she was
convicted, and a warrant was issued for her arrest. (CR, 228-232).
These criminal charges are still on the records of the people Cash Biz
wrongfully prosecuted. These convictions will show up on background
checks performed by potential employers, by courts in custody disputes, and
on credit checks. There are thousands of similar instances of Cash Biz
substantially invoking the litigation process by filing criminal charges
against its customers. (CR, 233-245). There is no dispute Cash Biz was
attempting to collect on the debt it was owed and to do so it substantially
invoked the litigation process. Williams Indus. Inc. v. Earth Development
Sys. Corp., 110 S.W.3d 131, 139-40 (Tex. App. –Houston [1st Dist.] 2003,
no pet.); Petroleum Pipe Americas Corp. v. Jindal Saw, Ltd., 575 F.3d 476
(5th Cir. 2009).
Cash Biz argues “Appellees came forth with no evidence to
controvert the affidavits from David Flanagan.” Cash Biz wants this Court
18
to ignore the evidence, including numerous documents and articles, showing
how Cash Biz actively participated in the criminal courts in an effort to
illegally prosecute its customers for civil debts. Cash Biz claims “None of
this constituted evidence to support waiver or prejudice.” Because Cash Biz
failed to object to any of this evidence, all of it constitutes evidence to
support waiver and prejudice. See Tex. R. Evid. 103. Cash Biz failed to
object to any of this evidence in their Motion, Reply or at the oral hearing.
(SCR, 1-8, RR, 1-35). Recognizing it failed to properly object to the
evidence, Cash Biz chooses to attack it instead.
Cash Biz wants this Court to ignore the evidence because it paints a
startling picture of the lengths Cash Biz went to actively prosecute its
customers in criminal courts across this state. Appellees presented evidence
Cash Biz illegally filed, participated in, and prosecuted criminal charges
against thousands of people in Houston, San Antonio, and Amarillo. (CR,
140-141, Appendix 2).
According to the investigation conducted by Texas Appleseed, Cash
Biz filed the criminal charges, acted as the complaining witness, and
collected “restitution” and fines. (CR, 151-159). Cash Biz also caused some
borrowers to go to jail. (CR, 151-159).
19
According to Texas Appleseed, Cash Biz did not rely on prosecutors,
but instead misled prosecutors by classifying these civil debts as bad
checks. (CR, 151-159). Most of the counties in Texas have rules preventing
prosecutors from taking these types of cases because they are not bad
checks. (CR, 159). But Cash Biz would take these cases from court to court
until a young prosecutor, who may not know better, would agree to accept
the charges. (CR, 151-159). Then Cash Biz would file all of the charges in
the one court where the prosecutor did not recognize Cash Biz was
misleading them. (CR, 186-245). For example, all of the charges filed by
Cash Biz in Harris County, almost 400 cases, are filed in Justice of the
Peace for Precinct 4, Place 2 in Humble, Texas. (CR, 186-245). If Cash Biz
was doing nothing improper, its representatives would not have to travel all
the way to Humble, Texas to file every Houston case. (CR, 233-245). This
pattern is identical in all other counties where Texas Appleseed received
information. (CR, 157-158).
Appellees also presented uncontroverted evidence from Belinda
Cinque, the clerk for the Justice of the Peace in Humble, Texas. (CR, 140-
141, Appendix 2). Cinque said she discovered Cash Biz was improperly
using the Court system to collect on civil debts by claiming the debts were
bad checks. (CR, 140-141, Appendix 2). Cinque discovered the vast
20
majority of borrowers had either lost their jobs or had their hours reduced at
work and was quoted as saying: “Correct me if I’m wrong, but they sound
like sharks.” (CR, 140-141, Appendix 2). Cinque told the Texas Observer
she started getting calls from people, some in tears, making payments to
Cash Biz through the court. (CR, 140-141, Appendix 2). She learned Cash
Biz was “threatening them that they were going to be taken to jail.” (CR,
140-141, Appendix 2). When she found this out, she told Cash Biz to stop
filing hot-check complaints. (CR, 140-141, Appendix 2).
Does this sound like “Cash Biz merely submitted information of
criminal activity to the district attorney” as alleged by Cash Biz? Appellees
presented more than enough evidence to prove Cash Biz substantially
invoked the judicial process. See Williams Indus. Inc. v. Earth Development
Sys. Corp., 110 S.W.3d 131, 139-40 (Tex. App. –Houston [1st Dist.] 2003,
no pet.). But there is even more.
The Texas Office of Consumer Credit Commissioner (“OCCC”)
conducted an investigation into Cash Biz’s activities and ordered Cash Biz
to pay $10,000 in fines. (CR, 140-141, Appendix 1). At the end of the
OCCC’s investigation, Cash Biz admitted it improperly subjected its
customers to criminal prosecution for failure to repay civil obligations. (CR,
140-141, Appendix 1). Eamon Briggs, assistant general counsel with the
21
OCCC, said they inform payday loan companies, such as Cash Biz, it is
illegal to use the criminal justice system to collect civil debts and ask these
companies whether they rely on the criminal justice system to collect civil
debt. (CR, 140-141, Appendix 1). But according to Eamon Briggs “people
don’t always answer that question during the examination process
truthfully.” (CR, 140-141, Appendix 1). Because of Cash Biz’s blatant
dishonesty, the OCCC relies largely on consumer complaints, journalists,
and information supplied by consumer advocacy groups like Texas
Appleseed to catch violations. (CR, 140-141, Appendix 1).
