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EFFECTIVE DEMAND LETTERS:SECURING PAYMENT & AVOIDING LIABILITYK AREN L . H ART, P ARTNERB ELL N UNNALLY & M ARTIN L L P3 2 3 2 M CKINNEY A VE., S TE. 1 4 0 0D ALLAS, T EXAS 7 5 2 04(214) [email protected] 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

WHY?Demand Letters . . .Why Bother . . .Take TimeCost 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

WHY? Ask and you shall receive . . . Sometimes Increase chances of payment, if:Clearo Conciseo Supportedo Call to actiono Deadlineo Ultimatum May be required by law or contracto 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

WHY? Demonstrate:o Confidenceo Organizationo Commitment Apply pressure Strong reminder you are not going away Goal: Attention Payment/Settlement 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

GETTING STARTED Contracts Credit ApplicationPromissory NoteSecurity AgreementLease or Rental AgreementAll amendments, modifications Invoices and Statements of Account Communications to/from Debtor All correspondenceAccount notes Documentation Re: Defenses / Excuses Your “file” – Organized, chronological 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

GETTING IT TOGETHER Organization, complete documentation are key Eliminates confusion Ensures accuracy Aides in realizing payment & defeating defenses Cuts to the chase with debtor Saves you and your lawyer time Saves you money 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

DEBTConsumerVSCommercial 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

DEBTConsumer FDCPA appliesState law equivalents mayalso applyoo RestrictionsRequired DisclosuresContract 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

DEBT FDCPA does NOT applyOther laws may apply (e.g., note acceleration)ContractCommercial 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

FDCPA Fair Debt Collection Practices Act, 15 U.S.C. § 1692(the “FDCPA”):ooooApplies to debt for personal, family, or household purposesRequires certain disclosures in demand letters and preventscreditors from revealing information regarding theamount/nature of the debt to third partiesProhibits false representations under §1692e such asthreatening to bring a lawsuit when not permitted orcontemplatedPrevents creditor from filing a lawsuit during the 30-Dayvalidation period after demand letter sent 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

CONSUMER V. COMMERCIALFDCPA Bloom v. I.C. Sys., Inc., 972 F.2d 1067 (9th Cir. 1992) (courtfocuses on the intent of the debtor (i.e., what is thepurpose of the debt)) Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, andClark, L.L.C., 214 F.3d 872 (7th Cir. 2000) (relevant timeframe for determining FDCPA applicability is when the debtarose, and therefore FDCPA applied to law firms' attemptsto collect mortgage debt for house in which mortgagorinitially resided, even though, at time debt collection effortsbegan, mortgagor was renting premises to strangers andthus was making business use of property) 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

CONSUMER V. COMMERCIALFDCPA Perk v. Worden, 475 F.Supp.2d 565 (E.D. Va. 2007) (Even if corporatecredit cardholder violated business cardholder agreement by incurringpersonal debt, she incurred consumer “debt,” subject to FDCPA; debtwas personal at moment it was incurred) First Gibraltar Bank, FSB v. Smith, 62 F.3d 133 (5th Cir. 1995) (obligationsarising out of commercial transaction is not debt under the FDCPA) Garza v. Bancorp Group, Inc., 955 F.Supp. 68 (S.D.Tex.1996) (FDCPA didnot apply to leases for security equipment obtained and installed bylessees in their family-owned and operated stores, inasmuch as Actsapplied to debts arising out of consumer transactions for personal, family,or household purposes, and lessees used equipment for businesspurposes, even though equipment was intended to provide security tofamily members working at stores.)1 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

BASIC ANATOMY OF A DEMAND LETTER RecipientsReference lineIntroductionRequired DisclosuresBasis of claim/demandDemand/directive/call to actionDeadlineUltimatumNecessary enclosures supporting claim1.2.ContractInvoices 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

RECIPIENTS Follow contract notice requirements Blast additional recipients @ company?o Attention/Action/Paymento Secretary of State filings helpful Registered AgentOfficers/Directors/Managers Additional valid addresses? Regular mail CMRRR Fax Emailo Hand delivery ensure record of receipt Generally, do not send collection demands to third partieso Consumer – violation of FDCPAo Commercial/Consumer – risk defamation/libel, interference withcontract claims etc. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

