Reyelts v. Cross, 2013 U.S. Dist. LEXIS 105320

Background

May 2011 hail damaged the Reyelts’ roof; Lon Smith Roofing & Construction ("Lon Smith") inspected and presented a June 27, 2011 written “Agreement” authorizing Lon Smith to pursue insurance payment and to receive payment directly from the insurer.
Beatriz Reyelts (retired, inexperienced with insurance claims) signed the Agreement and a $1,176 change-order upgrade was paid; Lon Smith did not contact Farmers (the insurer) before installing the new roof.
Farmers later refused to pay because repairs were completed before Farmers inspected the roof; Lon Smith then demanded the unpaid balance (~$14,775) and sent collection letters and threats, including collection letters after the Reyelts retained counsel.
Cross (attorney) sent demand letters and, after this suit was filed, Lon Smith (through Cross) filed a county-court suit against the Reyelts; Plaintiffs sued in federal court asserting FDCPA, TDCPA, DTPA and related claims.
The Court earlier held the June 27 Agreement illegal, void, and unenforceable under Texas Insurance Code ch. 4102; default judgment procedure and a May 28, 2013 damages hearing followed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Enforceability of the June 27 Agreement	Agreement violated Texas Insurance Code and is void; Reyelts not liable	Lon Smith contested (earlier) but court found admissions and statute render agreement illegal	Agreement is illegal, void, and unenforceable; Plaintiffs owe nothing under it
Lon Smith liability under DTPA & TDCPA	Lon Smith made deceptive, unconscionable acts; caused economic and mental-anguish damages	Denied or contested scope; argued conduct justified by contract	Lon Smith liable under DTPA and TDCPA; knowingly/intentionally violated DTPA; liable for economic + mental-anguish damages and treble (up to triple) damages, fees, costs
Cross (attorney) liability under FDCPA	Cross engaged in unlawful debt-collection communications causing mental anguish	Cross’s letters were routine collection; argued assertion of interest and suit were proper	Cross violated multiple FDCPA provisions; liable for plaintiffs’ mental-anguish damages, costs, and attorneys’ fees
Damages: actual, punitive/trebling, and allocation	Reyelts sought return of $1,176, mental-anguish awards, treble DTPA damages, fees and costs	Defendants disputed amounts and proportional responsibility	Court awarded $1,176 economic recovery; mental-anguish: Beatriz $25,000, Gerald $5,000; additional DTPA awards (Beatriz $35,000; Gerald $7,000) consistent with up-to-triple rule; allocated 70% to Lon Smith, 30% to Cross
Attorneys’ fees: amount and segregation	Plaintiffs sought $259,560 (lodestar) and costs; limited segregation argued only pre-letter fees solely against Lon Smith	Defendants argued some fees unrelated (claims vs. insurer), requested segregation and reductions	Court found lodestar supportable but reduced fee award 25% for excess; awarded $194,670 total; pre-1/27/2012 fees ($4,780) assessed only against Lon Smith; remaining fees ($189,890) and costs awarded jointly and severally
Interest rates and post-judgment exposure	Plaintiffs requested prejudgment and postjudgment interest	Defendants did not meaningfully contest rates applied	Prejudgment interest on economic and mental-anguish amounts at 3.25% p.a. compounded annually from filing date; post-judgment interest at statutory rate (0.11% as of citation) until paid

Key Cases Cited

Nishimatsu Constr. Co. v. Hous. Nat’l Bank, 515 F.2d 1200 (5th Cir.) (accept well-pleaded factual allegations after default)
Motley v. Rundle, 340 F. Supp. 807 (E.D. Pa.) (default-judgment facts accepted as true for damages determination)
Jim Walter Homes, Inc. v. Valencia, 690 S.W.2d 239 (Tex.) (limits on additional damages under the DTPA)
Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex.) (dicta concerning potential quadrupling under DTPA discussed but not adopted)
Perdue v. Kenny A., 559 U.S. 542 (U.S.) (lodestar presumption and rare circumstances for deviation)