Whether a party has waived arbitration must be decided on a case-by-
case basis, based upon an examination of the totality of the circumstances.
See Perry Homes, 258 S.W.3d at 591. The judicial process is substantially
invoked when the party seeking arbitration has taken specific and deliberate
actions, after the filing of the suit, that are inconsistent with the right to
arbitrate or has actively tried to achieve a satisfactory result through
litigation before turning to arbitration. In re Vesta Ins. Group, Inc., 192
S.W.3d at 763 (emphasis added); see also Pilot Travel Centers, LLC v.
McCray, 416 S.W.3d 168, 183 (Tex. App.—Dallas 2013, no pet.).
Cash Biz actively tried to achieve a satisfactory result in the
collection of the debt through litigation (criminal prosecutions). Therefore,
22
Cash Biz substantially invoked the litigation process by filing criminal
charges against Appellees. In re Vesta Ins. Group, Inc., 192 S.W.3d at 763
(emphasis added); see also Pilot Travel Centers, LLC v. McCray, 416
S.W.3d 168, 183 (Tex. App.—Dallas 2013, no pet.).
Cash Biz’s actions constitute a waiver of its right to enforce the
arbitration clause. Because the class action waiver is contained in the
arbitration clause, and is not an independent clause, then Cash Biz waived
its right to assert the class action waiver as well. See In re Online Travel
Co., 953 F. Supp. 2d 713, 721 (N.D. Tex. 2013).
A. Cash Biz Refuses to Accept Responsibility for its Illegal
Activities Until it is Forced to Admit Responsibility
In the same way Cash Biz refused to admit it did anything wrong until
the OCCC investigated its actions, Cash Biz still refuses to admit its
substantial involvement in the prosecution of its customers. But that is not
really a surprise considering Cash Biz even refuses to admit it even filed
criminal charges at all. For example, in Appellants’ Brief, it claims: “Cash
Biz, could not, and did not initiate or procure any prosecution of any of its
customers.” (Appellants’ Brief page 4). Cash Biz’s counsel even attempted
to make this argument at the oral hearing:
23
THE COURT: Let me ask a quick question. Tell me how it
is that you feel the justice system was not
invoked by submitting a criminal complaint.
MR. ARORA: We didn’t submit a criminal complaint, your
Honor. All we did was notify the district
attorney that there may be criminal action
by some of these plaintiffs.
(RR, 25, lines 11-17).
Both Texas Appleseed and the Texas Observer learned during their
investigations Cash Biz initiated the criminal prosecutions and submitted
criminal complaints against its customers. (CR, 151-159, Appendices 1 &
2). Even ignoring this, the policies and procedures of the Courts where the
criminal charges were filed require the submission of a criminal complaint
before the district attorney will even consider criminal charges in bad check
cases.
For example, in Bexar County, where Cash Biz filed hundreds of
criminal complaints against its customers, the only way the district attorney
will consider criminal charges is if the complaining party does the
following:
The Complaint Form - (Download the complaint
form in PDF form) Complete the worthless check
24
information form with as much information as
possible on the check writer and transaction in
duplicate form.
Documentary Evidence - You will need to submit
the original check(s), a copy of any
correspondence you sent, a copy of any invoices,
work order, or cash register receipts regarding the
transaction of the check writer. Please make all
necessary copies of documentary evidence for
your records before submitting your complaint. 1
In Harris County, the only way the district attorney will consider a
bad check case is if the complaining party fills out a complaint and an
affidavit of probable cause:
The complaint must be accompanied by an
Affidavit Stating Probable Cause. The affidavit is
a written statement containing enough facts about
the transaction to cause the magistrate to believe
that the check writer has indeed issued a bad
check, and is necessary to allow the magistrate to
issue a warrant ordering the arrest of the check
writer. 2
From the evidence presented in this case, it is clear Cash Biz initiated
the prosecution of its customers, submitted a formal complaint, and
submitted an affidavit of probable cause. In the court records from Justice of
the Peace for Precinct 4, Place 2 in Humble, Texas, Cash Biz was the
“Complainant” in every case filed in Harris County. (CR, 186-245).
1 See http://home.bexar.org/da/checks.html
2 See http://www.jp.hctx.net/checks/info.htm
25
The trial court, recognizing that Biz was not being forthcoming,
questioned Cash Biz’s attorney at the oral hearing where Cash Biz
eventually had to admit it did initiate the prosecution of its customers and
did file criminal complaints against their customers:
THE COURT: But there has to be an initiated – initiation
of proceedings, whether it’s – and it doesn’t
mean going to the police department. You
can go to the hot check section, fill out the
paperwork that says, I received this bad
check for this amount, and that’s it. Right
there you’ve initiated.
So, are you telling me Cash Biz – Cash Biz
didn’t do that?
MR. ARORA: Cash Biz – my understanding, that Cash
Biz, when they received that information,
they – all they did was hand it over to the
DA’s office. They called the DA’s office
and said, this is the criminal activity.
THE COURT: Hand what over?
26
MR. ARORA: And that’s it. Hand over whatever
information that they had on evidence, the
transaction history, what the –
THE COURT: The bad check.
