Joe Kenny v. Portfolio Recovery Associates, LLC , 464 S.W.3d 29 ( 2015 )

Opinion issued March 12, 2015
In The
Court of Appeals
For The
First District of Texas
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NO. 01-14-00058-CV
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JOE KENNY, Appellant
V.
PORTFOLIO RECOVERY ASSOCIATES, LLC, Appellee
On Appeal from County Civil Court at Law No. 2
Harris County, Texas
Trial Court Case No. 1023048
OPINION
Portfolio Recovery Associates, LLC sued Joe Kenny for debt owed on a
credit card account originally issued by HSBC Bank Nevada, N.A. Following a
trial, the trial court issued a judgment against Kenny and in favor of Portfolio
Recovery. In five issues on appeal, Kenny argues (1) the evidence is legally
insufficient to support the judgment, (2) certain findings of fact and conclusions of
law are unsupported by the record, (3) the trial court abused its discretion by
admitting a business-records affidavit that contained assertions beyond the
statutory requirements and that was not served in accordance with the rules, and
(4) the trial court erred by considering documents that were not offered or admitted
at trial.
We reverse and render.
Background
Portfolio Recovery sued Kenny for debt allegedly owed on a credit card
account originally issued by HSBC Bank Nevada. Over four months before trial,
Portfolio Recovery filed a notice of filing business records. The trial consisted
only of Portfolio Recovery’s offering four exhibits into the record, Kenny’s
presenting various objections to the exhibits, and the trial court’s admitting all four
exhibits.
All four exhibits were included in the business records filing. One of the
exhibits was the affidavit of Meryl Dreano, a custodian of records for Portfolio
Recovery. Dreano asserted in the affidavit that the other documents were kept in
the regular course of Portfolio Recovery’s business. Dreano also asserted that
Portfolio Recovery “is the assignee of HSBC Bank Nevada, N.A./GM and is the
current owner of the account of JOE KENNY (‘Defendant’), account number
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ending in 9702 (the ‘Account’).” Kenny objected to the affidavit, arguing, among
other things, that this assertion of assignment was not necessary to authenticate the
other documents as business records and was, therefore, inadmissible hearsay.
All parties acknowledged at trial that the exhibits offered by Portfolio
Recovery did not identify any account held by Kenny being specifically assigned
to Portfolio Recovery. Instead, the exhibits only established that some accounts
had been assigned from HSBC Bank Nevada to Portfolio Recovery, without
identifying which accounts had been assigned. At trial, the trial court requested
briefing from the parties on whether the lack of a specific reference to an account
number in the documents showing an assignment would prevent recovery.
After signing the judgment, the trial court made findings of fact and
conclusions of law. Two of its findings were
1) After all parties had rested and the Court ordered briefing on
the issue of whether or not it was necessary for an assignment to
include an account number, the Court reviewed the Clerk’s File[,] and
Page 5 of the Notice of Filing Business Records, . . .[established] that
the account No. –9702 was part of the Sale of Accounts from HSBC
Bank Nevada, N.A. to Portfolio Recovery Associates, LLC, and in
consideration of all evidence admitted in the trial, the Court concluded
that an assignment existed, without reaching a decision on the issue of
whether or not it was necessary for an assignment to include an
account number.
2) Page 5 of the Notice of Filing of Business Records was not
admitted into evidence before the parties rested.
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Legal Sufficiency
In his fifth issue, Kenny argues the evidence is legally insufficient to
establish HSBC Bank Nevada assigned Kenny’s account to Portfolio Recovery.
A. Standard of Review
In an appeal from a bench trial, the trial court’s findings of fact have the
same weight as a jury verdict. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex.
1994); Nguyen v. Yovan, 317 S.W.3d 261, 269–70 (Tex. App.—Houston [1st Dist.]
