David Jason West and Pydia, Inc. D/B/A www.bankopp.com v. State of Texas ( 2006 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-05-00724-CV
David Jason West and Pydia, Inc. d/b/a
www.bankopp.com, Appellants
v.
State of Texas, Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. GV504584, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING
OPINION
In this interlocutory appeal, we must determine whether the district court abused its
discretion by granting the State’s request for a supplemental temporary injunction and asset freeze
against appellants, David West and Pydia, Inc. d/b/a www.bankopp.com (collectively “West”). In
three issues, West asserts that the district court erred by granting the temporary injunction because
the State did not demonstrate (1) a probable right to recovery or (2) a probable injury, and (3) the
order did not specifically state the reasons for its issuance. Because we hold that the district court
did not abuse its discretion, we affirm the supplemental temporary injunction order.
BACKGROUND
At the supplemental temporary injunction hearing, the court admitted evidence of a
printed copy of West’s Web site, testimony from an investigator employed by the Consumer
Protection and Public Health Division of the Texas Attorney General’s office, and documents from
Hibernia National Bank in Baton Rouge provided in response to the State’s civil investigative
demand. The investigator’s testimony and the Web site evidence revealed that West used an Austin
radio commercial, a recorded telephone message (identified as a “phone overview”), and a Web site
to advertise meetings at a local hotel about a “banking opportunity” that would allow any “U.S.
Citizen” to pay off all personal debt—including “credit cards, mortgages, student loans, vehicles,
loans, IRS settlements, and back child support”—before December 31, 2005, by securing a “loan”
from an unnamed bank. West’s “www.bankopp.com” Web site also stated that “David [West] found
a Bank that is willing to give individuals loans to pay off their debts. Then the Bank is willing to
turn around and forgive that loan so it doesn’t have to be paid off.” It asserted that “two little known
banking practices . . . Fractional Banking and Forgiven Loans” made this “one shot opportunity”
possible. The site claimed that although “this opportunity is legal,” the “Federal Reserve will
undoubtedly close the loopholes that allowed the project to take place this once. While the system
intended on well connected, wealthy individuals to be able to take advantage of this, it was never
intended that regular every day people would gain access to it.”
The site further claimed that the unnamed bank had agreed to pay off $100 million
in debt and that “[the] project is about David [West]’s looking for others to add their debt to the pile
David started.” The idea was to accumulate $100 million in debt for the bank to “fractionalize then
2
forgive” so that “the bank can make money and the folks with David can get out of debt.” The site
claimed that, after “David told his 10 closest friends about the project,” word spread quickly
throughout Louisiana and Mississippi. The site also explained that West accelerated its marketing
of the project following Hurricane Katrina:
After Hurricane Katrina hit the area he had been putting the word out in, David
switched gears to Radio advertising across the South and is now starting a hectic
schedule of FREE open meetings in major Southern Cities. These Open Meetings
will have hundreds of people in attendance and are expected to help reach[] the goal
of $100 Million in debt before Thanksgiving. This would leave plenty of time for the
bank to pay before December 31st (the bank only needs 10 business days).
As a signal of their “commitment to be involved with the project,” the site asked
participants to deposit a wire transfer of $5,000 to a bank account in Panama, or to the “Del Sur
International Holdings” account with Hibernia National Bank in Baton Rouge. According to the site,
after the money was submitted, the bank would perform a financial analysis and might contact the
participant to discuss any issues: “[T]he bank will analyze each project member’s debt and provide
feedback if there are concerns.” Also after wiring their $5,000 “commitment/deposit money,” the
site stated that participants would receive a document “guarantee[ing] that the loan that [they] are
signing will be forgiven and that [they] will not have to pay it back!” Visitors to the Web site were
not informed that the Del Sur International Holdings account, to which the $5,000 wire transfers
were directed, was the sole proprietorship of David West.