MR. ARORA: Whatever the check was.
THE COURT: The form complaint.
MR. ARORA: Handed it to them. Now the district – and
that’s when – that’s when we cut off our
communication with the DA.
(RR, page 28, line 15 – page 29, line 12).
A “stipulation” is an agreement, admission, or concession made in a
judicial proceeding by the parties or their attorneys respecting some matter
incident thereto. Shepherd v. Ledford, 962 S.W.2d 28, 33 (Tex. 1998). Cash
Biz’s counsel ultimately stipulated Cash Biz initiated prosecution of its
customers and filed formal complaints. (RR, page 28, line 15 – page 29, line
12).
The stipulation by Cash Biz’s counsel directly contradicts the
affidavit of David Flanagan, the only piece of evidence relied on by Cash
Biz regarding its actions in the criminal prosecutions. According to David
Flanagan, “Cash Biz did not initiate any prosecution of any of its
27
customers.” (SCR, 10). But David Flanagan does not stop there: “Cash Biz
did not make any formal charges, did not participate in any criminal trial,
and did not obtain criminal judgments.” (SCR, 10). Cash Biz’s stipulation
during the oral hearing proves David Flanagan’s sworn statement is
untruthful. (RR, page 28, line 15 – page 29, line 12). According to Cash
Biz’s counsel, Cash Biz did initiate prosecution of its customers and did
make formal charges. Id.
David Flanagan’s lack of credibility is apparent from this
contradictions as well as other issues with his affidavit. For example, David
Flanagan is from Ohio and fails to explain how he knows the extent of Cash
Biz’s involvement in the criminal cases filed in Texas.
Cash Biz next argues “An individual cannot procure or initiate a
criminal prosecution in Texas.” (Appellants’ Brief, page 27). This is simply
not correct, and the cases cited by Cash Biz to support this claim actually
hold that an individual can procure or initiate a criminal prosecution.
All of the cases relied by Cash Biz on this issue cite to the law set
forth in Browning-Ferris, which holds:
A person procures a criminal prosecution if his
actions were enough to cause the prosecution, and
but for his actions the prosecution would not have
occurred. A person does not procure a criminal
prosecution when the decision whether to
prosecute is left to the discretion of another,
28
including a law enforcement official or the grand
jury, unless the person provides information which
he knows is false. A criminal prosecution may be
procured by more than one person.
Browning-Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288, 293 (Tex. 1994).
As set forth above, bad check cases are not like other criminal
charges and are not the decision of an officer or prosecutor. This is
evidenced by the fact the complainant has to fill out an affidavit of probable
cause. Even if bad check cases required a decision by the prosecutor, which
they do not, a criminal prosecution is procured as a matter of law if the
complainant provides false information. Browning-Ferris Indus., Inc. v.
Lieck, 881 S.W.2d 288, 293 (Tex. 1994).
Cash Biz falsely characterized civil debt as bad check cases. (CR,
151-159). Cash Biz provided false information to the prosecutors and courts
in order to try to collect on civil debts. (CR, 151-159). Cash Biz procured
criminal convictions as a matter of law. See Browning-Ferris Indus., Inc. v.
Lieck, 881 S.W.2d 288, 293 (Tex. 1994). Therefore, Cash Biz’s argument it
could not procure or initiate a criminal prosecution fails. Id.
B. There is Texas Case Law Supporting Waiver
Cash Biz argues this is a case of first impression and there is no Texas
case law specifically addressing its waiver. Cash Biz ignores Texas case law
29
and instead relies on distinguishable, and mostly unpublished, cases from
other states.
In In re Christus Spohn Health Sys. Corp., Debra Slough worked as a
nurse at Christus Spohn Shoreline Hospital. In re Christus Spohn Health
Sys. Corp., 231 S.W.3d 475, 481 (Tex. App.—Corpus Christi 2007, no pet.).
Jesus Alvarez abducted Slough from Christus Spohn's parking garage and
murdered her. Debra Slough's husband, Corey Slough, filed suit against
Christus Spohn individually and on behalf of their three minor children.
During the criminal case of Jesus Alvarez, Christus Spohn moved to hold
Alvarez’s counsel in contempt of court based on alleged discovery abuse in
an attempt to acquire evidence to help Christus Spohn defend the civil case.
In holding that Christus Spohn waived its right to arbitrate because it
substantially invoked the judicial process, the Corpus Christi Court of
Appeals held that Christus Spohn’s actions in the separate criminal matter
was evidence in support of waiver:
Accordingly, we construe Spohn's actions in this
separate lawsuit as part of its strategic plan of
defense in the underlying matter that would be
inconsistent with a right to arbitrate.
Id. at 481.
When you combine the holding in In re Christus Spohn Health Sys.
Corp., with the language in Cash Biz’s arbitration clause which says all
30
disputes, including criminal claims, are to be resolved in arbitration, it is
clear this Court can hold Cash Biz substantially invoked the judicial process
by filing criminal charges against its customers. (CR, 85 and RR, 13, lines
2-10).
Cash Biz ignores Texas law and relies heavily on cases from other
jurisdictions that are factually and legally distinguishable. For example, in
Consorcio Rive, the Court could not even consider the waiver argument
made because waiver was not a defense to arbitration under the Convention
on the Recognition and Enforcement of Foreign Arbitral Awards:
Waiver of the right to arbitrate is not among the
seven defenses to enforcement of a foreign arbitral
award set forth in the Convention. Thus, as a
matter of law, defendant's argument that the
arbitration award should not be enforced by this
Court because plaintiff waived it is unavailing.
