In Re First Financial Bank N.A. and Candace Emmerich v. the State of Texas ( 2023 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
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NO. 09-22-00324-CV
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IN RE FIRST FINANCIAL BANK N.A. AND CANDACE EMMERICH
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Original Proceeding
284th District Court of Montgomery County, Texas
Trial Cause No. 21-09-12834-CV
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MEMORANDUM OPINION
Jason Butler shot his wife Rachel then committed suicide. Rachel Butler
survived and sued Relators, First Financial Bank N.A., (the “Bank”) and its loan
officer, Candace Emmerich, alleging that Jason suffered mental pain and stress
associated with the construction of the Butlers’ home, including wrongful acts by
the builder that the Bank made possible by its acts and omissions as the construction
lender. The Bank and Emmerich filed motions to dismiss under Rule 91a and now
seek mandamus relief against the judge who denied their motions. We stayed further
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proceedings in the trial court and requested a response from the Real Party in
Interest, Rachel Butler. We conditionally grant partial relief.
Background
Rachel Butler, acting individually and as heir and personal representative of
Jason’s estate, and as next friend of their three minor children, asserted claims for:
(1) wrongful death and survival; (2) fraud, statutory fraud, and fraud by non-
disclosure; (3) knowing participation in a breach of fiduciary duty; (4) civil
conspiracy; (5) violations of the Fair Credit Reporting Act, Texas Debt Collection
Act, and Deceptive Trade Practices Act; and (6) breach of contract. First Financial
and Emmerich filed Rule 91a motions to dismiss all claims except Butler’s claims
for breach of contract. The Honorable Judge Kristin Bays granted the motions to
dismiss, but she later voluntarily recused herself from the case and the judge
assigned to the case granted Butler’s motion to reconsider, reinstated the dismissed
claims, and denied the Bank’s and Emmerich’s motions to dismiss. The Bank and
Emmerich challenge that ruling in a mandamus petition.
Mandamus Standard
We may issue a writ of mandamus to remedy a clear abuse of discretion by
the trial court when the relator lacks an adequate remedy by appeal. See In re
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Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding);
Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992) (orig. proceeding).
Rule 91a
Rule 91a authorizes trial courts to dismiss a case that “has no basis in law or
fact.” Tex. R. Civ. P. 91a.1. “A motion to dismiss must state that it is made pursuant
to this rule, must identify each cause of action to which it is addressed, and must
state specifically the reasons the cause of action has no basis in law, no basis in fact,
or both.” Tex. R. Civ. P. 91a.2. The trial court must decide the Rule 91a motion
based solely on the pleading of the cause of action, together with the attached
pleading exhibits. See Tex. R. Civ. P. 91a.6. “We review the merits of a Rule 91a
ruling de novo; whether a defendant is entitled to dismissal under the facts alleged
is a legal question.” In re Farmers Tex. Cty. Mut. Ins. Co., 621 S.W.3d 261, 266
(Tex. 2021) (orig. proceeding). “Mandamus relief is appropriate when the trial court
abuses its discretion in denying a Rule 91a motion to dismiss.” Id.We apply the fair notice standard of pleading to determine if the cause of
action has a basis in law or fact. In re Baytown Apt. Grp., LLC, No. 09-22-00186-
CV, 2022 WL 2720456, at *1 (Tex. App.—Beaumont July 14, 2022, orig.
proceeding) (mem. op.); see also Tex. R. Civ. P. 47(a) (“An original pleading which
sets forth a claim for relief . . . shall contain: [] a short statement of the cause of
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action sufficient to give fair notice of the claim[.]”). We construe the pleadings
liberally in favor of the plaintiff, look to the pleader’s intent, and accept as true the
factual allegations in the pleadings. In re Baytown Apt. Grp., LLC., 2022 WL
2720456, at *1. “The pleadings must give notice, not only of the claim and the relief
sought, but also of the essential factual allegations sufficient to enable the defendant
to prepare a defense.” Id. “We inquire whether the defendant can ascertain from the
pleading the nature and basic issues of the controversy and what testimony will be
relevant.” Id.Wrongful Death and Survival
In their motions to dismiss, the Bank and Emmerich argued in part that
Butler’s wrongful death claims lack a basis in fact “because no reasonable person
could believe that [their] acts or omissions concerning the construction loan were a
substantial factor in bringing about the death of Jason Butler by suicide.” They
argued the only fact Butler alleged relating to Jason’s death is, “Jason Butler,
overwhelmed with the stress of Defendants’ actions and omissions, shot Rachel
Butler and then shot himself.” They argued the claims lack a basis in law because
Butler’s pleading failed to demonstrate a viable, legally cognizable right to relief.