The State filed suit under the Deceptive Trade Practices-Consumer Protection Act,
Tex. Bus. & Com. Code Ann. §§ 17.46 (a)-(b), .47 (West Supp. 2005) (“DTPA”) against David
3
West, Roxana Suadi West,1 Carlos M. Suadi, and Pydia, Inc. d/b/a www.bankopp.com, seeking civil
penalties and injunctive relief based on the debt elimination “service for sale to consumers.” The
State obtained a temporary restraining order and temporary injunction against West, preventing any
further marketing in Texas of the “banking opportunity.”2
After learning that David West attempted to withdraw all funds from the Baton Rouge
account to which the participants’ $5,000 wire transfers had been directed,3 the State obtained a
supplemental restraining order, freezing the funds in the Hibernia bank account. The State also
sought to convert the supplemental restraining order into a supplemental temporary injunction,
maintaining the freeze on the account. Following a hearing on October 25, 2005, the district court
entered an order preventing David West, Roxana Suadi West, Carlos M. Suadi, and Pydia, Inc. d/b/a
www.bankopp.com from accessing the Hibernia bank account.
Specifically, the order enjoined them (and those associated with them) from
• transferring, spending, hypothecating, concealing, encumbering, withdrawing,
removing or allowing the transfer, removal, or withdrawal of any funds from
Account # [], held at Hibernia National Bank; and
• transferring, spending, hypothecating, concealing, encumbering, withdrawing,
removing or allowing the transfer, removal, or withdrawal of any funds from any
1
Roxana Suadi West and Carlos M. Suadi are not parties to this appeal. The State’s petition
implicates them by alleging that the radio advertisements for the “debt elimination” seminar were
paid by Pydia, Inc. with West’s and Suadi’s credit cards. The petition also alleges that Roxana West
paid for the seminar room at the hotel where the meetings were scheduled.
2
David West and Pydia, Inc. d/b/a www.bankopp.com (collectively “West”) did not appeal
from this temporary injunction.
3
The State made this assertion, which West did not dispute, at the supplemental temporary
injunction hearing.
4
other financial institution and/or account into which Defendants have placed or
caused to be placed, funds from consumers to participate in Defendants’ “bank
opportunity.”
The order also set the case for trial.
West appeals only from the district court’s October 25 supplemental temporary
injunction order that froze the assets in the Hibernia bank account. It asserts that the district court
abused its discretion by entering the supplemental temporary injunction because the State did not
demonstrate (1) a probable right to recovery or (2) a probable injury, and (3) the order did not
specifically state the reasons for its issuance. We consider each of these assertions.
DISCUSSION
Standard of review
The purpose of a temporary injunction is to preserve the status quo of the litigation’s
subject matter pending trial on the merits. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex.
2002). Because the decision to grant or deny a temporary injunction lies within the sound discretion
of the trial court, we will not disturb that decision absent a clear abuse of discretion. Id. at 204. We
view the evidence in the light most favorable to the trial court’s order, indulging every reasonable
inference in its favor. Brammer v. K.B. Home Lone Star, L.P., 114 S.W.3d 101, 105-06 (Tex.
App.—Austin 2003, no pet.). This Court may not substitute its judgment for that of the trial court
unless its action was so arbitrary that it exceeded the bounds of reasonable discretion. Butnaru, 84
S.W.3d at 204. The trial court does not abuse its discretion if some evidence reasonably supports
its decision. Id. at 211.
5
Probable right to recovery
In its first issue, West argues that the district court erred in granting the temporary
injunction because the State did not demonstrate a probable right to recovery. West asserts that the
transaction at issue is a loan of money, which is neither a “good” nor a “service” under the DTPA.
See Riverside Nat’l Bank v. Lewis, 603 S.W.2d 169, 174 (Tex. 1980); see also Tex. Bus. & Com.
Code Ann. § 17.45(1), (2) (West 2002). West argues that the DTPA applies to transactions in which
the borrower’s objective is to purchase or lease goods or services, but the DTPA is inapplicable if
a borrower’s objective is merely an attempt to acquire money. See La Sara Grain Co. v. First Nat’l
Bank of Mercedes, 673 S.W.2d 558, 566-67 (Tex. 1984); Megason v. Red River Employees Fed.
