stamped-petition for review

i

NO. _________________

In the

Supreme Court of Texas

ALVIE CAMPBELL AND JULIE CAMPBELL,

Petitioner,

In re: A Purported Lien or Claim Against Alvie Campbell and Julie Campbell

On appeal from cause No. 03-11-00524-CV

Third District Court of Appeals

Austin, Texas

PETITION FOR REVIEW

Respectfully submitted,

Alvie Campbell and Julie Campbell (Pro se)

250 Private Road 947

Taylor, Texas 76574

Ph: 512-796-6397

Email: [email protected]

FILEDIN THE SUPREME COURTOF TEXAS12 June 29 P2:41 BLAKE. A. HAWTHORNECLERK

Administrator1

Text Box

12-0534

ii

IDENTITY OF PARTIES & COUNSEL

Alvie Campbell and Julie Campbell Plaintiffs/Appellants/ Petitioners

250 Private Road 947 (Pro se)

Taylor, Texas 76574

Ph: 512-796-6397

NOTICE:

Pursuant Texas Government Code §51.903, there is only one party involved.

No other party Respondent – No other party

No other party involved Counsel – No other party

iii

TABLE OF CONTENTS

Identity of Parties and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Index of Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Statement of The Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

Statement of Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

Issues Presented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

Statement of Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Summary of Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Argument . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Prayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Certificate of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Certificate of Conference . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

INDEX OF AUTHORITIES

Cases Page

Tex. Dep't of Parks & Wildlife v. Miranda,

133 S.W.3d 217, 226 (Tex.2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

Texas Catastrophe Property Insurance Association v. Council of

iv

Co-Owner of Saida II Towers Condominium Association,

706 S.W.2d 644 (Tex. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

Employees Ret. Sys. of Tex. v. Blount,

709 S.W.2d 646, 647 (Tex. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

Bullock v. Amoco Production Co.,

608 S.W.2d 899, 901 (Tex. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

Randall's Food Mkts., Inc. v. Johnson,

891 S.W.2d 640, 643 (Tex.1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

In re Campbell,

No. 03-11-00524-CV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 2

In re: Lien or claims Against Samshi Homes, LLC,

321 S.W.3d 665 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Nat'l Liab. & Fire Ins. Co. v. Allen,

15 S.W.3d 525, 527 (Tex. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

St. Luke's Episcopal Hosp. v. Agbor,

952 S.W.2d 503, 505 (Tex. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

In re Sullivan,

157 S.W.3d 911, 915 (Tex. App.- Houston [14th Dist.] 2005, orig.

proceeding [mand. denied]) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 10

In re McGuire,

No. 02–11–00140–CV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

General Motors Corp. v. Bray,

243 S.W.3d 678, 685 (Tex. App.—Austin 2007, no pet.) . . . . . . . . . .5

ZIMMER US, INC. v. Combs, Tex: Court of Appeals, 3rd Dist. 2012. . . . . . . . . 5

Becker v. Tropic Isles Association

No. 13-08-00559-CV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Alvie Campbell and Julie Campbell v.

v

Mortgage Electronic Registration Systems, Inc.,

as Nominee for Lender and Lender’s Successors and Assigns;

Wells Fargo Bank, N.A.; Stephen C. Porter; David Seybold;

Ryan Bourgeois; Matthew Cunningham, and John Doe 1-100,

No. 03-11-00429-CV . . . . . . . . . . . . . . . . . . . . . . . . .. 5,8

Wesley Eugene Perkins v. Chase Manhattan Mortgage Corporation,

No. 03-04-00741-CV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Long v. NCNB-Texas Nat. Bank,

882 SW 2d 861 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7

Vogel v. Travelers Indem. Co.,

966 S.W.2d 748, 753 (Tex. App. –San Antonio 1998, no pet. h.) . . . 7

Wilmer F. Tremble, et al. v. Wells Fargo Home Mortgage Inc.,

No. 11-41176, 5th Cir. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Williams v. Countrywide Home Loans, INC.,

504 F.Supp.2d 176 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Kimsey v. Burgin,

806 S.W.2d 571, 576 (Tex.App.-San Antonio 1991, writ denied) . . . 7

Huddleston v. Texas Commerce Bank-Dallas,

756 S.W.2d 343, 347 (Tex.App.-Dallas 1988, writ denied). . . . . . . . .7

Austin Nursing Ctr., Inc. v. Lovato,

171 S.W.3d 845, 848 (Tex. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Tex. Ass'n of Bus. v. Tex. Air Control Bd.,

852 S.W.2d 440, 443 (Tex. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

See In re SSJ-J,

153 S.W.3d 132, 134 (Tex. App.- San Antonio 2004, no pet.) . . . . . 10

Hobbs v. Van Stavern,

249 S.W.3d 1, 3 (Tex. App. Houston [1st Dist.] 2006, pet. denied) . 10

vi

Statutes

United States Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Texas Constitution

Article V, § 3

Article V, § 1-a(6)

Texas Local Government Code

§192.001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9

§192.007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9

Texas Government Code

§22.001(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

§22.001(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x

§22.001(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

§22.001(a)(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x, xi

§51.901 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 2

§51.901(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

§51.901(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

§51.901(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

§51.901(c)(2)(A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

§51.901(c)(2)(B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

§51.901(c)(2)(C). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

§51.903 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi, 1, 3, 6, 7, 8

§51.903(a) . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 3, 5

§51.903(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3

§51.903(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

§51.903(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 8

§51.903(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

vii

Texas Penal Code

Texas Code of Criminal Procedure

Uniform Commercial Code

Article 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii, 6, 7, 8, 11

§9.109(d)(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Texas Property Code

§11.0001

§11.0004

§11.0041

§11.005

§11.007

§12.001

§12.0011

§13.001

§13.002

§15.001

§15.002

§15.003

§15.004

§15.005

§15.007

§15.008

§51.001

Other

viii

Canons of the Texas Code of Judicial Conduct

Title 18 United States Code §242 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

Rules

Texas Civil Practice and Remedies Code

§121.007 . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Texas Rules of Appellate Procedure

§56.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

§56.1(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

§56.1(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

§56.1(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

§56.1(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

§56.1(a)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

APPENDIX

EXHIBIT NUMBER PAGE

1 In re Campbell (3

rd Court of appeals Order) . . . . . . . . . . . . . . . . 15

2 In re McGuire (2

nd Court of appeals Order) . . . . . . . . . . . . . . . . 19

3 Letter to Permanent Editorial Board, Adam J. Levitin, Associate

Professor of Law, Georgetown University Law Center . . . . . . . . 23

4 Tex. Dep't of Parks & Wildlife v. Miranda . . . . . . . . . . . . . . . . . 32

5 Texas Catastrophe Property Insurance Association v. Council of

Co-Owner of Saida II Towers Condominium Association . . . . . . 56

6 Employees Ret. Sys. of Tex. v. Blount . . . . . . . . . . . . . . . . . . . . 61

ix

7 Bullock v. Amoco Production Co., . . . . . . . . . . . . . . . . . . . . . . . . 63

8 Randall's Food Mkts., Inc. v. Johnson . . . . . . . . . . . . . . . . . . . . . 66

9 In re: Lien or claims Against Samshi Homes, LLC . . . . . . . . . . . .76

10 Nat'l Liab. & Fire Ins. Co. v. Allen . . . . . . . . . . . . . . . . . . . . . . . 81

11 St. Luke's Episcopal Hosp. v. Agbor . . . . . . . . . . . . . . . . . . . . . . 90

12 In re Sullivan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

13 General Motors Corp. v. Bray . . . . . . . . . . . . . . . . . . . . . . . . . . 116

14 ZIMMER US, INC. v. Combs . . . . . . . . . . . . . . . . . . . . . . . . . . 134

15 Becker v. Tropic Isles Association . . . . . . . . . . . . . . . . . . . . . . 147

16

Alvie Campbell and Julie Campbell v. Mortgage Electronic

Registration Systems, Inc., as Nominee for Lender and Lender’s

Successors and Assigns; Wells Fargo Bank, N.A.; Stephen C.

Porter; David Seybold; Ryan Bourgeois; Matthew Cunningham,

and John Doe 1-100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

17 Wesley Eugene Perkins v. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Chase Manhattan Mortgage Corporation

18 Long v. NCNB-Texas Nat. Bank . . . . . . . . . . . . . . . . . . . . . . . . 187

19 Vogel v. Travelers Indem. Co. . . . . . . . . . . . . . . . . . . . . . . . . . 198

20 Wilmer F. Tremble, et al. v. Wells Fargo Home Mortgage Inc. .207

21 Williams v. Countrywide Home Loans, INC . . . . . . . . . . . . . . . 211

22 Kimsey v. Burgin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

23 Huddleston v. Texas Commerce Bank-Dallas . . . . . . . . . . . . . . 243

24 Austin Nursing Ctr., Inc. v. Lovato . . . . . . . . . . . . . . . . . . . . . .248

x

25 Tex. Ass'n of Bus. v. Tex. Air Control Bd . . . . . . . . . . . . . . . . 258

26 In re SSJ-J . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

27 Hobbs v. Van Stavern, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

28 Subchapter J Certain Fraudulent Records Or Documents . . . . . 325

29 Article 9, Secured Transactions, subchapter A, sec. §9.109 . . . .333

STATEMENT OF THE CASE

Nature of the Case: This is a statutory review case filed by Alvie

Campbell and Julie Campbell pursuant to Texas

Government Code §51.903 in Williamson County

District Clerks office for a statutory determination

of an instrument recorded against them.

Trial Court: The Honorable Billy Ray Stubblefield, 26th

Judicial District Court, Williamson County

Trial Court’s Disposition: Relief Denied; Motion to Reconsider Denied

Court of Appeals: Third District Court of Appeals; Chief Justice

Jones, Justices Pemberton and Rose. In Re A

Purported Lien or Claim Against Alvie Campbell

and Julie Campbell No. 03-11-00524-CV

Court of Appeals’

Disposition:

Affirmed

xi

STATEMENT OF JURISDICTION

The Supreme Court has jurisdiction of this case under Texas Government

Code Section 22.001(a)(2), because the Court of appeals opinion holds differently

from a prior decision from the same court of appeals and this Courts decisions;

(a) Subject-matter jurisdiction is a question of law, subject to de novo

review. Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d

217, 226 (Tex.2004)

(b) Texas Catastrophe Property Insurance Association v. Council of

Co-Owner of Saida II Towers Condominium Association, 706

S.W.2d 644 (Tex. 1986). ("because relevant cause of action derives

from statute, not common law, statutory provisions are mandatory

and exclusive and must be complied with in all respects'")


Code Section 22.001(a)(3), because the Court of appeals committed errors of law

in this case involving the construction of validity of a statute necessary to a

determination of a case as this conflicts with the Courts decision in;.

(a) ”Statutory provisions are mandatory and exclusive and must be

complied with in all respects." e.g. Employees Ret. Sys. of Tex. v.

Blount, 709 S.W.2d 646, 647 (Tex. 1986).

xii

(b) ”These statutes created a right not existing at common law and

prescribed a remedy to enforce the right. Thus, the courts . . . [only

have jurisdiction according to the rules] provided by the statute

which created the right." See, e.g., Bullock v. Amoco Production

Co., 608 S.W.2d 899, 901 (Tex. 1980).



in this case involving the construction of validity of a statute necessary to a

determination of a case which possibly has or possibly could affect state revenue.



that presents important issues of the states jurisprudence and of first impression to

this Court that is likely to recur in future cases and therefore need correction. See

Tex. Gov't Code §22.001(a)(6); Tex. R. App. P. 56.1(a)(5), (6); Randall's Food

Mkts., Inc. v. Johnson, 891 S.W.2d 640, 643 (Tex.1995)

ISSUES PRESENTED

1. The Court of Appeals error concluded a conclusory opinion rather than an

opinion in accordance to the statutory requirements of Texas Government Code

§51.903?

xiii

2. The Court of Appeals erred in concluding the Uniform Commercial Code

Article 9 was applicable to this case whereas the same court previously opined

the Uniform Commercial Code Article 9 is not applicable?

3. The Court of Appeals committed a gross error by opining a conclusory opinion

based upon issues not brought before the court?

4. The trial court and court of appeals committed errors of common law in not

properly applying law and protecting the Campbell’s rights as guaranteed by the

United States Constitution?

5. The Court of Appeals erred in their opinion and violated the Campbell’s rights

as guaranteed by the United States Constitution in violations of 18 USC §242 –

Deprivation of Rights Under Color of Law?

6. The Court of Appeals erred in their opinion thus depriving Alvie Campbell and

Julie Campbell the right to Due Process of Law by denying a determination of

validity of a document or instrument pursuant to statutory law?

7. The court of appeals grossly erred in opining in contradiction to a previous

opinion in the same court and conflicting in opinion with other courts both state

and federal regarding Article 9, UCC governing liens.

1

THE HONORABLE SUPREME COURT OF TEXAS:

Petitioners, Alvie Campbell and Julie Campbell, herein “Campbell” being

persons who own real property affected submits this Petition for review of the

decision of the Third District Court of Appeals at Austin which affirmed the trial

court’s declaratory denial of relief in a statutory request for review of an

instrument purporting to create a lien or claim against the Campbell real property.

The court of appeals erroneously concluded a declaratory opinion authored by the

court Justices in opposite of Texas Government Code §51.903 that provides for a

narrow scope and statutory decision. The nature of the motion was an action on a

claim, one certain instrument pursuant to Texas Government Code §51.903.

STATEMENT OF FACTS

The memorandum opinion of the court of appeals incorrectly states the

nature of the case by creating declaratory conclusions outside the four corners of

the instrument in question as opined in In re Campbell, No. 03-11-00524-CV.

Contrary to the trial court and court of appeals opinion, Alvie Campbell and

Julie Campbell did not request a declaratory opinion upon the validity of a deed of

trust which was not submitted to the court.

This statutory request began as a simple request for a statutory determination

of a certain instrument recorded in Official public records in Williamson County,

Petition for Review Page 1

2

Texas pursuant to Texas Government Code §51.903(a). A fabricated creation

titled Assignment of Note Deed of Trust.

Because of the use of fraudulent debt claims were recognized as a bogus

claim(s) filed as a lien or claim in the county clerk’s property records, Texas

Legislature provided Subchapter J, Certain Fraudulent Records or Documents,

Texas Government Code §51.901-§51.903 and that §51.903 Action on Fraudulent

Lien on Property, provided that a person who is the purported debtor or obligor or

who owns real or personal property or an interest in real or personal property;

“..may complete and file with the district clerk a motion, verified by affidavit by a

completed form for ordinary certificate of acknowledgment, of the same type

described by Section 121.007, Civil Practice and Remedies Code, that contains, at

a minimum, the information in the following suggested form:...”

The Campbell’s discovered the instrument in question recorded in

Williamson County Official Public Records as Instrument # 2008075222,

governed by Texas Local Government Code §192.001 & §192.007 and pursuant to

Texas Government Code §51.903(a) the Campbell’s filed their Motion for Judicial

Review of Documentation of Instrument Purporting to Create a Lien or Claim

with the Williamson County District Clerks office in March, 2011 which in turn

was assigned as cause No 11-341-C26 in the 26th

Judicial District Court, the

honorable Billy Ray Stubblefield presiding.


3

Pursuant to Texas Government Code §51.903(c) a District Judge has

jurisdiction and a subsequent appellate court had jurisdiction in appeal matters.

The trial court and the appellate court both erred in failure to opine an opinion in

accordance of Texas Government Code §51.903.

SUMMARY OF ARGUMENT

The court of appeals erroneously held that the Campbell’s cannot rely on

Texas Government Code §51.903 for the determination of the validity of an

assignment filed of record, herewith the court had to reach an opinion that was

declaratory in nature and was outside the scope of the pleading and statute.

The trial court and the court of appeals both did not provide a proper

observance of the instrument or the language within the four corners of that

instrument or laws that govern such type of instrument. “In construing a statute,

our objective is to determine and give effect to the legislative intent”. See Nat'l

Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000). “If possible, we

must ascertain that intent from the language the Legislature used in the statute and

not look to extraneous matters for an intent the statute does not state”. Id. “If the

meaning of the statutory language is unambiguous, we adopt the interpretation

supported by the plain meaning of the provision's words”. St. Luke's Episcopal

Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997). “We must not engage in forced

or strained construction; instead, we must yield to the plain sense of the words the


instrument

Administrator1

Text Box

instrument

4

Legislature chose. See id.” “When standing has been conferred by statute, the

statute itself should serve as the proper framework for a standing analysis”. In re

Sullivan, 157 S.W.3d 911, 915 (Tex. App.- Houston [14th Dist.] 2005, orig.

proceeding [mand. denied]).

The trial court and the court of appeals both failed to utilize a suggested

form appropriate to comply with §51.903 as found within §51.903(g).

The trial court and the court of appeals both failed to follow statutory law

which required a filing of record notice of its finding of fact and conclusion of law

found within §51.903(e) “which must be filed and indexed in the same class of

records in which the subject documentation or instrument was originally filed.”

The court of appeals was incorrect in citing In Re Purported Liens or Claims

Against Samshi Homes, LLC as if this were the case §51.903(e) would support the

fact that there is no indication in Williamson County Official records that the

instrument in question was or was not created by consent or agreement as

contemplated under subsection §51.901(c) of which the key question here is

whether the instruments are provided by the Constitution or laws of this state or of

the United States as contemplated by subsections §51.901(c)(2)(A-C).

The court of Appeals erred in applying declaratory evidence not introduced

in this statutory review and by doing so opined a declaratory opinion, the court of

appeals erred in not following statute requirements or recommendations.


5

The court of appeals erred in misconstruing Texas Government Code

§51.903 as being applicable in this instant suit in regards to an existing deed of

trust which no such relief was requested and so stated in item “V.” of the suggested

form in §51.903(a); “Movant does not request the court to make a finding as to any

underlying claim of the parties involved and acknowledges that this motion does

not seek to invalidate a legitimate lien”.

The court of appeals misapplied the law in this instant suit relying upon “In

re: A Purported Lien or Claim Against James McGuire, No. 02-11-00140-CV” as

this grave error could lead to harm for many other citizens pursuing this statutory

law.

The Third Court of Appeals is very aware that when resolving an issue of

statutory construction, “we must first and foremost follow the plain language of the

statute”. General Motors Corp. v. Bray, 243 S.W.3d 678, 685 (Tex. App.—Austin

2007, no pet.) as so stated in Zimmer US, Inc. v. Susan Combs, Comptroller of

Public Accounts of the State of Texas; and Greg Abbott, Attorney General of the

State of Texas, No. .

ARGUMENT

I. This Court must resolve conflicting Uniform Commercial Code opinions

where the court of appeals has currently opined opposite of an opinion

already opined by the same court of appeals. This Court should exercise

jurisdiction to resolve the important questions that this case presents

concerning the scope of a statutory review, how it is applied and


6

whether the same court of appeals can have conflicting opinions of the

same subject.

This petition presents an important core issue concerning not only the scope

of Texas Government Code, §51.903 but most importantly conflicting opinions

from the same court of appeals. Does Texas Government Code §51.903 provide

for a person who has reason to believe a recorded instrument is fraudulent have the

right to file a motion with the District Clerk?

The court of appeals appear to be contradicting itself in regards to the Deed

of trust lien with two conflicting opinions, one recent and the other in 2004. In

2004 the court of appeals opined in Wesley Eugene Perkins v. Chase Manhattan

Mortgage Corporation, No. 03-04-00741-CV, that the Deed of Trust was not

governed by Article 9 Uniform Commercial Code and cited;

However, real estate contracts are not governed by the UCC; the UCC

applies only to sales of goods. See Tex. Bus. & Com. Code Ann. § 2.102

(West 1994); Gupta v. Ritter Homes, Inc., 633 S.W.2d 626, 627 (Tex.

App.—Houston [14th Dist.] 1982) (cause of action under UCC was

“unfounded because sales of realty . . . are not within the scope of the

Code”), rev’d on other grounds, 646 S.W.2d 168 (Tex. 1983); see also

Tex. Bus. & Com. Code Ann. § 9.109(d)(11) (West 2005) (chapter 9 of

UCC does not apply to creation or transfer or interest in or lien on real

property); Vogel v. Travelers Indem. Co., 966 S.W.2d 748,753 (Tex.

App.—San Antonio 1998, no pet.) (discussing former UCC § 9.104, now

§ 9.109, and stating that because “Deed of Trust places a lien on real

property, it is not governed by the UCC”); Long v. NCNB-Texas Nat’l

Bank, 882 S.W.2d 861, 864 (Tex. App.—Corpus Christi 1994, no writ)


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In Long v. NCNB-Texas Nat. Bank, 882 SW 2d 861 - Tex: Court of

Appeals, 13th Dist. 1994, the court stated; “Although chapter 9 of the Business and

Commerce Code regulates security interests in personal property and fixtures, it

expressly omits governance over "the creation or transfer of an interest in or lien

on real estate." Tex.Bus. & Comm.Code Ann. § 9.104(10) (Tex.UCC). In both

parameter and underlying purpose, therefore, the notice requirement in chapter 9

evolves under jurisprudential strictures wholly irrelevant to the Property Code.”

In Wilmer F. Tremble, et al. v. Wells Fargo Home Mortgage Inc., No. 11-

41176, The United States Court of Appeals for the Fifth District cited; “Texas

incorporated the UCC under title 1 of the Texas Business and Commercial Code.

See TEX. BUS. & 1 COM. CODE ANN. § 1.101. The UCC, however, does not

govern the mortgage, a lien on real property. See TEX. BUS. & COM. CODE

ANN. § 9.109(d)(11) (excluding “interest in or lien on real property”); Vogel v.

Travelers Indem. Co., 966 S.W.2d 748, 753 (Tex. App. –San Antonio 1998, no pet.

h.) (“Because the Deed of Trust places a lien on real property, it is not governed

by the UCC.”)”.

In Williams v. Countrywide Home Loans, INC., the court stated; “Article 9

of the UCC does not apply to the creation or transfer of a security interest in real

property. TEX. BUS. & COM.CODE § 9.109(d)(11); Kimsey v. Burgin, 806

S.W.2d 571, 576 (Tex.App.-San Antonio 1991, writ denied) (“Chapter 9 does not

apply to the creation or transfer of an interest in or lien on real estate.”);

Huddleston v. Texas Commerce Bank–Dallas, 756 S.W.2d 343, 347 (Tex.App.-

Dallas 1988, writ denied). The court also stated; “Because this case involves the


8

“creation or transfer of an interest in or lien on real property,” Williams cannot

recover under TEX.BUS. & COM.CODE §§ 9.101 et seq.

In Alvie Campbell and Julie Campbell v. Mortgage Electronic Registration

Systems, Inc., as Nominee for Lender and Lender’s Successors and Assigns; Wells

Fargo Bank, N.A.; Stephen C. Porter; David Seybold; Ryan Bourgeois; Matthew

Cunningham, and John Doe 1-100, No. 03-11-00429-CV the court of appeals

opined that Article 9 Uniform Commercial Code did govern the alleged

assignment. As No. 03-11-00429-CV is not yet before this Court, this court would

be blind as not to see how the opinion opined in 03-11-00429-CV upended well

established case law and such error required this appeal.

The court of appeals published opinion involves important errors of

constitution dimensions that merits correction by this Court. See TEX. R. APP. P.

56.1(a)(2),(3),(4),(6). If mere assumption that one purports to be lawful is

sufficient for a court to make a determination such as the court of appeals held,

then many other Texans will find themselves in precisely the same predicament as

Alvie Campbell and Julie Campbell: forced to defend a lawsuit against a party

whom had no standing to initiate such an action against them.

Both the trial court and court of appeals had jurisdiction to opine an opinion

based on statutory law of Texas Government Code §51.903 and both lacked

jurisdiction to determine its opinion on matters outside of statutory limits, and as


instrument

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both courts are noted to have opined beyond statutory limits of Texas Government

Code §51.903, this is a grave error that must be addressed by this court.

The due process guaranteed by the United States Constitution is the only

process many Texans have to defend themselves against such third party’s

attempting unlawful actions against them.

II. The court of appeals in line with the trial court failed to opine in

accordance with State statutory law.

The court of appeals grossly erred in affirming the trial court’s paper order

denying relief and the trial courts second order denying motion to reconsider the

Campbell’s pleading where such pleading was statutorily limited, whereas no such

declaratory relief was requested by Alvie Campbell and Julie Campbell and as

such the trial court and the appellate court were without jurisdiction to render any

declaratory opinion upon issues not raised before the court. The trial court was

never petitioned for a declaratory ruling and therefore lacked jurisdiction to opine

an opinion on matters outside the scope of a §51.903 statutory motion. Had the

Campbell’s invoked a declaratory motion, notice would be required and both

courts would have made the Campbell’s aware of such matter. The trial court’s

opinion and the confirmation of the trial court’s opinion was not an issue noted

within the Campbell’s motion for judicial review, therefore both courts failed to

follow the statutory law provided by the Texas Legislature.


10

Both the trial court and the appellate court erred by failing to file of record

the Finding of Fact and Conclusion of Law as required by Texas Government Code

§51.903(e) as this could easily be observed in Mark Becker, Mike Cyrus, Jesse

Hall, And Sheri Hamit v. Tropic Isles Association, No. 13-08-00559-CV.

The trial court and court of appeals grossly erred in determining such a

declaratory opinion that would defeat this Courts previous decisions as to the effect

of “whether a party has a sufficient relationship with the lawsuit to have a

"justiciable interest" in the outcome”. Austin Nursing Ctr., Inc. v. Lovato, 171

S.W.3d 845, 848 (Tex. 2005). “Standing is implicit in the concept of subject matter

jurisdiction”. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex.

1993). “Whether a party has standing is a threshold issue, and one which we

review de novo”. See In re SSJ-J, 153 S.W.3d 132, 134 (Tex. App.- San Antonio

2004, no pet.); Hobbs v. Van Stavern, 249 S.W.3d 1, 3 (Tex. App. Houston [1st

Dist.] 2006, pet. denied). “When standing has been conferred by statute, the

statute itself should serve as the proper framework for a standing analysis.” In re

Sullivan, 157 S.W.3d 911, 915 (Tex. App.- Houston [14th Dist.]

This grave error by both the trial court and court of appeals would be fatal to

subsequent opinions where a party raises the issue of standing and open an

doorway for many who would abuse such defect of Constitutional magnitude.


11

As Texas is a “lien theory state” this issue is likely to recur due

misconceptions or errors by the courts as whether Article 9, UCC law is being

applied to a deed of trust, creation or transfer or interest in or lien on real property.

Not only is the court of appeals error applicable in this instant suit but this error

would also affect the outcome of subsequent opinions in this state.

If the precedence is set by erroneous opinions of jurisprudence in this

manner the pattern is surely formed to provide that many will fall prey to this

pattern and this pattern of erroneous opinions should not be allowed to continue.

PRAYER

For the reasons stated in this petition accordingly petitioners Alvie Campbell

and Julie Campbell respectfully requests this Court to grant this Petition for

Review.


___________________________

Alvie Campbell and (Pro se)


Taylor, Texas 76574

Ph: 512-796-6397

Email: [email protected]

__________________________

Julie Campbell (Pro se)


Taylor, Texas 76574

Ph: 512-796-6397

PETITIONERS


12

CERTIFICATE OF SERVICE

Pursuant to Chapter 51, section 903, Texas Government Code, no notice is

required. The Campbell’s are sole party in this appeal.

By:________________________________

Alvie Campbell

c/o 250 PR 947

Taylor, Texas 76574

(512) 796-6397

By:________________________________

Julie Campbell

c/o 250 PR 947

Taylor, Texas 76574

(512) 791-2295

CERTIFICATE OF CONFERENCE

As required by Texas Rule of Appellate Procedure 10.1(a)(5), I certify that I have

not conferred, or made a reasonable attempt to confer, as no other parties are

involved to discuss the merits of this petition for review with the following results

not being relative to this petition of review:

[No other party] = [Pursuant to Tex. Gov. Code §51.503]

N/A opposes motion

N/A does not oppose motion

N/A agrees with motion

N/A would not say whether motion is opposed

N/A did not return my message regarding the motion


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APPENDIX

Exhibit Page

1 In re Campbell (3

rd Court of appeals Order) . . . . . . . . . . . . . . . . 15

2 In re McGuire (2

nd Court of appeals Order) . . . . . . . . . . . . . . . . 19

3 Letter to Permanent Editorial Board, Adam J. Levitin, Associate

Professor of Law, Georgetown University Law Center . . . . . . . . 23

4 Tex. Dep't of Parks & Wildlife v. Miranda . . . . . . . . . . . . . . . . . 32

5 Texas Catastrophe Property Insurance Association v. Council of

Co-Owner of Saida II Towers Condominium Association . . . . . . 56

6 Employees Ret. Sys. of Tex. v. Blount . . . . . . . . . . . . . . . . . . . . 61

7 Bullock v. Amoco Production Co., . . . . . . . . . . . . . . . . . . . . . . . . 63

8 Randall's Food Mkts., Inc. v. Johnson . . . . . . . . . . . . . . . . . . . . . 65

9 In re: Lien or claims Against Samshi Homes, LLC . . . . . . . . . . . .76

10 Nat'l Liab. & Fire Ins. Co. v. Allen . . . . . . . . . . . . . . . . . . . . . . . 81

11 St. Luke's Episcopal Hosp. v. Agbor . . . . . . . . . . . . . . . . . . . . . . 90

12 In re Sullivan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

13 General Motors Corp. v. Bray . . . . . . . . . . . . . . . . . . . . . . . . . . 116

14 ZIMMER US, INC. v. Combs . . . . . . . . . . . . . . . . . . . . . . . . . . 134

15 Becker v. Tropic Isles Association . . . . . . . . . . . . . . . . . . . . . . 147

16

Alvie Campbell and Julie Campbell v. Mortgage Electronic

Registration Systems, Inc., as Nominee for Lender and Lender’s

Successors and Assigns; Wells Fargo Bank, N.A.; Stephen C.

Porter; David Seybold; Ryan Bourgeois; Matthew Cunningham,

and John Doe 1-100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157


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14

17 Wesley Eugene Perkins v. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Chase Manhattan Mortgage Corporation

18 Long v. NCNB-Texas Nat. Bank . . . . . . . . . . . . . . . . . . . . . . . . 187

19 Vogel v. Travelers Indem. Co. . . . . . . . . . . . . . . . . . . . . . . . . . 198

20 Wilmer F. Tremble, et al. v. Wells Fargo Home Mortgage Inc. .207

21 Williams v. Countrywide Home Loans, INC . . . . . . . . . . . . . . . 211

22 Kimsey v. Burgin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

23 Huddleston v. Texas Commerce Bank-Dallas . . . . . . . . . . . . . . 243

24 Austin Nursing Ctr., Inc. v. Lovato . . . . . . . . . . . . . . . . . . . . . .248

25 Tex. Ass'n of Bus. v. Tex. Air Control Bd . . . . . . . . . . . . . . . . 249

26 In re SSJ-J . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299

27 Hobbs v. Van Stavern, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304

28 Subchapter J Certain Fraudulent Records Or Documents . . . . . 316

29 Article 9, Secured Transactions, subchapter A, sec. §9.109 . . . .324


TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-11-00524-CV

In re: A Purported Lien or Claim Against Alvie Campbell and Julie Campbell

FROM THE DISTRICT COURT OF WILLIAMSON COUNTY, 26TH JUDICIAL DISTRICTNO. 11-341-C26, HONORABLE BILLY RAY STUBBLEFIELD, JUDGE PRESIDING

M E M O R A N D U M O P I N I O N

Appellants Alvie Campbell and Julie Campbell, pro se, appeal the trial court’s order

denying their request to declare fraudulent an instrument assigning the note evidencing their

mortgage loan and deed of trust securing that note from Mortgage Electronic Registration Systems,

Inc.(“MERS”) to Wells Fargo Bank, N.A. We will affirm.

BACKGROUND

In March 2011, and purportedly pursuant to Texas Government Code section

51.903(a), the Campbells filed in the trial court a “Motion for Judicial Review of Documentation or

Instrumentation Purporting to Create a Lien or Claim.” See Tex. Gov’t Code Ann. § 51.903(a) (West

2005). Attached to the motion was an instrument titled “Assignment of Note and Deed of Trust.”

The assignment was executed on September 10, 2008, and filed in the Official Public Records of

Williamson County on September 30, 2008. The essence of the Campbells’ motion was that the

assignment was fraudulent because the assignor did not have the right to transfer either the note or


the deed of trust. In May 2011, the trial court denied the relief requested by the Campbells. 1

Thereafter, the Campbells filed a “Motion to Reconsider Denial,” which was denied by an order

signed in July 2011. This appeal followed.

DISCUSSION

In one issue, the Campbells contend that the trial court erred by failing to comply with

the statutory requirement that, after reviewing the challenged document, the trial court must enter

an appropriate finding of fact and conclusion of law as to whether the document does or does not

create a valid lien. The Campbells appear to challenge both the trial court’s denial of their request

to determine that the assignment was fraudulent as well as its failure to make any findings of fact or

conclusions of law as required by the statute. See id.§ 51.903(e) (after reviewing documentation or

instrument district judge shall enter appropriate finding of fact and conclusion of law), (g) (providing

suggested form for finding and conclusion).

Section 51.903(a) “authorizes a person or entity that owns real property, and has

reason to believe that another has filed a document purporting to create a lien against that property,

to file a motion with the district clerk alleging that the instrument in question is fraudulent, as

defined by section 51.901(c), and therefore should not be accorded lien status.” In re Purported

Liens or Claims Against Samshi Homes, L.L.C., 321 S.W.3d 665, 666 (Tex. App.—Houston [14th

Dist.] 2010, no pet.) (citing Tex. Gov’t Code Ann. §§ 51.901(c) (West Supp. 2011), .903(a)). As

applicable here, an instrument filed in the real property records is presumed to be fraudulent if:

Although the court did not sign an order, the docket contains the following entry dated1

May 11, 2011: “Relief denied. Stubblefield.”

2


(2) the document or instrument purports to create a lien or assert a claim against realor personal property or an interest in real or personal property and;

(A) is not a document or instrument provided for by the constitution orlaws of this state or of the United States;

(B) is not created by implied or express consent or agreement of theobligor, debtor, or the owner of the real or personal property or aninterest in the real or personal property, if required under the laws ofthis state, or by implied or express consent or agreement of an agent,fiduciary, or other representative of that person; or

(C) is not an equitable, constructive, or other lien imposed by a court withjurisdiction created or established under the constitution or laws ofthis state or of the United States.

Tex. Gov’t Code Ann. § 51.901(c)(2). The Campbells appear to believe the assignment from MERS

to Wells Fargo was invalid because the assignor did not have authority to make the assignment. In

their brief they argue that the assignment “did not identify or demonstrate upon the face of the

instrument that an agency relationship existed with the note holder or proper party to the Deed of

Trust and Note.”

The Campbells’ reliance on government code section 51.903 to challenge the

assignment’s validity is misplaced. Section 51.903 does not apply to assignments; rather, it applies

only to documents or instruments “purporting to create a lien or claim” against property. See id.

§ 51.903(a) (emphasis added). The assignment at issue in the present case does not purport to create

a lien or claim, it merely purports to transfer an existing deed of trust from one entity to another.

We conclude that the Campbells cannot rely on government code section 51.903 to challenge the

validity of an assignment of a deed of trust based on an alleged lack of authority to make the

3


assignment. See In re: A Purported Lien or Claim Against James McGuire, No. 02-11-00140-CV,

2012 WL 254066, at *1 (Tex. App.—Fort Worth Jan. 26, 2012, no pet.) (mem. op.) (section 51.903

could not be used to challenge validity of assignment of security interest for alleged failure

to sufficiently identify security interest being assigned). We therefore overrule the Campbells’

sole issue.

CONCLUSION

Having overruled the Campbells’ sole issue, we affirm the trial court’s order.

_____________________________________________

J. Woodfin Jones, Chief Justice

Before Chief Justice Jones, Justices Pemberton and Rose

Affirmed

Filed: May 18, 2012

4


COURT OF APPEALS SECOND DISTRICT OF TEXAS

FORT WORTH

NO. 02-11-00140-CV

IN RE: A PURPORTED LIEN OR CLAIM AGAINST JAMES MCGUIRE

----------

FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY

----------

MEMORANDUM OPINION1

----------

I. Introduction

Appellant James McGuire, pro se, appeals the trial court’s order finding that

a June 1, 1995 instrument assigning his mortgage loan from one lender to another

was created by McGuire’s implied or express consent or agreement. McGuire

contends in his sole issue that the trial court erred by failing to properly analyze

the assignment and apply the law. We affirm.

1See Tex. R. App. P. 47.4.


2

II. Background

On April 11, 2011, and purportedly pursuant to Texas Government Code

section 51.903(a), McGuire filed in the trial court a “Motion for Judicial Review of

Documentation or Instrument Purporting to Create a Lien or Claim” (the motion).

Attached to the motion was an instrument titled, “Assignment” (the assignment).

The assignment was executed on June 1, 1995, and filed in the Tarrant County

real property records on July 6, 1995. McGuire alleged in the motion that the

assignment was fraudulent because it purported to create a lien or claim against

his property but did not identify the security interest being assigned. Because the

trial court’s subsequent order did not grant the relief McGuire sought, he filed

notice of this appeal.

III. Discussion

Texas Government Code section 51.903(a) “authorizes a person or entity

that owns real property, and has reason to believe that another has filed a

document purporting to create a lien against that property, to file a motion with the

district clerk alleging that the instrument in question is fraudulent, as defined by

section 51.901(c), and therefore should not be accorded lien status.” In re

Purported Liens or Claims Against Samshi Homes, L.L.C., 321 S.W.3d 665, 666

(Tex. App.—Houston [14th Dist.] 2010, no pet.) (citing Tex. Gov’t Code Ann. §§

51.901(c) (West Supp. 2011), .903(a) (West 2005)). As applicable here, an

instrument filed in the real property records is presumed to be fraudulent if:


3

(2) the document or instrument purports to create a lien or assert a claim against real or personal property or an interest in real or personal property and:

(A) is not a document or instrument provided for by the constitution or laws of this state or of the United States; (B) is not created by implied or express consent or agreement of the obligor, debtor, or the owner of the real or personal property or an interest in the real or personal property, if required under the laws of this state, or by implied or express consent or agreement of an agent, fiduciary, or other representative of that person; or (C) is not an equitable, constructive, or other lien imposed by a court with jurisdiction created or established under the constitution or laws of this state or of the United States.

Tex. Gov’t Code Ann. § 51.901(c)(2).

McGuire alleged in the motion that the assignment was fraudulent because

it failed to identify the security interest being assigned, and it appears from

McGuire’s appellate brief that he believes the assignment invalid for failure to

identify the assigned note by book and page or instrument number. McGuire

concedes that a mortgagor may assign a note, but he argues that the district court

erred by failing to find that this assignment did not create a valid lien or claim

because of its failure to sufficiently identify the note being assigned. There is,

however, at least one flawed premise underlying McGuire’s reliance on

government code section 51.903 to challenge the assignment’s validity.

Government code section 51.903 does not apply to assignments; rather, it applies

only to documents or instruments “purporting to create a lien or a claim” against

property. See id. § 51.903(a) (emphasis added). The assignment does not


4

purport to create a lien or claim; it merely purports to transfer an existing note from

one lender to another. We hold that McGuire cannot rely on government code

section 51.903 to challenge the validity of the assignment for the alleged failure to

sufficiently identify the security interest being assigned.2 We therefore overrule

McGuire’s sole issue.

IV. Conclusion

Having overruled McGuire’s sole issue, we affirm the trial court’s order.

ANNE GARDNER JUSTICE

PANEL: GARDNER, MEIER, and GABRIEL, JJ. DELIVERED: January 26, 2012

2We express no opinion concerning the validity or invalidity of the

assignment and hold only that McGuire cannot use government code section 51.903 to challenge it.


600 New Jersey Avenue, NW, Washington DC 20001-2075

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(202) 662-9234 Fax: (202) 662-4030

[email protected]

GEORGETOWN UNIVERSITY LAW CENTER

Adam J. Levitin Associate Professor of Law

May 27, 2011

To the Permanent Editorial Board:

We are law professors at Albany Law School, Georgetown University Law Center,

University of Illinois College of Law, University of Iowa School of Law, the University of Utah S.J.

Quinney College of Law, and Valparaiso University Law School, where we teach courses in secured

credit (Uniform Commercial Code [“UCC”] Article 9 and real property security), payment systems

(including UCC Article 3), structured finance, bankruptcy, consumer finance, and contracts. We have

testified repeatedly before Congress regarding mortgage foreclosures, including chain of title issues,

and closely follow legal developments in mortgage foreclosures.

We are writing to express serious misgivings about the draft report on the UCC Rules

Applicable to the Assignment of Mortgage Notes and to the Ownership and Enforcement of Those

Notes and the Mortgages Securing Them (the “Draft Report”) authored by Permanent Editorial Board

(“PEB”) for the Uniform Commercial Code. The Draft Report is couched in the technicalities of the

UCC, but is actually attempting to resolve pressing public policy questions arising out of the financial

crisis. Attempting a sub rosa resolution of such controversial issues of law through a PEB report

undermines the perceived independence and credibility of the PEB and damages the reputation of the

American Law Institute and the National Conference of Commissioners on Uniform State Law.

The Draft Report’s apparent purpose is to urge an authoritative interpretation of critical and

controversial questions of public policy on the states and on courts. To the extent the PEB has the

authority to issue interpretations, that power is limited to “the correct interpretation of” the U.C.C.1

The PEB acknowledges that limitation on its authority by asserting that the Draft Report is limited to

interpretation of the U.C.C. provisions on point and “does not address issues that are the particular

province of real property law.”

A prior, non-public version of the Draft Report repeatedly strayed over that line.2 At key

points, the prior version of the Report attempted to override state property law, including with respect

1 Permanent Editorial Board for the Uniform Commercial Code, Agreement Describing the Relationship of the

American Law Institute, the National Conference of Commissioners on Uniform State Laws, and the Permanent Editorial

Board with Respect to the Uniform Commercial Code at [5] (unnumbered), at http://www.ali.org/doc/03-

PEB%20for%20UCC%2003.pdf. 2 Regarding the prior, non-public version of the Draft Report, please see my letter to the PEB dated December 28,

2010.



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[email protected]

2

to important questions on which state courts are divided. Elsewhere, the Report affirmatively

misstated the law by ignoring state and federal statutes that modify or curtail the holder-in-due course

rule for certain residential mortgages.

The current public version of the Draft Report has been revised to be more circumspect in

this regard. Unfortunately, the revised, public Draft Report now has the effect of being misleading

because it addresses UCC issues in a vacuum when in fact they cannot be meaningfully separated

from state procedural law, real property law, agency law, and trust law. In many instances, the result

that would obtain if only the UCC were considered is opposite of the result that would obtain if all

pertinent law were considered. The Draft Report is misleading because it ignores the non-UCC laws

that also govern the enforceability of mortgage notes.

Even if the Report were not misleading in this respect, the PEB is simply the wrong body to

resolve these issues. The Report’s recommendations, if adopted, would directly affect the economic

welfare of millions of Americans and the financial health of the nation. Its rigid prescriptions of law

would further constrain the ability of state and federal governments to protect their citizens in times

of economic crisis. Issues of this magnitude need to be resolved in an open and public forum where

all affected constituencies can be heard and the complex public policy implications involved can be

aired, rather than by a non-representative body like the PEB.

Strangely, the Report is virtually devoid of any reference to the financial crisis or the role that

the UCC played in facilitating the financial structures the precipitated the global economic collapse.

Instead, the Report seeks to impose a resolution on the courts to issues affecting the foreclosure crisis

and the future structure of securitization purely as a matter of legal doctrine. This failure to grapple

with the real-world implications of the problems the Report addresses or to acknowledge calls for

reform on these issues seriously undermines the credibility of the Report.

A PEB report is not an appropriate vehicle for resolving the serious legal issues posed by

MERS or chain of title problems in residential mortgage securitizations. Unfortunately, the Draft

Report gives the impression of being an attempt, if not to resolve these issues, than at least to put a

finger on the scale to tilt the law to help shield large financial institutions from the consequences of

sloppy legal compliance in the name of efficiency.

In the remainder of this letter, we address several particular concerns with the Draft Report:

(1) that the Draft Report is misleading because enforcement of mortgage notes other than through

mortgage foreclosure is virtually meaningless; (2) the Draft Report is misleading because it focuses

solely on the UCC issues when consideration of supplementary, contradictory, or superseding federal

bankruptcy law, state procedural law, evidentiary law, real property law, trust law, and agency law

might produce different outcomes; and (3) the Draft Report fails to recognize that UCC 9-203(g) may

not be effective to transfer real property in title theory states.

1. The PEB Draft Report Is Misleading Because It Discusses Note Enforcement when the Issue

Is Mortgage Enforcement, a Topic Beyond the PEB’s Purview

The Draft Report purports to cover only the enforcement of mortgage notes under the UCC,

not the enforcement of mortgages. Framing the report in this fashion, however, is fundamentally

misleading, because mortgage notes are seldom enforced except by foreclosure of the mortgages.

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little sense to discuss solely enforcement of the note. What is being enforced is almost always the

mortgage,3 which is an issue that is beyond the authority of the PEB.

The Official Commentary to the UCC makes clear that the UCC takes no position on whether

a mortgage is enforceable.4 UCC section 9-308 Official Comment 6 states that:

Under this Article, attachment and perfection of a security interest in a secured right

to payment do not themselves affect the obligation to pay. For example, if the

obligation is evidenced by a negotiable note, then Article 3 dictates the person whom

the maker must pay to discharge the note and any lien securing it….Similarly, this

Article does not determine who has the power to release a mortgage of record. That

issue is determined by real-property law. (Emphasis added.)

Unfortunately, the very title of the Draft Report claims an authority that the PEB lacks. The Draft

Report is title states that it is on the UCC Rules Applicable to the Assignment of Mortgage Notes and

to the Ownership and Enforcement of Those Notes and the Mortgages Securing Them (key words

underlined). The enforcement of mortgages is outside the scope of the UCC and therefore not a topic

that the PEB may properly address.

While the substance of the Draft Report does not veer into the enforcement of mortgages, the

titling of the Draft Report furthers the problem that the Report is only addressing note enforcement,

while giving the impression that enforceability of the note decides the enforceability of the mortgage.

Given that the real issue of import is the enforcement of the mortgage, not the note, it is

fundamentally misleading for the PEB to issue a report about the enforcement of the note. While the

ability to enforce the note is usually required to enforce the mortgage,5 a report that only addresses

note enforcement is inherently misleading because it fails to address the ultimate question—whether a

party has a right to deprive a family of its home.

2. The PEB Draft Report Is Misleading Because It Discusses UCC Issues in the Enforcement of

Mortgage Notes Out of Their Broader Legal Context

The Draft Report is also misleading because the enforcement of mortgage notes via

foreclosure or through a plain monetary judgment cannot be reduced to UCC issues. Instead, it

inevitably involves state civil procedure and evidentiary law, and typically involves state real

property law. Given the widespread use of both third-party mortgage servicers and the Mortgage

Electronic Registration System (MERS), agency issues also come into play. Also, as the vast

majority of mortgages are held by securitization trusts, trust law issues may also be relevant. The

trusts may create transfer and enforcement requirements beyond those in the UCC and/or that conflict

3 Technically, a recourse mortgage note could be enforced separate from a foreclosure action through a suit on the

note itself and then attempts to collect on the judgment other than from the mortgaged realty. Such a situation is

exceedingly rare and likely to occur only when the collateral has lost nearly all value and the debtor has substantial other

non-exempt assets. Note that collection on a deficiency judgment is not an action on a mortgage note, as there is no

mortgage following the foreclosure. 4 UCC § 9-607(b) does not alter this conclusion. First, the provision only addresses nonjudicial enforcement of

mortgages, making it facially inapplicable to judicial foreclosure proceedings. Second, it merely permits a filing in the

furtherance of enforcement; it does not in and of itself create any rights to enforcement. See UCC § 9-607 Official

Comment 8 (noting “Subsection (b) would not entitle the secured party to proceed with a foreclosure unless the mortgagor

also were in default or the debtor (mortgagee) otherwise enjoyed the right to foreclose.”). 5 A major exception to this being if the debt has been discharged in a bankruptcy, but the lien remains valid. In

such a case, the mortgage may be enforced, but not the note.



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with the UCC. It is impossible to disentangle these issues, which are beyond the ken of the PEB,

from UCC issues, but addressing only UCC issues without addressing the other issues creates a

necessarily misleading Draft Report.

For example, the Draft Report places great emphasis on UCC § 9-203(g) as effecting the

transfer of a mortgage if the associated note is transferred under UCC § 9-203(a)-(b). But state real

property law may impose additional requirements for a transfer of real property, such as the state’s

Statute of Frauds or recordation requirements that go beyond attachment of a security interest. See,

e.g., Texas Local Govt. Code § 192.007 (providing that “To release, transfer, assign, or take another

action relating to an instrument that is filed, registered, or recorded in the office of the county clerk, a

person must file, register, or record another instrument relating to the action in the same manner as

the original instrument was required to be filed, registered, or recorded.”).

This problem can be seen in regard to Question 1 (“Who is The Person Entitled to Enforce a

Mortgage Note and to Whom the Obligation to Pay the Note is Owed?”). In modern commercial

relationships, agency relationships abound, and common, shared agents such as document custodians

and the Mortgage Electronic Registration System (MERS) are frequently used.6 This complicates

attempts to determine whether a party is a “nonholder in possession of the [note] who has the rights of

a holder” and therefore entitled to enforce the note. If a party itself is not in possession of the note,

but an agent is in possession of the note, does that make the party a “nonholder in possession of the

[note] who has the rights of a holder” and therefore entitled to enforce the note?

UCC § 3-420, Comment 1 notes that “Delivery to an agent [of a payee] is delivery to the

payee.” But this statement is made in the Official Commentary in context of a discussion of

conversion of a note, rather than transfer for the purpose of enforcing the note; it does not directly

address the question of whether a party may enforce a note if the note is held by its agent.7

This raises a series of questions unaddressed by the Draft Report. Does the UCC require

possession by the principal itself? Does this answer change if there is a common agent?8 Does it

depend on the scope of the agency agreement? These issues are, of course, well beyond the purview

of the UCC. The Draft Report observes that the common law of agency might supplement the UCC,

but this observation is buried in footnote 9 and not connected with any discussion.

An answer to Question 1 that fails to account for agency questions might well be incorrect. It

is no defense to this charge that the Draft Report only addresses UCC issues. While that is the extent

of the PEB’s authority, the UCC does not exist in a vacuum. The danger is that litigants and courts

that reference the Draft Report could easily fail to understand the artificial, constrained nature of the

Draft Report’s analysis and thus reach wrong conclusions about whether a family should be deprived

of its home.

The misleading impact of the narrow UCC focus is also evident in regard to Question 4

(“May a Person to Whom an Interest in the Note Has Been Transferred, but Who Has Not Taken a

6 See, e.g, Kemp v. Countrywide, 440 B.R. 624 (Bankr. D.N.J. 2010) (possession of note by document custodian,

not by securitization trustee). 7 Relatedly, the Draft Report does not address the question of whether the original note must be produced and

entered by the party seeking to enforce the note. Arguably this is an evidentiary question, not a UCC question, but it again

shows that the UCC can not be disentangled from other areas of law. 8 See, e.g., In re Gilbert, No. COA10-361 (N.C. Ct. of Appeals, May 3, 2011). In Gilbert, a note was endorsed to

“Deutsche Bank as trustee.” Deutsche Bank is trustee (and thus functionally an agent) for around two thousand RMBS

trusts. The failure to endorse the note to Deutsche Bank as trustee for a specific RMBS trust was held insufficient to give

the particular trust rights in the note. This situation has some analogies to common agent problems.



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Recordable Assignment of the Mortgage, Take Steps to Become the Assignee of Record of the

Mortgage Securing the Note?”). The Draft Report’s answer is “yes,” with reference to UCC § 9-

607(b). While this is the correct answer under the UCC itself, it may be the incorrect answer as a

matter of law more generally. Taking steps to become the assignee of record could conflict with trust

law, tax law, bankruptcy law, and agency law.

First, the vast majority of US mortgages are securitized and held by trusts. Most of these

trusts are formed under New York law. The trust instrument is known as the Pooling and Servicing

Agreement (PSA). PSAs are often particular in terms of specifying when and how transfers must be

made. They do so in order to ensure the bankruptcy remoteness of the securitized assets and favored

federal tax status as Real Estate Mortgage Investment Conduits (REMICs) or grantor trusts.

Transfers that are made outside of the time frame and method specified by the PSA are in violation of

the trust instrument and as such void under New York Trust Law. N.Y.E.P.T.L § 7-2.4 (“If the trust

is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of

the trustee in contravention of the trust, except as authorized by this article and by any other provision

of law, is void.”). Similarly, steps to become the assignee of record could imperil the trust’s favored

tax status if taken outside the limited timeframe for transfers to a REMIC or grantor trust provided by

the Internal Revenue Code.

Second, the Draft Report ignores that steps taken to become the Assignee of Record might

violate the federal bankruptcy automatic stay, 11 U.S.C. §362. If the putative transferor is in

bankruptcy, the note is property of the bankruptcy estate, and attempting to become assignee of

record of the note could be a violation of the stay. Similarly, if the obligor on the note is in

bankruptcy, recording of the note could violate the stay by being an attempt to perfect a security

interest postpetition.

Finally, to the extent that MERS is involved in with the mortgage, there may be agency issues

that affect the question of whether there is authority to assign the mortgage. At the very least, the

Draft Report should recognize that steps to become the assignee of record could create these possible

complications.

The multitude of non-UCC problems that could arise from attempts to become transferee of

record of a mortgage note illustrates a fundamental problem with the Draft Report. What might be

the right answer in a world where the only law is the UCC might in fact be the wrong answer in the

real world where other laws conflict with or supersede the UCC. Putting the PEB’s official

imprimatur on the answers to these questions could mislead a court that fails to recognize the artificial

nature of the Report’s analysis.

3. UCC 9-203(g) Is Not Always Sufficient to Effectuate the Transfer of a Mortgage

The Draft Report places great emphasis on UCC § 9-203(g) as effecting the transfer of a

mortgage if the associated note is transferred under UCC § 9-203(a)-(b).9 The PEB Draft Report

notes that “while this matter has engendered some confusion, the law is clear, and the sale of a

mortgage note not accompanied by a separate conveyance of the mortgage securing the note does not

result in a separation of the mortgage from the note.” There is no basis whatsoever for this statement.

9 In a previous letter to the PEB, one of us (Professor Levitin) has argued that UCC 9-203(g) is a particularly

problematic provision…it has not been cited by any court for the mortgage-follows-the-note principle, which is a testament

to its uniquely abstruse drafting.



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The law is not clear; were it so, the PEB Draft Report would be unnecessary. Indeed, the Draft

Report is unable to cite any precedent for its point.

There are two problems with the Draft Report’s interpretation. First, as noted above, there

may simply be supplementary legal requirements for the transfer of a mortgage. See, e.g., Texas

Local Govt. Code § 192.007. The UCC does not supersede state statutory law or non-conflicting

common law. Failure to acknowledge that compliance with UCC § 9-203(g) may not be sufficient to

effectuate a transfer of a mortgage under state law leaves the Draft Report fundamentally flawed.

And second, the language of § 9-203(g) limits it to mortgages and liens, not deeds of trust or

situations (regardless of the name of the security document) that the law deems to be a sale and

repurchase (as in title theory states). The abstruse language of § 9-203(g) does not effectuate the

“mortgage follows the note” policy that might have been intended; it is not drafted broadly enough to

do so. The PEB, however, is limited by the language of the statute.

The PEB Draft Report understands UCC § 9-203(g) to mean that the transfer of any mortgage

note transfers the associated mortgage. The Draft Report states that “UCC Section 9-203(g) explicitly

provides that the mortgage automatically follows the note.”10

But UCC § 9-203(g) does no such

thing. It states that:

The attachment of a security interest in a right to payment or performance secured by

a security interest or other lien on persona or real property is also attachment of a

security interest in the security interest, mortgage, or other lien. (Emphasis added.)

Similarly, Official Comment 9 to UCC § 9-203 states that:

Subsection (g) codifies the common-law rule that a transfer of an obligation secured

by a security interest or other lien on personal or real property also transfers the

security interest or lien. (Emphasis added.)

UCC § 9-203(g) means that the transfer of a note is accompanied by the transfer of the lien. It is hard

to understand how this could apply to a deed of trust. The technical operation of a deed of trust is not

a security interest, but a transfer of the deed to the property in trust for the benefit of the obligee on

the associated note. The deed of trust operates as a sale and repurchase, rather than a lien.

Interpreted strictly, then, a deed of trust should not qualify as a “security interest or other lien on

personal or real property,” so it would not fall within the ambit of § 9-203(g). Accordingly, reading §

9-203(g) to mean that a mortgage always follows a note would result in non-uniform state law

because of the prevalence or even exclusive use of deeds of trust in some states.

Even if § 9-203(g) does apply to deeds of trusts, it still does not mean that the mortgage

follows the note principle is not absolute. If the trust deed is seen as a security interest, not a sale and

repurchase, then the trust deed is necessarily separated from the note. The deed of trust trustee holds

the security interest and the obligee has the note. The question of who may claim the status of trust

beneficiary is determined by reference to trust, agency, and real property law, not to the UCC, and

under such law it might be possible for the beneficial interest in the trust deed to be sold without the

note being sold, for example.

Moreover, irrespective of the form of the security document, roughly thirty of the fifty states

do not understand a mortgage to be a lien. Instead, these states understand a mortgage or deed of trust

to be a sale and repurchase and not a lien. This is because these states are “title theory” states, as

10 Draft Report at 8.



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opposed to “lien theory” states. In title theory states UCC § 9-203(g) is ineffective to transfer a lien

because there is no lien to transfer. While a sale and repurchase may be economically

indistinguishable from a lien, their legal (and accounting) treatment may vary, and the UCC pointedly

avoids taking any position on whether a transaction is a sale or a lien. Furthermore, because title

theory states consider the mortgage or deed of trust as actual ownership of real property, specific

requirements for the transfer of real property interests apply.

The Massachusetts Supreme Judicial Court’s unanimous opinion in Ibanez v. U.S. Bank, 458

Mass. 637 (Mass. 2011), which is itself cited by the PEB Draft Report, makes exceedingly clear that

the distinction between title theory and lien theory affects the requirements for transferring a

mortgage; in a title theory state, such as Massachusetts, a mortgage is actually a sale of real property,

which is subject to requirements beyond those of the UCC. Indeed, because of this distinction, Ibanez

did not reference § 9-203(g), as the provision had no bearing on the case since it only addresses liens,

not sales and repurchases.

Official Comment 3.b. to UCC § 9-202 clearly recognizes that title and lien theory may

matter for purposes of applying Article 9:

This Article does not determine which line of interpretation (e.g., title theory or lien

theory, retained title or conveyed title) should be followed in cases in which the

applicability of another rule of law depends upon whom has title.

State mortgage foreclosure law is another rule of law that may in fact depend on who has title. The

Draft Report ignores this issue, which renders it misleading. By claiming that the transfer of a note

effectuates the transfer of a mortgage in a title theory state, the UCC reaches beyond its proper ambit

of commercial law and attempts to supersede state real property law. There is a difference between

what § 9-203(g) might have been intended to accomplish and what the actual drafting is, and a PEB

Draft Report is not the appropriate vehicle for purported “corrections” of the statute.11

11 Indeed, it is necessary to read the § 9-203(g) to preserve title theory. If § 9-203(g) accomplished what the Draft

Report believes it did, it undermined title theory in 30 states in one fell swoop. It is implausible that any state legislator

thought that was what he or she was doing in adopting the 2001 revisions to UCC Article 9. This is so for three reasons.

First, the UCC has never been understood to cover realty law. States pride themselves on realty law idiosyncrasies,

and uniformity across states is of much less importance in realty than other areas of commercial law.

Second, the manner in which UCC § 9-203(a)-(b) accomplishes sales of promissory notes is itself one of the most

opaquely drafted provisions in the UCC. Only a handful of UCC mavens know of its existence. A non-specialist attorney

searching through a state code for promissory note sale provisions would never discover the statute, as it does not use sale

language; the sale provisions are only effectuated through the UCC Article 1 definition of “security interest,” which is

hardly where an attorney would think to search for law governing the sale of promissory notes. Not surprisingly, there is no

reported case law addressing it. Put differently, to the extent that UCC § 9-203(a)-(b) were meant to provide clear law on

the sale of promissory notes, they are utter failures as provisions. Instead, their only accomplishment has been the

facilitation of asset securitization, a narrow, special-interest use of the UCC.

And third, even to the extent that a state legislator understood the effect of § 9-203(a)-(b), the drafting of § 9-

203(g) is sufficiently inarticulate that few would understand it as the PEB Draft Report does. If § 9-203(g) means what the

PEB Draft Report says it does, it is an admission that the ALI and NCCUSL have carried out a program of stealth legislation

for the benefit of the mortgage securitization industry.

Stealth legislation is diametrically opposed to the fundamental principles of law reform. State legislators should

understand the laws they are adopting, particularly when they are model laws that bear the imprimatur of the ALI and

NCCUSL. Stealth legislation in the service of large financial institutions in the furtherance of mortgage securitization

would be a deep stain on the reputation of the ALI and NCCUSL. This is the inexorable conclusion from the interpretation

of § 9-203 in the Draft Report.



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Conclusion

We strongly urge the PEB to withdraw the Draft Report and refrain from further efforts to

clarify the law in regard to mortgage foreclosures. A UCC PEB report is simply an inappropriate

form for addressing major policy issues. Doing so under the guise of a technical report does serious

harm to the credibility and reputation of the ALI and NCCUSL.

While we appreciate the PEB’s duty to clarify the UCC,12

the PEB has a broader duty to

ensure that the rule of law functions to produce correct outcomes. Even if the Draft Report correctly

interpreted the UCC, a proposition with which we disagree, as noted above, the result would still be

an inevitably misleading report because the ability to enforce a mortgage note is almost exclusively

through mortgage foreclosure, and mortgage foreclosure involves numerous areas of law beyond the

purview of the UCC. The results that obtain solely under the UCC may be diametrically opposed to

those that would obtain if all applicable law is considered. We urge you to withdraw the Draft

Report.

Yours,

/s/Robert M. Lawless

Professor of Law

University of Illinois College of Law

504 E. Pennsylvania Ave.

Champaign, IL 61820

/s/Adam J. Levitin

Associate Professor

Georgetown University Law Center

600 New Jersey Ave., NW

Washington DC 20001

(202) 662-9234

12 While we are optimistic that the PEB will withdraw the Draft Report, in the event that it proceeds with the

Report, we urge the PEB to include clear and unambiguous language explaining that the results that obtain under the UCC

may be different than if all applicable law is considered. We also urge the PEB to amend the report to explicitly state that

the burden of proof is on the party attempting to enforce a mortgage note under UCC § 3-309’s lost note provision and that

the proof required includes proof that the note has not been previously been sold or transferred by it or any of its alleged

predecessors in title. The current language in the Report, noting that the person seeking to enforce the note under § 3-309

must show that the person was “formerly in possession of the note and entitled to enforce it when the loss of possession

occurred and that the loss of possession was not as a result of transfer (as defined above) or lawful seizure” is insufficiently

clear on this point.



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Christopher L. Peterson

Associate Dean for Academic Affairs

Professor of Law

University of Utah,

S.J. Quinney College of Law

332 South 1400 East, Room 101

Salt Lake City, UT 84112-0730

(801)581-6655

/s/Katherine Porter

Professor of Law

University of Iowa

Iowa City, IA 52242

(319) 335-7490

/s/Elizabeth Renuart

Assistant Professor of Law

Albany Law School

80 New Scotland Avenue

Albany, NY 12208

(518) 445-3358

/s/Alan M. White

Professor of Law

Valparaiso University School of Law

656 S. Greenwich St.

Valparaiso IN 46383

(219) 465-7842

Cc: Lance Leibman, ALI Director

Deanne Dissenger, ALI Associate Deputy Director

John Sebert, NCCUSL President

Prof. Neil Cohen, Brooklyn Law School


IN THE SUPREME COURT OF TEXAS

════════════

NO. 01-0619 ════════════

TEXAS DEPARTMENT OF PARKS AND WILDLIFE, PETITIONER,

v.

MARIA MIRANDA AND RAY MIRANDA, RESPONDENTS

════════════════════════════════════════════════════

ON PETITION FOR REVIEW FROM THE

COURT OF APPEALS FOR THE FOURTH DISTRICT OF TEXAS ════════════════════════════════════════════════════

Argued October 30, 2002

JUSTICE WAINWRIGHT delivered the opinion of the Court with respect to parts I., II.,

III.A., III.B., III.C.2., III.C.3., III.D., and IV., in which CHIEF JUSTICE PHILLIPS, JUSTICE

HECHT, JUSTICE OWEN, and JUSTICE SMITH joined, and a plurality opinion with respect to

Part III.C.1., in which CHIEF JUSTICE PHILLIPS, JUSTICE HECHT, and JUSTICE SMITH

joined.

JUSTICE JEFFERSON filed a dissenting opinion.

JUSTICE BRISTER filed a dissenting opinion, in which JUSTICE O=NEILL and

JUSTICE SCHNEIDER joined.

Maria Miranda sustained injuries after a tree limb fell on her at Garner State Park in

Uvalde County. Maria and her husband Ray sued the Texas Parks and Wildlife Department,1

alleging negligence and gross negligence. The Department filed a plea to the jurisdiction, to

which it attached supporting evidence, and argued that sovereign immunity barred the Mirandas=

1 The Mirandas originally named the ATexas Department of Parks and Wildlife@ as defendant but

corrected the name to the ATexas Parks and Wildlife Department@ in their third amended petition. Because the

parties and lower courts retained the original style of the case, we retain that style but in our opinion refer to the

Department by its correct name.


claims. The trial court denied the plea to the jurisdiction and a unanimous court of appeals

affirmed, holding that the trial court could not consider evidence in support of the plea because

the Department did not allege that the Mirandas= pleadings were a sham for the purpose of

wrongfully obtaining jurisdiction. 55 S.W.3d 648, 652.

In accord with our decision in Bland Independent School District v. Blue, 34 S.W.3d 547

(Tex. 2000), we hold that the trial court in this case was required to examine the evidence on

which the parties relied to determine if a fact issue existed regarding the alleged gross negligence

of the Department. Due to the unusual confluence of standards erected by the Legislature for

waiver of sovereign immunity in the Texas Tort Claims Act and the recreational use statute,

plaintiffs must plead gross negligence to establish subject matter jurisdiction. Further, if the

plaintiffs= factual allegations are challenged with supporting evidence necessary to consideration

of the plea to the jurisdiction, to avoid dismissal plaintiffs must raise at least a genuine issue of

material fact to overcome the challenge to the trial court=s subject matter jurisdiction. Because

the Mirandas failed to raise a genuine issue of material fact regarding the alleged gross

negligence of the Department, we conclude that the trial court lacked subject matter jurisdiction

over this lawsuit. Therefore, we reverse the judgment of the court of appeals and render

judgment dismissing the case.

I. Factual and Procedural Background

The Mirandas= third amended petition contains the following allegations: In April 1998,

the Mirandas and their family were camping and picnicking as paying guests at Garner State

Park, owned and operated by the Texas Parks and Wildlife Department. The Mirandas asked a

park ranger to recommend a campsite that would be safe for children. While standing next to a

picnic table at the recommended campsite, a falling tree branch approximately twelve inches in


diameter and fifteen feet long struck Maria on the head. As a result of the incident, Maria

suffered extensive injuries to her head, neck, and spine. Ray suffered mental anguish and other

damages related to his wife=s injuries.

On May 7, 1999, the Mirandas filed suit against the Department, alleging negligence and

later amended their suit to add gross negligence claims. With respect to the gross negligence

claims, the Mirandas alleged that the Department Aknew of the dangers of its falling tree

branches, failed to inspect, failed to prune, failed to alleviate or remove the danger, and

consciously and deliberately failed to warn Plaintiffs of the extremely dangerous condition,@

Aknew that its property contained hidden, dangerous defect [sic] in that its tree branches which

have not been inspected or pruned regularly fall,@ failed Ato make safe the dangerous condition

of its campsite trees,@ and Afailed to warn or make reasonably safe the dangerous condition of

which it was aware.@ In addition, the Mirandas alleged that the Department=s conduct was

Awillful, wanton, or grossly negligent.@

Over a year after the Mirandas filed suit and after the parties conducted discovery, the

Department filed a plea to the jurisdiction and motion to dismiss, arguing that the Mirandas=

allegations were insufficient to invoke a waiver of the Department=s sovereign immunity under

the standard established in the Tort Claims Act and the recreational use statute.2 TEX. CIV.

PRAC. & REM. CODE '' 101.001-.109; id. '' 75.001-.004. The Department attached evidence in

support of its plea. The Mirandas filed a response to the Department=s plea and their third

amended original petition. In their response, the Mirandas stated that they relied on evidence

attached to the Department=s plea, including written discovery responses from the Department

2 The Department also moved for summary judgment under Texas Rule of Civil Procedure 166a(b)-(c)and

166a(I). The trial court denied both motions, but the Department does not appeal the trial court=s denial of either

motion.


and the deposition the Mirandas took of assistant park manager Craig VanBaarle. At the trial

court=s hearing on the Department=s plea, the parties addressed the allegations in the Mirandas=

third amended original petition. The next day, the trial court denied the plea. The Department

filed this interlocutory appeal claiming that the trial court erroneously denied its plea to the

jurisdiction and motion to dismiss. Id. ' 51.014(a)(8). The court of appeals affirmed the trial

court=s denial of the plea, stating that the Mirandas pled a premises defect cause of action based

on gross negligence under the recreational use statute. 55 S.W.3d at 652. The court of appeals

rejected the Department=s argument that there was no evidence to support gross negligence,

holding that Athe trial court was not authorized to inquire into the substance of the claims

because the Department did not specifically allege that the Mirandas= allegations were pled

merely as a sham for the purpose of wrongfully obtaining jurisdiction.@ Id. (citing Bland, 34

S.W.3d at 554 and Rylander v. Caldwell, 23 S.W.3d 132, 135 (Tex. App.BAustin 2000, no pet.)).

The Department contends that the court of appeals erred in relying solely upon the

conclusory allegations found in the Mirandas= petition to affirm the trial court=s denial of the

Department=s plea to the jurisdiction and in disregarding the Department=s evidence submitted

with its plea. Specifically, the Department contends that gross negligence is a jurisdictional

prerequisite to the Mirandas= claims and that its evidence affirmatively negates gross

negligence. The Department further argues that because the Mirandas failed to plead specific

facts alleging gross negligence in their petition or introduce evidence to controvert the evidence

in the Department=s plea, they failed to establish subject matter jurisdiction to proceed with the

litigation.


After originally dismissing the petition for want of jurisdiction, we granted the

Department=s petition on motion for rehearing. Before we consider the substantive issues

presented, we first determine whether we have jurisdiction over this interlocutory appeal.

II. Conflicts Jurisdiction

When there is no dissent in the court of appeals, this Court has jurisdiction over

interlocutory appeals only if the court of appeals= decision Aholds differently@ or conflicts with

Aa prior decision of another court of appeals or of the supreme court on a question of law

material to a decision of the case.@ TEX. GOV=T CODE ' 22.001(a)(2);3 Schein v. Stromboe,

102 S.W.3d 675, 687 (Tex. 2002); Tex. Natural Res. Conservation Comm=n v. White, 46 S.W.3d

864, 867 (Tex. 2001). Two decisions conflict for purposes of establishing our jurisdiction under

section 22.001(a)(2) when the two cases are so similar that the decision in one case is necessarily

conclusive of the decision in the other. Schein, 102 S.W.3d at 687-88; White, 46 S.W.3d at 867.

AThe conflict must be on the very question of law actually involved and determined, in respect

of an issue in both cases, the test being whether one would operate to overrule the other in case

they were both rendered by the same court.@ Christy v. Williams, 298 S.W.2d 565, 568-69

(Tex. 1957) (citation omitted).