FOR EXAMPLE June 5, 2009VIA REGULAR US MAIL,FAX (999-999-999), ANDCM/RRR #7160 3901 9845ABC Wind Energy Corporationc/o Mr. Brad Pitt, Presidentc/o Ms. Angelina Jolie, Vice President9999 W. Star Blvd, Ste. 123Chicago, IL 60631VIA REGULAR US MAIL, ANDCM/RRR #7160 3901 9845 8645ABC Wind Energy Corporationc/o Ms. Maggie Manager, Accounting9999 South Highway 123, Building GPiper, MN 56162VIA REGULAR US MAIL, ANDCM/RRR #7160 3901 9845 8645ABC Wind Energy Corporationc/o CT Corporation System, Registered Agent350 N. St. Paul St.Dallas. TX 75201VIA EMAIL & REGULAR US MAILABC Wind Energy Corporationc/o Ms. Lois Lane ([email protected])c/o Steven Spielberg([email protected])9999 W. Star Blvd, Ste. 123Chicago, IL 60631Re: YOUR COMPANY INC.Unpaid Account of ABC Wind Energy CorporationAmount Unpaid: S350.0OO.OONOTICE OF DEFAULT AND DEMAND FORPAYMENT 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

RE: LINE1.2.3.Reference contract, accountReference amount dueMay reference type of demand: NOTICE OF DEFAULT & DEMAND FOR PAYMENTNOTICE OF INTENT TO ACCELERATENOTICE OF ACCELERATIONRe: YOUR COMPANY INC.Unpaid Account of ABC Wind Energy CorporationAmount Unpaid: S350.0OO.OONOTICE OF DEFAULT AND DEMAND FORPAYMENT 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

BASIS Specific Only what is necessary – just the facts Confirmed and AccurateAs you know, on or about April 10, 2008, ABC engaged YOURCOMPANY INC. to provide contract staffing services and personnel, pursuant toa Serving Agreement entered by ABC and YOUR COMPANY INC., a copy ofwhich is enclosed. YOUR COMPANY INC. has provided ABC with said contractstaffing services and personnel, but ABC has failed to pay for all of the servicesrendered by YOUR COMPANY INC. as agreed. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

DEMAND Specific Confirmed, Accurate, SupportedYOUR COMPANY INC. hereby makes demand upon ABC for payment inthe amount of 350,000, due and owing for the services rendered by YOURCOMPANY INC. The amount owing consists of Invoice No. 9864, a copy of whichis enclosed. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

DEMAND Demand for Interest? Avoid usurious interest and a usury counterclaim! Usury: Charging more than the maximum allowable interestrate. A function of state law. Some states don’t have interest limitations (e.g., Utah). Texas has a whole host of interest limitations, for example. In absence of a written agreement, 6% per annum limitWith a written agreement, up to 8% per annum as per agreementterms.Penalties can be severe, including loss of principal amount due,treble damages. Attorneys’ Fees? 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

DEADLINE Provide one. Don’t leave it open ended. Consider objectives and circumstances indeciding on timeframe Consider applicable law and contract FDCPA?Contract provisions for cure?State law for recovery of fees – “reasonable”? 3 days; 10 days; 30 days? 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

ULTIMATUMIf payment is not received within ten (10) days from the date of this letter,YOUR COMPANY will consider its legal remedies, including, but not limited to, filinga lawsuit against ABC on the unpaid account, for breach of contract, and/or forquantum meruit to recover the amount due, plus all pre- and post-judgment interest,court costs, and attorneys’ fees, as permitted by applicable law.If the deposit is not refunded within three days from the date of this letter,YOUR COMPANY INC. will consider all of its legal remedies, including filing alawsuit against RECIPIENT for breach of contract and/or fraud, seeking the 12,000.00, plus additional damages, including lost rentals, which to date are atleast 6,000.00, plus YOUR COMPANY INC.’s reasonable and necessary attorney’sfees and pre- and post-judgment interest, as allowed by law. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