2009, pet. denied). We review a trial court’s findings of fact under the same legal
sufficiency of the evidence standards used when determining whether sufficient
evidence exists to support an answer to a jury question. Catalina, 881 S.W.2d at
297; Nguyen, 317 S.W.3d at 270. In a bench trial, we presume that the trial court,
“sitting as the fact finder, disregarded any improperly admitted evidence.” Sw.
Bell Media, Inc. v. Lyles, 825 S.W.2d 488, 498 (Tex. App.—Houston [1st Dist.]
1992, writ denied); Tex. Alcoholic Beverage Comm’n v. Sanchez, 96 S.W.3d 483,
488 (Tex. App.—Austin 2002, no pet.).
In conducting a legal sufficiency review, we credit favorable evidence if a
reasonable factfinder could and disregard contrary evidence unless a reasonable
factfinder could not. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005).
We consider the evidence in the light most favorable to the finding and indulge
every reasonable inference that would support it. Id. at 822. We will sustain a no-
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evidence point only if (1) the record reveals a complete absence of a vital fact,
(2) the court is barred by rules of law or of evidence from giving weight to the only
evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact
is no more than a mere scintilla, or (4) the evidence conclusively establishes the
opposite of the vital fact. Id. at 810; Merrell Dow Pharms., Inc. v. Havner, 953
S.W.2d 706, 711 (Tex. 1997). If more than a scintilla of evidence exists to support
the finding, the legal sufficiency challenge fails. Haggar Clothing Co. v.
Hernandez, 164 S.W.3d 386, 388 (Tex. 2005) (citing Formosa Plastics Corp. USA
v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998)).
An appellant may not challenge a trial court’s conclusions of law for factual
sufficiency, but we may review the legal conclusions drawn from the facts to
determine their correctness. BMC Software Belgium, N.V. v. Marchand, 83
S.W.3d 789, 794 (Tex. 2002). In an appeal from a bench trial, we review the
conclusions of law de novo and will uphold them if the judgment can be sustained
on any legal theory supported by the evidence. Id. “If the reviewing court
determines a conclusion of law is erroneous, but the trial court rendered the proper
judgment, the erroneous conclusion of law does not require reversal.” Id.
B. Analysis
Portfolio Recovery identifies the claims that it asserted against Kenny as
breach of contract, account stated, and open account. Each of these causes of
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action necessarily required Portfolio Recovery to establish that Kenny had an
obligation—in this case, the obligation to pay a debt—specifically to Portfolio
Recovery. See Winchek v. Am. Express Travel Related Services Co., Inc., 232
S.W.3d 197, 202 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (requiring, for
breach of contract claim, proof of agreement between parties to suit of terms of
contract); Busch v. Hudson & Keyse, LLC, 312 S.W.3d 294, 299 (Tex. App.—
Houston [14th Dist.] 2010, no pet.) (requiring, for account stated claim, proof of
transaction between parties to suit giving rise of indebtedness from one party to
other party); Eaves v. Unifund CCR Partners, 301 S.W.3d 402, 408 (Tex. App.—
El Paso 2009, no pet.) (requiring, for open account claim, proof of transaction
between parties to suit creating creditor-debtor relationship).
It is undisputed that, through his use of the credit card at issue, Kenny
created an obligation to repay the debt to HSBC Bank Nevada. Kenny asserts,
however, that there is no proof in the record that this obligation to pay the debt has
been transferred to Portfolio Recovery. Based on this, Kenny argues that Portfolio
Recovery failed to establish at least one element for all of its claims and that,
accordingly, we must reverse the trial court’s judgment in Portfolio Recovery’s
favor. We agree.
One potential source for establishing that Kenny’s account was assigned to
Portfolio Recovery is the affidavit of Dreano, a custodian of records for Portfolio
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Recovery. Dreano asserted in the affidavit that Portfolio Recovery “is the assignee
of HSBC Bank Nevada, N.A./GM and is the current owner of the account of JOE
KENNY (‘Defendant’), account number ending in 9702 (the ‘Account’).”