Consorcio Rive, S.A. de C.V. v. Briggs Of Cancun, Inc., 134 F. Supp. 2d
789, 795 (E.D. La. 2001).
In Griffin v. Burlington Volkswagen, Inc., the issue of substantially
invoking the judicial process is not even addressed and a waiver argument is
only mentioned by the New Jersey District Court but not analyzed because it
is “clearly without merit.” Griffin v. Burlington Volkswagen, Inc., 411 N.J.
Super. 515, 517, 988 A.2d 101, 102 (App. Div. 2010).
31
Cash Biz also relies heavily on Prescott-Follett, an unpublished
federal case from Louisiana District Court. See Prescott-Follett &
Associates, Inc. v. Delasa/Prescott Follett & Associates, CIV.A. 01-3178,
2002 WL 31528463 (E.D. La. Nov. 8, 2002). Cash Biz manipulates the
language of Prescott-Follett to make it appear as if that case is on point. It is
not. In Prescott-Follett, the dispute was between Prescott–Follett and
Delasa/Prescott, two companies litigating over the operating agreement
entered into by both companies. Id. After the operating agreement litigation
commenced, Delasa/Prescott filed charges in Nicaragua against Talavera
and Wheelock, shareholders of Prescott–Follett, for theft. Id. Neither
Talavera nor Wheelock were parties to the operating agreement lawsuit,
neither were signatories to the operating agreement containing the
arbitration clause, and their criminal charges in no way related to the
operating agreement which contained the arbitration clause. Id.
In Prescott-Follett, the court held the filing of criminal charges
against Talavera and Wheelock, two non-parties and non-signatories, could
not substantially invoke the judicial process because they were non-parties:
Accordingly, the Court fails to see how litigation
against a non-party to an agreement can result in a
waiver of arbitration rights pursuant to that
agreement. Further, defendants' actions in filing
proceedings against Talavera for theft of funds
could not have resulted in any detriment or
32
prejudice to plaintiffs with respect to this action.
Plaintiffs were not even parties to the litigation
against Talavera and did not have to bear the
expense of burdensome litigation. Plaintiffs'
claims against defendants for breach of the
operating agreements are unrelated to any claims
against Talavera, individually, for alleged theft of
funds. Consequently, the Court finds that any
proceeding by defendants against Talavera,
whether civil or criminal, did not result in a waiver
of arbitration rights in this matter. See Subway,
169 F.2d at 328 (holding that franchisor did not
waive right to arbitration under franchise
agreement by filing previous lawsuit against
franchisees where the earlier action involved
claims that were different from the one the
franchisor now sought to arbitrate); Amalgamated
Local No. 55, United Automobile, Aerospace &
Agricultural Implement Workers of America v.
Metal and Alloy Division of Silver Creek Precision
Corporation, 396 F.Supp. 667, 670
(N.D.N.Y.1975)(finding that union did not waive
arbitration under collective bargaining agreement
by filing criminal charge against one of employer's
officers where criminal action was based upon
different issues than those before the court and
was brought against an individual and not the
defendant corporation).
Prescott-Follett & Associates, Inc. v. Delasa/Prescott Follett & Associates,
CIV.A. 01-3178, 2002 WL 31528463, at *4 (E.D. La. Nov. 8, 2002).
Prescott-Follett, and the cases relied on by the court, hold that filing
criminal charges against non-parties and non-signatories does not
substantially invoke the judicial process. In this case, Cash Biz filed
criminal charges against Appellees, who are both parties and signatories to
33
the contracts. Further, Prescott-Follett, holds if the criminal charges are for
specific claims “it subsequently wants to arbitrate” then it could
substantially invoke the judicial process. See Prescott-Follett & Associates,
Inc. v. Delasa/Prescott Follett & Associates, CIV.A. 01-3178, 2002 WL
31528463, at *4 (E.D. La. Nov. 8, 2002). That is exactly what Cash Biz did
in the criminal courts of Texas.
C. Cash Biz’s Illegal Activities Prejudiced Appellees
Cash Biz, in not even addressing Appellees’ prejudice, stipulates
Cash Biz caused actual prejudice to Appellees. Cash Biz could not address
prejudice because the record is clear Appellees were prejudiced. (CR, 186-
245). Appellees incurred costs and fees in the criminal court. (CR, 186-
245).
Any evidence of costs or fees incurred by a party is evidence of actual
prejudice. See Southwind Group, Inc. v. Landwehr, 188 S.W.3d 730, 737
(Tex. App. –Eastland 2006, orig. proceeding). The evidence attached shows
Appellees incurred substantial fines, court costs, and fees as a result of Cash
Biz’s improper criminal actions for civil debts. (CR, 186-245).
PRAYER
Cash Biz knowingly violated Sections 393.201(c) and 393.201(c) of
the Texas Finance Code and is attempting to avoid punishment by relying
34
on the arbitration clauses and class action waivers it forced its customers to
sign. Based on the evidence presented, it is clear the arbitration clause and
class action waiver relied on by Cash Biz are not applicable in this case and
Cash Biz’s request to enforce the arbitration clauses and class-action
waivers should be denied. Further, Cash Biz waived its right to arbitration
by substantially invoking the judicial process when it filed criminal charges
against Plaintiffs, participated in criminal trials, obtained criminal
judgments, threatened to send people to jail, sent people to jail, and
attempted to collect from Plaintiffs.