The Department contends that this Court has jurisdiction over its interlocutory appeal

because the court of appeals= decision here conflicts with our opinion in Bland. In Bland, we

held that a trial court Amay consider evidence and must do so when necessary to resolve the

jurisdictional issues raised.@ 34 S.W.3d at 555 (emphasis added). While recognizing that Aa

3 The Legislature amended section 22.001 of the Government Code, effective September 1, 2003. Act of

June 11, 2003, 78th Leg., R.S., Ch. 204 (codified as section 22.001(e) of the Texas Government Code). The

amendment, which applies to actions filed on or after September 1, 2003 and does not govern our jurisdiction in this

case, provides that Aone court holds differently from another when there is inconsistency in their respective

decisions that should be clarified to remove unnecessary uncertainty in the law and unfairness to litigants.@


dilatory plea does not authorize an inquiry so far into the substance of the claims presented that

plaintiffs are required to put on their case simply to establish jurisdiction,@ we explained that

Abecause a court must not act without determining that it has subject-matter jurisdiction to do so,

it should hear evidence as necessary to determine the issue before proceeding with the case.@

Id. at 554. AThe court should, of course, confine itself to the evidence relevant to the

jurisdictional issue.@ Id. at 555.

In Bland, we included examples of when relevant evidence may be considered in

determining whether jurisdiction has been established. See id. at 554. We also observed that

when the defendant contends that the amount in controversy falls below the trial court=s

jurisdictional limit, the trial court should limit its inquiry to the pleadings. Id. In that situation,

we concluded, Athe plaintiff=s pleadings are determinative unless the defendant specifically

alleges that the amount was pleaded merely as a sham for the purpose of wrongfully obtaining

jurisdiction.@ Id.

In this case, the court of appeals inaccurately stated and then misapplied Bland=s

holding. 55 S.W.3d at 650-52. The court of appeals held that an inquiry behind the factual

allegations pled in support of subject matter jurisdiction was improper unless the Department

specifically alleged that the Mirandas= allegations were pled merely as a sham to wrongfully

obtain jurisdiction. Id. at 652. This conflicts with our holding in Bland that a court must

consider evidence when necessary to resolve the jurisdictional issues raised. 34 S.W.3d at 555;

see also County of Cameron v. Brown, 80 S.W.3d 549, 556-57 (Tex. 2002) (considering

pleadings and limited jurisdictional evidence in evaluating forseeability element of premises

defect claim under the Tort Claims Act); Tex. Dep=t of Criminal Justice v. Miller, 51 S.W.3d

583, 587 (Tex. 2001) (examining pleadings and limited jurisdictional evidence to determine


whether plaintiff affirmatively demonstrated waiver of sovereign immunity); White, 46 S.W.3d

at 868 (analyzing the facts alleged by the plaintiff and to the extent relevant, evidence submitted

by the parties, in considering whether plaintiff stated a claim for injuries caused by Amotor-

driven equipment@ under the Tort Claims Act). In Bland, our preclusion of a trial court=s

inquiry behind the facts pled in determining subject matter jurisdiction was limited to the

jurisdictional amount. 34 S.W.3d at 554. Even this bar could be lifted, and evidence of the

jurisdictional amount considered, in circumstances in which an adverse party asserts that the

amount in controversy was pled as a sham to obtain jurisdiction.4 Id. That circumstance is not at

issue here. Thus, the court of appeals= holding conflicts with the same question of law that we

decided in Bland, and the opinions cannot stand together. Schein, 102 S.W.3d at 689. This

conflict provides the basis for our jurisdiction to consider the merits of the plea. See TEX.

GOV=T CODE ' 22.001(a)(2).

III. The Department=s Plea to the Jurisdiction

A. Sovereign Immunity

4 The plaintiff=s allegations in the petition of the amount in controversy control for jurisdictional purposes

unless the party challenging jurisdiction pleads and proves that the plaintiff=s allegations of the amount in

controversy were made fraudulently for the purpose of obtaining jurisdiction. See Bland, 34 S.W.3d at 554; Cont'l

Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 449 (Tex. 1996); Tidball v. Eichoff, 17 S.W. 263, 263 (Tex. 1886).

We disapprove of courts of appeals= holdings that require a party to allege that pleadings, other than the

jurisdictional amount, are fraudulent in order for the trial court to consider evidence, when otherwise necessary, of

whether it has jurisdiction over a case. See, e.g., Sullivan v. Wilmer Hutchins Indep. Sch. Dist., 47 S.W.3d 529, 531

(Tex. App.BDallas 2000), rev=d on other grounds, 51 S.W.3d 293 (Tex. 2001); Denton County v. Howard, 22

S.W.3d 113, 117-18 (Tex. App.BFort Worth 2000, no pet.); Tex. Dep=t of Mental Health & Mental Retardation v.

Pearce, 16 S.W.3d 456, 460 (Tex. App.BWaco 2000, pet. dism=d w.o.j.); Tex. State Employees Union/CWA Local

6184 v. Tex. Workforce Comm=n, 16 S.W.3d 61, 65, 66 (Tex. App.BAustin 2000, no pet.); Dalmac Constr. Co. v.

Tex. A & M Univ., 35 S.W.3d 654, 655 n.1 (Tex. App.BAustin 1999), rev=d on other grounds, sub nom. Gen. Servs.

Comm'n v. Little-Tex Insulation Co., Inc., 39 S.W.3d 591 (Tex. 2001); Univ. of Houston v. Elthon, 9 S.W.3d 351,

356 (Tex. App.BHouston [14th Dist.] 1999, pet. dism=d w.o.j.); Curbo v. State, Office of the Governor, 998 S.W.2d

337, 341-42 (Tex. App.BAustin 1999, no pet.); City of Saginaw v. Carter, 996 S.W.2d 1, 3 (Tex. App.BFort Worth

1999, pet. dism=d w.o.j.); Bland Indep. Sch. Dist. v. Blue, 989 S.W.2d 441, 447 (Tex. App.BDallas 1999), rev=d, 34

S.W.3d 547 (Tex. 2000).


In Texas, sovereign immunity deprives a trial court of subject matter jurisdiction for

lawsuits in which the state or certain governmental units have been sued unless the state consents

to suit. Tex. Dep=t of Transp. v. Jones, 8 S.W.3d 636, 638 (Tex. 1999); Fed. Sign v. Tex. S.

Univ., 951 S.W.2d 401, 405 (Tex. 1997), superseded by statute on other grounds as stated in

Little-Tex Insulation Co., 39 S.W.3d at 593; Duhart v. State, 610 S.W.2d 740, 741 (Tex. 1980);

Hosner v. DeYoung, 1 Tex. 764, 769 (1847). The Texas Tort Claims Act provides a limited

waiver of sovereign immunity. TEX. CIV. PRAC. & REM. CODE '' 101.001-.109. Sovereign

immunity includes two distinct principles, immunity from suit and immunity from liablity.

Jones, 8 S.W.3d at 638; Fed. Sign, 951 S.W.2d at 405. Immunity from liability is an affirmative

defense, while immunity from suit deprives a court of subject matter jurisdiction. Jones, 8

S.W.3d at 638; Fed. Sign, 951 S.W.2d at 405. The Tort Claims Act creates a unique statutory

scheme in which the two immunities are co-extensive: ASovereign immunity to suit is waived

and abolished to the extent of liability created by this chapter.@ TEX. CIV. PRAC. & REM.

CODE ' 101.025(a); State ex rel. State Dep=t of Highways & Pub. Transp. v. Gonzalez, 82

S.W.3d 322, 326 (Tex. 2002); Miller, 51 S.W.3d at 587. Thus, the Department is immune from

suit unless the Tort Claims Act expressly waives immunity. See TEX. CIV. PRAC. & REM.

CODE '' 101.001(3)(A) (defining a governmental unit to include Aall departments@ of the

state), 101.021, 101.025; White, 46 S.W.3d at 868.

The Tort Claims Act expressly waives sovereign immunity in three areas: A>use of

publicly owned automobiles, premises defects, and injuries arising out of conditions or use of

property.=@ Brown, 80 S.W.3d at 554 (quoting Tex. Dep=t of Transp. v. Able, 35 S.W.3d 608,

611 (Tex. 2000)); see TEX. CIV. PRAC. & REM CODE ' 101.021. Section 101.058 of the Tort

Claims Act further modifies a governmental unit=s waiver of immunity from suit by imposing


the limitations of liability articulated in the recreational use statute. TEX. CIV. PRAC. & REM.

CODE ' 101.058 (ATo the extent that Chapter 75 limits the liability of a governmental unit under

circumstances in which the governmental unit would be liable under [the Tort Claims Act],

Chapter 75 controls.@).

The recreational use statute provides:

If an owner, lessee, or occupant of real property other than agricultural

land gives permission to another to enter the premises for recreation, the owner,

lessee, or occupant, by giving the permission, does not:

(1) assure that the premises are safe for that purpose;

(2) owe to the person to whom permission is granted a greater degree of

care than is owed to a trespasser on the premises; or

(3) assume responsibility or incur liability for any injury to any individual

or property caused by any act of the person to whom permission is granted.

Id. ' 75.002(c)(1)-(3). Recreational use includes camping and picknicking, the activities in which

the Mirandas were engaged at the state park when Maria was injured. Id. ' 75.001(3). As

applied to a governmental unit, the recreational use statute limits liability even if the person pays

to enter the premises. Id. ' 75.003(c) (excepting governmental units from the chapter=s

exclusion of landowners who charge a fee for recreational use of land).

The recreational use statute limits the Department=s duty for premises defects to that

which is owed a trespasser.5 Id. The limited duty owed a trespasser is not to injure that person

willfully, wantonly, or through gross negligence. Tex. Utils. Elec. Co. v. Timmons, 947 S.W.2d

191, 193 (Tex. 1997). Therefore, a governmental unit waives sovereign immunity under the

recreational use statute and the Tort Claims Act only if it is grossly negligent. TEX. CIV.

5 The recreational use statute does not limit the liability of an owner, lessee, or occupant Awho has been

grossly negligent or has acted with malicious intent or in bad faith.@ TEX. CIV. PRAC. & REM. CODE ' 75.002(d).


PRAC. & REM. CODE ' 75.002 (c)-(d); City of Bellmead v. Torres, 89 S.W.3d 611, 613 (Tex.

2002); Timmons, 947 S.W.2d at 193. A[G]ross negligence involves two components: (1)

viewed objectively from the actor=s standpoint, the act or omission complained of must involve

an extreme degree of risk, considering the probability and magnitude of the potential harm to

others; and (2) the actor must have actual, subjective awareness of the risk involved, but

nevertheless proceed in conscious indifference to the rights, safety, or welfare of others.@

Louisiana-Pacific Corp. v. Andrade, 19 S.W.3d 245, 246 (Tex. 1999) (citing Transp. Ins. Co. v.

Moriel, 879 S.W.2d 10, 23 (Tex. 1994)).

B. Standard of Review

Sovereign immunity from suit defeats a trial court=s subject matter jurisdiction and thus

is properly asserted in a plea to the jurisdiction. Jones, 8 S.W.3d at 637; see also Hosner, 1 Tex.

at 769 (recognizing as appropriate procedure the challenge of a court=s subject matter

jurisdiction through a plea to the jurisdiction). The trial court must determine at its earliest

opportunity whether it has the constitutional or statutory authority to decide the case before

allowing the litigation to proceed. Austin & N.W.R. Co. v. Cluck, 77 S.W. 403, 405 (Tex. 1903)

(A[T]here can be no doubt that the courts of Texas must look to the Constitution of this state, the

enactments of the Legislature, and the common law for their authority to proceed . . . .@); see

also State Bar of Tex. v. Gomez, 891 S.W.2d 243, 245 (Tex. 1994) (AAs a general proposition,

before a court may address the merits of any case, the court must have jurisdiction over the party

or the property subject to the suit, jurisdiction over the subject matter, jurisdiction to enter the

particular judgment, and capacity to act as a court.@); Gentry v. Bowser & Lemmon, 21 S.W.

569, 570 (Tex. Civ. App.BFort Worth 1893, no writ) (ACertainly the court has the right to hear

the necessary evidence to enable it to decide as to whether or not it has power to try the case it is


sought to have it adjudicate, whether the allegations disclosing such want of jurisdiction appear

in the petition of the plaintiff, or in the plea to the jurisdiction by the defendant.@).

Whether a court has subject matter jurisdiction is a question of law. Tex. Natural Res.

Conservation Comm=n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002). Whether a pleader has

alleged facts that affirmatively demonstrate a trial court=s subject matter jurisdiction is a

question of law reviewed de novo. Likewise, whether undisputed evidence of jurisdictional facts

establishes a trial court=s jurisdiction is also a question of law. However, in some cases,

disputed evidence of jurisdictional facts that also implicate the merits of the case may require

resolution by the finder of fact. See Gates v. Pitts, 291 S.W. 948, 949 (Tex. Civ. App.BAmarillo

1927, no writ); Gentry, 21 S.W. at 570; see also Valentin v. Hosp. Bella Vista, 254 F.3d 358, 363

n.3 (1st Cir. 2001) (observing that in certain situations, the predicate facts can be so inextricably

linked to the merits of the controversy that the district court may Adefer resolution of the

jurisdictional issue until the time of trial@); Cameron v. Children=s Hosp. Med. Ctr., 131 F.3d

1167, 1170 (6th Cir. 1997) (A[W]hether a district court has subject matter jurisdiction is a

question for the court, not a jury, to decide, even if the determination requires making factual

findings, unless the jurisdictional issue is inextricably bound to the merits of the case.@);

Williamson v. Tucker, 645 F.2d 404, 413 n.6, 416 n.10 (5th Cir. 1981) (suggesting that a federal

district court=s role in determining jurisdictional facts may be more limited in cases in which the

jurisdictional attack implicates the merits of plaintiff=s cause of action). In this case, we address

a plea to the jurisdiction in which undisputed evidence implicates both the subject matter

jurisdiction of the court and the merits of the case.

When a plea to the jurisdiction challenges the pleadings, we determine if the pleader has

alleged facts that affirmatively demonstrate the court=s jurisdiction to hear the cause. Tex.


Ass=n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993). We construe the

pleadings liberally in favor of the plaintiffs and look to the pleaders= intent. Id. If the pleadings

do not contain sufficient facts to affirmatively demonstrate the trial court=s jurisdiction but do

not affirmatively demonstrate incurable defects in jurisdiction, the issue is one of pleading

sufficiency and the plaintiffs should be afforded the opportunity to amend. Brown, 80 S.W.3d at

555. If the pleadings affirmatively negate the existence of jurisdiction, then a plea to the

jurisdiction may be granted without allowing the plaintiffs an opportunity to amend. Id.

However, if a plea to the jurisdiction challenges the existence of jurisdictional facts, we

consider relevant evidence submitted by the parties when necessary to resolve the jurisdictional

issues raised, as the trial court is required to do. See Bland, 34 S.W.3d at 555 (confining the

evidentiary review to evidence that is relevant to the jurisdictional issue). When the

consideration of a trial court=s subject matter jurisdiction requires the examination of evidence,

the trial court exercises its discretion in deciding whether the jurisdictional determination should

be made at a preliminary hearing or await a fuller development of the case, mindful that this

determination must be made as soon as practicable. Id. at 554. Then, in a case in which the

jurisdictional challenge implicates the merits of the plaintiffs= cause of action and the plea to the

jurisdiction includes evidence, the trial court reviews the relevant evidence to determine if a fact

issue exists. The United States Supreme Court and all of the federal circuits have authorized

federal district courts to consider evidence in deciding motions to dismiss for lack of subject

matter jurisdiction. See FED. R. CIV. P. 12(b)(1); Land v. Dollar, 330 U.S. 731, 735 & n.4,

(1947), overruled by implication on other grounds by Larson v. Domestic & Foreign Commerce

Corp., 337 U.S. 682 (1949) (observing that as a general rule, district courts have authority to

inquire Ainto the facts as they exist@ Aby affidavits or otherwise@ as well as the pleadings


when determining whether the court has subject matter jurisdiction).6 If the evidence creates a

fact question regarding the jurisdictional issue, then the trial court cannot grant the plea to the

jurisdiction, and the fact issue will be resolved by the fact finder. However, if the relevant

evidence is undisputed or fails to raise a fact question on the jurisdictional issue, the trial court

rules on the plea to the jurisdiction as a matter of law.

We acknowledge that this standard generally mirrors that of a summary judgment under

Texas Rule of Civil Procedure 166a(c). We adhere to the fundamental precept that a court must

not proceed on the merits of a case until legitimate challenges to its jurisdiction have been

decided. This standard accomplishes this goal and more. It also protects the interests of the state

and the injured claimants in cases like this one, in which the determination of the subject matter

6 See, e.g., Harris v. P.A.M. Transp., Inc., 339 F.3d 635, 637 n.4 (8th Cir. 2003) (acknowledging district

court=s authority to consider matters outside the pleadings when subject matter jurisdiction is challenged under Rule

12(b)(1)); Johnson v. Apna Ghar, Inc., 330 F.3d 999, 1001 (7th Cir. 2003) (observing that when considering a

motion for dismissal for lack of subject matter jurisdiction, A>[t]he district court may properly . . . view whatever

evidence has been submitted on the issue=@ (quoting Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir.

1997))); Sizova v. Nat=l Inst. of Standards & Tech., 282 F.3d 1320, 1324 (10th Cir. 2002) (noting district court=s

A>wide discretion to allow affidavits, other documents, and a limited evidentiary hearing to resolve disputed

jurisdictional facts under Rule 12(b)(1)=@ (quoting Holt v. United States, 46 F.3d 1000, 1003 (10th Cir. 1995)));

Valentin, 254 F.3d at 363 (district court has Abroad authority to order discovery, consider extrinsic evidence, and

hold evidentiary hearings in order to determine its own jurisdiction@); Ass=n of Am. Med. Colls. v. United States,

217 F.3d 770, 778 (9th Cir. 2000) (A>district court obviously does not abuse its discretion by looking to . . . extra-

pleading material=@ in deciding a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction (quoting

St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989))); Makarova v. United States, 201 F.3d 110, 113 (2d

Cir. 2000) (allowing district court to Arefer to evidence outside the pleadings@ to resolve a Rule 12(b)(1) motion);

Williams v. United States, 50 F.3d 299, 304 (4th Cir. 1995) (AIn ruling on a Rule 12(b)(1) motion, the court may

consider exhibits outside the pleadings.@); Moran v. Kingdom of Saudi Arabia, 27 F.3d 169, 172 (5th Cir. 1994)

(acknowledging a trial court=s Aauthority to consider evidence presented beyond the pleadings . . . which may

include considering affidavits, allowing further discovery, hearing oral testimony, conducting an evidentiary

hearing@); Herbert v. Nat=l Acad. of Sci., 974 F.2d 192, 197 (D.C. Cir. 1992) (A[W]here necessary, the court may

consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by

undisputed facts plus the court=s resolution of disputed facts.@); Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th

Cir. 1990) (noting that Asubstantial authority@ acknowledges the trial court=s freedom to consider disputed

evidence when deciding a Rule 12(b)(1) motion) (citations omitted); Gould, Inc. v. Pechiney Ugine Kuhlmann, 853

F.2d 445, 451 (6th Cir. 1988) (A[T]he district court may consider affidavits, allow discovery, hear oral testimony,

order an evidentiary hearing, or even postpone its determination if the question of jurisdiction is intertwined with the

merits.@); Mortensen v. First Fed. Sav. & Loan Ass=n, 549 F.2d 884, 891 (3d Cir. 1977) (acknowledging that

Asubstantial authority@ allows trial courts to weigh the evidence of disputed facts when considering a Rule

12(b)(1) motion); see also 5A CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE

AND PROCEDURE ' 1364, at 468-469 (2d ed. 1990).


jurisdiction of the court implicates the merits of the parties= cause of action. The standard

allows the state in a timely manner to extricate itself from litigation if it is truly immune.

However, by reserving for the fact finder the resolution of disputed jurisdictional facts that

implicate the merits of the claim or defense, we preserve the parties= right to present the merits

of their case at trial. Similar to the purpose of a plea to the jurisdiction, which is to defeat a

cause of action for which the state has not waived sovereign immunity (usually before the state

has incurred the full costs of litigation), the purpose of summary judgments in Texas is ">to

eliminate patently unmeritorious claims and untenable defenses.=" Casso v. Brand, 776 S.W.2d

551, 556 (Tex. 1989) (quoting City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678

n.5 (Tex. 1979)). By requiring the state to meet the summary judgment standard of proof in

cases like this one, we protect the plaintiffs from having to Aput on their case simply to establish

jurisdiction.@ Bland, 34 S.W.3d at 554. Instead, after the state asserts and supports with

evidence that the trial court lacks subject matter jurisdiction, we simply require the plaintiffs,

when the facts underlying the merits and subject matter jurisdiction are intertwined, to show that

there is a disputed material fact regarding the jurisdictional issue. See Huckabee v. Time Warner

Entm=t Co. L.P., 19 S.W.3d 413, 420 (Tex. 2000); Phan Son Van v. Pena, 990 S.W.2d 751, 753

(Tex. 1999).

Appellate courts reviewing a challenge to a trial court=s subject matter jurisdiction

review the trial court=s ruling de novo. IT-Davy, 74 S.W.3d at 855. When reviewing a plea to

the jurisdiction in which the pleading requirement has been met and evidence has been submitted

to support the plea that implicates the merits of the case, we take as true all evidence favorable to

the nonmovant. See Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). We

indulge every reasonable inference and resolve any doubts in the nonmovant's favor. Id.


In his dissent JUSTICE JEFFERSON criticizes this standard of review as depriving

plaintiffs responding to a plea of the procedural protections of a motion for summary judgment,

including a twenty-one day notice period or an adequate time to conduct discovery. TEX. R.

CIV. P. 166a(c), 166a(i). However, the scheduling of a hearing of a plea to the jurisdiction is left

to the discretion of the trial court, which is in the best position to evaluate the appropriate time

frame for hearing a plea in any particular case. This procedure does not dramatically differ from

that outlined in Texas Rule of Civil Procedure 120a governing special appearances. Although

Rule 120a requires any affidavits to be used at a hearing on a special appearance to be served at

least seven days before the hearing, it does not specify the length of a notice period and is

therefore presumably subject to the three-day notice period of Rule 21. TEX. R. CIV. P. 21.

Rule 120a allows the trial court to order a continuance and allow time for discovery if the

development of the case requires it. Nothing prevents a trial court from doing the same with a

plea to the jurisdiction where evidence is necessary.

Many other procedures in Texas practice B ranging from a trial court=s rulings on

motions to strike intervention to the timing of a class certification decision to even the alteration

of the summary judgment notice periods - also Adepend[] . . . upon the wise exercise of

discretion by the trial court.@ Union Carbide Corp. v. B.D. Moye, 798 S.W.2d 792, 794 (Tex.

1990) (Hecht, J., concurring); see, e.g., TEX. R. CIV. P. 42(c)(1)(A) (directing a trial court to

determine whether a suit may be maintained as a class action Aat an early practicable time@);

TEX. R. CIV. P. 166a(c) (AExcept on leave of court, with notice to opposing counsel, the motion

and any supporting affidavits shall be filed and served at least twenty-one days before the time

specified for hearing.@) (emphasis added); Guaranty Fed. Sav. Bank v. Horseshoe Operating

Co., 793 S.W.2d 652, 657 (Tex. 1990) (observing that the trial court has broad discretion in


ruling on a motion to strike intervention, even though Rule 60 does not provide explicit

guidelines for the scheduling of a hearing or the evaluation of evidence). Thus, the Texas civil

procedural scheme entrusts many scheduling and procedural issues to the sound discretion of the

trial court, subject to appellate review. Of course, Texas practice and rules also allow the parties

to request additional time to prepare for certain hearings or to conduct discovery upon a showing

of sufficient cause, and the court=s ruling on such a motion is reviewed for an abuse of

discretion. See, e.g., TEX. R. CIV. P. 166a(g), 247, 251, 252. We note, also, that federal

practice does not prescribe a procedure for the consideration of jurisdictional evidence but

instead allows the district courts to tailor a method to suit the requirements of the cases before

them. Land, 330 U.S. at 735 n.4; Moran, 27 F.3d at 172. In any event, the Mirandas do not

complain that they had an inadequate opportunity to conduct sufficient discovery, nor did they

request a continuance to do so.

C. Waiver of Immunity Based on Premises Defects

1. The Mirandas= Pleadings

The Mirandas contend that their pleadings fall within the Tort Claims Act=s waiver of

immunity for both premises defects and injuries arising out of conditions or use of property. The

Act provides that a state agency is liable for injury and death caused by Aa condition or use of

tangible personal or real property if the governmental unit would, were it a private person, be

liable to the claimant according to Texas law.@ TEX. CIV. PRAC. & REM. CODE '

101.021(2). The Mirandas= pleadings allege injuries caused by a falling tree limb, which falls

under the definition of real property B i.e., A>land, and generally whatever is erected or growing

upon or affixed to land.=@ San Antonio Area Found. v. Lang, 35 S.W.3d 636, 640 (Tex. 2000)

(quoting Chastain v. Koonce, 700 S.W.2d 579, 584 (Tex. 1985) (Gonzalez, J., concurring)). The


Mirandas= allegation of an injury caused by a tree limb falling on Maria Miranda constitutes an

allegation of a condition or use of real property and is an allegation of a premises defect.

To state a claim under the recreational use statute, the Mirandas must allege sufficient

facts to establish that the Department was grossly negligent. See TEX. CIV. PRAC. & REM.

CODE '' 75.002 (c)-(d), 101.021, 101.025, 101.058. The Mirandas contend that both their

allegations and the evidence presented on the plea establish claims of gross negligence. Looking

first to the relevant factual allegations in the third amended petition, the Mirandas claim that (1)

they specifically asked the Department=s employee for a recommendation of a safe camping

location; (2) at the campsite, Maria was struck by a falling tree branch that severely injured her;

(3) the unpruned, uninspected tree branches created a dangerous, defective condition on the

premises of which the Department was aware; (4) the Department knew of the dangers of its

falling tree branches but failed to inspect, prune, alleviate the dangers, or otherwise make safe

the dangerous conditions of its trees; (5) the Department consciously and deliberately failed to

warn the Mirandas of the extremely dangerous condition; and (6) the Department=s conduct was

willful, wanton, or grossly negligent. A liberal construction of these allegations, as required,

demonstrates that the Mirandas stated a claim against the Department for gross negligence. This

conclusion should not be read as a suggestion that the Department has a duty to inspect every

tree in each of the many parks that the Department manages. Instead, in this case, the Mirandas

alleged sufficient facts to survive a plea to the jurisdiction based solely on the pleadings.

JUSTICE JEFFERSON=s dissent contends that the Mirandas= third amended petition

does not state a claim for gross negligence because the allegations are conclusory and do not

assert enough specific facts alleging that the Department had actual subjective awareness of the

risk involved and proceeded, nevertheless, with conscious indifference. He suggests that to state


a claim the Mirandas should have pled that the Department had Aactual knowledge that the

branch would fall yet nevertheless instructed Maria to camp beneath it.@ __ S.W.3d at __. The

pleading hurdle he seeks to erect would be groundbreaking, indeed, extending beyond current

requirements under our rules of civil procedure and case law. Rules 45 and 47 require that the

original pleadings give a short statement of the cause of action sufficient to give the opposing

party fair notice of the claim involved. TEX. R. CIV. P. 45, 47; Paramount Pipe & Supply Co.,

Inc. v. Muhr, 749 S.W.2d 491, 494 (Tex. 1988); Castleberry v. Goolsby Bldg. Corp., 617 S.W.2d

665, 666 (Tex. 1981). Rule 45 does not require that the plaintiff set out in his pleadings the

evidence upon which he relies to establish his asserted cause of action. Muhr, 749 S.W.2d 494-

95. While it is clear that A[t]he party suing the governmental entity must establish the state=s

consent, which may be alleged either by reference to a statute or to express legislative

permission,@ Jones, 8 S.W.3d at 638, and that A[m]ere reference to the Tort Claims Act does

not establish the state=s consent to be sued and thus is not enough to confer jurisdiction on the

trial court,@ Miller, 51 S.W.3d at 587, the Mirandas= pleadings allege sufficient facts to bring

their claims under the recreational use statute and the Tort Claims Act.

Although facts alleged in a petition should not be improperly stretched to state a claim for

gross negligence, JUSTICE JEFFERSON=s pleading standard for gross negligence would be

virtually impossible to meet, even when grossly negligent conduct occurred, absent an admission

of liability. His standard requires specific factual allegations in an original petition of what the

defendant knew and thought B i.e., its state of mind. His pleading hurdle would require

discovery into the very extrinsic facts which he bemoans consideration of in the plea to the

jurisdiction. The Mirandas= third amended petition provided sufficient notice to ascertain the

nature and basic issues of the controversy and the evidence that probably would be relevant.


JUSTICE JEFFERSON also contends that the Mirandas are entitled to replead. As a

practical matter, the Mirandas have already repled to try to cure the Adefects@ that JUSTICE

JEFFERSON raises. The Mirandas no doubt filed their third amended petition, in which

allegations of gross negligence were raised for the first time in this lawsuit, in response to the

Department=s plea to the jurisdiction. However, because the Mirandas= third amended petition

satisfies the notice pleading requirements of our procedural rules, the Mirandas do not need, nor

are they entitled to, an opportunity to replead. See TEX. R. CIV. P. 47.

2. The Department=s Evidence

The Department challenged the Mirandas= pleadings and also submitted evidence to

controvert the factual allegations supporting jurisdiction. We consider the relevant evidence

submitted to decide this jurisdictional challenge. See Bland, 34 S.W.3d at 555. The Department

attached the deposition testimony of Craig VanBaarle, the assistant park manager for Garner

State Park, to its plea to the jurisdiction. VanBaarle testified that while the park normally

inspects and maintains its trees, tree limbs are only pruned or trimmed if they appear to be dead.

According to VanBaarle, the tree limb that fell on Maria was living. He testified that both dead

and living tree limbs have fallen at various locations in the park. He testified that the park knows

that tree limbs can fall and have fallen on approximately twenty occasions. However, no one had

ever been injured by falling tree limbs. He also testified that the tree limb that injured Maria

Miranda fell from fifty feet above the campsite and that the park employees would not have been

able to see the limb clearly without climbing the tree even if the limb had been dead.

In addition, the Department attached the affidavit of Roy B. Inks, operations and

maintenance specialist at Garner State Park. Inks= responsibilities included supervision of park

maintenance including preservation and maintenance of trees at campsites. According to his


affidavit, Inks inspected the campsite after the accident. His examination of the tree and the

fallen branch failed to reveal any indication that the branch was dead, decaying, or in need of

pruning. Inks opined that there was no reason to conclude that the tree presented a dangerous or

hazardous condition. Inks further opined that the branch that struck Maria Abroke away from the

tree as a result of an unpredictable and unforseeable phenomenon known as >sudden branch drop

syndrome.=@ Inks explained that A[i]t would be rare for anyone to be able to predict which

branches will fall and which ones will not@ as a result of this phenomenon. The Mirandas cite

the Department=s evidence as proof that the Department knew about sudden branch drop

syndrome and did nothing about it, thus establishing gross negligence. The Mirandas did not cite

any controverting evidence in their response to the Department=s plea.

We first examine this evidence to determine whether it establishes that the Department

was grossly negligent. We have observed that with regard to the subjective component of gross

negligence, it is the defendant=s state of mind B whether the defendant knew about a peril but

nevertheless acted in a way that demonstrated that he did not care about the consequences B that

separates ordinary negligence from gross negligence. Louisiana-Pacific, 19 S.W.3d at 246-47.

We search the record for evidence that the Department=s acts or omissions demonstrate that it

did not care about the consequences to the Mirandas of a known extreme risk of danger. The

Mirandas fail to point to any evidence, and the record contains no evidence, that shows that

sudden branch drop syndrome constitutes an extreme risk of danger or that the Department had

actual, subjective knowledge of that risk but nevertheless proceeded in conscious disregard for

the safety of others. Nor is there any evidence that the Department could have taken any

reasonable steps to minimize the dangers of an Aunforseeable@ and Aunpredictable@

phenomenon. We conclude that the evidence in the record establishes that the Department was


not grossly negligent and that the Mirandas have failed to raise a fact question regarding the

Department=s alleged gross negligence. The Mirandas fall short of satisfying the requirements

for the Legislature=s limited grant of a waiver of sovereign immunity from suit under the

applicable statutes. Therefore, the trial court lacked subject matter jurisdiction.

3. Dissent

In his dissent, JUSTICE BRISTER takes the view that all pleas to jurisdiction based on

immunity must take the form of two Astandard@ or Aestablished@ motions B either special

exceptions or motions for summary judgment. __ S.W.3d at __. This approach might be

appropriate, if we were starting from scratch. Given that we are not writing on a blank slate, that

pleas have been a useful procedural vehicle in Texas for over 150 years, and that use of its

counterpart (Federal Rule of Civil Procedure 12(b)(1)) to challenge subject matter jurisdiction in

the federal judicial system when evidence is involved has been authorized by every federal

circuit court, the Court declines to abolish by written opinion such pleas to the jurisdiction.

The plea to the jurisdiction was included in procedural rules promulgated by this Court in

1877 and has been used as a procedural vehicle to challenge subject matter jurisdiction in trial

courts for over a century and a half. See TEX. R. CIV. P. 85; TEX. DIST. CT. R. 7, 47 Tex. 597,

617 (1877); Hosner, 1 Tex. at 769. In fact, as early as 1893, Texas courts indicated that

evidentiary challenges to subject matter jurisdiction raised in pleas to the jurisdiction should be

considered by trial courts. See, e.g., Gates, 291 S.W. at 949; Gentry, 21 S.W. at 570. With such

a long lineage, one wonders why a plea to jurisdiction does not qualify as a Astandard@ or

Aestablished@ motion. Perhaps a second mention in the Texas Rules of Civil Procedure would

suffice.


We decide that refining the rules for considering a plea supported by evidence is a better

approach than eliminating the motion. This approach is consistent with precedent, is not

disruptive to civil practice going back more than a century, and furthers the legislative purpose of

timely adjudicating subject matter jurisdiction when the immunity and liability facts are the

same.

There is a suggestion in the dissents that confirming in this opinion the authority of trial

courts to consider evidence in a plea to the jurisdiction is unfair to the parties in this case. The

facts undercut this assertion. At the trial court, both parties relied on extrinsic evidence in

briefing the plea, and both parties had extrinsic evidence on file with the court. Furthermore,

plaintiffs expressly stated in their response to the plea that they were relying on ADefendants=

responses to discovery requests, and upon the deposition of Craig VanBaarle [the Department=s

assistant park manager].@ In fact, the Mirandas deposed VanBaarle months before the

Department filed its plea. There is good reason why Plaintiffs have not argued unfair surprise.

Given Texas precedents and the actions of the parties, there was none.

D. Waiver of Immunity Based on Condition or Use of Tangible Property

The Mirandas assert that their pleadings also state a cause of action for injuries resulting

from a condition or use of tangible property. The allegations in the Mirandas= third amended

petition concern only the Department=s failure to act to reduce risks of falling tree limbs and

failure to warn the Mirandas of the risk of falling tree limbs. These allegations comprise the

elements of their premises defect claim. The Tort Claims Act=s scheme of a limited waiver of

immunity from suit does not allow plaintiffs to circumvent the heightened standards of a

premises defect claim contained in section 101.022 by re-casting the same acts as a claim

relating to the negligent condition or use of tangible property. See State v. Tennison, 509 S.W.2d


560, 562 (Tex. 1974) (rejecting the argument that the Tort Claims Act Acreates two entirely

separate grounds of liability@ for negligent use or condition of real property and premise defect,

but instead interpreting the premises defect provision to further limit the waiver of immunity for

negligent use or condition of real property). Other Texas courts have recognized that to allow

plaintiffs to characterize premises defect claims as claims caused by the negligent condition or

use of personal or real property would render the Legislature=s heightened requirements for

premises defect claims meaningless. See, e.g., State v. Estate of Horton, 4 S.W.3d 53, 54 (Tex.

App.BTyler 1999, no pet.) (stating that once a claim is determined to be a premises defect, the

claimant is limited to the provisions delineated by the section on premises defects and may not

assert a general negligence theory); accord Laman v. Big Spring State Hosp., 970 S.W.2d 670,

671-72 (Tex. App.BEastland 1998, pet. denied); Univ. of Texas-Pan Am. v. Valdez, 869 S.W.2d

446, 450 (Tex. App.BCorpus Christi 1993, writ denied); Hawley v. State Dep=t of Highways and

Pub. Transp., 830 S.W.2d 278, 281 (Tex. App.BAmarillo 1992, no writ). Accordingly, we

conclude that the Mirandas have not established a cause of action under the Tort Claims Act for

condition or use of tangible property separate from their premises defect claim.

IV. Conclusion

Trial courts should decide dilatory pleas early B at the pleading stage of litigation if

possible. Here, the Legislature=s mandate is not so simple. By statute, waiver of sovereign

immunity for recreational use of the Department=s premises can only be effected by a showing

that it acted with gross negligence. Due to the standard erected (gross negligence), the

determination of whether immunity was waived may require consideration of extrinsic facts after

reasonable opportunity for targeted discovery. To preclude consideration of extrinsic facts when

necessary to decide a plea to the jurisdiction would require a trial on the merits for many cases


that do not need it, waste the resources of the courts and the parties in the case, and involve state

courts in rulings on the merits in cases over which they have no jurisdiction.

For the reasons explained, we conclude that the Department established that it was not

grossly negligent and that the Mirandas failed to raise a fact issue on that point. Thus, the trial

court lacked subject matter jurisdiction over the action. The judgment of the court of appeals is

reversed and the Mirandas= action dismissed for lack of subject matter jurisdiction.

________________________________________

J. Dale Wainwright

Justice

OPINION DELIVERED: April 2, 2004


Change View

1 Administrative Law and Procedure Statutory ConditionsWhen legislature creates administrative agency, it may also prescribe rulesand regulations governing administrative body and method by which rightsdetermined by body will be enforced, including procedures for obtainingjudicial review of final agency decisions.

24 Cases that cite this headnote

2 Insurance Risk Apportionment PlansRight of property owner in catastrophe area to participate in windstorminsurance plan and to obtain any benefits from plan does not derive fromcommon law but solely from provisions of Texas Catastrophe PropertyInsurance Pool Act [V.A.T.S. Insurance Code, art. 21.49, § 1 et seq.];therefore, in seeking to enforce rights for any insurance benefits, insuredmust comply with that Act and the Administrative Procedure and TexasRegister Act [Vernon's Ann.Texas Civ.St. art. 6252–13a, § 19(b)].


3 Insurance PartiesTrial court did not have jurisdiction over property owners' action seekingrecovery for damage done to their property by hurricane where propertyowners failed to name State Board of Insurance as a defendant within 30

706 S.W.2d 644

Supreme Court of Texas.

TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION et

al., Petitioners,

v.

COUNCIL OF CO-OWNERS OF SAIDA II TOWERS

CONDOMINIUM ASSOCIATION et al., Respondents.

No. C–4576. March 5, 1986. Rehearing Denied April 23, 1986.

Property owners sued Texas Catastrophe Property Insurance Association allegingcause of action on property insurance contracts written by the Association. The 126thJudicial District Court, Travis County, Charles D. Mathews, J., sustained theAssociation's plea to jurisdiction, dismissing suits. Upon consolidation for appealpurposes, the Austin Court of Appeals, Third Supreme Judicial District, Powers, J.,696 S.W.2d 60, reversed and remanded, and error was brought. The Supreme Court,Hill, C.J., held that trial court lacked jurisdiction over actions.

Judgment of Court of Appeals reversed and trial court affirmed.

Gonzalez, J., filed a dissenting opinion.

West Headnotes (3)

RELATED TOPICS

Insurance

PartiesIntended Third Party Beneficiaries ofInsured Policy

Administrative Law and Procedure

Judicial Review of Administrative Decisions

Available Administrative Agency Remedy

Texas Catastrophe Property Ins. Ass'n v. Council of Co-Owners of Saida II Towers Condominium Ass'nSupreme Court of Texas. March 5, 1986 706 S.W.2d 644 (Approx. 5 pages)

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days of its final decision, as required by the Administrative Procedure andTexas Register Act [Vernon's Ann.Texas Civ.St. art. 6252–13a, § 19(b)] andthe Texas Catastrophe Property Insurance Pool Act [V.A.T.S. InsuranceCode, art. 1.04(f)].


Attorneys and Law Firms

*644 Jim Mattox, Atty. Gen., Allene D. Evans, Office of the Atty. Gen., David C.Duggins, Clark, Thomas, Winters & Newton, Austin, for petitioners.

Stephen Curtis Bonner, Jr., Harlingen, Guy Cade Fisher, Fisher & Cook, Austin, forrespondents.

Opinion

OPINION

HILL, Chief Justice.

Various property owners insured by the Texas Catastrophe Property InsuranceAssociation seek review of an order of the State Board of Insurance denying themrecovery for damage done to their property by Hurricane Allen. Each claimant filed apetition in a Travis County District Court seeking “trial de novo” review of the StateBoard of Insurance's decision. The trial court dismissed each case for want ofjurisdiction because the property owners had failed to join the State Board ofInsurance as a party-defendant within the time required by the AdministrativeProcedure and Texas Register Act, Tex.Rev.Civ.Stat.Ann. art. 6252–13a, § 19(b)(Vernon Supp.1986). The court of appeals reversed and remanded, holding that theState Board of Insurance had no authority to hear the *645 property owners' claimsand that the trial court had jurisdiction of the “common law” claims asserted by theproperty owners. 696 S.W.2d 60. We reverse the judgment of the court of appealsand affirm the trial court's judgment.

The TCPIA was created by the Texas Legislature in 1971, pursuant to the TexasCatastrophe Property Insurance Pool Act, to provide, among other things, insurancefor property owners in designated areas of the State of Texas where risk of hurricaneis great. See Beacon National Insurance Co. v. Texas State Board of Insurance, 582S.W.2d 616, 617 (Tex.Civ.App.—Austin 1979, writ ref'd n.r.e.), cert. denied, 449 U.S.829, 101 S.Ct. 96, 66 L.Ed.2d 33 (1980). See also Tex.Ins. Code Ann. art. 21.49, § 1(Vernon 1981). Pursuant to the Texas Catastrophe Property Insurance Pool Act, theState Board of Insurance has designated fourteen Texas counties along or near theGulf Coast as the catastrophe area. TCPIA membership is required of all insurancecompanies authorized to write property insurance in Texas, with certain limitedexceptions. Id. § 4.

A complex formula for the allocation of risk of loss among TCPIA members is outlinedin the Texas Catastrophe Property Insurance Pool Act. Id. § 5(c) (Vernon Supp.1986).A particular member's allocation increases in proportion to the amount of certaintypes of insurance written outside the catastrophe area by the member, anddecreases in proportion to that member's voluntary writing of windstorm policies withinthe catastrophe area.

The Texas Catastrophe Property Insurance Pool Act requires the State Board ofInsurance to supervise all of TCPIA's operations and gives it the general authority to“issue any orders which it considers necessary to carry out the purposes of this Act.”Id. § 5A(a) (Vernon 1981). Additionally, the State Board of Insurance is given theauthority to hear appeals by “[a]ny person insured pursuant to this Act ... who may beaggrieved by an act, ruling or decision of the [TCPIA]....” Id. § 9.


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2

Each of the claimants herein, insured by the TCPIA, timely filed appeals to the StateBoard of Insurance after the TCPIA refused to compensate them for damage to theirproperties caused by Hurricane Allen. The State Board of Insurance subsequentlyissued final orders holding that one claimant was entitled to recover $12,371.75 andthat the others were not entitled to recover on their policy claims. Within thirty daysafter their motions for rehearing had been overruled by the State Board of Insurance,each claimant filed a petition in Travis County District Court seeking de novo review ofthe State Board of Insurance's decision. The TCPIA was the sole defendant named ineach petition. The TCPIA filed a general denial and a plea to the jurisdiction in eachcase on the grounds that each claimant's petition failed to name the State Board ofInsurance as defendant, as required by Tex.Ins.Code Ann. art. 1.04(f) (Vernon 1981).Each claimant then filed an amended petition naming the State Board of Insurance asa defendant. The State Board of Insurance answered with a plea to the jurisdiction,contending that claimants failed to name it as a party-defendant within the timerequired by the APTRA. Tex.Rev.Civ.Stat.Ann. art. 6252–13a, § 19(b) (VernonSupp.1986). The trial court sustained the TCPIA's and the State Board of Insurance'spleas and dismissed each case for want of jurisdiction. The cases were subsequentlyconsolidated on appeal.

When the Legislature creates an administrative agency, it may also prescriberules and regulations governing the administrative body and the method by which therights determined by such body will be enforced, including the procedures for obtainingjudicial review of final agency decisions. See City of Amarillo v. Hancock, 150 Tex.231, 234, 239 S.W.2d 788, 790 (1951); Rowden v. Texas Catastrophe PropertyInsurance Association, 677 S.W.2d 83, 87 (Tex.App.—Corpus Christi 1984, writ ref'dn.r.e.).

The Legislature has done precisely this with regard to the State Board of *646Insurance's supervision of the TCPIA, by (1) creating the TCPIA, (2) creating theclaimant's right to participate in the windstorm plan, (3) authorizing the State Board ofInsurance to administer the windstorm plan, and (4) creating the right and procedureto contest claims decisions made under the statutory plan. Tex.Ins. Code Ann. art.21.49, §§ 1, 4(a), 5A(a), 6, and 9 (Vernon 1981). We have long recognized that if acause of action and remedy for its enforcement are derived not from the common lawbut from a statute, the statutory provisions are mandatory and exclusive, and must becomplied with in all respects or the action is not maintainable. Mingus v. Wadley, 115Tex. 551, 558, 285 S.W. 1084, 1087 (1926); Alpha Petroleum Co. v. Terrell, 122 Tex.257, 265–66, 59 S.W.2d 364, 367–68 (1933). Accord Merida v. Texas MunicipalRetirement System, 597 S.W.2d 55, 57 (Tex.Civ.App.—Austin 1980, no writ). Theright of a property owner in the catastrophe area to participate in the windstorminsurance plan and to obtain any benefit from the plan does not derive from thecommon law, but rather solely from the provisions of the Texas Catastrophe PropertyInsurance Pool Act. We therefore hold that, in seeking to enforce rights to suchstatutory insurance benefits, the insured must comply with the Insurance Code andthe APTRA. See Mingus v. Wadley, 115 Tex. at 557–58, 285 S.W. at 1087.

The APTRA sets forth the procedure for the institution of an administrative appeal,which controls unless otherwise provided by statute. Tex.Rev.Civ.Stat.Ann. art.6252–13a, § 19 (Vernon Supp.1986). Section 19(b) provides that “[p]roceedings forreview are initiated by a petition [filed in a District Court of Travis County, Texas] withinthirty days after the decision complained of is final and appealable.” Id. § 19(b). TheInsurance Code mandates additional procedures applicable to appeals from finaldecisions of the State Board of Insurance. Article 1.04(f) of the Insurance Codereads:

If any ... party at interest be dissatisfied with any decision, regulation,order, rate, rule, act or administrative ruling adopted by the StateBoard of Insurance, such dissatisfied ... party at interest after failingto get relief from the State Board of Insurance, may file a petition


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3

setting forth the objection to such decision, regulation, order, rate,rule, act or administrative ruling ... in the District Court of TravisCounty, Texas, and not elsewhere, against the State Board ofInsurance as defendant.

Tex.Ins.Code Ann. art. 1.04(f) (Vernon 1981) (emphasis added). The TexasCatastrophe Property Insurance Pool Act, which created the TCPIA, authorizes “theperson aggrieved by any order or decision of the [State Board of Insurance to] appealto the District Court of Travis County, Texas, and not elsewhere, in accordance withArticle 1.04(f) of the Insurance Code of Texas.” Id. art. 21.49, § 9. Because theLegislature has prescribed the method for review of administrative action, that methodmust be followed to invoke the trial court's jurisdiction. See Lambeth v. TexasUnemployment Compensation Commission, 362 S.W.2d 205, 206–07(Tex.Civ.App.—Waco 1962, writ ref'd).

In the present case, the claimants did not follow the statutory procedure forreview set forth above. Their original petitions, although filed within thirty days of theState Board of Insurance's final decision, failed to name that agency as a party-defendant. The transcript reflects that the claimants, in their first amended originalpetitions, eventually did join the State Board of Insurance as a defendant, but thispleading was filed after the thirty-day limitation period set forth in APTRA § 19(b) hadexpired.

It is well established that a party pursuing an administrative appeal from an agency'sdecision must name the defendant mandated by statute as a party within the time limitset forth in order to invoke the trial court's jurisdiction. See, e.g., Lambeth, 362S.W.2d at 205, 206–07. In Lambeth, an employee commenced an action against theUnemployment Compensation Commission within the ten-day statutory *647 period,but first joined his employer, a party to the Unemployment CompensationCommission's proceedings, as a party by amended pleading after that period hadexpired. The statute in question required that “any other party to the proceedingbefore the Commission shall be made a defendant.” Id. at 206. The Lambeth courtupheld the trial court's dismissal of the employee's appeal because the employeefailed to join his employer as a defendant within the ten-day period. Id. at 206–07.Accord Charter Oaks Fire Insurance Company v. Gorman, 693 S.W.2d 686,687–88 (Tex.App.—Houston [14th Dist.] 1985, writ ref'd n.r.e.). It is equally clear thatthe petition may not be amended thereafter to cure the jurisdictional defect. Lambeth,362 S.W.2d at 206–07; Gorman, 693 S.W.2d at 687–88.

The claimants contend, however, that the TCPIA is an arm of the State Board ofInsurance and that suit against the TCPIA is tantamount to a suit against the StateBoard of Insurance; therefore, they have complied with the APTRA's and theInsurance Code's requirements. They cite Castro v. Harris County, 663 S.W.2d 502(Tex.App.—Houston [1st Dist.] 1983, writ dism'd) in support of this proposition. Wefind Castro inapposite for the reason that Castro did not involve an appeal of anadministrative decision. Thus, the statute of limitation issue present in Castro issimply not analogous to the question of administrative procedure involved in thepresent case.

We hold that the Texas Castrophe Property Insurance Pool Act authorizes the StateBoard of Insurance to resolve disputes arising from the denial by the TCPIA of claimsby its policyholders. The appellate procedures available to a party aggrieved by aTCPIA decision, as provided for by the Texas Catastrophe Property Insurance PoolAct and the APTRA, are mandatory and exclusive and must be complied with in orderto enforce the rights to statutory insurance benefits held by TCPIA policyholders.

Because the claimants in the present consolidated appeals failed to name the StateBoard of Insurance as a defendant within thirty days of its final decision, as requiredby the APTRA and Article 1.04(f) of the Insurance Code, we hold that the trial courtproperly dismissed their causes for want of jurisdiction.


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We reverse the judgment of the court of appeals and affirm the trial court's judgment.

GONZALEZ, J., dissents.

GONZALEZ, Justice, dissenting.I concur with the court's holding that the property owner's claim to insurance benefitsderive from statute and not common law. However, I would apply prospectively theholding that Tex.Ins.Code Ann. arts. 1.04(f) and 21.49, § 9, along withTex.Rev.Civ.Stat.Ann. art. 6252–13a, § 19(b) be read together to determinejurisdictional prerequisities for appeal.

Neither art. 1.04(f) nor art. 21.49, § 9 provides claimants with notice of any filing timelimits. There are no cross references in either article to the APTRA, § 19(b). Further,until now, no case has applied § 19(b)'s thirty-day time limit to this area of the law.Under these circumstances, I would not deny respondents their day in court.

As § 19(b) is now considered as an additional procedural prerequisite for jurisdiction,aggrieved parties must be meticulous in their preparation for an agency appeal.Reference must be made to the APTRA for concurrent or cumulative proceduralprerequisites for statutory schemes, unless contrary intent appears in the enablingstatute. See art. 6252–13a, § 1.

End of Document © 2012 Thomson Reuters. No claim to original U.S. Government Works.

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Change View

1 Insurance Matters Subject to ArbitrationEmployees Retirement System trustees have final binding authority toadjudicate claims of contested cases. V.A.T.S. Insurance Code, art. 3.50–2;Vernon's Ann.Texas Civ.St. art. 6252–13a, § 19.


Original Image of 709 S.W.2d 646 (PDF)

709 S.W.2d 646


EMPLOYEES RETIREMENT SYSTEM OF TEXAS and Metropolitan

Life Insurance Company, Petitioners,

v.

Joyce M. BLOUNT, Respondent.

No. C–3448. May 14, 1986.

Widow brought action against insurer and Employees Retirement System seekingbenefits under her deceased husband's life policy. The 147th Judicial District Court,Travis County, Peter Lowry, P.J., entered judgment that widow take nothing, based onevidentiary record compiled in Employees Retirement System, and widow appealed.The Court of Appeals, Powers, J., 677 S.W.2d 565, reversed and remanded andwidow petitioned for writ of error. The Supreme Court held that Employees RetirementSystem trustees had final binding authority to adjudicate claims of contested cases.

Judgment of Court of Appeals reversed; judgment of trial court affirmed.


*646 Gary A. Thornton, Small, Craig & Werkenthin, Austin, Rena Friedlander, andWilliam Toppeta, New York City, Susan Henricks, Asst. Atty. Gen., Jim Mattox, Atty.Gen., Austin, for petitioners.

Joseph Hunter, Alvin, for respondent.

Opinion

ON MOTION FOR REHEARING

PER CURIAM.

After her husband's death, Joyce M. Blount sued Employees Retirement System ofTexas (“ERS”) and Metropolitan Life Insurance Company in Travis County DistrictCourt, seeking a trial de novo for a contested insurance claim arising under a uniformgroup insurance program for state employees. Metropolitan paid $4,000 in basic lifeinsurance but denied payment of her $46,000 claim for optional accidental deathbenefits. In December of 1981, the ERS Board of Trustees recommended a denial of

West Headnotes (1)

RELATED TOPICS

Insurance

Claims and Settlement PracticesCollective or Separate Arbitration ofInsureds Claims

Employees Retirement System of Texas v. BlountSupreme Court of Texas. May 14, 1986 709 S.W.2d 646 (Approx. 2 pages)

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the accidental death benefits. The trial court reviewed the record under substantialevidence review, and found that substantial evidence did exist to support the agency'sdecision. The court of appeals reversed the judgment of the trial court and remandedin the interest of justice, holding that the case was tried under the wrong standard, asBlount had a common law right to bring her action in district court as a trial de novo.677 S.W.2d 565. We grant the motion for rehearing and the applications for writ oferror, and, pursuant to Tex.R.Civ.P. 483, without hearing oral argument, we reversethe judgment of the court of appeals and affirm the judgment of the trial court.

The primary issue on appeal is whether the ERS trustees have been granted the finalbinding authority to adjudicate claims of contested cases pursuant to its enablingstatute, Tex.Ins. Code Ann. art. 3.50–2 (Vernon 1981) and the AdministrativeProcedure and Texas Register Act, Tex.Rev.Civ.Stat.Ann. art. 6252–13a (VernonSupp.1986) (“APTRA”). We hold that the agency does have such authority pursuantto Article 3.50–2 and APTRA § 19, and that the trial court properly reviewed therecord under the substantial evidence standard.

The court of appeals' decision conflicts with Article 3.50–2, § 4(e), which gives thetrustees full power to promulgate rules and procedures necessary to carry out thepurposes and provisions of this act, including:

establishment of grievance procedures by which the trustee shall actas an appeals body for complaints by insured employees regardingthe allowance and *647 payment of claims, eligibility and othermatters ... (emphasis added)

The bill analysis for the 1985 amendment to Article 3.50–2, Senate Bill 771 makes itclear that its purpose was to emphasize that the agency has always maintained thispower and has acted accordingly to provide for free and expedited hearings beforethe trustees without being “forced to resolve any differences with the carrier in thecourts.” Thus, the court of appeals erred in holding that proceedings before the ERStrustees were not judicial in nature.

Because Blount's cause of action is derived from statute, not common law, thestatutory provisions are mandatory and exclusive and must be complied with in allrespects. Mingus v. Wadley, 115 Tex. 551, 285 S.W. 1084, 1087 (1926); TexasCatastrophe Property Insurance Association v. Council of Co-Owners of Saida IITowers Condominium Association, 706 S.W.2d 644 (Tex.1986). The trial court,therefore, properly reviewed the case under substantial evidence review, pursuant toAPTRA, § 19(e).

Therefore, we grant the motion for rehearing and the applications for writ of error,and, without hearing oral argument, the majority of the court reverses the judgment ofthe court of appeals and affirms the judgment of the trial court. Tex.R.Civ.P. 483.




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Change View

1 Taxation Right of Recovery of Taxes PaidSince statutes establishing a special method to enable a taxpayer whoquestions validity of a tax to sue the state in an effort to recover taxes paidunder protest creates a right not existing at common law and prescribes aremedy to enforce that right, the courts may act only in the manner providedby such statutes. V.A.T.S. Tax.–Gen. art. 1.05.


2 Taxation ProtestAlthough it was not until after franchise tax audit which began in 1971 that iswas concluded that taxpayer had underpaid its taxes for 1962 and hadoverpaid for 1963 to 1971, the taxpayer, asserting that it had also overpaidfor 1962, was required to comply with statutory requirement of writtenprotest; statute was not unavailable on ground that comptroller creditedoverpayment to deficiency as suit was not filed within 90 days after offsetwas taken; had taxpayer determined, when offset was taken, that reviewstatute was not available because comptroller had paid himself, taxpayershould have complied with remaining statutory requirements and filed suitwithin 90 days. V.A.T.S. Tax.–Gen. arts. 1.032, 1.05, 1.11(2), 1.11A.


Bob BULLOCK, Comptroller of Public Accounts et al., Petitioners,

v.

AMOCO PRODUCTION COMPANY, Respondent.

No. B-8788. Oct. 1, 1980. Rehearing Denied Dec. 17, 1980.

Taxpayer sued to recover amount allegedly unlawfully withheld by Comptroller of PublicAccounts as part of overpayment of franchise taxes. The District Court No. 53, TravisCounty, Charles D. Mathews, J., dismissed for want of jurisdiction. The Austin Courtof Civil Appeals, Third Supreme Judicial District, O'Quinn, J., reversed and remanded,584 S.W.2d 388. Appeal was taken. The Supreme Court, Campbell, J., held thatalthough it was not until after franchise tax audit, which began in 1971, that it wasconcluded that taxpayer had underpaid its taxes for 1962 and had overpaid them for1963 to 1971, the taxpayer, asserting that it had also overpaid for 1962, was requiredto comply with statutory requirement of written protest; statute was not unavailable onground that comptroller credited overpayment to deficiency as suit was not filed within90 days after offset was taken.

Judgment of Court of Civil Appeals reversed and judgment of trial court affirmed.


*900 Mark White, Atty. Gen., Gilbert J. Bernal, Jr., Asst. Atty. Gen., Austin, for

West Headnotes (2)

RELATED TOPICS

Taxation

Property TaxesReal Property Tax Protest Notice

Bullock v. Amoco Production Co.Supreme Court of Texas. October 1, 1980 608 S.W.2d 899 (Approx. 4 pages)

Bullock v. Amoco Production Co. - WestlawNext https://a.next.westlaw.com/Document/I1e7c650ce7a111d98ac8f235252e3...

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petitioners.

McGinnis, Lochridge & Kilgore, C. Morris Davis, Austin, for respondent.

Opinion

CAMPBELL, Justice.

This is a franchise tax case. The trial court dismissed the cause for lack ofjurisdiction. The Court of Civil Appeals reversed the trial court judgment and remandedthe cause for trial. 584 S.W.2d 388. We reverse the judgment of the Court of CivilAppeals and affirm that of the trial court.

In 1971 the Comptroller began a franchise tax audit of Amoco for the years 1962through 1971. The Comptroller concluded that Amoco had underpaid its taxes by$249,583 for 1961 and had overpaid $718,098.16 for 1963 through 1971. Penaltyand interest for the deficit payment caused a total deficiency of $295,051.27 for1962.

Amoco contended that the Comptroller was in error in assessing a deficiency for1962 and that it had overpaid $108,856.92 for that year. Pursuant to Article 1.032 ofthe Tax Statutes, Amoco initiated a request for redetermination. The Comptroller setthe redetermination hearing for August 2, 1972.

The Comptroller, on July 10, 1972, pursuant to Article 1.11(2) tendered credit of$423,046.89 (the difference between the overpayment for 1963-1971 and the totaldeficiency for 1962) to Amoco. Article 1.11(2) allows the Comptroller, if he hasdetermined that an overpayment was made, to credit the taxpayer with the amount ofthe overpayment; provided, the taxpayer consents to the credit. Amoco did notconsent. It requested the money be refunded pursuant to Article 1.11A, Tax Refunds.This Article then provided:

(1) This Article applies to any . . . franchise . . . tax or fee collected or administeredby the Comptroller of public Accounts ....

(2) When the Comptroller determines that any person, firm or corporation hasthrough mistake of law or fact overpaid the amount due the State on any taxcollected or administered by the Comptroller, the Comptroller may refund suchoverpayment by warrant on the State Treasury from any funds appropriated forsuch purpose. (emphasis added).

The hearing examiner, in the findings of the redetermination hearing for 1962 taxes,denied Amoco's request to set aside the deficiency and to refund the $295,051.27withheld by the Comptroller. The Comptroller approved these findings and this orderbecame final on March 21, 1975. On the same day Amoco brought suit to determinethe money was unlawfully withheld and that it had overpaid the 1962 taxes by$108,856.92 and for a refund of that amount.

The State contends Amoco cannot maintain this suit because, among other things,Amoco has not complied with Article 1.05. This Article provides that a taxpayer maychallenge the assessment of taxes if (1) the taxpayer pays the taxes, (2)accompanies the payment with a written protest setting out fully and in detail each andevery ground or reason why it is contended that such demand is unlawful orunauthorized, and (3) files suit within 90 days after the payment in a court ofcompetent jurisdiction in Travis County.

In Dan Ingle, Inc. v. Bullock, 578 S.W.2d 193 (Tex.Civ.App.-Austin 1979, writ ref'd), thetaxpayer brought suit seeking to set aside the Comptroller's determination that thetaxpayer was delinquent in payment of sales taxes. The taxpayer had not compliedwith Article 1.05 (payment of taxes accompanied by written protest) but attempted thejudicial review under the provisions of section 19 of Article 6252-13a, T.R.C.S.(Administrative Procedure and Texas Register Act). The court held that because the

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*901 taxpayer had not complied with Article 1.05, the trial court was without jurisdictionto hear and decide the merits of the case. See Robinson v. Bullock, 553 S.W.2d 196(Tex.Civ.App.-Austin 1977, writ ref'd n.r.e.), cert. denied, 436 U.S. 918, 98 S.Ct. 2264,56 L.Ed.2d 759 (1978).

By Article 1.05 and its predecessor statute, Article 7057b, the Legislatureprovided a special method to enable taxpayers, who question validity of a tax, to bringsuit against the State in an effort to recover taxes paid under protest. These statutescreated a right not existing at common law and prescribed a remedy to enforce theright. Thus, the courts may act only in the manner provided by the statute whichcreated the right. Union Central Life Ins. Co. v. Mann, 138 Tex. 242, 158 S.W.2d 477(1941). We hold the trial court was without jurisdiction to hear and decide the merits ofAmoco's suit.

Amoco contends it never had an opportunity to pay under protest as the Comptrollerdeducted the amount it claimed as an underpayment for 1962 from the overpaymentfor subsequent years. Therefore, it could not comply with Article 1.05 and had no wayto seek judicial review. We do not agree. As to its inability to pay under protest, wequote from the deposition testimony of Mr. Marlar of Amoco's Tax Department:

We did not concede the deficiency for ‘62. It would have been a useless act for usto pay the money that the deficiency set up for ‘62 and then turn around and receivethe same amount of money under the $718,000 or whatever that number was. Itwas-you know, that was just changing hands, changing money for nothing.

We were told-we were told that we were entitled to $718,000, which was the refund.They turned around and said, “Well, we're going to refund you $423,000.” And wesaid, “Well, we're not conceding that we owe you that other money. It's useless forus to get the money back and turn around and pay it to you again just to satisfy thiscircuitous route of having to pay it under protest.”

Amoco urges that Article 1.05 was unavailable to it because the Comptroller paidhimself when it credited the overpayment of 1963 and following years to thedeficiency, as determined by the Comptroller, for 1962. Also, Amoco had on file withthe Comptroller when the credit was made, a detailed memorandum of the errorsmade by the Comptroller in computing the 1962 deficiency. We do not reach thequestion of whether the offset and filed memorandum would be sufficient to meet thefirst two requirements of Article 1.05 because suit was not filed within 90 days afterthe offset was taken. Had Amoco determined, when the offset was taken, that Article1.05 was not available because the Comptroller paid himself, it should have compliedwith the remaining requirements of Article 1.05.

The judgment of the Court of Civil Appeals is reversed and the judgment of the trialcourt is affirmed.

Footnotes

All statutory references are to Vernon's Annotated Civil Statutes,Taxation General, unless otherwise indicated.

Article 1.11A has since been extensively amended.

Article 1.11A was amended, effective August 27, 1979, to provide anappeal from the final decision of the Comptroller.




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Change View

1 Courts Ancillary and incidental jurisdictionBecause Supreme Court had subject matter jurisdiction over plaintiff'sclaims for intentional infliction of emotional distress, false imprisonment,and libel, it had jurisdiction over the entire case, including the slanderissues.


2 Judgment Grounds for Summary JudgmentDefendant who conclusively negates at least one of the essential elementsof a cause of action is entitled to summary judgment as to that cause ofaction and likewise, defendant who conclusively establishes each elementof an affirmative defense is entitled to summary judgment. Vernon'sAnn.Texas Rules Civ.Proc., Rule 166a(c).


3 Judgment Presumptions and burden of proofIn reviewing summary judgment, court must accept as true evidence in favorof nonmovant, indulging every reasonable inference and resolving all doubts

891 S.W.2d 640


RANDALL'S FOOD MARKETS, INC., Vernon Frank Davis, Lewis

Simmons, and Gary Mike Seals, Petitioners,

v.

Mary Lynn JOHNSON, Respondent.

No. 94–0055. Argued Oct. 19, 1994. Decided Jan. 12, 1995.

Manager brought action for damages against store owner, its district manager, itsdirector, and clerk, alleging conspiracy, slander, intentional infliction of emotionaldistress, breach of contract, tortious interference with contract, and falseimprisonment. The 122th District Court, Galveston County, H.G. Dalehite, J., grantedsummary judgment for defendants, and manager appealed. The Houston Court ofAppeals, Smith, J., (Retired), 869 S.W.2d 390, affirmed in part and reversed in part,and appeal was taken. The Supreme Court, Spector, J., held that: (1) store'squestioning of manager about possible theft did not constitute extreme andoutrageous conduct necessary to state claim for intentional infliction of emotionaldistress; (2) store's request that manager stay away from particular area of thebusiness premises during work hours did not constitute false imprisonment; and (3)store did not slander manager because all of the statements made by store'semployees were both true and qualifiedly privileged.

Reversed.

West Headnotes (23)

RELATED TOPICS

Libel and Slander

Words and Acts Actionable, and LiabilityTherefor

Notices of Employee Termination

False Imprisonment

Civil Liability

Unlawfully Assault, Batter, Torture, andFalsely Imprison

Damages

Intentional Infliction of Emotional DistressEmployer Willful or deliberate act ornegligence

Randall's Food Markets, Inc. v. JohnsonSupreme Court of Texas. January 12, 1995 891 S.W.2d 640 129 Lab.Cas. P 57, 855 (Approx. 13 pages)

Randall's Food Markets, Inc. v. Johnson - WestlawNext https://a.next.westlaw.com/Document/I05e3cd63e7c111d9b386b232635d...

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in his favor. Vernon's Ann.Texas Rules Civ.Proc., Rule 166a(c).


4 Damages Elements in generalTo recover for intentional infliction of emotional distress, plaintiff must provethat defendant acted intentionally or recklessly, that defendant's conductwas extreme and outrageous, that defendant's actions caused plaintiffemotional distress, and that emotional distress suffered by plaintiff wassevere.


5 Damages Other particular casesEmployer's questioning of employee about possible theft did not constitute“extreme and outrageous conduct” necessary to state claim for intentionalinfliction of emotional distress; employer's conduct was not beyond allpossible bounds of decency, but rather was managerial function that wasnecessary to the ordinary operation of business organization.


6 Labor and Employment InvestigationsEmployers act within their legal rights in investigating reasonably credibleallegations of dishonesty of their employees.


7 False Imprisonment Nature and Elements of False ImprisonmentEssential elements of false imprisonment are willful detention withoutconsent and without authority of law.


8 False Imprisonment Act or means of arrest or detentionFor purposes of false imprisonment, detention may be accomplished byviolence, by threats, or by any other means that restrains person frommoving from one place to another.


9 False Imprisonment Act or means of arrest or detentionWhere it is alleged that detention, for purposes of false imprisonment claim,is effected by a threat, plaintiff must demonstrate that threat was such aswould inspire in the threatened person a just fear of injury to her person,reputation, or property.


10 False Imprisonment Act or means of arrest or detentionWhen employer supervises its employees, it necessarily temporarilyrestricts employees' freedom to move from one place to another or in thedirection that they wish to go, but, without more, such restriction is not a“willful detention” which is one of the elements for false imprisonment;however, this type of restriction could constitute “willful detention” whereemployer also uses physical force or threatens employee's person,reputation, or property.



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11 Labor and Employment Manner of conducting businessEmployer has the right, subject to certain limited exceptions, to instruct itsemployees regarding task that they are to perform during work hours; toeffectively manage its business, employer must be able to suggest, andeven insist, that employees perform certain tasks in certain locations atcertain times.


12 False Imprisonment Act or means of arrest or detentionEmployer's request that employee stay away from particular area of thebusiness premises during work hours did not constitute “falseimprisonment.”

13 Libel and Slander Nature and elements of defamation in general“Slander” is defamatory statement that is orally communicated or publishedto third person without legal excuse.


14 Libel and Slander Truth as justification in generalIn suits brought by private individuals, truth is affirmative defense to slander.


15 Libel and Slander As to character of employeeFor purposes of slander action, employer has conditional or qualifiedprivilege that attaches to communications made in course of investigationfollowing report of employee wrongdoing and this privilege remains intact aslong as communications pass only to persons having interest or duty in thematter to which the communications relate.


16 Libel and Slander Existence and Effect of MaliceProof that statement was motivated by actual malice existing at time ofpublication defeats employer's conditional or qualified privilege that attachesto communications made in course of investigation following report ofemployee wrongdoing.


17 Libel and Slander MaliceIn the defamation context, statement is made with actual malice whenstatement is made with knowledge of its falsity or with reckless disregard asto its truth.


18 Judgment Weight and sufficiencyTo invoke on summary judgment conditional or qualified privilege thatattaches to communications made in course of investigation following reportof employee wrongdoing, employer must conclusively establish that theallegedly defamatory statement was made with an absence of malice.


19 Libel and Slander As to character of employee


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Libel and Slander Truth as justification in generalStore did not slander worker who did not pay for item because all of thestatements made by store's employees were both true and qualifiedlyprivileged; store never accused worker of theft or of having the intent tosteal, throughout investigation, store's employees merely communicated toeach other that worker had left store without paying for item and worker didnot dispute this fact but argued only that she did not have the intent to steal,store had right to investigate incident and could not have conductedinvestigation without communicating facts regarding worker's actions toeach other, all of the store's employees who gave or received statementsabout incident had interest or duty in the matter, and store establishedabsence of malice with regard to these statements by conclusively provingthat its employees had reasonable grounds to believe that their statementswere true.


20 Libel and Slander Truth as justification in generalTruth is a complete defense to defamation.


21 Libel and Slander As to character of employeeAs employee of store, cosmetician was privileged to report allegedwrongdoing by his supervisor to store's management, but cosmeticianstepped outside boundaries of this privilege by circulating petition aboutsupervisor to ordinary employees and customers and, in so doing,cosmetician, as a matter of law, acted independently and outside scope ofher authority and therefore, store which did not authorize, condone, or ratifycosmetician's circulation of petition was not liable for any defamation claimsthat may have resulted from petition's circulation.


22 Libel and Slander As to character of employeeStore did not defame supervisor because all of the statements made bystore employees about cosmetician's allegations, that supervisor usedstore merchandise without paying for it, were qualifiedly privileged; oncestore received cosmetician's complaints, it was privileged to investigatethem, all of the employees who gave or received statements aboutcosmetician's allegations had interest or duty in the matter, and none of theemployees repeated cosmetician's complaints with knowledge of their falsityor with reckless disregard as to their truth.