ULTIMATUM “Consider all of its available legal remedies” Keep chosen recourse open Avoid threatening action or remedies you are notentitled to Leave open the option of NOT taking action 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

HOW SENDER WILL PROCEED Do not limit your remedies Keep it open-ended, i.e., you will consider all of youravailable legal remedies Do not threaten action you are not legally permitted totake, such as entering the property uninvited to takeback collateralIf the deposit is not refunded within three days from the date of this letter,YOUR COMPANY INC. will consider all of its legal remedies, including filing alawsuit against RECIPIENT for breach of contract and/or fraud, seeking the 12,000.00, plus additional damages, including lost rentals, which to date are atleast 6,000.00, plus YOUR COMPANY INC.’s reasonable and necessary attorney’sfees and pre- and post-judgment interest, as allowed by law. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

FILE LAWSUIT WITH DEMAND LETTER? In the commercial context, you may bepermitted to file lawsuit at the same time as thedemand May be necessary if you are up against a statute oflimitations periodShows commitment/confidence to collectingRecipient may agree to a judgment in response toyour demand letter as part of a payout agreement,which gives you a judgment to enforce later ifrecipient defaults on the agreement. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

FILE LAWSUIT WITH DEMAND LETTER?YOUR COMPANY INC., contemporaneously with this correspondence, hasfiled suit against RECIPIENT in the District Court of Harris County, Texas.A copy of Plaintiff's Original Petition is attached hereto for your review. Ifpayment is not received and arrangements for the removal of the equipmenthave not been made within ten (10) days from the date of this letter, YOURCOMPANY INC. will proceed with this litigation and continue to seek, asprovided by the Original Petition, the principal amount due, plus interest,court costs and attorneys' fees, as permitted by applicable law. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

ENCLOSURES? Generally, you should attach any documentsthat you have that prove that payment is due,including, the original contract and invoices But, you may not want to do so if the contractis missing or poorly written 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

EXAMPLES Accounts Promissory notes Leases Guarantees Other commercial agreements 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

ACCOUNTS Be sure to collect/review all of the invoicesand payments 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

ACCOUNTSAs you know, on or about April 10, 2008, RECIPIENT engagedYOUR COMPANY INC. to provide contract staffing services andpersonnel, pursuant to a Serving Agreement entered byRECIPIENT and YOUR COMPANY INC., a copy of which isenclosed. YOUR COMPANY INC. has provided RECIPIENT withsaid contract staffing services and personnel, but RECIPIENT hasfailed to pay for all of the services rendered by YOUR COMPANYINC. as agreed.YOUR COMPANY INC., hereby makes demand uponRECIPIENT for payment in the amount of 39,003.55 due andowing for services rendered by YOUR COMPANY INC. Theamount owing consists of Invoice No. 9864, a copy of which isenclosed. 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

PROMISSORY NOTES Follow the appropriate progression of demandletters for the note:1.2.3.Notice of intent to accelerate and demand forpayment – must be sent before accelerationNotice of accelerationDemand for return of collateral Notices for each step of the progression must beclear and unequivocal Notices are strictly construed 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

DEMAND FOR INTEREST? Applicable to account and promissory notedemands Be careful when demanding interest to avoidusury violations Usury laws vary between state and type ofpayment due Demanding principle amount “plus interest” isa safe conservative demand 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

PROCEEDING AGAINST COLLATERAL Demand should require recipient to assemblethe collateral and make it available for pickupat a certain time/location Provide contact information for arranging thepickup Self-help to recover the collateral is notpermitted Useful to avoid the necessity of a writ ofsequestrian should a lawsuit be necessary 2018 Bell Nunnally & Martin LLP. All Rights Reserved.

INTENT TO ACCELERATEAs of the date of this letter, the total amount of 5,996.82 is currently past due under the Note. The total amountdue includes the principal amount due of 3,024.30 and outstanding interest in the amount of 2,972.52. YOURCOMPANY INC. hereby makes demand upon you for payment in full of the total past due amount of 5,996.82within thirty (30) days of the date of this letter. In the event the past due amount indicated above is not paidwithin thirty (30) days of the date of this letter, the maturity of the Note shall be accelerated and the entireunpaid principal balance shall become due and payabl