Butler amended her petition, in part to further describe the causation element
in her wrongful death and survival claims, as follows:
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The home that was to be constructed was supposed to be the home
where Rachel and Jason raised their family; instead, the home became
a nightmare. The construction of the house at issue, and Defendants’
mishandling of Plaintiffs’ loan proceeds, understandably caused Rachel
and Jason a high degree of mental pain and distress, and it had an
adverse impact on their marriage. On or about November 12, 2017,
Jason Butler, overwhelmed by the stress of Defendants’ actions and
omissions, described above, shot Rachel Butler, and then shot himself.
Rachel survived; Jason did not. The stress and grief caused by Bentley
Builder and Defendants, described above, produced such a rage or
frenzy or impulse in Jason to the point he ended his life and tried to end
his wife’s life, which would not have existed but for Defendants’
actions that they committed directly and in concert with Bentley
Builder.
Butler argues she asserted “allegations about the mental pain and stress
associated with the construction of her home that went sideways, including how tens
of thousands of dollars went missing, which was all made possible by Relators’
actions and omissions.” She further argues “a reasonable person could believe
Relators had a hand in causing the mental anguish at issue.” She argues her petition
states a cause of action for suicide caused by a third party’s tortious conduct within
Section 455 of the Restatement (Second) of Torts, which the Texas Supreme Court
adopted in 1975. See Exxon Corp. v. Brecheen, 526 S.W.2d 519, 524 (Tex. 1975)
(adopting Restatement (Second) of Torts § 455 (1965) Acts Done During Insanity
Caused by Negligent Conduct). “If the actor’s negligent conduct so brings about the
delirium or insanity of another as to make the actor liable for it, the actor is also
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liable for harm done by the other to himself while delirious or insane, if his delirium
or insanity (a) prevents him from realizing the nature of his act and the certainty or
risk of harm involved therein, or (b) makes it impossible for him to resist an impulse
caused by his insanity which deprives him of his capacity to govern his conduct in
accordance with reason.” Id.
In Brecheen, a tank truck driver with no prior history of mental illness was
injured by being sprayed on the face with oil on Exxon’s premises. Id. at 520. Exxon
did not challenge the jury finding that Exxon’s negligence proximately caused the
oil spray incident. Id. at 521. Brecheen’s wife testified that he behaved strangely
after the accident. Id. Three months later, a family medical practitioner with special
training in psychiatry diagnosed Brecheen’s condition as a conversion reaction with
an underlying schizophrenic reaction. Id. at 521-22. A psychiatrist who treated
Brecheen testified that the stress and intense fear experienced by Brecheen was
probably related to the fear that he was going to die, or be blind, or that he was going
to be brain damaged from the oil spray incident. Id. These thoughts had a paranoid
tenor. Id. Both doctors expressed the opinion that there was a causal relationship
between the schizophrenia and the oil spray injury. Id. The family medical
practitioner expressed the further opinion that there was a causal relationship
between the oil spraying injury and the suicide. Noting the lack of indication that
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“Brecheen was suffering undue pain or was subject to pressures from which an
individual would incline to free himself by self-destruction[,]” the Court concluded
“there is evidence that Brecheen’s state of mind was such that the fact finders could
conclude that he no longer possessed the capacity to govern his conduct and was
acting under an uncontrollable impulse when he destroyed himself.” Id. at 522.