23 Libel and Slander As to character of employeeStore did not defame worker because all of its statements made by storeemployees regarding cosmetician's allegations that worker used storemerchandise without paying for it were qualifiedly privileged; employees whogave or received statements about cosmetician's allegations had interest orduty in the matter and none of them repeated cosmetician's complaints withknowledge of their falsity or with reckless disregard as to their truth.



*642 Jay H. Henderson, Holly H. Williamson, Houston, for petitioners.


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Mark W. Stevens, Galveston, for respondent.

Opinion

SPECTOR, Justice, delivered the opinion of the Court, in which PHILLIPS, ChiefJustice, and GONZALEZ, HIGHTOWER, HECHT, CORNYN, GAMMAGE, andENOCH, Justices, join.

This appeal presents three issues regarding an employer's treatment of an employeesuspected of misconduct. The first is whether the employer's questioning of theemployee about possible theft constitutes “extreme and outrageous conduct”necessary to state a claim for intentional infliction of emotional *643 distress. Thesecond is whether the employer's request that the employee stay away from aparticular area of the business premises during work hours constitutes falseimprisonment. The third is whether the employer's statements made in the course ofits investigations of employee wrongdoing fall outside of its qualified privilege. For thereasons explained herein, we answer all three questions in the negative. We thereforerender judgment that the employee take nothing.

Mary Lynn Johnson, a manager of a Randall's store, purchased several items fromthe store, but did not pay for a large Christmas wreath that she was holding. VernonDavis, the check-out clerk, did not charge Johnson for the twenty-five dollar wreathbecause, after ringing up her other items, he asked her if there was anything else, andshe replied that there was nothing else. Davis reported Johnson's failure to pay himfor the wreath to management. The store's security guard was then requested toinvestigate the incident. The guard contacted Lewis Simmons (director of the store),and Simmons reported the incident to Mike Seals (the district manager for that store).

When Johnson returned to work two days later, Simmons escorted her to an office inthe back of the store and questioned her about the wreath. Johnson admitted that sheleft the store without paying for the wreath, explaining that she had a lot on her mind atthe time. With Johnson in the room, Simmons then called Seals and reported theresults of this interview to him. Because Seals wanted to meet with Johnson later thatday, Simmons asked her to stay at the store. Simmons told Johnson that he did notthink it would be a good idea for her to be on the store's floor; he suggested that sheeither remain in the office or work on a volunteer project painting a booth for a parade.Johnson chose to wait for Seals in the office. While she waited, Johnson left theoffice twice, once to use the restroom and the second time to visit a friend in the floraldepartment and to pay for the wreath.

When Seals arrived at the store, he and Simmons questioned Johnson further. Theyasked how she could forget to pay for an item when she was checking out with severalother items at the same time. This questioning caused Johnson to cry. At the end ofthis interview, Seals suspended Johnson for thirty days without pay and informed herthat at the conclusion of the thirty days she would be transferred to another, nearbystore. Johnson never reported to work at the other store. She subsequently suedRandall's, Seals, Simmons, and Davis (collectively, “Randall's”), alleging variousclaims, including intentional infliction of emotional distress, false imprisonment, anddefamation.

Some of Johnson's defamation allegations stem from statements made by ScottieKetner, a former Randall's employee who worked in the cosmetics section of the storeand was a subordinate of Johnson's. While employed at Randall's, Ketner complainedabout Johnson's management style and alleged that Johnson used store merchandisewithout paying for it. Ketner documented her complaints in memoranda addressed toRandall's management. Randall's investigated this incident and concluded that theproblem was essentially a personality conflict for which Ketner was largelyresponsible.

The trial court granted Randall's motion for summary judgment on all of Johnson's


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claims. The court of appeals affirmed in part and reversed in part, reversing thejudgment of the trial court on the claims of intentional infliction of emotional distress,false imprisonment, and defamation. 869 S.W.2d 390.

This Court has jurisdiction of this case pursuant to sections 22.001(a)(1) and22.001(a)(6) of the Texas Government Code. Because this Court has subject matterjurisdiction over the intentional infliction of emotional distress, false imprisonment, andlibel actions, it has jurisdiction over the entire *644 case, including the slanderissues. Stafford v. Stafford, 726 S.W.2d 14, 15 (Tex.1987).

To prevail on a motion for summary judgment, a movant must establishthat there is no genuine issue as to any material fact and that he or she is entitled tojudgment as a matter of law. TEX.R.CIV.P. 166a(c). A defendant who conclusivelynegates at least one of the essential elements of a cause of action is entitled tosummary judgment as to that cause of action. Wornick Co. v. Casas, 856 S.W.2d732, 733 (Tex.1993); Gibbs v. General Motors Corp., 450 S.W.2d 827, 828(Tex.1970). Likewise, a defendant who conclusively establishes each element of anaffirmative defense is entitled to summary judgment. In reviewing a summaryjudgment, we must accept as true evidence in favor of the non-movant, indulgingevery reasonable inference and resolving all doubts in his or her favor. El Chico Corp.v. Poole, 732 S.W.2d 306, 315 (Tex.1987).

I.To recover for intentional infliction of emotional distress, a plaintiff must

prove that (1) the defendant acted intentionally or recklessly; (2) the defendant'sconduct was extreme and outrageous; (3) the defendant's actions caused the plaintiffemotional distress; and (4) the emotional distress suffered by the plaintiff was severe.Twyman v. Twyman, 855 S.W.2d 619, 621–22 (Tex.1993). In Twyman, we adoptedthe Restatement's formulation of the tort of intentional infliction of emotional distress,including the definition of extreme and outrageous conduct as conduct that is “ ‘sooutrageous in character, and so extreme in degree, as to go beyond all possiblebounds of decency, and to be regarded as atrocious, and utterly intolerable in acivilized community.’ ” Id. at 621 (quoting RESTATEMENT (SECOND) OFTORTSSSS § 46 cmt. d (1965)). We hold that the summary judgment evidenceestablishes as a matter of law that Randall's conduct was not “extreme andoutrageous,” an essential element of the tort of intentional infliction of emotionaldistress.

The conduct that Johnson alleges was extreme and outrageous is Simmons andSeals' questioning of her regarding the wreath. Johnson maintains that duringSimmons' telephone conversation with Seals, which occurred after Simmons' initialquestioning of her, his tone and manner became severe and curt. She alleges thatSimmons merely answered Seals' questions and did not explain the facts to him.During Simmons and Seals' subsequent meeting with Johnson, the summary judgmentevidence establishes that Johnson explained her version of the wreath incident, andthen she was asked how she could forget to pay for an item when she was checkingout with several other items at the same time.

Accepting all evidence favorable to Johnson as true, we conclude that, as amatter of law, neither Randall's nor its agents engaged in extreme and outrageousconduct. Randall's merely asked a management-level employee to explain a report ofwrongdoing. Employers act within their legal rights in investigating reasonably credibleallegations of dishonesty of their employees. See Johnson v. Merrell DowPharmaceuticals, Inc., 965 F.2d 31, 34 (5th Cir.1992). This conduct is not “beyond allpossible bounds of decency,” “atrocious,” and “utterly intolerable in a civilizedcommunity”; rather, it is a managerial function that is necessary to the ordinaryoperation of a business organization. See Wornick Co. v. Casas, 856 S.W.2d 732,735 (Tex.1993).

II.

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The essential elements of false imprisonment are: (1) willfuldetention; (2) without consent; and (3) without authority of law. Sears, Roebuck & Co.v. Castillo, 693 S.W.2d 374, 375 (Tex.1985). A detention *645 may be accomplishedby violence, by threats, or by any other means that restrains a person from movingfrom one place to another. Martinez v. Goodyear Tire & Rubber Co., 651 S.W.2d 18,20 (Tex.App.—San Antonio 1983, no writ). Where it is alleged that a detention iseffected by a threat, the plaintiff must demonstrate that the threat was such as wouldinspire in the threatened person a just fear of injury to her person, reputation, orproperty. Id. at 20–21; Black v. Kroger Co., 527 S.W.2d 794, 796 (Tex.Civ.App.—Houston [1st Dist.] 1975, writ dism'd). We hold that, as a matter of law, Randall's didnot willfully detain Johnson.

Johnson bases her false imprisonment claim on her alleged confinement in a backoffice for several hours while awaiting the arrival of Seals. According to Johnson'stestimony, Simmons told Johnson that, while waiting for Seals, she could either paint abooth for a volunteer project or remain in the office, but he did not think it would be agood idea for her to be on the floor of the store. Johnson testified that she believedthat Simmons would physically prevent her from leaving the back room had shewanted to leave. She based this belief on Simmons' “sternness, his tone of voice,[and] his insistence that I stay put.”

Johnson does not contend that her detention was effected by actual physical force;rather, she alleges that Simmons detained her by sternly insisting that she stay put,which caused her to fear that he would physically prevent her from leaving had sheattempted to leave. In effect, Johnson alleges that Simmons impliedly threatened herperson. This allegation is conclusively negated by the fact that Johnson left the areathat she was allegedly confined to twice, and no one tried to stop her from doing so.Neither Simmons nor anyone else guarded Johnson. Simmons never stated that hewould physically restrain Johnson if she attempted to enter the floor of the store.Simmons did not even attempt to confine Johnson to a particular place; he merelysuggested that she avoid one area of the store. In short, no threat was made to detainJohnson.

Simmons' request that Johnson not work in one area of theworkplace does not constitute false imprisonment. When an employer supervises itsemployees, it necessarily temporarily restricts the employees' freedom to move fromplace to place or in the direction that they wish to go. Without more, however, such arestriction is not a “willful detention.” An employer has the right, subject to certainlimited exceptions, to instruct its employees regarding the tasks that they are toperform during work hours. Johnson was compensated for the time that she spentwaiting for Seals, and Simmons gave her the choice of passing this time working on avolunteer project or sitting and waiting in the office. In order to effectively *646manage its business, an employer must be able to suggest, and even insist, that itsemployees perform certain tasks in certain locations at certain times. As a matter oflaw, Randall's did not falsely imprison Johnson.

III.Johnson alleges that Randall's defamed her in the course of its

investigations of the Christmas wreath incident and Ketner's allegations. Slander is adefamatory statement that is orally communicated or published to a third personwithout legal excuse. Diaz v. Rankin, 777 S.W.2d 496, 498 (Tex.App.—Corpus Christi1989, no writ); Ramos v. Henry C. Beck Co., 711 S.W.2d 331, 333 (Tex.App.—Dallas1986, no writ). In suits brought by private individuals, truth is an affirmative defenseto slander. Town of South Padre Island v. Jacobs, 736 S.W.2d 134, 140 (Tex.App.—Corpus Christi 1986, writ denied).

In addition, an employer has a conditional or qualified privilegethat attaches to communications made in the course of an investigation following areport of employee wrongdoing. Southwestern Bell Telephone Co. v. Dixon, 575S.W.2d 596, 599 (Tex.Civ.App.—San Antonio 1978), writ dism'd w.o.j., 607 S.W.2d

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240 (Tex.1980). The privilege remains intact as long as communications pass only topersons having an interest or duty in the matter to which the communications relate.Butler v. Central Bank & Trust Co., 458 S.W.2d 510, 514–15 (Tex.Civ.App.—Dallas1970, writ dism'd); see also Bergman v. Oshman's Sporting Goods, Inc., 594 S.W.2d814, 816 (Tex.Civ.App.—Tyler 1980, no writ). Proof that a statement was motivated byactual malice existing at the time of publication defeats the privilege. See MarathonOil Co. v. Salazar, 682 S.W.2d 624, 631 (Tex.App.—Houston [1st Dist.] 1984, writref'd n.r.e.); Bergman, 594 S.W.2d at 816 n. 1. In the defamation context, a statementis made with actual malice when the statement is made with knowledge of its falsity orwith reckless disregard as to its truth. Hagler v. Procter & Gamble Mfg. Co., 884S.W.2d 771 (Tex.1994). To invoke the privilege on summary judgment, an employermust conclusively establish that the allegedly defamatory statement was made with anabsence of malice. See Jackson v. Cheatwood, 445 S.W.2d 513, 514 (Tex.1969);Goodman v. Gallerano, 695 S.W.2d 286, 287–88 (Tex.App.—Dallas 1985, no writ).

Johnson claims that she was slandered in the course of the wreath investigationwhen Davis, Simmons, and Seals orally published, falsely, that she had stolen awreath from the store. However, Randall's proved that all of the statements that itsagents made concerning Johnson's actions with respect to the wreath were true.Randall's never accused Johnson of theft or of having the intent to steal. Throughoutthe investigation, Randall's employees merely communicated to each other thatJohnson had left the store without paying for a wreath. Johnson does not dispute thisfact; she argues only that she did not have the intent to steal. The summary judgmentevidence contains deposition testimony from the employees who allegedly madestatements regarding the wreath incident, and this testimony establishes that theseemployees did not speculate or make accusations regarding Johnson's intent.

Johnson incorrectly contends that, while the statements made by Randall'semployees may be literally true, they are slanderous because those who hear thestatements might infer that she is dishonest. Truth is a complete defense todefamation. Randall's had a right to investigate the wreath incident, and it could nothave conducted the investigation without communicating the facts regardingJohnson's actions with respect to the wreath to each other.

Furthermore, all of the statements made by Randall's employees were qualifiedlyprivileged. Davis' report that Johnson left the store without paying him for a wreathtriggered Randall's privilege to investigate. The employees who receivedcommunications regarding *647 the wreath incident were: several managers on dutyon the night of the wreath incident, the security guard who subsequently investigatedthe incident, the assistant store manager, the director of the store, the districtmanager for the store, and the vice president of Randall's human resources. Inaddition, the security guard interviewed employees with knowledge of facts relevant tohis investigation. Thus, all of the employees who gave or received statements aboutthe wreath incident had an interest or duty in the matter. Randall's established anabsence of malice with regard to these statements by conclusively proving that itsemployees had reasonable grounds to believe that their statements were true. SeeCasso v. Brand, 776 S.W.2d 551, 558 (Tex.1989). In fact, as discussed previously,the truth of the statements is undisputed.

The statements made by Randall's employees regarding Ketner's complaintsare also qualifiedly privileged. Through both oral and written communications, Ketnercomplained to Randall's management that Johnson was a poor manager and that sheused store merchandise without paying for it. As an employee of Randall's, Ketnerwas privileged to report this alleged wrongdoing to management. Bergman, 594S.W.2d at 816. However, Ketner stepped outside the boundaries of this privilege bycirculating a petition about Johnson to ordinary employees and customers. In sodoing, Ketner, as a matter of law, acted independently and outside the scope of herauthority as a cosmetician. See Wagner v. Caprock Beef Packers Co., 540 S.W.2d303, 304–05 (Tex.1976). The summary judgment evidence establishes that Randall's

7


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22

23

1

2

3

did not authorize, condone, or ratify Ketner's circulation of this petition; therefore,Randall's is not liable for any defamation claims that may have resulted from thepetition's circulation. Id.

Once Randall's received Ketner's complaints, it was privileged to investigatethem. The summary judgment evidence establishes that various members of Randall'smanagement received complaints from Ketner and forwarded them to the vicepresident of human resources, who documented the complaints and placed them inJohnson's personnel file. The record also establishes that the managers whoreceived complaints discussed the complaints with Johnson's supervisors in anattempt to resolve the matter. The vice president investigated the complaints andreported the results in two of his own memoranda. Ketner's allegations were notrepeated in these memoranda. Instead, the memoranda described the problem aslargely a personality conflict, and placed the blame of the conflict largely on Ketner.These memoranda were circulated to members of Randall's management who hadreceived Ketner's complaints or who were supervisors of Johnson. Thus, all of theemployees who gave or received statements about the Ketner allegations had aninterest or duty in the matter.

Randall's conclusively established an absence of malice with regard tostatements made about Ketner's allegations. None of Randall's agents repeatedKetner's complaints with knowledge of their falsity or with reckless disregard as totheir truth. The complaints were merely forwarded to the appropriate managers forinvestigation and resolution.

* * * * * *

We conclude that, as a matter of law, the conduct of Randall's in this case was notextreme and outrageous and did not constitute a willful detention of Johnson. On thesubject of the wreath incident, we conclude that Randall's did not slander Johnsonbecause all of the statements made by Randall's employees were both true andqualifiedly privileged. With regard to the Ketner allegations, we conclude that Randall'sdid not defame Johnson because all of the statements *648 made by Randall'semployees were qualifiedly privileged. We accordingly reverse the judgment of thecourt of appeals and render judgment that Johnson take nothing.

OWEN, J., not sitting.

Parallel Citations

129 Lab.Cas. P 57,855, 10 IER Cases 427, 38 Tex. Sup. Ct. J. 167

Footnotes

The court of appeals reversed the trial court's judgment on the slanderclaim regarding the alleged theft of the wreath and the defamation claimconcerning Ketner's statements, but upheld the trial court's judgmentrejecting a third slander claim. Johnson does not challenge the court ofappeals' ruling on the third claim.

Although this Court now has jurisdiction over slander cases, it did not atthe time that this litigation commenced. Act of May 17, 1985, 69th Leg.,R.S., ch. 480, § 1, 1985 Tex.Gen.Laws 1720, 1731, amended by Act ofMay 25, 1993, 73rd Leg., R.S., ch. 855, §§ 2 & 3, 1993 Tex.Gen.Laws3365, 3366 (amending § 22.225 of the Texas Government Code toprovide this Court with subject matter jurisdiction over slander cases,excluding matters in litigation prior to Sept. 1, 1993, the effective date ofthe Act).

The court of appeals stated that Johnson's false imprisonment claim is


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4

5

6

7

based not only on the alleged detainment while waiting for Seals, but alsoon the length of time involved in the interviews. 869 S.W.2d at 398.However, Johnson did not present any legal or factual argumentssupporting a false imprisonment claim stemming from her meetings withSimmons and Seals to the court of appeals or to this Court. Herpleadings also do not allege such a claim. On the issue of falseimprisonment, Johnson pleaded, in full, that:

Plaintiff Mary Lynn Johnson would further show that her liberty wasfalsely and wrongly restrained by Defendant Lewis Simmons at thedirection of Mike Seals and, upon information and belief, with theapproval of Ron Barclay, by ordering and instructing her to remainwithin confined spaces prior to the arrival of Mike Seals onThursday, November 29, 1991, for a period of approximately two tothree hours.

This type of restriction could constitute a willful detention where theemployer also uses physical force or threatens the employee's person,reputation, or property. See, e.g., Black, 527 S.W.2d at 801 (holding thatthe jury could reasonably conclude that threats of being taken to jail andof not seeing her daughter for a long time could have intimidated theplaintiff to the extent that she was unable to exercise her free will to leavethe interview room); Kroger Co. v. Warren, 420 S.W.2d 218, 220–22(Tex.Civ.App.—Houston [1st Dist.] 1967, no writ) (upholding trial court'sfinding of false imprisonment where the plaintiff was told that she couldnot leave the room until she signed a statement and was physicallyrestrained when she attempted to leave).

See, e.g., Sabine Pilot Service, Inc. v. Hauck, 687 S.W.2d 733(Tex.1985) (holding that an employer may not discharge an employee forthe sole reason that the employee refused to perform an illegal act).

At this time, we need not and do not decide whether truth is an affirmativedefense in slander cases brought by public officials or public figures. SeeCasso v. Brand, 776 S.W.2d 551, 555 n. 3 (Tex.1989).

In his concurring opinion, Justice Cohen concluded that Johnson'sallegation that the security guard talked loud enough for others to hearhim during these interviews was enough to defeat Randall's motion forsummary judgment. 869 S.W.2d at 403. However, Randall's conclusivelynegated this allegation with the uncontroverted deposition testimony ofthe security guard, which established that the interviews were conductedin the back of the store restaurant, that no one was nearby while theinterviews were conducted, and that if anyone walked by, the securityguard and the interviewees stopped talking.





10 of 10 6/25/2012 12:29 PM


Affirmed and Opinion filed August 3, 2010.

In The

Fourteenth Court of Appeals

NO. 14-09-01018-CV

IN RE PURPORTED LIENS OR CLAIMS AGAINST SAMSHI HOMES, L.L.C.

On Appeal from the 281st District Court

Harris County, Texas

Trial Court Cause No. 2009-66624

O P I N I O N

Samshi Homes, L.L.C. appeals from the trial court’s denial of its Motion for

Judicial Review of Documentation or Instruments Purporting to Create a Lien or Claim,

filed pursuant to section 51.903 of the Texas Government Code. In its motion, Samshi

Homes contended that liens filed by Jesse De Leon against five of its properties were

fraudulent. In two issues on appeal, Samshi Homes contends that the trial court erred in

denying the motion. We affirm.

Background

On September 21, 2009, Jesse De Leon filed with the Harris County clerk’s office

claims of liens against five properties in Harris County. In each instrument, De Leon


2

stated that “in accordance with a contract with [Vinay]1 Karna,” De Leon “furnished

labor and materials for improvements to the . . . property” owned by Karna. De Leon

further stated in the instruments that “$4633.00 . . . remains unpaid and is due and owing

under said contract. [De Leon] asserts a lien on said improvements and premises to

secure the payment of the amount claimed.”2

On October 16, 2009, Samshi Homes filed its motion, alleging that it, and not

Karna, was the owner of the five properties on which De Leon had filed the lien claims.

The motion further states that Karna never entered into any agreement with De Leon.

The motion concludes that the instruments in question “are fraudulent as defined by

Section 51.901(c)(2), Government Code, and that the documentation or instruments

should therefore not be accorded lien status.” In an attached affidavit, Karna averred that

he is the “managing member” of Samshi Homes and that the assertions in the motion are

true and correct.

The trial court denied Samshi Homes’ motion without stating the grounds for the

ruling. This appeal ensued.

Analysis

Section 51.903(a) of the Government Code authorizes a person or entity that owns

real property, and has reason to believe that another has filed a document purporting to

create a lien against that property, to file a motion with the district clerk alleging that the

instrument in question is fraudulent, as defined by section 51.901(c), and therefore should

not be accorded lien status. Tex. Gov’t Code §§ 51.901(c), 51.903(a). Section 51.903(c)

authorizes a district judge with jurisdiction to rule on the motion. Id. § 51.903(c). In

doing so, the judge may make his or her determination based on a review of the

1 The instruments actually spell Karna’s first name as “Vinary,” but Samshi Homes asserts that

the proper spelling is “Vinay.”

2 Based on the addresses and legal descriptions of the five properties in question, they appear to

be adjacent parcels of land.


3

instrument itself, without the benefit of testimonial evidence. Id.3

In its motion Samshi Homes alleged that De Leon’s lien instruments were

fraudulent as defined by section 51.901(c)(2). That section provides that an instrument

filed for recording in the property records is presumed to be fraudulent if:

the document or instrument purports to create a lien or assert a claim

against real or personal property or an interest in real or personal property

and:

(A) is not a document or instrument provided for by the constitution or laws

of this state or of the United States;

(B) is not created by implied or express consent or agreement of the

obligor, debtor, or the owner of the real or personal property or an interest

in the real or personal property, if required under the laws of this state, or

by implied or express consent or agreement of an agent, fiduciary, or other

representative of that person; or

(C) is not an equitable, constructive, or other lien imposed by a court with

jurisdiction created or established under the constitution or laws of this

state or of the United States . . . .

Id. § 51.901(c)(2). There is no indication in the record that the instruments in question

here were created by consent or agreement as contemplated under subsection (B), or that

they were imposed by a court as contemplated under subsection (C). The key issue here

is whether the instruments are “provided by the constitution or laws of this state or of the

United States” as contemplated by subsection (A).

Samshi Homes acknowledges that the instruments in question are attempts to

create mechanic’s liens under section 53.054 of the Property Code. However, it argues

that the instruments did not meet the requirements of that section because they did not

provide (1) “the name and last known address of the owner or purported owner,” or (2) “a

general statement of the kind of work done and materials furnished by the claimant.”

3 Subsection (e) of section 51.903 provides that the trial court should “enter an appropriate

finding of fact and conclusion of law” regarding its determination, and subsection (g) sets out a

“suggested form order” for this purpose. Tex. Gov’t Code § 51.903(e), (g). Although the trial court

failed to enter a finding of fact or conclusion of law in the present case, Samshi Homes does not complain

about such failure on appeal.


4

Tex. Prop. Code § 53.054(a)(2), (3). Samshi Homes further insists that it proved

(through Karna’s affidavit) that Karna never entered into an agreement with De Leon. It

also argues that because De Leon did not allege an agreement with Samshi Homes, the

actual owner of the properties, the claims of lien are fraudulent. Thus, Samshi Homes’

contentions fall into two categories: those challenging whether De Leon’s instruments

fulfilled the requirements of section 53.054(a) (i.e., name and address of owner and

general statement of work and materials), and those raising substantive evidentiary issues

(i.e., that Karna did not own the property and did not contract with De Leon).

All of Samshi Homes’ contentions, however, go beyond the scope of sections

51.901 and 51.903 of the Government Code. In a proceeding pursuant to those sections,

a trial court is limited to determining whether a particular instrument, or instruments, is

fraudulent as therein defined; it may not rule on the validity of the underlying lien itself

or other claims between the parties. See Tex. Gov’t Code § 51.903 (a), (g); Becker v.

Tropic Isles Assoc., No. 13-08-00559-CV, 2010 WL 877569, at *3 (Tex. App.—Corpus

Christi March 11, 2010, pet. filed) (mem. op.); In re Hart, No. 07-98-0292-CV, 1999 WL

225956, at *2 (Tex. App.—Amarillo April 15, 1999, no pet.) (not designated for

publication).

As Samshi Homes acknowledges, the instruments De Leon filed are in the form of

mechanic’s liens.4 Thus, the documents filed by De Leon are instruments “provided by

the . . . laws of this state” and are therefore not presumed to be fraudulent under section

51.901(c)(2)(A). Samshi Homes complaints based on section 53.054 are therefore

4 Although Samshi Homes argues that De Leon failed to provide the purported owner’s name and

address and a general statement of the kind of work done and materials furnished, the instruments

themselves show that De Leon attempted to comply with all of the requirements of Property Code section

53.054. Among other information in each instrument, De Leon: (1) averred that the respective property

was owned by Karna; (2) gave Karna’s home address (an address Karna acknowledges was correct); and

(3) stated that “in accordance with a contract with [Karna, he (De Leon)] furnished labor and materials for

improvements to the . . . property.” Whether such statements were sufficiently specific to meet the

requirements of section 53.054 is beyond the scope of a Motion for Judicial Review filed under

Government Code section 51.903.


5

beyond the scope of the current proceedings.5 Likewise, Samshi Homes’ substantive

evidentiary claims—that it, rather than Karna, owned the subject properties and that

Karna never entered into an agreement with De Leon—are also beyond the scope of the

section 51.903 proceedings. See Becker, 2010 WL 877569, at *3 (holding that movant

converted his Motion for Judicial Review into an action seeking a declaratory judgment

by requesting rulings on the underlying rights of the parties).

Because Samshi Homes failed to demonstrate that the instruments filed by De

Leon were fraudulent under section 51.901 of the Government Code, the trial court did

not err in overruling Samshi Homes’ Motion for Judicial Review filed pursuant to section

51.903 of the code. Accordingly, we overrule Samshi Homes’ two issues.

We affirm the trial court’s order.

/s/ Adele Hedges

Chief Justice

Panel consists of Chief Justice Hedges and Justices Yates and Boyce.

5 In order to remove the liens as invalid or unenforceable for an alleged failure to meet the

technical specifications of section 53.054, Samshi Homes should have filed suit and then a summary

motion under section 53.160 of the Property Code. Tex. Prop. Code § 53.160(b)(2). It is further

important to realize that in addition to differences in scope, there are significant procedural differences

between Government Code section 51.903 and Property Code section 53.160, two remedial mechanisms

for property owners. For example, a proceeding pursuant to section 51.903 does not require notice to the

claimant who filed the lien, whereas a proceeding pursuant to section 53.160 does require notice.

Compare Tex. Gov’t Code § 53.160(c) (requiring notice) with Tex. Prop. Code § 51.903(c) (stating that

review may be undertaken “without . . . notice of any kind”). The two are not interchangeable.


Change View

1 Statutes Intention of LegislatureIn construing a statute, the court's objective is to determine and give effectto the legislature's intent.


2 Statutes Meaning of LanguageIn construing a statute, the court first looks at the statute's plain andcommon meaning.


3 Statutes Words usedIn construing a statute, the court presumes that the legislature intended theplain meaning of its words.


4 Statutes Meaning of LanguageStatutes Extrinsic Aids to Construction


15 S.W.3d 525


NATIONAL LIABILITY AND FIRE INSURANCE COMPANY,

Petitioner,

v.

Donald ALLEN, Respondent.

No. 98–1046. Argued Sept. 22, 1999. Decided May 4, 2000.

Claimant appealed from a decision of the Workers' Compensation Commissiondenying benefits for a work-related back injury on ground that claimant did not timelynotify employer of his injury. Claimant appealed. The 159th District Court, AngelinaCounty, Gerald Goodwin, J., entered judgment vacating Commission's decision.Employer's insurer, joined in part by Commission, appealed. The Beaumont Court ofAppeals affirmed, 972 S.W.2d 215. Insurer and Commission petitioned for review.The Supreme Court, Baker, J., held that: (1) trial court had jurisdiction over claimant'sjudicial review petition, and (2) under rules of evidence, former testimony of claimant'ssuperintendent contained in the record of the Commission hearing was inadmissiblehearsay at trial.

Affirmed.

Owen, J., filed dissenting opinion in which Hecht, J., joined.

West Headnotes (10)

RELATED TOPICS

General Rules of Construction

Statute Intent Contrary to Legislative Intent

Workers' Compensation

Proceedings to Secure CompensationWorkers Compensation ClaimantPermanent Partial Disability

Review Issues of Competency of WorkersCompensation Claimant Medical Evidence

National Liability and Fire Ins. Co. v. AllenSupreme Court of Texas. May 4, 2000 15 S.W.3d 525 43 Tex. Sup. Ct. J. 690 (Approx. 11 pages)

1 of 21 results Search termReturn to list

National Liability and Fire Ins. Co. v. Allen - WestlawNext https://a.next.westlaw.com/Document/I5a0dc1b9e7b811d9b386b232635...

1 of 9 6/25/2012 12:38 PM


If possible, the court construing a statute must ascertain the legislature'sintent from the language it used in the statute and not look to extraneousmatters for an intent the statute does not state.


5 Workers' Compensation Petition or ApplicationTrial court had jurisdiction over claimant's judicial review petition, even ifclaimant did not submit proof that copy of petition was filed simultaneouslywith the Workers' Compensation Commission. V.T.C.A., Labor Code §410.253.

1 Case that cites this headnote

6 Workers' Compensation Petition or ApplicationWhile compliance with statute requiring that copy of petition for judicialreview of workers' compensation decision be filed simultaneously with courtand with Workers' Compensation Commission is mandatory and themailbox rule applies to such filings, the same-day filing requirement is notjurisdictional. V.T.C.A., Labor Code § 410.253.


7 Trial Admission of evidence in generalWhether to admit or exclude evidence is within the trial court's sounddiscretion.


8 Appeal and Error Rulings on admissibility of evidence in generalOn appeal, a trial court's evidentiary decisions are reviewed by an abuse ofdiscretion standard.


9 Workers' Compensation Matters or evidence consideredUnder rules of evidence, former testimony of claimant's superintendentcontained in the record of the Workers' Compensation Commission hearingwas inadmissible hearsay evidence at trial on judicial review ofCommission's decision, absent any showing that superintendent wasunavailable to testify. V.T.C.A., Labor Code § 410.306(b); Rules of Evid.,Rule 804(b)(1).


10 Workers' Compensation Matters or evidence consideredWorkers' compensation provision governing admissibility of evidencecontained in the Workers' Compensation Commission record contemplatesthat all of the Texas Rules of Evidence apply to facts and evidencecontained in the Commission record when offered at trial. V.T.C.A., LaborCode § 410.306(b).



*526 Robert T. Cain, Jr., Lufkin, Harry W. Deckard, Austin, Joseph McElroy, Lufkin,Joseph A. Pitner, Nelly R. Herraera, David A. Talbot, Andy Taylor, John Cornyn,Austin, for Petitioner.


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George Chandler, Darrin M. Walker, Wesley Edward Hoyt, Lufkin, for Respondent.

Opinion

Justice BAKER delivered the opinion of the Court in which Chief Justice PHILLIPS,Justice ENOCH, Justice ABBOTT, Justice HANKINSON, Justice O'NEILL andJustice GONZALES joined.

We overrule National Liability's motion for rehearing. We withdraw our opinion ofFebruary 3, 2000 and substitute the following in its place.

This workers' compensation case presents three issues: (1) whether section 410.253of the Texas Labor Code's simultaneous-filing requirement is mandatory andjurisdictional; (2) whether Rule 5 of the Texas Rules of Civil Procedure, commonlyknown as the “mailbox rule,” applies to section 410.253 filings; and (3) whether factsand evidence in a Workers' Compensation Commission hearing record must complywith the Texas Rules of Evidence to be admissible at trial in a modified de novo judicialreview of a Commission decision. Our decision in Albertson's, Inc. v. Sinclair, 984S.W.2d 958 (Tex.1999), controls the answer to issues one and two. Thus, we holdthat section 410.253's simultaneous-filing requirement is mandatory but notjurisdictional and that the mailbox rule applies to section 410.253 filings. We concludethat, under section 410.306(b) of the Texas Labor Code, facts and evidence in theCommission record must comply with the Texas Rules of Evidence to be admissible attrial. Accordingly, we affirm the court of appeals' judgment.

I. BACKGROUNDDonald Allen suffered a work-related back injury. Allen's employer's carrier,National Liability and Fire Insurance Company, contested Allen's claim forworkers' compensation benefits. At the contested case hearing, Allen and NationalLiability disputed whether Allen timely notified his employer that his injury waswork-related. Allen testified that, while he was in the hospital recovering from backsurgery, he told his superintendent, Tom Angers, that his injury was work-related.Angers testified that he did not recall Allen telling him that the injury was work-related.The hearing examiner found that Allen did not timely notify his employer that his injurywas work-related, and therefore the injury was not compensable. The CommissionAppeals Panel affirmed the hearing examiner's conclusion. Allen sought judicialreview of that decision in district court.

Allen filed his judicial review petition in the district court on June 7, 1993. TheCommission received a copy of the petition on June 14, 1993. The only issue at trialwas whether Allen had timely notified his employer that his injury was work-related.Allen again testified that shortly after surgery he had told Angers that his injury waswork-related. National did not call Angers as a witness. Instead, it attempted tointroduce Angers' former testimony from the Commission hearing. Allen objected onhearsay grounds. The trial court refused to admit Angers' Commission testimony onthe ground that it was hearsay and that National did not show that Angers wasunavailable to testify. The jury found that Allen had timely notified his employer. Thetrial court rendered a judgment vacating the Commission's decision.

*527 National appealed, asserting that: (1) Allen failed to prove that he timely filed acopy of his petition for judicial review with the Commission, and therefore the districtcourt lacked jurisdiction to entertain Allen's suit; and that (2) the trial court erred inexcluding Angers' Commission testimony. The Commission joined National on thefirst point of error. The court of appeals held that simultaneously filing a petition forjudicial review with the Commission and the district court is mandatory andjurisdictional, but that, under the mailbox rule, Allen had timely filed his petition with theCommission. The court of appeals also held that Angers' Commission testimony washearsay at trial and was therefore inadmissible without a showing of Angers'unavailability under Rule 804(b)(1). See TEX.R. EVID. 804(b)(1).


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1 2 3 4

5 6

7 8

National filed a petition for review with this Court asserting that: (1) because Allenfailed to timely file a copy of his petition for judicial review with the Commission, thetrial court lacked jurisdiction over Allen's judicial review action; and that (2) Angers'Commission testimony was admissible at trial as part of the Commission record. TheCommission also filed a petition for review asserting that: (1) a party seeking judicialreview must prove compliance with section 410.253 once another party alleges thatthe petition for judicial review was not timely filed with the Commission; and that (2) thefailure to prove timely filing should bar the party from seeking judicial review of aCommission Appeals Panel decision.

II. STATUTORY CONSTRUCTIONIn construing a statute, our objective is to determine and give

effect to the Legislature's intent. See Albertson's, 984 S.W.2d at 960; Liberty Mut.Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 484 (Tex.1998). We first lookat the statute's plain and common meaning. See Fitzgerald v. Advanced SpineFixation, 996 S.W.2d 864, 865 (Tex.1999); Albertson's, 984 S.W.2d at 960. Wepresume that the Legislature intended the plain meaning of its words. See FlemingFoods v. Rylander, 6 S.W.3d 278, 282 (Tex.1999). If possible, we must ascertain theLegislature's intent from the language it used in the statute and not look to extraneousmatters for an intent the statute does not state. See Seay v. Hall, 677 S.W.2d 19, 25(Tex.1984).

III. TEXAS LABOR CODE SECTION 410.253We recently construed section 410.253 and held that it required filing a

petition for judicial review with the trial court and the Commission on the same day.See Albertson's, 984 S.W.2d at 961; see also Benavidez v. Travelers Indem. Co.,985 S.W.2d 458, 458 (Tex.1999). We also held that section 410.253's same-day filingrequirement was mandatory but not jurisdictional. See Albertson's, 984 S.W.2d at961; see also Benavidez, 985 S.W.2d at 458. Finally, we held that the mailbox ruleapplies to section 410.253 filings. See Albertson's, 984 S.W.2d at 962. BothNational and the Commission recognize that Albertson's and Benavidez supersedetheir section 410.253 arguments. Nevertheless, National and the Commission askthis Court to revisit its holdings in those cases. We respectfully decline to do so.Accordingly, we agree with the court of appeals' conclusion that compliance withsection 410.253 is mandatory and that the mailbox rule applies to section 410.253filings. However, we disapprove of the court of appeals' conclusion that section410.253's same-day filing requirement is jurisdictional.

IV. TEXAS LABOR CODE SECTION 410.306

A. APPLICABLE LAWWhether to admit or exclude evidence is within the trial court's sound

discretion. See Owens–Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43(Tex.1998). On appeal, we review a trial court's *528 evidentiary decisions by anabuse of discretion standard. See Jackson v. Van Winkle, 660 S.W.2d 807, 809–10(Tex.1983).

The Labor Code provides for a modified de novo review of Commission AppealsPanel decisions on issues of “compensability or eligibility for or the amount of incomeor death benefits.” Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 253(Tex.1999); TEX. LAB.CODE §§ 410.301–.308. In such judicial review actions, theLabor Code requires the trial court to inform the jury of the Appeals Panel decision oneach disputed issue submitted to the jury or, if a nonjury trial, the Code requires thetrial court to consider the Appeals Panel decision. See TEX. LAB.CODE §410.304(a), (b). The Labor Code also provides:

(a) evidence shall be adduced as in other civil trials.

(b) the Commission on payment of a reasonable fee, shall make available to theparties a certified copy of the Commission's record. All facts and evidence the


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9

10

record contains are admissible to the extent allowed under the Texas Rules of CivilEvidence.

TEX. LAB.CODE § 410.306(a), (b).

This Court has not previously interpreted section 410.306(b). Two other publishedopinions have construed this section of the Labor Code. See St. Paul Fire & MarineIns. Co. v. Confer, 956 S.W.2d 825 (Tex.App.—San Antonio 1997, writ denied); ESIS,Inc., Servicing Contractor v. Johnson, 908 S.W.2d 554 (Tex.App.—Fort Worth 1995,writ denied). Both of these cases hold that parts of the Commission record areadmissible only if they comply with the Texas Rules of Evidence when offered at trial.See Confer, 956 S.W.2d at 831 (holding that testimony from a Commissioncontested-case hearing was not admissible at trial because the witness'sunavailability under Rule 804(b)(1) was not shown); ESIS, 908 S.W.2d at 561 (holdingthat a Commission Appeals Panel decision was not admissible at trial because it wasnot properly authenticated under the evidence rules).

B. ANALYSISHere, the court of appeals held that section 410.306(b) requires evidence in the

Commission record to comply with the Texas Rules of Evidence when offered at trial.Accordingly, the court concluded that the trial court did not abuse its discretion inexcluding Angers' Commission testimony because, under the Texas Rules ofEvidence, the testimony was hearsay when offered in the trial court and Nationalfailed to prove that Angers was unavailable to testify. See TEX.R. EVID. 804(b)(1).

National contends that the court of appeals' construction of section 410.306 wouldmake almost all testimony before the Commission hearsay when offered later in thetrial court. National advocates an alternative construction of section 410.306(b) thatwould allow parts of the Commission record to be admissible as long as they arerelevant, properly authenticated, and do not contain hearsay within hearsay.

National relies on ESIS to support its argument, emphasizing the following language:“[a]s part of the [C]ommission record, [the appeals' panel opinion] is admissible underthe Act.” ESIS, 908 S.W.2d at 560. But National misplaces its reliance on ESIS.ESIS does not conflict with the court of appeals' construction of section 410.306(b)here.

In ESIS, the court of appeals considered whether the trial court abused its discretionby admitting into evidence a copy of the Commission Appeals Panel opinion, whichwas not certified or authenticated under the Texas Rules of Evidence. See ESIS, 908S.W.2d at 560–61. Relying on section 410.306(b), the ESIS court held that, to beadmissible under section 410.306(b), the opinion had to comply with the Texas Rulesof Evidence when proffered at trial. See ESIS, 908 S.W.2d at 560. Because the copyof the Appeals Panel opinion had not been properly certified or authenticated underthe evidence *529 rules, the court of appeals concluded that the trial court abused itsdiscretion by admitting it into evidence. See ESIS, 908 S.W.2d at 560. In doing so, thecourt applied the Rules of Evidence on authentication of public records. See ESIS,908 S.W.2d at 561; TEX.R. EVID. 902, 1005. But the ESIS court did not hold that theother evidentiary rules do not apply to the Commission record or parts of it whenoffered at trial.

Section 410.306(b)'s plain language does not limit the Texas Rules ofEvidence's application to relevancy, authentication, and hearsay within hearsayconcerns. See TEX. LAB.CODE § 410.306(b). It contemplates that all of the TexasRules of Evidence apply to facts and evidence contained in the Commission recordwhen offered at trial. See TEX. LAB.CODE § 410.306(b).

In Confer, the court of appeals considered the exact issue we considerhere—whether testimony from a Commission hearing is admissible in a judicial reviewaction. See Confer, 956 S.W.2d at 830–31. In Confer, the trial court excluded the


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Commission testimony because the party proffering the testimony did not show thatthe witness was unavailable to testify at trial. The court of appeals held that the trialcourt did not abuse its discretion in excluding the evidence. See Confer, 956 S.W.2dat 831.

We agree with the Confer court and the court of appeals in this case that section410.306(b) requires testimony in the Commission record to comply with the TexasRules of Evidence to be admissible in trial. See Confer, 956 S.W.2d at 831.Accordingly, we conclude that the court of appeals correctly determined that the trialcourt did not abuse its discretion when it refused to admit Angers' testimony overAllen's hearsay objection.

V. THE DISSENTThe dissent would hold that section 410.306(b) does not require that evidence beadmissible under the evidentiary rules when offered at trial, but only that the evidencewas admissible when initially offered during Commission proceedings. The dissentfirst reasons that our construction of section 410.306(b) renders section 410.306(b)superfluous. We disagree. While section 410.306(a) provides generally that evidenceshall be adduced as in other civil trials, section 410.306(b) specifies that evidencefrom the Commission record is admissible only to the extent allowed under theevidentiary rules. See TEX. LAB.CODE § 410.306(a), (b).

The dissent also complains that our construction of section 410.306(b) flouts thelegislative intent of streamlining workers' compensation proceedings and results inmore expense for workers. But it is the dissent's view of the statute that would requireworkers to spend more time and money in resolving disputes. Making testimony in theCommission record admissible at trial just because it was admissible when offered atthe Commission would force workers to hire attorneys to represent them inCommission proceedings. Workers would need attorneys to effectively cross-examine witnesses and object to inadmissible evidence at Commission proceedingsto protect the record. This result would be especially ironic because the Labor Codespecifies that the evidentiary rules do not apply to Commission proceedings. SeeTEX. LAB.CODE § 410.165. Therefore, the dissent's view would make Commissionproceedings more formal and costly than the Legislature intended. Finally, thedissent's interpretation would lead to the anomalous and cumbersome result of trialcourts having to retroactively apply the evidentiary rules to evidence offered at theCommission to determine whether that evidence is admissible at trial.

VI. CONCLUSION

We conclude here, as we did in Albertson's, that section 410.253's requirement ofsimultaneous filing of a *530 petition for judicial review with the trial court and theCommission is mandatory but not jurisdictional and that the mailbox rule applies tosection 410.253 filings. We also conclude that the facts and evidence in theCommission record are admissible at trial only to the extent they are admissible underthe Texas Rules of Evidence. Accordingly, we affirm the court of appeals' judgment.

Justice OWEN filed a dissenting opinion, in which Justice HECHT joined.

Justice OWEN, joined by Justice HECHT, dissenting.The opinion issued February 3, 2000 is withdrawn, and the following opinion issubstituted.

I would hold that testimony given at a workers' compensation contested case hearingis admissible in a later modified de novo review in district court even if the witness isnot shown to be unavailable. I do not believe that the Court has given effect tolegislative intent in construing section 410.306(b) of the Labor Code. The trial court'srefusal to admit the testimony at issue was harmful error, and I would reverse thejudgment of the court of appeals and remand this case to the trial court. Accordingly, Idissent.


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Donald Allen contends that he suffered a work-related injury and that he timelynotified his employer. National Liability, his workers' compensation carrier, disputesthat notice was timely. At the contested case hearing, Allen testified that while he wasin the hospital immediately after his injury, he told his superintendent, Angers, that hisinjury arose out of his work. National then called Angers as a witness, and hetestified that he did not recall such a statement by Allen. The hearing examinerconcluded that notice was not timely given, and the Commission's Appeals Panelaffirmed that decision.

Allen sought review of this adverse determination in district court in accordance withthe Texas Labor Code. He chose to have a jury decide the sole issue in dispute,which was notice. At trial, National sought to introduce the testimony that Angers hadgiven at the contested case hearing. National did not, however, show that Angerswas unavailable to appear at the district court proceedings. The trial court excludedthe testimony, relying on Rule 804 of the Texas Rules of Evidence. Thus, although thejury was told that the Appeals Panel had found that Allen had not timely given notice,the jury heard no evidence to that effect.

Until the amendments to the Labor Code in 1989, an appeal to a district court was denovo. See Texas Workers' Compensation Comm'n v. Garcia, 893 S.W.2d 504, 512(Tex.1995) (quoting Tex.Rev.Civ. Stat. Ann. art. 8307 § 10 (repealed by Acts 1989,71st Leg., 2nd C.S., ch. 1, § 16.01(10))). The Industrial Accident Board's award wasinadmissible. See id. Testimony presented to the Board was considered hearsay insubsequent court proceedings and was inadmissible unless an exception to thehearsay rule applied. See, e.g., Texas Gen. Indem. Co. v. Scott, 152 Tex. 1, 253S.W.2d 651, 655 (1952). The Legislature revamped the entire workers' compensationscheme in 1989. As part of that comprehensive revision, the Legislature devised amodified de novo review procedure and directed that when contested fact issues areto be decided by a jury, not only must the jury be told “of the commission appeals paneldecision on each disputed issue” that the jury is asked to decide, TEX. LAB.CODE §410.304(a), but that “[a]ll facts and evidence the record [in the Commission] containsare admissible to the extent allowed under the Texas Rules of Civil Evidence.” Id. §410.306(b). This was meant to be a significant change from prior law.

The meaning of section 410.306(b) allowing “[a]ll facts and evidence” to beconsidered in the district court proceedings becomes clear when it is considered withthe entirety of section 410.306, which says:

*531 § 410.306. Evidence

(a) Evidence shall be adduced as in other civil trials.

(b) The commission on payment of a reasonable fee shall make available to theparties a certified copy of the commission's record. All facts and evidence therecord contains are admissible to the extent allowed under the Texas Rules of CivilEvidence.

(c) Except as provided by Section 410.307, evidence of extent of impairment shallbe limited to that presented to the commission. The court or jury, in its determinationof the extent of impairment, shall adopt one of the impairment ratings underSubchapter G, Chapter 408.

Id. § 410.306.

Thus, the Code provides in subsection (a) that in the district court proceedings,“[e]vidence shall be adduced as in other civil cases.” Id. § 410.306(a). Withoutsubsection (b), this would mean that none of the testimony given at a contested casehearing would be admitted over an objection unless the witness was unavailable oranother exception to the hearsay rule applied. What then would subsection (b) add if itmeant nothing other than what (a) already provides? Such superfluity is contrary toestablished rules of construction. See Laidlaw Waste Sys. (Dallas), Inc. v. City of


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Wilmer, 904 S.W.2d 656, 659 (Tex.1995).

The Court's construction of subsection (b) largely eviscerates its value because itleads to the result that proceedings at the trial court cannot be streamlined if a partyinsists on unavailability of witnesses as a prerequisite to admission of testimony at thecontested case hearing. Rather than minimize the duration and cost of a court'sreview of a Commission decision by allowing the statutorily prescribed introduction ofcontested-case record evidence, the Court would require parties to recall witnesses.The Court's construction results in unnecessary expense and a hardship for those oflimited means.

The Court's decision means that when a workers' compensation carrier challenges animpairment rating, the injured worker does not have the option of relying on thetestimony of his experts at the contested case hearing. The worker must call each ofhis experts live in the district court proceedings unless the witness is unavailable. I donot believe that this was the intent of the Legislature.

I think that the Legislature had something else in mind. It seems clear from thedirective that “[a]ll facts and evidence the record contains are admissible” that theLegislature wanted the court or jury in a review proceeding to have the benefit of thatevidence without requiring the parties to repeat live for the factfinder everything thattranspired before the Commission. Construing section 410.306 in that manner isreasonable and does not render subsection (b) redundant. If the facts or evidence inthe Commission record would have been admissible under the Texas Rules ofEvidence when offered at the contested hearing, then the facts or evidence may beconsidered in the district court proceedings. In other words, if evidence wasobjectionable and could have been excluded in the Commission proceedings had theTexas Rules of Evidence applied, then objections to that evidence may be raised andsustained in subsequent court proceedings.

The Court posits that my construction of the statute would “force workers to hireattorneys to represent them in the Commission proceedings.” 15 S.W.3d at 529. Thatis not the case. As I read the statute, there would be no greater need to protect therecord at Commission hearings because specific objections to “facts and evidencethe record contains” could be raised in subsequent court proceedings ascontemplated by section 410.306(b). See TEX. LAB.CODE § 410.306(b) (“All factsand evidence the record contains are admissible to the extent allowed under theTexas Rules of Civil Evidence”). To the extent *532 that a worker might benefit byhaving counsel cross-examine witnesses at the Commission hearing, a worker willalways face the risk that a witness may be unavailable for subsequent courtproceedings and that his or her testimony at the Commission hearing will be admittedin court.

The Court does not explain how it would rule if a witness becomes unavailable afterthe Commission hearing and the witness's prior testimony contains matters that couldhave been excluded had the Texas Rules of Evidence applied to Commissionproceedings. If the Court is of the view that objections could not be raised in court ifthey were not raised at the Commission, then it would be more important for parties tohave counsel at Commission proceedings. As noted above, I do not think that is whatthe Code contemplates. But, if the Court agrees with me that when a witness isunavailable, section 410.306 allows objections to be raised in court proceedings evenif no objection was made at the Commission hearing, then the Court's construction ofthe Code would lead to what it says is “the anomalous and cumbersome result of trialcourts having to retroactively apply the evidentiary rules to evidence offered at theCommission to determine whether that evidence is admissible at trial.” 15 S.W.3d at529. The reasons the Court has given for rejecting my construction of section410.306 are inconsistent with one another, and accordingly, it would seem that theCourt has not carefully thought through its views about the statute.

The trial court's erroneous legal conclusion about the meaning of section 410.306


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was an abuse of discretion. See Huie v. DeShazo, 922 S.W.2d 920, 927–28(Tex.1996). Because the exclusion of the testimony precluded the jury fromconsidering the only testimony indicating that Allen did not give timely notice, the errorwas harmful. I would reverse the judgment of the court of appeals and remand thiscase to the trial court for further proceedings.

Parallel Citations

43 Tex. Sup. Ct. J. 690





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Change View

1 Health Immunity in generalTexas Medical Practice Act applied to patient's cause of action againsthospital for negligent and grossly negligent credentialing of physician whodelivered patient's child, and thus, absent showing of malice, hospital wasimmune from civil liability for its credentialing activities. Vernon's Ann.TexasCiv.St. art. 4495b, § 5.06(l, m).


2 Statutes Meaning of LanguageStatutes Existence of ambiguityStatutes Extrinsic Aids to ConstructionWhen statute is clear and unambiguous, courts need not resort to rules ofconstruction or extrinsic aids to construe it, but should give statute itscommon meaning.


3 Statutes Meaning of LanguageLegislature's intent is determined from plain and common meaning of wordsused.

952 S.W.2d 503


ST. LUKE'S EPISCOPAL HOSPITAL, Petitioner,

v.

Comfort and Kingsley AGBOR, Respondents.

No. 96–0085. Argued Oct. 2, 1996. Decided June 20, 1997. Rehearing

Overruled Oct. 30, 1997.

Patient sued hospital for negligent and grossly negligent credentialing of physicianwho delivered patient's baby. The 129th District Court, Harris County, Greg Abbott, J.,granted summary judgment to hospital. The Houston Court of Appeals, FourteenthDistrict, Lee, J., 912 S.W.2d 354, reversed. On writ of error, the Supreme Court,Gonzalez, J., held that: (1) Texas Medical Practice Act applied to negligentcredentialing and hospital was immune absent showing of malice, and (2) affordinghospitals immunity from negligent credentialing actions did not violate Open CourtsProvision of State Constitution.

Judgment of Court of Appeals reversed and judgment rendered.

Phillips, C.J., filed a dissenting opinion, in which Spector, J., joined.

Cornyn, J., filed a dissenting opinion in which Spector, J., joined.

West Headnotes (5)

RELATED TOPICS

Health

Malpractice, Negligence, or Breach of DutyProvisions of Hospital or Medical ServiceCorporations Laws

General Rules of Construction

Statute Intent Contrary to Legislative Intent

Rights to Open Courts, Remedies, andJustice

Common Law Right

St. Luke's Episcopal Hosp. v. AgborSupreme Court of Texas. June 20, 1997 952 S.W.2d 503 40 Tex. Sup. Ct. J. 712 (Approx. 15 pages)


St. Luke's Episcopal Hosp. v. Agbor - WestlawNext https://a.next.westlaw.com/Document/Ia523d8eae7bf11d9bf60c1d57ebc8...

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4 Health Immunity in generalPlaintiffs failed to establish that affording hospitals immunity from negligentcredentialing actions under Texas Medical Practice Act violated OpenCourts Provision of state constitution, as negligent credentialing was notwell-recognized common law cause of action; when legislature enactedimmunity provisions, lower courts were split on existence of cause of actionfor negligent credentialing and Supreme Court had not consideredquestion. Vernon's Ann.Texas Const. Art. 1, § 13; Vernon's Ann.TexasCiv.St. art. 4495b, § 5.06(l, m).


5 Constitutional Law Conditions, Limitations, and OtherRestrictions on Access and RemediesTo demonstrate that statute violates Open Courts Provision of StateConstitution, litigant must show that statute restricts well-recognizedcommon law cause of action, and that restriction is unreasonable orarbitrary when balanced against purpose of statute. Vernon's Ann.TexasConst. Art. 1, § 13.


1


*504 Solace H. Kirkland, Michael O. Connelly, Houston, for Petitioner.

Phillip A. Pfeifer, Houston, for Respondents.

Opinion

GONZALEZ, Justice, delivered the opinion of the Court, in which HECHT, ENOCH,OWEN and BAKER, Justices, join.

This is an appeal from a summary judgment. The sole issue in this case is whetherthe Texas Medical Practice Act (“the Texas Act”) applies to a patient's cause ofaction against a hospital for its credentialing activities. We hold that it does, andreverse the judgment of the court of appeals.

IDr. Suzanne Rothchild delivered Dikeh Agbor at St. Luke's Episcopal Hospital inHouston. During birth, the baby suffered an injury that permanently disabled his leftarm. The baby's parents, Comfort and Kingsley Agbor, sued Dr. Rothchild for medicalmalpractice, and St. Luke's for negligent and grossly negligent credentialing. TheAgbors allege that the hospital should not have renewed Dr. Rothchild's staff privilegesbecause she had been the subject of many medical malpractice cases, someinvolving St. Luke's, she was not a Texas resident, and was not properly insured formedical malpractice. St. Luke's moved for summary judgment asserting that theTexas Act, TEX.REV.CIV. STAT. ANN.. art. 4495b, §§ 1.01–6.13, provides immunityfor credentialing decisions by health care entities absent a showing of malice. Thetrial court granted the hospital's motion and severed this action against St. Luke'sfrom the action against Dr. Rothchild. *505 The court of appeals, with one justicedissenting, reversed and held that the trial court incorrectly interpreted the Texas Actto require a showing of malice in credentialing actions brought by patients. 912S.W.2d 354.

IIThe Texas Act provides, in pertinent part, as follows:


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2 3

(l ) A cause of action does not accrue against the members, agents, or employeesof a medical peer review committee or against the health-care entity from anyact, statement, determination or recommendation made, or act reported, withoutmalice, in the course of peer review as defined by this Act.

(m) A person, health-care entity, or medical peer review committee, that, withoutmalice, participates in medical peer review activity or furnishes records,information, or assistance to a medical peer review committee or the board isimmune from any civil liability arising from such an act.

TEX.REV.CIV. STAT. ANN.. art. 4495b, § 5.06(l ), (m) (emphasis added). “Medicalpeer review committee” means “a committee of a health-care entity ... authorized toevaluate the quality of medical and health-care services or the competence ofphysicians.” Id. § 1.03(a)(6). “Medical peer review” means “the evaluation of medicaland health-care services, including evaluation of the qualifications of professionalhealth-care practitioners and of patient care rendered by those practitioners.” Id. §1.03(a)(9). The definitions of “medical peer review committee” and “medical peerreview” clearly contemplate, among other things, the process known as“credentialing”—the granting or retention of a doctor's hospital privileges.

St. Luke's argues that the plain language of section 5.06(l ) and (m) bars an actionbased on a hospital's credentialing decision made without malice, regardless ofwhether the plaintiff is a doctor who was the subject of the decision, or a patient whowas injured by a doctor who allegedly should not have been credentialed. The Agborsargue that section 5.06 should be construed narrowly to protect peer reviewparticipants from suits by physicians and not from patients' negligent credentialingactions.

When a statute is clear and unambiguous, courts need not resort to rulesof construction or extrinsic aids to construe it, but should give the statute its commonmeaning. Bridgestone/Firestone, Inc. v. Glyn–Jones, 878 S.W.2d 132, 133(Tex.1994); One 1985 Chevrolet v. State, 852 S.W.2d 932, 935 (Tex.1993). TheLegislature's intent is determined from the plain and common meaning of the wordsused. Monsanto Co. v. Cornerstones Mun. Util. Dist., 865 S.W.2d 937, 939(Tex.1993); Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 352 (Tex.1990). ThisCourt has reiterated these principles many times. In RepublicBank Dallas, N.A. v.Interkal, Inc., 691 S.W.2d 605, 607 (Tex.1985), we stated:

Courts must take statutes as they find them. More than that, theyshould be willing to take them as they find them. They should searchout carefully the intendment of a statute, giving full effect to all of itsterms. But they must find its intent in its language and not elsewhere....They are not responsible for omissions in legislation. They areresponsible for a true and fair interpretation of the written law. It mustbe an interpretation which expresses only the will of the makers of thelaw, not forced nor strained, but simply such as the words of the law intheir plain sense fairly sanction and will clearly sustain.

Id. (quoting Simmons v. Arnim, 110 Tex. 309, 220 S.W. 66, 70 (1920)). The court ofappeals held that the Texas Act does not unambiguously state that a hospital isimmune from liability in all cases for credentialing decisions absent a showing ofmalice. 912 S.W.2d at 357. We disagree.

The Texas Act expressly provides that “[a] cause of action does not accrue ... againstthe health-care entity from any ... determination or recommendation made ... withoutmalice, in the course of peer review as defined by this Act”; and “[a] ... health-careentity ... that, without malice, participates in medical peer review activity ... is immune*506 from any civil liability arising from such an act.” TEX.REV.CIV. STAT. ANN.. art.4495b, § 5.06(l ), (m). The statute defines “medical peer review” to include “evaluationof the qualifications of professional health-care practitioners....” Id. § 1.03(a)(9).


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Thus, the plain meaning of the words used provides immunity from civil liability to ahealth-care entity for actions in the course of peer review, when such actions aredone without malice.

The Agbors argue that because the statute only allows a lawsuit for acts committedwith malice, the Legislature did not intend it to apply to patients' suits. They contendthat malice requires proof of “spite, ill will, or intent to injure,” which must be directedtoward a known individual. The argument is that a plaintiff could never prove that acredentialing body acted with malice toward a specific patient. However, the TexasAct states that “[a]ny term, word, word of art, or phrase that is used in this Act and nototherwise defined in this Act has the meaning as is consistent with the common law.”TEX.REV.CIV. STAT. ANN.. art. 4495b, § 1.03(b). Under the common law, proof ofmalice does not necessarily require conduct directed toward a specific person. SeeShannon v. Jones, 76 Tex. 141, 13 S.W. 477, 478 (1890) (defining malice as areckless disregard for the rights of others).

In fact, the Legislature itself has recently defined “malice” for the purpose of recoveryof exemplary damages, and that definition does not require an act directed toward aspecific person. In the Civil Practice and Remedies Code, the Legislature defines“malice” as:

(A) a specific intent by the defendant to cause substantial injury to the claimant; or

(B) an act or omission:

(i) which when viewed objectively from the standpoint of the actor at the time of itsoccurrence involves an extreme degree of risk, considering the probability andmagnitude of the potential harm to others; and

(ii) of which the actor has actual, subjective awareness of the risk involved, butnevertheless proceeds with conscious indifference to the rights, safety, orwelfare of others.

TEX. CIV. PRAC. & REM.CODE § 41.001(7) (emphasis added). Considering theLegislature's pronouncement that “malice” need not be directed toward a specificindividual in the context of exemplary damages, it does not follow that in the context ofpeer review, the committee must necessarily act with malice toward a specific patientfor that patient to prove his or her case. Therefore, the fact that the Legislature choseto allow suits only for malicious conduct in no way dictates that the statute does notapply to patients' claims.

The Agbors further contend that the Texas Act does not compel the result we reachbecause when the Legislature enacted the Act, it incorporated the Health CareQuality Improvement Act of 1986 (“the Federal Act”), 42 U.S.C. §§ 11101–52, andsuch an interpretation would render the Acts inconsistent with each other. The FederalAct states as follows:

Nothing in this chapter shall be construed as affecting in any mannerthe rights and remedies afforded patients under any provision ofFederal or State Law to seek redress for any harm or injury sufferedas a result of negligent treatment or care by any physician, healthcare practitioner, or health care entity, or as limiting any defense orimmunities available to any physician, health care practitioner, orhealth care entity.

Id. § 11115(d). The Agbors contend that because the Federal Act is incorporated intothe Texas Act, section 11115(d) dictates that neither Act affects patients' suits,including suits for negligent credentialing. They argue such a suit is one for “negligenttreatment or care by ... [a] health care entity,” id., which the Federal Act expresslydoes not affect. Under the Agbors' view, if the Texas Act provides immunity absentmalice in credentialing decisions, it will directly conflict with the Federal Act. This


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argument fails to persuade us.

First, it is debatable whether a hospital's alleged acts in credentialing physicians arethemselves part of the “treatment and care” of patients. See Richard L. Griffith &Jordan *507 M. Parker, With Malice Toward None: The Metamorphosis of Statutoryand Common Law Protection for Physicians and Hospitals in NegligentCredentialing Litigation, 22 TEX. TECH L.REV. 157, 183 n. 146 (1991) (stating thatcredentialing impacts, but is not an actual part of, “treatment and care”). We note thatthe court of appeals' interpretation of section 11115(d) is based on an improperlybroad reading. The court stated that the Federal Act “provides that it does not affectthe rights and remedies available to a patient for the negligence of a physician,health-care provider or health-care entity.” 912 S.W.2d at 358. This reading ignoresthe limitation that the patients' suits unaffected by the Federal Act are those for“negligent treatment or care,” not merely negligence in general, which undoubtedlywould include negligent credentialing. 42 U.S.C. § 11115(d) (emphasis added).

Second, the Federal Act also provides:

Except as specifically provided in this subchapter, nothing in thissubchapter shall be construed as changing the liabilities or immunitiesunder law or as preempting or overriding any State law which providesincentives, immunities, or protection for those engaged in aprofessional review action that is in addition to or greater than thatprovided by this subchapter.

42 U.S.C. § 11115(a). Therefore, even if the Federal Act does not apply to negligentcredentialing as the Agbors argue, this provision specifically allows states toimplement their own initiatives to provide greater immunities in professional reviewactions than those the Federal Act provides. No provision of the Federal Actoverrides or preempts a state's efforts in this area. Texas has clearly done whatsection 11115(a) allows and has provided extra “immunities, or protection for thoseengaged in a professional review action.” Id. By these express terms, no conflictarises between the two acts; thus, the existence of the Federal Act does not compel adeparture from the plain meaning of the Texas Act.

The Agbors also rely on this Court's decision in Bridgestone/Firestone, which standsfor the principle that a statutory provision must be construed in the context of theentire statute of which it is a part. Bridgestone/Firestone, 878 S.W.2d at 133. Thestatutory provision in that case stated, “Use or nonuse of a safety belt is notadmissible evidence in a civil trial.” TEX.REV.CIV. STAT. ANN.. art. 6701d, § 107C(j),repealed by Acts 1995, 74th Leg., ch. 165, § 24(a), 1995 Tex. Gen. Laws 1870,1871 (current version at TEX. TRANSP. CODE § 545.413(g)). This provision waspart of the Uniform Act Regulating Traffic on Highways. It was intended to clarify thatthe sole legal sanction for failure to wear a seat belt is the criminal penalty provided bythe statute, and that such a failure could not be used against the injured person in acivil trial. Bridgestone/Firestone, 878 S.W.2d at 134. The defendants in the caseargued that the provision should also be read to abolish crashworthiness actionsagainst seat belt manufacturers. The Court disagreed, holding that the meaning of theprovision became clear if read consistently with the context of the entire statute. TheCourt concluded that the Legislature simply could not have intended to create awholesale exemption from suit in a subsection of a traffic regulation. Id.

The provisions creating peer review immunity are consistent with the rest of thestatute in which they are found. In contrast to the traffic statute inBridgestone/Firestone, which had no apparent application to a products liability suitfor defective seat belts, the statute in the present case is part of the “Medical PracticeAct,” which deals broadly with “regulating the practice of medicine.” TEX.REV.CIV.STAT. ANN.. art. 4495b, §§ 1.01, 1.02(4). The Texas Act directly concerns immunityfrom suit for those participating in medical peer review activity. Id. § 5.06(l ), (m). Thecontext of the statute as a whole involves precisely the situation in this


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4

5

suit—regulating the practice of medicine, including “evaluation of the qualifications ofprofessional health-care practitioners.” Id. § 1.03(a)(9). In such a case, we give thestatute's words their common meaning, and the Agbors' reliance onBridgestone/Firestone is misplaced.

IIIIn the court of appeals, the Agbors also complained that affording hospitals

immunity *508 from negligent credentialing actions absent malice violates the OpenCourts Provision of the Texas Constitution. See TEX. CONST. art. I, § 13. Because itdisposed of the Agbors' claims solely on statutory construction, the court of appealsexpressly reserved this issue. In this Court, both parties have briefed the issue, andfor the sake of judicial economy, we consider the question instead of remanding it forthe court of appeals' consideration. See First Baptist Church v. Bexar CountyAppraisal Review Bd., 833 S.W.2d 108, 111 (Tex.1992).

The Open Courts Provision of the Texas Constitution provides, in pertinent part:“All courts shall be open, and every person for an injury done him, in his lands, goods,person or reputation, shall have remedy by due course of law.” TEX. CONST. art. I, §13. To demonstrate that a statute violates this constitutional guarantee, a litigant mustshow 1) that the statute restricts a well-recognized common law cause of action, and2) that the restriction is unreasonable or arbitrary when balanced against the purposeof the statute. Baptist Mem'l Hosp. Sys. v. Arredondo, 922 S.W.2d 120, 121(Tex.1996); Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 355 (Tex.1990). ThisCourt has consistently held that the Open Courts Provision protects only well-definedcommon law causes of action from legislative restriction. See Moreno, 787 S.W.2d at356–57.

We have never dealt with the question of whether a common-law cause of actionexists for negligent credentialing. In 1987, when the Legislature enacted the TexasAct's immunity provisions, only two Texas courts had considered the question,reaching opposite results. See Park North Gen. Hosp. v. Hickman, 703 S.W.2d 262,264–66 (Tex.App.—San Antonio 1985, writ ref'd n.r.e.); Jeffcoat v. Phillips, 534S.W.2d 168, 172–74 (Tex.Civ.App.—Houston [14th Dist.] 1976, writ ref'd n.r.e.). ParkNorth upheld a cause of action for negligent credentialing and determined that ahospital has a duty to a patient to exercise reasonable care in the selection of itsmedical staff and in granting privileges to them. Park North, 703 S.W.2d at 266. Onthe other hand, Jeffcoat held that absent an employer-employee, principal-agent,partnership, or joint venture relationship between a hospital and physician, a hospitalis not liable for its credentialing decisions where the patient chooses the physician.Jeffcoat, 534 S.W.2d at 173.

In short, when the Legislature enacted the Texas Act's immunity provisions, the lowercourts were split on the existence of a cause of action for negligent credentialing, andwe had not considered the question. Therefore, we cannot conclude that negligentcredentialing was a well-recognized common law cause of action. Thus, the Agborshave failed to show an open courts violation. Because it is not necessary to ourdisposition of this case, we reserve for another day whether we recognize acommon-law cause of action for negligent credentialing.

The dissenting Justices refer to a number of other jurisdictions that recognize invarying degrees a duty to exercise care in credentialing activities. However, theiropinions do not indicate whether those negligent credentialing causes of action arebased on the common law, or whether they involve restrictions identical, or evensimilar, to the statutory language that limits our decision. As Chief Justice Phillipsacknowledges, at least one court has held that a similar statute enacted to encouragehospitals to actively engage in peer review barred a claim against a medical carefacility under a corporate negligence theory for its credentialing decisions involving anindependent contractor physician. See Lemuz v. Fieser, 261 Kan. 936, 933 P.2d 134,140, 145 (1997); McVay v. Rich, 255 Kan. 371, 874 P.2d 641, 645 (1994). The


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Kansas statute provides:

There shall be no liability on the part of ... any licensed medical carefacility because of the rendering of or failure to render professionalservices within such medical care facility by a person licensed topractice medicine and surgery if such person is not an employee oragent of such medical care facility.

KAN. STAT. ANN.. § 65–442(b) (1995). The Kansas Supreme Court concluded thatregardless of the reasons favoring liability under a corporate negligence theory, itsimply cannot reach the question because the clear, unambiguous language of thestatute bars a *509 patient's claims against a hospital for credentialing orrecredentialing activities. See McVay, 874 P.2d at 645. The same is true in our case.The Legislature is free to set a course for Texas jurisprudence different from otherstates'. Once the Legislature announces its decision on policy matters, we are boundto follow it within constitutional bounds.

Accordingly, we hold that the Texas Act's immunity provisions prescribe a thresholdstandard of malice to state a cause of action against a hospital for its credentialingactivities. Further, this standard does not violate the Open Courts Provision of theTexas Constitution.

For the above reasons, we reverse the judgment of the court of appeals and renderjudgment that the Agbors take nothing from St. Luke's Hospital.

ABBOTT, Justice, not sitting.

PHILLIPS, Chief Justice, delivered a dissenting opinion, joined by SPECTOR, Justice.The issue before us is whether a patient has a cause of action against a hospital fornegligent credentialing. Because I conclude that the common law of Texas recognizessuch a cause of action and that nothing in the Texas Medical Practice Act (“TMPA”)or any other statute takes it away, I respectfully dissent.