Credit Union, 868 S.W.2d 871, 872 (Tex. Civ. App.—Texarkana 1993, no writ).
The State responds that West’s “banking opportunity” is not a “loan” because it
specifies that repayment is unnecessary. Cf. Tex. Fin. Code Ann. § 301.002(a)(10) (West Supp.
2005) (defining “loan” as “an advance of money that is made to or on behalf of an obligor, the
principal amount of which the obligor has an obligation to pay the creditor”). Alternatively, the State
argues that West is offering a loan forgiveness service.
The district court’s finding of a probable right to recovery under the DTPA is
supported by the evidence that West’s Web site, offers a service—specifically, the elimination of
debt—in exchange for $5,000. According to the site, after the money was submitted, “the bank
[would] analyze each project member’s debt and provide feedback if there are concerns.” The site
also informed the public that, after wiring $5,000, participants would receive a document
6
“guarantee[ing] that the loan that [they] are signing will be forgiven and that [they] will not have to
pay it back!”
“Services” are defined in the DTPA as “work, labor, or service purchased or leased
for use, including services furnished in connection with the sale or repair of goods.” Tex. Bus. &
Com. Code Ann. § 17.45 (2). The State’s suit complains that West’s service violates the DTPA
because it (1) fails to disclose the factual basis for its representations that David West has found a
bank willing to give individuals “loans” to pay their debts without expectation of repayment and (2)
encourages consumers to wire $5,000 to an account that is not identified as belonging to David West.
The debt elimination opportunity that West offered is similar to the function of a
“credit services organization,” defined in the finance code as
a person who provides, or represents that the person can or will provide, for the
payment of valuable consideration, any of the following services with respect to the
extension of consumer credit by others:
(A) improving a consumer’s credit history or rating;
(B) obtaining an extension of consumer credit for a consumer; or
(C) providing advice or assistance to a consumer with regard to Paragraph (A) or
(B).
Tex. Fin. Code Ann. § 393.001 (West 1998). A credit services organization is prohibited from
making false or misleading representations in the offer or sale of its services, including any
unfounded guarantees to “erase bad credit” or to obtain an extension of consumer credit “regardless
of credit history.” Id. § 393.304 (West 1998). A violation of chapter 393 is actionable under the
DTPA. Id. § 393.504 (West 1998).
7
One company was held to have been a credit services organization based on its:
• television commercials “targeting consumers with debt problems and urging them
to contact [the company] for relief from these woes;”
• printed materials informing a debtor that it could assist in obtaining and repairing
credit; and
• Web site, which stated that the company could provide advice or assistance to
“empower debtors [to] make an informed decision on how to manage, service or
liquidate their debts.”
In re Zuniga, No. 05-33416-H4-7, 2005 Bankr. LEXIS 2037, at *56-58 (Bankr. S.D. Tex. Sept. 22,
2005) (applying Texas law). These activities parallel West’s “banking opportunity”—advertised on
the radio, in a telephone message, and on the Web—offering debt elimination, for $5,000 as
specified on the Web site, to any “U.S. Citizen” for any type of debt through a “loan” that would not
require repayment. The service West promoted on its Web site included financial analysis, by which
“the bank [would] analyze each project member’s debt and provide feedback if there are concerns.”
We conclude that the district court did not abuse its discretion in determining that the
State demonstrated a probable right to recovery under the DTPA. We overrule West’s first issue.
Probable injury
In its second issue, West argues that the district court erred in granting the temporary
injunction because the State did not demonstrate a probable injury prior to final trial on the merits.