Under the circumstances of that case, where the oil spray incident caused an
immediate and permanent psychotic break unalleviated by subsequent treatment and
hospitalization, the plaintiff established cause in fact of the injured person’s eventual
suicide.
“Cause in fact is established when the act or omission was a substantial factor
in bringing about the injuries, and without it, the harm would not have occurred.”
IHS Cedars Treatment Center of DeSoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 799
(Tex. 2004). A defendant’s conduct may be too attenuated to be a substantial factor
in bringing about the harm. Id. Where the initial act of negligence was not the active
and efficient cause of the plaintiff’s injuries, but merely created the condition by
which the second wrongful act could occur, the resulting harm is too attenuated from
the defendants’ conduct to constitute the cause in fact of the plaintiff’s injuries. Id.Such is the case here. Relators’ alleged mishandling of the loan proceeds created the
condition under which Jason’s suicide occurred but did not supply the active and
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efficient cause of the injury. We conclude this claim has no basis in law or in fact.
The resulting harm is too attenuated from the defendants’ conduct to constitute the
cause in fact of the plaintiff’s injuries. Therefore, the trial court abused its discretion
by reinstating the wrongful death and survival claims related to Jason Butler’s death
and denying the motions to dismiss those claims.
Fraud, Statutory Fraud, and Fraud by Non-Disclosure
Butler alleged Bentley Builder, LLC engaged in statutory and common law
fraud by making false representations of past and existing material facts with the
assistance and assent of the Bank and Emmerich. Butler alleged the Bank and
Emmerich approved and paid Bentley Builder for “extra work” not authorized under
the parties’ agreement, approved and paid construction payments that were not
supported by proper documentation, approved and paid disbursements that were not
in accordance with the parties’ agreements, made improper construction loan
advances and allowed Bentley Builder and its principals to direct funds to uses other
than their intended use, failed to detect Bentley Builder’s commingling of funds and
fraudulent transfers of Butlers’ construction funds out of an account held at the Bank,
either failed to conduct inspections of the property in accordance within industry
standards or ignored the inspection results, failed to provide audits of the
construction proceeds, and committed errors, omissions, and other deficiencies in
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breach of the parties’ agreements. Butler alleged the Bank and Emmerich are
vicariously liable for Bentley Builder’s fraud because their non-disclosure of
Bentley Builder’s fraud benefitted them financially and they further benefitted from
the referral of new customers and collection of fees, interest and other loan charges.
Butler alleged the Bank and Emmerich failed to disclose to Butler that Bentley
Builder engaged in a kiting or pyramid scheme and failed to disclose that Bentley
Builder took unearned draws without Butler’s approval and without exercising the
Bank’s right to ensure Bentley Builder actually performed the work. Butler alleged
the Bank and Emmerich had a duty to disclose these material facts because they
created a false impression by making a partial disclosure or by voluntarily disclosing
some information when they knew Butler was ignorant of and did not have an equal
opportunity to discover the facts.
1. Statutory Fraud
The motions to dismiss filed by the Bank and Emmerich argued that Butler’s
statutory fraud claims should be dismissed because section 27.01 of the Business
and Commerce Code does not apply to construction loans. Fraud in a transaction
involving real estate consists of a false representation of a past or existing material
fact, when the false representation is made to a person for the purpose of inducing
that person to enter into a contract and the false representation is relied on by that
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person in entering into that contract. See Tex. Bus. & Com. Code Ann. § 27.01(a).
The equitable provision of section 27.01(d), which prevents parties from keeping the
benefit of a fraud, cannot be applied to transactions outside the scope of the statute.
Greenway Bank & Trust v. Smith, 679 S.W.2d 592, 596 (Tex. App.—Houston [1st
Dist.] 1984, writ ref’d n.r.e.).
In the response to the mandamus petition, Butler denies that Relators have
been sued for “direct fraud,” and Butler argues Emmerich and the Bank are
vicariously liable for Bentley Builder’s fraud. All the alleged misrepresentations and
failures to disclose referred to in Butler’s petition relate to the disbursal of the
construction funds and could not, as a matter of law, have induced Butler to enter
into the contract Butler executed for the purchase of real estate, so Butler has no
viable claim against the Bank and Emmerich for statutory real estate fraud. We
conclude the trial court abused its discretion by reinstating Butler’s statutory fraud
claims against the Bank and Emmerich and in denying the motions to dismiss as to
this claim.