I

A hospital's duty to exercise care in the treatment of patients, including itscredentialing activities, was first recognized in this state in Park North Gen. Hosp. v.Hickman, 703 S.W.2d 262 (Tex.App.—San Antonio 1985, writ ref'd n.r.e.). This causeof action was also recognized in Lopez v. Central Plains Reg. Hosp., 859 S.W.2d600 (Tex.App.—Amarillo 1993, no writ) (holding that a material issue of fact aboutwhether a hospital negligently credentialed a doctor precluded summary judgment).See also Smith v. Baptist Mem. Hosp. Sys., 720 S.W.2d 618, 626 n. 2(Tex.App.—San Antonio 1986, writ ref'd n.r.e.) (a hospital “clearly may have a duty toprevent a physician's malpractice at least to the extent that it establishes proceduresfor the granting of staff privileges and for the review of these privileges.”).

The duty is separate from a hospital's vicarious or respondeat superior liability. Seegenerally Smith, 720 S.W.2d at 626. It includes the duty to exercise care in itsrecredentialing functions. See Park North, 703 S.W.2d at 266. Twenty-seven otherjurisdictions have recognized the duty in varying degrees. See, e.g., Humana Med.Corp. v. Traffanstedt, 597 So.2d 667 (Ala.1992) (recognizing duty but finding noliability under particular facts); Storrs v. Lutheran Hosps. & Homes Soc. of America,Inc., 661 P.2d 632 (Alaska 1983); Fridena v. Evans, 127 Ariz. 516, 622 P.2d 463(1981); Elam v. College Park Hosp., 132 Cal.App.3d 332, 183 Cal.Rptr. 156 (1982);Kitto v. Gilbert, 39 Colo.App. 374, 570 P.2d 544 (1977); Insinga v. LaBella, 543 So.2d209 (Fla.1989); Mitchell County Hosp. Auth. v. Joiner, 229 Ga. 140, 189 S.E.2d 412(1972); Darling v. Charleston Community Mem. Hosp., 33 Ill.2d 326, 211 N.E.2d 253(1965); Leanhart v. Humana Inc., 933 S.W.2d 820 (Ky.1996) (allowing patient accessto documents placed in doctor's peer review file for a corporate negligence cause ofaction); Ferguson v. Gonyaw, 64 Mich.App. 685, 236 N.W.2d 543 (1975); *510

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Gridley v. Johnson, 476 S.W.2d 475 (Mo.1972); Hull v. North Valley Hosp., 159Mont. 375, 498 P.2d 136 (1972); Rule v. Lutheran Hosps. & Homes Soc., 835 F.2d1250 (8th Cir.1987) (applying Nebraska law); Oehler v. Humana Hosp., 105 Nev.348, 775 P.2d 1271 (1989); Corleto v. Shore Mem. Hosp., 138 N.J.Super. 302, 350A.2d 534 (Law Div.1975); Cooper v. Curry, 92 N.M. 417, 589 P.2d 201 (App.), cert.quashed, 92 N.M. 353, 588 P.2d 554 (1978); Raschel v. Rish, 110 A.D.2d 1067, 488N.Y.S.2d 923 (N.Y.App.Div.1985); Blanton v. Moses H. Cone Mem. Hosp., 319 N.C.372, 354 S.E.2d 455 (1987); Benedict v. St. Luke's Hosp., 365 N.W.2d 499(N.D.1985); Albain v. Flower Hosp., 50 Ohio St.3d 251, 553 N.E.2d 1038 (1990)(noting requirements for recovery in negligent credentialing cause of action),overruled in part by Clark v. Southview Hosp. & Family Health Ctr., 68 Ohio St.3d435, 628 N.E.2d 46 (1994); Strubhart v. Perry Mem. Hosp., 903 P.2d 263(Okla.1995); Huffaker v. Bailey, 273 Or. 273, 540 P.2d 1398 (1975); Thompson v.Nason, 527 Pa. 330, 591 A.2d 703 (1991); Rodrigues v. Miriam Hosp., 623 A.2d456 (R.I.1993);Wheeler v. Central Vt. Med. Ctr., 155 Vt. 85, 582 A.2d 165 (1990);Pedroza v. Bryant, 101 Wash.2d 226, 677 P.2d 166 (1984); Utter v. United Hosp.Ctr., 160 W.Va. 703, 236 S.E.2d 213 (1977); Johnson v. Misericordia CommunityHosp., 99 Wis.2d 708, 301 N.W.2d 156 (1981); Sharsmith v. Hill, 764 P.2d 667(Wy.1988). I would follow Park North and Lopez and recognize such a duty underthe common law of Texas.

On the summary judgment record before us, the Agbors have raised a fact issue thatthe Hospital breached this duty. The evidence most favorable to them under thesummary judgment proof is that the Hospital violated its own rules by failing tosuspend Dr. Rothchild's privileges when she moved her permanent residence fromTexas to Massachusetts in April 1990, by renewing her privileges in the summer of1990 without carrying out any recredentialing activities, and by not suspending herprivileges when she failed to carry insurance between 1988 and 1990.

II

The Court does not reach the issue of whether such a cause of action exists. Instead,it holds that sections 5.06(l) and (m) of the TMPA, providing immunity for peer reviewactivities against doctor and patient suits, bar any such claims that might exist. Idisagree.

The provisions on which the Court relies state:

A cause of action does not accrue against the members, agents, oremployees of a medical peer review committee or against thehealth-care entity from any act, statement, determination orrecommendation made, or act reported, without malice, in the courseof peer review as defined by this Act.

TEX.REV.CIV. STAT. article 4495b, § 5.06(l).

A person, health-care entity, or medical peer review committee, that,without malice, participates in medical peer review activity or furnishesrecords, information, or assistance to a medical peer reviewcommittee or the board is immune from any civil liability arising fromsuch an act.

TEX.REV.CIV. STAT. article 4495b, § 5.06(m).

Read literally, these provisions do bar the Agbors' claims. To apply law properly,however, we must consider the entire act, its nature and object, and theconsequences that would follow from a proposed construction. Sharp v. House ofLloyd, Inc., 815 S.W.2d 245, 249 (Tex.1991); Sayre v. Mullins, 681 S.W.2d 25, 27(Tex.1984). The Legislature has declared that when construing a statute courts mayconsider the object sought to be attained, the circumstances under which the *511statute was enacted, the legislative history, common law, and the consequences of a

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particular construction. TEX. GOV'T CODE § 311.023. As we recently noted:

Here ... we are not presented with the statute as a whole, but a mereprovision of the statute. Words in a vacuum mean nothing. Only in thecontext of the remainder of the statute can the true meaning of asingle provision be made clear.

Bridgestone/Firestone, Inc. v. Glyn–Jones, 878 S.W.2d 132, 133 (Tex.1994). Or asJustice Hecht put it: “[I]n some circumstances, words, no matter how plain, will not beconstrued to cause a result the Legislature almost certainly could not have intended.”Bridgestone, 878 S.W.2d at 135 (Hecht, J. concurring).

The meaning of a word in a statute depends on its context, and an essential part ofthe context of every statute is its purpose. HART & SACKS, THE LEGAL PROCESS:BASIC PROBLEMS IN THE MAKING AND APPLICATION OF LAW 1124 (WilliamEskridge & Philip Frickey eds., 5th ed.1994). Once a court has ascertained thatpurpose, the court should enforce it, even if that application seems inconsistent withthe statute's strict letter. See State v. Terrell, 588 S.W.2d 784, 786 (Tex.1979); seealso 2A SINGER, SUTHERLAND STATUTORY CONSTRUCTION § 46.05 (5thed.1992) (“[e]ach part or section should be construed in connection with every otherpart or section so as to produce a harmonious whole.”). Thus, we have held that“when the intent and purpose of the Legislature is manifest from a consideration of astatute as a whole, words will be restricted or enlarged in order to give the statute themeaning which was intended by the lawmakers.” Bridgestone, 878 S.W.2d at 134(quoting Lunsford v. City of Bryan, 156 Tex. 520, 297 S.W.2d 115, 117 (1957)).

Applying these principles, I conclude that the Legislature did not intend to apply theheightened immunity provisions to patient suits against hospitals. The Legislatureexplained its purpose in section 1.02(1) of the TMPA:

[T]he practice of medicine is a privilege and not a natural right ofindividuals and as a matter of policy it is considered necessary toprotect the public interest through the specific formulation of this Actto regulate the granting of that privilege and its subsequent use andcontrol.

Legislative regulation of credentialing is thus to protect patients and the public, not toinsulate those who suffered bodily injury through a medical entity's negligence fromlegal redress.

Almost all of the TMPA manifests this purpose by addressing physician/hospitalrelationships. Subchapter B deals with the Board of Medical Examiners; Subchapter Cdeals with licensing; Subchapter D addresses disciplinary action. Most of SubchapterE as well focuses on peer review and physician and hospital rights. Sections5.06(b)–(d), for example, set out the peer review committee's reporting requirements.Section 5.06(g) describes a doctor's right to privileged information if he files either anantitrust or § 1983 claim. Section 5.06(i) provides that if a peer review committeedecides to take action against a doctor, he is entitled to a written copy of thecommittee's decision and recommendation. Section 5.06(q) provides a cause ofaction for health care entity employees if the hospital discharges or discriminatesagainst them for complying with Section 5.06's reporting requirements. None of thesesections curtails a patient's right to sue for negligent treatment or care by a medicalfacility.

Because there are no provisions in the statute that regulate physician/patient orhospital/patient relationships or that discuss patient care liability, a reading consistentwith the purpose of the statute would limit the malice requirement in sections (l) and(m) to physicians' suits.

III


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Moreover, nothing in the legislative history suggests that the Legislature intended toprovide heightened immunity from patients' suits. The legislative debate focused onthe same objectives envisioned in the federal statute—providing immunity forparticipants in peer review committees from retaliatory claims filed by disciplineddoctors. During the discussion of the bill, Senator Chet *512 Brooks stated that the billrequired reporting of improper actions of doctors and was accompanied by a liabilityshield for participants in peer review committees:

We want the health care facilities that take adverse action against aphysician's privileges to practice at that facility—to report that actionto the Board of Medical Examiners so that the Board of MedicalExaminers will have at least an alert there that they need to check intothis and see what the basis for the removal of those privileges wouldbe, and whether or not there ought to be some board follow-up on it.We also mandate peer review committees to report their findings thathave to do with questionable practices to the board. And we alsomandate physicians to report what they consider to be a threat to thepatients and to the practice of medicine. Now to get this mandatoryreporting we have also accompanied it in an even-handed way, with aliability shield—that as long as those reports are made in good faithand without malice or some illegal intent, that there would be no liabilityagainst them.

Debate on Tex. S.B. 171 on the Floor of the Senate, 70th Leg. (April 24, 1987) (tapeavailable from Senate Staff Services Office).

Representative Mike McKinney explained that the House version of the billstrengthened the corresponding federal statute which itself was enacted to improvethe quality of medical care by identifying incompetent physicians. The bill “provid[ed]some immunity for civil suits, for retaliatory suits, if you participate in peer reviewactivities.” Hearing on Tex. H.B. 283 before the House Public Health Comm., 70thLeg. (February 23, 1987) (tape available from the House Committee Coordinator'sOffice).

IV

The Court counters that its reading of the statute is not really unfair because suchsuits, if they are allowed in Texas, may prevail upon a showing of malice. I find itdifficult to conceive that a hospital would credential its doctors with either the intent toharm patients or with such reckless disregard for their welfare as to establish malice.Even if such a case were to exist, however, a plaintiff would not be able to prove itbecause another part of the TMPA prevents discovery of the peer review committee'srecords. Article 4495b, section 5.06(s) provides that in civil suits:

(s)(1) Reports, information, or records received and maintained by the board[Texas State Board of Medical Examiners] pursuant to this section and Section5.05 of this Act, including any material received or developed by the board during aninvestigation or hearing, are strictly confidential....

* * * * * *

(3) In no event may records and reports disclosed pursuant to this article by theboard to others, or reports and records received, maintained, or developed by theboard, by a medical peer review committee, or by a member of such a committee,or by a health-care entity be available for discovery or court subpoena orintroduced into evidence in a medical professional liability suit arising out of theprovision of or failure to provide medical or health-care services, or in any otheraction for damages.

Thus, such a claim, no matter how meritorious, would be virtually impossible to prove. Iwould not give a statute so drastic a reading unless the words are clear and


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unmistakable. These are not.

This is one of those very rare instances where the literal words of a statute seemclearly beyond its actual intent. Nothing in the purpose, the statutory scheme, or thelegislative history indicates that health care entities should be immune absent malicefor any causes of action other than physicians' retaliatory claims. Therefore, I wouldnot read the Act to do so. Instead, I would affirm the judgment of the Court of Appeals.

CORNYN, Justice, dissenting, joined by SPECTOR, Justice.It is as clear as such things get that by enacting the Texas Medical Practice Act(TMPA) the Legislature did not intend to lower then prevailing standards of patientcare by insulating hospitals from their own *513 negligence in credentialingphysicians. But the Court's irregular construction of the TMPA does exactly that. Thelegislative history of the Act makes plain that the Legislature's sole concern was toelevate standards of patient care by encouraging physicians to deny hospitalprivileges to incompetent physicians. And while I join Chief Justice Phillips' dissentingopinion, I write separately to emphasize my concern with the way the Court summarilydispatches the Agbors' claim. In so doing, the Court violates a fundamental axiom ofTexas law that

if a statute ... deprives a person of a common law right, the statute willbe strictly construed in the sense that it will not be extended beyond itsplain meaning or applied to cases not clearly within its purview.

Smith v. Sewell, 858 S.W.2d 350, 354 (Tex.1993); Dutcher v. Owens, 647 S.W.2d948, 951 (Tex.1983); Satterfield v. Satterfield, 448 S.W.2d 456, 459 (Tex.1969).

In the 1960's, American jurisprudence began to acknowledge the hospital's emergingrole as more than just a place where physicians treat patients. The modern hospitalitself was becoming a direct and indirect provider of patient care. In the landmarkcase of Darling v. Charleston Community Memorial Hospital, 33 Ill.2d 326, 211N.E.2d 253, 256–57 (1965), cert. denied, 383 U.S. 946, 86 S.Ct. 1204, 16 L.Ed.2d209 (1966), the Supreme Court of Illinois held that a hospital owes a duty of ordinarycare in the selection of its medical staff and in granting specialized privileges. Texasfirst embraced this duty in Park North General Hospital v. Hickman, 703 S.W.2d 262,264–66 (Tex.App.—San Antonio 1985, writ ref'd n.r.e.) (citing Darling, 33 Ill.2d 326,211 N.E.2d 253). Currently, as Chief Justice Phillips points out, twenty-sevenjurisdictions have recognized this duty. Such a duty is but a particularized applicationof the more general duty articulated by RESTATEMENT (SECOND) OFTORTSSSSSSSS § 323 (1965):

One who undertakes, gratuitously or for consideration, to renderservices to another which he should recognize as necessary for theprotection of the other's person or things, is subject to liability to theother for physical harm resulting from his failure to exercisereasonable care to perform his undertaking, if (a) his failure toexercise such care increases the risk of such harm, or (b) the harm issuffered because of the other's reliance upon the undertaking.

Thus a cause of action for negligent credentialing was available to patients at the timethe Legislature amended section 5.06 of the TMPA in 1987 to incorporate theprovisions of the Health Care Quality Improvement Act of 1986. “It is nowincontrovertible that hospitals owe a duty to their patients to properly investigate andevaluate physicians who apply for or who are permitted to provide professionalmedical services within the hospital.” Torin A. Dorros & T. Howard Stone, Implicationsof Negligent Selection and Retention of Physicians in the Age of ERISA, 21 AM. J.L.& MED. 383, 408 (1995). This being the case, we are bound to apply the TMPA onlyto those cases that the Legislature clearly intended to cover. See Smith v. Sewell,858 S.W.2d at 354.

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Ignoring this rule of construction, the Court purports to rely on the “plain meaning” ofthe Act to justify its position that hospitals are not accountable for their negligence inselecting and retaining physicians. Used thus, as one commentator has expressed it,the plain-meaning rule at best states a tautology, and at worst severs language fromits context. See David L. Shapiro, Continuity and Change in Statutory Interpretation,67 NONPUBLIC. REV. 921, 932 (citing Reed Dickerson, THE INTERPRETATion andApplication of Statutes 229–233 (1975)). SUCH USE OF THE PLAIN-MEANINGRULE ALSO DIRECTLY CONFLICTS WITH THE PRINCIPLE THAT A SINGLEPROVISION OF A STATUTE MUST BE READ IN THE CONTEXT OF THEREMAINDER OF THE STATUTE. SEE BRIDGESTONE/FIRESTONE, INC. V.GLYN–JONES, 878 S.W.2D 132, 133 (TEX.1994). *514 LOOKING AT THELANGUAGE OF THE STATUTE, WE ARE TO CONSIDER NOT JUST THEDISPUTED PARTS, BUT THE STATUTE AS A WHOLE. SEE TAYLOR V.FIREMEN'S & POLICEMEN'S CIVIL SERV. COMM'N, 616 S.W.2D 187, 190(TEX.1981); STATE V. TERRELL, 588 S.W.2D 784, 786 (TEX.1979).

As the Chief Justice notes, the Legislature's focus in the TMPA is on the physician-hospital relationship—not the patient-hospital relationship. The larger legislativelandscape also bears this out.

Before Congress enacted the Health Care Quality Improvement Act of 1986(HCQIA), incompetent physicians who had lost their privileges at one hospital wereoften able to move freely to another hospital. See Richard L. Griffith & Jordan M.Parker, With Malice Toward None: The Metamorphosis of Statutory and CommonLaw Protections for Physicians and Hospitals in Negligent Credentialing Litigation,22 TEX. TECH. L. REV. 156, 180 n. 136 (1991) (citing H.R.REP. NO. 99–903, at 2–3(1986), reprinted in 1986 U.S.S.C.A.N. 6384, 6385). Fearing litigation, somehospitals would trade their silence about a physician's reasons for leaving for thephysician's voluntary resignation, leaving the physician free to continue to practicemedicine despite a record of incompetence. Id. at 180.

These fears were well-founded. In the period leading up to the passage of the HCQIA,physicians denied hospital privileges filed federal antitrust suits, exposing hospitals tothe possibility of treble damages. See, e.g., Patrick v. Burget, 486 U.S. 94, 108 S.Ct.1658, 100 L.Ed.2d 83 (1988); Marrese v. Interqual, Inc., 748 F.2d 373 (7th Cir.1984),cert. denied, 472 U.S. 1027, 105 S.Ct. 3501, 87 L.Ed.2d 632 (1985); Posner v.Lankenau Hosp., 645 F.Supp. 1102 (E.D.Pa.1986); Quinn v. Kent Gen. Hosp., Inc.,617 F.Supp. 1226 (D.Del.1985). They also filed civil rights claims. See, e.g., Doe v.St. Joseph's Hosp., 788 F.2d 411 (7th Cir.1986); Quinn, 617 F.Supp. 1226. Statecourts saw their share of physician suits as well in the form of wrongful revocation ofhospital privileges and defamation of character. See, e.g., Dworkin v. St. FrancisHosp., Inc., 517 A.2d 302 (Del.Super.Ct.1986) (wrongful suspension and termination);Holly v. Auld, 450 So.2d 217 (Fla.1984) (defamation); Feldman v. Glucroft, 488So.2d 574 (Fla.Dist.Ct.App.1986) (defamation), cert. denied, 503 U.S. 960, 112 S.Ct.1560, 118 L.Ed.2d 208 (1992); Atkins v. Walker, 3 Ohio App.3d 427, 445 N.E.2d1132 (1981) (defamation); Guntheroth v. Rodaway, 107 Wash.2d 170, 727 P.2d 982(1986) (defamation).

In response, Congress passed the HCQIA. 42 U.S.C. §§ 11101 et seq. The purposeof the federal act was to “ ‘improve the quality of medical care by encouragingphysicians to identify and discipline other physicians who are incompetent or whoengage in unprofessional behavior.’ ” Griffith & Parker, 22 TEX. TECH. L.REV. at 180(quoting H.R. REP. NO. 99–903 at 2 (1986), reprinted in 1986 U.S.C.C.A.N. 6384,6384); see also 42 U.S.C. §§ 11101(1) & (3). To facilitate this result, Congressestablished the National Practitioner Data Bank, the national reporting system thattracks doctors' practice history and competency. To encourage physicians to reportmalpractice, the HCQIA confers both a privilege from discovery of the informationprovided in good faith in peer review activities and immunity from suits arising out ofthe peer review process. Griffith & Parker, 22 TEX. TECH. L.REV. at 181–82.


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1

1

2

Texas doctors participating in peer review faced similar retaliatory suits. See, e.g.,Mayfield v. Gleichert, 484 S.W.2d 619 (Tex.Civ.App.—Tyler 1972, no writ) (involving alibel suit brought by a doctor against the defendant-doctor for remarks made in areport the defendant-doctor prepared at the request of the hospital medical staff).Thus it is no surprise that Texas was quick to opt in to the HCQIA's coverage at anearly effective date. See TEX.REV.CIV. STAT. art. 4495b § 5.06(a); MemorialHosp.—The Woodlands v. McCown, 927 S.W.2d 1, 4 (Tex.1996). By enacting theTMPA, the Legislature was attempting to improve the quality of health care byestablishing a system that encourages effective peer review. See TEX.REV.CIV.STAT. art. 4495b § 1.02(1). To protect against physician retaliatory suits, the TMPAfollowed the HCQIA by establishing immunity from suit, absent malice, and a privilegefrom discovery of all communications *515 made to a medical peer review committee.

Construing the TMPA to insulate health care providers from patient suits runs directlycontrary to the Legislature's desire to improve the quality of health care. Patients donot have access to the same information that hospitals have through the NationalPractitioner Data Bank. Patients may only access the Data Bank after they have fileda medical malpractice suit and there is evidence that the hospital failed to query theData Bank about a physician named in the suit. Elisabeth Ryzen, M.D., The NationalPractitioner Data Bank: Problems and Proposed Reforms, 13 J. LEGAL MED. 409,419 (1992). Thus, for the most part, patients must rely on hospitals to verify thecompetency of physicians. To make hospitals virtually immune from patient suits doesnothing to ensure that hospitals will diligently monitor physician competency. Instead,the Court's construction allows hospitals to negligently credential doctors and remainentirely immune from suit. This defeats the entire purpose of the Act.

For these reasons, I would hold that the malice standard set forth in article 4495b,sections 5.06(l) and (m) does not apply to patient claims for negligent credentialing. Iwould affirm the judgment of the court of appeals and remand this case for trial.

Parallel Citations

40 Tex. Sup. Ct. J. 712

Footnotes

To the extent other decisions conflict with this opinion, they aredisapproved. See Lopez v. Central Plains Reg'l Hosp., 859 S.W.2d 600,602 n. 2 (Tex.App.—Amarillo 1993, no writ); Smith v. Baptist Mem'lHosp. Sys., 720 S.W.2d 618 (Tex.App.—San Antonio 1986, writ ref'dn.r.e.); Park North Gen. Hosp. v. Hickman, 703 S.W.2d 262(Tex.App.—San Antonio 1985, writ ref'd n.r.e.).

The Court relies on Jeffcoat v. Phillips, 534 S.W.2d 168 (Tex.Civ.App.—Houston [14th Dist.] 1976, writ ref'd n.r.e.) to argue that the courts ofappeals are split on the issue of whether a common law cause of actionexists. However, Jeffcoat was a summary judgment case in which theplaintiff failed to show that the hospital was required by law or obligatedby its own rules to screen physicians to whom it granted privileges orreview their work. Jeffcoat held only that a hospital was not liable inrespondeat superior for granting privileges to a independent contractordoctor. Jeffcoat distinguished its facts from the case where a hospitalhad a duty based on its bylaws and regulations. Id. at 172–173.

Of the other jurisdictions that have addressed corporate negligence,three have held that the charitable immunity doctrine bars a patient'srecovery. See Rhoda v. Aroostook Gen. Hosp., 226 A.2d 530(Me.1967); Hill v. Leigh Mem. Hosp., 204 Va. 501, 132 S.E.2d 411(1963); Grant v. Touro Infirmary, 254 La. 204, 223 So.2d 148 (1969).One court held that a hospital was not liable for failing to withdraw a


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1

doctor's privileges in the absence of apparent authority. See Strickland v.Madden, 448 S.E.2d 581 (S.C.Ct.App.1994). One court, as a matter ofstatutory interpretation has held that a hospital was not liable for anindependent contractor physician's negligence. See Lemuz v. Fieser,261 Kan. 936, 933 P.2d 134 (1997); McVay v. Rich, 255 Kan. 371, 874P.2d 641 (1994).

Ironically, the Court purports to leave for another day the question ofwhether it recognizes a commonlaw cause of action for negligentcredentialing. See 952 S.W.2d at 508. Under the Court's interpretation ofthe Act, however, that day will never come.





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Change View

1 Mandamus Remedy by Appeal or Writ of ErrorMandamus Matters of DiscretionTo obtain mandamus relief, relator must demonstrate that lower courtcommitted a clear abuse of discretion for which there is no adequateremedy at law, such as a normal appeal.

2 Action Persons Entitled to SueStanding is a prerequisite to subject-matter jurisdiction, which is essential toa court's power to decide a case.

3 Courts Determination of Questions of Jurisdiction in GeneralPleading Plea to the JurisdictionA party may challenge the absence of subject-matter jurisdiction by a pleato the jurisdiction and by other procedural vehicles.


4 Pleading Plea to the JurisdictionA “plea to the jurisdiction” is a dilatory plea, purpose of which is to defeatalleged claims, without regard to whether they have merit.


157 S.W.3d 911

Court of Appeals of Texas,

Houston (14th Dist.).

In re Sharon Elizabeth SULLIVAN, Relator.

No. 14–04–00514–CV. Feb. 24, 2005.

SynopsisBackground: Birth mother petitioned for writ of mandamus commanding trial judge tovacate her order denying mother's plea to the jurisdiction and dismiss for lack ofstanding proceeding to adjudicate parentage filed by sperm donor.

Holding: The Court of Appeals, Kem Thompson Frost, J., held that, as a matter offirst impression, unmarried man who donated sperm to an unmarried woman forconception of a child was a man whose paternity was to be adjudicated under FamilyCode, and thus, he had standing to maintain a proceeding to adjudicate parentage ofresulting child.

Petition denied.

Adele Hedges, C.J., filed a concurring opinion.

West Headnotes (12)

RELATED TOPICS

Children Out-of-Wedlock

Paternity ProceedingsNo Parent-Child Relationship

Pleading

Dilatory Pleas and Matter in AbatementNot Deprive Trial Court Subject MatterJurisdiction

Enforcement of Constitutional Provisions

Interest Injury Approach Standing

In re SullivanCourt of Appeals of Texas, Houston (14th Dist.). February 24, 2005 157 S.W.3d 911 (Approx. 13 pages)


In re Sullivan - WestlawNext https://a.next.westlaw.com/Document/I2de6d593e7e511d99439b076ef9e...

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5 Pleading Nature and Office of Dilatory PleasPurpose of a dilatory plea is not to force a plaintiff to preview its case on themerits, but to establish a reason why the merits of its case should never bereached.

6 Pleading Petition, Complaint, Declaration or Other PleadingsOn plea to the jurisdiction, trial court accepts factual allegations in petitionas true, unless defendant pleads and proves the allegations were madefraudulently to confer jurisdiction.


7 Appeal and Error Pleadings and Rulings ThereonWhen reviewing a trial court's order on a plea to the jurisdiction, anappellate court may look to evidence outside of the pleadings.


8 Action Persons Entitled to SueStanding is a constitutional prerequisite to suit in both federal courts and thestate courts; nonetheless, judge-made criteria regarding standing do notapply when the Legislature has conferred standing through a statute.


9 Action Persons Entitled to SueIn statutory standing cases, analysis is a straight statutory construction ofrelevant statute to determine upon whom the Legislature conferred standingand whether claimant in question falls in that category.


10 Children Out–Of–Wedlock Assisted Reproduction; SurrogateParentingUnmarried man who donated sperm to an unmarried woman for conceptionof a child was a man whose paternity was to be adjudicated under FamilyCode, and thus, he had standing to maintain a proceeding to adjudicateparentage of resulting child. V.T.C.A., Family Code § 160.602(a)(3).


11 Children Out–Of–Wedlock Who May Maintain ProceedingsAt a minimum, section of statute governing standing in proceeding toadjudicate paternity, allowing proceeding to be maintained by man whosepaternity to child is to be adjudicated, confers standing on a man alleginghimself to be the biological father of the child in question and seeking anadjudication that he is the father of that child. V.T.C.A., Family Code §160.602(a)(3).


12 Children Out–Of–Wedlock Assisted Reproduction; SurrogateParentingUnder Family Code, issue of man's status as a donor is to be decided atthe merits stage of litigation rather than as part of threshold issue ofstanding in paternity action. V.T.C.A., Family Code §§ 160.602(a)(3),160.702.


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*912 Peggy Sue Bittick, Carrie Suzanne Holman, Pearland, for appellants.

Don Cruse, Austin, Ellen Yarrell, Sallee S. Smyth, Houston, for appellees.

Panel consists of Chief Justice HEDGES and Justices FROST and GUZMAN.

Opinion

SUBSTITUTE MAJORITY OPINION

KEM THOMPSON FROST, Justice.

This original proceeding presents a question of first impression under the TexasFamily Code: Does an unmarried man who donated sperm to an unmarried womanfor the conception of a child have standing to maintain a proceeding to adjudicateparentage of the resulting child?

Relator Sharon Sullivan seeks a petition for writ of mandamus commanding therespondent, the Honorable Bonnie Hellums, Judge of the 247th Judicial District Courtof Harris County, to (1) vacate her order denying Sullivan's plea to the jurisdiction and(2) dismiss for lack of standing the proceeding to adjudicate parentage filed by realparty in interest Brian Keith Russell. We conclude that, under section 160.602(3) ofthe Texas Family Code, the respondent did not clearly abuse her discretion in rulingthat Russell has standing to maintain a proceeding to adjudicate parentage.Accordingly, we deny Sullivan's petition for writ of mandamus.

I. FACTUAL AND PROCEDURAL BACKGROUNDSullivan is an unmarried woman. Russell is an unmarried man. Neither has beenmarried previously. Sullivan wanted to conceive a child. Russell agreed to provide hissperm so that Sullivan could be artificially inseminated. Russell and Sullivan signed a“Co–Parenting Agreement” *913 on February 6, 2003, which recites these factsand, in addition, states the following:

3. BRIAN KEITH RUSSELL has agreed to provide his semen to SHARONSULLIVAN for the purpose of donor insemination.

4. Each party agrees that SHARON SULLIVAN's decision to conceive andbear a child was actually a joint decision of the parties and based upon thecommitment of each party to parent the child.

5. Each party agrees that, during the calendar year 2003, SHARONSULLIVAN will attempt to become pregnant through the procedure of donorinsemination, and that such inseminations will continue until conceptionoccurs.

6. Each party agrees that any child born as a result of the donor inseminationprocedure will be the child of BRIAN KEITH RUSSELL as if he andSHARON SULLIVAN were married at the time of conception, and thatBRIAN KEITH RUSSELL will be named as the father on the child's birthcertificate.

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11. The parties agree that SHARON SULLIVAN shall provide the primaryresidence for the child as long as she is able to do so. The parties agree thatBRIAN KEITH RUSSELL shall have possession of the child at any and alltimes mutually agreed to in advance by the parties. Failing mutual agreement,BRIAN KEITH RUSSELL shall have possession of the child under the

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specified terms set out the [sic] Standard Possession Schedule attached tothis agreement and incorporated herein.

Insemination and conception were successful in June 2003, and the resulting child,L.J.S., was born on March 2, 2004. However, before the child's birth, a disagreementarose between Russell and Sullivan, and on March 31, 2004, Russell filed an “OriginalPetition to Adjudicate Parentage, Suit Affecting the Parent–Child Relationship andBreach of Contract” in the trial court. In this pleading, Russell alleges he is L.J.S.'sfather and seeks the following relief:

(1) a decree establishing a parent-child relationship between L.J.S. and Russell;

(2) an order appointing Russell and Sullivan as joint managing conservators ofL.J.S.;

(3) temporary orders appointing Russell and Sullivan as joint managingconservators of L.J.S., ordering Sullivan to submit L.J.S. for genetic testing toaffirm the parentage, and ordering that a standard possession order be put inplace and that visits between Russell and L.J.S. begin immediately;

(4) injunctive relief preventing Sullivan from hiding L.J.S., removing L.J.S. from ageographical boundary to be defined by the court, and from using for anypurpose, especially conceiving a child, any frozen or preserved sperm fromRussell; and

(5) attorney's fees and recovery for breach of contract and promissory estoppel,including damages for mental anguish.

*914 Sullivan filed a plea to the jurisdiction, claiming that under the Texas FamilyCode, Russell lacks standing to bring a proceeding to adjudicate parentage becausehe is a sperm donor with no parental rights. After a hearing, the trial court ruled thatRussell had standing and denied Sullivan's plea to the jurisdiction. Sullivan then filed apetition for writ of mandamus in this court alleging that the trial judge clearly abusedher discretion by finding that Russell has standing to maintain a proceeding toadjudicate his parentage of L.J.S.

II. STANDARD OF REVIEWTo obtain mandamus relief, Sullivan, as the relator, must demonstrate (1) that

the lower court committed a clear abuse of discretion, (2) for which there is noadequate remedy at law, such as a normal appeal. Walker v. Packer, 827 S.W.2d833, 839–40 (Tex.1992). Both Russell and Sullivan agree that Sullivan would have noadequate remedy at law if the trial court clearly abused its discretion. In decidingwhether the trial court clearly abused its discretion in determining that Russell hasstanding to maintain a proceeding to adjudicate parentage (hereinafter “parentageproceeding”), we do not consider the underlying merits of the case.

III. ANALYSISStanding is a prerequisite to subject-matter jurisdiction, which

is essential to a court's power to decide a case. Bland Indep. Sch. Dist. v. Blue, 34S.W.3d 547, 553–54 (Tex.2000). A party may challenge the absence of subject-matter jurisdiction by a plea to the jurisdiction and by other procedural vehicles. Id. at554. A plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat thealleged claims, without regard to whether they have merit. Id. The purpose of a dilatoryplea is not to force a plaintiff to preview its case on the merits, but to establish areason why the merits of its case should never be reached. Id. The Texas SupremeCourt has emphasized that a court should not decide standing issues based on itsviews of the merits:

In deciding a plea to the jurisdiction, a court may not weigh the claims'merits but must consider only the plaintiffs' pleadings and the evidencepertinent to the jurisdictional inquiry. When we consider a trial court's

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order on a plea to the jurisdiction, we construe the pleadings in theplaintiff's favor and look to the pleader's intent.

Id. at 554–55.

A trial court accepts the factual allegations in the petition as true, unlessthe defendant pleads and proves the allegations were made fraudulently to conferjurisdiction. Id. at 554; TAC Realty, Inc. v. City of Bryan, 126 S.W.3d 558, 561(Tex.App.-Houston [14th Dist.] 2003, pet. denied). When reviewing a trial court's orderon a plea to the jurisdiction, an appellate court may look to evidence outside of thepleadings:

[T]he issues raised by a dilatory plea are often such that they cannot be resolvedwithout hearing evidence. And because a court must not act without determining thatit has subject-matter jurisdiction to do so, it should hear evidence as necessary todetermine the issue before proceeding with the case. But the proper function of adilatory plea does not authorize an inquiry so far into the substance of the claimspresented that *915 plaintiffs are required to put on their case simply to establishjurisdiction.

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The court should, of course, confine itself to the evidence relevant to thejurisdictional issue.

Bland Indep. Sch. Dist., 34 S.W.3d at 554–55.

Standing is a constitutional prerequisite to suit in both federal courts andthe courts of Texas. Williams v. Lara, 52 S.W.3d 171, 178 (Tex.2001). Nonetheless,the judge-made criteria regarding standing do not apply when the Texas Legislaturehas conferred standing through a statute. Id. In statutory standing cases, such as this,the analysis is a straight statutory construction of the relevant statute to determineupon whom the Texas Legislature conferred standing and whether the claimant inquestion falls in that category. See Tex. Dep't of Protective and Regulatory Servs. v.Sherry, 46 S.W.3d 857, 859–61 (Tex.2001) (determining whether putative father hadstanding to maintain a suit affecting the parent-child relationship based solely onconstruction of statutory standing provision).

Russell asserts that he has standing under a statute that allows “a man whosepaternity of the child is to be adjudicated” to maintain a parentage proceeding. SeeTEX. FAM.CODE ANN. § 160.602 (Vernon Supp.2004). It is undisputed that Russellis a man, but Sullivan asserts that Russell is not “a man whose paternity is to beadjudicated” because, Sullivan claims, Russell is a “donor” who lacks parental rightsand standing to maintain a parentage proceeding. See TEX. FAM.CODE ANN. §160.102(6) (Vernon 2002) (defining “donor” as “an individual who produces eggs orsperm used for assisted reproduction, regardless of whether the production is forconsideration” but excluding from this definition “a husband who provides sperm or awife who provides eggs to be used for assisted reproduction by the wife ... or ... awoman who gives birth to a child by means of assisted reproduction”). Sullivanasserts that section 160.702 of the Texas Family Code deprives Russell of standingbecause, under that section, “a donor is not a parent of a child conceived by meansof assisted reproduction.” See TEX. FAM.CODE ANN. § 160.702 (Vernon 2002).

It is undisputed that L.J.S. was conceived by means of assisted reproduction usingRussell's sperm and that Russell and Sullivan are not married to each other.Nonetheless, Russell asserts that section 160.702 does not apply to a known donorof sperm who executed a “Co–Parenting Agreement” under which the donor intendedto assume an active role as father of the child conceived by means of assistedreproduction. In the alternative, Russell asserts that, to the extent that section160.702 is found to deprive him of parental status under these circumstances, it isunconstitutional under various theories.


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Before reaching the issue of whether Russell is a donor who lacks parental rights, wefirst must determine whether, under the proper statutory construction, donor statusis part of the inquiry as to whether Russell has standing to maintain a parentageproceeding. If, under the statutory standing criteria, Russell has standing as a “manwhose paternity of the child is to be adjudicated,” even though, on the merits, the trialcourt may decide that he is a donor with no parental rights, then the *916 issue ofRussell's status as a donor is not relevant to standing, and this court must presume(for standing purposes only) that Russell's claims have merit, that is, that he is not adonor and that he has parental rights. See Bland Indep. Sch. Dist., 34 S.W.3d at554–55 (stating that court should not decide standing based on its views of the meritsof the asserted claims). On the other hand, if the statute requires that men disprovedonor status before they can have standing to maintain a parentage proceeding, thenwe must address whether Russell is a donor.

The term “man whose paternity of the child is to be adjudicated” is not defined in theTexas Family Code. This term was created in the recent revisions to the UniformParentage Act (“UPA”). So far, only a few states have adopted these revisions, andresearch reveals no cases addressing the meaning of this statutory phrase. See UPA(2000), section 602. On its face, the term lacks clarity. This phrase seems to beg thequestion that it is intended to answer. We look to section 160.602 as the statutorystanding provision to tell us who has standing to maintain parentage proceedings, yetthis section states that all men have standing if their “parentage is to be adjudicated.”This language presents a paradox. A man cannot seek an adjudication of his paternityunless he has standing, yet section 160.602 states that a man generally has nostanding to seek an adjudication of his paternity unless his paternity is to beadjudicated. See TEX. FAM.CODE ANN. § 160.102(9) (defining “intended parents”as “individuals who enter into an agreement providing that the individuals will be theparents of a child born to a gestational mother by means of assisted reproduction....”);TEX. FAM.CODE ANN. § 160.751 (defining a “gestational mother” as “a woman whogives birth to a child conceived under a gestational agreement”); TEX. FAM.CODEANN. § 160.752, et seq. (defining gestational agreement as one in which womanagrees to give birth to child, relinquishing all of her parental rights regarding the child,so that the intended parents can be the child's parents); TEX. FAM.CODE ANN. §160.602 (granting standing only to men “whose paternity of the child is to beadjudicated,” who are “related within the second degree by consanguinity to themother of the child, if the mother is deceased,” or who are an “intended parent”).

In an attempt to determine the meaning of this perplexing and ambiguous statutoryphrase, we consider the object sought to be obtained, the circumstances under whichthe statute was enacted, the legislative history, former statutory provisions, includinglaws on the same or similar subjects, and the consequences of a particularconstruction. See TEX. GOV.CODE ANN. § 311.023 (Vernon 1998). Thecircumstances under which the statute was enacted and the legislative history indicatethat, although Texas had not previously enacted the entire UPA, the Texas Legislaturesought to enact the 2000 version of the UPA. See Act of May 25, 2001, 77th Leg.,R.S., ch. 821, § 1.01, 2001 Tex. Gen. Laws 1610 (enacting legislation substantiallysimilar to 2000 version of UPA); HOUSE RESEARCH ORGANIZATION, BILLANALYSIS, TEX. H.B. 920, 77th Leg., R.S. (May 8, 2001) (stating that the intent ofthis legislation was to enact the 2000 version of the UPA). Beyond this, thecircumstances under which the statute was enacted and the legislative history do notspeak to the issue of which men have standing to maintain a parentage proceeding orto the meaning of the phrase “a man whose paternity of the child is to be adjudicated.”

*917 Before the Texas Legislature enacted this legislation in 2001, Texas had noanalogous standing statute regarding parentage proceedings. Because the TexasLegislature sought to enact the 2000 version of the UPA, we examine that uniform actand previous versions of the UPA.

The original UPA—the 1973 version—had a provision similar to section 702 of the

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2000 UPA, under which a sperm donor had no parental rights. See UPA (1973),section 5. The very next section of the 1973 UPA dealt with who could bring an actionto determine the existence of a father and child relationship. See UPA (1973), section6. Under that section, for a child that had no presumed father, “a man alleged oralleging himself to be the father,” among others, had standing to bring an action todetermine the existence of the father and child relationship. See UPA (1973), section6(c). The 1973 UPA allowed “[a]ny interested party” to bring an action as to childrenwith presumed fathers under certain provisions of the UPA; however, as to childrenwith presumed fathers under other provisions of the UPA, a putative father had nostanding to initiate a proceeding. See UPA (1973), section 6(a), (b). The 2000 UPAeliminated this lack of standing as to certain putative fathers, in part due toconsiderations regarding the Federal Family Support Act of 1988. See UPA (2002),sections 602, 607 & cmts.

The Federal Family Support Act of 1988, as a condition for receiving federal matchingfunds to establish paternity and to enforce child support orders, requires states tomaintain “[p]rocedures ensuring that the putative father has a reasonable opportunityto initiate a paternity action.” See 42 U.S.C. § 666(a)(5)(L). The comment to the 2000version of the UPA that Texas enacted in 2001 states that section 602 is based onsection 6 of the 1973 UPA and “conforms to the mandate of 42 U.S.C. § 666(a)(5)(L)requiring that a putative father have a reasonable opportunity to initiate a paternityproceeding.” UPA (2000), section 602 cmt. At the time the Texas Legislature adoptedthe 2000 UPA in 2001, the only comment that accompanied section 702 stated that itssource was section 4(a) of the Uniform Status of Children of Assisted ConceptionAct. See UPA (2000), section 702 cmt. The Uniform Status of Children of AssistedConception Act is short, states basic rules as to parental rights (including the principlethat the donor is not a parent of a child conceived through assisted conception), andhas no provisions that relate to procedural issues or to standing for maintainingparentage proceedings. See Uniform Status of Children of Assisted Conception Act(1988).

In 2002, after the Texas Legislature adopted the 2000 version of the UPA, theNational Conference of Commissioners on Uniform State Laws adopted a revisedversion of the UPA. See UPA (2002). Although the text of sections 602 and 702 of theUPA remained the same, the 2002 version of the UPA changed the comments tothese sections. See UPA (2002), sections 602, 702 cmts. These comments spawnconfusion. The 2002 comment to section 602 removes the reference to the FederalFamily Support Act of 1988, although it still refers to section 6 of the 1973 UPA as thesource of this section. See UPA (2002), section 602 cmt. This comment alsocontains new language, including the following: “This section grants standing to abroad range of individuals and agencies to bring a parentage proceeding. But, severallimitations on standing to sue are contained within the Act.” See id. The comment thengoes on to refer to articles 3 and 8 as well as sections 607 and 609 of the UPA, whichapparently are other “limitations on standing to sue.” See id. Although this commentseems to indicate that there are limitations on standing *918 in the revised UPAoutside of section 602, the comment does not mention section 702 of the UPA as oneof these limitations. See id. Further, several of the sections of the UPA to which thecomment does refer do not appear to limit standing. See id. (referring to articles 3 and8 and sections 607 and 609 of the UPA). Article 3 of the UPA deals with voluntaryacknowledgment of parentage, which, once binding, may have issue or claimpreclusion effect on the parentage question. Article 3, however, contains no apparentlimitation on standing. See UPA (2002), article 3. Sections 607 and 609 of the 2002UPA establish, in certain contexts, time limitations for bringing proceedings toadjudicate parentage, to disprove the father-child relationship regarding a presumedfather, or to rescind an acknowledgment of parentage; however, these sections do notstate that the parties in question lose standing. See UPA (2002), sections 607, 609.Section 807 of the UPA seems to limit the ability of a gestational mother to assert thatshe is the mother of a child to whom she gave birth under a court-validated gestationalagreement. See UPA (2002), section 807. Although this provision arguably might be5


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a limitation on standing, it seems more akin to issue or claim preclusion.

As to section 702, the comment to the 2002 UPA contains the following statements,among others: “The donor can neither sue to establish parental rights, nor be suedand required to support the resulting child. In sum, donors are eliminated from theparental equation.” See UPA (2002), section 702, cmt. This comment suggests thatdonors under section 702 have no standing, and Sullivan makes this comment thecornerstone of her argument that section 160.702 deprives Russell of standing. Noneof the comments to section 702 of the 2002 UPA, however, were in existence whenthe Texas Legislature adopted the relevant portions of sections 160.602 and 160.702of the Texas Family Code in 2001. Furthermore, these are not comments made bylawmakers or any entity associated with the Texas Legislature. These are commentsby nonlegislators, made after the Texas Legislature enacted the statute in question.Therefore, these statements are not legislative history, nor are they otherwiserelevant to the statutory-construction issue at hand. See Chair King, Inc. v. GTEMobilnet of Houston, Inc., 135 S.W.3d 365, 380 (Tex.App.-Houston [14th Dist.] 2004,pet. filed) (holding post-enactment statements by nonlegislators are irrelevant tointerpretation of ambiguous statute); see also Sullivan v. Finkelstein, 496 U.S. 617,631, 110 S.Ct. 2658, 2667, 110 L.Ed.2d 563 (1990) (Scalia, J., concurring in part)(stating that “post-enactment legislative history” is an oxymoron *919 and should notbe considered in interpreting statutes and that even the proponents of its use limit it tostatements from members of the legislative body that enacted the statute).

The 1973 version of the UPA allowed a man alleging himself to be the father of thechild to maintain a parentage proceeding in cases, such as the one at hand, in whichthe child has no presumed father. See UPA (1973), section 6. The 2000 version ofthe UPA changed the standing language to “a man whose paternity of the child is to beadjudicated.” See UPA (2000), section 602. Although the exact meaning of thisphrase may be elusive, its language and the comment to section 602 of the 2000 UPAindicate that this phrase is at least as broad, if not broader than, “a man alleged oralleging himself to be the father.” See UPA (2000), section 602 & cmt. If the TexasLegislature or the UPA drafters had intended to exclude donors from the class ofthose who have standing to maintain a parentage proceeding, they easily could haveexcluded donors from the group of men “whose paternity is to be adjudicated.” See,e.g., UPA (2000), section 102(3) (excluding male donors from definition of “allegedfather,” which definition is not used in section 602 but is used in other sections of the2000 UPA); TEX. FAM.CODE ANN. § 101.0015 (excluding male donors fromdefinition of “alleged father” which term is used in various sections of the TexasFamily Code, but not in section 160.602). The omission of such an exclusion from thestatute suggests that our lawmakers intended a sperm donor to have standing as aman “whose paternity is to be adjudicated.”

Because this court deemed the construction and constitutionality of the Texas FamilyCode provisions at issue in this case to be a matter of great public concern, werequested the Attorney General of Texas to submit an amicus curiae brief addressingthe statutory construction and constitutional issues presented in this case. SeeCommissioners' Court of Nacogdoches County. v. Weaver, 141 S.W.2d 764, 770(Tex.Civ.App.-Beaumont 1940), rev'd on other grounds, 135 Tex. 611, 146 S.W.2d170 (Tex.Com.App.1941). Though relying on a different legal analysis, the AttorneyGeneral reached the conclusion that, under the Texas Family Code, Russell hasstanding to maintain this parentage proceeding.

Based on the language of the statute, the object sought to be obtained, thecircumstances under which the statute was enacted, the legislative history, formerstatutory provisions, including laws on the same or similar subjects, and theconsequences of the different constructions, we conclude that, at a minimum, section160.602(3) confers standing on a man alleging himself to be the biological father ofthe child in question and seeking an adjudication that he is the father of that child. Wefurther conclude that under the statute, as drafted, the issue of the man's status as a

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donor under section 160.702 is to be decided at the merits stage of the litigationrather than as part of the threshold issue of standing. It is undisputed that Russellalleges himself to be L.J.S.'s biological father and that he has filed a parentageproceeding seeking an adjudication that he is L.J.S.'s father. Based on ourinterpretation of the relevant statutes and the undisputed facts germane to the issueof Russell's standing, we conclude that, as a matter of law, Russell has standing tomaintain a proceeding to adjudicate his parentage of L.J.S.

Sullivan argues forcefully that the Texas Family Code, in unambiguous language,confers no rights on known sperm donors, such as Russell, and that this is confirmedby the Texas Legislature's failure to adopt new language from the 2002 UPA that *920would confer parental rights on men in Russell's situation. See UPA (2002), sections703, 704. These arguments, however, go to the merits of this case, rather thanshowing that Russell lacks standing under section 160.602(3). The facts relevant tothe issue of whether Russell is a donor without parental rights under section 160.702appear to be undisputed. Because courts interpret statutes as a matter of law, trialand appellate courts would have the capability, if the law so provided, to expeditiouslydecide the issue of Russell's donor status as part of their determination of whetherRussell has standing under section 160.602. The Texas Legislature, however, has notmade the determination of donor status part of the standing inquiry. See TEX.FAM.CODE ANN. § 160.602. Because, at this juncture, the only issue is Russell'sstanding, the trial court, in ruling on Sullivan's plea to the jurisdiction, was prohibitedfrom reaching the merits of Russell's claim that he is not a donor under section160.702. See Bland Indep. Sch. Dist., 34 S.W.3d at 554–55 (stating courts may notreach the merits of the parties' claims in deciding the issue of standing); TAC Realty,Inc., 126 S.W.3d at 561–65 (stating that standing analysis is entirely separate fromdetermination of merits and holding that trial court erred in determining legal issue ofthe constitutionality of the city's agreements, because that was a determination on themerits, which must not be reached in determining standing); City of Dallas v. FirstTrade Union Sav. Bank, 133 S.W.3d 680, 686 (Tex.App.-Dallas 2003, pet. filed)(holding that, in interlocutory appeal regarding city's plea to the jurisdiction, court couldnot address city's argument that bank's claims against city failed as a matter of lawbecause court may not reach the merits of the claims in determining plea to thejurisdiction). Likewise, in ruling on Sullivan's petition for a writ of mandamus regardingstanding, this court cannot and does not address the merits of Russell's claims,including his assertion that he is not a donor under section 160.702. See BlandIndep. Sch. Dist., 34 S.W.3d at 554–55; TAC Realty, Inc., 126 S.W.3d at 561–65;First Trade Union Sav. Bank, 133 S.W.3d at 686.

It is the role of the Texas Legislature to decide whether Texas public policy would bebest served by requiring men to show they are not donors before they can havestanding to maintain a parentage proceeding. This court must interpret and construethe statute as written; we may not invade the legislative field. At present, the TexasFamily Code confers standing on Russell. See TEX. FAM.CODE ANN. § 160.602.Unless and until the Texas Legislature amends the Texas Family Code to achieve theresult Sullivan urges, there is no basis to deny standing in this type of case.Accordingly, we find no grounds for mandamus relief.

IV. CONCLUSIONThe merits of Russell's parentage proceeding raise important issues of apparent*921 first impression under Texas law. However, under the standing statute enactedby the Texas Legislature, we are unable to decide these important issues indetermining the standing issue that is before this court. See TEX. FAM.CODE ANN. §160.602; Bland Indep. Sch. Dist., 34 S.W.3d at 554–55; TAC Realty, Inc., 126S.W.3d at 561–65; First Trade Union Sav. Bank, 133 S.W.3d at 686. BecauseRussell is a man alleging himself to be L.J.S.'s biological father and seeking anadjudication that he is her father, we conclude that section 160.602 of the TexasFamily Code confers standing on Russell to maintain a parentage proceeding.Accordingly, we deny Sullivan's petition for writ of mandamus.

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HEDGES, C.J., concurring.

ADELE HEDGES, Chief Justice, concurring.While I join the majority's holding and disposition, I respectfully disagree with itsreasoning in reaching its conclusion. Today the majority concludes that the real partyin interest, Brian Keith Russell, has standing under Chapter 160 of the Texas FamilyCode to establish his paternity of a child conceived through artificial insemination fromthe donation of his sperm to an unmarried woman, relator Sharon Elizabeth Sullivan.Because the plain and ordinary meaning of the relevant statutory provision in thatchapter clearly confers standing upon a party such as Russell in the present case, Irespectfully concur.

Standing Under Section 160.602

Standing to sue may be predicated upon either statutory or common-law authority.See Williams v. Lara, 52 S.W.3d 171, 178–79 (Tex.2001). When standing isconferred by statute, the text of the operative provision and the case law interpreting itserve as the proper framework for the analysis. DaimlerChrysler Corp. v. Inman, 121S.W.3d 862, 869 (Tex.App.-Corpus Christi 2003, pet. filed). Sullivan claims that noprovision within the Family Code confers standing upon Russell. I do not agree.

Section 160.602 provides: “Subject to Subchapter D [Texas Family Code §160.301–316] and Sections 160.607 and 160.609 and except as provided bySubsection (b), a proceeding to adjudicate parentage may be maintained by: ... (3) aman whose paternity of the child is to be adjudicated....” TEX. FAM.CODE ANN. §160.602(a)(3) (Vernon Supp.2004–2005). Russell's petition states as follows: “Apurpose of this suit is to establish the parent-child relationship between BRIAN KEITHRUSSELL and the child, the subject of this suit.” Therefore, Russell would clearlyhave standing under section 160.602 unless some other section of Chapter 160states otherwise.

Statutory Text of Section 160.702

Sullivan next claims that the plain language of section 160.702 negates any standingRussell may have been granted under section 160.602. Section 160.702 provides: “Adonor is not a parent of a child conceived by means of assisted reproduction.” TEX.FAM.CODE ANN. § 160.702 (Vernon 2002) (emphasis added).

The primary rule of statutory interpretation is to ascertain and give effect to the intentof the Texas Legislature. Phillips v. Beaber, 995 S.W.2d 655, 658 (Tex.1999). If thestatute is unambiguous, we are required to seek this intent in the plain and commonmeaning of its words and not *922 elsewhere. See Moreno v. Sterling Drug, Inc., 787S.W.2d 348, 352 (Tex.1990).

The “plain and common meaning” of section 160.702 does not negate Russell'sstanding under section 160.602. Rather, section 160.702 states only that one's statusas a mere donor does not establish in and of itself the existence of a parent-childrelationship between the donor and the child resulting from assisted reproduction. Itdoes not state that a donor can never be a parent under appropriate circumstances.Perhaps Sullivan's construction of this provision would be accurate if the statute hadprovided, “A donor cannot be a parent of a child conceived by means of assistedreproduction.” But that language does not appear in section 160.702, and Sullivan'sconstruction cannot be reached based on the plain and common meaning of theprovision as enacted. In the present case, Russell does not claim that he is a fatherbased solely on his status as a donor; rather, he alleges paternity of the child basedon a “written co-parenting agreement.” Therefore, Russell's standing is not negatedby section 160.702 because the language simply does not bear the meaning Sullivanascribes to it.

Conclusion

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Because section 160.602 of the Family Code broadly confers standing upon BrianKeith Russell in the present case and no other provision in Chapter 160 negates suchstanding, the trial court did not err in denying relator Sharon Elizabeth Sullivan's plea tothe jurisdiction. Accordingly, I concur in the majority's denial of her petition for writ ofmandamus.

Footnotes

Sullivan was not represented by counsel when she signed the agreement,which was drafted by an attorney retained by Russell. Although theparties exchanged drafts of a modified agreement that purportedly wouldhave replaced their “Co–Parenting Agreement,” the parties neverreached agreement as to any amendment, revocation, or modification oftheir original agreement.

Although the parties are in agreement on this issue, we need not and donot determine whether Sullivan has an adequate remedy at law becausewe conclude that the trial court did not clearly abuse its discretion anddeny mandamus relief on that basis.

It is undisputed that Russell donated his sperm. Nonetheless, throughoutthis opinion, when we speak of the issue of whether Russell is a donor,we refer to the issue of whether Russell falls under the statutorydefinition of donor and therefore lacks parental rights under section160.702. See TEX. FAM.CODE ANN. §§ 160.102(6), 160.702.

All statutory references herein are to the Texas Family Code unlessotherwise stated.

Even if one construed article 8 of the UPA as eliminating the standing ofa gestational mother to file a proceeding to adjudicate parentage as to achild born to her under a valid gestational agreement, this does notappear to support a similar reading of section 702 of the UPA. Though itmight be an example of a limitation on standing that is not contained insection 602 of the UPA itself, article 8 differs significantly from article 7of the UPA. Article 8 provides procedures independent from a parentageproceeding for intended parents to validate a gestational agreement andbe declared parents of the child. See UPA (2000), article 8. Article 7does not provide independent procedures, and, in fact, section 705 ofthe UPA indicates that a proceeding to adjudicate parentage is the way toresolve controversies over parentage in the assisted-reproductioncontext. See UPA (2000), section 705.

There is no indication that the 2002 comments were substantive, andthese comments may be referring to “standing” in a looser sense, likethat used in the comment to section 602, to refer to the ability to succeedon the merits, which is actually not standing at all. See UPA (2002),sections 602, 702, cmts.

On rehearing, both Sullivan and Russell have submitted filings in whichthey attribute to this court various holdings and rulings that far exceed thescope of our opinion. To eliminate the parties' apparent confusion aboutthe nature and scope of this court's decision in this case, we note thefollowing:

• This court has taken no position on the validity or enforceability, ifany, of the “Co–Parenting Agreement” signed by Sullivan andRussell.

• This court has not based its determination that Russell hasstanding on the “Co–Parenting Agreement.”


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• This court has not held that the trial court should determine theeffect, if any, of the “Co–Parenting Agreement” by means of anexercise of the trial court's discretion.

• This court has not indicated that the merits of cases such as thisone should be decided by the trier of fact on a case-by-casebasis.

In the event of any conflict between a Chapter 160 provision and anotherstate statute or rule, the former prevails. TEX. FAM.CODE ANN. §160.002 (Vernon 2002).

The question of whether the “written co-parenting agreement” suffices toconfer the status of parenthood is not before us. I express no opinion onwhether Russell will ultimately prevail in the trial court. I only recognize hisstanding to try.





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Change View

1 Administrative Law and Procedure Substantial EvidenceSubstantial-evidence review is a limited standard of review requiring onlymore than a mere scintilla to support an agency's determination. V.T.C.A.,Government Code § 2001.174.

2 Administrative Law and Procedure Weight of EvidenceMore than a scintilla of evidence to support an administrative finding existsif the evidence would allow reasonable and fair-minded people to differ intheir conclusions concerning the finding.

3 Administrative Law and Procedure Substantial EvidenceWhether substantial evidence supports an administrative finding is aquestion of law. V.T.C.A., Government Code § 2001.174.

Administrative Law and Procedure Arbitrary, Unreasonable or

Austin.

GENERAL MOTORS CORPORATION, Appellant,

v.

Brett BRAY, in his Official Capacity as Director of the Motor

Vehicle Division of the Texas Department of Transportation; Charles

E. Elliott and Eaton Motor Company, Inc., Appellees.

No. 03–06–00766–CV. Aug. 16, 2007. Rehearing Overruled Feb. 1, 2008.

SynopsisBackground: Automobile manufacturer appealed from decision of the Motor VehicleDivision of the State Department of Transportation, finding that the manufacturerunreasonably denied transfer of one automobile franchise to the owner of anotherfranchise, in violation of the Occupations Code. The 261st Judicial District Court,Travis County, W. Jeanne Meurer, J., affirmed the Division's decision, andmanufacturer appealed.

Holdings: The Court of Appeals, Diane Henson, J. held that:1 on a question of first impression, section of Occupations Code did not provide thatmanufacturer may only reasonably deny an application for transfer of automobiledealership based on the applicant's unacceptable moral character or the applicant'sfailure to meet the manufacturer's written, reasonable, and uniformly appliedstandards relating to business experience or financial qualifications, and2 applicant was qualified under Occupations Code.

Affirmed in part; reversed and remanded in part.

West Headnotes (15)

RELATED TOPICS

Antitrust and Trade Regulation

Statutory Unfair Trade Practices andConsumer Protection

Transfer of Dealer Franchise


Judicial Review of Administrative Decisions

Searching and Thorough Review ofAdministrative Agency Exercise ofDiscretionSupreme Court Affirms AdministrativeAgency

General Motors Corp. v. BrayCourt of Appeals of Texas, Austin. August 16, 2007 243 S.W.3d 678 (Approx. 20 pages)


General Motors Corp. v. Bray - WestlawNext https://a.next.westlaw.com/Document/I14a929854cbe11dc8200d0063168...

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4 Capricious Action; IllegalityAn agency decision is arbitrary when its final order denies parties dueprocess of law or fails to demonstrate a connection between the agencydecision and the factors that are made relevant to that decision by theapplicable statutes and regulations. V.T.C.A., Government Code §2001.174.

5 Administrative Law and Procedure Wisdom, Judgment orOpinionAdministrative Law and Procedure Arbitrary, Unreasonable orCapricious Action; IllegalityA court reviewing an agency decision for arbitrariness should consider allrelevant factors and may not substitute its judgment for that of the agency.V.T.C.A., Government Code § 2001.174.

6 Administrative Law and Procedure Discretion of AdministrativeAgencyAn agency abuses its discretion if it acts without reference to guiding rulesor principles. V.T.C.A., Government Code § 2001.174.

7 Antitrust and Trade Regulation Transfer, Sale, and AssignmentSection of Occupations Code stating when it is unreasonable for anautomobile manufacturer to reject the transfer of a dealership did notprovide that automobile manufacturer may only reasonably deny anapplication for transfer based on the applicant's unacceptable moralcharacter or the applicant's failure to meet the manufacturer's written,reasonable, and uniformly applied standards relating to businessexperience or financial qualifications; “if any” language in the statuterecognized that manufacturers may not have written, reasonable, anduniformly applied standards of that nature. V.T.C.A., Occupations Code §2301.359(e).


8 Statutes Meaning of LanguageIn determining the meaning of a statute, a court must follow the plainlanguage of the statute. V.T.C.A., Government Code § 311.021(2).


9 Statutes Existence of AmbiguityIf a statute is clear and unambiguous, it should be given its commonlyunderstood meaning without resort to extrinsic aids of statutoryconstruction. V.T.C.A., Government Code § 311.021(2).


10 Statutes Extrinsic Aids to ConstructionStatutes Existence of AmbiguityIf a statute is ambiguous, extrinsic aids, such as the interpretation of theagency charged with the statute's enforcement, may be used to determinelegislative intent. V.T.C.A., Government Code § 311.021(2).


11 Statutes Words Omitted


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Statutes Words UsedIn interpreting a statute, a court must presume that every word in the statuteis intended to be effective, yet the court must also recognize what languageis not included in the statute. V.T.C.A., Government Code § 311.021(2).

12 Administrative Law and Procedure RemandBecause of the general principle that courts may not reweigh evidence andsubstitute their judgment for that of administrative agencies, courts shouldgenerally remand to agencies when they find errors of law. V.T.C.A.,Government Code § 2001.174.

13 Appeal and Error Particular Cases and QuestionsDeterminations of reasonableness are usually questions for fact-finders.

14 Antitrust and Trade Regulation Transfer, Sale, and AssignmentAn automobile manufacturer basing a denial of a transfer application fortransfer of an automobile dealership on unwritten standards is not a per seviolation of Occupations Code, although the Motor Vehicle Division of theDepartment of Transportation may consider whether the standards werewritten as one factor in analyzing whether the denial was reasonable.V.T.C.A., Occupations Code § 2301.359(e).


15 Antitrust and Trade Regulation Transfer, Sale, and AssignmentProspective transferee of automobile dealership was qualified undersection of Occupations Code regulating transfer of automobile dealerships,where transferee had worked in the used-car business for 20 years, hadprofitably run a dealership for 13 years, had taken university financecourses, and owned a dealership that was well-known for having a superiorservice department and that was taking steps to increase its saleseffectiveness. V.T.C.A., Occupations Code § 2301.360(b).


*680 Tiffany G. Hildreth, Strasburger & Price, L.L.P., Austin, TX, for Appellant.

Liz Bills, Asst. Atty. Gen., Natural Resources Division, Austin, TX, for Appellees.

Before Chief Justice LAW, Justices PURYEAR and HENSON.

Opinion

OPINION

DIANE HENSON, Justice.

General Motors appeals the trial court's order affirming a final order issued by theMotor Vehicle Division of the Texas Department of Transportation. The Division's finalorder finds that GM unreasonably denied the request of Eaton Motor Company, Inc. totransfer its Buick, Pontiac, and GMC franchises to Charles E. Elliott, who was aChevrolet franchise holder, in violation of the occupations code. See Tex. Occ.CodeAnn. §§ 2301.359, .360, .458 (West 2004). The final order also finds that Elliott isqualified to be a Buick, Pontiac, and GMC dealer, which forces GM to accept thetransfer. See id. § 2301.360(c). In nine points of error, GM challenges 96 of the 175findings of fact and four of the five conclusions of law. Because the Division'sinterpretation of section 2301.359 of the occupations code contradicts the plain


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language of the statute, we will reverse portions of the trial court's order and remandcertain issues to the Division for further proceedings. We will affirm the remainder ofthe trial court's order.

BACKGROUNDFor more than 37 years, Hays H. Mills owned and operated a Pontiac, Buick, andGMC dealership in Athens, Texas, known as Eaton Motor Company. Mills, who was 79years old and in ill health at the time of the administrative hearing, had agreed totransfer his dealership to Charles Elliott, who owned and operated Elliott Chevrolet.Elliott had operated the Chevrolet dealership in Athens since 1985, and throughout theyears, Elliott and Mills had been fierce competitors in the Athens market.

Athens, a town with a population around 11,000, is the county seat of HendersonCounty in rural northeastern Texas. It is approximately 65 miles from Dallas andapproximately 35 miles from Tyler. A significant percentage of Athens's residentscommute to Dallas and Tyler to work. Beginning in late 2002, Athens suffered aneconomic downturn because of the loss of two of the city's major employers.

In late 2003, an employee in GM's Dealer Network and Development Divisionapproached Mills and suggested that he sell his dealership to Elliott because GM'slong-term plan for Athens was for it to be a one-GM-dealer town where all GMproducts would be sold under one roof. GM's Zone Manager made the samerecommendation to Elliott, urging him to buy the Eaton dealership. GM's RegionalManager for Sales told Mills that if Mills did not *681 procure a buyer before hisdealership operations ceased, the consequences would be devastating: his heirsmight lose around half the value of the dealership.

As a result of the discussions that both Mills and Elliott had with GM, Mills and Elliottentered into negotiations that resulted in the execution of an asset and stockpurchase agreement in which Elliott agreed to purchase all the stock of Eaton MotorCompany, the dealership building, parts, tools, equipment, and “blue sky” for$1,400,000. This agreement was made contingent on GM's approval of the transferof the franchises.

On November 24, 2003, Mills applied online for approval by GM to transfer hisdealership to Elliott. GM rejected the application on January 5, 2004. One month later,Mills reapplied to GM by certified mail as required by the occupations code. Id. §2301.359(b)(2). GM again rejected the application. In rejecting the application, GMfocused on Elliott's failure to achieve satisfactory retail-sales-index (RSI) andconsumer-satisfaction-index scores.

The GM policies regarding dealership transfers that were in effect at the time ofMills's application are contained in Dealer Bulletin GM 01–17, which was distributed toall GM dealers. According to the bulletin, a proposed GM dealer should be a personwho “[h]as a successful record as a merchandiser of automotive products andservices, or has otherwise demonstrated the ability to successfully manage adealership.”

In addition, the bulletin contains requirements for a “Multiple Dealer Operator,” whichapplied to Elliott because a Multiple Dealer Operator is defined by the bulletin as “aperson who has, or is applying to have, an ownership interest in more than one GMdealership and who is named, or is applying to be named, as Dealer Operator inmore than one GM dealership.” (Emphases added.) One of the requirements for aMultiple Dealer Operator is that “[e]ach GM dealership where a [Multiple DealerOperator] candidate is Dealer Operator or has any ownership interest must haveattained a year-end Retail Sales Index of 100 or higher for all such dealershipoperations.” The bulletin also provides an exception for dealers with RSI scores of atleast 85 who either have a “positive sustaining trend” in their RSI scores or provide abusiness plan describing how they will increase their RSI scores to 100 within twoyears.

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In essence, RSI scores measure dealers' ability to realize their sales opportunities ascalculated by GM. A dealer's RSI score is the percentage of his expected sales thathe actually makes. Calculating this score involves several steps. First, GM assignseach of its dealers an area of primary responsibility by assigning each census tract tothe dealer that is closest to the “centroid” of the tract as calculated by a computer(unless a geographical feature bars access to the dealership by a substantial numberof the residents of the census tract). Second, GM formulates a sales expectation forthe area of primary responsibility by applying its Texas market share for each type ofvehicle (e.g., light-duty trucks or luxury sedans) to the number of vehicles of each type(of any make) registered by consumers in the area of primary responsibility. Third,GM calculates the RSI score by expressing the dealer's sales anywhere in thecountry as a percentage *682 of expected sales for the area of primary responsibility.An RSI score of 100 is “average,” meaning that the GM dealer reached the samelevel of sales for its market as the composite of all GM dealers did in the Texasmarket.

Elliott's year-end RSI scores were problematic in that he did not attain a score of 100.Elliott's score for 2003 was 48.7, and his scores for 2002, 2001, and 2000 were 65.7,74.0, and 66.04, respectively.

In response to GM's rejection of the transfer application, Mills filed a protest with theDivision in April 2004, and Elliott moved to intervene. See id. § 2301.360(a) (“A dealerwhose application is rejected under Section 2301.359 may file a protest with theboard. A protest filed under this section is a contested case.”). Mills and Elliottasked the Division to find that GM unreasonably denied the transfer application inviolation of the occupations code and that Elliott was qualified to be a Pontiac, Buick,and GMC dealer in Athens. See id. § 2301.360(b) (“In a protest under this section,the board must determine whether the prospective transferee is qualified. The burdenis on the manufacturer or distributor to prove that the prospective transferee is notqualified.”).

At the protest hearing, the primary dispute between the parties concerned the extentto which RSI scores are affected by market forces that dealers are unable to controland the extent to which RSI scores accurately measure dealer effort and ability.

Mills and Elliott attempted to show that Elliott's low RSI scores were caused byexternal market forces that Elliott had no control over. Their expert testified that thereare many more Athens residents who commute to Tyler and Dallas for work than thereare residents of other cities who commute to Athens for work. The expert testified thatDallas and Tyler are both higher than Athens in the “hierarchy of cities,” that thosecities therefore have Chevrolet dealers with larger and more varied selections thanElliott Chevrolet, and that people are more likely to buy vehicles from dealers withlarger inventories, especially if the dealerships are in or on the way to the cities inwhich those people work. The expert thus claimed that Elliott was losing sales toChevrolet dealers in Tyler and Dallas through no fault of his own.

GM attempted to show that Elliott's RSI scores were the result of his poorperformance as a dealer. Its expert testified that the RSI formula takes account ofmany of the market forces identified by Mills and Elliott. The expert also pointed tospecific Chevrolet dealerships that operated under what the expert considered similarconditions to Elliott Chevrolet that had attained RSI scores over 100.