Butnaru, 84 S.W.3d at 204. Probable injury includes elements of imminent harm, irreparable harm,
and lack of an adequate remedy at law. Universal Health Servs., Inc. v. Thompson, 24 S.W.3d 570,
8
577 (Tex. App.—Austin 2000, no pet.) (citing Surko Enters., Inc. v. Borg-Warner Acceptance Corp.,
782 S.W.2d 223, 225 (Tex. App.—Houston [1st Dist.] 1989, no writ)).
West argues that the State did not produce any competent evidence that money in the
Hibernia bank account in Louisiana belonged to any Texas consumer or that West would dissipate
the funds from the account. The State contends that the common law requirements for a temporary
injunction—including balancing of the equities, proof of irreparable harm or injury, and lack of an
adequate remedy at law—are inapplicable when the State is seeking statutorily-authorized injunctive
relief. See Tex. Bus. & Com. Code Ann. § 17.47(a). Section 17.47 of the DTPA states that
whenever the consumer protection division has reason to believe that any person is
engaging in, has engaged in, or is about to engage in any act or practice declared to
be unlawful by this subchapter, and that proceedings would be in the public interest,
the division may bring an action in the name of the state against the person to restrain
by temporary restraining order, temporary injunction, or permanent injunction the use
of such method, act, or practice.
Id. The Texas Supreme Court has ruled that “when it is determined that [a] statute is being violated,
it is within the province of the district court to restrain it.” State v. Texas Pet Foods, Inc., 591
S.W.2d 800, 805 (Tex. 1979) (affirming award of permanent injunctive relief based on threatened
violation of environmental statutes). The court observed that the doctrine of balancing the equities
had no application to statutorily-authorized injunctive relief. Id.
Texas courts have likewise held that when an applicant relies upon a statutory source
for injunctive relief, such as the DTPA, the statute’s express language supersedes the common law
injunctive relief elements such as imminent harm or irreparable injury and lack of an adequate
remedy at law. See, e.g., Shields v. State, 27 S.W.3d 267, 273 (Tex. App.—Austin 2000, no pet.)
9
(State need not prove likelihood of future violations because injunctive relief available under
Securities Act for past acts alone); Mortgagebanc & Trust, Inc. v. State, 718 S.W.2d 865, 869 (Tex.
App.—Austin 1986, no writ) (express statutory language of Securities Act authorizing injunction
supersedes equitable requirements generally applicable to common law injunctive relief); Rio
Grande Oil Co. v. State, 539 S.W.2d 917, 921 (Tex. Civ. App.—Houston [1st Dist.] 1976, writ ref’d
n.r.e.) (State need only meet statutory provisions of Securities Act and is not required to otherwise
show probable injury); Gulf Holding Corp. v. Brazoria County, 497 S.W.2d 614, 619 (Tex. Civ.
App.—Houston [14th Dist] 1973, writ ref’d n.r.e.) (State need not prove irreparable injury to be
entitled to injunction under Open Beach Act); see also Household Retail Servs., Inc. v. State, No.
04-00-00734-CV, 2001 Tex. App. LEXIS 5893, at *9 (Tex. App.—San Antonio Aug. 29, 2001, no
pet.) (holding that when legislature authorized attorney general to seek injunctions on behalf of
multiple consumers, it determined that past or threatened DTPA violation coupled with public need
constituted sufficient “irreparable risk of harm” to support entry of injunction).
Accordingly, the State argues that, to be entitled to a temporary injunction under the
DTPA, it need only demonstrate to the court its reason to believe that (1) any person is engaging in,
has engaged in, or is about to engage in any act or practice declared to be unlawful by the DTPA, and
(2) that proceedings would be in the public interest. See Tex. Bus. & Com. Code Ann. § 17.47(a).
The fact that a person has ceased its unlawful conduct will not affect the State’s entitlement to
injunctive relief. Id. Furthermore, the DTPA authorizes the court to “make such additional orders
or judgments as are necessary to compensate identifiable persons for actual damages or to restore
money or property, real or personal, which may have been acquired by means of any unlawful act
or practice.” Id. § 17.47(d) (emphasis added).