For these reasons, Appellees ask this Court to affirm the trial court’s
order denying Cash Biz’s application to compel arbitration and to enforce
class action waiver.
Respectfully Submitted,
HANSZEN LAPORTE
/s/ Daniel R. Dutko
DANIEL R. DUTKO
State Bar No. 24054206
11767 Katy Freeway, Suite 850
Houston, Texas 77079
(713) 522-9444 phone
(713) 524-2580 fax
35
CERTIFICATE OF COMPLIANCE
Pursuant to Rule 9.4(i)(2)(B) of the Texas Rules of Appellate
Procedure, the undersigned certifies this Brief complies with the Rule’s
word limits. The word count of the Brief from page 1 through page 30 is
7,504 words, excluding the parts of the brief exempted by Rule 9.4(i)(1).
This word count is based on the count provided by the “word count”
function of Microsoft Word 2010, which is the computer program used to
prepare this Brief.
CERTIFICATE OF SERVICE
I hereby certify that on October 5, 2015, a true and correct copy of the
foregoing was sent by E-service in accordance with TEX. R. CIV. P.
21a(a)(1) in accordance with TEX. R. CIV. P. 21a to the following counsel
of record:
Sumit K. Arora
Edward S. Hubbard
Coats Rose
9 Greenway Plaza, Ste. 1100
Houston, Texas 77046
/s/ Daniel R. Dutko
Daniel R. Dutko
36
State Punishes Payday Lender for Criminalizing Debt
News Culture
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State Punishes Payday
Lender for
Criminalizing Debt
A year and
a half after
the
Observer
by Forrest Wilder
documented @Forrest4Trees
hundreds of
Published
examples of Wed, Apr 22, 2015
at 11:35 am CST
payday loan
Courtesy of Taber Andrew Bain via Flickr
companies
using the
criminal justice system to pursue unpaid loans, state regulators
have taken action against one company. In December, the
Office of Consumer Credit Commissioner ordered Ohio-based
Cash Biz to pay a $10,000 fine and provide more than $16,000
restitution to 51 customers the company filed criminal
http://www.texasobserver.org/state-punishes-illegal-payday-loan-lender/[10/5/2015 6:03:46 PM]
State Punishes Payday Lender for Criminalizing Debt
complaints against. In a legal filing obtained by the Observer,
Cash Biz, which has 16 Texas locations, agreed that it had
“referred its customers for prosecution based on an erroneous
belief that a person commits a crime by issuing a check that is
later dishonored.”
State law prohibits payday and title loan businesses from even
threatening borrowers with criminal action, except in unusual
circumstances. And the Texas Constitution states plainly that
“no person shall ever be imprisoned for debt.” Nonetheless,
many local DAs and justices of the peace serve as de facto debt
collectors for the industry, and some people with small payday
debts have ended up in jail. Payday and title lenders in Texas
can effectively charge unlimited fees for loans, which often
carry APRs of 500 percent or more. In December, Texas
Appleseed released a report documenting more than 1,500
criminal complaints filed by 13 different payday loan
companies since 2012. Many resulted in fines, arrest warrants
and even jail time.
Eamon Briggs, assistant general counsel with the Office of
Consumer Credit Commissioner, said this was the first time the
agency had penalized a company for the practice.
“This certainly appears to be a growing trend and we’re
working to make sure our licensees know they can’t be making
these referrals unless they have specific concrete evidence of
fraud, forgery or other criminal conduct,” Briggs said. “It’s
http://www.texasobserver.org/state-punishes-illegal-payday-loan-lender/[10/5/2015 6:03:46 PM]
State Punishes Payday Lender for Criminalizing Debt
simply not permissible or within the intent of this prohibition to
allow [payday and title lenders] to make referrals and simply
rely on the DA to decide whether or not there are merits to the
claim. We’re working to make sure everyone knows that this is
not an acceptable practice.”
Briggs said OCCC asks lenders during an examination process
whether they rely on the criminal justice system to collect on
bad debt. But “people don’t always answer that question during
the examination process truthfully.” The agency relies largely
on consumer complaints and information supplied by consumer
advocacy groups like Texas Appleseed to catch violations.
Ann Baddour, of Texas Appleseed, said she was pleased that
OCCC had taken action against Cash Biz but said the
punishment fell short.
“It’s not sufficient because it doesn’t address any of the
detrimental impacts it had on these individuals,” she said. “It
doesn’t expunge that charge from their record” or fix damaged
credit scores. “It’s basically a refund at value, there’s no
additional penalty.” It also doesn’t consider how much Cash
Biz might have gained financially from threatening customers
who made payments directly to the company but not a DA’s
office.
“It does seem like me that it’s not a sufficient penalty to create
a disincentive for this behavior,” Baddour said.
http://www.texasobserver.org/state-punishes-illegal-payday-loan-lender/[10/5/2015 6:03:46 PM]
State Punishes Payday Lender for Criminalizing Debt
OCCC says it’s looking into 13 other payday companies
documented by Texas Appleseed as filing criminal complaints
against customers. But despite the attention by regulators—not
to mention the fact that the practice is illegal—it continues.