This debate was germane to the two issues in the case before the agency—whetherElliott is qualified and whether *683 GM unreasonably denied the transfer application.According to the occupations code, the key issue for the Division to determine in aprotest action is “whether the prospective transferee is qualified.” Id. But becauseMills and Elliott requested a finding that GM violated the occupations code along withits protest action, considerable time was spent in the administrative hearing onwhether GM unreasonably denied the transfer application in violation of section2301.359 of the occupations code. That section provides,

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A manufacturer or distributor may not unreasonably withhold approvalof an application [for transfer of a dealership]. It is unreasonable for amanufacturer or distributor to reject a prospective transferee who isof good moral character and who meets the written, reasonable, anduniformly applied standards or qualifications, if any, of themanufacturer or distributor relating to the prospective transferee'sbusiness experience and financial qualifications.

Id. § 2301.359(e).

The Division interprets this statute as providing that a manufacturer may onlyreasonably deny a transfer application on the basis of the applicant's unacceptablemoral character or the applicant's failure to meet written, reasonable, and uniformlyapplied standards relating to the prospective transferee's business experience orfinancial qualifications.

Based on this interpretation, the Division held that GM unreasonably denied thetransfer application in violation of section 2301.359 by using unwritten standards. TheDivision held that the dealer bulletin's requirement that a prospective transferee who isa current GM dealer “must have attained a year-end Retail Sales Index of 100” foreach GM dealership did not provide notice to dealers that their applications would berejected if they had not attained year-end RSI scores of 100 or higher. The Divisionalso held that GM violated the statute because the fact that it reviews RSI scores forthe previous three years was unwritten. Further, the Division found that GM assignsunwritten weights to certain criteria enumerated in the dealer bulletin.

The Division also found that Elliott is qualified, which forced GM to accept the transfer.See id. § 2301.360(c) (“If the board's order is that the prospective transferee isqualified, the dealer's franchise is amended to reflect the change in franchisee, andthe manufacturer or distributor shall accept the transfer for all purposes.”).

GM sought judicial review of the Division's decision in district court. See id. §2301.751(a), (c) (West 2004) (“A party to a proceeding affected by a final order, rule,or decision or other final action of the board or director under this chapter ... mayseek judicial review of the action,” which is conducted “in the manner provided byChapter 2001, Government Code.”). The district court affirmed the Division's finalorder in all respects.

GM appeals to this Court, arguing that the Division incorrectly interpreted section2301.359 and challenging almost all the findings of fact, as well as the Division'sconclusions that GM violated the statute and that Elliott is qualified.

DISCUSSION

Standard of ReviewOur analysis will be conducted under the following standard of review:

*684 [A] court may not substitute its judgment for the judgment of the state agencyon the weight of the evidence on questions committed to agency discretion but:

(1) may affirm the agency decision in whole or in part; and

(2) shall reverse or remand the case for further proceedings if substantial rightsof the appellant have been prejudiced because the administrative findings,inferences, conclusions, or decisions are:

(A) in violation of a constitutional or statutory provision;

(B) in excess of the agency's statutory authority;

(C) made through unlawful procedure;

(D) affected by other error of law;

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1 2 3

4 5 6

7

(E) not reasonably supported by substantial evidence considering the reliableand probative evidence in the record as a whole; or

(F) arbitrary or capricious or characterized by abuse of discretion or clearlyunwarranted exercise of discretion.

Tex. Gov't Code Ann. § 2001.174 (West 2000).

Substantial-evidence review is a limited standard of review requiringonly more than a mere scintilla to support an agency's determination. MontgomeryIndep. Sch. Dist. v. Davis, 34 S.W.3d 559, 566 (Tex.2000) (citing Railroad Comm'nof Tex. v. Torch Operating Co., 912 S.W.2d 790, 792–93 (Tex.1995)). More than ascintilla of evidence to support a finding exists if the evidence would allow reasonableand fair-minded people to differ in their conclusions concerning the finding. HaggarClothing Co. v. Hernandez, 164 S.W.3d 386, 388 (Tex.2005) (quoting BurroughsWellcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex.1995)). Whether substantialevidence supports an administrative finding is a question of law. Davis, 34 S.W.3d at566.

An agency decision is arbitrary when its final order denies partiesdue process of law or fails to demonstrate a connection between the agency decisionand the factors that are made relevant to that decision by the applicable statutes andregulations. Occidental Permian Ltd. v. Railroad Comm'n of Tex., 47 S.W.3d 801,806 (Tex.App.-Austin 2001, no pet.). A court reviewing a decision for arbitrarinessshould consider all relevant factors and may not substitute its judgment for that of theagency. Id. An agency abuses its discretion if it acts without reference to guiding rulesor principles. See City of Amarillo v. Railroad Comm'n of Tex., 894 S.W.2d 491, 495(Tex.App.-Austin 1995, writ denied).

Statutory–Construction PointsIn points of error one, two, five, and six, GM argues that the Division incorrectlyinterpreted section 2301.359 of the occupations code as providing that amanufacturer may only reasonably deny a transfer application based on theapplicant's unacceptable moral character or the applicant's failure to meet themanufacturer's written, reasonable, and uniformly applied standards relating tobusiness experience or financial qualifications. The interpretation of section2301.359 is a question of first impression. GM also challenges 88 findings of fact andfour conclusions of law that are allegedly tainted by the statutory-construction error.

Construction of Section 2301.359The parties have two disparate interpretations of section 2301.359 of the

occupations code. The dispute centers on the relationship between the two sentencesin subsection (e). The first sentence of *685 subsection (e) provides that amanufacturer “may not unreasonably withhold approval” of a transfer application. Tex.Occ.Code Ann. § 2301.359(e). The second sentence states that “[i]t is unreasonablefor a manufacturer or distributor to reject a prospective transferee who is of goodmoral character and who meets the written, reasonable, and uniformly appliedstandards or qualifications, if any, of the manufacturer or distributor relating to theprospective transferee's business experience and financial qualifications.” Id.

The Division believes that the second sentence, which explicitly refers only to anunreasonable denial, sets out all the ways that a manufacturer may reasonably rejecta transfer applicant. The Division urges that a manufacturer may only reasonablydeny a transfer based on the moral character of the applicant or the applicant's failureto meet the manufacturer's written, reasonable, and uniformly applied standards orqualifications relating to the applicant's business experience or financial qualifications.The Division addresses the “if any” language in the second sentence by claiming thata manufacturer without written, reasonable, and uniformly applied standards relating tobusiness experience or financial qualifications may not reasonably reject anyapplicant of good moral character.


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8 9 10

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GM, on the other hand, argues that the second sentence simply describes onesituation in which a manufacturer's rejection of a transfer applicant would beunreasonable per se. It urges that the “if any” language reflects the legislature'sunderstanding that not all manufacturers and distributors have written, reasonable,and uniformly applied standards for transfer applicants relating to businessexperience and financial qualifications.

In determining the meaning of a statute, we are guided by certainwell-settled principles of statutory construction. First and foremost, we must follow theplain language of the statute. Hunter Indus. Facilities v. Texas Natural Res.Conservation Comm'n, 910 S.W.2d 96, 102 (Tex.App.-Austin 1995, writ denied). If astatute is clear and unambiguous, it should be given its commonly understoodmeaning without resort to extrinsic aids of statutory construction. Id. If a statute isambiguous, however, extrinsic aids, such as the interpretation of the agency chargedwith the statute's enforcement, may be used to determine legislative intent. Id.

Further, we must presume that every word in the statute is “intended to beeffective,” see Tex. Gov't Code Ann. § 311.021(2) (West 2005), yet we must alsorecognize what language is not included in the statute. The second sentence of thestatute does not explicitly address situations where a transfer application is deniedbecause the applicant (1) does not have good moral character, (2) does not meetstandards relating to business experience or financial qualifications that are notwritten, reasonable, or uniformly applied, (3) does not meet written, reasonable, anduniformly applied standards that do not relate to business experience or financialqualifications, or even (4) does not meet written, reasonable, and uniformly appliedstandards that relate to business experience or financial qualifications. Because thesecond sentence leaves many situations unaddressed, we cannot accept theDivision's argument that it is intended to be comprehensive.

Here, the plain and unambiguous language of section 2301.359 contradicts theDivision's interpretation. We agree with GM that the legislature's “if any” languagerecognizes that manufacturers may not have written, reasonable, and uniformlyapplied standards relating to business experience and financial qualifications. *686Moreover, nothing in the statute requires manufacturers to have such standards inorder to reasonably deny a transfer applicant with good moral character.

While we agree with GM's primary interpretation of the statute, we reject its assertionthat the second sentence simply provides a bright-line test for one specific factualsituation. While it does do that, the second sentence also provides guidanceconcerning the interpretation of the comprehensive standard set out in the firstsentence—reasonableness. Thus, a manufacturer who rejects a transfer applicantbecause of the applicant's unacceptable moral character has a better argument withrespect to the reasonableness of its denial than does a manufacturer who rejects anapplicant based on unwritten, unreasonable, and disparately applied standards that donot relate to business experience or financial qualifications.

Because of the general principle that courts may not reweigh evidenceand substitute their judgment for that of administrative agencies, courts shouldgenerally remand to agencies when they find errors of law. See Texas Dep't ofTransp. v. T. Brown Constructors, Inc., 947 S.W.2d 655, 659–60 (Tex.App.-Austin1997, pet. denied). Determinations of reasonableness are usually questions forfact-finders. Adam Dante Corp. v. Sharpe, 483 S.W.2d 452, 456 (Tex.1972);Southwest Guar. Trust Co. v. Providence Trust Co., 970 S.W.2d 777, 783(Tex.App.-Austin 1998, pet. denied). Accordingly, we reverse the portions of the trialcourt's order that affirm the Division's conclusions that GM unreasonably denied thetransfer application and remand the case to the Division for it to determine whetherGM unreasonably denied the transfer application using the construction of the statutethat we have set forth above.

While our remand obviates the need to address many of the findings of fact that GM

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14

challenges because those findings appear to have been tainted by the statutory-construction error, some of the challenged findings still merit discussion.

Challenged Findings of FactClearly, our holding with respect to the construction of section 2301.359 requires usto sustain GM's challenges to the following “findings of fact,” which actually containlegal conclusions, because they are affected by an error of law that prejudiced GM'ssubstantial rights:

102. Use of such unidentified factors and judgment comprise unwritten standards,which make them a material violation of Code § 2301.359(e).

....

107. GM's assignment of the weight assessed to each factor on a transferapplication is an unwritten criterion, which makes the standard a material violation ofCode § 2301.359(e).

....

111. Basing a denial upon unwritten standards and qualifications is a materialviolation of Code § 2301.359(e).

As explained above, basing a denial of a transfer application on unwrittenstandards is not a per se violation of section 2301.359, although the Division mayconsider whether the standards were written as one factor in analyzing whether thedenial was reasonable.

We also sustain GM's challenges to the following findings of fact because they are*687 unsupported by any record evidence and prejudiced GM's substantial rights:

110. Because GM based its denial on unwritten standards and qualifications, theapplicant and prospective transferee lacked fair notice of the qualifications andstandards that the manufacturer would apply to the pending transfer.

....

175. GM based its decision to reject Eaton's dealership transfer application onunwritten standards and qualifications relating to business experience.

GM's requirement that “[e]ach GM dealership where a [Multiple Dealer Operator]candidate is Dealer Operator or has any ownership interest must have attained ayear-end Retail Sales Index of 100 or higher for all such dealership operations” wasclearly written into its dealer bulletin in the section concerning Multiple DealerOperators. The use of the word “must” gave fair notice that prospective transfereeswho had not met this level of sales effectiveness would be denied. Although theDivision found that GM's policy of reviewing a dealer's RSI scores for the previousthree years was unwritten, this policy did not affect Elliott—whether GM reviewed onlythe current year, one prior year, three prior years, or all the years that Elliott ownedthe dealership, Elliott would have fallen far short of the requirement that his RSIscores be at or above 100.

The Division also found that GM placed unwritten weights on certain factors.However, this weighting process was never applied to Elliott. GM's DealerOrganization Manager for the South Central Region, William Siegrist, testified at theadministrative hearing that prospective transferees who are multiple dealer operatorsmust meet minimum requirements in four areas—sales effectiveness, customersatisfaction, profitability, and capitalization—and that a dealer who did not meet theminimum requirement in any of the four areas would be rejected unless an exceptionapplied. Siegrist also testified that if a dealer met the minimum standards in each ofthe four areas, he would also have to meet a composite minimum in which saleseffectiveness is weighted 50%, customer satisfaction is weighted 30%, and


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profitability and capitalization are each weighted 10%. The weighting process wasnever applied to Elliott because he did not meet the minimum requirement for saleseffectiveness and did not qualify for an exception.

The Division also found that GM used unwritten standards because the dealer bulletinstates that GM will use its “business judgment” in evaluating transfer applications andbecause the bulletin asserts that it is impossible to catalogue every relevant factorand make a comprehensive list. However, all the testimony indicated that no “businessjudgment” was used in evaluating Elliott because he fell far short of the RSIrequirement and did not qualify for an exception. Thus, GM did not base its denial ofthe transfer application on unwritten standards. The requirement that a prospectivetransferee “must” have RSI scores over 100 was clearly written into the dealerbulletin, and all the evidence adduced at the administrative hearing indicated that thiswas the sole basis on which GM relied to deny the transfer application.

We reject GM's challenges to the following findings of fact as without merit becausethe findings are supported by substantial evidence, as described in more detail below:12, 13, 14, 15, 18, 19, 20, 37, 38, 41, 42, 43, 44, 55, 60, 61, 62, 63, 64, 66, 67, 68,69, 99, 100, 101, 104, 109, 113, 116, 117, 118, 119, 120, 121, 122, 123, 125, 126,127, 128, 129, 130, 131, 133, 134, 135, 136, 137, 139, 140, 141, 142, 143, 146,147, 148, *688 149, 150, 152, 153, 154, 156, 157, 158, 159, 160, 161, 162, 163,164, 165, 166, and 167.

The following findings of fact are supported by Mills's undisputed testimony:

12. It was GM's long-term goal to change the channeling strategy in Athens in aneffort to eliminate the intra-brand competition between Chevrolet, GMC, Pontiacand Buick.

13. GM would put all products in one dealership with the new channeling strategy.

14. During his visit to the Eaton dealership in late 2003, Mr. Bufstetter told Mr.Mills that the ideal situation would be for Mr. Elliott, the owner of the Chevroletfranchise in Athens, to buy Mr. Mills' Pontiac/Buick/GMC dealership.

....

18. GM rejected the request for Scott Mills to become the successor operator.

19. Scott Mills was involved in a serious motorcycle accident in 1999, which lefthim blind.

20. Larry Hice, GM Regional Manager for Sales, told Mr. Mills that if hisdealership operations ceased without selling it, then his wife and son might lose atleast half of the value of his business.

The following findings are supported by Elliott's undisputed testimony:

15. Tom Craig, the former GM Zone Manager for Athens, urged Mr. Elliott to buy theEaton dealership.

....

120. The Athens Ford dealer went out of business because he over built hisdealership and sold vehicles too cheaply in order to achieve volume.

....

123. Most Dodge and Ford vehicles are less expensive than comparableChevrolet vehicles.

....

125. Since 2002, Athens lost several of its major employers and approximately

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1,200 of its highest paying jobs due to a downturn in the local economy.

....

141. Elliott Chevrolet maintains an inventory of 90 to 130 Chevrolet vehicles.

....

146. GMAC requires the dealer's inventory to be consistent with capitalization.

147. Even if a dealer wanted to maintain a higher inventory, GMAC will not allowthe dealer to go above his travel rate.

....

149. Elliott Chevrolet's reputation for quality service is well known.

150. GM representatives often send vehicles that other dealers have beenunable to repair to Elliott Chevrolet for service.

....

157. The transfer of Elliott Chevrolet from GM's Tyler Zone to the Dallas Zonecaused a competitive hardship.

158. GM does not advertise the Chevrolet brand in the Athens [area of primaryresponsibility] but does do brand advertising in the Dallas [area of primaryresponsibility].

159. Once Elliott was transferred into the Dallas Zone, Dallas co-op advertisingrequired Elliott to be charged a $400 fee per unit purchased from GM.

160. This left Elliott Chevrolet with a $400 competitive disadvantage in price *689to his local competitors in the Tyler Zone who do not pay this co-op fee.

161. Elliott Chevrolet withdrew from the Dallas co-op advertising and purchasedsix billboards at a 50% increase in previous advertising expenditures.

162. Elliott Chevrolet has undertaken substantial efforts to improve its salesperformance by focusing advertising expenditures specifically on the Athensmarket.

163. Mr. Elliott took finance course work at the University of Texas but he did notearn a degree.

164. Financial circumstances caused Mr. Elliott to withdraw from college.

165. Mr. Elliott worked for thirteen years in the used car business inBrownsborough, Texas where he owned three used retail car operations.

166. In 1985, Mr. Elliott purchased Godwin Chevrolet in Athens, Texas.

167. Mr. Elliott subsequently changed the dealership name to Elliott Chevrolet andhe has been the dealer operator of a profitable Chevrolet dealership forapproximately 20 years.

The following finding is supported by the undisputed testimony of Elliott's wife Alicea,who helped him run Elliott Chevrolet:

121. In an effort to improve sales, Elliott Chevrolet has reducedprofitability on new vehicles by operating the new vehicle departmentin the red.

The following findings are supported by the undisputed testimony of William Siegrist,GM's Dealer Organization Manager for the South Central Region: 9


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37. The committee [that made the decision concerning the transfer application] alsodiscussed other considerations, such as the dealer network plan, line-makealignment, and Elliot [sic] Chevrolet's declining trend in sales performance over thelast few years.

38. The action committee was made aware of the long-term plan to make Athens,Texas a one GM dealer town, which Elliott's purchase of the Eaton dealershipwould accomplish.

....

41. Some of GM's employees who were making recommendations about theapproval or denial of the transfer application were unfamiliar with Athens, Texasand Elliott Chevrolet.

42. Keith Best was a new zone manager for Dallas and the surrounding areas.

43. Larry Hice, GM Regional Manager, knew little about the Athens market andElliott's dealership, yet made a recommendation to deny the transfer application.

44. The action committee did not solicit a recommendation from Tom Craig, theformer zone manager who was familiar with the Athens, Texas market and whofirst recommended the sale of Eaton's dealership to Elliott to accomplish GM'schanneling strategy.

....

104. GM assigns weight to each of these factors on a transfer application basedon an unwritten policy with RSI accounting for 50%, CSI 30%, capital 10% andprofitability 10%.

....

113. The GM action committee was unaware of the economic downturn becausethey relied upon Mr. Best, who was new to Athens, and Mr. Hice, who is unfamiliarwith Athens, to issue recommendations about Elliott Chevrolet's market.

....

*690 140. Travel rate is the volume of new vehicle sales that a dealer makeswithin any particular period of time.

....

148. No operational analysis of the dealership was performed by themanufacturer to verify its assumption that Elliott Chevrolet's sales performancedecline was based on an operational problem.

The following findings are supported by (and often taken directly from) GM's dealerbulletin, which was entered into evidence at the administrative hearing:

55. GM's qualifications and standards as to business experience for a dealertransfer applicant are set forth in the Dealer Bulletin GM 01–17 Section I.B.“Personal Background and Experience,” and apply to all proposed ownershipchanges.

....

60. GM's [sic] evaluates a dealer transfer application by considering and weighingmany factors, which are not all identified in the bulletin.

61. GM varies the weight and importance of these factors depending upon manyissues, which include but are not limited to, the size and expense structure of thedealership opportunity under review.


12 of 18 6/25/2012 12:52 PM


62. GM also evaluates a dealer transfer application by recognizing that themanufacturer does not anticipate every issue that may arise in connection with thereview of proposed changes, and factors other than those contained in the bulletinmay have a substantial impact on the outcome of GM's review of a proposal.

63. GM has no precise formula or abstract calculation that is used to make alldeterminations, and the application of business judgment is essential to GM.

64. GM requires the following for the business experience and educationalbackground of all dealer applicants: (1) competent in business; (2) effectivemanager; (3) caring attitude toward customers; (4) successful record as amerchandiser of automotive products and services, or has otherwise demonstratedthe ability to successfully manage a dealership.

....

66. GM failed to meet its burden of proof to establish by credible evidence that Mr.Elliott lacks the business experience and educational background required by GM inits Dealer Bulletin GM 01–17 Section I. B.

67. Sales performance standards are not required under GM's background andexperience standards.

68. GM does consider prompt and effective sales and service and effectivesales performance as an “other consideration” for a dealer transfer application.

69. GM's written standards for the business experience of all dealer candidatesdo not specifically address a particular level of sales performance.

....

99. GM uses unidentified factors that are not contained in GM's written standardsthat have a substantial impact on its decisions regarding dealer transferapplications.

100. GM uses unidentified business judgment that is not contained in GM'swritten standards to make its decisions regarding dealer transfer applications.

*691 101. Business judgment is subjective and will vary from person to personand application to application.

....

109. The manufacturer's three year review for sales data to calculate the dealer'sRSI is an unwritten standard and qualification.

The following findings are supported by the testimony of Mills and Elliott's expert,Ernest Harry Manuel, Jr.:

116. The hierarchy of cities is a concept that recognizes that there are major hubcities, such as Dallas and Houston, which allow economies of scale to increasespecialization in products and services.

117. The hierarchy also includes regional hub cities like Tyler, Texas, which doesnot have as many specialized products and services as Dallas, but it has more thanAthens, Texas.

118. Major hub cities and regional hub cities bring in shoppers from the smallertowns and rural areas.

119. Elliott Chevrolet is in direct competition with dealers in Tyler and Dallas whereinventory and prices are better than in Athens because of the size of the markets.

....

[ 10 ]


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122. Elliott Chevrolet cannot operate its new vehicle business at a loss for long orthe dealership may also go out of business.

....

126. Athens residents have accelerated their long-standing tendency to commute towork in nearby towns and cities such as Mabank, Tyler, and Dallas.

127. The term commutation is a general word for commuting, which means patternsof journeys from home to work.

128. Out-commutation is a pattern where there is a high level of commutation out ofa county as compared to into a county.

129. Almost half of the employed population of Henderson County residents work inanother county.

130. Approximately 13,000 people are leaving Henderson County to commute towork and approximately 3,000 are commuting into Henderson County for work.

131. Residents of Henderson County commute most frequently to Dallas Countyand Smith County for employment.

....

133. Elliott's sales volume is hindered when Henderson County natives commute toother counties for employment and pass by other competing dealerships that havelarger inventories due to their market size.

134. The economic conditions in Athens have declined since 1999 making itincreasingly difficult for the Elliott dealership to maintain sales performancestandards.

135. Employment in Henderson County has declined and there has been anincrease in workers commuting out of the county leaving plenty of opportunity toshop in neighboring cities and towns.

136. A $15,000–$65,000 median annual income range is too vast to reasonablydraw a conclusion that any particular percentage of Athens residents can afford anew Chevrolet.

137. It is unreasonable to conclude that a family with a median household income of$15,000 is in the market for a new Chevrolet vehicle.

....

139. A dealer must maintain an inventory that is commensurate with the dealer'stravel rate.

....

*692 142. Eaton maintains an inventory of 35 vehicles for all three lines, Buick,GMC and Pontiac.

143. King Chevrolet, 35 miles away in Tyler, Texas, maintains an inventory up to fiveor six times larger than Elliott Chevrolet.

....

152. A large market dealer generally sells higher volume than a small market dealerand so the large market dealer then tends to earn allocation of short supply, highdemand vehicles, faster than the small market dealer.

153. If the small market dealer doesn't get the product while it is still in high demand,then he's at a competitive disadvantage to others who obtain the product more


14 of 18 6/25/2012 12:52 PM


15

quickly and in higher volume.

The following findings are supported by the testimony of GM's expert, Sharif Farhat:

154. GM's market share has declined from approximately 60% in the 1960's toapproximately 27% in 2004.

....

156. GM's decline in market share contributes to a dealer's sales performance.

Qualification IssueWe now turn to GM's arguments concerning the Division's finding that Elliott is

qualified. See Tex. Occ.Code Ann. § 2301.360(b) (“In a protest under this section, theboard must determine whether the prospective transferee is qualified. The burden ison the manufacturer or distributor to prove that the prospective transferee is notqualified.”). The Division found that Elliott is qualified, reasoning that GM failed to meetits burden to prove that Elliott is not qualified. GM argues that it did meet its burden.

We hold that the conclusion is supported by substantial evidence and is not arbitrary,capricious, or an abuse of discretion. The inquiry by the Division concerning whethera dealer is qualified is different than the inquiry by a manufacturer concerning whethera prospective transferee is acceptable to it. Under section 2301.359, GM is given thepower to reject any prospective transferee whom it determines is “not acceptable,”limited only by the requirement that it “not unreasonably withhold approval.” Id. §2301.359(d), (e). Each manufacturer may have standards that are appropriate toadvance its business interests—GM, Ford, and Toyota are not likely to have identicalbusiness plans.

But if a dealer whose application is rejected files a protest, the Division becomes thedecisionmaker that must decide whether the dealer is “qualified.” Id. § 2301.360(b).The Division is charged with enforcement of chapter 2301, id. § 2301.101, whosepurposes include “exercise of the state's police power to ensure a sound system ofdistributing and selling motor vehicles,” which “vitally affects the general economy ofthe state and the public interest and welfare of its citizens.” Id. § 2301.001. Thequestion whether GM unreasonably withheld approval of a transfer applicant that itfound “not acceptable,” see id. § 2301.359(e), is a different question than whether touphold the Division's finding, made in the context of concern for the public interest andthe welfare of Texas citizens, that a dealer is qualified. See id. §§ 2301.001,.360(b).

*693 The Division's conclusion that Elliott is qualified is supported by the followingfacts: Elliott worked in the used-car business for 13 years; Elliott has run hisChevrolet dealership profitably for 20 years; Elliott Chevrolet is well known for havinga superior service department; Elliott Chevrolet has been taking steps to increase itssales effectiveness; and Elliott took finance courses at the University of Texas.

We reject GM's challenge to Finding of Fact 168, which states, “GM failed to establishits burden of proof to show that Mr. Elliott is not qualified by his business experience tobe a Pontiac/Buick/GMC dealer.” We also reject GM's challenges to the followingconclusions of law to the extent that they conclude that GM failed to meet its burden ofproof with respect to Elliott's being qualified:

3. Respondent, General Motors Corporation, failed to establish that theprospective transferee, Charles E. Elliott, was not qualified, in violation of Code §§2301.359 and 2301.360.

....

5. General Motors Corporation failed to establish its burden of proof to show thatCharles E. Elliott was not qualified as to moral character, business experience andfinancial qualifications, in violation of Code §§ 2301.359 and 2301.360.

11


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To the extent that these conclusions confuse the inquiry whether Elliott is qualified withthe inquiry whether GM unreasonably denied the transfer application and find that GMviolated section 2301.359, we sustain GM's challenges. We have remanded thatissue to the Division for further consideration under the construction of section2301.359 that we have announced. To the extent that the Division found that GMviolated section 2301.360 by failing to meet the burden of proof assigned by thatsection, we also sustain GM's challenges. A statute assigning a burden of proof is notviolated by a party who tries but fails to meet that burden. Just as a litigant in a trialcourt who files a summary-judgment motion does not violate the rules of civilprocedure if the trial judge decides that the party is not entitled to judgment as a matterof law, GM did not violate section 2301.360 by failing to meet the burden of proofassigned by that section.

Substantial–Evidence PointsIn points of error three, seven, eight, and nine, GM challenges eight findings of factnot challenged under the statutory-construction points, arguing that they are notsupported by substantial evidence and that five of them are irrelevant to theconclusions of law.

We sustain GM's challenge to Finding of Fact 180, which states, “The potential harmto the public is great due to GM's unlawful rejection of Eaton's dealer transferapplication.” We have reversed the finding that GM violated the occupations code andremanded this issue for further proceedings.

We hold that Finding of Fact 179, which states, “Code § 2301.801(a) allows for apenalty amount not to exceed $10,000 for each violation, with each day of violationconsidered as a separate violation,” is supported by substantial evidence. Finding 179is simply a correct statement of the *694 law. Although it is irrelevant to the finalorder's conclusions of law because the Division rejected the recommended civilpenalty, GM's substantial rights were not prejudiced.

We also hold that Finding of Fact 181, which states, “The motoring public of theAthens, Texas area relies upon the Eaton dealership for sales and service,” issupported by substantial evidence. We hold that Finding of Fact 182, which states,“Preventing Eaton from transferring its dealership in accordance with state law mayleave the motoring public without a Pontiac/Buick/GMC dealer in the Athens, Texasarea for sales and service,” is also supported by substantial evidence.

We hold that the following three findings of fact are not supported by substantialevidence but did not prejudice GM's substantial rights:

94. Only 50% of current Texas Chevrolet dealers are eligible candidates for adealership transfer.

....

170. GM's process for calculating the RSI keeps 50% of all current TexasChevrolet dealers with an RSI of below 100.

171. GM's process for calculating the RSI makes 50% of all current TexasChevrolet dealers ineligible for the appointment of a dealership transfer and keepsthem out of compliance with their dealer agreement.

Finding 170 is not supported by substantial evidence because all the evidence on thisissue indicated that approximately 50% of dealers will always have RSI scores below100. GM's substantial rights were not prejudiced by this minor deviation. Findings 94and 171 are not supported by substantial evidence for the same reason and alsobecause no evidence was introduced concerning how many dealers who have RSIscores under 100 would qualify for GM's exception to this requirement. GM'ssubstantial rights were not prejudiced because 50% is still a reasonably accurateestimate.

12


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1

2

3

4

5

6

7

8

9

10

We hold that Finding of Fact 183, which states, “The absence of aPontiac/Buick/GMC dealer in the Athens, Texas area would cause economic damageto the public,” even if not supported by substantial evidence, did not prejudice GM'ssubstantial rights. No civil penalty was assessed on this basis against GM.

CONCLUSIONWe hold that the Division erroneously construed section 2301.359 of the occupationscode. We reverse the portions of the trial court's order that upheld Conclusions ofLaw 2 and 4 in their entirety, Conclusions of Law 3 and 5 to the extent that they findthat GM violated the occupations code, and Findings of Fact 102, 107, 110, 111, 175,and 180. We remand the case to the Division for a determination concerning whetherGM unreasonably denied the transfer application in violation of the occupations codeusing the construction of section 2301.359 that we have announced. The Divisionshould also consider to what extent this dispute has been rendered moot by Elliott'sGM-approved sale of the dealership to a third party. We affirm the trial court's order inall other respects.

Footnotes

The following recitation of facts comes from the testimony anddocumentary evidence introduced at the administrative hearing.

During the administrative proceeding, GM withdrew Elliott's consumer-satisfaction-index scores as a basis for denial because Elliott's scoresincreased to a level satisfactory to GM after the rejection. Thus, GMrelied only on Elliott's RSI scores as the basis for its denial in theadministrative proceeding, in the trial court, and in this Court.

A simplified example may be helpful: Imagine a market in which there aretwo types of vehicles, cars and trucks; GM's Texas market share for carsis 20%; its Texas market share for trucks is 25%; 1,000 cars areregistered in the area of primary responsibility; and 3,200 trucks areregistered in the area of primary responsibility. In this situation, the salesexpectation for the GM dealer assigned to the area of primaryresponsibility is 1,000 vehicles—200 cars and 800 trucks. If the GMdealer sells 1,500 vehicles that are registered anywhere in the country,his RSI score is 150; if he sells 1,000 vehicles, his score is 100; if hesells 500 vehicles, his score is 50.

A reference to “the board” that is not related to the adoption of rules istaken as a reference to the director of the Division. See Tex. Occ.CodeAnn. §§ 2301.002(9), (10), (12), .005(a) (West 2006).

The administrative law judge recommended assessing a civil penaltyagainst GM, but that recommendation was not followed in the final order.

During oral argument, the parties revealed for the first time that Elliott hassold the dealership in question to a third party who was approved by GM.Obviously, the Division's decision to make further rulings may depend onthe parties' contentions concerning mootness, an issue that has not beenbriefed in this Court.

Many of these findings are also supported by additional evidence.



The contents of this section of the bulletin are supported by the bulletin.The fact that GM failed to show that Elliott did not meet the standards inthis section of the bulletin is supported by other evidence, including the


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11

12

testimony of Elliott and GM employees.

In the context of reviewing whether a manufacturer has shown goodcause to terminate a dealer's franchise, the Division takes factors intoaccount that manufacturers may not, such as “injury or benefit to thepublic” and “whether warranties are being honored by the dealer.” Tex.Occ.Code Ann. § 2301.455 (West 2004). Similar considerations mayguide the Division's analysis concerning whether prospective transfereesare qualified, but manufacturers do not necessarily act unreasonably byignoring factors that are important to the Division.

Point of error four is inadequately briefed—there is only a one-sentenceheading. See Tex.R.App. P. 38.1(h). We thus decline to address it. SeeBatto v. Gafford, 119 S.W.3d 346, 350 (Tex.App.-Waco 2003, no pet.).





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NO. 03-11-00178-CV

Zimmer US, Inc., Appellant

v.

Susan Combs, Comptroller of Public Accounts of the State of Texas; andGreg Abbott, Attorney General of the State of Texas, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICTNO. D-1-GN-09-002096, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING

O P I N I O N

In this suit for a refund of use taxes paid on out-of-state purchases of certain

surgical instruments, appellant Zimmer US, Inc. appeals from the trial court’s order denying

its motion for summary judgment and granting summary judgment in favor of appellees,

Susan Combs, Comptroller of Public Accounts, and Greg Abbott, Attorney General of the

State of Texas (collectively, “the Comptroller”). See Tex. Tax Code Ann. § 112.151 (West

2008); see also id. § 112.154 (West 2008). Zimmer asserts that the instruments are orthopedic

devices or, alternatively, supplies for orthopedic devices and are therefore exempt from use tax

under section 151.313(a)(5) of the Texas Tax Code and section 3.284(a) of the Texas

Administrative Code (“rule 3.284”). See Tex. Tax Code Ann. § 151.313(a)(5) (West 2008);

34 Tex. Admin. Code § 3.284(a)(1) (2011) (Tex. Comptroller of Pub. Accounts, Drugs,

Medicines, Medical Equipment, & Devices (Tax Code § 151.313)). Because we have determined


that the instruments are exempt under section 151.313(a)(5) and rule 3.284(a), we reverse the trial

court’s judgment and render summary judgment in favor of Zimmer.

BACKGROUND

Zimmer markets and sells reconstructive implants to hospitals and healthcare

providers in Texas. Zimmer also develops techniques for surgical procedures to implant these1

prosthetics. From its parent company outside Texas, Zimmer purchases surgical instruments and

lends them to healthcare providers for use in each procedure. It is these instruments that are the

subject of the present tax-refund dispute. According to Zimmer, the instruments are specially

designed by product engineers within its parent company for use in each of Zimmer’s different

surgical procedures. Zimmer asserts that the instruments at issue do not include tools for general

surgical or orthopedic purposes. Rather, they are specialized and intended for use in specific

orthopedic surgical procedures. For example, the instruments include cutting guides that ensure

proper cuts to bone surfaces, “reamers” that prepare bones to accept prostheses, and “provisional”

instruments that serve as trial implants by replicating aspects of the eventual prostheses.

After Zimmer learned that the Comptroller considered these instruments taxable,

it made a payment to the Comptroller representing the use taxes on the instruments provided in

Texas between July 2003 and February 2007. Zimmer then submitted a refund claim to the

Comptroller for the portion of the tax that was not barred by limitations, a total of $947,827, plus

interest. Specifically, Zimmer claimed that the instruments are exempt from taxation. After

It is undisputed that these items are prosthetic devices exempt from the use tax. Also1

undisputed is the amount of tax Zimmer paid on the instruments at issue in this case.

2


holding an administrative hearing on the matter, the Comptroller denied Zimmer’s claim. See

Tex. Tax Code Ann. § 111.105 (West 2008) (providing for administrative hearings on tax refund

claims). Zimmer then sued the Comptroller for the refund in district court. After the parties filed

cross motions for summary judgment, the trial court granted summary judgment in favor of the

Comptroller. In this appeal, Zimmer claims that the instruments are exempt from taxation under

section 151.313(a)(5) and rule 3.284(a) as either “orthopedic devices” or, alternatively, “supplies

. . . for the listed items.”

STANDARD OF REVIEW

Summary judgments are reviewed de novo. Valence Operating Co. v. Dorsett,

164 S.W.3d 656, 661 (Tex. 2005). When, as here, both parties move for summary judgment on

the same issues and the trial court grants one motion and denies the other, the appellate court

considers the summary-judgment evidence presented by both sides, determines all questions

presented, and if it finds the trial court erred, renders the judgment the trial court should have

rendered. Id.

Zimmer’s arguments are based primarily on the construction of the tax code and

the Comptroller’s rules, which are legal questions we review de novo. 7-Eleven, Inc. v. Combs,

311 S.W.3d 676, 683 (Tex. App.—Austin 2010, pet. denied). When resolving an issue of statutory

construction, we must first and foremost follow the plain language of the statute. General Motors

Corp. v. Bray, 243 S.W.3d 678, 685 (Tex. App.—Austin 2007, no pet.). Where statutory language

is ambiguous, its construction by an agency charged with its enforcement is entitled to serious

consideration so long as it is reasonable and does not contradict the statute’s plain language. See

3


Feiss v. State Farm Lloyds, 202 S.W.3d 744, 747 (Tex. 2006) (explaining that deference is owed

to agency regulation interpreting statute only when statute is ambiguous and agency’s

construction reasonable); Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993).

In addition, statutory exemptions from taxation are strictly construed against the taxpayer.

North Alamo Water Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex.

1991); DuPont Photomasks, Inc. v. Strayhorn, 219 S.W.3d 414, 421 (Tex. App.—Austin 2006,

pet. denied).

Administrative rules are ordinarily construed in the same manner as statutes.

Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex. 1999); 7-Eleven, 311 S.W.3d

at 683. Unless a rule is ambiguous, we follow the rule’s clear language; when there is vagueness,

ambiguity, or room for policy determinations in a rule, we defer to the agency’s interpretation

unless it is plainly inconsistent with the language of the rule. BFI Waste Sys. of N. Am., Inc. v.

Martinez Envtl. Group, 93 S.W.3d 570, 575 (Tex. App.—Austin 2002, pet. denied).

DISCUSSION

The use tax, imposed on the consumption of goods purchased out of state and

brought into Texas, is designed “to more evenly distribute the tax burden among all consumers

by imposing a tax on the fruits of an interstate purchase as well as on the sale of property in the

State.” Bullock v. Lone Star Gas Co., 567 S.W.2d 493, 497 (Tex. 1978). The tax serves “to

prevent avoidance of a state’s sales tax by the purchase of goods in another state, and to place

retailers in the state upon equal footing with out-of-state competitors, who are not obligated to

4


collect and remit sales tax.” Bullock v. Foley Bros. Dry Goods Corp., 802 S.W.2d 835, 838

(Tex. App.—Austin 1990, writ denied).

Texas Tax Code section 151.313(a)(5) exempts from the use tax “a brace;

hearing aid or audio loop; orthopedic, dental, or prosthetic device; ileostomy, colostomy, or ileal

bladder appliance; or supplies or replacement parts for the listed items.” Tex. Tax Code Ann.

§ 151.313(a)(5). Charged under section 111.002 of the tax code with adopting rules for the

enforcement of the code, the Comptroller has interpreted this exemption in rule 3.284.

Subsection (a) of that rule defines various terms from the tax code as follows:

Appliance or device—An instrument, apparatus, implement, machine, contrivance,implant, chemical, or other similar or related product that does not achieve itsprimary intended purposes through chemical action within or on the body, and thatis not dependent upon being metabolized for the achievement of its primaryintended purposes.

. . .

Orthopedic appliance—Any appliance or device designed specifically for use inthe correction or prevention of human deformities, defects, or chronic diseases ofthe skeleton, joints, or spine.

. . .

Prosthetic device—An item that is artificial and replaces a missing part of thebody, performs the function of a vital organ or appendage of the human body, oris permanently implanted in the body. Examples of prosthetic devices are heart-lung pumps, nasal gastric and gastrointestinal devices, ureteral stents, urethralstents, and artificial kidney machines, and related components and supplies.

34 Tex. Admin. Code § 3.284(a)(1), (12), (13) (2011).

The sole issue in the present case is whether, in light of this rule, the instruments

Zimmer loans to healthcare providers are subject to the exemption in section 151.313(a)(5) of

5


the tax code. Zimmer claims that the instruments are exempt for two alternate reasons: first,

because they are orthopedic devices as the Comptroller has defined that term in rule 3.284, or

second, because they are “related components and supplies” for Zimmer’s undisputedly exempt

prosthetics. Accordingly, Zimmer asks that we reverse the trial court’s order denying its motion2

for summary judgment and granting the Comptroller’s.

We first turn to whether the instruments at issue are exempt as orthopedic devices.

Zimmer argues that the instruments are exempt under the plain, unambiguous language of rule

3.284(a)(12), which defines “orthopedic appliance.” Zimmer states that the instruments are

“designed specifically for use in” orthopedic surgeries, which are a part of “the correction or

prevention of human deformities, defects, or chronic diseases of the skeleton, joints, or spine.”

Id. Zimmer argues that the instruments are designed specifically for use in particular orthopedic

surgical procedures, and because the implantation of prosthetics would be impossible without

these procedures, they are part of the “correction” of orthopedic conditions.

Zimmer also argues that the language of rule 3.284(a)(13), defining “prosthetic

device,” supports its argument. In the rule, the Comptroller expressly defines a “prosthetic device”

to be “an item that is artificial and replaces a missing part of the body, performs the function of

Section 151.313(a)(5) uses only the language “orthopedic . . . or prosthetic devices” in2

regard to the exemption at issue in this case, while the defined terms in rule 3.284(a)(12) and (13)are “orthopedic appliance” and “prosthetic device” respectively. However, the words “device” and“appliance” are defined together in rule 3.284(a)(1), and the Comptroller acknowledges that sheuses these words interchangeably. For clarity, unless specifically referring to the content of rule3.284(a)(12), we will use the statutory language of “orthopedic device.” See Tex. Tax Code Ann.§ 151.313(a)(5) (West 2008); 34 Tex. Admin. Code § 3.284(a)(1) (2011) (Tex. Comptroller of Pub.Accounts, Drugs, Medicines, Medical Equipment, & Devices (Tax Code § 151.313)).

6


a vital organ or appendage of the human body, or is permanently implanted in the body.” Zimmer

notes that the Comptroller could have included such additional requirements in the definition

of “orthopedic appliance” in rule 3.284(a)(12), but did not do so. According to Zimmer, that

omission should be considered intentional, and this Court should not second-guess it by reading

into “orthopedic appliance” any requirements expressly stated only as to “prosthetic device.”

See Smith v. Baldwin, 611 S.W.2d 611, 616 (Tex. 1980) (“When the Legislature has carefully

employed a term in one section of a statute, and has excluded it in another, it should not be

implied where excluded.”); Lewis v. Jacksonville Bldg. & Loan Ass’n, 540 S.W.2d 307, 310 (Tex.

1976) (agency rules generally construed in same manner as statutes).

The Comptroller, however, claims that the instruments are not exempt and that

the court therefore correctly granted summary judgment in its favor for three reasons. First, the

Comptroller argues that the instruments would only be subject to the exemption if they were

implanted into the body and supported, corrected, or replaced parts of the body on an ongoing

basis, which they do not. These traits are required under section 151.313(a)(5), the Comptroller

claims, because they are common to all of the items listed—braces, hearing aids, colostomies,

and so forth—and must therefore be read into all of the rules interpreting that section.

Second, the Comptroller notes that this requirement is reflected in years of letter

rulings issued to taxpayers. For example, the Comptroller has ruled that bone wire is exempt

when it is implanted in the body and non-exempt when it is not. See, e.g., Tex. Comptroller of Pub.

Accounts, STAR Document No. 200201747L (issued Jan. 29, 2002); Tex. Comptroller of Pub.

Accounts, STAR Document No. 200508245L (issued Sept. 8, 2005). Similarly, the Comptroller

7


has ruled that coronary stents are exempt, while coronary guide wires, catheters, and catheter

supplies used during surgery are not. See Tex. Comptroller of Pub. Accounts, STAR Document

No. 9710965L (issued Oct. 15, 1997); see also Tex. Comptroller of Pub. Accounts, STAR

Document No. 9008L1038B01 (issued Aug. 24, 1990); Tex. Comptroller of Pub. Accounts,

STAR Document No. 9510L1378D11 (issued Oct. 31, 1995) (ruling that kidney dialysis

machines are exempt, while accessories for dialysis such as reclining chairs and scales are not).

The Comptroller urges that such a longstanding interpretation warrants deferential treatment

by this Court. See USA Waste Servs. of Houston, Inc. v. Strayhorn, 150 S.W.3d 491, 495 (Tex.

App.—Austin 2004, pet. denied) (“We bear in mind that an administrative agency has the power

to interpret its own rules, and its interpretation is entitled to great weight and deference.”).

Third, the Comptroller claims that its reading of the exemption comports with the

plain language of the rule’s definition of “appliance or device.” The Comptroller reasons that

under this definition, a qualifying item would have to “take effect as a result of, or be affected by,

the actions of the human body,” which items used exclusively during surgery do not do.

Zimmer contends that we must not defer to the Comptroller’s interpretation of

rule 3.284(a). Unless a rule is ambiguous, Zimmer stresses, we must follow the plain language

of that rule. See BFI Waste Sys. of N. Am., Inc., 93 S.W.3d at 575–76. Zimmer alleges that the

interpretation urged by the Comptroller is inconsistent with the plain language of rule 3.284

and therefore, by giving it deference, we would sanction the Comptroller’s attempt to amend

its rulemaking without adhering to the Texas Administrative Procedure Act (APA). See Tex.

Gov’t Code Ann. §§ 2001.001–.041 (West 2008); Myers v. State, 169 S.W.3d 731, 734 (Tex.

8


App.—Austin 2005, no pet.) (“Allowing an agency to create broad amendments to its rules

through adjudication, rather than through its rule making authority, effectively undercuts the

Administrative Procedures Act.”).

We agree that the Comptroller’s interpretation of rule 3.284 must be rejected if it

contradicts the plain language of a rule that reasonably interprets the tax code. See Rodriguez,

997 S.W.2d at 254–55 (“[W]e cannot defer to an administrative interpretation that is ‘plainly

erroneous or inconsistent with the regulation’ . . . . If the [agency] does not follow the clear,

unambiguous language of its own regulation, we reverse its action as arbitrary and capricious.”).

To determine if this is the case, we first determine whether rule 3.284 reasonably interprets

section 151.313 of the tax code. See Feiss, 202 S.W.3d at 747 (before courts give deference to

regulation, statutory language “must be ambiguous” and “agency’s construction must be

reasonable”). Our first duty is to follow the plain language of the statute. General Motors Corp.,

243 S.W.3d at 685. If we find the language to be ambiguous, however, we must give serious

consideration to the agency’s construction if it is reasonable and does not conflict with that

language. Railroad Comm’n v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d 619,

624 (Tex. 2011).

In this case, the plain language of the statute includes “a brace; hearing aid or audio

loop; orthopedic, dental, or prosthetic device; ileostomy, colostomy, or ileal bladder appliance;

or supplies or replacement parts for the listed items,” without defining any of those terms. The

statute is therefore ambiguous to the extent that it leaves undefined terms that may be needed for

the Comptroller’s administration of the statute. See generally Office of Pub. Util. Counsel v.

9


Public Util. Comm’n, 131 S.W.3d 314, 321 (Tex. App.—Austin 2004, pet. denied) (“[T]he

legislature does not need to include every specific detail or anticipate all unforeseen

circumstances.”). By adopting rule 3.284(a)(12), the Comptroller has administratively defined

the statutory term “orthopedic device” to mean “any appliance or device designed specifically

for use in the correction or prevention of human deformities, defects, or chronic diseases of

the skeleton, joints, or spine.” There is nothing in the tax code that suggests this definition is

unreasonable, nor does the Comptroller argue that it is. Accordingly, we hold that rule 3.284 is

a reasonable interpretation that does not contradict the tax code’s plain language.

Because the interpretation of “orthopedic device” in rule 3.284 is reasonable, the

Comptroller is obliged to follow that interpretation. Myers, 169 S.W.3d at 734 (“If an agency

does not follow the unambiguous language of its own rules, we must consider its actions arbitrary

and capricious.”); BFI Waste Sys. of N. Am., Inc., 93 S.W.3d at 575 (“Valid agency rules have the

same force and effect as statutes.”). We must therefore determine whether the requirements now

urged by the Comptroller—that exempt items must be implanted or continually used to support

or replace a body part—are consistent with the rule. Specifically, we examine (1) whether rule

3.284 is ambiguous, and (2) if so, whether the interpretation now urged by the Comptroller

contradicts the plain language of that rule. BFI Waste Sys. of N. Am., Inc., 93 S.W.3d at 575–76.

We hold that the rule is not ambiguous, but even if it were, the Comptroller’s position that “an

orthopedic appliance or device must perform some function in the actual ongoing correction or

prevention of human deformities” would contradict its plain language.

The rule at issue leaves no major terms undefined, and it includes very specific

lists such as “human deformities, defects, or chronic diseases of the skeleton, joints, or spine.”

10


The inclusion of the phrase “artificial and replaces a missing part of the body, performs the

function of a vital organ or appendage of the human body, or is permanently implanted in the

body” in only the definition of “prosthetic device” makes clear that those requirements were not

meant to apply to “orthopedic appliances.” See Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535,

540 (Tex. 1981) (“[E]very word excluded from a statute must . . . be presumed to have been

excluded for a purpose. Only when it is necessary to give effect to the clear legislative intent

can we insert additional words or requirements into a statutory provision.”); Lewis, 540 S.W.2d

at 310 (agency rules generally construed in same manner as statutes). Rule 3.284 is therefore

unambiguous, and we do not defer to the Comptroller’s interpretation but instead follow the

plain language of the rule. See 7-Eleven, 311 S.W.3d at 683 (“‘Unless the rule is ambiguous, we

follow the rule’s clear language.’ We defer to an agency’s interpretation of its own rule when

the rule is vague or ambiguous, unless the administrative interpretation is ‘plainly erroneous or

inconsistent with the regulation.’” (quoting Rodriguez, 997 S.W.2d at 254–55)); see also Myers,

169 S.W.3d at 734–35.

In any event, the Comptroller’s interpretation is contradictory to the plain language

of the rule for three reasons. First, it tries to import into “orthopedic appliance” almost precisely

the same language that the Comptroller expressly used only for “prosthetic device.” Second, it

tacks on the requirement that a “correction” of an orthopedic condition be “continual” or

“ongoing” when there is no language in the rule to suggest this is the case. Third, although the

interpretation is reflected in rulings that the Comptroller has issued to taxpayers over many

years, these rulings do not bind us to accept an erroneous interpretation simply because it is

longstanding. See Myers, 169 S.W.3d at 734. Consequently, we disregard the Comptroller’s

11


interpretation and consider whether Zimmer’s instruments are exempt under the plain language

of rule 3.284.

In order to receive summary judgment, Zimmer was required to prove that there

was no genuine issue of material fact concerning its instruments and that it was entitled to a

judgment that they are exempt as a matter of law. See Tex. R. Civ. P. 166a(c). Zimmer presented

undisputed summary-judgment evidence that the instruments at issue are “designed specifically

for use in the correction or prevention of human deformities, defects, or chronic diseases of

the skeleton, joints, or spine,” including the affidavit of Kevin Cook, a director and former

development engineer with Zimmer’s parent company. Based on his personal knowledge of the

design of Zimmer’s instruments, Cook stated that each one is designed by product-development

engineers to facilitate a specific step in a specific procedure to implant one of Zimmer’s

prostheses. Cook also described in detail the step-by-step performance of one of Zimmer’s

surgical techniques, emphasizing the specialized role of each instrument used in that technique

to correct a defective knee joint. Attached as exhibits were video excerpts from two corrective

surgeries using Zimmer’s instruments, diagrams of Zimmer’s instrument kits, and copies of

pamphlets instructing healthcare providers in the execution of Zimmer’s techniques using its

instruments. In the affidavit, Cook explained that these demonstrated the specialized purpose of

each instrument and the fact that the surgeries are part of the correction of defective joints.

The Comptroller does not dispute any material fact in Zimmer’s motion for

summary judgment. Nor does the Comptroller dispute that the instruments are exempt under3

The Comptroller cites conflicting evidence as to whether Zimmer’s prosthetic devices3

might be successfully implanted without the use of the instruments at issue. However, there is no

12


the reading of the statute urged by Zimmer. Because Zimmer’s summary-judgment evidence is

uncontroverted and conclusively demonstrates that the instruments satisfy the definition of

“orthopedic device” under tax code section 151.313(a)(5) and rule 3.284(a)(12), we hold that

Zimmer is entitled to summary judgment. See City of Keller v. Wilson, 168 S.W.3d 802, 806

(Tex. 2005) (noting that evidence is conclusive when reasonable people could not differ in

their conclusions).

The instruments at issue are exempt from use tax under the plain language of rule

3.284(a)(12) as it interprets tax code section 151.313(a)(5). Consequently, the trial court erred

in granting the Comptroller’s motion for summary judgment and denying Zimmer’s.

CONCLUSION

We reverse the trial court’s order and render summary judgment in favor of Zimmer.

__________________________________________

Diane M. Henson, Justice

Before Chief Justice Jones, Justices Pemberton and Henson; Concurring Opinion by Justice Pemberton

Reversed and Rendered

Filed: February 9, 2012

indication that an item “designed specifically for use” in corrective procedures, as required by rule3.284, must be strictly necessary for such procedures. This discrepancy therefore raises no “genuineissue as to any material fact.” Tex. R. Civ. P. 166a(c) (emphasis added).

13


NUMBER 13-08-00559-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

MARK BECKER, MIKE CYRUS,JESSE HALL, AND SHERI HAMIT, Appellants,

v.

TROPIC ISLES ASSOCIATION, Appellee.

On appeal from the 214th District Courtof Nueces County, Texas.

MEMORANDUM OPINION

Before Justices Yañez, Rodriguez, and BenavidesMemorandum Opinion by Justice Benavides

Mark Becker, Mike Cyrus, Jesse Hall, and Sheri Hamit (“Becker”), appellants,

appeal from the trial court’s entering of summary judgment in favor of Tropic Isles

Association (“Tropic Isles”), appellee. We affirm.


Trial court cause number 07-3790-F.1

The documents Becker attached to and challenged in his Motion for Judicial Review were the2

following: (1) “The Tropic Isles Landowners’ Agreement”; (2) document number 949619, entitled

“Restrictions”; (3) document number 972386, also entitled “Restrictions”; and (4) document number 989438,

entitled “The Tropic Isles Association Bylaws.” Becker also attached to his Motion for Judicial Review a

spreadsheet, which Becker stated was a “list of recorded documents from 1982 to the present that assert a

right to a lien against property with Tropic Isles Subdivision based upon the expired Tropic Isles Landowners[‘]

Agreement Vol. 759 pg. [sic] 449-452.” Becker did not attach the specific documents listed in the spreadsheet

and did not ask the trial court to determine whether, under sections 51.901(c)(2) and 51.903 of the

government code, the documents were fraudulent and should not be accorded lien status. See TEX. GOV ’T

CODE ANN. §§ 51.901(c)(2), 51.903 (Vernon 2005 & Supp. 2009).

Trial court cause number 07-6654-F.3

2

I. BACKGROUND

On July 28, 2007, Becker filed a “Motion for Judicial Review of Documentation

Purporting to Create a Lien” (“Motion for Judicial Review”). See TEX. GOV’T CODE ANN. §1

51.903 (Vernon 2005). Becker attached four documents to his Motion for Judicial Review

and asserted that these four documents “are fraudulent . . . and therefore should not be

accorded lien status.” On October 10, 2007, without receiving testimony from any party2

and without providing notice of its review of the documents to Tropic Isles, the trial court

entered its “Judicial Finding of Fact and Conclusion of Law Regarding Documentation or

Instrument Purporting to Create a Lien or a Claim” (“Judicial Finding of Fact”).

On December 14, 2007, Tropic Isles filed a petition for bill of review stating that the

trial court exceeded its authority under section 51.903 when it entered its Judicial Finding

of Fact. See id. (permitting the trial court to determine whether documents or instruments3

purporting to create a lien on real property are fraudulent and should not be accorded lien

status). Tropic Isles alleged that its due process rights were violated because it did not

receive notice of Becker’s Motion for Judicial Review or of the trial court’s proceedings on


On November 6, 2007, Art Schultz, president of the Tropic Isles Association, sent an email to the4

trial court asserting that the issues raised by Becker’s Motion for Judicial Review had previously been decided

by this Court. See Reed v. Tropic Isles Homeowners Assoc., No. 13-02-220-CV, 2004 Tex. App. LEXIS

11324, at *2 (Tex. App.–Corpus Christi Dec. 16, 2004, pet. denied). Schultz erred in his interpretation of our

holding in that case. In Reed, we did not address whether the various documents were in fact fraudulent as

Reed asserted. See id. W e held only that the trial court acted outside its plenary power when it amended its

original order and that the trial court properly granted summary judgment on this ground. Id. at **8-9. Tropic

Isles repeated this argument in its petition for bill of review. W hile we appreciate aggressive advocacy on a

client’s behalf, we encourage parties to accurately state our holdings to trial courts.

3

the motion. Tropic Isles further argued that Becker’s and the trial court’s actions4

amounted to a declaratory judgment action, of which Tropic Isles should have received

notice.

On July 21, 2008, Tropic Isles moved for summary judgment on its petition for bill

of review arguing that its due process rights were violated by the granting of a declaratory

judgment action brought against it without notice. Tropic Isles also asserted that Becker

committed fraud on the trial court and prayed that the trial court void and vacate its Judicial

Finding of Fact.

On August 28, 2008, without stating the grounds therefor, the trial court granted

Tropic Isles’s motion for summary judgment and its petition for bill of review, and the trial

court voided and vacated its Judicial Finding of Fact. This appeal ensued.

II. STANDARD OF REVIEW

We follow the well-settled standard of review for traditional summary judgments.

We must determine whether the movant has met his burden to establish that no genuine

issue of material fact exists and that he is entitled to summary judgment as a matter of law.

See TEX. R. CIV. P. 166a(c); Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex.

2002). We take as true all evidence that is favorable to the nonmovant and indulge every

reasonable inference and resolve any doubts in the nonmovant’s favor. Rhone-Poulenc,

Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999); Science Spectrum, Inc. v. Martinez, 941


4

S.W.2d 910, 911 (Tex. 1997). When, as here, the trial court does not delineate the

grounds upon which it granted summary judgment, we will affirm the traditional summary

judgment if any of the grounds stated in the motion is meritorious. W. Invs., Inc. v. Urena,

162 S.W.3d 547, 550 (Tex. 2005).

III. ANALYSIS

In its motion for summary judgment, Tropic Isles contended that it was entitled to

judgment as a matter of law on its bill of review because it was denied proper service of

process. See Caldwell v. Barnes, 154 S.W.3d 93, 96-97 (Tex. 2004) (stating that bill of

review plaintiffs asserting lack of service are entitled to granting of bill of review when they

prove lack of service). To resolve this issue, we must answer two questions: (1) whether

Becker’s Motion for Judicial Review was a proper section 51.903 motion, which does not

require notice, or was a motion seeking a declaratory judgment, which does require notice;

and (2) if Becker’s Motion for Judicial Review was a declaratory judgment action, whether

the trial court applied the proper bill of review standard. See TEX. GOV’T CODE ANN. §

51.903; TEX. CIV. PRAC. & REM. CODE ANN. § 37.006(a) (Vernon 2008) (“When declaratory

relief is sought, all persons who have or claim any interest that would be affected by the

declaration must be made parties.”); TEX. R. CIV. P. 21; Conseco Fin. Servicing v. Klein

Indep. Sch. Dist., 78 S.W.3d 666, 676 (Tex. App.–Houston [14th Dist.] 2002, no pet.) (“The

requirement of due process of law is met if the notice prescribed affords the party a fair

opportunity to appear and defend its interests.”) (citing Sgitcovich v. Sgitcovich, 150 Tex.

398, 404, 241 S.W.2d 142, 146 (1951)).

A. Section 51.903 Motion or Declaratory Judgment Action

Becker contends that government code section 51.903 provides the authority for his

Motion for Judicial Review. See TEX. GOV’T CODE ANN. § 51.903. Section 51.903, entitled


5

“Action on Fraudulent Lien on Property,” provides in pertinent part:

A person who is the purported debtor or obligor or who owns real or personalproperty or an interest in real or personal property and who has reason tobelieve that the document purporting to create a lien or a claim against thereal or personal property or an interest in the real or personal propertypreviously filed or submitted for filing and recording is fraudulent maycomplete and file with the district clerk a motion . . . .

Id. § 51.903(a). The movant may attach the allegedly fraudulent documentation or

instrument to the motion. Id. Section 51.903 contains a suggested form for the motion and

a suggested form of judgment. See id. § 51.903(a) (motion form), (g) (order form for

judicial findings of fact and conclusions of law). Section 51.903 further states, “The court’s

finding may be made solely on a review of the documentation or instrument attached to the

motion and without hearing any testimonial evidence. The court’s review may be made ex

parte without delay or notice of any kind.” Id. § 51.903(c).

“Fraudulent document or instrument,” as used by section 51.903, is defined as: (1)

a document or instrument that “is not a document or instrument provided for by the

constitution or laws of this state or of the United States”; (2) a document or instrument “not

created by implied or express consent or agreement of the obligor, debtor, or the owner

of the real or personal property or an interest in the real or personal property . . ., or by

implied or express consent or agreement of an agent, fiduciary, or other representative of

that person”; or (3) a document or instrument that “is not an equitable, constructive, or

other lien imposed by a court with jurisdiction created or established under the constitution

or laws of this state or of the United States.” Id. § 51.901(c)(2) (Vernon Supp. 2009); see

id. § 51.903(a).

Under section 51.903, the trial court is expressly limited to determining whether the

document or instrument is fraudulent; it may not rule on the validity of the underlying lien


6

or other claims. Id. § 51.903(a), (g); see also In re Hart, No. 07-98-0292-CV, 1999 WL

225956, at *2 (Tex. App.–Amarillo Apr. 15, 1999, no pet.) (not designated for publication).

Tropic Isles argues that, in ruling on Becker’s Motion for Judicial Review, the trial court did

more than determine whether the documents attached to the motion were fraudulent; it

declared, among other things, that Tropic Isles did not exist. Tropic Isles further asserts

that the trial court, by taking such action, converted Becker’s Motion for Judicial Review

into a declaratory judgment. We agree.

In his Motion for Judicial Review, Becker used the form provided in section

51.903(a) as an outline for his pleading. See TEX. GOV’T CODE ANN. § 51.903(a).

Specifically, Becker’s “Prayer” stated the following:

For the above reasons[,] the Movants ask the court to sign an orderdetermining whether Document #949619, Document #972386, and Document #989438should be accorded lien status. The Movants ask the court for an order declaring that the1956 Landowner’s Agreement has expired and cannot be used to create a lien against theMovants’ properties. The Movants’ [sic] ask the court to make other orders as the courtdeems appropriate.

Throughout his Motion for Judicial Review, Becker repeatedly asked the court to:

declare that the [sic] Documents [sic] #939619, Document #972386, andDocument #989438 are fraudulent under the meaning of section 51.903 ofthe Government Code and that those documents do not provide thedevelopment committee with the authority to create liens or to create amandatory homeowner’s association with the power to create liens.

In its Judicial Finding of Fact, the trial court determined that: (1) “the Tropic Isles

Landowners Association . . . expired on April 30[,] 1981”; (2) “the expired Tropic Isles

Landowners’ Agreement has no force or effect in law and does not support a claim to

create a lien or create a landowner’s association with a right to create a lien”; and (3)

document numbers 949619, 972386, and 989438 are “fraudulent under the meaning of

s.51 [sic] of the Government Code and does [sic] not provide the authority for the creation


7

of liens or the creation of a homeowner’s association with the powers to create liens.” The

Judicial Finding of Fact contained the boilerplate language in the suggested form in section

51.903, stating, “This court makes no finding as to any underlying claims of the parties

involved, and expressly limits its finding of fact and conclusion of law to the review of a

ministerial act . . . .”

“‘[T]he legal effect of a pleading in Texas is not determined by its style or name, but

by its contentions and purpose.’” Krishnan v. Ramirez, 42 S.W.3d 205, 224 (Tex.

App.–Corpus Christi 2001, pet. denied) (quoting Guerrero v. Standard Alloys Mfg. Co., 598

S.W.2d 656, 657-58 (Tex. Civ. App.–Beaumont 1980, writ ref'd n.r.e.)). Here, Becker’s

Motion for Judicial Review requested greater relief than section 51.903 provides. See TEX.

GOV’T CODE ANN. § 51.903. Section 51.903 permits the trial court to determine only

whether the document or instrument purporting to create a lien is fraudulent. Id. Becker

requested rulings on the expiration of the “Landowner’s Agreement” and on whether the

other three documents “provide the development committee with the authority to create

liens or to create a mandatory homeowner's association with the power to create liens.”

The trial court expressly ruled that the “Landowner’s Agreement” had expired and that the

other three documents do “not provide the authority for the creation of liens or the creation

of a homeowner’s association with the powers to create liens.” By asking the trial court to

issue rulings beyond whether the challenged documents were fraudulent under section

51.901(c)(2), Becker converted his Motion for Judicial Review into an action seeking a

declaration of the rights of Tropic Isles. We conclude that the trial court’s Judicial Finding

of Fact amounted to a declaratory judgment; therefore, Tropic Isles was entitled to notice

and an opportunity to be heard, which it did not receive. See TEX. CIV. PRAC. & REM. CODE

ANN. § 37.006(a); TEX. R. CIV. P. 21; Conseco Fin. Servicing, 78 S.W.3d at 676 (citing


8

Sgitcovich, 150 Tex. at 404, 241 S.W.2d at 146).

B. Bill of Review

Having determined that Becker’s Motion for Judicial Review actually sought

declaratory relief, we must now decide whether the trial court applied the proper bill of

review standard.

Tropic Isles argues that, to prevail on its bill of review, it was only required to prove

lack of notice. Becker contends that the four-part test of Flores v. Flores was the proper

standard to apply to Tropic Isles’s bill of review. See 116 S.W.3d 870, 874 (Tex.

App.–Corpus Christi 2003, no pet). We agree with Tropic Isles.

The traditional bill of review standard requires bill of review plaintiffs to plead and

prove: “(1) a meritorious defense to the underlying cause of action, (2) which the plaintiffs

were prevented from making by the fraud, accident or wrongful act of the opposing party

or official mistake, (3) unmixed with any fault or negligence on their own part.” Caldwell

v. Barnes, 154 S.W.3d 93, 96 (Tex. 2004) (per curiam). In Flores, we stated, “Where there

has been a trial on the merits, a losing defendant can only seek relief by bill of review if the

chance to file a motion for new trial or appeal has been lost.” 116 S.W.3d at 874. Thus,

we noted that the traditional bill of review plaintiff must prove, in addition to the three

elements listed in Caldwell, “a failure to file a motion for new trial or a failure to advance

an appeal . . . .” Id.; see Caldwell, 154 S.W.3d at 96.

In Caldwell, the Texas Supreme Court held that “[b]ill of review plaintiffs claiming

non-service . . . are relieved of the” burden of proving a meritorious defense and “from

showing that fraud, accident, wrongful act or official mistake prevented [it] from preventing

such a defense.” Caldwell, 154 S.W.3d at 96. Bill of review plaintiffs asserting lack of


Section 51.903 requires the trial court to send “[a] copy of the finding of fact and conclusion of5

law . . . by first class mail, to the movant and to the person who filed the fraudulent lien or claim . . . within

seven days of the date” that the trial court issues its finding of fact and conclusion of law. TEX. GOV ’T CODE

ANN. § 51.903(e). Here, the trial court complied with this requirement.

On appeal, Becker asserts that the trial court erred by not requiring Tropic Isles to prove that it had6

exhausted other remedies available subsequent to the trial court’s issuing its Judicial Finding of Fact. See

Wembley Inv. Co. v. Herrera, 11 S.W .3d 924, 927 (Tex. 1999) (“If legal remedies were available but ignored,

relief by equitable bill of review is unavailable.”). Becker contends that Tropic Isles could have filed a motion

to reinstate or for new trial, or it could have perfected a direct appeal from the trial court’s Judicial Finding of

Fact. However, because Tropic Isles did not receive notice of what was actually a declaratory judgment, it

had no duty to participate in the proceedings. See Wilson v. Dunn, 800 S.W .2d 833, 837 (Tex. 1990) (“Absent

service, waiver, or citation, mere knowledge of a pending suit does not place any duty on a defendant to act.”).

9

service conclusively establish the third element by proving that they were never served with

process. Id.; see Ross v. Nat’l Ctr. for the Employment of the Disabled, 197 S.W.3d 795,

797 (Tex. 2006) (per curiam).

The fact that Tropic Isles did not receive notice of Becker’s Motion for Judicial

Review and the proceeding thereon is uncontroverted. Tropic Isles attached the affidavit

of Art Schultz to its motion for summary judgment. Schultz stated that neither he nor

Tropic Isles was served with process concerning Becker’s Motion for Judicial Review. In

his brief to this Court, Becker confirmed that no notice of his Motion for Judicial Review

was sent to Tropic Isles until after the trial court issued its Judicial Finding of Fact.5

Additionally, the trial court’s Judicial Finding of Fact recites that there was no notice of its

review of Becker’s Motion for Judicial Review. We conclude that, under Caldwell, by

proving that it did not receive notice of Becker’s Motion for Judicial Review and the

proceedings thereon, Tropic Isles conclusively established that no genuine issue of

material fact exists and that it was entitled to summary judgment as a matter of law. See6

Caldwell, 154 S.W.3d at 96; Ross, 197 S.W.3d at 797. We overrule Becker’s challenge

to the trial court’s summary judgment granting Tropic Isles’s petition for bill of review.


Becker argues that equity requires this Court to reverse the granting of summary judgment in favor7

of Tropic Isles because Tropic Isles “has shown a repeated pattern of abusing the Nueces County [r]ecording

system by filing documents that contain false statements,” including “over one-hundred [sic] (100) documents

where [it] claims to have . . . secured liens against property owners in the Tropic Isles Subdivision through the

enforcement” of the allegedly expired Tropic Isles Landowners Agreement. Having affirmed the summary

judgment on grounds presented in Tropic Isles’s motion for summary judgment, we do not reach this equitable

argument. See TEX. R. APP. P. 47.1; W. Investments, Inc. v. Urena, 162 S.W .3d 547, 550 (Tex. 2005) (noting

that when the trial court does not state the grounds upon which summary judgment is granted, we affirm if any

grounds are meritorious).

10

IV. CONCLUSION

Having overruled Becker’s appellate issue, we affirm the judgment of the trial court.7

_______________________________GINA M. BENAVIDES,Justice

Delivered and filed the11th day of March, 2010.



NO. 03-11-00429-CV

Alvie Campbell and Julie Campbell, Appellants

v.

Mortgage Electronic Registration Systems, Inc., as Nominee for Lender and Lender’sSuccessors and Assigns; Wells Fargo Bank, N.A.; Stephen C. Porter; David Seybold;

Ryan Bourgeois; Matthew Cunningham, and John Doe 1-100, Appellees

FROM THE DISTRICT COURT OF WILLIAMSON COUNTY, 368TH JUDICIAL DISTRICTNO. 10-1093-C368, HONORABLE BURT CARNES, JUDGE PRESIDING


Alvie Campbell and Julie Campbell appeal from the trial court’s orders granting a

no-evidence motion for summary judgment filed by Mortgage Electronic Registration Systems, Inc.

(“MERS”) and Wells Fargo Bank, N.A. and a motion to dismiss filed by Wells Fargo attorneys

Stephen C. Porter, David Seybold, Ryan Bourgeois, and Matthew Cunningham (collectively “the

Attorney Defendants”). We will affirm the trial court’s orders.

FACTUAL AND PROCEDURAL BACKGROUND

In order to purchase property located at 250 Private Road 947 in Williamson County,

the Campbells borrowed $137,837 from American Mortgage Network, Inc. d/b/a AMNET Mortgage

(“AMNET”). The loan is evidenced by a promissory note dated October 29, 2004 in the original

principal amount of $137,837 payable to “Lender,” which is defined as AMNET and its successors


and assigns. The note is secured by a deed of trust dated October 29, 2004, and recorded in the

Official Public Records of Williamson County. The deed of trust secures repayment of the debt

evidenced in the note, and for that purpose the Campbells granted and conveyed to the trustee, to

hold in trust with power of sale, the property located at 250 Private Road 947. The beneficiary under

the deed of trust is MERS, acting solely as a nominee for AMNET and its successors and assigns.