2. Common Law Fraud
Butler alleged that the arbitrator found Bentley Builder breached its fiduciary
and contractual obligations to Butler and the Bank by commingling funds into a
personal account, falsifying affidavits of bills paid prior to receiving construction
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draw funds from the Bank and improperly filing a lien after having waived the right
in favor of the Bank. The Bank and Emmerich moved to dismiss Butler’s common
law fraud claims on the ground that Butler failed to allege the Bank and Emmerich
made misrepresentations that either they knew were false or that they made
recklessly as a positive assertion and without knowledge of its truth.
In response to the Rule 91a motions to dismiss, Butler argued the Bank and
Emmerich were vicariously liable for Bentley Builder’s fraud because they knew
about and benefitted from the fraud. In an amended petition that Butler filed after
the Bank and Emmerich filed their motions to dismiss, the acts and omissions Butler
alleged give rise to the Bank’s and Emmerich’s vicarious liability for Bentley
Builder’s fraud are identical to the acts Butler alleged for the claim against the Bank
for breach of contract. In their responses to Butler’s motion for the trial court to
reconsider the original judge’s order dismissing the fraud claims, the Bank and
Emmerich argued that Butler failed to give fair notice of the common law fraud
claims because the allegations sounded in contract and not in fraud.
To maintain an action for common law fraud, the plaintiff must establish a
violation of a tort duty independent of the fact that a contract exits between the
parties. Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex.1991). The alleged
wrongful act of Bentley Builder was the “looting of Plaintiffs’ construction funds.”
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The acts and omissions that Butler claims establish the Bank’s and Emmerich’s
vicarious liability for Bentley Builder’s fraud are identical to the alleged breaches of
contract by the Bank. The alleged benefit the Bank and Emmerich received, the
collection of fees, interest and other loan charges, also arise from the loan agreement.
The mere failure to perform a contract is not evidence of fraud. Formosa Plastics
Corp. USA v. Presidio Eng’rs and Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998).
In their mandamus petition, Relators argue Butler’s allegations pertain to the
Bank’s contractual obligations and Butler fails to describe what facts put the Bank
on notice that Bentley Builder was committing fraud. Butler’s own pleadings assert
that the fact-finder in the arbitration of Butler’s claims against Bentley Builder found
the Bank was a victim of Bentley Builder’s wrongful acts, not a co-conspirator.
Butler did not allege that the Bank and Emmerich knew Bentley Builder supplied a
false affidavit of bills paid when the funds were disbursed. Instead, Butler alleged
they failed to audit the construction loan proceeds and failed to detect fraudulent
transfers out of an account at the Bank. Butler has failed to state a viable claim for
common law fraud against the Bank and Emmerich. We conclude the trial court
abused its discretion by reinstating Butler’s common law fraud claims against the
Bank and Emmerich and denying their motions to dismiss.
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3. Fraud by Non-Disclosure
Butler alleged that when issues arose with the quality of Bentley Builder’s
work, Rachel Butler asked Emmerich for proof of approved change orders and asked
Emmerich why the Bank would pay an invoice twice. Butler alleged, “Emmerich
responded by saying the bank funds based on the work that is completed on the draw
inspection sheet, not the invoices, but she failed to provide any sufficient explanation
to Plaintiff Rachel Butler’s inquiry.” Butler alleged Emmerich failed to provide a
sufficient response to Butler’s request for copies of the change orders that Butler had
not signed. Butler alleged that in another meeting addressing accounting
discrepancies, the Bank and Emmerich failed to resolve Butler’s query about having
to pay subcontractors “when the builder already pocketed the money.” According to
Butler, the Bank was aware and Butler was unaware that Bentley Builder was highly
leveraged and used Butler’s construction funds to pay high interest loans.