The agency and consumer advocates want the Legislature to
clarify, again, that criminalizing payday debt is not allowed.
Several bills would do that but only one—Senate Bill 1650 by
Sen. Kevin Eltife (R-Tyler), considered the weakest—has even
gotten a hearing. House Bill 3058, by Rep. Helen Giddings (D-
Dallas), would put the prohibition in the Penal Code and allow
both consumers and the Texas attorney general to sue a
wayward lender.
Giddings says her measure is needed to “protect citizens that
are being taken advantage of by these predatory lenders.”
But even something that simple, and relatively uncontroversial,
is difficult to move through the Legislature. The Giddings bill
is not among a handful of consumer loan bills being heard by
the House Investments & Financial Services Committee on
Wednesday. Lawmakers seem loath to touch anything that has
to do with payday lending after back-to-back sessions that
featured nasty, and ultimately unsuccessful, efforts to bring any
regulation to the $5 billion industry.
“There’s not a desire to pass any meaningful payday bills” this
session, said Baddour.
http://www.texasobserver.org/state-punishes-illegal-payday-loan-lender/[10/5/2015 6:03:46 PM]
State Punishes Payday Lender for Criminalizing Debt
Forrest Wilder, a native of Wimberley, Texas, is the editor of the
Observer.
Read More: jail, payday loan, title loan
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
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Fast Cash: How Taking
Out a Payday Loan
Could Land You in Jail
Payday loan companies have a new debt-
collection tool: Texas courts and prosecutors.
When by Forrest Wilder
@Forrest4Trees
Roger
Tillman Published
lost his job, Tue, Jul 16, 2013
at 11:49 am CST
he knew
money
would be
tight. But he
Jen Reel
never
Speedy Roo, the mascot of the payday loan lender Speedy
Cash, in an Austin advertisement. thought he
could end
up in jail for being broke.
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
Tillman’s job as a late-night security guard in Houston had
paid $9 an hour, and by picking up extra shifts, Tillman could
just afford rent, groceries and other bills. But in 2008, amid the
economic collapse, the security company scaled back overtime
shifts, straining his finances. Worried that he couldn’t pay his
bills, Tillman reluctantly went to The Money Center, a payday
loan company with locations in San Antonio and Houston.
He took out a $500 loan. The 64-year-old Houstonian doesn’t
recall the exact terms of the loan, but The Money Center’s
website currently offers a $500 loan at 650 percent annual
interest, or about $150 in fees and interest for a two-week loan.
Such terms are common in Texas, where payday and car title
lenders are allowed to charge customers unlimited fees.
Like many low-income borrowers, Tillman found he couldn’t
fully pay off the loan when it came due. Instead, the lender
offered to roll it over for another two weeks and tack on
another round of fees. Tillman took on more payday loans to
pay off the original loan and soon found himself in deepening
debt. And then, in October 2009, he was laid off.
Tillman said he lost his job on a Wednesday and by Friday he
was calling The Money Store to ask for an extended payment
plan. No one called back. With his bank account empty and
hoping to avoid overdraft fees, Tillman halted the automatic
withdrawals he had set up for monthly payments on his payday
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
loans. Eventually, he reached a manager at The Money Store.
“His statement was that ‘I hope you don’t get stopped by the
police, because I’m filing a theft by check charge against
you,’” Tillman said. “I didn’t say anything. I was floored,
because I was expecting to work out a payment plan.”
It was no idle threat. In November 2009, The Money Center,
which is the operating name for a company called Marpast of
Texas, filed a criminal complaint against Tillman with the
Bexar County district attorney in San Antonio. Tillman soon
received a letter from the DA, demanding that Tillman pay
Marpast $1,020 within 10 days or potentially face felony theft
charges that carry two to 20 years in jail and fines up to
$10,000. In all, the district attorney demanded $1,250,
including “district attorney fees” of $140 and merchant fees of
$90.
Tillman was shocked and scared. When his daughter graduated
from basic training at Lackland Air Force Base in San Antonio,
Tillman almost didn’t attend out of fear that there was a
warrant for his arrest in San Antonio.
“I’m innocent here,” he said, “other than losing my job and an
inability to pay. I tried to get on a payment plan. If my
intention was to duck and dodge, why would I even call them?”
In Tillman’s case, however, the debt collectors weren’t exactly
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
lying: He could be arrested for not paying his payday loan
debt.
An Observer investigation has found at least 1,700 instances in
which payday loan companies in Texas have filed criminal
complaints against customers in San Antonio, Houston and
Amarillo. In at least a few cases, people have ended up in jail
because they owed money to a payday loan company. Even
when customers avoided jail, the Observer has found, payday
loan companies have used Texas courts and prosecutors as de
facto collection agencies.
This is despite state laws that forbid payday loan companies
from even threatening to pursue criminal charges against their
customers, except in unusual circumstances. The law
specifically prohibits theft charges when a post-dated check is
involved. (Most payday loans require borrowers to provide a
post-dated check or debit authorization to get the money.) The
state Office of Consumer Credit Commissioner has advised the
payday loan industry that “criminal charges may be pursued
only in very limited situations” where it can be proven that a
borrower knew a check would bounce.