The deed of trust states:

[The Campbells] understand and agree that MERS holds only legal title to theinterests granted by [the Campbells] in this Security Interest, but, if necessary tocomply with law or custom, MERS (as nominee for Lender and Lender’s successorsand assigns) has the right: to exercise any or all of those interests including, but notlimited to, the right to foreclose and sell the Property; and to take any action requiredof Lender including, but not limited to, releasing and canceling this SecurityInstrument.

The reverse side of the note’s signature page includes an endorsement signed by AMNET stating:

“pay to the order of Wells Fargo Bank, N.A. without recourse.” The summary-judgment evidence

included the affidavit of Kyle N. Campbell, Vice President of Loan Documentation for Wells Fargo

Bank, who averred that

Wells Fargo became the holder and servicer of the Note on December 9, 2004. Sincethat time, Wells Fargo has remained the holder and servicer of the Note. Wells Fargois in physical possession of the original Note, which is endorsed to Wells Fargo. Theendorsement appears on the back side of the Original Note’s signature page.

In August 2008, MERS assigned its interest in the deed of trust to Wells Fargo. This assignment was

recorded in the Official Public Records of Williamson County on September 30, 2008.

2


In July 2010, counsel for Wells Fargo gave the Campbells notice of its intent to

foreclose on the property securing the note, and in September 2010 the substitute trustee sold the

property at a non-judicial foreclosure sale. The Campbells then sued MERS, Wells Fargo, and the

Attorney Defendants, asserting a cause of action for wrongful foreclosure. The Campbells alleged

that Wells Fargo lacked authority to foreclose under the deed of trust because it was not the holder

of the note and because the note and deed of trust had been “bifurcated.” They contended this

bifurcation “rendered the secured debt unsecured,” causing it to be unenforceable and, as a

consequence, “the power of sale clause contained within the nullified security interest” was also

unenforceable. The Campbells sought monetary damages and requested that the court set aside the

sale and enter an injunction prohibiting any action that would interfere with their possession and

enjoyment of the property.

Wells Fargo and MERS filed traditional and no-evidence motions for summary

judgment, and the Attorney Defendants filed a motion to dismiss. The trial court granted the

no-evidence motion for summary judgment and the motion to dismiss, and this appeal followed. In

two issues, the Campbells contend that the trial court erred in granting those motions.

DISCUSSION

Did the trial court err in granting the no-evidence motion for summary judgment?

We review the trial court’s summary-judgment rulings de novo. Valence Operating

Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life & Accident Ins. Co. v. Knott,

128 S.W.3d 211, 215 (Tex. 2003). A party moving for summary judgment under rule 166a(i) must

assert that, after adequate time for discovery, there is no evidence of one or more essential elements

3


of a claim or defense on which the adverse party would have the burden of proof at trial. Tex. R.

Civ. P. 166a(i); see Fort Worth Osteopathic Hosp. Inc. v. Reese, 148 S.W.3d 94, 99 (Tex. 2004).

To defeat a rule 166a(i) summary-judgment motion, the nonmovant must produce summary-

judgment evidence raising a genuine issue of material fact. Tex. R. Civ. P. 166a(i); Ford Motor Co.

v. Ridgway, 135 S.W.2d 598, 600 (Tex. 2004). A genuine issue of material fact exists if the

nonmovant produces more than a scintilla of evidence establishing the existence of the challenged

element. Ford Motor Co., 135 S.W.3d at 600. More than a scintilla of evidence exists if the

evidence would allow reasonable and fair-minded people to differ in their conclusions. City of

Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); see also Goodyear Tire & Rubber Co. v. Mayes,

236 S.W.2d 754, 755 (Tex. 2007). “Less than a scintilla of evidence exists when the evidence is

‘so weak as to do no more than create a mere surmise or suspicion’ of a fact.” King Ranch,

Inc. v. Chapman, 118 S.W.3d 742, 750-51 (Tex. 2003) (quoting Kindred v. Con/Chem. Inc.,

650 S.W.2d 61, 63 (Tex. 1983)). Evidence that is so slight as to make any inference a guess is in

legal effect no evidence. Ford Motor Co., 135 S.W.3d at 601. If the nonmovant fails to produce

more than a scintilla of evidence under that burden, there is no need to analyze whether the movant’s

proof satisfied the “traditional” summary-judgment burden under rule 166a(c). Id. at 600.

In their second issue, the Campbells contend that the trial court erred in granting the

no-evidence motion for summary judgment because there were genuine issues of material fact as to

whether Wells Fargo was the owner of a valid lien securing the property sold, as well as to whether

the lien actually created a security interest in the property. They argue that their cause of action

below was not one for wrongful foreclosure but instead was a complaint that Wells Fargo did not

4


have “the legal right to invoke the power of sale contained in an expired deed of trust much less not

having been a proper agent for a note holder with rights to enforce” the note. In their petition,

however, the Campbells alleged, under the caption “Count 1: Wrongful Foreclosure,” that

[the] foreclosure action was wrongful. The Deed of Trust is not enforceable due tothat lack of ownership in the note by the Defendants and if such lawful owner of theindebtedness was to prove up a proper Note, bifurcation of the note and the securityinstrument has been proved by an assignment of the mortgage by an intrusive non-party that was not [a] “Holder in Due Course.”

We understand the Campbells’ claim in the court below to be that Wells Fargo and MERS lacked

authority to foreclose on the property because (1) neither was the holder of the note, and (2) the deed

of trust, by virtue of events transpiring after the note and deed of trust were executed, did not

continue to create a security interest in the property. Therefore, in order to defeat the no-evidence

motion for summary judgment, the Campbells were required to produce summary-judgment

evidence creating a fact issue as to one of these stated bases for their allegation that the foreclosure

was improper.

In their response to the no-evidence motion for summary judgment, the Campbells

argued that Wells Fargo has not proven that it is the holder of the note. As an initial matter, we note

that the Campbells, as plaintiffs alleging wrongful foreclosure, would have the burden of proof

at trial to show that Wells Fargo was not the note’s holder. See Sauceda v. GMAC Mortg. Corp.,

268 S.W.3d 135, 139 (Tex. App.—Corpus Christi 2008, no pet.) (“To prevail in a wrongful

foreclosure suit, a party must establish (1) a defect in the foreclosure sale proceedings; (2) a grossly

inadequate selling price; and (3) a causal connection between the defect and the grossly inadequate

5


selling price.”). In the context of a no-evidence motion for summary judgment, Wells Fargo was not

required to present proof that it was the holder. Rather, the Campbells had the burden of proving

this alleged defect in the foreclosure sale proceedings, i.e., that Wells Fargo was not the holder. To

survive the no-evidence summary judgment motion, therefore, they were required to create a fact

issue as to whether Wells Fargo was in fact the note’s holder. They did not do so. The “evidence”

attached to their response to the no-evidence motion consisted of (1) an order from a New Jersey

proceeding involving unrelated parties; (2) an “exhibit” that consists of a composite of photocopies

of portions of instruments purportedly related to this transaction, unsupported by any affidavit or

attestation that would make it competent summary-judgment evidence; and (3) the affidavit of James

McGuire, who averred that he overheard Mark Hopkins, counsel for the Attorney Defendants, tell

a different trial judge in a different proceeding that a ruling in that proceeding could impact the

outcome of the present case. None of this “evidence” created a fact issue as to whether Wells Fargo

was the holder of the note. The Campbells thus failed to produce any evidence creating a fact issue1

as to Wells Fargo’s status as the note’s holder.

We next consider whether the Campbells created a fact issue as to whether the deed

of trust continued to create a valid security interest in the property. Again, it was the Campbells’

burden to create a fact issue as to the invalidity of the security interest created by the deed of trust.

While the Campbells did not produce any competent summary-judgment evidence in this regard,

We observe that the uncontroverted summary-judgment evidence that Wells Fargo1

produced in connection with its traditional motion for summary judgment does establish conclusivelythat it was the holder of the note. This evidence included a copy of the note endorsed by AMNETto Wells Fargo proved up by the affidavit of Kyle N. Campbell, who averred that Wells Fargobecame the note’s holder in December 2004 and has since remained its holder and servicer.

6


they did point to evidence attached to Wells Fargo and MERS’s traditional summary-judgment

motion and argue that such evidence created a fact issue as to the validity of the deed of trust and

Wells Fargo’s right to foreclose on the property. Because the Campbells referenced this summary-

judgment evidence in their response, the trial court could have considered it when ruling on the

no-evidence motion for summary judgment. See, e.g., Dyer v. Accredited Home Lenders, Inc.,

No. 02-11-00046-CV, 2012 WL 335858, at *3 (Tex. App.—Fort Worth Feb. 2, 2012, no pet. h.)

(mem. op.) (court required to ignore traditional summary-judgment evidence attached to combined

summary judgment motion unless nonmovant directed trial court to that evidence in its response to

no-evidence motion). In their response to Wells Fargo’s no-evidence motion for summary judgment,

the Campbells referred to the note, the deed of trust, and evidence of their assignments attached as

evidence to Wells Fargo’s traditional summary-judgment motion and asserted that, because the

“transfer of the lien was not recorded into land records in Williamson County until almost four years

after the alleged negotiation of the note . . . perfection was lost in the chain of title by not conforming

to recordation laws of Texas.” Presumably, the Campbells were referring to the fact that the note

was transferred to Wells Fargo in December 2004, but the assignment of the deed of trust from

MERS to Wells Fargo was not recorded in the Official Public Records of Williamson County until

September 30, 2008. According to the Campbells, during the intervening time period the note and

the deed of trust securing its payment became “bifurcated,” and perfection of the security interest

was lost, rendering its foreclosure provisions unenforceable. The Campbells’ arguments do not

create a fact issue as to whether there was a defect in the foreclosure proceedings. First, no

“bifurcation” of the note and the deed of trust resulted from AMNET’s assignment of the note to

7


Wells Fargo. When a mortgage note is transferred, the mortgage or deed of trust is also

automatically transferred to the note holder by virtue of the common-law rule that “the mortgage

follows the note.” J.W.D., Inc. v. Federal Ins. Co., 806 S.W.2d 327, 329-30 (Tex. App.—Austin

1991, no writ) (mortgage on real estate is said to “follow” promissory note it secures). Therefore,2

when AMNET transferred the note to Wells Fargo, that transfer also served to transfer the deed of

trust to Wells Fargo.

Second, perfection of the security interest was not lost due to the claimed “late” filing

and recordation, as the Campbells appear to contend. The summary-judgment evidence shows that

the deed of trust was filed and recorded in the Official Public Records of Williamson County on

November 5, 2004, approximately one week after it was executed by the Campbells. Re-recordation

was not required when the note was transferred to Wells Fargo in December of that year. MERS is

a recognized “book entry system.” See Tex. Prop. Code Ann. § 51.0001(1) (West 2007) (“book

entry system” means national book entry system for registering beneficial interest in security interest

that acts as nominee for grantee, beneficiary, owner, or holder of security instrument and its

successors and assigns). The MERS system is an electronic mortgage registration and clearinghouse

that tracks beneficial ownerships in, and servicing rights to, mortgage loans. See In re Mortg. Elec.

Registration Sys. (MERS) Litig., 659 F. Supp. 2d 1368, 1370 (J. P. M. L. 2009). When, as here, the

In the context of personal property, this rule has been codified in section 9.203(g) of the2

business and commerce code. See Tex. Bus. & Com. Code Ann. § 9.203 cmt. 9 (West 2011)(“Subsection (g) codifies the common-law rule that a transfer of an obligation secured by a securityinterest or other lien on personal or real property also transfers the security or lien.”). The fact thatthe rule has not been similarly codified as to real property does not diminish the force of thecommon-law real-property rule.

8


deed of trust names MERS as the nominee for the lender and its successor and assigns and the deed

of trust is recorded in the local real-property records with MERS as the named beneficiary, MERS

remains the mortgagee of record if the note is transferred between MERS members, and there is no

requirement that the deed of trust be re-recorded each time it is transferred. See Knighton

v. Merscorp, Inc., 300 F. App’x 285, 286 (5th Cir. 2008) (“MERS members pay a one-time and

nominal fee for each registered mortgage. With MERS as the permanent record mortgagee, rights

to the mortgage loan can be bought and sold without any changes to the public land records.”).

When the note was transferred from AMNET to Wells Fargo in December 2004, MERS became the

nominee for Wells Fargo and, consequently, there was no requirement that the deed of trust be

re-recorded.

To the extent the Campbells argue that the assignment of the deed of trust from

MERS to Wells Fargo in August 2008 was invalid, or that the involvement of MERS in the

transaction somehow rendered it ineffective to preserve Wells Fargo’s right to foreclose on the

property, these arguments also fail. The role of MERS was clearly established in the deed of trust:

Borrower understands and agrees that MERS holds any legal title to the interestsgranted by Borrower in this Security Interest, but, if necessary to comply with the lawor custom, MERS (as nominee for Lender and Lender’s successors and assigns) hasthe right: to exercise any or all of those interests, including, but not limited to, theright to foreclose and sell the Property; and to take any action required of Lender,including but not limited to, releasing and canceling this Security Interest.

Under Texas law, where, as here, a deed of trust expressly grants MERS the power of sale, then

MERS has that power. Athey v. MERS, 314 S.W.3d 161, 166 (Tex. App.—Eastland 2010, pet.

denied). MERS was the nominee for AMNET and its successors and assigns, which includes Wells

9


Fargo. MERS had the authority to transfer the rights and interests in the deed of trust to Wells

Fargo. When MERS transferred the deed of trust to Wells Fargo, Wells Fargo obtained all MERS’s

rights and interests in the deed of trust, including the power to foreclose on the property. As in

Athey, the mortgage documents provide for the use of MERS, and those provisions are enforceable

to the extent provided by the terms of the documents. MERS’s actions in this transaction were

consistent with both the note and the deed of trust. MERS’s involvement in these foreclosure

proceedings does not render them defective. The Campbells have failed to raise a genuine issue of

material fact regarding Wells Fargo’s non-judicial foreclosure on the property.

With regard to MERS, the no-evidence summary judgment was proper because there

was no evidence that MERS participated in the foreclosure sale. Rather, it had already assigned the

deed of trust to Wells Fargo, and the foreclosure sale was conducted by Wells Fargo. We overrule

the Campbells’ second issue.

Did the trial court err in granting the Attorney Defendants’ motion to dismiss?

In their petition, the Campbells did not allege a separate cause of action against the

Attorney Defendants, but instead appeared to base their claim for damages on the Attorney

Defendants’ participation in what the Campbells asserted was a wrongful foreclosure. The Attorney

Defendants filed a motion to dismiss based on attorney immunity from suit with regard to claims

against them. The trial court granted the Attorney Defendants’ motion to dismiss.

An attorney enjoys “qualified immunity,” with respect to non-clients, for actions

taken in connection with representing a client in litigation. See, e.g., Butler v. Lilly, 533 S.W.2d 130,

131-34 (Tex. Civ. App.—Houston [1st Dist.] 1976, writ dism’d). This qualified immunity generally

10


applies even if conduct is improper in the context of the underlying lawsuit. Renfroe v. Jones

& Assocs., 947 S.W.2d 285, 288 (Tex. App.—Fort Worth 1997, writ denied) (“Under Texas law,

attorneys cannot be held liable for wrongful litigation conduct.”). An attorney’s conduct, even if

frivolous or without merit, while potentially sanctionable by the court, is not independently

actionable if the conduct is part of the discharge of the lawyer’s duties in representing his client.

Chapman Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 441 (Tex. App.—Houston

[14th Dist.] 2000, pet. denied); Bradt v. West, 892 S.W.2d 56, 71-74 (Tex. App.—Houston [1st

Dist.] 1994, writ denied). A lawyer’s protection from liability arising out of his representation of

a client is not, however, without limits. See McCamish, Martin, Brown & Loeffler v. Appling

Interests, 991 S.W.2d 787, 792 (Tex. 1999). For example, a cause of action could exist against an

attorney who knowingly commits a fraudulent act outside the scope of his legal representation of his

client. See Likover v. Sunflower Terrace II, Ltd., 696 S.W.2d 468, 472 (Tex. App.—Houston [1st

Dist.] 1985, no writ). If a lawyer participates in independently fraudulent activities, his action is

“foreign to the duties of an attorney.” Id. Thus, a lawyer cannot shield his own fraudulent actions

from liability simply on the ground that he is an agent of his client. Id.

In their motion to dismiss, the Attorney Defendants asserted that they were immune

from suit because they could not be sued by the Campbells for actions taken within the scope of their

representation of Wells Fargo. The Attorney Defendants were retained by Wells Fargo to assist in

the foreclosure of the property located at 250 Private Road 947. Attached to the motion to dismiss

was the affidavit of Stephen Porter, who averred that the Attorney Defendants had no contact with

the Campbells that was not in their capacity as “legal counsel for Wells Fargo in an adverse

11


relationship with Alvie Campbell and Julie Campbell.” The Campbells did not controvert the Porter

affidavit, nor did they produce evidence or allege that the Attorney Defendants had any contact or

communication with them that was not in their capacity as counsel for Wells Fargo assisting with

the foreclosure proceedings. Neither the Campbells’ petition nor their response to the motion to

dismiss alleged that the Attorney Defendants committed any wrongful acts outside of the foreclosure

proceedings. Moreover, we have already concluded above that the foreclosure proceedings were not

defective in any discernable way. We hold, therefore, that the trial court did not err in dismissing

the Campbells’ claims against the Attorney Defendants. See Alpert v. Crain, Caton & James, P.C.,

178 S.W.3d 398, 408 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (affirming trial court’s

dismissal of claims against attorney on ground that because of attorney’s immunity from suit,

plaintiff failed to allege claim or plead cause of action for which relief could be granted). We

overrule the Campbells’ first appellate issue.

CONCLUSION

Having overruled the Campbells’ two appellate issues, we affirm the trial court’s

order granting Wells Fargo and MERS’s no-evidence motion for summary judgment and its order

dismissing the Campbells’ claim against the Attorney Defendants.

12


_____________________________________________

J. Woodfin Jones, Chief Justice

Before Chief Justice Jones, Justices Pemberton and Rose

Affirmed

Filed: May 18, 2012

13



NO. 03-04-00741-CV

Wesley Eugene Perkins, Appellant

v.

Chase Manhattan Mortgage Corporation, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICTNO. GN401164, HONORABLE CHARLES F. CAMPBELL, JR., JUDGE PRESIDING


Appellant Wesley Eugene Perkins appeals from the trial court’s orders granting

summary judgment in favor of appellee Chase Manhattan Mortgage Corporation and denying

Perkins’s motions to strike and for sanctions. We affirm the trial court’s orders.

Initially, we note that Perkins is representing himself pro se. He asserts that as a pro

se litigant, he should be held to less stringent standards than an attorney. Perkins is correct that we

will attempt to read pleadings drafted by a pro se litigant liberally and with patience. See Haines v.

Kerner, 404 U.S. 519, 520 (1972) (holding that under Fed. R. Civ. P. 12, allegations in pro se

inmate’s pleadings are held “to less stringent standards than formal pleadings drafted by lawyers”).

However, a pro se litigant is held to the same procedural standards as attorneys; to allow otherwise


2

could give pro se litigants an unfair advantage over litigants represented by counsel. Mansfield State

Bank v. Cohn, 573 S.W.2d 181, 184-85 (Tex. 1978); see Faretta v. California, 422 U.S. 806, 834

n.46 (1975) (in federal criminal trial, defendant’s “right of self-representation is not a license to

abuse the dignity of the courtroom” or to fail “to comply with relevant rules of procedural and

substantive law”). Therefore, we will attempt to read Perkins’s pleadings and other documents

liberally to discern the substance of his complaints. See Johnson v. McAdams, 781 S.W.2d 451, 452

(Tex. App.—Houston [1st Dist.] 1989, no writ) (citing Haines, 404 U.S. at 520). However, we will

not overlook a lack of supporting facts or a failure to meet procedural requirements in considering

Perkins’s claims. See Cohn, 573 S.W.2d at 184-85; Johnson, 781 S.W.2d at 452-53.

Factual and Procedural Background

In 1997, Perkins bought a house in Austin, borrowing $82,413 from Chase. In

exchange for the loan, Perkins signed a deed of trust and adjustable rate note in favor of Chase.

After Perkins defaulted on the loan, Chase, acting through its attorneys at Barrett Burke Wilson

Castle Daffin & Frappier, L.L.P. (“Barrett Burke”), sent Perkins notice that he was in default.

Perkins responded by filing a “Private International Administrative Remedy Demand.” Perkins’s

“Demand” acknowledged his receipt of Barrett Burke’s notice of default and said that he was not

refusing to pay the “alleged debt,” but instead was giving notice that the debt was invalid, that the

claim was disputed, that Perkins did not dispute the amount of debt claimed, and that Barrett Burke

must cease all collection activity until it sent Perkins a “verification as required by the Fair Debt

Collection Practices Act.” See 15 U.S.C.A. § 1692g(b) (West 1998). Perkins stated that any future

communications by Barrett Burke, “absent the above-cited requisite ‘verification of the debt,’”


3

would constitute Barrett Burke’s “tacit admission, confession, and agreement” that it had “no lawful,

bona fide, verifiable claim.” Perkins attached a “Certified Promissory Note” stating that the note

was tendered “as full satisfaction” of the alleged debt and that the note constituted Perkins’s

“promise to pay this instrument upon presentment and indorsement,” citing the Uniform Commercial

Code (the “UCC,” codified at Tex. Bus. & Com. Code Ann. tit. 1 (West 1994 & 2002 & Supp.

2005)). The note stated that “[a]s an operation of law, [Chase] tacitly consents and agrees that there

is accord and satisfaction by use of this instrument to satisfy [Chase’s] claim and [Perkins] is hereby

discharged from liability on this alleged account and the obligation is suspended in accordance with

law as codified at UCC §§ 3-310(b), 3-311, and 3-603.” Perkins also attached a “disclosure

statement,” which he said Chase and Barrett Burke were required to complete, asking forty-four

questions such as the name and address of the debtor and debt collector, the “Alleged Account

Number” and amount owed, whether the debt had been purchased from an original creditor, whether

there was “verifiable evidence of an exchange of a benefit or detriment between Debt Collector and

alleged Debtor,” and whether “[a]t the time the alleged original contract was executed, . . . all parties

[were] advised of the importance of consulting a licensed legal professional before executing the

alleged contract.” The form stated that failure to complete and return the form with a verification

of the debt would constitute “tacit agreement that Debt Collector ha[d] no verifiable, lawful, bona

fide claim re the hereinabove-referenced alleged account” and would mean that Barrett Burke waived

all claims against Perkins and indemnified him against any and all fees and costs incurred.

In 2004, Chase, still represented by Barrett Burke, filed suit seeking judicial review

of Perkins’s documents, which Chase alleged were fraudulent “Republic of Texas documents,


4

instruments, liens, and claims” made against the real property and filed by Perkins in public records,

including Travis County property records. Chase sought to clear the title of the land and extinguish

Perkins’s attempts to encumber Chase’s interests in the property. Chase also sought to foreclose on

the property, either judicially or under the terms of the contract and the property code. Chase asked

the trial court to declare that Perkins had defaulted on the note, that Perkins was divested of any

interest in the property, and that Perkins’s documents purporting to establish a lien against the

property were void. Chase further sought attorney’s fees and asked the court to order a writ of

possession should Perkins refuse to vacate the property.

Perkins responded by filing a “Sworn Rule 12 Motion for Attorneys to Show

Authority,” asking that Barrett Burke show its authority to act for and represent Chase. Perkins

“demand[ed]” that the trial court require Chase’s attorneys to appear and produce “their bona fide

‘License to Practice Law’ issued by The State of Texas,” stating “[a]bsence thereof is tacit

admittance that none exist.” He stated that “a license to practice law is not a membership card

provided by the bar association” and that he had “made a careful search of the records and can find

no Texas State Office that issues licenses to practice law.”

Chase filed a motion for summary judgment, contending that it held title through the

vendor’s lien, it was entitled to rescind the lien due to Perkins’s nonpayment of the loan, and the trial

court should annul the liens and other documents Perkins filed against Chase’s interest in the

property. As evidence, Chase produced an affidavit of Kay Walters, the foreclosure manager for

Barrett Burke. Walters explained that Perkins took out a loan from Chase in 1997 then ceased

making payments in August 2003. Walters attached the warranty deed, note, deed of trust, and a


5

payoff statement to show that Chase loaned Perkins the money and that Perkins still owed $76,590

in principal on the loan. The warranty deed, which was filed in the Travis County property records

in 1997, recites that Chase was granted a vendor’s lien and superior title in exchange for a $82,413

loan; the note provides that if Perkins failed to make the required payments, Chase could accelerate

the loan; and the deed of trust provides that in the event of default and acceleration of the note,

Chase could foreclose on the property.

In response, Perkins filed a “Judicial Notice Pursuant to 201(d) Texas and Federal

Rules of Evidence,” demanding that the trial court “provide a written list of all presumptions that

the court will take notice of at any proceedings.” Perkins quoted case law to the effect that

statements of counsel made in briefs or arguments will not support summary judgment and that

evidence must be provided through affidavit, testimony, or admissible documentation. Perkins also

filed a “Sworn Motion to Strike Sham,” arguing that Chase’s petition should be struck entirely

because Chase refused to abide by his International Administrative Remedy Demand and opted “to

by-pass administrative remedy,” thus disposing of any genuine issues of fact remaining. Perkins

asserted that there was no proof that Perkins had filed his administrative lien documents in the public

record or “used the money evidenced by the Loan Agreement,” and argued that Chase was

attempting to “foist ‘Unofficial Documents’” and fraud upon the trial court. Perkins further filed a

motion for sanctions and an “Affidavit in Opposition to Summary Judgment.” Perkins’s affidavit

consists of 136 statements such as, “I am Wesley Eugene Perkins,” “I do not consent to this matter,”

and, “This court does not have jurisdiction in this matter.” Perkins asserted that Chase was offering

unofficial documents and that the matter was settled. Perkins complained that Chase should not have


6

entered into evidence the original documents he sent as his Administrative Remedy Demand, stating

that the “one time functioning” documents were now commercially inaccessible. Perkins stated that

“[s]hould it be discovered that this court may have jurisdiction,” the court “is rendered crippled,”

“incapable of rendering justice,” and incompetent. Perkins asserted that because Chase and its

attorneys did not act on his demands, Chase accepted his documents as true. Perkins attacked the

veracity and competence of Kay Walters and Peggy Heller, Chase’s lead attorney, and stated that

Chase’s summary judgment evidence was altered and incomplete; Perkins did not explain how the

documents were unreliable. Perkins also stated without explanation that Chase’s petition, motion

for summary judgment, and affidavit in support of summary judgment were erroneous and

unreliable. Finally, Perkins stated that he wanted “to examine the bond of this matter,” the

“underwriting of this matter,” and the bonds and liability limits of all actors involved, and asserted

that “summary judgment in this matter is not appropriate.”

Chase responded to Perkins’s various motions, stating that Perkins’s pleadings and

affidavit were not competent summary judgment evidence and did not raise a fact issue because they

made unsupported legal conclusions and constituted inadmissible hearsay. Chase provided an

affidavit by Charlie Wightman, Default Resolution Supervisor for Chase. Wightman averred that

he retained Barrett Burke to handle Perkins’s default and authorized Peggy Heller to retain an

additional attorney to assist in representing Chase.


The trial court also granted Chase’s motion for sanctions, but did not award attorney’s fees1

or monetary sanctions. Similarly, in its order granting summary judgment, the court granted Chase’smotion in all respects, but did not address Chase’s request for attorney’s fees.

7

Following a hearing, the trial court denied Perkins’s motion to strike, motion for

sanctions, and motion to show authority. The court granted Chase’s motion for summary judgment.1

Perkins appeals in fourteen issues and several additional arguments, attacking the trial court’s orders.

Having read Perkins’s brief carefully, it appears that he (1) disputes whether Chase’s attorneys

showed they had authority to act in the case, (2) argues that the trial court was incompetent and

lacked jurisdiction over the cause, (3) attacks whether the trial court was bonded, under oath, and

“in the office,” (4) asserts that Chase tacitly admitted to the truth of Perkins’s motions and pleadings,

(5) complains that the trial court should have granted his motions to strike and for sanctions, (6)

argues that the trial court should have filed findings of fact and conclusions of law, (7) contends that

the trial court forfeited its jurisdiction by taking certain facts as true, (8) maintains that Chase

destroyed valuable property by introducing the original promissory note into the record, (9) asserts

that his debt was discharged when he tendered his promissory note, and (10) contends that the trial

court erred in refusing to consider his affidavit and rendering judgment for Chase.

Issues Related to Jurisdiction and Attorneys’ Authority to Represent Chase

We will first address Perkins’s issues related to whether Chase’s attorneys showed

themselves authorized to represent Chase. Perkins filed a motion demanding that Chase’s attorneys

show their authority to represent Chase by way of licenses to practice law issued by a state office.

In response, Chase filed Wightman’s affidavit stating that he had hired Barrett Burke to represent


8

Chase’s interests in this matter and that he authorized Heller to hire an additional attorney to assist

in the case. At the hearing, Perkins asserted that the affidavit should be disregarded because the

pleading to which it was attached had some apparent typographical errors; although the motion stated

that Wightman’s affidavit was attached as “Exhibit ‘A,’” the affidavit was not actually labeled as

such; Wightman did not produce tangible proof that he was authorized to speak for Chase; and Chase

never produced proof that it existed as a corporation. Perkins also argued that the affidavit was

insufficient because it did not establish that the attorneys were properly licensed and authorized to

practice law. On appeal, he contends that the attorneys did not establish their authority to represent

Chase or practice law and, therefore, the trial court lacked jurisdiction over the matter. Perkins

further demanded that the trial court, “being of and under proper oath and bond of and in the office,”

issue an order requiring the attorneys to show their authority, and he asserts on appeal that because

the trial court did not satisfy that demand, the court was without jurisdiction. Finally, although it is

not entirely clear, he seems to argue that the trial judge was not authorized to proceed because he was

not elected to the particular trial court in question and did not show that he was both a United States

citizen and licensed to practice law in Texas. See Tex. Const. art. V, § 7.

The rules of civil procedure allow a party to challenge whether a lawsuit is being

prosecuted without authority. Tex. R. Civ. P. 12. If a motion is filed under rule 12, the challenged

attorney must appear and show her authority to act. Id. At the hearing on Perkins’s motions and

Chase’s motion for summary judgment, attorney Mark Hopkins produced Wightman’s affidavit, in

which he averred that he retained Peggy Heller to handle Perkins’s default and that he authorized


9

Heller to retain Hopkins to serve as local counsel and assist with the litigation. Wightman averred

that Heller and Hopkins were authorized to act on Chase’s behalf in the proceeding against Perkins.

Chase’s response stated that “Exhibit A,” an “Affidavit of Representative of Chase

Manhattan Mortgage Corporation,” was attached as proof. However, Wightman’s affidavit was not

labeled “Exhibit A,” although it was the only exhibit attached. Perkins argued that the affidavit was

a sham and should not be considered because it was not labeled “Exhibit ‘A’” and because the

motion contained several errors. Perkins also quotes the trial court’s statement agreeing with Perkins

that the affidavit was “unacceptable” because of typographical errors in the response to which the

affidavit was attached, arguing that the court recognized the defective nature of the affidavit but

wrongfully accepted it as evidence nonetheless. In agreeing with Perkins, the trial court did not

agree that the document was unacceptable as evidence and should be ignored. Instead, the court

noted the errors and admonished counsel to be more careful in the future when preparing such

documents. The court explicitly stated that the response and affidavit, although not perfect, were

adequate to show that the attorneys had authority to represent Chase. The fact that the affidavit did

not bear the label referenced in the response is of no matter because Wightman’s affidavit was

attached to the response, was the only document attached, and clearly stated that the attorneys were

authorized to represent Chase in this case. By considering the documents and ruling that the

attorneys had proven their authority, the trial court did not err or in any way “forfeit” its jurisdiction

over the case. We overrule Perkins’s eleventh issue.

Perkins also attacks the attorneys’ authority, arguing that they did not prove that they

were licensed to practice law in Texas. Rule 12 does not require an attorney to produce a physical


10

license to practice law issued by a state agency; it requires an attorney to show “sufficient authority

to prosecute or defend the suit on behalf of the other party.” Tex. R. Civ. P. 12. The legislature

established the State Bar of Texas as an administrative agency authorized to assist the judiciary in

governing the practice of law in Texas. See Tex. Gov’t Code Ann. §§ 81.011, .012 (West 2005).

Attorneys licensed to practice in Texas must enroll in the State Bar. Id. § 81.051 (West 2005). The

supreme court has the exclusive jurisdiction to determine rules governing the admission to the

practice of law in Texas. Id. § 81.061 (West 2005). A membership card issued by the State Bar is

“evidence of membership” and thus, of a person’s license to practice law. Tex. State Bar. R. art. III,

§§ 2, 4, reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G app. (West 2005). In their pleadings,

Chase’s attorneys listed their names, law firm names, and bar card numbers. Perkins did not argue

that the attorneys had been disbarred or had never been licensed by the supreme court to practice law.

See Keller Indus., Inc. v. Blanton, 804 S.W.2d 182, 185 (Tex. App.—Houston [14th Dist.] 1991, no

writ) (“The practice of law is not a right bestowed upon an individual; rather, it is a license granted

by the state subject to rules and regulations. However, once those rules and regulations are complied

with by an individual, one who chooses his or her counsel should not be denied that choice by the

courts except for compelling reasons.” (citation omitted)). Wightman’s affidavit showed that Heller

and Hopkins had authority to represent Chase. See Boudreau v. Federal Trust Bank, 115 S.W.3d

740, 741-42 (Tex. App.—Dallas 2003, pet. denied); Spigener v. Wallis, 80 S.W.3d 174, 184 (Tex.

App.—Waco 2002, no pet.). The trial court did not err in ruling that Chase’s attorneys proved their

authority to represent their client. We overrule issues one, two, seven, and twelve.


11

Although in issue three Perkins seems to attack the trial judge’s authority to preside

over the hearing and make rulings on the various motions, he did not raise any such issues before

the trial court and did not file any objections to the judge. Therefore, he has waived any issues

related to the trial judge’s qualifications. We overrule issue three.

In several issues, Perkins contends that the trial court lacked or lost jurisdiction over

the proceeding. We disagree.

Contrary to Perkins’s assertions, the trial court did not lose jurisdiction over the

matter as a result of Perkins’s challenge to the attorneys’ authority. The Texas Constitution grants

district courts exclusive original jurisdiction over suits involving the title to land. See Tex. Const.

art. V, § 8. Perkins admits that the property in question is located in Travis County, and thus, the

Travis County district court gained subject matter jurisdiction over the cause when Chase filed its

suit. See Catalina Dev., Inc. v. County of El Paso, 121 S.W.3d 704, 708 (Tex. 2003) (Enoch, J.,

dissenting) (“When the trial court obtained jurisdiction, which it did when Collins filed suit, it had

the authority to decide the merits of the entire controversy.”); see also Haley v. Tax Appraisal Dist.,

No. 03-00-00179-CV, 2001 Tex. App. LEXIS 170, at *3-4 (Tex. App.—Austin Jan. 11, 2001, no

pet.) (not designated for publication) (holding that trial court had subject matter over delinquent tax

proceeding because district courts have exclusive jurisdiction over such suits, property was located

in Bell County, and suit was filed in Bell County). Perkins admitted in his affidavit that he was

domiciled in Travis County, and the court’s docket sheet states that service of process was made on

Perkins. Therefore, the court had personal jurisdiction over Perkins. See Haley, 2001 Tex. App.


12

LEXIS 170, at *3. Although Perkins asserted in his various filings that the pleadings did not

constitute an answer to Chase’s petition and that he did not concede the issue of personal

jurisdiction, Perkins did not file a special appearance under rule 120a and he sought affirmative

determinations and actions by the trial court. See Tex. R. Civ. P. 120a. Thus, Perkins waived any

issue related to the trial court’s exercise of personal jurisdiction. See id.; Dawson-Austin v. Austin,

968 S.W.2d 319, 322 (Tex. 1998) (party makes general appearance if he invokes trial court’s

judgment on question other than jurisdiction, recognizes that action is properly pending before court,

or seeks affirmative action from court). Perkins did not show grounds to support his assertion that

the trial court lacked jurisdiction over the subject matter or the parties. We overrule issues number

four and five.

Perkins’s Remaining Procedural Issues

Perkins next asserts that Chase did not respond to his motions to strike or for

sanctions and did not object to his affidavit in opposition to summary judgment and, therefore,

admitted to the truth and validity of all matters asserted in those documents. Contrary to Perkins’s

assertions, Chase responded to Perkins’s motions to strike and for sanctions by way of a reply to

Perkins’s response to the motion for summary judgment and a response to his motion to show

authority and for sanctions. Chase further objected to Perkins’s pleadings and affidavit filed in

response to the motion for summary judgment, arguing that the documents were improper summary

judgment evidence. Chase did not act or fail to act so as to ratify any of Perkins’s pleadings or

purported evidence. We overrule Perkins’s sixth, eighth, and ninth issues.


Perkins argues in full:2

As found in recorder’s Record page 36, lines 3, 4 where recorded as said, by MR.PERKINS, “they’re trying to bring a private settled matter into court.”Whereupon the court responded, line 5, “That’s what this court is for.” To whichMR. PERKINS says, “Right.” (the reporter’s Record fails to show the tone of theresponse as it seems to have been a question), and the court responds in lines 7,8, “That’s what all these courts are for.” (Emphasis added.)

Goes to show a level of incompetent that removes judge actor from any positionof competent authority in this matter.

13

In issue thirteen, Perkins seems to argue that the trial court made a statement that

showed that the court was so incompetent that the court no longer had authority to proceed. We2

cannot discern exactly what Perkins is contending by this issue. We do, however, note that the trial

court was correct in its statement that courts are appropriate venues for determining the propriety of

private agreements and settlements when those alleged settlements are disputed. Perkins has

presented nothing for our review by this issue, and we overrule issue thirteen.

In his fourteenth issue, Perkins asserts that the trial court failed to file findings of fact

and conclusions of law when requested to do so by Perkins. “The only cogent conclusion that can

be reached from this lack of Findings of Fact and Conclusions of Law,” Perkins argues, is that the

trial court “has come to know that he was indeed without jurisdiction in this matter, incompetent in

this matter, incompetent to hear this case, [and] incompetent to render judgment.” Initially, we note

that findings of fact and conclusions of law “have no place in a summary judgment proceeding” and

therefore are not required to be filed. Linwood v. NCNB Tex., 885 S.W.2d 102, 103 (Tex. 1994);


14

Golden v. McNeal, 78 S.W.3d 488, 495 (Tex. App.—Houston [14th Dist.] 2004, pet. ref’d). Further,

although the trial court signed its order granting summary judgment on November 3, Perkins did not

file his request for findings and conclusions until November 29, twenty-six days later. Perkins’s

request, therefore, was not timely filed. See Tex. R. Civ. P. 296 (request must be filed within twenty

days of signing of judgment). Finally, Perkins did not file a notice of past due findings and

conclusions as required by rule 297. See Tex. R. Civ. P. 297. Therefore, any error in the trial court’s

failure to make findings of fact and conclusions of law is waived. See In re A.I.G., 135 S.W.3d 687,

694 (Tex. App.—San Antonio 2003, no pet.); American Realty Trust, Inc. v. JDN Real

Estate-McKinney, L.P., 74 S.W.3d 527, 530 (Tex. App.—Dallas 2002, pet. denied). We overrule

issue number fourteen.

In issue ten, Perkins asserts that the trial court showed it was biased against him when

it allowed Chase’s attorney to make statements explaining the posture of the case and Chase’s

arguments. At the hearing, Perkins frequently objected to the attorney’s statements, asking whether

the attorney was testifying. The trial court explained that the attorney was allowed to explain his

position, much the same way Perkins had explained his positions before being sworn under oath to

testify. Perkins is correct that an attorney’s statements do not constitute evidence or support the

granting of summary judgment. However, an attorney may speak in a hearing to summarize the

evidence and arguments presented, which is what Chase’s attorney did here. The trial court did not

exhibit bias against Perkins. To the contrary, the court was quite patient during the proceeding,

attempting to explain procedure and its decisions. Nor did the court grant summary judgment based

on counsel’s statements, rather than proper evidence. We overrule Perkins’s tenth issue.


15

Propriety of Summary Judgment

In addition to the fourteen issues set out above, Perkins also makes a broad attack on

the propriety of the trial court’s granting of summary judgment, arguing that by his International

Remedy Demand, he made a good faith effort to verify and settle Chase’s claim. He again attacks

the trial court’s jurisdiction and argues that Chase did not establish that it had standing to bring or

that the court had subject matter jurisdiction over the cause. Perkins further complains that Chase

destroyed the commercial value of the promissory note he provided in response to the notification

that he was in default.

A motion for summary judgment is properly granted if, when the evidence is viewed

in the light most favorable to the non-movant, a movant establishes itself entitled to judgment as a

matter of law. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). We review de

novo a trial court’s decision to grant summary judgment. Natividad v. Alexsis, Inc., 875 S.W.2d 695,

699 (Tex. 1994).

Perkins invokes the UCC to argue that he attempted to tender performance under the

deed and note by sending Chase his “Certified Promissory Note.” However, real estate contracts are

not governed by the UCC; the UCC applies only to sales of goods. See Tex. Bus. & Com. Code

Ann. § 2.102 (West 1994); Gupta v. Ritter Homes, Inc., 633 S.W.2d 626, 627 (Tex. App.—Houston

[14th Dist.] 1982) (cause of action under UCC was “unfounded because sales of realty . . . are not

within the scope of the Code”), rev’d on other grounds, 646 S.W.2d 168 (Tex. 1983); see also Tex.

Bus. & Com. Code Ann. § 9.109(d)(11) (West 2005) (chapter 9 of UCC does not apply to creation

or transfer or interest in or lien on real property); Vogel v. Travelers Indem. Co., 966 S.W.2d 748,


We further note that Perkins already signed a promissory note when he took out the3

mortgage loan from Chase. His Adjusted Rate Note states that Perkins promised to repay the loanas specified in the terms of the note, and Perkins defaulted on those promises.

16

753 (Tex. App.—San Antonio 1998, no pet.) (discussing former UCC § 9.104, now § 9.109, and

stating that because “Deed of Trust places a lien on real property, it is not governed by the UCC”);

Long v. NCNB-Texas Nat’l Bank, 882 S.W.2d 861, 864 (Tex. App.—Corpus Christi 1994, no writ)

(same). Thus, Perkins’s attempt to discharge his loan obligations through a promissory note under

the UCC was not a defense to Chase’s claim.3

Chase produced evidence in the form of affidavits and documentation showing that

Perkins borrowed $82,413 from Chase to purchase a house. In exchange for the loan, Perkins signed

a deed of trust granting Chase a security interest in the property and the right to accelerate the loan

upon default. Perkins also signed a note promising that he would repay the loan amount over time

and with interest. Chase produced a payoff statement setting out the balance due and an affidavit

by Barrett Burke’s foreclosure manager swearing that the payoff statement was a true and correct

statement of the amount owed and averring that Perkins had not made any payments in the last year.

Chase, therefore, established that it had a security interest in the property and that Perkins had

defaulted on the loan.

Perkins did not answer Chase’s motion with any evidence raising a genuine question

of material fact. Perkins produced an “affidavit,” which he argues established his defenses as a

matter of law. We have already held that his averments were not deemed admitted or otherwise

ceded by Chase. In his affidavit, Perkins did not raise any issues as to whether he took out the

mortgage loan or had ceased making payments or whether Chase had a right to accelerate the loan


17

and foreclose upon the property. Instead, his affidavit consists of conclusory statements that he had

been harmed by Chase’s pleadings, that Chase had tacitly admitted that it had no claim, and that he

had paid the loan through his promissary note. Such conclusory statements of fact or law are not

competent summary judgment evidence. See McIntyre v. Ramirez, 109 S.W.3d 741, 749-50 (Tex.

2003); Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984); see also Walls Reg’l Hosp. v.

Bomar, 9 S.W.3d 805, 807 (Tex. 1999) (“characterizations of Boyett’s conduct and motives were

conclusory and do not create a fact issue”). The trial court did not err in granting summary judgment

in favor of Chase.

Conclusion

Chase established its right to summary judgment through competent evidence.

Perkins did not produce contrary evidence raising a fact issue as to whether Chase had a right to

foreclose on the property. We have overruled Perkins’s fourteen issues and have held that the trial

court properly granted summary judgment for Chase. We therefore affirm the trial court’s order.

__________________________________________

David Puryear, Justice

Before Chief Justice Law, Justices B. A. Smith and Puryear

Affirmed

Filed: June 16, 2006


Change View

1 Judgment Presumptions and Burden of ProofIn summary judgment proceedings, movants must establish their entitlementto judgment as matter of law by showing that no disputed fact issue preventsthem from conclusively proving every element of their cause or defense.


2 Appeal and Error JudgmentSummary judgment movant's burden demands that appellate court resolveeach doubt and indulge every reasonable inference in favor of nonmovantwhile accepting truth of all evidence against summary disposition.


3 Liens Statutory LiensVendor and Purchaser What Law GovernsAlthough Chapter 9 of Texas' Business and Commerce Code regulatessecurity interests in personal property and fixtures, it omits governanceover creation or transfer in or lien on real estate; thus, case law illuminatingprovisions of Business and Commerce Code do not influence court'sinterpretation of Property Code. V.T.C.A., Government Code § 311.023;V.T.C.A., Bus. & C. § 9.104(10).


4 Guaranty Notice of Default to GuarantorGuarantors of note secured by realty, as opposed to personal property, do

Corpus Christi.

Clarence LONG, Sr., et al., Appellants,

v.

NCNB–TEXAS NATIONAL BANK as Assignee of the Federal

Deposit Insurance Corporation as Receiver of the First Republic

Bank Victoria, N.A. F/K/A Interfirst Bank Victoria, N.A., Appellees.

No. 13–93–138–CV. July 28, 1994.

Bank foreclosed on realty secured by deed of trust that had been executed to securenote, and bank sought deficiency from note guarantors. The 24th District Court,Victoria County, Marion M. Lewis, J., entered summary judgment in favor of bank, andguarantors appealed. The Court of Appeals, Yañez, J., held that: (1) guarantors ofnote secured by realty were not entitled to notice of foreclosure sale, and (2)guarantors failed to obtain standing to challenge validity of nonjudicial foreclosure.

Affirmed.

West Headnotes (13)

RELATED TOPICS

Mortgages

Foreclosure by Exercise of Power of SaleDate of an Irregular Foreclosure Sale

Guaranty

Discharge of GuarantorTerms of Guaranty

Release or Loss of Other Securities

Guarantors of Purchase Money Notes

Long v. NCNB-Texas Nat. BankCourt of Appeals of Texas, Corpus Christi. July 28, 1994 882 S.W.2d 861 (Approx. 14 pages)


Long v. NCNB-Texas Nat. Bank - WestlawNext https://a.next.westlaw.com/Document/If2a5dc7de7c511d9bf60c1d57ebc8...

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not enjoy right to notice of foreclosure sale where guarantors do notpartake in nature and rights of note maker and case does not entailintermingled rights of guarantors and note makers. V.T.C.A., Property Code§ 51.002(b)(3).


5 Mortgages Persons Entitled to Relief and PartiesNonjudicial foreclosure under deed of trust will suffer challenges to itsvalidity from only note maker, note maker's privies, and parties with propertyinterest affected by the sale.


6 Mortgages Persons Entitled to Relief and PartiesTo have standing to dispute validity of deed of trust foreclosure sale, oneneed only have established property interest in deed of trust realty to imputeflaw in notice to note maker.


7 Mortgages Persons Entitled to Relief and PartiesPrincipals of note maker which had executed deed of trust over realty tosecure note lacked standing to contest validity of foreclosure notice to notemaker where principals failed to describe any recognizable property interestin the realty.


8 Bills and Notes Liability of DrawerGuaranty Nature of ObligationFundamentally, promissory notes and guaranties are contracts implying thatsecured party owes both note maker and guarantor duty to discharge itsrespective contractual obligations.


9 Guaranty Release or Loss of Other SecuritiesSecured party's negligent failure to exercise skill and care in performing itsobligations under guaranty contract is breach of common-law duty todischarge its contractual obligations properly.


10 Guaranty Release or Loss of Other SecuritiesUnless guaranty contract provides otherwise, secured party must employordinary care in disposing of security.

11 Guaranty Release or Loss of Other SecuritiesSecured parties under note do not owe note guarantors duty of good faith.


12 Guaranty Release or Loss of Other SecuritiesNote guarantor has right to avoid liability for deficiency following foreclosureby showing negligence in secured party's performance under guarantycontract.



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13 Guaranty Waiver or Estoppel of GuarantorNote guarantor's right to insist on proper disposition of realty securing notecan be waived.

1

2


*862 Bill W. Russell, Victoria, for appellants.

Douglas W. Sanders, Wright & Greenhill, San Antonio, for appellees.

Before SEERDEN, DORSEY and YAÑEZ, JJ.

Opinion

OPINION

YAÑEZ, Justice.

Clarence, Stephen and C.L. Long, guarantors of a promissory note, appeal from asummary judgment awarding NCNB–Texas National Bank the deficiency resultingfrom a realty foreclosure by NCNB. In six points of error, the Longs claim the trialcourt should have denied NCNB's motion for summary judgment and instead grantedtheir own motion for summary judgment. We disagree and affirm the trial court'sjudgment.

In August of 1985, Long Engineering executed a deed of trust over realty in VictoriaCounty to secure a $120,000 loan from InterFirst Bank Victoria, predecessor ofNCNB. In their capacity as sole shareholders and directors of the company, theLongs guaranteed the note. Long Engineering defaulted and filed for bankruptcy inDecember of 1989. NCNB then moved for relief from the automatic stay offoreclosure resulting from the bankruptcy proceedings. The bankruptcy court grantedNCNB's motion for relief from the automatic stay in an agreed order signed by LongEngineering's attorney.

In May of 1990, NCNB sent notice of the contemplated foreclosure sale to LongEngineering at the address required for such notices, as specified in the deed of trust.This address was abandoned. Although NCNB sent an additional copy of the notice tothe attorney representing Long Engineering in bankruptcy, NCNB did not separatelynotify the president of Long Engineering. In June of 1990, NCNB bought the propertyat foreclosure sale for $60,500 and demanded that the Longs pay the deficiency.When the Longs refused, NCNB sued to enforce the guaranties and prevailed onsummary judgment.

In summary judgment proceedings, movants must establish their entitlement tojudgment as a matter of law by showing that no disputed fact issue prevents them fromconclusively proving every element of their cause or defense. Swilley v. Hughes, 488S.W.2d 64, 67 (Tex.1972); MBank Corpus Christi N.A. v. Shiner, 840 S.W.2d 724,725 (Tex.App.—Corpus Christi 1992, no writ). When both parties move for summaryjudgment, each needs to meet this standard and neither may prevail merely becausethe other failed to discharge its burden of proof. Buccaneer's Cove, Inc. v. MainlandBank, 831 S.W.2d 582, 583 (Tex.App.—Corpus Christi 1992, no writ); Atrium v.Kenwin Shops of Crockett, Inc., 666 S.W.2d 315, 318 (Tex.App.—Houston [14thDist.] 1984, writ ref'd n.r.e.). The burden shifts once the movant establishes the rightto summary judgment; *863 the nonmovant must then present any issue that wouldavert the summary judgment. City of Houston v. Clear Creek Basin Auth., 589S.W.2d 671, 678 (Tex.1979); Diehl v. Rocky Mountain Communications, Inc., 818S.W.2d 183, 184 (Tex.App.—Corpus Christi 1991, writ denied).

Movant's appellate burden demands that we resolve each doubt and indulgeevery reasonable inference in favor of the nonmovant while accepting the truth of all


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evidence against the summary disposition. Nixon v. Mr. Property Management Co.,690 S.W.2d 546, 548–49 (Tex.1985); Argonaut Ins. v. Allstate Ins., 869 S.W.2d 537,537 (Tex.App.—Corpus Christi 1993, writ denied). Reviewing the summary judgmentevidence in this light, we must determine whether such proof disposes of everygenuine issue of material fact necessary to establish the movant's cause or defense.Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex.1970); Valero EnergyCorp. v. M.W. Kellogg Constr. Co., 866 S.W.2d 252, 257 (Tex.App.—Corpus Christi1993, writ denied).

Regarding the Longs' liability under the guaranties, four material elements compriseNCNB's cause of action:

(1) The existence and NCNB's ownership of the guaranties;

(2) Performance under the guaranties by InterFirst Bank Victoria and its successor,NCNB;

(3) Long Engineering's default on the underlying note so as to activate the Longs'liability under the guaranties; and

(4) The Longs' refusal to honor the guaranties.

See FDIC v. Attayi, 745 S.W.2d 939, 948 (Tex.App.—Houston [1st Dist.] 1988, nowrit); Barclay v. Waxahachie Bank & Trust Co., 568 S.W.2d 721, 723(Tex.Civ.App.—Waco 1978, no writ). The parties have agreed to facts establishing allfour elements of NCNB's cause, and such stipulations may appropriately evince asummary judgment. Tex.R.Civ.P. 166a(c). Moreover, this suit particularly invitessummary judgment in that it requires little more than our interpretation of anunambiguous written agreement. RGS, Cardox Recovery, Inc. v. DorchesterEnhanced Recovery Co., 700 S.W.2d 635, 638 (Tex.App.—Corpus Christi 1985, writref'd n.r.e.).

The Longs' first two points of error urge that we recognize a statutory duty to providenotice of a foreclosure sale to guarantors of the underlying note secured by realproperty. The relevant statute requires notice to “each debtor who, according to therecords of the holder of the debt, is obliged to pay the debt.” Tex.Prop.Code Ann. §51.002(b)(3) (Vernon 1989). Specifically, the Longs ask that we read “debtor” toencompass both the maker and the guarantor of the note so that notice serves as anadditional element of NCNB's suit to enforce the guaranties.

Construing the notice requirement in a suit for deficiency under a note secured bypersonal property, we have interpreted the term “debtor” to include guarantors.Hernandez v. Bexar County Nat'l Bank, 710 S.W.2d 684, 687 (Tex.App.—CorpusChristi), writ ref'd n.r.e. per curiam, 716 S.W.2d 938 (Tex.1986) (construing Tex.Bus.& Com.Code Ann. §§ 9.504, 9.505 (Tex.UCC) (Vernon Supp.1986)); see also FDICv. Moore, 846 S.W.2d 492, 495 (Tex.App.—Corpus Christi 1993, writ denied)(construing Tex.Bus. & Com.Code Ann. § 9.504(c) (Tex.UCC) (Vernon 1991)). Avigorous debate on the effect of disputed notice under the Business and CommerceCode divides the various courts of appeal. The two schools of thought differ overwhether notice represents an element of the cause or if lack of notice merely providesan affirmative defense. Compare Smith v. FDIC, 800 S.W.2d 648, 650 (Tex.App.—Houston [1st Dist.] 1990, writ dism'd agr.) with Daniell v. Citizens Bank, 754 S.W.2d407, 409 (Tex.App.—Corpus Christi 1988, no writ).

Conspicuously, no such debate animates the issue now before us. In Hernandez, weconcluded that the Business and Commerce Code notice requirement bars liability fordeficiency absent notice of the foreclosure sale to the guarantor. Hernandez, 710S.W.2d at 687. We explicitly distinguished, however, between guarantors of a loansecured by realty under the Property Code and a loan secured with consumer goodsunder the Business and Commerce Code. Id. The *864 identical distinction underliesthe Attayi court's analysis of a guarantor's right to notice of the foreclosure sale under


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3

the two codes. Attayi, 745 S.W.2d at 948. In a secured party's appeal from asummary judgment denying deficiency, the Attayi court addressed the materialelements of the secured party's cause of action:

As appellee correctly argues, when a guaranty is made on a promissory note that issecured by personal property, the Texas UCC article 9 applies. (citations omitted).Notice of the forced sale was an element of appellant's cause of action. (citationsomitted).

Appellant cites Barclay v. Waxahachie Bank & Trust Co., 568 S.W.2d 721(Tex.Civ.App.—Waco 1978, no writ), as authority for the elements of a suit on aguaranty [with no mention of notice as an element].

At issue in Barclay were guaranties on promissory notes secured by real property;on the facts of the case the Barclay court's listing of the elements of a guaranty suitwas correct. However, as stated above, the guaranty in the instant case wassecured by personal property.

Attayi, 745 S.W.2d at 948.

Both Hernandez and Attayi contrast a guarantor's established right to notice if chattelsecures the note with the absence of such a right under the guaranty of a notesecured by realty. Neither the Business and Commerce Code nor the Property Codeexplicitly define “debtor” to include guarantors. Yet we discriminate between the twotypes of guaranty contracts because of the disparate legislative histories of theirrespective governing codes.

In May of 1965, Texas adopted the Official Text of the Uniform Commercial Code,with minor modifications irrelevant to this case, as chapters 1 through 9 of theBusiness and Commerce Code. See generally Robinson v. Garcia, 804 S.W.2d 238(Tex.App.—Corpus Christi 1991), writ denied per curiam, 817 S.W.2d 59 (Tex.1991)(discussing legislative history of Texas UCC). Among the stated purposes of thisenactment, chapter 1 particularly lists the goal of making “uniform the law among thevarious jurisdictions.” Tex.Bus. & Com.Code Ann. § 1.102(b)(3) (Tex.UCC). Thispolicy has encouraged Texas courts to look beyond our jurisdictional borders forguidance in construing the provisions of chapter 9. See, e.g., MBank El Paso N.A. v.Sanchez, 836 S.W.2d 151, 153–54 (Tex.1992) (citing § 1.102(b)(3) as grounds forsurveying over a dozen jurisdictions before interpreting § 9.503); Peck v. MackTrucks, Inc., 704 S.W.2d 583, 585 (Tex.App.—Austin 1986, no writ) (noting thatmajority of jurisdictions include guarantors within term “debtor” under UCC article 9 asone justification for adopting same construction in Texas); Sunjet, Inc. v. Ford MotorCredit Co., 703 S.W.2d 285, 287–88 (Tex.App.—Dallas 1985, no writ) (citing §1.102(b)(3) as requiring multijurisdictional examination of evidentiary burden onsecured party to interpret §§ 9.504, 9.507). The practice of consulting foreignauthorities finds further support in the rules of construction contained within theGovernment Code: “A uniform act included in a code shall be construed to effect itsgeneral purpose to make uniform the law of those states that enact it.” Tex.Gov't CodeAnn. § 311.028 (Vernon 1988). This method of statutory construction distinctive to theBusiness and Commerce Code profoundly influences our understanding of chapter 9and our contextual interpretation of the term “debtor.” See Peck, 704 S.W.2d at 585.

Although chapter 9 of the Business and Commerce Code regulates securityinterests in personal property and fixtures, it expressly omits governance over “thecreation or transfer of an interest in or lien on real estate.” Tex.Bus. & Comm.CodeAnn. § 9.104(10) (Tex.UCC). In both parameter and underlying purpose, therefore,the notice requirement in chapter 9 evolves under jurisprudential strictures whollyirrelevant to the Property Code. See McFarlane v. Whitney, 134 Tex. 394, 134S.W.2d 1047, 1050 (Com.App.1940). No similar concern for interjurisdictionaluniformity controls our reading of the Property Code. This underlying disparitybetween the various objects of the two codes outweighs the mere appearance of


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similarity. Consequently, case law illuminating provisions of the Business andCommerce Code fails to influence our interpretation of *865 the Property Code. SeeTex.Gov't Code Ann. § 311.023.

To the contrary, we must construe the Property Code in the context of its ownparticular objects, circumstances, consequences and history. Id. The noticerequirement in § 51.002 of the Property Code has been the subject of legislativeattention in Texas since 1895. Roedenbeck Farms v. Broussard, 124 S.W.2d 929,936 (Tex.Civ.App.—Beaumont), writ ref'd, 133 Tex. 126, 127 S.W.2d 168 (1939),appeal dism'd, 308 U.S. 514, 60 S.Ct. 145, 84 L.Ed. 438 (1939).

Parties to a deed of trust enjoyed absolute license to contract by agreed terms priorto March of 1889, when the statute requiring notice of foreclosure sales becameeffective. International Bldg. & Loan v. Hardy, 86 Tex. 610, 26 S.W. 497, 500 (1894);see generally Armeta v. Nussbaum, 519 S.W.2d 673 (Tex.Civ.App.—Corpus Christi1975, writ ref'd n.r.e.) (discussing history of nonjudicial foreclosure under Texas law).The 1889 enactment allowed for contractual notices in addition to the statutory notice,but not as an alternative to the following requirement:

[T]he time and place of making sale of real estate ... shall be publiclyadvertised ... for at least twenty days successively next before the dayof sale, by posting up written or printed notice thereof, at three publicplaces in the county, one of which shall be the door of the court houseof the county.

Sayles' Civ.St. art. 2309 (also allowing countywide newspaper publication),incorporated by reference in Acts 1889, at 143, ch. 118; see also International Bldg.& Loan, 26 S.W. at 497; Chamberlain v. Trammell, 61 Tex.Civ.App. 650, 131 S.W.227, 230 (1910, writ dism'd).

The 1915 amendments to the 1889 enactment altered the notice requirement byauthorizing “the parties, as an alternative but not as a cumulative right, to contract asto a method of notice.” Roedenbeck Farms, 124 S.W.2d at 936 (construing Acts1915, 1st C.S., at 32, ch. 15 amendment to Rev.Civ.St.1911, art. 3759). Still, partiescould not contract for one exclusive method of notification until further amendmentswere assembled in 1925 as article 3810, the immediate predecessor to the currentstatute. Roedenbeck Farms, 124 S.W.2d at 936 (comparing amendedRev.Civ.St.1911 with article 3810).

Notice to the debtor by certified mail plus posting on the courthouse door replaced theold posting requirement in 1976. Acts 1975, at 2354, ch. 723, § 1. The Texaslegislature codified this version of the notice requirement into Section 51.002 of theProperty Code without substantive amendment. Acts 1983, at 3475, ch. 576. To thisday, the law governing nonjudicial foreclosure sales incorporates significant aspectsof the 1889 enactment:

(1) notice of the time and place of the public foreclosure sale

(2) posted on the county courthouse door for three consecutive weeks prior to

(3) the foreclosure sale between 10:00 a.m. and 4:00 p.m. on the first Tuesday ofthe month in

(4) the county where the realty is located.

Compare Tex.Prop.Code Ann. § 51.002 (Vernon Supp.1993) and McFarlane, 134S.W.2d at 1051 with Acts 1889, at 143, ch. 118 and International Bldg. & Loan, 26S.W. at 497.

Since 1885, most of the amendments to this formal sales procedure have affectedsome facet of the notice requirement. See, e.g., Tex.Prop.Code Ann. § 51.002(Vernon Supp.1993). Obviously, the legislature has both deliberated over the


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4

nonjudicial foreclosure process and shown itself willing to address any perceivedweakness in the statutory scheme. In all its revisions to the notice requirement, fromthe 1915 amendments to the amendments of 1991, the legislature has neverextended the right to notice of foreclosure to guarantors.

We need not rely solely on this legislative silence, however. In 1991 Texas enactedtwo statutes designed to protect both note makers and guarantors in deficiency suitsrising from nonjudicial foreclosures on realty. Tex.Prop.Code Ann. §§ 51.003, 51.005(Vernon Supp.1993). Trenchantly, neither statute adopts the language of Section51.002 that identifies the “debtor” as each person “obliged to pay the debt.” Rather,Section 51.003 extends specifically to all “persons against whom recovery of thedeficiency is *866 sought.” Tex.Prop.Code Ann. § 51.003(c). Even more pointedly,Section 51.005 expressly inserts the phrase “including guarantors” after referring to“persons obligated on the indebtedness.” Tex.Prop.Code Ann. § 51.005(c). In bothstatutes, the legislature chose unambiguous language that differs from the phrasing ofSection 51.002 when it intended to embrace the guarantor within the scope of thestatute's effect.

Finally, the plain wording of Section 51.005 militates against the Longs'interpretation of the notice requirement by limiting the right to contest the foreclosureprice with the following language: “The suit must be brought not later than the 90th dayafter the date of the foreclosure sale or the date the guarantor receives actual noticeof the foreclosure sale, whichever is later.” Tex.Prop.Code Ann. § 51.005(b). Thelegislature clearly envisioned the prospect of guarantors defending suits fordeficiency after they received no notice of the foreclosure sale. This notion cannotabide the Longs' contention that notice serves as an element of the secured party'scause of action. Rather than construe Section 51.002(b) as anathema to Section51.005(b), we must prefer the interpretation that brings the two provisions intoharmony. Tex. Gov't Code Ann. § 311.025. Accordingly, we hold that guarantors of anote secured by realty do not enjoy the right to notice of the foreclosure sale.

Although neither relied upon nor cited by the Longs, a distinguishable line of caseshas been interpreted to suggest a guarantor's right to notice. See, e.g., Micrea, Inc. v.Eureka Life Ins., 534 S.W.2d 348 (Tex.Civ.App.—Fort Worth 1976, writ ref'd n.r.e.)(citing, however, only cases that involve rights of note makers and their contractualprivies). One commentator has inferred that the Micrea court tacitly acknowledged theguarantor's right to notice by holding that such rights were waived in the note and theguaranty. Texas Foreclosure: Law & Practice 67, § 2.39 (M. Baggett ed. 1984) (citingMicrea without discussion of guarantor's contractual privity with note maker as sourcefor right to notice); contra American Sav. & Loan v. Musick, 531 S.W.2d 581, 588(Tex.1975) (“There is no requirement that personal notice [of the foreclosure sale] begiven to persons who were not parties to the deed of trust.”) Significantly, Micreainvolved a deficiency suit against the note maker and a guarantor who actually signedthe promissory note itself as well as the separate guaranty contract. See also,Carruth Mortgage Corp. v. Ford, 630 S.W.2d 897 (Tex.App.—Houston [14th Dist.]1982, no writ) (similarly concerning both note maker and guarantor and citing a casethat discussed only note maker's right to notice, Williams v. Henderson, 580 S.W.2d37 (Tex.App.—Houston [1st Dist.] 1979, no writ)). But see Thompson v. ChryslerFirst Business Credit, 840 S.W.2d 25 (Tex.App.—Dallas 1992, no writ) (requiringnotice to guarantor in deficiency suit that did not involve note maker, citing CaruthMortgage, Williams and a case regarding note maker's rights under Texas UCC,Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex.1991)). The instant caseentails neither the intermingled rights of guarantors and note makers nor a guarantorwho signed the note and therefore partakes in the nature and rights of a note maker.We are purely considering the discrete rights of guarantors as distinct from the notemaker's statutory right to notice of the foreclosure sale.

Hernandez and Attayi pointedly compared the expansive entitlement of Business andCommerce Code guarantors with the abridged rights of guarantors under the Property


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Code. Analogously, the note maker's entitled status relative to the disfranchisedposition of the guarantor underlies the court's decision in Miller v. University Sav.,858 S.W.2d 33 (Tex.App.—Houston [14th Dist.] 1993, no writ). Considering aguarantor's appeal from summary judgment, the Miller court addressed the securedparty's duty to notify the guarantor of its intention to accelerate:

[T]his case does not involve a holder's obligation to a maker. Instead,it involves the liability of a guarantor when the maker defaults on theloan. While we agree with appellant that Texas law requires a holder tonotify a maker of his intent to accelerate a note, it does not requirethat notice of intent to accelerate be given to a guarantor. *867(citation omitted). While a guaranty clause may incorporate certainterms and provisions of the underlying promissory note, it is aseparate contract with separate ramifications and obligations imposedon those parties.

Id. at 36; cf. Musick, 531 S.W.2d at 588 (secured parties need not notify trustbeneficiaries of foreclosure sale under deed executed by trustees); Ray v. Spencer,208 S.W.2d 103, 104 (Tex.Civ.App.—Texarkana 1947, writ ref'd) (secured partiesneed not notify unconditional guarantors of underlying default to fasten liability). Indenying the right to notice of acceleration, Miller conforms with other cases holdingcertain rights and defenses of the note maker do not automatically inure to theguarantor. See, e.g., Houston Sash & Door Co. v. Heaner, 577 S.W.2d 217(Tex.1979) (guarantor cannot assert maker's usury defense); Universal Metals &Mach. v. Bohart, 539 S.W.2d 874 (Tex.1976) (guarantor cannot assert maker'sdefense of forgery); cf. Hopkins v. First Nat'l Bank, 546 S.W.2d 84 (Tex.Civ.App.—Corpus Christi 1976), writ ref'd n.r.e. per curiam, 551 S.W.2d 343 (Tex.1977)(guarantor assumes note maker's obligations without necessarily assumingcorresponding rights). Insofar as the availability of the maker's rights and defensesare concerned, this line of jurisprudence belies the canard that a guarantor is afavorite of the law. We find no legal basis for omitting notice of the realty foreclosuresale from the roster of note maker's rights that do not benefit the guarantor. Casesthat adjudge the entwined rights of note makers and guarantors and cases concerningguarantors who participate in making the note fail to persuade us otherwise.

Having disavowed the Longs' right to notice of the foreclosure sale independent ofLong Engineering's statutory right, we need not determine whether they waived thoserights in the guaranty. We therefore overrule the Longs' first two points of error.

In related points of error three and four, the Longs contest the legal sufficiencyof NCNB's notice to Long Engineering as the note maker. A nonjudicial foreclosureunder deed of trust will suffer challenges to its validity from only the note maker, thenote maker's privies, and parties with a property interest affected by the sale.Goswami v. Metro. Sav. & Loan, 751 S.W.2d 487, 489 (Tex.1988).

Historically, standing to insist upon the note maker's prerogative of personal notice ofthe foreclosure sale required privity of estate with the note maker. See Hampshire v.Greeves, 104 Tex. 620, 143 S.W 147, 150 (Tex.1912); Weaver v. Acme Fin., 407S.W.2d 227, 231 (Tex.Civ.App.—Corpus Christi 1966, no writ); Collier v. Ford, 81S.W.2d 821, 824 (Tex.Civ.App.—Galveston 1935, writ dism'd w.o.j.). Parties to thenote and deed instruments may also impeach the validity of the foreclosure sale asthe note maker's privies of contract, an equally ancient basis for standing. See Hinziev. Kempner, 82 Tex. 617, 18 S.W. 659, 661 (1891); cf. Merrimack Mut. Fire Ins. v.Allied Fairbanks Bank, 678 S.W.2d 574, 577 (Tex.App.—Houston [14th Dist.] 1984,writ ref'd n.r.e.) (insurer who was not party to note and deed instruments lackedstanding to contest validity of foreclosure and subsequent reformation of foreclosuredocuments); Lockwood v. Lisby, 476 S.W.2d 871, 875 (Tex.Civ.App.—Fort Worth1972, writ ref'd n.r.e.) (absent notice of assignment to mortgagee, mortgagors'assignee is not entitled to separate notice but may question validity of notice to


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mortgagors as their contractual privy).

Modern cases have expanded the class of parties with standing to disputethe validity of the foreclosure sale by adopting a more liberal attitude toward this privityrequirement. Compare Hampshire, 143 S.W. at 150 with Musick, 531 S.W.2d at 586.Under the current approach, the Longs need only have established a propertyinterest in the deed of trust realty to impute a flaw in NCNB's notice to LongEngineering. See Musick, 531 S.W.2d at 586. But the Longs merely claim that they“would have been present to bid at the foreclosure sale [or] would have had thirdparties to bid” if they had received notice. This fails to describe any recognizableproperty interest, let alone a mutual or successive right of property creating privity ofestate with Long Engineering. Nor do the Longs claim the right to *868 criticize thenotice to Long Engineering as parties to the note or deed of trust. See FDIC v.Coleman, 795 S.W.2d 706, 710 (Tex.1990) (guarantors are not automatically partiesto note). We find the Longs wanting for the standing necessary to attack the validityof NCNB's notice to Long Engineering and overrule their third and fourth points oferror.