10
At the October 25 hearing on the supplemental temporary injunction, the State
introduced evidence of West’s “www.bankopp.com” Web site, promoting a “banking opportunity”
that would allow any “U.S. Citizen” to pay off all personal debt—including “credit cards, mortgages,
student loans, vehicles, loans, IRS settlements, and back child support”—before December 31, 2005,
by securing a “loan” from an unnamed bank. The site contained repeated assertions that participants
will not repay the bank because the “loans” will be forgiven. It claimed that “two little known
banking practices . . . Fractional Banking and Forgiven Loans” made this “one shot opportunity”
possible. The site also claimed that although “this opportunity is legal,” the “Federal Reserve will
undoubtedly close the loopholes that allowed the project to take place this once. While the system
intended on well connected, wealthy individuals to be able to take advantage of this, it was never
intended that regular every day people would gain access to it.” The site also asked participants to
deposit a wire transfer of $5,000—as a signal of their “commitment to be involved with the
project”—to a bank account in Panama, or to an account with Hibernia National Bank in Baton
Rouge.
The State also introduced into evidence documents that the Hibernia National Bank
in Baton Rouge, Louisiana provided in response to the State’s civil investigative demand. The
documents included a commercial new account information card for Del Sur International Holdings
and its “sole proprietorship resolution certificate,” along with a copy of a Louisiana driver’s license
issued to David Jason West. These documents show that David West opened a free small business
checking account with $100 cash at Hibernia on August 8, 2005, under the business name of Del Sur
International Holdings. He is the sole owner and signatory on the account. The account number
assigned to the Del Sur International Holdings checking account matches the account number on the
11
Web site to which the participants’ $5,000 wire transfers had been directed. The Web site does not
disclose that the $5,000 transfers of participants’ “commitment money” were deposited into an
account owned by David West.
Based on this evidence, the district court determined that West “may be violating the
DTPA” and that the State’s action “was in the public interest.” Indulging every reasonable inference
in favor of the court’s order as we must, we conclude that there is sufficient evidence to support the
court’s findings in accordance with section 17.47(a). Thus, we overrule West’s second issue.
Specificity of order under rule 683
In its third issue, West claims that the district court’s temporary injunction violated
rule 683 because it did not state the reasons for its order with specificity. See Tex. R. Civ. P. 683.
West argues that the district court’s order does not specifically state the reasons why injury will be
suffered if the interlocutory relief is not ordered. West also faults the order for its failure to state
why the identified probable injury is an irreparable one for which the State has no adequate legal
remedy. Under Rule 683
[e]very order granting an injunction and every restraining order shall set forth the
reasons for its issuance; shall be specific in terms; shall describe in reasonable detail
and not by reference to the complaint or other document, the act or acts sought to be
restrained; and is binding only upon the parties to the action, their officers, agents,
servants, employees, and attorneys, and upon those persons in active concert or
participation with them who receive actual notice of the order by personal service or
otherwise.
Every order granting a temporary injunction shall include an order setting the cause
for trial on the merits with respect to the ultimate relief sought. The appeal of a
temporary injunction shall constitute no cause for delay of the trial.
12
Tex. R. Civ. P. 683.
The State responds that West waived its complaint about the specificity of the court’s
order by failing to object when the court inquired about its agreement to the form of the order.
Because we conclude that the order was sufficiently specific under rule 683, we need not address the
waiver issue.4
4
The record shows that, after an initial objection to the order, West denied any further
objection to its form:
THE COURT: Do you want to take a moment to look at it?
[West’s counsel]: Thank you, Your Honor. (Pause). Your Honor, the proposed
order states that given the exhibits and sworn affidavits
attached thereto, that unless defendants are immediately
restrained from the acts prohibited below, defendants will
dissipate funds obtained from consumers through
misrepresentation. Is that the court’s ruling today?
THE COURT: Well, we didn’t have any sworn affidavits, I don’t think,
introduced into evidence, did we?
[State’s counsel]: No, Your Honor.
THE COURT: Okay. I’ll make that change. Any other objections to the
form?
[West’s counsel]: No, Your Honor.