Butler alleged:
Defendants First Financial Bank and Emmerich also failed to disclose
that Bentley Builder was engaged in a kiting or pyramid scheme with
Plaintiffs’ constructions funds, using those funds to pay high–interest
loans. Defendants First Financial Bank and Emmerich further failed to
disclose that Bentley Builder had open checkbook with the Plaintiffs’
construction funds, taking unearned draws without Plaintiffs’ approval
and without Defendant First Financial Bank exercising its right to
ensure that Bentley Builder actually performed the work. Defendants
First Financial Bank and Emmerich had a duty to disclose these
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material facts to Plaintiffs because they created a false impression by
making a partial disclosure or voluntarily disclosing some information,
and therefore, Defendants First Financial Bank and Emmerich had a
duty to disclose the whole truth. Defendants First Financial Bank and
Emmerich knew that Plaintiffs were ignorant of these facts and that
Plaintiffs did not have an equal opportunity to discover these facts. That
is, Defendants First Financial Bank and Emmerich were deliberately
silent when they had a duty to speak. By failing to disclose facts,
Defendants First Financial Bank and Emmerich intended to induce
Plaintiffs into transactions they would not have otherwise entered.
In their motions to dismiss, the Bank and Emmerich argued Butler’s claims
for fraud by non-disclosure lack a basis in law because she failed to allege what
partial disclosure or voluntary disclosure that triggered a duty to disclose the whole
truth. A failure to disclose information will not support a fraud claim in the absence
of a duty to disclose. Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001). “[S]ilence
may be equivalent to a false representation only when the particular circumstances
impose a duty on the party to speak and he deliberately remains silent.” Id. “Whether
such a duty exists is a question of law.” Id.A claim has no basis in law under Rule 91a when the petition either alleges
too few facts to demonstrate a viable, legally cognizable right to relief, or the petition
alleges additional facts that, if true, bar recovery. Guillory v. Seaton, LLC, 470
S.W.3d 237, 240 (Tex. App.—Houston [1st Dist.] 2015, pet. denied). The
information that Butler alleged Emmerich and the Bank failed to disclose is that
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Bentley Builder was using construction loan proceeds to pay high interest loans and
that the Bank was not exercising its right to ensure that Bentley Builder actually
performed the work. The information that Butler alleged left a false impression was
Emmerich’s statement that the Bank funds based on the work completed on the draw
inspection sheet and Emmerich’s failure to resolve Butler’s inquiry regarding having
to pay subcontractors after Bentley Builder had been paid for the work. None of the
statements attributed to Emmerich in the petition suggest that Bentley Builder was
financially sound. Butler did not allege that Emmerich’s statement about funding
based on the draw inspection report left a false impression that the Bank was
exercising its right to ensure that Bentley Builder actually performed the work. We
conclude the trial court abused its discretion by reinstating Butler’s claims for fraud
by non-disclosure, which lacked an adequate basis in law, and by denying the
motions to dismiss.
Knowing Participation in a Breach of Fiduciary Duty
Butler alleged that a judgment has been entered against Bentley Builder for
its breach of fiduciary duty. Butler alleged the Bank and Emmerich knew or should
have known that Bentley Builder owed a fiduciary duty to Butler. The acts that
Butler alleged as the knowing participation in Bentley Builder’s breach of fiduciary
duties are the identical acts that Butler alleged as the breach of contract by the Bank.