In two final points of error, the Longs claim they were damaged by allegedirregularities in the foreclosure sale. To support their contention that we musttherefore reverse the trial court and set the foreclosure sale aside, the Longs citeMusick. In Musick, however, the supreme court founded the parties' standing tochallenge the validity of the foreclosure sale on their property interest as establishedby the facts of record. Musick, 531 S.W.2d at 586. By signing separate andunconditional guaranty contracts and by failing to retain a property interest in therealty under deed of trust, the Longs removed themselves from the scope of Musick.

If the Longs have any recourse against NCNB, it must emanate from the guarantycontracts. But see Lester v. First Am. Bank, 866 S.W.2d 361 (Tex.App.—Austin1993, n.w.h.) (guarantors may also claim statutory relief in foreclosure salesconducted after April 1, 1991, effective date of Tex.Prop.Code Ann. § 51.003). Twocases delineate the legal boundaries of NCNB's relationship to the Longs under theirguaranties: Coleman, supra, and RTC v. Westridge Court, 815 S.W.2d 327 (Tex.App.—Houston [1st Dist.] 1991, writ denied) (specifically considering law prior to effect of§ 51.003).

In Coleman, the supreme court looked sternly on the principals of a corporate notemaker when they sought to avoid deficiency judgment after protecting the note makerfrom its creditors. Coleman, 795 S.W.2d at 709. Addressing a claim similar to theLongs' assertion that the value of the underlying realty exceeded the outstanding debtand should thus satisfy the whole obligation, the court said:

If the value of the property really approximated the debt against it, astheir counsel claimed, they should have caused [the corporate notemaker] to sell it.... Furthermore, to impose a duty of good faith on acreditor in these circumstances is an impossible burden.... Even if the[secured party] had a duty of good faith in these circumstances, [theguarantors] waived it.... The guaranties gave the [secured party] theright to ignore the collateral and obtain a judgment from [theguarantors] for the full amount of the debt, even if the collateral mighthave been sold to satisfy part of the debt.

Id. at 709–10 (footnote omitted). The guarantors in Coleman did not, however, allegeirregularities in the foreclosure sale. Id. at 708. If Coleman sets a ceiling for the dutyowed to guarantors at something lower than good faith, Westridge Court defines thefloor:

Simply put, we must determine what duties [the secured party] owed[the guarantors].... [W]ith respect to the foreclosure sale, themortgagee owes but one duty to the mortgagor, to conduct the sale


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8 9 10

11 12

properly. (citation omitted). We concur. We further hold that amortgagor [sic] owes a guarantor the same duty.

Westridge Court, 815 S.W.2d at 332 (the court meant to hold that it is a mortgageeand not a mortgagor who owes the guarantor this duty; this is clear from the broadercontext of the quoted language). By allowing guarantors automatic standing toquestion whether the foreclosure sale was proper, Westridge Court seeminglycontradicts case law from Hampshire and Hinzie through Goswami and Musick.

Yet this is not the best understanding of Westridge Court. The court clearly separatedthe conclusion that the foreclosure sale was valid from its determination that the salewas conducted properly, a distinctly lower standard of performance. Westridge Court,815 S.W.2d at 332. Although the court equated the rights of the guarantor with therights of the mortgagor, it never discussed the mortgagor's statutory rights or rightsunder the deed of trust. Instead, the court limited its examination of the record to thesingular assessment of whether the secured party “committed some act ofwrongdoing, misconduct, or unfairness.” Westridge Court, 815 S.W.2d at 331 (citing*869 Tarrant Sav. v. Lucky Homes, 390 S.W.2d 473, 475 (Tex.1965)). This analysisappropriately considers the secured party's contractual performance under its mostgeneral duty of care, which the secured party owes both guarantor and note makeralike. By stripping away any commentary on the note maker's statutory rights or theterms of the particular note, deed of trust and guaranty, Westridge Court reaches theunderlying common law.

Fundamentally, promissory notes and guaranties are contracts.Strickland v. Coleman, 824 S.W.2d 188, 191 (Tex.App.—Houston [1st Dist.] 1991, nowrit); Fourticq v. Fireman's Fund Ins., 679 S.W.2d 562, 564 (Tex.App.—Dallas 1984,no writ). As such, notes and guaranties imply that a secured party owes both the notemaker and guarantor the duty to discharge its respective contractual obligationsproperly. Southwestern Bell Tel. v. DeLanney, 809 S.W.2d 493, 494 (Tex.1991)(explaining this often misunderstood duty in reference to Montgomery Ward & Co. v.Scharrenbeck, 146 Tex. 153, 204 S.W.2d 508 (1947): by failing to perform “properly,the defendant breached its contract”); Coulson v. Lake L.B.J. Mun. Util. Dist., 734S.W.2d 649, 651 (Tex.1987); Compton v. Polonski, 567 S.W.2d 835, 839(Tex.Civ.App.—Corpus Christi 1978, no writ). The secured party's negligent failure toexercise skill and care in performing its obligations under a guaranty contract wouldconstitute a breach of this common-law duty. Accord Coulson, 734 S.W.2d at 651;Montgomery Ward, 204 S.W.2d at 510; Compton, 567 S.W.2d at 839. Unless theguaranty contract provides otherwise, the secured party must employ such ordinarycare in disposing of the security. T.O. Stanley Boot Co. v. Bank of El Paso, 847S.W.2d 218, 223 (Tex.1992); Blocksom v. Guaranty State Bank & Trust, 251 S.W.1025, 1027 (Tex. Comm'n App.1923, holding approved); Traywick v. Gunn, 293 S.W.273, 275 (Tex.Civ.App.—Texarkana 1927, no writ); cf. SEI Business Sys. v. BankOne Texas, 803 S.W.2d 838, 840 (Tex.App.—Dallas 1991, no writ) (guarantor cancomplain only if secured party fails to conduct foreclosure “in a proper manner”).

Reading Westridge Court as addressing these duties effects the court'sholding without negating the well-settled law limiting standing to contest the validity of anonjudicial foreclosure. Moreover, this understanding of Westridge Court conformswith the determination by the supreme court in Coleman that secured parties do notowe guarantors a duty of good faith. As a result, Westridge Court confirms theguarantor's right to avoid liability for a deficiency by showing negligence in the securedparty's performance under the guaranty contract. Accord T.O. Stanley Boot Co., 847S.W.2d at 223. This differs from the note maker's right to set aside an invalidforeclosure sale under the law of wrongful foreclosure. See generally Durkay v.Madco Oil, 862 S.W.2d 14 (Tex.App.—Corpus Christi 1993, writ denied), (discussingdefects in foreclosure sale that note makers or their privies may allege to showinvalidity and voidness); Charter Nat'l Bank—Houston v. Stevens, 781 S.W.2d 368(Tex.App.—Houston [1st Dist.] 1989, writ denied) (discussing history of wrongful


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foreclosure under Texas law).

Just like the note maker's right to notice of various actions on the note, however,the guarantor's right to insist upon the proper disposition of realty securing the notecan be waived. Coleman, 795 S.W.2d at 710; see also Athari v. Hutcheson, 801S.W.2d 896, 897 (Tex.1991) (discussing note maker's waiver of rights). Inferringsurrender of a hypothetical duty of good faith from the creditor's contractual right toexecute the guaranty without first seeking satisfaction from the collateral, the supremecourt expounded:

[I]f a creditor had a duty to the guarantors, and presumably the sameduty to the debtor itself, to liquidate collateral only in such a way as tominimize a deficiency on the debt, the proper discharge would almostalways raise material issues of fact.... Deficiency suits could rarely beresolved by summary judgment, and would necessitate a full trial onthe merits. Commercial transactions require more predictability andcertainty than this rule would afford.

Coleman, 795 S.W.2d at 710. The guaranties signed by the Longs contain a similarrelinquishment of the necessity that NCNB proceed *870 against the security beforeenforcing the guaranties. Under Coleman, such an explicit disavowal of any interestin the security apparently precludes the right to object to the manner of the collateral'sdisposition. See also T.O. Stanley Boot Co., 847 S.W.2d at 223 (right to assertimpairment of collateral defense may be waived in guaranty contract); Smith v. U.S.Nat'l Bank, 767 S.W.2d 820, 823 (Tex.App.—Texarkana 1989, writ denied)(impairment of subrogation and equity of redemption rights waived by language similarto waiver in Longs' guaranties); Simpson v. MBank Dallas, 724 S.W.2d 102, 106(Tex.App.—Dallas 1987, writ ref'd n.r.e.) (duty to protect collateral waived by languagesimilar to waiver in Longs' guaranties).

Some authorities suggest that the secured party revives the duty of care inforeclosure by electing to pursue the security after the guarantor has waived this as aprerequisite to liability. See, e.g., Frederick v. United States, 386 F.2d 481, 486 (5thCir.1967); Coleman, 795 S.W.2d at 711 (Mauzy, J., dissenting); Coleman v. FDIC,762 S.W.2d 243, 245 (Tex.App.—El Paso 1988), rev'd, 795 S.W.2d 706 (Tex.1990).Although it does not appear that the Longs would prevail under this more progressiveview, we do not reach that determination because the supreme court hasunequivocally adopted the contrary approach. We must therefore overrule the Longslast two points of error.

The trial court's judgment is affirmed.





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966 S.W.2d 748 (1998)

Anita De Armond VOGEL and Garrett Vogel, Appellants, v.

THE TRAVELERS INDEMNITY COMPANY, Appellee.

No. 04-97-00774-CV.

Court of Appeals of Texas, San Antonio.

March 25, 1998.

749*749 Glenn Grossenbachler, Kenneth J. Burch, Law Office of Glenn Grossenbacher, San Antonio, for Appellant.

Jerry T. Steed, Baucum & Steed, P.C., Patrick K. Sheehan, Cauthorn Hale Hornberger Fuller Sheehan & Becker, San Antonio, for Appellee.

Before HARDBERGER, C.J., and LÓPEZ and GREEN, JJ.

OPINION HARDBERGER, Chief Justice.

Appellants, Anita De Armond Vogel and Garrett Vogel ("Vogels"), appeal a summary judgment granted in favor of appellee, The Travelers Indemnity Company ("Travelers"). The Vogels sued Travelers for various claims relating to Travelers' refusal to renew and extend certain indebtedness and its foreclosure of the real property securing the payment of that debt. In this appeal, the Vogels raise seven points of error, contending that the trial court erred in considering certain affidavits as summary judgment evidence and in rendering summary judgment as to each of the Vogels' claims. We overrule the Vogels' points of error and affirm the trial court's judgment.

FACTUAL AND PROCEDURAL HISTORY On March 1, 1976, George L. De Armond, Anita's father ("George"), and Drucilla De Armond, Anita's stepmother ("Drucilla"), executed 750*750 a First Mortgage Note in favor of Travelers in the principal sum of $250,000 (the "Note"). The Note was secured by a First Deed of Trust Security Agreement and Financing Statement, pledging approximately 605 acres of land in Bandera County, Texas as security (the "Deed of Trust"). The unpaid balance due under the Note matured on October 1, 1990.

The Vogels allege that George, and possibly Drucilla, executed a contract for deed contemporaneously with the execution of the Note and Deed of Trust. The terms of the contract for deed conveyed the real property pledged to secure the Note to Anita in exchange for Anita's


agreement to pay the Note and the execution of one or more notes totaling $50,000. No documentation evidencing this transaction could be located; however, the Vogels asserted that Travelers knowingly and willingly accepted payments on the Note from them.

In August of 1979, George died, and he devised all of his separate property to Anita. The real property pledged to secure the Note was allegedly separate property. The Vogels admitted that the debt evidenced by the Note became an obligation of the estate. George's estate was closed in or about 1981.

Anita failed to pay the installment due under the Note on April 1, 1985. Travelers agreed to refrain from accelerating the Note and to allow Anita to cure the default by making the payment in installments. In exchange, Anita agreed to a modification of the Note, increasing the interest rate on matured unpaid amounts to 15%.

The loan was scheduled to mature on October 1, 1990. Prior to the maturity date, the Vogels and Travelers began negotiating a renewal and extension of the loan. On October 4, 1990, Travelers forwarded a letter agreement to the Vogels, conditionally agreeing to review and consider a two year renewal. The conditions to Travelers' agreement included obtaining evidence of title and a title policy.

The Vogels accepted the terms of the letter agreement on October 25, 1990. The Vogels also paid the $2,000 non-refundable application fee which was due upon acceptance of the letter agreement proposal. In January of 1991, the Vogels obtained an appraisal of the real property which was one of the conditions in the letter agreement. The property appraised at $515,600.

On March 27, 1991, Travelers' attorney forwarded a letter to the Vogels, setting forth five prerequisites that the title company required the Vogels to meet before the title company would be in a position to issue the necessary title policy.[1] The letter states that if the listed requirements are not satisfactorily completed on or before April 26, 1991, "a very reasonable period of time under these circumstances, then it will be apparent that the terms of the October 4, 1990 letter will not (and cannot) be satisfied in order to accomplish renewal of the loan."

On May 22, 1991, Travelers demanded payment in full from Anita by June 11, 1991. When payment was not received, the substitute trustee under the Deed of Trust executed a notice of sale for the real property. On July 2, 1991, the morning of the date noticed for the sale, the Vogels filed an application for temporary restraining order and temporary and permanent injunction. The 216th District Court of Bandera County issued the temporary restraining order and set the temporary injunction for hearing for July 11, 1991. On July 10, 1991, Travelers removed the case to federal court.

Travelers re-noticed the sale of the real property for August 6, 1991. Although the Vogels again attempted to enjoin the sale in district court, the applications for temporary restraining orders were denied, and the property was sold at foreclosure and purchased by Travelers on August 6, 1991. On August 30, 1991, the federal court considered 751*751 Anita's motion to dismiss that cause for mootness. The federal court noted that the sole relief sought in that action was


injunctive relief to prevent the foreclosure sale. Since the foreclosure sale had taken place, the federal court dismissed the cause as moot.

The Vogels pursued the possibility of repurchasing the property from Travelers. On October 8, 1991, Travelers' general manager forwarded a letter to the Vogels containing a proposal for the Vogels purchase of the property. The proposal was to expire on October 15, 1991, if not accepted in writing. There is no indication in our record that the offer was accepted. Garret Vogel stated in his affidavit in response to Travelers' motion for summary judgment that the Vogels met with Travelers' representatives on October 25, 1991, and the obstacles for the resale were an increase in the interest rate and an increase in the principal amount of the loan to include costs relating to the foreclosure.

On or about August 5, 1993, the Vogels sued Travelers. On February 12, 1997, Travelers filed an amended motion for summary judgment. On March 27, 1997, the Vogels filed a response to the motion and an amended original petition in which they raised two additional claims: breach of contract and restitution. On April 8, 1997, the trial court held a hearing on the motion, taking certain evidentiary issues under advisement. On May 14, 1997, the trial court forwarded a letter to the attorneys for the Vogels and Travelers, stating that he intended to grant the motion for summary judgment. The trial court requested that the Vogels' attorney review the proposed order and determine whether he had any objections. The order was subsequently signed by the trial court on June 3, 1997, and the Vogels appeal that order.

STANDARD OF REVIEW The general standard for reviewing a motion for summary judgment has been clearly established. The movant for summary judgment is first required to disprove at least one of the essential elements of each of the plaintiff's causes of action in order to prevail on summary judgment. Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex.1991). This initial burden requires the movant to show that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). In determining whether a material fact issue exists to preclude summary judgment, evidence favoring the non-movant is taken as true, and all reasonable inferences are indulged in favor of the non-movant. Id. Any doubt is resolved in favor of the non-movant. Id.

A defendant moving for summary judgment based on an affirmative defense must conclusively prove all elements of that defense as a matter of law such that there is no genuine issue of material fact. See Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 494-95 (Tex.1991); Montgomery v. Kennedy, 669 S.W.2d 309, 310-11 (Tex.1984). Once the defendant produces sufficient evidence to establish a right to summary judgment, the plaintiff must set forth sufficient evidence to give rise to a genuine issue of material fact. Pinckley v. Dr. Francisco Gallegos, M.D., P.A., 740 S.W.2d 529, 531 (Tex.App.—San Antonio 1987, writ denied).

In the instant case, the trial court granted a general summary judgment. Therefore, we must consider whether any theory asserted in Travelers' motion supports the summary judgment. State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex.1993). We will affirm the summary judgment if any theory is meritorious. Id.


SUMMARY JUDGMENT AFFIDAVITS In their first and second points of error, the Vogels contend that the trial court erred in failing to sustain their objections to the affidavits of Billy Walker and James Norman. Travelers counters that the objections were waived or, alternatively, were without merit. We do not find it necessary to reach this issue. Travelers sought to introduce the affidavits as evidence that the conditions to the renewal agreement had not been met. One of those conditions was a title policy, and the title company required a warranty deed from Drucilla before it would issue that policy. Since Garrett admitted in his affidavit 752*752 that they could only obtain a quitclaim deed from Drucilla, the summary judgment evidence conclusively established that the conditions to the renewal agreement were not met even if we do not consider the affidavits of Walker and Norman.

RES JUDICATA In their third point of error, the Vogels contend that summary judgment would be improper based on Travelers' affirmative defense of res judicata.

Res judicata is only applicable where there is: (1) a prior final judgment on the merits by a court of competent jurisdiction; (2) identity of parties or those in privity with them; and (3) a second action based on the same claims as were raised or could have been raised in the first action. McGee v. McGee, 936 S.W.2d 360, 363 (Tex.App.— Waco 1996, writ denied). Res judicata, or claims preclusion, prevents not only the relitigation of claims actually and finally adjudicated in a prior suit but also the litigation of related matters that, with the use of diligence, should have been litigated in the prior suit. Barr v. Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex.1992). The voluntary withdrawal or dismissal of claims from an earlier suit will not preclude the operation of res judicata to bar their assertion in a subsequent suit, even where such claims are dismissed without prejudice. Jones v. Nightingale, 900 S.W.2d 87, 89-90 (Tex.App.—San Antonio 1995, writ ref'd).

Determining what constitutes the subject matter of a suit requires an examination of the factual background of the claim or claims in the prior litigation. Barr, 837 S.W.2d at 630. Texas has adopted the "transactional" approach to res judicata. Getty Oil Co. v. Insurance Co. of North America, 845 S.W.2d 794, 798 (Tex.1992), cert. denied, 510 U.S. 820, 114 S.Ct. 76, 126 L.Ed.2d 45 (1993). In determining whether claims arise out of the same subject matter and thereby constitute a single "transaction," the court considers: (1) their relatedness in time, space, origin or motivation; (2) whether the claims form a convenient trial unit; and (3) whether their treatment as a trial unit conforms to the parties' expectations or business understanding or usage. See id. at 799.

In order to establish that the res judicata defense applies, the party moving for summary judgment "must produce summary judgment evidence, including verified or certified copies of the judgment and pleadings that establish the applicability of the doctrine." Jones, 900 S.W.2d at 88-89. Travelers' summary judgment evidence consisted of: (1) a certified copy of Travelers' Notice of Removal, with the state court pleadings and order attached; (2) a certified copy of the Certificate of Notice of Filing of Notice of Removal; (3) a certified copy of the order granting


plaintiff's motion to dismiss for mootness; and (4) a certified copy of the federal court's dismissal judgment.

Clearly, the Vogels' claims in this case were not previously litigated in the federal suit, and there was no prior final judgment on the merits. See McGee, 936 S.W.2d at 363. In addition, the claim asserted in the federal suit and the claims asserted in this suit are not related in time, space, origin or motivation. The action seeking an injunction arose prior to the foreclosure, and the action seeking recovery based on the wrongful act of foreclosure and the breaches of any duties relating thereto could only arise after the actual foreclosure. See Getty Oil Co., 845 S.W.2d at 798. Furthermore, treating the claims as a trial unit did not conform to Anita's expectations, or she would not have voluntarily dismissed her foreclosure claim as moot. See id. Finally, Travelers failed to meet its burden of proving its res judicata defense based on the absence of a certified copy of the motion to dismiss that Anita filed in federal court. Jones, 900 S.W.2d at 88-89. For each of these reasons, we conclude that the trial court's judgment was not proper based on Travelers' res judicata defense, and the Vogels' third point of error is sustained. Although summary judgment was not proper based on the res judicata defense, we still must consider whether the summary judgment was proper under any other theory. State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d at 380.

753*753 GOOD FAITH AND FAIR DEALING In their fourth point of error, the Vogels claim that the trial court erred in granting summary judgment because Travelers owed them a duty of good faith and fair dealing under the Note. The Vogels allege that the duty arises from two sources: the Texas UCC and Texas common law.

The Vogels argue first that the Deed of Trust expressly established a duty of good faith and fair dealing by providing that it was to be construed as a security agreement governed by the UCC. Because Travelers acknowledged that Anita assumed the duties under the Note, the Vogels contend that Travelers implicitly agreed to extend the UCC duty of good faith and fair dealing arising under the Deed of Trust to the Vogels. See TEX. BUS. & COMM.CODE ANN. § 1-203 (Vernon 1994).

Travelers argues that the relevant agreement is not the Note but the October 4 agreement by which Travelers promised to consider extending the loan if certain conditions were met. Such an agreement is not a UCC agreement, because it is neither an agreement for the sale or lease of goods nor is it a security agreement. Travelers also argues that because the Deed of Trust was an agreement between Travelers and George, any duty created thereunder did not extend to Anita.

Because the Deed of Trust places a lien on real property, it is not governed by the UCC. See TEX. BUS. & COMM.CODE ANN. § 9.104(10) (Vernon 1991) (excluding interests in and liens on real property from section 9 of UCC); Long v. NCNB-Texas Nat'l Bank, 882 S.W.2d 861, 864 (Tex.App.—Corpus Christi 1994, no writ). The Deed of Trust merely recites that it is to be construed as a security agreement under the UCC with respect to goods that are or are to become fixtures. Travelers does not owe a duty of good faith under the UCC with respect to its right to foreclose on the real property based on this recital in the Deed of Trust relating to fixtures.[2] Nor


is there such a duty arising from the October 4 agreement, which is not a contract for the sale or lease of goods.

Furthermore, the Vogels have not shown that any common law duty of good faith and fair dealing exists between these parties. Ordinarily, there is no such duty in lendor/lendee relationships. Federal Deposit Ins. Corp. v. Coleman, 795 S.W.2d 706, 709 (Tex.1990); English v. Fischer, 660 S.W.2d 521, 522 (Tex.1983). The supreme court has recognized this duty only where a "special relationship," marked by a shared trust or an imbalance in bargaining power, exists. Coleman, 795 S.W.2d at 708-709; see also Great American Ins. Co. v. North Austin Municipal Utility Dist. No. 1, 908 S.W.2d 415, 418-20 (Tex.1995). The Vogels claim that they have a special relationship with Travelers, but they have presented no summary judgment evidence raising a fact issue to support their claim.

The Vogels' fourth point of error is overruled.

FRAUD In their fifth point of error, the Vogels claim that Travelers committed actionable fraud in the October 4 agreement. The Vogels assert that Travelers lied when it said in the agreement that it would consider a two-year extension of the loan. Travelers argues that it always intended to honor that promise, but the promise was conditioned on the Vogels satisfying several conditions that were not met.

To prove fraud, a plaintiff must show that (1) there has been a material misrepresentation, (2) the speaker knew the statement was false or made recklessly, (3) the speaker made the statement with the intention that it be acted upon in reliance, and (4) the other party suffered damages as a result. T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex.1992). If, as here, the claim is that the speaker falsely promised to do an act in the future, the plaintiff must show that the speaker had no intention of performing the act at the time the promise was made. Id. at 222. Failing 754*754 to discharge a promise to do an act in the future is not fraud unless the promise is made with an intent not to perform. M.J. Sheridan & Son Co. v. Seminole Pipeline Co., 731 S.W.2d 620, 624 (Tex.App.—Houston [1st Dist.] 1987, no writ).

The Vogels ask this court to infer from the surrounding circumstances that Travelers' promise was false. The basis for this inference would be that the Vogels "reasonably and substantially performed all conditions precedent" to renewal and, therefore, Travelers' failure to renew raises a fact question as to whether it ever intended to renew. However, the Vogels admit Drucilla would not execute a warranty deed, which was one of the title company's requirements. In addition, the Vogels assert that it was not necessary to reopen the estate to amend the inventory, which was another of the title company's requirements. A title policy was one of the conditions to renewing the loan. By failing to meet the requirements imposed by the title company, the Vogels failed to meet the renewal conditions. We decline to infer that Travelers' promise to renew the loan was false when the Vogels failed to meet the conditions precedent to Travelers' obligation to perform on that promise. The Vogels' fifth point of error is overruled.


PROMISSORY ESTOPPEL The Vogels claim that the doctrine of promissory estoppel should have defeated summary judgment. They assert that they relied, to their detriment, on Travelers' assurances that the loan agreement would be extended. However, promissory estoppel is inapplicable in this case.

Promissory estoppel operates to enforce an otherwise unenforceable promise that a party has relied upon to his or her detriment. It cannot replace an enforceable contract. Pasadena Assoc. v. Connor, 460 S.W.2d 473, 481 (Tex.Civ.App.—Houston [14th Dist.] 1970, writ ref'd n.r.e.) (written contract renders promissory estoppel inapplicable). Here, the parties had an enforceable agreement, and the Vogels failed to satisfy the conditions contained therein. As Travelers states, the Vogels had no basis for relying on a promise to consider extending the loan without first complying with the conditions put on the promise. See T.O. Stanley Boot Co., 809 S.W.2d at 288; Henderson v. Texas Commerce Bank-Midland, N.A., 837 S.W.2d 778, 781 (Tex.App.—El Paso 1992, writ denied). The Vogels' sixth point of error is overruled.

WRONGFUL FORECLOSURE In their seventh point of error, the Vogels contend that trial court erred in granting summary judgment in favor of Travelers on their wrongful foreclosure claim. The Vogels assert that the foreclosure was wrongful because Travelers failed to comply with the contractual terms of the Note and Deed of Trust by breaching its obligation of good faith in its performance and enforcement of those instruments. For the reasons previously stated, we hold that Travelers did not owe the Vogels any duty of good faith and fair dealing. Therefore, Travelers could not have breached the contractual terms of the Note and Deed of Trust by failing to comply with such a duty. Since the Vogels have admitted the foreclosure sale complied with the statutory foreclosure requirements, we overrule the Vogels' seventh point of error.

RESTITUTION AND BREACH OF CONTRACT In their eighth point of error, the Vogels contend that the trial court erred in granting a general summary judgment in favor of Travelers that disposed of their restitution and breach of contract claims because those claims were not addressed in Travelers' motion for summary judgment. Travelers acknowledges that it did not amend its motion to expressly address these new claims. However, Travelers asserts that the thrust of its motion conclusively negated potential recovery on these claims.

This court has previously recognized that reversing a summary judgment would be a meaningless exercise if the questioned recovery is precluded as a matter of law. Chale Garza Investments, Inc. v. Madaria, 931 S.W.2d 597, 601 (Tex.App.—San Antonio 1996, writ denied). In Madaria, the trial court's judgment encompassed a ruling on the defendant's counterclaims that were not 755*755 addressed in the summary judgment motion. Id. at 600-01. This court held that the defendants were precluded from recovering on those counterclaims as matter of law; therefore, a reversal of the trial court's judgment would be meaningless. Id.; see also Mackie v. McKenzie, 900 S.W.2d 445, 451-52 (Tex. App.—Texarkana 1995, writ denied); Bieganowski v.


El Paso Medical Center Joint Venture, 848 S.W.2d 361, 362 (Tex.App.—El Paso 1993, writ denied).

In this case, Travelers' motion expressly presents the Vogels' failure to satisfy the conditions imposed in the letter agreement as a ground for summary judgment. In addressing Vogels' other claims, we have concluded that the evidence established that the Vogels failed to satisfy the conditions to the loan extension as a matter of law. Because the Vogels failed to satisfy those conditions, they were not entitled to performance of the letter agreement by Travelers, and Travelers did not breach any contractual duty as a matter of law. See Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex.1976); Marsh v. Marsh, 949 S.W.2d 734, 743-44 (Tex.App.—Houston [14th Dist.] 1997, no writ). Therefore, a reversal of the summary judgment for consideration of the Vogels' breach of contract claim would be meaningless. See Madaria, 931 S.W.2d at 601.

With regard to the restitution claim, the Vogels alleged the following:

Plaintiffs bring this suit against Defendant TRAVELERS for the recovery of all or part of the payments made by Plaintiffs on the Note. Plaintiffs would show that Defendant TRAVELERS expressly or impliedly acknowledged or represented to Plaintiffs that it recognized Plaintiff ANITA DE ARMOND VOGEL as the owner of the Property and payor, in fact, under the loan documents. In reliance on these facts and circumstances, Plaintiffs made the payments on the loan and paid the Property taxes. Plaintiffs would not have made the payments otherwise. By reason of Defendant's conduct, Plaintiffs have suffered damages in a sum within the jurisdictional limits of the Court.

Travelers asserts that the summary judgment evidence conclusively negates causation. Travelers contends that Anita made the payments under the Note in furtherance of the contract for deed she entered into with her father; she did not rely on Travelers' acknowledgment of her status as payor and owner in making payments.

We hold that reversal of the summary judgment is not required as to the restitution claim for the same reason reversal is not required as to the breach of contract claim. In its petition, the Vogels state that they are instituting suit to recover damages arising out of Travelers' failure and refusal to renew and extend the Note and Deed of Trust. Thus, the Vogels' complaint lies with Travelers' failure to extend the Note, not its failure to recognize Anita as the payor under the Note or owner of the property.

Even if Travelers had recognized Anita as the payor and owner, the Note had matured. When the Note matured, the parties entered into an agreement setting forth the terms and conditions of a renewal. One of those conditions was a title policy. The title company required proof of ownership, including a warranty deed from Drucilla. The motion for summary judgment raised the failure to satisfy the conditions to the loan renewal, including the conditions to the issuance of the title policy, as a ground for summary judgment, and the summary judgment evidence conclusively established that the Vogels failed to satisfy those conditions. We hold that the Vogels could not recover on the restitution claim as a matter of law and recognize that reversing


the summary judgment for consideration of this claim would be a meaningless exercise. See Madaria, 931 S.W.2d at 601. The Vogels' eighth point of error is overruled.

CONCLUSION Travelers proved that no genuine issue of material fact existed as to any of the causes of action alleged by the Vogels and that it was entitled to judgment on those claims as a matter of law. The judgment of the trial court is affirmed.

[1] The requirements included: (1) a warranty deed from Drucilla, individually and as independent executrix of George's estate, conveying the real property to Anita; (2) an amendment to the estate's inventory to include the real property in the schedule of separate property; (3) evidence of no payment of, or no assessment of, estate taxes and state inheritance taxes; (4) evidence that the inclusion of the real property did not increase the estate's tax liabilities, and if so, evidence of payment of such additional taxes; and (5) evidence that three abstracts of judgments had been paid or otherwise satisfied and released.

[2] Because we hold that no duty of good faith arises under the Deed of Trust, we do reach the question of whether Anita would have been owed such a duty by Travelers if it had arisen.


IN THE UNITED STATES COURT OF APPEALSFOR THE FIFTH CIRCUIT

No. 11-41176Summary Calendar

WILMER F. TREMBLE and RODA TREMBLE,

Plaintiffs - Appellantsv.

WELLS FARGO HOME MORTGAGE, INC.,

Defendant - Appellee

Appeal from the United States District Court for the Southern District of Texas

USDC No. 3:11-CV-160

Before BENAVIDES, STEWART, and HIGGINSON, Circuit Judges.

PER CURIAM:*

Before the Court is Plaintiffs-Appellants Wilmer Tremble’s and Roda

Tremble’s (the “Trembles”) appeal of the district court’s grant of summary

judgment on their claims of wrongful foreclosure by their mortgage lender,

Defendant-Appellee Wells Fargo Home Mortgage, Inc. (“Wells Fargo”). We

AFFIRM.

United States Court of AppealsFifth Circuit

F I L E DMay 31, 2012

Lyle W. CayceClerk

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not*

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.R. 47.5.4.

Case: 11-41176 Document: 00511873124 Page: 1 Date Filed: 05/31/2012


No. 11-41176

FACTUAL AND PROCEDURAL BACKGROUND

On November 6, 2002, the Trembles obtained a mortgage from Wells Fargo

for property located at 3615 Sheldon Drive, Pearland, Texas 77584 (the

“Property”). Since that time, the Trembles repeatedly defaulted on their

mortgage, received numerous notices of default and intents to accelerate, and

sought and received two modifications. Nevertheless, the Trembles entirely

ceased making payment on the mortgage in November 2008. On April 26, 2009,

Wells Fargo again notified the Trembles of their default and began a foreclosure

on the Property. In response, the Trembles requested a third modification,

which Wells Fargo denied. The Trembles then filed for bankruptcy, postponing

foreclosure. After the Trembles’ bankruptcy proceeding was dismissed, Wells

Fargo notified the Trembles on March 9, 2010 that the Property would be sold

on April 6, 2010. Accordingly, the Property was sold to Federal Home Mortgage

Corporation, and, on April 8, 2010, Wells Fargo notified the Trembles of the sale

and began an eviction process. The Trembles again filed for bankruptcy,

delaying their eviction, and the bankruptcy was once again dismissed.

Thereafter, the Trembles filed the instant suit against Wells Fargo. On July 20,

2011, the district court granted Wells Fargo’s motion for summary judgment,

dismissing the Trembles’ claims with prejudice. The Trembles then filed this

timely appeal.

STANDARD OF REVIEW

“We review a grant of summary judgment de novo, applying the same legal

standard as the district court.” Croft v. Governor of Tex., 562 F.3d 735, 742 (5th

Cir. 2009) (internal quotation marks omitted). Summary judgment should be

rendered if the record demonstrates that “there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.” FED.

R. CIV. P. 56(a). “An issue is material if its resolution could affect the outcome

of the action.” Daniels v. Cty. of Arlington, Tex., 246 F.3d 500, 502 (5th Cir.

2



No. 11-41176

2001). “In deciding whether a fact issue has been created, the court must view

the facts and the inferences to be drawn therefrom in the light most favorable

to the nonmoving party.” Id. This Court may affirm summary judgment “on any

grounds supported by the record.” Lifecare Hosps., Inc. v. Health Plus of La.,

Inc., 418 F.3d 436, 439 (5th Cir. 2005). We construe a pro se appellant’s briefs

liberally. See Yoshey v. Collins, 985 F.2d 222, 225 (5th Cir. 1993) (internal

quotation marks omitted).

ANALYSIS

The Trembles argue that Wells Fargo could not foreclose on the Property

because the parties’ prior course of dealing, consisting of the Trembles’

persistent failure to make timely payments and Wells Fargo’s failure to evict

them from the Property, altered the terms of their mortgage. The Trembles

argue that Wells Fargo was required to notify them that the bank demanded

strict compliance with the mortgage before it could seek to foreclose on the

Property. We find the Trembles’ arguments unavailing.

First, the Trembles argue that the UCC allows for modification of an

agreement based on the parties’ course of dealing. Texas incorporated the UCC

under title 1 of the Texas Business and Commercial Code. See TEX. BUS. &1

COM. CODE ANN. § 1.101. The UCC, however, does not govern the mortgage, a

lien on real property. See TEX. BUS. & COM. CODE ANN. § 9.109(d)(11) (excluding

“interest in or lien on real property”); Vogel v. Travelers Indem. Co., 966 S.W.2d

748, 753 (Tex. App. –San Antonio 1998, no pet. h.) (“Because the Deed of Trust

places a lien on real property, it is not governed by the UCC.”).

Second, the Trembles argue promissory estoppel prevents foreclosure,

construing Wells Fargo’s acceptance of late payments as a promise to continue

to accept such late payments, if any payment at all. Nonetheless, “[f]or many

The parties do not dispute that Texas law governs this action. 1

3



No. 11-41176

years, Texas courts have held that promissory estoppel becomes available to a

claimant only in the absence of a valid and enforceable contract.” Doctors Hosp.

1997, L.P. v. Sambuca Houston, L.P., 154 S.W.3d 634, 636 (Tex. App. – Houston

[14th Dist.] 2004, pet. abated) (collecting cases). The Trembles do not dispute

that the mortgage is such a valid enforceable contract, or that the mortgage

expressly provides that Wells Fargo does not waive its right to declare a default

by accepting late or partial payments.

To the extent the Trembles appeal to any other form of Texas common law,

Texas has rejected the argument that a bank’s prior permissive relationship

with a mortgagor creates any duty to provide notice beyond that required by

statute. See Lambert v. First Nat’l Bank of Bowie, 993 S.W.2d 833, 835 (Tex.

App. – Fort Worth 1999, pet. denied). As the district court found, and which

finding the Trembles do not appeal, Wells Fargo complied with Texas’s statutory

notice requirements.

Accordingly, as Wells Fargo demonstrates that there exists no genuine

dispute as to any material fact and that it is entitled to judgement as a matter

of law, we find the district court did not err in granting summary judgment.

CONCLUSION

For the reasons stated above, the judgment of the district court is

AFFIRMED. The Clerk is directed to issue the mandate instanter.

4



Change View

1 Consumer Credit Truth in lending, in generalThe purpose of the TILA is to promote the informed use of consumer creditby requiring disclosures about its terms and costs. Truth in Lending Act, §102 et seq., 15 U.S.C.A. § 1601 et seq.


2 Consumer Credit Persons, Businesses, and Transactions Subjectto RegulationsTILA requirements applied to mortgage loan; the mortgage lenders offered

504 F.Supp.2d 176

United States District Court,

S.D. Texas,

Houston Division.

Wayne E. WILLIAMS, Plaintiff,

v.

COUNTRYWIDE HOME LOANS, INC., Banker's Trust of Calif.,

Deutsche Bank National Trust Co., Secretary of Veterans Affairs,

Defendants.

Civil Action No. H–06–2874. July 18, 2007. Opinion Denying New Trial Aug.

8, 2007.

SynopsisBackground: Borrower brought action in state court against mortgage lenders,alleging violation of Truth in Lending Act (TILA), the Fair Debt Collection Practices Act(FDCPA), the Real Estate Settlement Procedures Act (RESPA), violation of theautomatic stay in bankruptcy, breach of contract, and other claims. Action wasremoved to federal court. Lenders moved for summary judgment.

Holdings: The District Court, Rosenthal, J., held that:1 TILA applied to mortgage loan;2 borrower could not prevail in TILA action, based on lender's alleged failure to notifyhim of his right to rescind;3 TILA damages claim was not a recoupment claim, for purpose of avoiding limitationsbar;4 lenders were not “debt collectors” under the FDCPA;5 clerical error in foreclosure documents did not deprive borrower of the due processafforded under Texas law;6 mortgage lender and borrower did not have fiduciary relationship; and7 claim for violation of the Equal Credit Opportunity Act (ECOA) was time-barred.

Motion granted.

West Headnotes (45)

RELATED TOPICS

Consumer Credit

Federal RegulationCreditor Violated TruthLender Payment of Yield SpreadPremiums Under Real Estate SettlementProcedures Act

Antitrust and Trade Regulation

Statutory Unfair Trade Practices andConsumer Protection

Particular Provisions of Deceptive TradePractices Act

Williams v. Countrywide Home Loans, Inc.United States District Court, S.D. Texas, Houston Division. July 18, 2007 504 F.Supp.2d 176 (Approx. 33 pages)


Williams v. Countrywide Home Loans, Inc. - WestlawNext https://a.next.westlaw.com/Document/If58e8c65392711dc9b239dfedc9bb...

1 of 23 6/25/2012 1:41 PM


borrower credit, the lenders regularly offered or extended credit, themortgage loan was subject to a finance charge and payable in more thanfour installments, and the loan was used primarily for personal, family, orhousehold purposes. Truth in Lending Act, § 125(a), 15 U.S.C.A. § 1635(a);12 C.F.R. § 226.1(c).


3 Consumer Credit In general; validity of transactionsBorrower's TILA claim against mortgage lender, alleging that lender failed tonotify him of his right under TILA to rescind the mortgage loan wastime-barred, where it was brought more than three years after the loantransaction was consummated. Truth in Lending Act, § 125(f), 15 U.S.C.A.§ 1635(f).


4 Consumer Credit Judgment and relief; injunction; attorney feesConceptually, statutory and actual damages under TILA perform differentfunctions: statutory damages are reserved for cases in which the damagescaused by a violation are small or difficult to ascertain. Truth in Lending Act,§ 130(a)(1, 2), 15 U.S.C.A. § 1640(a)(1, 2).


5 Consumer Credit Judgment and relief; injunction; attorney feesTILA plaintiffs need not show that they sustained actual damages stemmingfrom the TILA violations proved before they may recover the statutorydamages TILA also provides for. Truth in Lending Act, § 130(a)(1, 2), 15U.S.C.A. § 1640(a)(1, 2).


6 Consumer Credit Judgment and relief; injunction; attorney feesStatutory damages provided for by TILA are explicitly a bonus for theplaintiff, designed to encourage private enforcement of TILA, and a penaltyagainst the defendant, designed to deter future violations. Truth in LendingAct, § 130(a)(2), 15 U.S.C.A. § 1640(a)(2).


7 Limitation of Actions Liabilities Created by StatuteNondisclosure under TILA is not a continuing violation for purposes of thestatute of limitations. Truth in Lending Act, § 130(e), 15 U.S.C.A. § 1640(e).

8 Limitation of Actions Liabilities Created by StatuteA credit transaction is “consummated,” and the statute of limitations underTILA commences, when a contractual relationship is created between thecreditor and the consumer. Truth in Lending Act, § 130(e), 15 U.S.C.A. §1640(e).


9 Consumer Credit Time to sue and limitationsConsumer Credit Judgment and relief; injunction; attorney feesBorrower's claim against mortgage lender seeking damages for allegedviolations of TILA's disclosure requirements was not a “recoupment” claim,for purpose of avoiding limitations bar, although it was filed following lender's


2 of 23 6/25/2012 1:41 PM


foreclosure action, where borrower initially filed bankruptcy petitions inresponse to the foreclosure proceedings, borrower did not seek to reducethe sums he owed to lender, but to obtain affirmative relief, and he failed toshow he was entitled to actual damages under TILA. Truth in Lending Act, §130(a)(1, 2), (e), 15 U.S.C.A. § 1640(a)(1, 2), (e).


10 Limitation of Actions Set-offs, counterclaims, and cross-actionsA recoupment defense under TILA is never barred by the statute oflimitations so long as the main collection action asserted by the creditor isitself timely. Truth in Lending Act, § 130(e), 15 U.S.C.A. § 1640(e).

11 Set–Off and Counterclaim Equitable Set-OffA “set-off” claim is a counter demand which a defendant holds against aplaintiff, arising out of a transaction extrinsic to the plaintiff's cause ofaction.

12 Consumer Credit Judgment and relief; injunction; attorney feesTo meet the requirements for recoupment under TILA, a debtor must showthat: (1) the TILA violation and the debt are products of the sametransaction, (2) the debtor asserts the claim as a defense, and (3) the mainaction is timely. Truth in Lending Act, § 130(e), 15 U.S.C.A. § 1640(e).


13 Consumer Credit In general; validity of transactionsConsumer Credit Judgment and relief; injunction; attorney feesThe mere fact that the debtor is the plaintiff in a TILA case does notpreclude a finding that the debtor's recoupment claim was raiseddefensively. Truth in Lending Act, § 130(e), 15 U.S.C.A. § 1640(e).


14 Consumer Credit Judgment and relief; injunction; attorney feesTo recover actual damages under TILA, a consumer must show that: (1) herelied on the particular terms of the loan, (2) the disclosure violationdeterred him from inquiring into other alternatives, and (3) the alternativeswould save money. Truth in Lending Act, § 130(a)(1), 15 U.S.C.A. §1640(a)(1).

15 Consumer Credit Judgment and relief; injunction; attorney feesA claim for statutory damages under TILA is not asserted as a defense toor denial of the creditor's claim, and it cannot be classified as arecoupment. Truth in Lending Act, § 130(a)(2), (e), 15 U.S.C.A. §1640(a)(2), (e).


16 Antitrust and Trade Regulation Harassment and abuseThe purpose of the Fair Debt Collection Practices Act (FDCPA) is toeliminate abusive debt collection practices by debt collectors, to insure thatthose debt collectors who refrain from using abusive debt collectionpractices are not competitively disadvantaged, and to promote consistentState action to protect consumers against debt collection abuses. Fair DebtCollection Practices Act, § 802(e), 15 U.S.C.A. § 1692(e).


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17 Antitrust and Trade Regulation Persons and transactionscoveredMortgage lenders collecting debts are not “debt collectors,” within themeaning of the Fair Debt Collection Practices Act (FDCPA). Fair DebtCollection Practices Act, § 802(a)(6)(A), 15 U.S.C.A. § 1692(a)(6)(A).


18 Constitutional Law Enforcement; proceedingsMortgages Right to forecloseThe apparent clerical or typographical error in the foreclosure documents,in incorrectly referencing the mortgage loan, did not deprive borrower of thedue process afforded under Texas law, and did not prevent lender fromlawfully foreclosing; borrower received notice of default and acceleration,and was given proper notice of the foreclosure sale. U.S.C.A.Const.Amend. 14.

19 Consumer Credit Regulations in generalThe purpose of Real Estate Settlement Procedures Act (RESPA) is toinsure that consumers are provided with greater and more timelyinformation on the nature and costs of the settlement process in connectionwith the purchase of real estate and are protected from unnecessarily highsettlement charges caused by certain abusive practices. Real EstateSettlement Procedures Act of 1974, § 2(a), 12 U.S.C.A. § 2601(a).


20 Limitation of Actions Liabilities Created by StatuteBorrower's claim that mortgage lender violated the provision of Real EstateSettlement Procedures Act (RESPA), requiring lender to give notice toborrower not less than 15 days before the effective date of transfer,accrued, for limitations purposes, on date of transfer. Real EstateSettlement Procedures Act of 1974, §§ 2(a), 6(b)(2)(A), 12 U.S.C.A. §§2601(a), 2605(b)(2)(A).

21 Mortgages Nature and existence of lien in generalLien provisions of the Texas version of the Uniform Commercial Code(UCC) did not apply to a loan, secured by a mortgage in residential realproperty. V.T.C.A., Bus. & C. § 9.109(d)(11).


22 Fraud Fiduciary or confidential relationsUnder Texas law, the elements of a cause of action for breach of fiduciaryduty are: (1) that the plaintiff and defendant had a fiduciary relationship, (2)the defendant breached its fiduciary duty to the plaintiffs, and (3) thedefendant's breach resulted in injury to the plaintiff.


23 Attorney and Client The relation in generalFraud Fiduciary or confidential relationsUnder Texas law, in certain formal relationships, such as an attorney-clientor trustee relationships, a fiduciary duty arises as a matter of law.


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24 Fraud Fiduciary or confidential relationsUnder Texas law, not every relationship involving a high degree of trust andconfidence rises to the stature of a fiduciary relationship.

25 Fraud Fiduciary or confidential relationsUnder Texas law, to impose an informal fiduciary duty in a businesstransaction, the special relationship of trust and confidence must exist priorto, and apart from, the agreement made the basis of the suit.

26 Mortgages Between parties to mortgage or their priviesUnder Texas law, mortgage lender and borrower did not have “fiduciaryrelationship,” precluding borrower's claim for breach of fiduciary duty inconnection with the mortgage loan, where loan was arm's lengthtransaction, and there was no special relationship of trust apart from theloan agreement.


27 Fraud Fiduciary or confidential relationsUnder Texas law, the fact that a person trusts another does not transformtheir business arrangement into a fiduciary relationship.

28 Consumer Credit Disclosure RequirementsMortgage lender had a duty under the Equal Credit Opportunity Act (ECOA)to provide borrower with a copy of the appraisal report on his home, wherethe loan was secured by a lien on the home. Real Estate SettlementProcedures Act of 1974, § 2(a)(1–2), 12 U.S.C.A. § 2601(a)(1–2); 12C.F.R. § 202.14(a).

29 Limitation of Actions Liabilities Created by StatuteBorrower's claim for violation of the Equal Credit Opportunity Act (ECOA),based on mortgage lender's failure to provide borrower with a copy of theappraisal report on his home, accrued, for limitations purposes, on date thatmortgage loan transaction occurred. Real Estate Settlement ProceduresAct of 1974, § 2(a)(1–2), 12 U.S.C.A. § 2601(a)(1–2); 12 C.F.R. §§202.14(a), 202.17(b)(2).

30 Mortgages Liabilities of mortgagor on transfer in generalUnder Texas law, a “due-on-sale clause” in a mortgage agreement gives alender the right to demand full payment of the balance due on the loansecured by the mortgage if the borrower sells his interest in the property.

31 Mortgages Right to forecloseMortgages Stipulations for Maturity of Debt on DefaultUnder Texas law, an “acceleration clause” in a mortgage agreementspecifies that if the debtor defaults on his mortgage payments, the lendermay foreclose on the property.

32 Mortgages Right to forecloseMortgages Stipulations for Maturity of Debt on DefaultUnder Texas law, an “acceleration clause” in a mortgage agreementpermits the lender to call due, upon default by the borrower, the entire


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indebtedness of the borrower.


33 Bankruptcy Notice to creditors; commencementThe automatic stay in bankruptcy is effective upon the filing of thebankruptcy petition even though creditors may have no notice of itsexistence. 11 U.S.C.A. § 362(a).

34 Bankruptcy Validity of acts in violation of injunction or stayIn general, acts taken in violation of the automatic stay in bankruptcy arevoid and without legal effect. 11 U.S.C.A. § 362(a).

35 Bankruptcy Determination and relief; conditionsA bankruptcy court may take some action, such as annulling the stay, toretroactively validate actions taken in violation of the automatic stay. 11U.S.C.A. § 362(a).

36 Bankruptcy Determination and relief; conditionsBankruptcy Validity of acts in violation of injunction or stayA foreclosure sale conducted in violation of the automatic stay inbankruptcy remains invalid unless the bankruptcy court annuls the stay. 11U.S.C.A. § 362(a).

37 Bankruptcy Duration and terminationA bankruptcy court's dismissal of a bankruptcy proceeding terminates theautomatic stay. 11 U.S.C.A. §§ 362(a), 349(b)(3).

38 Bankruptcy Foreclosure proceedingsMortgage lender did not violate automatic stay in bankruptcy by foreclosingon borrower's home when borrower defaulted on the mortgage loan, wherebankruptcy court conditioned the automatic stay on borrower's continuedpayment of the mortgage loan, and the automatic stay was lifted whenborrower defaulted on the loan. 11 U.S.C.A. §§ 362(a), 349(b)(3).

39 Antitrust and Trade Regulation Purpose and construction ingeneralThe purpose of the Texas Deceptive Trade Practices Act (DTPA) is toprotect consumers against false, misleading, and deceptive businesspractices, unconscionable actions, and breaches of warranty and toprovide efficient and economical procedures to secure such protection.V.T.C.A., Bus. & C. § 17.44(a).

40 Antitrust and Trade Regulation Consumers, purchasers, andbuyers; consumer transactionsAntitrust and Trade Regulation Private entities or individualsTo maintain a private cause of action under the Texas Deceptive TradePractices Act (DTPA), the plaintiff must be a consumer.


41 Antitrust and Trade Regulation Finance and banking in general; lending


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The Texas Deceptive Trade Practices Act (DTPA) applies to a loantransaction if the borrower's objective is to use the loan to purchase goodsor services. V.T.C.A., Bus. & C. § 17.45(1).


42 Antitrust and Trade Regulation Finance and banking in general; lendingMortgage lender did not violate the Texas Deceptive Trade Practices Act(DTPA) by accelerating the promissory note after borrower defaulted andforeclosing on the mortgaged property without giving lender the opportunityto cure, where the loan documents clearly stated that notice of accelerationwas not required if the borrower defaulted on his payments, and lender didgive borrower notice of foreclosure 20 days before the foreclosure sale.V.T.C.A., Bus. & C. § 17.45(1).


43 Federal Civil Procedure Process, defects inFederal Civil Procedure EffectThe dismissal of a defendant named in the complaint but not served withprocess results in dismissal without prejudice.

44 Federal Civil Procedure Error in generalFederal Civil Procedure Further evidence or argumentA motion to alter or amend the judgment must clearly establish either amanifest error of law or fact or must present newly discovered evidence,and cannot be used to raise arguments which could, and should, have beenmade before the judgment issued. Fed.Rules Civ.Proc.Rule 59(e), 28U.S.C.A.

45 Federal Civil Procedure Further evidence or argumentGrant of a motion to alter or amend a judgment is appropriate when therehas been an intervening change in the controlling law. Fed.RulesCiv.Proc.Rule 59(e), 28 U.S.C.A.


*181 Wayne E. Williams, Houston, TX, pro se.

Calvin Don Clayton, Courtney Nicole Kano, Robert T. Mowrey, Locke Liddell SappL.L.P., Dallas, TX, Christopher Price Mebane, Derrick Bryan Carson, Locke Liddelland Sapp, Houston, TX, for Defendants.

Opinion

MEMORANDUM AND OPINION

ROSENTHAL, District Judge.

The plaintiff, Wayne Williams (“Williams”), sued the defendants, Countrywide HomeLoans Inc. (“Countrywide”), Banker's Trust of California (“Banker's Trust”), DeutscheBank National Trust Company (“Deutsche Bank”) (together, the “lender defendants”),and the Secretary of *182 Veterans Affairs. Williams alleges that the lenderdefendants violated federal and state statutes governing mortgage documents,breached the mortgage lending contract, violated the automatic stay that wastriggered when Williams filed for bankruptcy, and committed other offenses related tohis mortgage loan. Williams alleges that both the Note and Deed of Trust on his home


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are invalid and that the lender defendants wrongfully foreclosed on that home.

The lender defendants have moved for summary judgment on Williams's claims.(Docket Entry No. 6). The motion is based on the statute of limitations and onWilliams's failure to prove an essential element of each claim. Williams hasresponded (Docket Entry No. 11) and the lender defendants have replied (DocketEntry No. 12).

Based on the motion, the response, and the reply; the pleadings; the parties'submissions; and the applicable law, this court grants the lender defendants' motionfor summary judgment on all claims and enters final judgment by separate order. Thereasons are explained in detail below.

I. BackgroundOn July 25, 1995, Williams signed a Deed of Trust Note with the Secretary ofVeterans Affairs and a Deed of Trust securing payment on the Note with real propertylocated on Claridge Drive, Houston, Texas. The Note amount was $83,566.00.Countrywide was the servicer for the mortgage loan.

On September 19, 1995, Williams received a letter from Countrywide stating that theloan was being transferred. The letter stated:

Your home loan is in the process of being transferred to Countrywide... The effective date of your transfer is Sept. 30, 1995. BeginningOct. 1, 1995, your payments should be mailed to Countrywide.

(Docket Entry No. 1, Ex. C–2). The Note and Deed of Trust were transferred toBanker's Trust, which acted as trustee for “Lender Mortgage Trust 1995–3.”Deutsche Bank purchased Banker's Trust in 1999 and became its successor-in-interest.

Williams defaulted on his monthly payments to Countrywide. In early 2003,Countrywide moved to foreclose on Williams's property. Williams filed for bankruptcyin January 2003, December 2003, May 2004, and June 2005. The first threebankruptcies were dismissed because Williams did not make the confirmationpayments to the trustee. During the third bankruptcy, the court entered an orderstating that “in the event Debtor's case is dismissed and Debtor or Co–Debtor filesanother petition for an order of relief under Title 11, then the automatic stay of 11U.S.C. §§ 362 and 1301 shall not apply to [Countrywide] and [the Property] describedabove.” (Docket Entry No. 6 at 5).

The bankruptcy court dismissed Williams's third bankruptcy case in February 2005.Williams filed a fourth bankruptcy petition on June 1, 2005. Countrywide reposted theproperty for sale on June 7, 2005. Countrywide and Williams reached an agreementunder which the sale was rescinded. The bankruptcy court entered an agreed orderthat conditioned the automatic stay on Williams continuing to make mortgagepayments. Williams defaulted. The property was sold to Deutsche Bank in aforeclosure sale on April 4, 2006.

Williams filed this suit in state court in April 2006. Countrywide was served withprocess on August 8, 2006. (Docket Entry No. 1). Banker's Trust and Deutsche *183Bank timely joined Countrywide in removing the case based on federal questionjurisdiction. The Secretary of Veterans Affairs and John Does 1–10 were not served.

Williams alleges that the lender defendants violated the Truth–in–Lending Act (“TILA”),15 U.S.C. §§ 1601 et seq. Williams alleges that he hired a professional consumeradvocate to analyze the loan documents. The consumer advocate found that thelender defendants failed to make certain required disclosures. (Docket Entry No.1,Ex. C–1 at 8). Williams alleges that the lender defendants did not inform him of hisright to rescind the contract and failed to provide him with the required three-daycooling-off period. Williams also alleges that the lender defendants violated the Fair


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1

Debt Collection Practices Act, 15 U.S.C. § 192(g)(a)(1)-(5); the Real EstateSettlement Procedures Act, 12 U.S.C. § 2605(b)(2)(B); the UCC, TEX. BUS. &COM.CODE §§ 9.101 et seq; breached their fiduciary duty; violated the Equal CreditOpportunity Act, 12 C.F.R § 202.14(a); breached the mortgage loan contract; violatedthe automatic bankruptcy stay; violated the Texas Deceptive Trade Practices Act,TEX. BUS. & COM.CODE § 17.46; and committed acts that were “unfair.” Williamsseeks damages, relief from the foreclosure, and other equitable relief. The lenderdefendants have moved for summary judgment on all claims.

II. The Summary Judgment StandardSummary judgment is appropriate if no genuine issue of material fact exists and themoving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56. The movantbears the burden of identifying those portions of the record it believes demonstratethe absence of a genuine issue of material fact. Lincoln Gen. Ins. Co. v. Reyna, 401F.3d 347, 349 (5th Cir.2005) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106S.Ct. 2548, 91 L.Ed.2d 265 (1986)).

If the burden of proof lies with the nonmoving party, the movant may either (1) submitevidentiary documents that negate the existence of some material element of theopponent's claim or defense, or (2) if the crucial issue is one on which the opponentwill bear the ultimate burden of proof at trial, demonstrate that the evidence in therecord insufficiently supports the essential element or claim. Celotex, 477 U.S. at 330,106 S.Ct. 2548. While the party moving for summary judgment must demonstrate theabsence of a genuine issue of material fact, it does not need to negate the elementsof the nonmovant's case. Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536, 540(5th Cir.2005). “An issue is material if its resolution could affect the outcome of theaction.” DIRECTV, Inc. v. Robson, 420 F.3d 532, 536 (5th Cir.2005) (citing Andersonv. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Ifthe moving party fails to meet its initial burden, the motion for summary judgment mustbe denied, regardless of the nonmovant's response. Baton Rouge Oil & Chem.Workers Union v. ExxonMobil Corp., 289 F.3d 373, 375 (5th Cir.2002).

When the moving party has met its Rule 56(c) burden, the nonmoving party cannotsurvive a summary judgment motion by resting on the mere allegations of itspleadings. The nonmovant must identify specific evidence in the record and articulatethe manner in which that evidence supports that party's claim. Johnson v. Deep E.Texas Reg'l Narcotics Trafficking Task Force, 379 F.3d 293, 305 (5th Cir.2004). Thisburden is not satisfied by “some metaphysical doubt as to the material facts,conclusory allegations, unsubstantiated assertions, or only a scintilla of *184evidence.” Little v. Liquid Air Corp., 37 F.3d 1069, 1076 (5th Cir.1994).

In deciding a summary judgment motion, the court draws all reasonable inferences inthe light most favorable to the nonmoving party. Anderson, 477 U.S. at 255, 106 S.Ct.2505. “Rule 56 mandates the entry of summary judgment, after adequate time fordiscovery, and upon motion, against a party who fails to make a showing sufficient toestablish the existence of an element essential to that party's case, and on which thatparty will bear the burden of proof at trial.” Celotex, 477 U.S. at 322, 106 S.Ct. 2548.

III. Analysis

A. The Truth–in–Lending Act ClaimsThe TILA is a federal consumer protection statute that provides consumers with

a cause of action against creditors that fail to make required disclosures. 15 U.S.C.§§ 1601 et seq.; 12 C.F.R. § 226 (“Regulation Z”). The purpose of the TILA is to“promote the informed use of consumer credit by requiring disclosures about its termsand costs. Regulations give consumers the right to cancel certain credit transactionsthat involve a lien on a consumer's principal dwelling, regulates certain credit cardpractices, and provides a means for fair and timely resolution of credit billingdisputes.” 12 C.F.R. § 226.1(b). Regulation Z applies to each individual or businessthat offers or extends credit when four conditions are met:


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(i) credit is offered or extended to consumers;

(ii) offering or extension of credit is done regularly;

(iii) credit is subject to a finance charge or is payable by a written agreement inmore than 4 installments; and

(iv) credit is primarily for personal, family, or household purposes.

12 C.F.R. § 226.1(c).

The TILA applies in this case. Williams meets the requirements of a“consumer” and the lender defendants meet the definition of a “creditor.” Thelender defendants offered Williams credit; the lender defendants regularly offer orextend credit (Countrywide is a loan servicer); the credit was subject to a financecharge and payable in more than four installments; and the credit was used primarilyfor personal, family, or household purposes.

Under the TILA, consumers who place a mortgage on their home have the right torescind the contract for up to three days after the loan transaction is consummated.Section 1635(a) provides:

In the case of any consumer credit transaction in which a securityinterest ... is used as the principal dwelling of the person to whomcredit is extended, the obligor shall have the right to rescind thetransaction until midnight of the third business day following theconsummation of the transaction or the delivery *185 of theinformation and recision forms.

15 U.S.C. § 1635(a). Notice of the right to rescind must be given when the consumersigns the loan papers. Id.

Williams alleges that the lender defendants violated the TILA because they failed toprovide him notice of his right to rescind within the three-day cooling-off period.Williams claims that the lender defendants did not give him recision forms and did nototherwise “clearly and conspicuously” disclose the right to rescind.

Under the TILA, a consumer's right to rescind expires three years after thetransaction is consummated.

An obligor's right of recision shall expire three years after the date ofconsummation of the transaction or upon the sale of the property,whichever occurs first, notwithstanding the fact that the informationand forms required under this section or any other disclosuresrequired under this part have not been delivered to the obligor.

15 U.S.C. § 1635(f). In Beach v. Ocwen Federal Bank, 523 U.S. 410, 118 S.Ct.1408, 140 L.Ed.2d 566 (1998), the United States Supreme Court held that § 1635(f)was not a statute of limitations but an “expire provision.” Id. at 417, 118 S.Ct. 1408. InBeach, the Court rejected the debtor's efforts to rescind the mortgage contractbecause the three-year expiration period had passed. In 1986, the debtor obtained aloan from Great Western Bank and secured it by executing a mortgage on hisresidence. In 1991, the debtor defaulted on his mortgage payments. In 1992, the bankbegan the foreclosure process, and the debtor responded by filing a TILA claimagainst it. The Court held that the debtor was entitled to actual damages under §1640(a)(1) and statutory damages under § 1640(a)(2), but that his right to rescindhad expired. “The quite different treatment of recision stands in stark contrast to this[Section 1640], however, there being no provision for recision as a defense that wouldmitigate the uncompromising provision of [Section] 1635(f) that the borrower's right‘shall expire’ with the running of the time.” Id. at 418, 118 S.Ct. 1408. “We respectCongress's manifest intent by concluding that the Act permits no federal right torescind, defensively or otherwise, after the 3–year period of [Section] 1635(f) has

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run.” Id. at 419, 118 S.Ct. 1408. Like the debtor in Beach, Williams brought his TILAclaim more than three years after the loan was consummated. The loan wasconsummated in 1995. Williams did not bring suit until 2006. Williams's right torecision has expired.

Williams also seeks damages under 15 U.S.C. § 1640. Four typesof damages may be recovered under the TILA. First, the injured party may recoveractual damages. 15 U.S.C. § 1640(a)(1). Second, the injured party may recover“statutory damages.” Id., § 1640(a)(2). In an individual action, statutory damages maybe “twice the amount of any finance charge in connection with the transaction.” Id.Statutory damages perform a different function than actual damages. TILA plaintiffs“need not show that they sustained actual damages stemming from the TILA violationsproved before they may *186 recover the statutory damages the Act also providesfor. The statutory damages are explicitly a bonus for the plaintiff, designed toencourage private enforcement of the Act, and a penalty against the defendant,designed to deter future violations.” Dryden v. Lou Budke's Arrow Finance Co., 630F.2d 641, 647 (8th Cir.1980). Third, the injured party may recover litigation costs,including reasonable attorney's fees. Id., § 1640(a)(3). Fourth, if the other party failedto comply with § 1639, the injured party may recover the finance charges and fees hepaid. Id., § 1640(a)(4). Williams seeks actual damages under § 1640(a)(1), statutorydamages under § 1640(a)(2), and litigation costs under § 1640(a)(3).

Williams argues that he is entitled to damages because the lender defendants violatedthe TILA by failing to inquire about his income. Under the TILA, “there is apresumption that a creditor has violated [the act] if the creditor engages in a pattern orpractice of making loans subject to § 226.32 without verifying and documentingconsumers' repayment ability.” 12 C.F.R. § 226.34(a) (4). Williams alleges that thelender defendants violated this provision because the loan application did not requirehim to state his income.

Williams also alleges that the lender defendants violated the TILA when they failed todisclose the total sale price. (Docket Entry No. 1, Ex. C–1 at 20). The TILA requiresthat “for each transaction, the creditor shall disclose the following information asapplicable ... [including the] total sale price.” 12 C.F.R. § 226.18(j). The “total saleprice” is “the sum of the cash price, the items described in paragraph (b)(2) [any otheramounts that are financed by the creditor and are not part of the finance charge], andthe finance charge disclosed under paragraph (d) of this section.” Id. Williams allegesthat the lender defendants did not supply this information.

Williams further alleges that the lender defendants violated the TILA because theyfailed to give him notice of acceleration of the Note before foreclosing on theproperty. (Docket Entry No. 1, Ex. C–1 at 24). Under the TILA, the lender mustdisclose the date “by which or the time period within which the new balance or anyportion of the new balance must be paid to avoid additional finance charges.” 12C.F.R. § 226.7(j). The lender must also provide the consumer with periodic statementsthat disclose other related information, such as previous balances or periodic rates.Id., § 226.7(a)-(k). Williams claims that the lender defendants did not provide thisinformation.

The lender defendants seek summary judgment on the basis oflimitations. The general statute of limitations for damages claims under the TILA isone year after the violation. “Any action under this section may be brought in anyUnited States district court, or in any other court of competent jurisdiction, within oneyear from the date of occurrence of the violation.” 15 U.S.C. § 1640(e). “The violation‘occurs' when the transaction is consummated. Nondisclosure is not a continuingviolation for purposes of the statute of limitations.” In re Smith, 737 F.2d at 1552. Thecredit transaction is consummated when “a contractual relationship is createdbetween [a creditor and consumer].” Bourgeois v. Haynes Construction Co., 728F.2d 719, 720 (5th Cir.1984). The violation in this case occurred in September 1995when the loan transaction was consummated. Williams did not sue until eleven years

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later.

In his affidavit, Williams stated that when he signed the loan documents in 1995, heknew he was not receiving important information:

*187 When we left the VA administration office I felt like a lack ofinformation was given. And I wasn't given a proper explanation of thenegotiating process, everything I had just underwent [was] confusing,but I was happy that I had just closed on my home.

(Docket Entry No. 1, Williams Aff.).

The cases recognize a “recoupment exception” to the limitations bar on TILA actualdamages claims. See Moor v. Travelers Ins. Co., 784 F.2d 632, 633 (5th Cir.1986). InMoor, the plaintiff brought a claim under the TILA against a lender for damages andsought recision of the loan contract. Id. The plaintiff in Moor based his claims on thelender's failure to disclose information when the loan was executed. Id. Like Williams,the plaintiff in Moor received a loan secured by a deed of trust on his property andlater defaulted on the mortgage payments to the lender. Id. The lender then moved toforeclose. Id. In April 1985, the plaintiff in Moor sued the lender, seeking recision ofthe loan under 15 U.S.C. § 1635(a), statutory damages under § 1640(a)(2)(A), andattorney's fees under § 1640(a) (3). Id. The plaintiff did not seek actual damagesunder § 1640(a)(1). The court found that the lender violated the TILA by failing tomake required disclosures. While the court recognized that the lender violated theTILA, it nonetheless rejected the plaintiff's claims because the statute of limitationshad run. Id. The transaction in Moor occurred in February 1978. The plaintiff suedseven years later. The damages claims were barred by the one-year statute oflimitations, 15 U.S.C. § 1640(e). The recision claim was barred by the three-yearstatute of limitations, 15 U.S.C. § 1635(f).

The court held that the plaintiff in Moor did not meet the “recoupment” exception fordamages claims to the TILA general statute of limitations. To meet the “recoupment”exception, a party must show that the TILA claim was brought as a recoupment orset-off claim in response to a creditor's “action to collect the debt.” 15 U.S.C. §1640(e). “This subsection does not bar a person from asserting a violation of thissubchapter [§ 1640] in an action to collect the debt which was brought more than oneyear from the date of the occurrence of the violation as a matter of defense byrecoupment or set-off in such action, except as otherwise provided by State law.” Id.The Fifth Circuit held that “a recoupment or set-off claim will be exempt from theone-year statute of limitations only when the debtor's claim is raised as a defense.”Moor, 784 F.2d at 633.

The United States Supreme Court defines “recoupment” as “in the natureof a defense arising out of some feature of the transaction upon which the plaintiff'saction is grounded. Such a defense is never barred by the statute of limitations solong as the main action itself is timely.” Bull v. U.S., 295 U.S. 247, 262, 55 S.Ct. 695,79 L.Ed. 1421 (1935). Recoupment has also been explained as the following:

Recoupment goes to the foundation of the plaintiff's claim; it isavailable as a defense, although as an affirmative cause of action itmay be barred by limitation. The defense of recoupment, which arisesout of the same transaction as plaintiff's claim, survives as long as thecause of action upon the claim exists. It is a doctrine of an intrinsicallydefensive nature founded upon an equitable reason, inhering in thesame transaction, why the plaintiff's claim in equity and goodconscience should be reduced.

Household Consumer Discount Co. v. Vespaziani, 490 Pa. 209, 415 A.2d 689, 694(1980). A “set-off claim” is “a counter demand which a defendant holds against a *188plaintiff, arising out of a transaction extrinsic to the plaintiff's cause of action.” In reSmith, 737 F.2d 1549, 1552 (11th Cir.1984) (quoting BALLENTINE'S LAW


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DICTIONARY 1167 (3d ed.1969)).

To meet the requirements for recoupment, a debtor must show that: (1) the TILAviolation and the debt are products of the same transaction; (2) the debtor asserts theclaim as a defense; and (3) the main action is timely. Moor, 784 F.2d at 634 (citing Inre Smith, 737 F.2d at 1553). In Moor, the court held that the plaintiff/debtor failed toestablish the second and third elements because the debtor's claim was not adefensive response. “When the debtor hales the creditor into court, as Moor hasdone in this case, the claim by the debtor is affirmative rather than defensive. Assuch, it is subject to the one and three-year limitations provisions.” Moor, 784 F.2d at633.

The lender defendants argue that, like Moor, Williams's suit was affirmative ratherthan defensive because he brought them into court. Moor, 784 F.2d at 633. Williamsargues that his actions were defensive because he filed his complaint in response tothe lender defendants' foreclosure sale.

The mere fact that the debtor is the plaintiff in a TILA case does not preclude afinding that the claim was raised defensively. Matter of Coxson, 43 F.3d 189, 194 (5thCir.1995). The plaintiff in Coxson obtained a loan by executing a deed of trust on hisproperty, defaulted on his mortgage payments, and filed for bankruptcy. Id. Thebankruptcy court entered an agreed order that conditioned the automatic stay on thedebtor's timely mortgage payments. A few months after the order was entered, thedefendants sent Coxson notice that he was in default and moved to foreclose. Inresponse to the defendants' foreclosure efforts, Coxson filed an adversaryproceeding in the bankruptcy court, claiming that the loan documents violated theTILA. The court held that Coxson's acts were defensive because they were inresponse to the defendants' proof of claim filed in the bankruptcy court. Id. (citing In reJones, 122 B.R. at 249) (holding that the recoupment claim was raised defensively inresponse to the creditor's foreclosure efforts). “[T]he filing of a proof of claim, by itsvery nature, is an action to collect a debt.” In re Jones, 122 B.R. at 250. “The right ofa debtor in bankruptcy to invoke the doctrine of recoupment to reduce a securedproof of claim of a mortgage lender by the amount of statutory TILA damages hasbeen recognized again and again in case law.” In re Woolaghan, 140 B.R. 377, 383(Bankr.W.D.Pa.1992).