The Consumer Service Alliance of Texas, a trade association
representing 80 percent of Texas’ payday and title loan
companies, is even more strict about the practice. “Members
will not threaten, or pursue, criminal action against a customer
as a result of the customer’s default on a credit service
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agreement,” according to the group’s website.
“I think the idea of debtors’ prison is offensive to most people
and that’s why we have prohibited this in the law,” said Ann
Baddour of Texas Appleseed, an Austin-based organization that
advocates for the poor. “It’s clearly established in the law that
unless there’s criminal intent on the part of the borrower,
there’s not an option to pursue criminal charges.”
Still, payday lenders have found courts and prosecutors willing
to take cases. The practice threatens to jail people for debt.
Until debtors’ prisons were banned 180 years ago, Americans
could be jailed for years for owing just a few pennies. The
costs of incarceration, though minimized by squalid prison
conditions, often grossly exceeded the debts, suggesting that
punishment was the overriding motive.
In the first two decades of the 19th century, humanitarians
confronted authorities in several states with a litany of abuses,
and the public came to see the practice of jailing debtors as
repugnant. New York was the first state to abolish
incarceration for debt. Other states followed, and Congress
passed a federal statute banning the practice in 1833.
The Republic of Texas Constitution, drafted just a few years
later, in 1836, establishing Texas as an independent nation,
declared, “No person shall be imprisoned for debt in
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
consequence of inability to pay.”
In some respects, Texas law tilts strongly toward debtors’
rights. Texans’ property is largely shielded from seizure by
creditors. Wages can’t be garnished for consumer debt.
But it’s nonetheless increasingly common for people to be
arrested for unpaid debts, including in Texas. In 2011, The
Wall Street Journal reported that more than a third of states
allow borrowers who can’t or won’t pay debts to be jailed,
even in states that prohibit debtors’ prisons. Debt-collectors and
other financial firms, the newspaper reported, are suing
borrowers over unpaid credit cards, consumer loans, auto loans
and other debts. Many people report never receiving a notice of
the lawsuit and end up with an arrest warrant obtained through
the courts. However, in Tillman’s case and others in Texas,
some payday lenders have found an even more direct way to
harness the power of the criminal-justice system.
The Observer has found a justice of the peace in Harris County
who has handled almost 300 hot-check cases, a Class C
misdemeanor, for Cash Biz, an Ohio-based payday lender with
24 locations in Texas. Though Class C misdemeanors rarely
carry jail time, at least a few people have served time in the
Harris County jail to work off their debt, at $300 a day.
Christina McHan failed
to repay a $200 loan
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
from Cash Biz near
Houston. In November
2012 she was arrested,
pleaded guilty, and was
assessed $305 in
additional fines and
court costs. She spent a
night in jail to “pay off”
the debt.
In Amarillo, the wife of a military veteran with 23 years of
service complained to the Office of Consumer Credit
Commissioner that the Potter County Attorney was pursuing
theft charges against her husband even though the couple was
in bankruptcy. “My husband is a good man!” she wrote to the
credit commissioner. “He has never done anything wrong, he
fought for this country for 23 years … and now the Potty [sic]
County Attorney wants to prosecute him for a payday loan.”
In an emailed response to questions from the Observer,
Assistant Potter County Attorney T. Eric Dobbs wrote that his
office doesn’t receive many cases from payday lenders, but the
ones they do get typically involve a borrower who has closed
their bank account after taking out a loan, or someone who
“could not keep up with the recurring fees so they stopped
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paying in hopes that a case will be presented to our office.”
Dobbs didn’t respond to follow-up questions, including why a
borrower would hope to face criminal prosecution.
Belinda Cinque, the hot-check clerk for Justice of the Peace
Tom Lawrence in the Houston suburb of Humble, said she has
little choice but to take payday lenders’ criminal complaints.
“If all of the elements match, I’ve got to take it,” she said. But
she expressed discomfort with the situation, noting that the vast
majority of borrowers had either lost their jobs or had their
hours reduced at work. “Correct me if I’m wrong, but they
sound like sharks,” Cinque told me. At some point last year,
she started getting calls from people—some in tears—making
payments to Cash Biz through the court. A collection agency
was “threatening them that they were going to be taken to jail,”
Cinque said. To her, it sounded like the debt was being
collected from two directions—a debt-collection company and
through the court. She told Cash Biz to stop filing hot-check
complaints as long as the company was using debt collectors.
The court, Cinque said, gives borrowers as much time as
possible to pay and tries to avoid issuing warrants.
Almost all of the cases in Lawrence’s Harris County court
emanate from Cash Biz, which appears to have found a way
around the prohibition on prosecuting “held” or post-dated
checks. Most payday loan companies in Texas have their
customers fill out a post-dated check or authorize an electronic
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
debit from a checking account for a future date. When the loan
is due, the company either cashes the check or debits the
account. That is, unless the customer doesn’t have the money
and wants to “roll over” the loan. Cash Biz, on the other hand,
gets checks from their customers dated for the day of the
transaction. If the customer doesn’t come in and pay on the
loan before the due date, the company can try to cash the
check. If it bounces, then the company claims it has the basis
for a hot-check charge. (Reached by phone, Cash Biz President
David Flanagan said he would have someone else in the
company call me back. No one did.)