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The Bank’s and Emmerich’s motions to dismiss argued that Butler’s petition
failed to plead any facts to establish that they knew Bentley Builder was breaching
its fiduciary duties to Butler. Butler alleged that the Bank and Emmerich knowingly
participated in Bentley Builder’s breach of fiduciary duty by paying Bentley Builder
for “extra work” not authorized under the parties’ agreement, making construction
payments that were not supported by proper documentation, making disbursements
that were not in accordance with the parties’ agreements, making improper
construction loan advances and allowing Bentley Builder and its principals to direct
funds to uses other than their intended use, failing to detect Bentley Builder’s
commingling of funds and fraudulent transfers of Butler’s construction funds out of
an account held at the Bank, either failing to conduct inspections of the property in
accordance within industry standards or ignoring the inspection results, failing to
provide audits of the construction proceeds, and committing errors, omissions, and
other deficiencies in breach of the parties’ agreements. Butler did not allege how any
of these acts establish that the Bank and Emmerich had actual awareness that Bentley
Builder was breaching its fiduciary duties to Butler and that they were participating
in the breach. In fact, Butler alleged they failed to detect Bentley Builder’s
commingling of funds and fraudulent transfers of Butlers’ construction funds out of
an account held at the Bank. Allegations that the Bank and Emmerich made
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payments that were not supported by proper documentation and failed to conduct
inspections do not provide fair notice to the defendants of the acts relied upon to
establish their knowing participation in the alleged breach of fiduciary duty. We
conclude the trial court abused its discretion by reinstating Butler’s claims for
knowing participation in a breach of fiduciary duty and denying the motions to
dismiss.
Civil Conspiracy
Butler alleged that the Bank and Emmerich “assisted, aided, and abetted
Bentley Builder’s fraudulent transfer of Butler’s construction funds[.]” Butler
alleged the Bank and Emmerich made Bentley Builder’s fraudulent transfers of the
construction funds possible by approving and paying Bentley Builder construction
payments that were not supported by proper documentation, including receipts and
releases from subcontractors, so that no liens would be filed against the property; by
approving and paying disbursements that were not in accordance with the parties’
agreements; by failing to deposit construction funds in a joint bank account held by
Bentley Builder and Rachel and Jason Butler; by making improper construction loan
advances and allowing Bentley Builder and its principals to direct the funds to uses
other than their intended use; by failing to detect Bentley Builder’s commingling
of funds and fraudulent transfers of the Plaintiffs’ construction funds out of a bank
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account held at the Bank; by either failing to conduct inspections of the property
in accordance with regular industry standards or by ignoring the inspection results,
and by advancing or disbursing funds even though the Bank knew or should have
known that work had not been performed; by failing to provide audits of the
construction loan proceeds; and by handling the construction funds in a manner that
breached the parties’ agreements. Butler alleged these same acts assisted, aided, and
abetted Bentley Builder’s commission of common law and statutory fraud, Bentley
Builder’s breach of fiduciary duty, and aided and assisted Bentley Builder’s
violation of Chapter 162 of the Property Code. See generally Tex. Prop. Code Ann.
§§ 162.001-.033 (Construction Payments, Loan Receipts, and Misapplication of
Trust Funds).
“An action for civil conspiracy has five elements: (1) a combination of two or
more persons; (2) the persons seek to accomplish an object or course of action; (3)
the persons reach a meeting of the minds on the object or course of action; (4) one
or more unlawful, overt acts are taken in pursuance of the object or course of action;
and (5) damages occur as a proximate result.” First United Pentecostal Church of
Beaumont v. Parker, S.W.3d 214, 222 (Tex. 2017). “An actionable civil conspiracy
requires specific intent to agree to accomplish something unlawful or to accomplish
something lawful by unlawful means.” Id. “Thus, an actionable civil conspiracy
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exists only as to those parties who are aware of the intended harm or proposed
wrongful conduct at the outset of the combination or agreement.” Id.In their motions to dismiss, the Bank and Emmerich argued Butler failed to
plead even one of the elements of civil conspiracy and failed to identify the alleged
unlawful act that forms the basis of the conspiracy claim. Butler amended her
petition to state:
Here, all elements of a civil conspiracy are present: (1) there was a
combination of two or more persons, (2) who agreed on an object to be
accomplished, (3) a meeting on [sic] the minds on the object or course
of action, (4) one or more unlawful, overt acts, and (5) damages
resulting from the conspiracy.
