By L.M. Sixel
A state district court jury Wednesday imposed $25 million in civil penalties against a Houston debt buyer and the companies he controls for unscrupulous collection practices that included suing people who live far from Houston and were unlikely to show up in court to defend themselves.
Joseph Onwuteaka, a lawyer who operates out of an office on the edge of Sharpstown, used this tactic to obtain default judgments and orders to freeze bank accounts, and then collect money from consumers who might not have legally owed the debt, according to the civil complaint filed by the Texas Attorney General.
The jury, which deliberated for two days after a two-week trial, found Onwuteaka violated state consumer protection laws that require debt collection lawsuits to be filed in the county where the person lives or the loan documents were signed.
In many instances, Onwuteaka, who bought old debt for pennies on the dollar from banks, retailers and payday lenders that had already written it ofl, did not meet these standards, according to court records.
The first inkling of a problem for many consumers only came when they tried to use their debit cards and discovered their bank accounts had been frozen.
Neither Onwuteaka nor his lawyer responded to requests for comment. The Attorney General’s Ofice did not comment beyond confirming the amount of the civil penalties.
To put the jury verdict in context, the Federal Trade Commission reported that it obtained nearly $70 million in judgments last year against unlawful debt collection operators. Dana Karni, a Houston consumer lawyer, said the substantial civil penalties should send a message to both unscrupulous debt collectors as well as judges asked to grant default judgments in cases like this.
Targets lived far away
The front pages of many of the lawsuits filed by Onwuteaka in Harris County, Karni noted, clearly showed the addresses of the consumers were in Laredo, El Paso and other faraway cities.
“It raises an eyebrow,” Karni said. “How much sludge can pass through the system until the attorney general gets involved?”
Onwuteaka buys defaulted consumer debt through his company, Samara Portfolio Management, and then hires himself and his law firm to collect on the delinquent debt, according to court documents. The debts that Onwuteaka buys are mostly short-term, high-interest loans that include retail installment contracts for motor vehicles and jewelry.
His case opened a window into the nation’s lucrative debt collection industry and some of its controversial practices.
Debt collectors have come under increasing scrutiny by regulators, including the federal Consumer Financial Protection Bureau, which found in a recent survey that only one in four consumers who are sued appear at hearings.
When they don’t, the debt collectors win judgments that allow them to seize bank accounts and other assets.
The Attorney General’s Ofice filed suit against Onwuteaka in 2013. Many of the debt collection cases brought by Onwuteaka would have been dismissed if consumers were able to get to the court to challenge the venue or raise other issues, such as whether the debt exceeded the state’s four-year statute of limitations, consumer lawyers said.
More than half the 1,500 lawsuits Onwuteaka and his businesses filed in Harris County were against consumers who neither live nor signed loan agreements here, according to the attorney general’s lawsuit. And despite Texas laws on where debt collection suits can be filed, Onwuteaka was successful at obtaining default judgments against people who live outside Harris County.
Judge unable to do anything
Onwuteaka focused on one court in particular in filing his 1,500 lawsuits: Harris County Justice of the Peace Court Precinct 1, Place 2, according to the attorney general’s lawsuit. The judge presiding over that court is David Patronella.
Patronella was not available to comment on the verdict Wednesday, but in an earlier interview he said the question of venue — whether his court or another is the appropriate place to hear debt claims — must be raised by one of the parties.
Consumers can request a transfer by mail by sending a notarized statement that they live in say, Dallas County, and took out the loan in Dallas County, he said. But unless they make the request, Patronella said there isn’t anything he can do.
In court filings, Onwuteaka argued that the attorney general’s lawsuit should not go forward because neither he nor his company are involved in trade or commerce and the debtors are not consumers under the definition in Texas law.
A lawyer for 31 years, Onwuteaka has run into disciplinary problems with the State Bar of Texas, including a six-month suspension beginning in 2010 after a grievance committee found he signed his client’s name to an afidavit and attested that it was his client’s true signature, according to the state bar. He was allowed to continue to practice with restrictions part of that time. lm.sixel@chron.com twitter.com/lmsixel