Baddour, the consumer advocate, said that Cash Biz’s
“innovation” points to a persistent problem with the payday
loan industry in Texas.
“What we’ve seen over and over again is that [payday lenders
in Texas] are pushing the limits of the law, always finding the
loopholes, finding ways to navigate through the law,” she said.
Still, it’s not clear that the Cash Biz model is kosher. Taking
out a payday loan isn’t like writing a hot check for groceries.
Regardless of when you date the check, you’re borrowing
money because you don’t have any. The promise is that you
will eventually pay the money back with interest. In the payday
loan model, the check is security for the loan, not payment.
Asked about the Cash Biz prosecutions in Harris County, Rudy
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
Aguilar, director of consumer protection for the state Office of
Consumer Credit Commissioner, responded, “We don’t believe
that it would be appropriate in that scenario to move forward
with those charges,” he said. “Now, we can’t tell that J.P. court
how to interpret this.” Aguilar said the agency was unaware
that the justice of the peace court in Humble was pursuing
criminal charges against Cash Biz customers.
Defense attorney Jeff Ross, who specializes in hot-check cases
in Houston, said that payday loan customers aren’t committing
a crime, because the payday lender accepts the check knowing
that it’s not good at the time the loan is given.
“If I want to be a hard-ass about it I’d say, ‘Listen we’re not
going to pay a nickel,’” Ross said. “This doesn’t even belong in
this court. It’s a hold check and therefore it’s not a criminal
case.” While he doesn’t see anything patently illegal about the
JP court’s practice, the intent is clear. “The payday loan people
file with the JP court and use them as muscle to collect their
money.”
As Roger Tillman began looking into how to avoid jail time,
he grew angry. He wrote letters to Marpast, the state Office of
the Consumer Credit Commissioner and the Bexar County DA.
His complaint to the credit commission triggered an
investigation.
Marpast would later tell the state Office of Credit Consumer
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Commissioner in writing that it had submitted the debt to the
Bexar County DA “for collection purposes.” Indeed, First
Assistant District Attorney Cliff Herberg described the hot-
check division as “an assembly line process” in which “the vast
majority of [cases] don’t get prosecuted.”
So is the DA’s office functioning as a debt-collection service
for payday lenders?
“Well, we send a letter out,” Herberg told the Observer.
“That’s part of the services that are offered.” The DA, he said,
can’t decide which merchants to work with or not, even if
“payday lenders may not be the favorite in the community.”
Herberg said his office won’t prosecute cases in which a
payday loan is involved unless there’s a clear case of fraud or
deception. “If it’s for a loan, they’re not going to submit them
to a criminal prosecution, it would be for collections purposes
only.” However, the collections letters from the Bexar County
DA threaten arrest, jail and criminal prosecution—an
inconsistency that the credit commission noted in its
correspondence with Marpast.
“You would think that if this was a legitimate fraud or
suspected fraud or suspected theft by check, that would’ve
come up somewhere in the letter” from Marpast to the credit
commission, Tillman said. “Because [Marpast] knew and the
DA for that matter knew it was bullshit. It was an attempt to
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collect on a debt by coercion.”
There were other details that bothered Tillman. For one, the
outstanding loans were for $500 and $350, respectively, not the
$1,020 that Marpast was demanding. He also bristled at the
thought that the Bexar County DA’s office was profiting from
its collections letters.
“When you multiply a $140 processing fee times a 1,000 or
2,000 or 3,000 people who are delinquent, that’s a hell of a lot
of money. That’s a way of putting money in your coffers. And
all you’ve got to do is put something down on your letterhead.”
In all, the Bexar County DA has accepted more than 1,400
criminal complaints from payday lenders since 2009 totaling
almost $373,000, according to records from the DA’s office
obtained by the Observer.
The Office of Credit Consumer Commissioner has occasionally
told payday lenders to stop seeking criminal charges against
customers, but the agency has no jurisdiction over judges or
prosecutors. After Tillman wrote to the consumer credit
commissioner in August to complain about his situation, the
agency investigated. In a September letter to Marpast, the
agency instructed the company to “advise the DA’s office to
cease collection activities on all checks” forwarded by Marpast.
This should keep Tillman and other borrowers out of jail.
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Fast Cash: How Taking Out a Payday Loan Could Land You in Jail - The Texas Observer
While the commission ordered Marpast to stop, its policing in
general is spotty.
Since the Texas Legislature assigned the agency the duty of
overseeing payday and title loans in 2011, it’s been stretched
thin. The consumer credit commission has 30 field examiners
to cover 15,000 businesses, including 3,500 payday and title
lenders.
“Although I’d love to take a bunch of folks and go at that one
issue,” said Aguilar, the director of consumer protection, “I
don’t have that luxury at the moment.” Aguilar said his team
finds violators when consumers complain or when the agency’s
examiners visit one of the stores for an inspection. Only two
customers, including Tillman, have ever complained to the
commission.
“It’s a difficult situation,” Aguilar said. “People get put in
tough situations where they’re just not armed with enough
knowledge to deal with [payday lenders], and they get
intimidated. If somebody calls you and tells you that you’ve
violated the law in a criminal manner, that’s going to get your
attention and shake you up.”
Forrest Wilder, a native of Wimberley, Texas, is the editor of the
Observer.
Read More: jail, payday loan, title loan
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