The State acknowledges that Texas courts are split on whether failure to object to a temporary
injunction order results in waiver on appeal or a fatally defective order. Compare Tex. R. App. P.
33(a)(1); Texas Tech Univ. Health Scis. Ctr. v. Rao, 105 S.W.3d 763, 768 (Tex. App.—Amarillo
2003, pet. dism’d) (finding waiver of complaint about order’s lack of specificity); Shields v. State,
27 S.W.3d 267, 273 (Tex. App.—Austin 2000, no pet.) (same); Emerson v. Fires Out, Inc., 735
S.W.2d 492, 493-94 (Tex. App.—Austin 1987, no writ) (same); with Tex. R. App. P. 683; Monsanto
Co. v. Davis, 25 S.W.3d 773, 789 (Tex. App.—Waco 2000, pet. dism’d w.o.j.) (voiding order for
failure to explain reasons for its issuance); University Interscholastic League v. Torres, 616 S.W.2d
13
 Relying on rule 693, the State responds that “the principles, practice and procedure
governing courts of equity shall govern proceedings in injunctions when the same are not in conflict
with these rules or the provisions of the statutes. Tex. R. Civ. P. 693 (emphasis added); see also
Texas Pet Foods, Inc., 591 S.W.2d at 805 (“When it is determined that the statute is being violated,
it is within the province of the district court to restrain it. . . . [t]he doctrine of balancing the equities
has no application to this statutorily authorized injunctive relief.”).
The State reiterates that section 17.47(a) of the DTPA authorizes the State’s consumer
protection division to bring an action for injunctive relief when “it has reason to believe that any
person is engaging in, has engaged in, or is about to engage in any act or practice declared to be
unlawful by [the DTPA], and that proceedings would be in the public interest.” Tex. Bus. & Com.
Code Ann. § 17.47(a). The DTPA also authorizes the court to “make such additional orders or
judgments as are necessary to compensate identifiable persons for actual damages or to restore
money or property, real or personal, which may have been acquired by means of any unlawful act
or practice.” Id. § 17.47(d). The State contends that the order is proper because it contains the
essential findings that “Defendants may be violating § 17.47(a) and (b) of the Texas Deceptive Trade
Practices-Consumer Protection Act,” and that “this action is in the public interest.”
The court found that the freeze was necessary to prevent West from dissipating funds
in the account to which the participants’ wire transfers had been directed:
355, 358 (Tex. Civ. App.—San Antonio 1981, no writ) (same); Smith v. Hamby, 609 S.W.2d 866,
868 (Tex. Civ. App.—Fort Worth 1980, no writ) (same). We need not address that issue here,
however.
14
[U]nless Defendants are immediately restrained from the acts prohibited below,
Defendants will dissipate funds obtained from consumers through misrepresentations
in violation of the Deceptive Trade Practices Act, before a full trial can be held on
the merits of the State’s claims. To the extent required by law, Plaintiff [State] has
proved that continued violation of these laws will continue to cause Plaintiff and the
general public to suffer irreparable harm.
We conclude that this order complied with the statutory prerequisites under section 17.47(a) of the
DTPA by finding that “Defendants may be violating § 17.47(a) and (b) of the Texas Deceptive Trade
Practices-Consumer Protection Act,” and that “this action is in the public interest.” The order also
satisfied the specificity requirement of rule 683 by finding that, “unless Defendants are immediately
restrained from the acts prohibited below, Defendants will dissipate funds obtained from consumers
through misrepresentations in violation of the Deceptive Trade Practices Act, before a full trial can
be held on the merits of the State’s claims.” Accordingly, we overrule West’s third issue.
CONCLUSION
Based on the record before us, West has not shown that the district court acted outside
the bounds of its reasonable discretion by granting the supplemental temporary injunction.
Accordingly, we affirm the court’s order.
__________________________________________
Bob Pemberton, Justice
Before Chief Justice Law, Justices Puryear and Pemberton
Affirmed
Filed: July 21, 2006
15