Butler listed the elements of a claim for civil conspiracy but failed to provide
the essential factual allegations of the civil conspiracy. Butler did not allege that at
the outset of the agreement that the Bank and Emmerich intended and agreed that
Bentley Builder would draw the funds without performing the work, paying the
subcontractors, or obtaining change orders. The pleadings failed to provide fair
notice of the civil conspiracy claim. See In re Baytown Apt. Grp., LLC., 2022 WL
2720456, at *1. Therefore, the trial court erred by reinstating Butler’s civil
conspiracy claims and denying the motions to dismiss.
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Fair Credit Reporting Act
Butler also alleged the Bank violated the Fair Credit Reporting Act (“FCRA”)
by wrongfully and inaccurately reporting that Rachel Butler had failed to pay her
construction loan. Butler alleged the Bank refused to remove or otherwise correct
the incorrect credit reporting, for which she sought actual damages, including
increased cost of credit, and statutory damages of not less than $100 and not more
than $1000 for each violation, and attorney’s fees.
The Bank moved to dismiss this claim under Rule 91a on the ground that the
FCRA does not create a private cause of action for a violation of the credit reporting
accuracy and investigation requirements by a furnisher of credit information. See
generally 15 U.S.C.A. § 1681s-2(a), (c)(1). The Bank acknowledged the existence
of a private cause of action regarding the duties of furnishers of credit information
upon notice of a dispute under section 1681s-2(b), but argued Butler failed to state
a claim under section 1681s-2(b), because she failed to allege that any credit
reporting agency ever notified the Bank of a dispute.
After the Bank filed its motion to dismiss, Butler amended her petition to
allege that “[d]espite Plaintiff Rachel Butler’s multiple disputes of this derogatory
credit reporting, both directly to First Financial Bank and to all three major credit
bureaus, who, upon information and belief forwarded Rachel’s dispute to the Bank,
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Defendant First Financial Bank refused to remove or otherwise correct the incorrect
credit reporting.” The Bank responded that Butler’s allegations “primarily support a
claim for which there is no private cause of action.”
In the mandamus petition, Relators argue Butler’s FCRA claim lacks an adequate
basis in law because Butler failed to identify any inaccurate information that should
have been corrected. We disagree. Butler’s amended petition identified the alleged
wrongful act and described how the act allegedly violated the statute. This is
sufficient to give fair notice of the claim involved. See Tex. R. Civ. P. 47(a). Butler
stated a claim in her pleadings under section 1681s-2(b) of the FCRA. Accordingly,
the trial court did not abuse its discretion by reinstating Butler’s section FCRA claim
against the Bank and denying the Bank’s motion to dismiss on this claim.
Texas Debt Collections Act and Deceptive Trade Practices Act
In the Plaintiff’s Original Petition, Butler alleged:
First Financial Bank’s conduct in refusing to investigate, negligently
investigating, generally negligent handing of Butler’s account, and
sending false and misleading information to credit bureaus, was
fraudulent, deceptive, and misleading and therefore, constitute
violations of the Texas Debt Collection Act. Plaintiff Rachel Butler
seeks her actual damages, statutory fines, and attorney fees, as well as
a permanent injunction commanding Defendant First Financial Bank to
remove the derogatory credit information being incorrectly reported.
And because Defendant First Financial Bank’s actions and omissions
were committed knowingly or intentionally, Plaintiff Rachel Buter [sic]
is entitled to recover treble damages and mental anguish damages under
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the tie-in provision set forth in the Texas Debt Collection Act and Texas
Deceptive Trade Practices Act.
The Bank moved to dismiss the claims Rachel Butler brought under the Texas
Debt Collections Act (“TDCA”) and Deceptive Trade Practices Act (“DTPA”). The
Bank argued the FCRA pre-empted Butler’s claims under the TDCA and DTPA.
The Bank also argued Butler failed to state a claim under the TDCA because she
failed to identify the provision of Chapter 392 of the Texas Finance Code that the
Bank purportedly violated. Additionally, the Bank argued Butler lacked standing to
bring a claim under the DTPA because she did not allege that she acquired goods
and services as required to qualify as a consumer under the DTPA. See Tex. Bus. &
Com. Code Ann. § 17.45.
