Cites practice of not providing invoice including principal in loan documents sent to borrowers

In a recent opinion and order, Barbara Lynn, Chief Judge of the U.S. District Court for the Northern District of Texas, granted summary judgment for a group of physicians against Orange County, Calif.-based lender Balboa Capital Corporation, citing essential loan terms consistently “missing” from the borrowers’ loan packages. With interest and late fees, Balboa Capital was seeking more than $11.5 million from the physicians.

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FBFK Shareholder/Litigator Dana Campbell (Photo: Business Wire)

Balboa Capital financed home health care practices offered by the now defunct America’s Medical Home Team, Inc., making lump sum payments of approximately $75,000 per practice license. According to the ruling, Balboa Capital’s loan agreements failed to include essential terms that it contended were included on an exhibit to the “Installment Payment Agreement” – “Exhibit A1” – but that exhibit was never shared with the physician borrowers.

Dana Campbell, Shareholder/Litigator at Dallas-based FBFK Law Firm, who led the case for the Las Vegas, NV-based physicians, says that the distinction between a loan agreement and finance lease was key to the Court’s ruling. Because Balboa Capital’s “Installment Payment Agreement” was a loan agreement, it had to include the principal amount of the loan and the interest rate. If the agreement had been a true finance lease, the number of months and monthly payment would have been sufficient.

“We’re not aware of any other cases that have been decided against Balboa Capital based on the lack of essential terms but given that it was their practice to not include the invoice from its customer in the borrowers’ package of loan documents, this case could be the tip of the iceberg,” adds Campbell. “There is a sea of Balboa Capital filings on the docket daily, and only time will tell how many loans were made on that form of loan agreement and suffer from the same defect.”

As confirmed by the summary judgment ruling, “Balboa Capital conflated the concepts and had a loan contract that had only the number of months and monthly payment, but no principal and interest. As a result, the only way one could know the principal amount of the loan would be to see the invoice purportedly incorporated as Exhibit A1. So, it being undisputed that Exhibit A1 was not included as part of the loan agreement provided by Balboa Capital to the borrower, the principal and interest terms were missing, and the agreement was unenforceable,” he says.

Judge Lynn also found that Balboa Capital’s loan documents did not reflect an agreement to make lump sum payments to its customer, America’s Medical Home Team; only monthly payments were provided for in the license agreement.

While Balboa Capital’s lawsuits against the physicians were originally filed in Orange County, Calif., the parties agreed for the cases to be transferred to Texas, where Judge Lynn was presiding over class action lawsuits filed against Balboa Capital and other lenders funding the America’s Medical Home Team home health care program.

About FBFK

With more than 20 years of legal expertise and success across Texas and the U.S., Dallas-based FBFK is an entrepreneurial-minded, full-service business law firm with offices in Plano, Houston and Austin, Texas, as well as in Orange County, Calif. Driven by a commitment to creating lasting client relationships grounded in high-quality representation and client service, FBFK represents clients nationwide in 40 practice areas related to business structures and transactions, intellectual property protection and dispute resolution. www.fbfk.law.

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