Unless specifically permitted by statute or rule, affidavits do not constitute
evidence at trial. Ortega v. Cach, LLC, 396 S.W.3d 622, 630 (Tex. App.—
Houston [14th Dist.] 2013, no pet.). Dreano’s affidavit was offered to authenticate
business records, however. Business records can be authenticated by an affidavit
offered at trial. See TEX. R. EVID. 803(6), 902(10). “[W]hen an ex parte affidavit
presents evidence beyond the simple authentication requirements of rule 902,”
however, “the extraneous portions of the affidavit constitute inadmissible hearsay.”
Ortega, 396 S.W.3d at 630.
Dreano’s assertions regarding assignment of Kenny’s account to Portfolio
Associates was not relevant to establishing documents as business records. See
TEX. R. EVID. 803(6), 902(10). Accordingly, this representation went beyond the
authentication requirements and constitutes hearsay. Kenny objected to this
portion of the affidavit on the basis that it constituted hearsay. See TEX. R. EVID.
103(a) (requiring objection to inadmissible evidence before inadmissibility can be
basis for error); TEX. R. APP. P. 33.1(a) (same). Because this was a bench trial, we
presume the trial court disregarded the inadmissible portion of the business record
affidavit. Sw. Bell Media, 825 S.W.2d at 498; Sanchez, 96 S.W.3d at 488.
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Accordingly, this portion of the affidavit cannot be a basis for finding the evidence
legally sufficient to show Kenny’s account was assigned to Portfolio Recovery.
One of the exhibits offered and admitted into evidence was an “Assignment
and Bill of Sale” from HSBC Bank Nevada to Portfolio Recovery. This
assignment assigned the rights to certain accounts from HSBC Bank Nevada to
Portfolio Recovery. The assignment does not identify which accounts were
transferred, however. Instead, the assignment identifies another document that
contains the information. That document is not a part of the record. Accordingly,
the assignment cannot be a basis for finding the evidence legally sufficient to show
Kenny’s account was assigned to Portfolio Recovery.
Finally, in its findings of fact, the trial court asserted that it had reviewed
documents filed in that case and found a document that it believed established an
assignment from HSBC Bank Nevada to Portfolio Recovery. The trial court
acknowledged in another finding that the additional document had not been offered
or admitted into evidence. The trial court did not identify the authority it was
relying on to consider facts outside the evidence presented at trial, and we have
found no authority permitting the document’s consideration.
The trial court is permitted to take judicial notice of adjudicative facts. See
TEX. R. EVID. 201(c). The facts it may judicially notice, however, are facts that are
“either (1) generally known within the territorial jurisdiction of the trial court or (2)
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capable of accurate and ready determination by resort to sources whose accuracy
cannot reasonably be questioned.” TEX. R. EVID. 201(b). It cannot be said that any
document found in the trial court’s records “cannot reasonably be questioned.”
Accordingly, while the trial court can take judicial notice of the existence of certain
documents in its records, it “may not take judicial notice of the truth of factual
statements and allegations contained in the pleadings, affidavits, or other
documents in the file.” Guyton v. Monteau, 332 S.W.3d 687, 693 (Tex. App.—
Houston [14th Dist.] 2011, no pet.).
“When evidence is the subject of improper judicial notice, it amounts to no
evidence.” Id. Accordingly, the extrinsic document cannot be part of our review
for legal sufficiency of the evidence. See id.; City of Keller, 168 S.W.3d at 827
(holding legal sufficiency challenge sustained when trial court is barred by rules of
law or of evidence from giving weight to only evidence offered to prove vital fact).
No other evidence in the record establishes that Kenny is obligated to pay a
debt to Portfolio Recovery. Accordingly, we sustain Kenny’s fifth issue. 1
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Because Kenny’s remaining issues cannot provide him greater relief, we do not
need to reach them. See TEX. R. APP. P. 47.1.
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Conclusion
We reverse the judgment of the trial court and render a take-nothing
judgment against Portfolio Recovery.
Laura Carter Higley
Justice
Panel consists of Justices Jennings, Higley, and Huddle.
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