In response to the Bank’s motion to dismiss, Butler filed an amended petition
that alleged that the Bank’s actions violated Finance Code Sections 392.301(a)(3) (a
debt collector may not use threats, coercion, or attempts to coerce by “representing
or threatening to represent to any person other than the consumer that a consumer is
wilfully refusing to pay a nondisputed consumer debt when the debt is in dispute and
the consumer has notified in writing the debt collector of the dispute[]”),
392.304(a)(8) (a debt collector may not use a fraudulent, deceptive, or misleading
representation “misrepresenting the character, extent, or amount of a consumer
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debt[]”), and 392.304(a)(19) (a debt collector may not use a fraudulent, deceptive,
or misleading representation “using any other false representation or deceptive
means to collect a debt or obtain information concerning a consumer[]”). See Tex.
Fin. Code Ann. §§ 392.301(a)(3), 392.304(a)(8), (19).
In their mandamus petition, the Bank and Emmerich argue the FCRA
preempts Butler’s TDCA and DTPA claims against the Bank. In response, Butler
argues the claim cannot be dismissed under Rule 91a because the Bank failed to
assert federal preemption as an affirmative defense in its original answer. Rule 91a
does not limit the court’s legal inquiry into the plaintiff’s pleading. Bethel v.
Quilling, Selander, Lownds, Winslett & Moser, P.C., 595 S.W.3d 651, 656 (Tex.
2020). Rule 91a permits motions to dismiss based on affirmative defenses “‘if the
allegations [in the plaintiff’s pleadings], taken as true, together with inferences
reasonably drawn from them, do not entitle the claimant to the relief sought.’” Id.The Bank asserted federal preemption in its Rule 91a motion to dismiss.
The FCRA imposes duties on furnishers of information to provide accurate
information to credit bureaus and to investigate upon receiving notice of a dispute.
See 15 U.S.C.A. § 1681s-2(a), (b). With a few exceptions inapplicable here, the
FCRA preempts state statutes with respect to the providing of information and
investigating disputes about information provided to credit reporting agencies. See
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15 U.S.C.A. § 1681t(b)(1)(F) (“No requirement or prohibition may be imposed
under the laws of any State—(1) with respect to any subject matter regulated under—
(F) section 1681s-2 of this title, relating to the responsibilities of persons who furnish
information to consumer reporting agencies[.]”). All of the facts alleged in support
of Butler’s TDCA and DPTA claims concern how the Bank furnished information
to credit bureaus and how the Bank failed to investigate Butler’s credit reporting
dispute. Butler alleged claims that clearly fall within the FCRA preemption.
Accordingly, we conclude the trial court erred by reinstating Butler’s claim under
the TDCA and DTPA.
Conclusion
The trial court abused its discretion by reinstating claims and by denying the
motions to dismiss as to claims that lacked an adequate basis in law. “‘The adequacy
of an appellate remedy must be determined by balancing the benefits of mandamus
review against the detriments.’” In re Essex Ins. Co., 450 S.W.3d 524, 528 (Tex.
2014) (orig. proceeding). We conclude that mandamus relief is appropriate to spare
the parties and the public the time and money spent on fatally flawed proceedings.
See id.We are confident that, with the exception of Butler’s Fair Credit Reporting
Act claim against the Bank, the trial court will vacate its order of September 5, 2022,
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which granted Butler’s Motion to Reconsider and Reinstate, set aside its prior orders
reinstating Butler’s claims against the Bank and Emmerich, and denying the Bank’s
and Emmerich’s Rule 91a motions to dismiss, and will grant the Bank’s and
Emmerich’s motions to dismiss Butler’s claims for wrongful death and survival,
fraud, statutory fraud, fraud by non-disclosure, knowing participation in a breach of
fiduciary duty, civil conspiracy, Texas Debt Collection Act violations, and
Deceptive Trade Practices Act violations. A writ of mandamus will issue only if the
trial court fails to comply.
PETITION CONDITIONALLY GRANTED IN PART.
PER CURIAM
Submitted on January 6, 2023
Opinion Delivered July 27, 2023
Before Golemon, C.J., Johnson and Wright, JJ.
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