The present case is distinguishable from Coxson and In re Woolaghan. WhileWilliams satisfies the first element of the In re Smith test, his claim fails the secondelement. Williams is not seeking to reduce the sums owed to the lender or to reduceits recovery, but is instead seeking affirmative relief for an independent claim.

In addition, Williams has not alleged or identified facts that would allow himto recover actual rather than statutory damages. Courts have held that when thedebtor can prove only statutory damages, the recoupment exception does not apply.In re Sallings, 357 B.R. 646, 649 (Bankr.N.D.Ala.2007). To recover actual damages,a consumer must show that: (1) he relied on the particular terms; (2) the disclosureviolation deterred him from inquiring into other alternatives; and (3) the alternativeswould save money. Perrone, 232 F.3d at 436. “In essence, the statute is addressingand seeking to combat detrimental reliance.” Id. All Williams has done is requestactual damages; that is not enough to satisfy the Perrone test. A claim for statutorydamages is not asserted *189 “as a defense to or denial of the creditor's claim, [and]it cannot be classified as a recoupment.” Id. at 650.

Williams's claim also fails the second element of the In re Smith test because he didnot timely file a TILA claim in response to the lender defendants' foreclosure efforts.Instead, Williams filed bankruptcy petitions four times in response to notices offoreclosure. He did not assert a TILA claim until his use of the bankruptcy process toavoid foreclosure finally proved unavailing. In Coxson, by contrast, the debtor filed hisTILA claims when the creditor first sought to foreclose. 43 F.3d 189. Similarly, in In reJones, the debtor filed his TILA claim in response to the creditor's proof of claim “in


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order to limit the extent of recovery by [the creditor] on its claim.” 122 B.R. at 250.

In both Coxson and In re Jones, the courts held that the debtors met the recoupmentexception because they promptly raised their TILA claims in response to the creditor'sinitial effort to foreclose or assert proof of claim. Williams did not raise his TILAcomplaint as a defense to the lender defendants' foreclosure notice in January 2003,December 2003, May 2004, or June 2005. In contrast to Coxson and In re Jones,Williams waited until after the bankruptcy court allowed the foreclosure sale to occur.Williams did not file his TILA claims until April 2006. This chronology makes it clearthat Williams's claims for TILA damages were not raised defensively to reduce theamount of the lender defendants' claims, but as an affirmative claim.

The general statute of limitations for damages under TILA has run. BecauseWilliams's claim was not raised defensively, he does not meet the recoupmentexception. The lender defendants' summary judgment motion on the TILA claims isgranted on the basis of limitations.

B. The Fair Debt Collection Practices Act ClaimThe purpose of the Fair Debt Collection Practices Act (“FDCPA”) is to

“eliminate abusive debt collection practices by debt collectors, to insure that thosedebt collectors who refrain from using abusive debt collection practices are notcompetitively disadvantaged, and to promote consistent State action to protectconsumers against debt collection abuses.” 15 U.S.C. § 1692(e). If the court findsthat a party has violated the FDCPA, the court may hold that party liable for monetarydamages. Id., § 1692k.

Williams alleges that the lender defendants violated the FDCPA when they attemptedto collect a debt without first obtaining verification. Williams claims that the lenderdefendants did not provide him with the following information required under theFDCPA:

(1) amount of the debt;

(2) name of the creditor to whom the debt was owed;

(3) statement that unless the plaintiff, within thirty days after receipt of the notice,disputes the validity of the debt, or any portion thereof, the debt will be assumedto be valid by the defendant;

(4) statement that if the plaintiff notifies the defendant in writing within the thirty-dayperiod that the debt, or any portion thereof, is disputed, the defendant will obtainverification of the debt or a copy of a judgment against the plaintiff and a copy ofsuch verification or judgment will be mailed to the plaintiff by the defendant; and

(5) statement that, upon the plaintiff's written request within the thirty-day period, thedefendant will provide *190 the plaintiff with the name and address of the originalcreditor, if different form the current creditor.

15 U.S.C. § 1692(g)(a)(1)-(5). Williams claims that the lender defendants violated theFDCPA by using “unfair or unconscionable” means to collect or attempt to collect aconsumer debt. Id., § 1692(f).

Williams's FDCPA claims fail because the lender defendants are not “debtcollectors” under the statute. The term “debt collectors” refers to “any person whouses any instrumentality of interstate commerce or the mails in any business theprincipal purpose of which is the collection of any debts, or who regularly collects orattempts to collect, directly or indirectly, debts owed or due or asserted to be owed ordue another.” 15 U.S.C. § 1692(a) (6). That term does not include “any officer oremployee of a creditor while, in the name of the creditor, collecting debts for suchcreditor.” Id., § 1692(a)(6)(A). Mortgage companies collecting debts are not “debtcollectors.” Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir.1985) (noting thatthe legislative history of the act indicates that a “debt collector” does not include the


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consumer's creditors, a mortgage servicing company, or an assignee of a debt, aslong as the debt was not in default at the time it was assigned). Because the lenderdefendants are not “debt collectors” as defined by the FDCPA, Williams's claim failsas a matter of law.

Williams also alleges that the lender defendants violated the FDCPA becauseDeutsche Bank lacked standing to foreclose on his property. (Docket Entry No. 11 at1–2). In September 1995, Williams executed “Vendee Mortgage Trust 1995–3.”When Deutsche Bank foreclosed on Williams's property in 2006, it claimed that it wasacting under “Trust 1994–2.” Williams claims that this discrepancy preventedDeutsche Bank from foreclosing on his property.

The apparent clerical or typographical error in the foreclosure documents didnot deprive Williams of the due process afforded to debtors under the Texas PropertyCode and did not prevent Deutsche Bank from lawfully foreclosing. Williams receivednotice of default and acceleration and was given notice of the foreclosure sale underthe Texas Property Code. The foreclosure notice and sale were not otherwisedefective. Hausmann v. Texas Sav. & Loan Ass'n, 585 S.W.2d 796, 799 (Tex.App.-ElPaso 1979, writ ref'd n.r.e.) (stating that the purpose of the foreclosure statute is toprovide a minimum level of protection for the debtor). The clerical or typographicalerror did not change the fact that Deutsche Bank had the power to foreclose onWilliams's property if he defaulted in his mortgage payments. Jacob Bass, themanager in the servicing/acquisitions department of Countrywide Home Loans, statedin his affidavit that Deutsche Bank was the proper entity to foreclose on Trust 1995–3and 1994–2. There is no competent controverting evidence.

Williams further alleges that the lender defendants should be held liable because theirattorneys violated the FDCPA. This claim fails because vicarious liability has *191 notbeen extended to lenders in the context of FDCPA claims. Wadlington v. CreditAcceptance Corp., 76 F.3d 103, 108 (6th Cir.1996) (“We do not think it would accordwith the intent of Congress, as manifested in the terms of the Act, for a company thatis not a debt collector to be held vicariously liable for a collection suit filing that violatesthe Act only because the filing attorney is a ‘debt collector.’ ”).

The lender defendants are entitled to summary judgment on Williams's FDCPA claims.

C. The Real Estate Settlement Procedures Act ClaimThe Real Estate Settlement Procedures Act (“RESPA”) is a federal statute

designed to “insure that consumers throughout the Nation are provided with greaterand more timely information on the nature and costs of the settlement process andare protected from unnecessarily high settlement charges caused by certain abusivepractices that have developed in some areas of this country.” 12 U.S.C. § 2601(a).The goal is to promote “more effective advance disclosure to home buyers andsellers of settlement costs.” Id., § 2601(b)(1).

Williams alleges that the lender defendants violated the RESPA by failing tomeet the statute's timing requirements. (Docket Entry No. 1, Ex. C–1 at 11). Inparticular, Williams alleges that the lender defendants violated the RESPA's 15–dayrule. Under the RESPA, the lender must give notice to the borrower “not less than 15days before the effective date of transfer of the servicing of the mortgage loan.” 12U.S.C. § 2605(b)(2)(A). The lender must “notify the borrower in writing of anyassignment, sale, or transfer of the servicing of the loan to any other person.” Id., §2605(b)(1). “Effective date of transfer” means “the date on which the mortgagepayment of a borrower is first due to the transferee servicer of a mortgage loanpursuant to the assignment, sale, or transfer of the servicing of the mortgage loan.”Id., § 2605(i)(1). Countrywide, the loan servicer, sent a letter to Williams onSeptember 19, 1995 stating that the loan was in the process of being transferred.(Docket Entry No. 1, Ex. C–1 at 29). Taking this as the “effective date of the transfer,”Williams alleges that the defendants did not give him the required notice.

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Williams's claim is barred under the three-year statute of limitations. The RESPAprovides:

Any action pursuant to the provisions of section 2605 [the 15–dayrule], 2607, or 2608 of this title may be brought in the United Statesdistrict court or in any other court of competent jurisdiction ... within 3years in the case of a violation of section 2605 of this title and 1 yearin the case of a violation of section 2607 or 2608 of this title from thedate of the occurrence of the violation.

12 U.S.C. § 2614. The violation of the 15–day rule occurred in 1995. Williams did notsue until 2005. Because Williams filed suit more than three years after the violation ofthe 15–day rule, he is barred from recovery. The defendants are entitled to summaryjudgment on this claim.

D. The Uniform Commercial Code (“UCC”) ClaimWilliams alleges that the lender defendants violated Article 9 of the UCC becausethey failed to acquire a UCC–1 lien on his property. (Docket Entry No.1, Ex. C–1 at24). Williams also alleges that the *192 lender defendants never had him sign UCC1lien papers. (Id.).

Article 9 of the UCC does not apply to the creation or transfer of a securityinterest in real property. TEX. BUS. & COM.CODE § 9.109(d)(11); Kimsey v. Burgin,806 S.W.2d 571, 576 (Tex.App.-San Antonio 1991, writ denied) (“Chapter 9 does notapply to the creation or transfer of an interest in or lien on real estate.”); Huddlestonv. Texas Commerce Bank–Dallas, 756 S.W.2d 343, 347 (Tex.App.-Dallas 1988, writdenied).

To secure the Note for the loan, Williams executed a Deed of Trust secured by hisresidential property. Executing a deed of trust results in the “creation or transfer of aninterest in or lien on real property.” Because this case involves the “creation ortransfer of an interest in or lien on real property,” Williams cannot recover under TEX.BUS. & COM.CODE §§ 9.101 et seq. The lender defendants are entitled to summaryjudgment on Williams's UCC claim.

E. The Breach of Fiduciary Duty ClaimUnder Texas law, the elements of a cause of action for breach of fiduciary duty

are: (1) that the plaintiff and defendant had a fiduciary relationship; (2) the defendantbreached its fiduciary duty to the plaintiffs; and (3) the defendant's breach resulted ininjury to the plaintiff. Jones v. Blume, 196 S.W.3d 440, 447 (Tex.App.-Dallas 2006,pet. denied). Williams's breach of fiduciary claim fails to meet these elements.

A cause of action for breach of fiduciary duty requires a fiduciaryrelationship between the parties. “In certain formal relationships, such as an attorney-client or trustee relationships, a fiduciary duty arises as a matter of law.” Meyer v.Cathey, 167 S.W.3d 327, 330 (Tex.2005). However, “not every relationship involvinga high degree of trust and confidence rises to the stature of a fiduciary relationship.”Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 176–177 (Tex.1997). “Toimpose an informal fiduciary duty in a business transaction, the special relationship oftrust and confidence must exist prior to, and apart from, the agreement made thebasis of the suit.” Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d276, 287 (Tex.1998).

Texas courts have held that the relationship between a borrower and lender isnot a fiduciary one. 1001 McKinney Ltd. v. Credit Suisse First Boston MortgageCapital, 192 S.W.3d 20, 36 (Tex.App.-Houston [14th Dist.] 2005, pet. denied)(“Generally, the relationship between a borrower and a lender is an arm's lengthbusiness relationship in which both parties are looking out for their own interests.”);Manufacturers Hanover Trust Co. v. Kingston Inv. Corp., 819 S.W.2d 607, 610(Tex.App.-Houston. [1st Dist.] 1991, no writ) (holding as a general rule that a “bankand its customers do not have a special or confidential relationship”).

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Williams's claim also fails the second and third elements necessary for abreach of fiduciary duty claim. Although Williams alleges that the lender defendantsbreached their fiduciary duty, he does not specify what duty was breached or whatinjury was caused. Williams simply alleges that the lender defendants breached theirfiduciary duty because “arguably the lender has the role of advisor and knows orshould have known the borrower trusted him. In the alternative, the *193 lendercreated a quasi-fiduciary relationship of trust and confidence, which at least gives riseto a duty of disclosure.” (Docket Entry No. 1, Ex. C–1 at 35). The fact that a persontrusts another “does not transform their business arrangement into a fiduciaryrelationship.” Meyer, 167 S.W.3d at 331. Because Williams fails to raise a fact issueas to all three elements of his fiduciary duty claim, the defendants' summary judgmentmotion is granted.

F. The Equal Credit Opportunity Act ClaimUnder the Equal Credit Opportunity Act (“ECOA”), a creditor must “provide a

copy of an appraisal report to an application for credit that is to be secured by a lienon a dwelling.” 12 C.F.R. § 202.14(a). The creditor must either (1) deliver the report or(2) give notice to the borrower that he or she has the right to receive the report. Id., §2601(a)(1)-(2). Because Williams's loan was secured by a lien on his home, thelender defendants had a duty to provide him a copy of this report. Williams alleges thatthe lender defendants failed to do so. The ECOA provides that “any creditor that failsto comply with a requirement imposed by the Act or this regulation is subject to civilliability for actual and punitive damages in individual or class actions.” 12 C.F.R. §202.17(b).

Williams's ECOA claim is barred by the statute of limitations. The ECOAprovides:

A civil action under the Act or this regulation may be brought in theappropriate United States district court without regard to the amount incontroversy or in any other court of competent jurisdiction within twoyears after the date of the occurrence of the violation, or within oneyear after the commencement of an administrative enforcementproceeding or of a civil action brought by the Attorney General of theUnited States within two years after the alleged violation.

12 C.F.R. § 202.17(b)(2). The alleged violation occurred in September 1995 when theNote and Deed of Trust were transferred. Williams did not bring suit until April 2006,eleven years later. The lender defendants are entitled to summary judgment on theECOA claim on the basis of limitations.

G. The Breach of Contract ClaimWilliams alleges that the lender defendants breached the Note and

Deed of Trust by wrongfully foreclosing on his property. (Docket Entry No. 1, Ex. C–1at 26). Williams alleges that the lender defendants failed to give him notice ofacceleration. Williams claims that the contract required the lender defendants to givehim notice of acceleration before foreclosing, citing the following provision:

If all or any part of the property or any interest in it is sold ortransferred ... without Lender's prior written consent, Lender is inbreach of contract if Lender exercises and [sic] option to acceleratewithout providing notice not less than 30 days from the date the noticeis delivered or mailed within stating that Borrower must pay all sumssecured by the Security Instrument.

(Docket Entry No. 1, Ex. C–1 at 27). The provision that Williams cited is not anacceleration clause but a “due-on-sale” clause. “A ‘due-on-sale’ clause is acommon provision in deeds of trust and mortgages. *194 It gives a lender the right todemand full payment of the balance due on the loan secured by the deed of trust ormortgage if the borrower sells his interest in the property. In effect, it prohibits the

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would-be buyer of the property from assuming the existing loan without prior approvalof the lender.” Simms v. First Gibraltar Bank, 83 F.3d 1546, 1548 (5th Cir.1996). Anacceleration clause specifies that if the debtor defaults on his mortgage payments,the lender may foreclose on the property. “The acceleration clause permits the lenderto call due, upon default by the borrower, the entire ‘indebtedness' of the borrower.”Bernie's Custom Coach of Texas, Inc. v. Small Business Admin., 987 F.2d 1195,1197 (5th Cir.1993).

In addition, the Note and Deed of Trust provided for a waiver of notice ofacceleration:

If any deficiency in the payment of any installment under this note isnot made good prior to the due date of the next such installment, at theoption of the holder, this note shall become immediately due andpayable without notice and the lien given to secure its payment may beforeclosed.

(Docket Entry No. 6, Ex. 1 at 1).

The lender defendants did not breach the contract when they foreclosed on theproperty. The defendants are entitled to summary judgment on the breach of contractclaim.

H. The Breach of the Automatic Stay ClaimThe filing of a petition in bankruptcy operates to stay actions

and proceedings against the debtor. 11 U.S.C. § 362(a). “The stay is effective uponthe filing of the petition even though the parties have no notice of its existence.”Huddleston v. Texas Commerce Bank–Dallas, 756 S.W.2d 343, 345(Tex.App.-Dallas 1988, writ denied). In general, acts taken in violation of the automaticstay are void and without legal effect. Kalb v. Feuerstein, 308 U.S. 433, 438, 60 S.Ct.343, 84 L.Ed. 370 (1940). However, “the bankruptcy court may take some action,such as annulling the stay, to retroactively validate actions taken in violation of thestay.” Claude Regis Vargo Enter., Inc. v. Bacarisse, 578 S.W.2d 524, 528(Tex.Civ.App.-Houston [14th Dist.] 1979, writ ref'd n.r.e.). A foreclosure saleconducted in violation of the automatic stay remains invalid unless the bankruptcycourt annuls the stay. Id.

A bankruptcy court's dismissal of a bankruptcy proceeding terminates theautomatic stay. “[U]nless the court orders otherwise, dismissal of a bankruptcy caserevests property in the entity in which the property was vested immediately before thecommencement of the case.” 11 U.S.C. § 349(b)(3). The “dismissal of a petitionterminates [the] automatic stay and restore[s] rights of creditor to their position as ofcommencement of the case.” Huddleston, 756 S.W.2d at 346.

Williams filed four bankruptcies. The bankruptcy court dismissed the first three.Williams filed his fourth bankruptcy petition on June 1, 2005. Although Countrywideposted Williams's property for foreclosure and sold it on June 7, 2005, Countrywideand Williams agreed to rescind the sale. The automatic stay was conditioned onWilliams making the mortgage payments. Under the court order, if Williams defaultedin his payments, the defendants had the right to foreclose on the property:

In the event that Movant does not receive any payments by the datesset forth ... Movant shall send written notice ... to Debtor, Counsel forDebtor/Debtors, and allow a 15–day period from the date of suchwritten notice to *195 cure such delinquent payments.... In the eventDebtor fails to cure such delinquent after one notice of default, theAutomatic Stay shall terminate as to the Movant without furtherrecourse to this Court and Movant shall be allowed to take any and allsteps necessary to exercise any and all rights [including foreclosure] itmay have.


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(Docket Entry No. 6, Ex. 7).

When Williams defaulted on his payments in April 2006, the automatic stay waslifted. The property was sold to Deutsche Bank in a foreclosure sale on April 4,2006. Because the automatic stay was conditional, and because Williams did notsatisfy the condition, the lender defendants did not violate the automatic stay whenthey foreclosed on the property. The automatic stay lasted only as long as Williamsmade his mortgage payments. As soon as Williams defaulted in those payments, theautomatic stay was lifted. The lender defendants did not foreclose on the property untilafter Williams defaulted on his mortgage payments. The lender defendants did notwrongfully foreclose on the property. They are entitled to summary judgment on thisclaim.

I. The Texas Deceptive Trade Practices Act ClaimThe purpose of the Texas Deceptive Trade Practices Act (“DTPA”) is to

“protect consumers against false, misleading, and deceptive business practices,unconscionable actions, and breaches of warranty and to provide efficient andeconomical procedures to secure such protection.” TEX. BUS. & COM.CODE §17.44(a). To maintain a private cause of action under the DTPA, the plaintiff must be aconsumer. Flenniken v. Longview Bank & Trust Co., 661 S.W.2d 705, 706(Tex.1983); Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535 (Tex.1981);Riverside Nat'l Bank v. Lewis, 603 S.W.2d 169 (Tex.1980).

The DTPA applies to a loan transaction if the borrower's objective is to use theloan to purchase goods or services. La Sara Grain v. First Nat'l. Bank of Mercedes,673 S.W.2d 558, 566 (Tex.1984); Flenniken, 661 S.W.2d at 707 (holding that thelender was subject to the DTPA because the borrower's purpose in obtaining the loanwas the purchase of a house). “Goods” are defined as “tangible chattels or realproperty purchased or leased for use.” TEX. BUS. & COM.CODE § 17.45(1).“Services” are defined as “work, labor, or service purchased or leased for use.” Id., §17.45(2). Because Williams used the loan to purchase goods or services, the DTPAapplies.

Williams alleges that the lender defendants violated the DTPA because theyaccelerated the Note and foreclosed on Williams's property without giving him theopportunity to cure. Williams alleges that not giving him the opportunity to cure was“unconscionable.” Under the DTPA, a person may bring an action for “anyunconscionable action or course of action by any person.” TEX. BUS. & COM.CODE§ 17.50(a)(3).

The loan documents clearly stated that notice of acceleration was not required ifWilliams defaulted on his payments. (Docket Entry No. 6, Ex. 1 at 1). In addition, therecord shows that the lender *196 defendants gave Williams notice of acceleration.Williams received notice of his default on March 13, 2006. A letter sent from thelender defendants stated that Williams had defaulted in his payments, that the notewas accelerated, and that a foreclosure sale would occur on April 4, 2006. Thelender defendants gave Williams notice of foreclosure more than twenty days beforethe foreclosure sale, pursuant to TEX. PROP.CODE § 51.002(d). The recordshows that Williams had ample opportunity to cure. The claim of a DTPA violationbased on the lack of notice of acceleration is without basis as a matter of law.

In addition, Williams's DTPA claim is barred by the two-year statute of limitations:

All actions brought under this subchapter must be commenced withintwo years after the date on which the false, misleading, or deceptiveact or practice occurred or within two years after the consumerdiscovered or in the exercise of reasonable diligence should havediscovered the occurrence of the false, misleading, or deceptive actor practice.

TEX. BUS. & COM.CODE § 17.56(a). Williams's filed his DTPA claim eleven years

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after the violation, well past the statute of limitations. The lender defendants areentitled to summary judgment on this claim.

J. The Unfairness Allegation ClaimWilliams alleges that the “lender's practice of nondisclosure is offensive to society'ssense of justice; the practice offends public policy, taking advantage of the elderly, thepractice is immoral, unethical ...” (Docket Entry No.1, Ex. C–1 at 31). A general claimof “unfairness” is not a sufficient basis for relief. The defendants are entitled tosummary judgment on this claim.

IV. ConclusionThe lender defendants' summary judgment motion is granted on all claims. This

case is dismissed by separate order.

MEMORANDUM AND OPINIONWayne Williams sued the defendants, Countrywide Home Loans Inc., Banker's Trustof California, Deutsche Bank National Trust Company (together, the “lenderdefendants”), and the Secretary of Veterans Affairs. Williams alleges that the lenderdefendants violated federal and state statutes governing mortgage documents,breached the mortgage lending contract, violated the automatic stay that wastriggered when Williams filed for bankruptcy, and committed other offenses related tohis mortgage loan.

This court previously granted summary judgment for the lender defendants anddismissed this case. (Docket Entry *197 Nos. 13, 14). Williams has filed a “motion fornew trial on the granting of defendants' motion for summary judgment and order ofdismissal.” (Docket Entry No. 15). In that motion, Williams reasserts the same legalarguments made before judgment was entered.

Based on a careful review of the motion, the applicable law, and the record, this courtdenies Williams's motion. The reasons are explained below.

I. The Applicable Legal StandardA motion for a new trial following a summary judgment is treated as a motion toreconsider entry of summary judgment under Federal Rule of Civil Procedure 59(e).Piazza's Seafood World, LLC v. Odom, 448 F.3d 744, 748, n. 9 (5th Cir.2006) (citingPatin v. Allied Signal, Inc., 77 F.3d 782, 785 n. 1 (5th Cir.1996)); see also HarconBarge Co. v. D & G Boat Rentals, Inc., 784 F.2d 665, 669–70 (5th Cir.1986) (“ ‘[A]nymotion that draws into question the correctness of a judgment is functionally a motionunder Civil Rule 59(e), whatever its label.’ ”) (quoting 9 MOORE'S FEDERALPRACTICE ¶ 204.12[1], at 4–67 (1985)).

A Rule 59(e) motion “calls into question the correctness of a judgment.” Templetv. HydroChem Inc., 367 F.3d 473, 478–79 (5th Cir.2004) (citing In re Transtexas GasCorp., 303 F.3d 571, 581 (5th Cir.2002)). “A motion to alter or amend the judgmentunder Rule 59(e) ‘must clearly establish either a manifest error of law or fact or mustpresent newly discovered evidence’ and ‘cannot be used to raise arguments whichcould, and should, have been made before the judgment issued.’ ” Rosenzweig v.Azurix Corp., 332 F.3d 854, 863–64 (5th Cir.2003) (quoting Simon v. United States,891 F.2d 1154, 1159 (5th Cir.1990)).

Relief is also appropriate when there has been an intervening change in thecontrolling law. Schiller v. Physicians Res. Group Inc., 342 F.3d 563, 567 (5thCir.2003). The Fifth Circuit warns that altering, amending, or reconsidering a judgmentunder Rule 59(e) is an extraordinary remedy that courts should use sparingly.Templet, 367 F.3d at 479; see also 11 CHARLES A. WRIGHT, ARTHUR R. MILLER,& MARY KAY KANE, FEDERAL PRACTICE & PROCEDURE § 2810.1, at 124 (2ded.1995). The Rule 59(e) standard “favors denial of motions to alter or amend ajudgment.” S. Constructors Group, Inc. v. Dynalectric Co., 2 F.3d 606, 611 (5thCir.1993).

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II. AnalysisWilliams presents three legal arguments, all of which he made previously. Williamspresents no new facts and alleges no intervening change in the law.

Williams first argues that an unauthorized party foreclosed on his property. (DocketEntry No. 15 at 2–4). Williams argues that there is no proof in the record that RexKesler, the person responsible for signing the foreclosure sale in April 2006, wasappointed as a substitute trustee. (Id.). Williams made this argument in his responseto the defendants' motion for summary judgment. (Docket Entry No. 11 at 1).“Defendant's Exhibit 3 attached to its Motion for Summary Judgment shows veryclearly that Plaintiff's mortgage was assigned to Vendee Mortgage Trust 1995–3.There is no evidence, or even an allegation, of a change in ownership since then.That means that only someone working on behalf of Trust 1995–3 had the right toenforce any alleged defaults on the Note and Deed of Trust.” (Docket Entry No. 11 at1). This court considered and rejected this argument as a basis for relief, given thelimitations and other bars, in granting the lender defendants' summary judgmentmotion.

Second, Williams argues that even if Rex Kesler was the substitute trustee for *198Vendee Mortgage Trust 1994–2, he did not have the power to foreclose on MortgageTrust 1995–3. (Docket Entry No. 15 at 4–5). Williams also made this argument in hisresponse to the defendants' summary judgment motion, (Docket Entry No. 11 at 2),and this court did not find that it precluded the entry of judgment.

Third, Williams argues that the court should not follow the defendants' “misnomer”argument. (Docket Entry No. 15 at 6–8). “The Plaintiff strongly disagrees that theforeclosure and eviction authorized by a party that did not show it had the right to doso can be summarily excused as a mere misnomer. Each trust [Vendee MortgageTrust 1995–2 and 1995–3] is a separate, distinct, and unique legal entity that can onlyexist as a creature of law.” (Docket Entry No. 15 at 2). Williams maintains thatVendee Mortgage Trust 1995–2 is not the same as Vendee Mortgage Trust 1995–3,and that the lender defendants lacked standing to foreclose on Vendee MortgageTrust 1995–3. (Id.). Williams made this argument, without success, in his response todefendants' summary judgment motion. (Docket Entry No. 11 at 2). He does notpresent an additional basis for the argument here.

Williams has failed to show a manifest error of law or fact. Instead, Williams haspresented legal arguments previously ruled on by this court. His motion for new trial isdenied.

III. ConclusionThe motion for a new trial is denied. (Docket Entry No. 15).

Footnotes

A person is a “consumer” if the “party to whom credit is offered orextended is a natural person, and the money, property, or services whichare the subject of the transaction are primarily for personal, family, orhousehold purposes.” 15 U.S.C. § 1602(h).

A “creditor” is a person “who (1) regularly extends, whether in connectionwith loans, sales of property or services, or otherwise, consumer creditwhich is payable by agreement in more than four installments or for whichthe payment of a finance charge is or may be required, and (2) is theperson to whom the debt arising from the consumer credit transaction isinitially payable on the face of the evidence of indebtedness, or if there isno such evidence of indebtedness, by agreement.” 15 U.S.C. § 1602(f)(1)-(2).

“Conceptually, however, statutory and actual damages perform different

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functions: statutory damages are reserved for cases in which thedamages caused by a violation are small or difficult to ascertain. Actualdamages may be recovered where they are probably caused by theviolation. In this way, the damage measures are complementary ratherthan duplicative.” Perrone v. Gen. Motors Acceptance Corp., 232 F.3d433, 436 (5th Cir.2000).

Williams also fails to prove an essential part of the Section 1692(f) claimbecause he does not identify what actions were “unconscionable” or“unfair.”

“As successor-in-interest to Bankers Trust Company of California, N.A.,Deutsche Bank National Trust Company is also the trustee for VendeeMortgage Trust 1994–2. As such, Deutsche Bank National TrustCompany is the trust entity with authority to enforce the notes and deedsof trust held in both Vendee Mortgage 1994–2 and 1995–3.” (DocketEntry No. 12, Bass's Aff., ¶ 3).

Texas adopted Chapter 9 of the UCC through TEX. BUS. & COM.CODE§§ 9.01 et. seq. Merritt–Campbell, Inc. v. RxP Products, Inc., 164 F.3d957, 964 (5th Cir.1999).

A “mortgage” means “a consensual interest in real property, includingfixtures, that secures payment or performance of an obligation.” TEX.BUS. & COM.CODE § 9.102(a)(55).

A “due-on-sale” clause has also been defined as a “mortgage provisiongiving the lender the option to accelerate the debt if the borrowertransfers or conveys any part of the mortgaged real estate without thelender's consent.” BLACK'S LAW DICTIONARY 538 (8th ed.2004).

“In the event Debtor files another petition for an order of relief under Title11, then the automatic stay of 11 U.S.C. § 362(a) shall not apply toMovant and the property described above.” (Docket Entry No. 6, Ex. 7).

A consumer is “an individual who seeks or acquires by purchase or leaseany goods or services.” TEX. BUS. & COM.CODE § 17.45(4).

“Payment of the past due balance on the Debt has not been received bythe Mortgage Servicer. Because of the default, the Mortgagee haselected to accelerate the maturity of the debt.” (Docket Entry No.6, Ex.8).

“Notwithstanding any agreement to the contrary, the mortgage servicer ofthe debt shall serve a debtor in default under a deed of trust or othercontract lien on real property used as the debtor's residence with writtennotice by certified mail stating that the debtor is in default under the deedof trust or other contract lien.” TEX. PROP.CODE § 51.002(d).

Williams's claims against the Secretary of Veterans Affairs aredismissed without prejudice for failure to effect service. The dismissal ofa defendant named in the complaint but not served with process results inthe dismissal without prejudice. See Nagle v. Lee, 807 F.2d 435, 438 (5thCir.1987).

Williams's claims against the Secretary of Veterans Affairs werepreviously dismissed without prejudice for failure to effect service.

This court held that the “apparent clerical or typographical error in theforeclosure documents did not deprive Williams of the due processafforded to debtors under the Texas Property Code and did not preventDeutsche Bank from lawfully foreclosing.” (Docket Entry No. 13 at 19).


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Change View

1 Vendor and Purchaser Summary Remedies for Recovery ofPossessionWritten agreement by original purchaser with original vendor of property toreconvey property back to vendor, in lieu of vendor's right to foreclosure,bound original vendor to abide by terms set forth in agreement to reconvey,and thus, reconveyance did not extinguish rights of holder of vendee'sinterest acquired by contracts for deed from title holder, nor did it extinguishrights of assignee in contracts for deed or of assignor in sale andassignment of his contracts for deed to assignee.


2 Vendor and Purchaser Rights and Liabilities of SubsequentPurchasersAgreement between assignee of vendee's interest in contracts for deedand original vendor, who agreed to accept warranty deed in lieu offoreclosure from original purchaser, ratified existing rights of assignee incontracts for deed which he acquired from assignor, after failure ofassignor's interest because of purchaser's default.

806 S.W.2d 571

Court of Appeals of Texas,

San Antonio.

Roy E. KIMSEY, Jr., Appellant,

v.

Larry BURGIN, Appellee.

No. 04–89–00239–CV. Jan. 23, 1991. Rehearing Denied March 15, 1991.

Assignee of vendee's interest in contracts for deed brought suit against assignor,seeking to recover unpaid balance of note given by assignor to assignee, and forforeclosure of collateral security. The 38th District Court, Real County, Mickey R.Pennington, J., granted summary judgment for assignor, and assignee appealed. TheCourt of Appeals, Stephens, J. (Retired), held that: (1) agreement by originalpurchaser to reconvey property to original vendor, in lieu of foreclosure, did notextinguish rights of assignee in contract for deed, nor did it extinguish rights ofassignor, and (2) agreement between assignee of vendee's interest in contract fordeed and original vendor, who agreed to accept warranty deed in lieu of foreclosurefrom original purchaser, ratified existing rights of assignee in contracts for deed whichhe acquired from assignor, after failure of assignor's interest because of purchaser'sdefault.

Affirmed.

West Headnotes (7)

RELATED TOPICS

Vendor and Purchaser

Rights and Liabilities of SubsequentPurchasers

Installment Contract and PersonPurchasing Portion of Real Estate

Secured Transactions

Nature, Requisites, and ValiditySubject of Valid Security Interest

Appeal and Error

RecordHearing of New Trial Motion

Kimsey v. BurginCourt of Appeals of Texas, San Antonio. January 23, 1991 806 S.W.2d 571 (Approx. 9 pages)


Kimsey v. Burgin - WestlawNext https://a.next.westlaw.com/Document/Id8e7b5cbe7d311d99439b076ef9e...

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3 Vendor and Purchaser Rights and Liabilities of SubsequentPurchasersOriginal purchaser's granting of warranty deed in lieu of foreclosure tooriginal vendor in property did not extinguish rights of intervening assignorof vendee's interest in contracts for deed, and thus did not precludeassignor from foreclosing liens.

4 Secured Transactions Property and Rights Subject to SecurityInterestInterest of assignee of vendee's interest in contracts for deed, who securedpromissory note he gave assignor as payment for land with lien on his rightsin contracts, was “interest in land,” and was not governed by the TexasBusiness and Commerce Code provisions for perfection of securityinterests in personal property, despite contention of assignor that contractsfor deed, as mere executory contracts to purchase land upon fulfillment ofcontract obligations, were personal property until they ripened into realestate ownership. V.T.C.A., Bus. & C. §§ 1.201(37), 9.104(10).


5 Appeal and Error Motions for New TrialValidity of any alleged foreclosure sale by assignor of vendee's interest incontracts for deed was not before Court of Appeals on appeal, even thoughassignee did file motion for new trial making allegations of a nonjudicialforeclosure sale; no record of hearing on motion for new trial could befound.

6 Vendor and Purchaser For SaleAdequate consideration existed for original note from assignee of vendee'sinterest in contracts for deed to assignor, despite default by originalpurchaser and reconveyance of property by warranty deed to originalvendor, in lieu of foreclosure; original vendor executed document statingthat he ratified contracts for deed held by assignee.


7 Appeal and Error Points and ArgumentsAppellant's argument that trial court erred by failing to grant motion for newtrial did not comport with point of error, which argued that trial court erred inits entry of summary judgment, and since there was no record of hearing onmotion for new trial, point of error would by overruled.


*572 Pat Long Weaver, Michael B. McKinney, Stubbeman, McRae, Sealy, Laughlin &Browder, Midland, for appellant.

L.B. Trulove, Jr., Sabinal, for appellee.

Before CADENA, C.J. , and CARR and STEPHENS, JJ.

Opinion

OPINION

STEPHENS, Justice.

This suit was brought by Larry Burgin, Appellee, against Roy E. Kimsey, Jr.,

*

1


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Appellant, seeking to recover the unpaid balance of a promissory note given Burginby Kimsey, and for foreclosure of the collateral security. Summary judgment wasgranted Burgin for a money judgment, attorney's fees, and foreclosure of Kimsey'sinterest in two tracts of real estate in Real County, Texas.

On appeal Kimsey brings twelve points of error, contending that the trial court *573erred in granting summary judgment in favor of Burgin:

1) because Burgin's interest in the property made the subject of this suit has failed.

2) because there exists a genuine issue of material fact as to whether Burgin'sinterest in the property made the subject of this suit was ratified after its failure.

3) by granting a right to foreclose its alleged liens when no lien existed.

4) because it applied the incorrect theory of law in determining that Burgin held asecurity interest with respect to the property made the basis of this suit.

5) disallowing Kimsey's counter-claim for restitution of funds paid by Kimsey toBurgin under the contractual obligations made the basis of this suit.

6) because the trial court erred in failing to grant Kimsey's Motion for New Trialwhere Kimsey presented newly discovered evidence that Burgin had conducted anon-judicial foreclosure sale covering the property made the basis of this suit.

7) because there was no evidence of consideration from Burgin to Kimsey tosupport the promissory note and deed of trust made the basis of this suit.

8) because there was insufficient evidence of consideration from Burgin to Kimseyto support the promissory note and deed of trust made the basis of this suit.

9) in the alternative, because there was evidence that the consideration from Burginto Kimsey supporting the obligation made the basis of this suit failed as a matter oflaw.

10) in the alternative, because there was a genuine issue of material fact as towhether the consideration from Burgin to Kimsey supporting the contractualobligations made the basis of this suit failed.

11) because there exists a genuine issue of material fact as to the allegedindebtedness of Kimsey to Burgin.

12) because Kimsey was entitled to prevail on his counter-claim and such claim wasnot barred by the statute of limitations.

FACTSIn 1979, L.R. French conveyed a tract of land in Real County, known as the RanchoReal to S.O.A.W. Enterprises, Inc., retaining a vendor's lien on the property. S.O.A.W.then subdivided the ranch and conveyed the two tracts of land in question, amongothers, to C & D Leasing Company, Inc., not by warranty deed, but instead bycontracts for deed. C & D then conveyed the two tracts in question to Burgin, bycontract for deed.

On May 29, 1981 Kimsey purchased Burgin's interest in the two tracts by acceptingan Assignment of Agreement for Deed from Burgin. He executed a promissory noteto Burgin in the amount of $74,725.58, and a Deed of Trust to Thad H. Marsh,describing the two tracts of land, as security for the promissory note.

On September 23, 1982, evidently because of financial difficulties, S.O.A.W.Enterprises, Inc., the owner of fee title to the property, conveyed it back to L.R.French, Jr. by general warranty deed, in lieu of foreclosure. Thereafter, on September23, 1983, L.R. French, Jr. conveyed the property in question to Martin L. Allday,Trustee, by general warranty deed. On August 15, 1984, Allday, conveyed an


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1

equitable interest in the property to Kimsey. Later, on January 6, 1983, Frenchexecuted a document entitled “Ratification and Agreement” to Kimsey which statedthat French ratified the Contract for Deed held by Kimsey from S.O.A.W., C & D, andBurgin.

The parties contend that the questions before this court are whether the contractbetween Kimsey and Burgin was a real estate transaction or a personal propertytransaction, and the effect of S.O.A.W. Enterprises, Inc.'s reconveyance of the realproperty title back to French.

The original conveyance from French to S.O.A.W. was a conveyance of real property,by general warranty deed, vesting title in S.O.A.W. S.O.A.W. then sub-divided andconveyed to C & D, by contract for deed, an interest that would ripen into full title onlyupon the payment of the contract price. Title to the real estate remained vested inS.O.A.W.

*574 POINT OF ERROR NUMBER ONEKimsey contends, in his first point, that the trial court erred in granting summary

judgment in favor of Burgin because Burgin's interest in the property failed.

We cannot agree with this point of error. Kimsey owned his interest in the property byvirtue of an assignment of Burgin's contract for deed, which Burgin had acquiredfrom C & D Leasing, who in turn had acquired its interest in the property by contractfor deed from S.O.A.W., the title holder of the property. On September 23, 1982 whenS.O.A.W. was experiencing financial difficulties, it entered into a written agreementwith French, the original vendor of the property, to reconvey the property to French,which agreement contained the following language:

Recognizing the validity of French's 1979 liens and the existence of a continuousstate of default, S.O.A.W. contacted French and offered to reconvey Rancho Realto French in lieu of the formal foreclosure proceedings available to French. Frenchhas accepted S.O.A.W.'s offer.

* * * * * *

3. French agrees to forebear his right to foreclose his liens. In considerationtherefor, S.O.A.W. agrees to convey full legal title back to French of the 5,496.641acres originally constituting Rancho Real less three tracts aggregatingapproximately 41.475 acres which have been deeded to third-parties previously.S.O.A.W. represents and warrants that no valid liens or encumbrances existagainst the property to be reconveyed to French other than the following: (1) a firstlien in favor of The Traveler's Insurance Company; (2) French's liens; (3) theequitable claims of the third-parties who have executed Agreements for Deed withS.O.A.W.; and (4) unpaid state and county ad valorem taxes.

4. S.O.A.W. agrees to assign its full right, title and interest in and to theapproximately 225 Agreements for Deed covering various smaller tracts out of theRancho Real to French. In consideration therefor, French agrees to honor theobligation of S.O.A.W. under such Agreement for Deed to deliver Warranty Deedsto the third-party purchasers when final payments for the various tracts have beenreceived by French....

The acceptance of this agreement to reconvey the property by French, in lieu of hisright to foreclosure, bound French to abide by the terms set forth in the agreement,and accordingly, the reconveyance did not extinguish the rights of Kimsey in thecontract for deed which he held. Nor did it extinguish the rights of Burgin in the saleand assignment of his contract for deed from C & D Leasing to Kimsey.

Kimsey's First Point of Error is overruled.

POINT OF ERROR NUMBER TWO


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2

3

In Point of Error Number Two Kimsey argues that the trial court erred ingranting summary judgment because there exists a genuine issue of material fact asto whether Burgin's interest in the property made the subject of this suit was ratifiedafter its failure.

Again, we cannot agree with this point of error. On January 6, 1983, Kimsey andFrench executed a document styled Ratification and Agreement, containing thefollowing language:

WHEREAS, by General Warranty Deed, dated September 23, 1982, ... S.O.A.W.Enterprises, Inc., d/b/a Rancho Real, Seller, contracted and agreed to sell to C & DLeasing, Purchaser, and Purchaser contracted and agreed to buy from Seller, thefollowing described land located in Real County, Texas, to-wit:

Tract No. 317, in Rancho Real, described by metes and bounds....

at the price and upon the terms set forth therein; the interest of said C & D Leasingin said Agreement For Deed being now owned by Roy E. Kimsey, Jr.; and

WHEREAS, by that certain Agreement For Deed, dated July 5, 1979, S.O.A.W.Enterprises, Inc., d/b/a Rancho Real, Seller, contracted and agreed to sell to C & DLeasing Co., Inc., Purchaser, and Purchaser contracted and agreed to buy fromSeller, the following described land located in Real County, Texas, to-wit:

*575 Tract No. 293, in Rancho Real, described by metes and bounds....

at the price and upon the terms set forth therein; the interest of said C & D LeasingCompany, Inc., in said Agreement For Deed being now owned by Roy E. Kimsey,Jr.; and ...

NOW, THEREFORE, in consideration of the premises and other good and valuableconsiderations, ... L.R. French, Jr. hereby ratifies, confirms and adopts each of theabove described Agreements For Deed, and hereby contracts and agrees to sell tothe said Roy E. Kimsey, Jr.,.... the land described in each of said Agreements ForDeed, at the price and upon the terms set forth therein, to the same extent and forall intents and purposes, as if L.R. French, Jr. had executed each said AgreementFor Deed, as Seller.

The said L.R. French, Jr. directs said Roy E. Kimsey, Jr. to continue to make themonthly payments specified in each said Agreement, as therein directed, unlessand until he is notified to the contrary by the said L.R. French, Jr....

This document expressly ratified the existing rights of Kimsey in the Contracts ForDeed which he acquired from Burgin.

Kimsey's Point of Error Number Two is overruled.

POINT OF ERROR NUMBER THREEIn Point of Error Number Three, Kimsey argues that the trial court erred in

granting summary judgment in favor of Burgin granting a right to foreclose its allegedliens when no lien existed.

Kimsey relies on Flag–Redfern Oil Co. v. Humble Exploration, Inc., 744 S.W.2d 6(Tex.1987), in his argument under Points Number One, Two, and Three to support hisposition that where a deed in lieu of foreclosure is issued, the rights of interveningpurchasers of equitable interests are extinguished. This reliance is misplaced. InFlag–Redfern the Court held:

Humble argues the deed from the Scotts to Kocurek was a “deed in lieu offoreclosure”, as was found by the court of appeals, and this conveyance cut off therights of the intervening purchaser, Flag–Redfern. Humble cites North TexasBuilding & Loan Association v. Overton, 126 Texas 104, 86 S.W.2d 738 (1935),


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and Karcher v. Bousquet, 672 S.W.2d 289 (Tex.Civ.App.—Tyler 1984, no writ) forthe proposition that a deed in lieu of foreclosure cuts off the rights of interveningpurchasers and junior lien holders. Humble also insists this principle is applicable inall situations, whether the potential foreclosure would be based on a vendor's lien orother lien.

Flag–Redfern contends that a conveyance by a mortgagor to a mortgagee, afterdefault of a note secured by a deed of trust, does not operate as a foreclosure anddoes not cut off the rights of an intervening purchaser.

. . . . .

The court of appeals erred in labeling the Scott to Kocurek deed a “deed in lieu offoreclosure.” .... There is no such deed as a deed in lieu of foreclosure. A deedgiven in satisfaction of a debt may serve as a convenient, efficient transfer of titleupon default of a debt. North Texas Building & Loan Assoc. v. Overton, 126 Texas104, 86 S.W.2d 738 (1935).

* * * * * *

It would be unfair to allow parties to make private conveyances, although judiciallyefficient, to the detriment of unknowing parties by foreclosing their right to bid at atrustee sale; to redeem their interests; to insist on the marshalling of assets' or toset forth the affirmative defense of merger or extinguishment of the debt....

744 S.W.2d at 8, 9.

Kimsey's Point of Error Number Three is overruled.

POINT OF ERROR NUMBER FOURIn Point of Error Number Four, Kimsey contends that the trial court erred in

granting summary judgment in favor of Burgin because it applied the incorrect theoryof law in determining that Burgin held a security interest with respect to the propertymade the basis of this suit.

Burgin argues that the contract for deed is merely an executory contract to purchase*576 land upon the fulfillment of the contract's obligations, and thus, it is personalproperty until such time as it ripens into real estate ownership, and therefore isgoverned by TEX.BUS. & COM.CODE ANN. Chapt. 9 (Vernon 1968). On the otherhand, Kimsey argues that under an executory contract to purchase land, thepurchaser acquires an equitable title to the realty which is not “security interest,” citingCity of Garland v. Wentzel, 294 S.W.2d 145 (Tex.Civ.App.—Dallas 1956, writ ref'dn.r.e.). In Wentzel, the court held:

It is well settled that the purchaser under an executory contract of sale acquiresequitable title to the realty; having the exclusive right to sue for damages to thefreehold. Thus in Leeson v. City of Houston, Tex.Com.App., 243 S.W. 485, 488, theCourt stated: “By the great weight of authority it is now held that, although the legaltitle does not pass to the vendee under a contract of sale until actual delivery of adeed to the property still the vendee under such contract of purchase, especiallywhere he goes into possession of the property, is invested with the equitable titlefrom the date of the contract, or in any event, form the date he takes possession,and any increment, advantage, or enhancement to the property inures to his benefit,and any detriment, depreciation, or loss thereto without fault of either party must beborne by him.” See also Rives v. James, Tex.Civ.App., 3 S.W.2d 932; Ingram v.Central Bitulithic Co., Tex.Civ.App., 51 S.W.2d 1067; Dimmitt Elevator Co. v.Carter, Tex.Civ.App., 70 S.W.2d 615....

294 S.W.2d at 147.

In a later case, Furman v. Sanchez, 523 S.W.2d 253 (Tex.Civ.App.—San Antonio1975, no writ), this Court held:


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Under the generally accepted rule in the United States, a purchaser,under an executory contract to purchase land acquires equitable titleto the land at the time of the execution contract. Early Texas casesmade a distinction between equitable rights and equitable title withregard to such contracts. It was held that a purchaser under suchcontract had only an equitable right so long as the purchase priceremained unpaid, and he could not resist his seller's action forpossession. On the other hand, when the purchaser had fullycomplied, he obtained equitable title and could demand a conveyancefrom a vendor. Hemming v. Zimmerschitte, 4 Tex. 159 (1849).Subsequent cases have not always followed this early distinction. TheCommission of Appeals held in 1922 that the vendee of a contract ofpurchase, especially where he goes into possession of the property,is vested with the equitable title from the date of the contract, or in anyevent from the date he takes possession. Leeson v. City of Houston,243 S.W. 485 (Tex.Comm'n App.1922, judgment adopted).... Whetherspeaking in terms of equitable right or equitable title, the Texas caseshave generally given to the purchaser all the rights and incidents oftitle usually accorded to the holder of full equitable title in other states.

523 S.W.2d at 256–57.

Burgin additionally argues that TEX.BUS. & COM.CODE ANN. § 1.201(37) (VernonSupp.1989) governs. The Texas Business and Commerce Code defines a securityinterest as one in personal property. TEX.BUS. & COM.CODE § 1.201(37) (VernonSupp.1990). The Code further states in Chapter 9 that: “This chapter does not apply... except to the extent that provision is made for fixtures in Section 9.313, to thecreation or transfer of an interest in or lien on real estate, including a lease or rentsthereunder ...” TEX.BUS. & COM.CODE ANN. § 9.104(10) (Vernon Supp.1990). InHuddleston v. Texas Commerce Bank–Dallas, 756 S.W.2d 343, 347 (Tex.App.—Dallas 1988, writ denied) in addressing the Business and Commerce Code, theCourt held: “Chapter 9, however, does not apply to the creation or transfer of aninterest in or lien on real estate ...”

When Kimsey purchased his interest in the two tracts in question, he secured thepromissory note which he gave Burgin as payment for the land, with a lien on his*577 rights in the contract. Thus we conclude, that Kimsey's interest was an interestin land, and was not governed by the Texas Business and Commerce Code, and thatthe trial court was right in granting judgment of foreclosure of the lien in favor ofBurgin by reason of non-payment of the note by Kimsey.

Kimsey's Point of Error Number Four is overruled.

POINT OF ERROR NUMBER FIVEIn Point of Error Number Five, Kimsey argues that the trial court erred in grantingsummary judgment in favor of Burgin disallowing Kimsey's counter-claim forrestitution of funds paid by Kimsey to Burgin under the contractual obligations madethe basis of this suit.

Under this point, Kimsey argues that because of complete failure of consideration,Burgin had no right to retain the funds he had previously paid because Burgin'sinterest failed. He contends that the trial court should have allowed the case toproceed and should have ordered a rescission of the contract and restitution of fundspaid as a result of failure of consideration.

As we pointed out in Point of Error Numbers One and Two, Kimsey's interest in theproperty was not extinguished when the reconveyance was executed, thus there wasno failure of consideration for the promissory note executed by Kimsey to Burgin.

Kimsey's Point of Error Number Five is overruled.


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POINT OF ERROR NUMBER SIXIn Point of Error Number Six, Kimsey argues that the trial court erred in failing

to grant Kimsey's Motion for New Trial where Kimsey presented newly discoveredevidence that Burgin had conducted a non-judicial foreclosure sale covering theproperty made the basis of this suit.

Kimsey relies on Houston Sash & Door Co., Inc. v. Davidson, 509 S.W.2d 690(Tex.Civ.App.—Beaumont 1974, writ ref'd n.r.e.), for the proposition that thenon-judicial foreclosure of Burgin constituted an election of remedies, and waived hisrights under this suit. We disagree with Kimsey. Although the record discloses thatKimsey did file a Motion for New Trial, making allegations of a non-judicial foreclosuresale, we find no record of a hearing on the Motion for New Trial, thus the validity ofany alleged foreclosure sale is not before this court.

Point of Error Number Six is overruled.

POINTS OF ERROR NUMBER SEVEN, EIGHT AND NINEIn Points of Error Number Seven, Eight and Nine Kimsey argues that the trial

court erred because there was no evidence, or insufficient evidence of considerationfrom Burgin to Kimsey to support the promissory note and deed of trust made thebasis of this suit, and that the original consideration for the promissory note failed asa matter of law.

These points of error are without merit. Without detailed discussion, we hold that therewas adequate consideration for the original promissory note from Kimsey to Burgin,and that as pointed out in Points of Error Two and Three, Kimsey's interest was notextinguished by the reconveyance of the land.

Points of Error Seven, Eight, and Nine are overruled.

POINT OF ERROR NUMBER TENUnder Point of Error Number Ten, Kimsey argues that there were genuine issues ofmaterial fact as to whether consideration flowing from Burgin to Kimsey failed.

We have previously held that consideration did not fail.

Kimsey's Point of Error number Ten is overruled.

POINT OF ERROR NUMBER ELEVENUnder Point of Error Number Eleven, Kimsey argues that the trial court erred in

its entry of summary judgment because there were genuine issues of material *578fact as to the alleged indebtedness of Kimsey to Burgin.

Kimsey's argument appears to be that the trial court erred by its failure to grantKimsey's Motion for New Trial predicated on the allegation therein that Burgin hadsold the property at a non-judicial foreclosure for the sum of $50,0000.00 for whichcredit had not been given on the note. We find that Kimsey did file a Motion for NewTrial, making allegations of a non-judicial foreclosure sale, but we find no record of ahearing on the Motion for New Trial. Since Kimsey's argument under this point doesnot comport with his point of error, and since there is no evidence in the record tosupport his argument, Kimsey's Point of Error Number Eleven is overruled.

POINT OF ERROR NUMBER TWELVEKimsey contends, in Point of Error Number Twelve, that the trial court erred ingranting summary judgment in favor of Burgin because Kimsey was entitled toprevail on his counterclaim and such claim was not barred by the statute of limitations.

Kimsey contends that the trial court incorrectly applied the two year statute oflimitations set forth in TEX.CIV.PRAC. & REM.CODE ANN. § 16.003 (Vernon 1986),because the section applies to personal injuries and torts. However, we need notaddress this argument because we have held in Point of Error Number Five thatconsideration did not fail, and thus restitution is not available. Point of Error Number


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Twelve is overruled.

The judgment of the trial court is affirmed.

Footnotes

Chief Justice Carlos C. Cadena (retired), not participating.

The Honorable Bill J. Stephens, Justice, retired, Court of Appeals, FifthDistrict of Texas at Dallas, sitting by assignment.





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Change View

1 Bankruptcy Validity of Acts in Violation of Injunction or StayDismissal of property transferee's bankruptcy petition did not reinstateforeclosure sale that was held in violation of stay, such that amount ofborrower's debt to lender secured by deed of trust to real property shouldhave been credited with amounts received at foreclosure sale and thatlender's demand for payment which failed to credit amounts received at theforeclosure sale constituted charging of interest in violation of usurystatutes; when bankruptcy case was dismissed by bankruptcy court, thatcourt took no action to annul or otherwise recognize invalidity of stay, sosale that occurred after transferee filed for bankruptcy was void and of nolegal effect. Bankr.Code, 11 U.S.C.A. § 362(a).


2 Bankruptcy Notice to Creditors; CommencementBankruptcy stay is effective upon filing of petition even though the parties

Dallas.

Albert D. HUDDLESTON, Appellant,

v.

TEXAS COMMERCE BANK–DALLAS, N.A., Appellee.

No. 05–87–01032–CV. July 12, 1988. Rehearing Denied Aug. 30, 1988.

Lender brought action against borrower on real estate notes for deficiency judgmentafter lender had foreclosed on the real property, and borrower counterclaimed forusury. The 68th Judicial District Court, Dallas County, Gary Hall, J., granted summaryjudgment for lender, both for deficiency and on usury counterclaim, and borrowerappealed. The Court of Appeals, Enoch, C.J., held that: (1) dismissal of propertytransferee's bankruptcy petition did not reinstate foreclosure sale held in violation ofbankruptcy stay, such that amount of borrower's debt should have been credited withamounts received at that foreclosure sale, and that lender's subsequent demand forpayment which failed to credit amounts received at foreclosure sale constitutedcharging of interest in violation of usury statutes; (2) doctrine of estoppel by deedcould not be used by borrower to preclude lender from denying that foreclosure saleoccurred on date when property transferee had filed bankruptcy petition, where recorddid not show timely filed pleadings asserting defense of estoppel by deed on behalf ofborrower; and (3) Business and Commerce Code chapter including requirement thatsecured party dispose of collateral in commercially reasonable manner and casesconcerning disposition of collateral under that chapter did not apply to creation ortransfer of interest in or lien on real estate, so as to require lender secured by deed oftrust to real property to establish that foreclosure sale occurred in commerciallyreasonable manner.

Affirmed.

West Headnotes (5)

RELATED TOPICS

Effect of Bankruptcy Relief; Injunction andStay

Creditor Mere Technical Violation ofAutomatic Stay

Mortgages

Foreclosure by Exercise of Power of SaleConfirmation of Foreclosure Sale of RealProperty

Equitable Estoppel

Companion Doctrines of Judicial Estoppeland Election of Remedies

Huddleston v. Texas Commerce Bank-Dallas, N.A.Court of Appeals of Texas, Dallas. July 12, 1988 756 S.W.2d 343 (Approx. 6 pages)

Huddleston v. Texas Commerce Bank-Dallas, N.A. - WestlawNext https://a.next.westlaw.com/Document/Ia5bc7cf3e79f11d99439b076ef9ec4...

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have no notice of its existence. Bankr.Code, 11 U.S.C.A. § 362(a).


3 Estoppel NecessityEstoppel was affirmative defense which had to be specifically pleaded, butwith respect to which record did not show timely filed pleadings assertingdefense of estoppel by deed on behalf of borrower, and accordingly,borrower was precluded from asserting that doctrine of estoppel by deedprecluded lender from denying that foreclosure sale occurred on datetrustee's deeds stated foreclosure sale occurred, a date when propertytransferee had filed bankruptcy petition. Vernon's Ann.Texas RulesCiv.Proc., Rules 63, 94, 166a(c).


4 Appeal and Error Specification of ErrorsDefendant, whose late filed pleadings had not been considered, and whohad not raised by point of error issue that trial court abused its discretion byfailing to consider untimely amended answer, had failed to preserve error onclaim that doctrine of estoppel by deed precluded lender purchaser fromdenying foreclosure sale occurred on particular date.


5 Mortgages Deficiency and Personal LiabilityBusiness and Commerce Code chapter including requirement that securedparty dispose of collateral in commercially reasonable manner and casesconcerning disposition of collateral under that chapter did not apply tocreation or transfer of interest in or lien on real estate, so as to requirelender secured by deed of trust to real property to establish that foreclosuresale of real property occurred in commercially reasonable manner as partof lender's burden of proof in deficiency judgment action against borrowerbrought after lender had foreclosed on the real property. V.T.C.A., Bus. & C.§§ 9.101 et seq., 9.104(10), 9.504(c).



*344 Tom Thomas, Geoffrey G. Tudor, Kolodey & Thomas, Dallas, for appellant.

Vera R. Bangs, Edwin R. DeYoung, C. Kent Adams, Liddell, Sapp, Zivley, Hill &Laboon, Dallas, for appellee.

Before ENOCH, C.J., and McCLUNG and BAKER, JJ.

Opinion

ENOCH, Chief Justice.

This is a summary judgment case. Appellee, Texas Commerce Bank–Dallas, N.A.,sued Appellant, Albert D. Huddleston, on two real estate notes for a deficiencyjudgment after it had foreclosed on the real property. Huddleston counterclaimed forusury. The trial court granted summary judgment in favor of Texas Commerce both forthe deficiency and on Huddleston's usury counterclaim. Huddleston appeals.

In four points of error, Huddleston urges that: (1) the district court erred in ruling that aforeclosure sale conducted in violation of the automatic stay imposed under 11 U.S.C.§ 362 was void; (2) Texas Commerce is estopped to deny the validity of theforeclosure sale; (3) Texas Commerce's demand for payment constituted a charging


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of usurious interest as a matter of law; and (4) a fact issue exists as to whether TexasCommerce conducted a second foreclosure sale in a commercially reasonablemanner. For the reasons below, we affirm the trial court.

Texas Commerce loaned Huddleston $7,500,000.00 and $7,158,253.00. Each loanwas evidenced by a promissory note and secured by a deed of trust to real property.Huddleston failed to repay the notes when due, and Texas Commerce requested thesubstitute trustee to proceed with foreclosure sale of the properties. The substitutetrustee posted notices for the sale to occur on May 6, 1986.

Huddleston was the sole shareholder and president of Trebla Resources, Inc. On*345 May 5, 1986, Huddleston transferred the properties scheduled for foreclosure toTrebla. On May 6, prior to the foreclosure sale, Trebla filed a petition in bankruptcy.Unaware of these actions, the substitute trustee conducted the sale, and TexasCommerce purchased the properties. Thus, the May 6th foreclosure sale occurred inviolation of the stay which arises automatically upon the commencement of abankruptcy proceeding. 11 U.S.C. § 362(a).

On June 6, 1986, the bankruptcy court granted Texas Commerce's motion to dismissTrebla's bankruptcy proceeding on the grounds that Trebla's filing was in bad faith.The bankruptcy court did not, however, specifically annul the automatic stay in itsdismissal.

Following dismissal of Trebla's petition, Texas Commerce repeated foreclosureproceedings against the properties. On or about June 10, 1986, Texas Commercedemanded payment on the notes from Huddleston in an amount exceeding$14,500,000.00. This amount gave Huddleston no credit against the notes for theamounts tendered for the properties at the May 6th foreclosure sale. The substitutetrustee again posted the properties, and they were again sold to Texas Commerce ata second foreclosure sale held on July 1, 1986.

After crediting the amount received for the properties at the July 1st sale againstHuddleston's debt, Texas Commerce instituted this suit to recover the deficiency.Huddleston answered, asserting an affirmative defense of usury and a counterclaimfor usury. As mentioned, the trial court granted judgment for Texas Commerce on itsdeficiency claim and against Huddleston on his claim of usury.

In his first and third points of error, Huddleston argues that, although the May 6thforeclosure sale was held in violation of the automatic stay, the subsequent dismissalof Trebla's bankruptcy petition reinstated that sale. Therefore, according toHuddleston, the amount of his debt should have been credited with the amountsreceived at the May 6th foreclosure sale. Consequently, Texas Commerce's demandfor payment on June 10th, which failed to credit those amounts, constituted a chargingof interest in violation of Texas usury statutes. We disagree.

The filing of a petition in bankruptcy operates to stay actions and proceedingsagainst the debtor. 11 U.S.C. 362(a). The actions stayed include foreclosure salessuch as the May 6th sale in this case. 11 U.S.C. § 362(a)(4). The stay is effectiveupon the filing of the petition even though the parties have no notice of its existence.In re Scott, 24 B.R. 738 (Bankr.M.D.Ala.1982).

In general, acts taken in violation of the automatic stay are void and without legaleffect. Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940); In reScott, 24 B.R. 738 (Bankr.M.D.Ala.1982). This is the law in this jurisdiction.Continental Casing Corp. v. Samedan Oil Corp., 751 S.W.2d 499 (Tex.1988) (percuriam); but see In re Oliver, 38 B.R. 245 (Bankr.D.Minn.1984) (acts taken inviolation of the automatic stay are voidable rather than void). The bankruptcy courtmay take some action, such as annulling the stay, to retroactively validate actionstaken in violation of the stay. In re Albany Partners, 749 F.2d 670 (11th Cir.1984);Claude Regis Vargo Enterprises, Inc. v. Bacarisse, 578 S.W.2d 524 (Tex.Civ.App.—Houston [14th Dist.] 1979, writ ref'd n.r.e.). Absent such an action by the bankruptcy

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3

court, however, the mere termination of the stay does not validate actions taken inviolation of it. Goswami v. Metropolitan Savings and Loan Association, 751 S.W.2d487, 489 (Tex.1988); see In re Eden *346 Associates, 13 B.R. 578, 585(Bankr.S.D.N.Y.1981).

In this case, the May 6th foreclosure sale occurred during the pendency of theautomatic stay. When the bankruptcy court dismissed Trebla's case, it took no actionto annul or otherwise recognize the invalidity of the stay. Therefore, the May 6th salewas void and of no legal effect. Because the May 6th sale was void, it was ineffectiveto pass title to the property and title remained with Trebla.

Our conclusion is also supported by 11 U.S.C. 349(b)(3). That section provides that,unless the court orders otherwise, dismissal of a bankruptcy case revests property inthe entity in which the property was vested immediately before the commencement ofthe case. 11 U.S.C. 349(b)(3); see also In re Eden Associates, 13 B.R. at 585(dismissal of petition terminated automatic stay and restored rights of creditor to theirposition as of commencement of the case).

Huddleston urges that we adopt the reasoning of In re Linton, 35 B.R. 695(Bkrtcy.D.Idaho 1983), and hold that the subsequent dismissal of Trebla's casereinstated the May 6th sale. We decline the invitation. Linton involved the effect of asubsequent dismissal on a creditor's attempt, during the pendency of the stay, toperfect his security interest in personal property. Those are not the facts of this case.Irrespective of this distinction, our opinion that the foreclosure sale is void unless thebankruptcy court takes some action to annul the stay or to recognize that the stay wasinvalid ab initio is consistent with the reasoning adopted by Texas cases. Goswami v.Metropolitan Savings and Loan Association, 751 S.W.2d 487, 489 (Tex.1988)(where bankruptcy court took no action to annul stay or recognize its invalidity,subsequent termination of temporary stay did not automatically validate foreclosuresale conducted during pendency of stay); Southern County Mutual Insurance Co. v.Powell, 736 S.W.2d 745, 748 (Tex.App.—Houston [14th Dist.] 1987, orig. proceeding)(default judgment, if entered during pendency of stay, was void); CommunityInvestors IX, Ltd. v. Phillips Plastering Co., 593 S.W.2d 418 (Tex.Civ.App.—Houston[14th Dist.] 1980, no writ) (judgment of state court foreclosing lien during pendency ofautomatic stay is void); Claude Regis Vargo Enterprises, Inc. v. Bacarisse, 578S.W.2d 524, 528 (Tex.Civ.App.—Houston [14th Dist.] 1979, writ ref'd n.r.e.) (stating indictum that a foreclosure sale conducted in violation of the automatic stay remainsinvalid unless the bankruptcy court annuls the stay).

Because the May 6th foreclosure sale was void, Texas Commerce was not requiredto consider that sale in calculating the amount of Huddleston's debt in its June 10thdemand for payment. Huddleston's first and third points of error are overruled.

In his second point of error Huddleston asserts that because the trustee'sdeeds state that the foreclosure sale occurred on May 6th, the doctrine of estoppel bydeed precludes Texas Commerce from denying that the foreclosure sale occurred onthat date. In response, Texas Commerce notes that estoppel is an affirmativedefense that must be specifically pleaded under Texas Rule of Civil Procedure 94.Texas Commerce argues that the trial court did not err in granting summary judgmentbecause, at the time of the summary judgment hearing, Huddleston's pleadings did notassert this affirmative defense. We agree.

Under Texas Rule of Civil Procedure 63, amended pleadings offered within sevendays of the date of trial or thereafter may be filed only with leave of the court. Asummary judgment hearing is a trial for purposes of Rule 63. Goswami v.Metropolitan Savings and Loan Association, 751 S.W.2d 487 (Tex.1988). The trialcourt's refusal to allow amendments that are untimely under Rule 63 can beoverturned only if the complaining party clearly shows an abuse of discretion. Hardinv. Hardin, 597 S.W.2d 347 (Tex.1980).


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4

5

1

In this case, the only defensive pleading on record before this Court is Huddleston'ssecond amended original answer. This answer, which asserts the affirmative defense*347 of estoppel, was filed after the summary judgment hearing. The record reflectsthat Texas Commerce objected to this late filed pleading on the ground that it operatedas a surprise by adding the new legal theory of estoppel by deed. The trial court'sjudgment states that the trial court considered those pleadings on file at the time ofthe summary judgment hearing. It is clear from the record that the trial court refused toconsider Huddleston's untimely answer.

Texas Rule of Civil Procedure 166a(c) authorizes the trial court to grant summaryjudgment if “the pleadings ... [and summary judgment evidence] ... on file at the time ofthe hearing, or filed thereafter and before judgment with permission of the court,show that ... there is no genuine issue as to any material fact and the moving party isentitled to judgment as a matter of law on the issues expressly set out in the motion orin an answer or any other response.” TEX.R.CIV.P. 166a(c) (emphasis added).

From the record before us, there were no timely filed pleadings asserting thedefense of estoppel by deed on behalf of Huddleston. The trial court specifically didnot consider Huddleston's late filed pleadings. Huddleston has not raised by point oferror the issue that the trial court abused its discretion in failing to consider hisuntimely amended answer. Consequently, Huddleston has failed to preserve error onthis point. Energo International Corp. v. Modern Industrial Heating, Inc., 722 S.W.2d149 (Tex.App.—Dallas 1986, no writ). Huddleston's second point of error is overruled.

In his fourth point of error, Huddleston asserts that the district court erred ingranting summary judgment because a fact issue exists as to whether TexasCommerce's sale of the real property occurred in a commercially reasonable manner.Huddleston argues that Texas Commerce must establish the commercialreasonableness of its sale as part of its burden of proof. In support of this position,Huddleston cites two cases, each concerning disposition of collateral under Chapter9 of the Texas Business and Commerce Code. Section 9.504(c) of the TexasBusiness and Commerce Code requires that the secured party dispose of collateralin a commercially reasonable manner. Chapter 9, however, does not apply to the“creation or transfer of an interest in or lien on real estate....” TEX.BUS. &COM.CODE § 9.104(10) (Vernon Supp.1988). Huddleston's fourth point of error isoverruled.

The judgment of the trial court is AFFIRMED.

Footnotes

The record in this case is incomplete. Huddleston's Second AmendedOriginal Answer and Counterclaim is his only pleading before us.According to the record, this document was filed after the hearing on themotion for summary judgment. The record does not show which claims ofHuddleston's were before the trial court at the summary judgmenthearing. However, by their briefs, both parties apparently agree thatHuddleston had raised the usury issue in earlier pleadings and thejudgment affirmatively states that the court considered these earlierpleadings.





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Change View

1 Action Persons entitled to sueParties Capacity and interest in generalA plaintiff must have both standing and capacity to bring a lawsuit.


2 Action Persons entitled to sueThe standing doctrine requires that there be (1) a real controversy betweenthe parties, that (2) will be actually determined by the judicial declarationsought.


3 Action Persons entitled to sueAppeal and Error Capacity or right to sue or defendWithout standing, a court lacks subject matter jurisdiction to hear the case,and thus, the issue of standing may be raised for the first time on appeal.

171 S.W.3d 845


AUSTIN NURSING CENTER, INC. d/b/a Austin Nursing

Center; Century Care of America, Inc.; Paul Gray; Paul

Hanlon; and Guadalupe Zamora, M.D., Petitioners,

v.

Pauline Wilson LOVATO, Independent Administratrix of the

Estate of Margarita Torres Wilson, Respondent.

No. 03–0659. Argued Nov. 10, 2004. Decided May 13, 2005. Rehearing

Denied Oct. 14, 2005.

SynopsisBackground: Nursing center patient's heir brought survival action against nursingcenter and physician as personal representative of patient's estate. The 98thJudicial District Court, Travis County, Pete Lowry, J., dismissed complaint onsummary judgment for lack of subject matter jurisdiction, and heir appealed. The Courtof Appeals, 113 S.W.3d 45, reversed and remanded.

Holdings: On defendants' petition for review, The Supreme Court, Wallace B.Jefferson, C.J., held that:1 estate had standing to bring survival action, and2 patient's heir had capacity to bring survival action as personal representative ofpatient's estate.

Affirmed.

West Headnotes (11)

RELATED TOPICS

Federal Civil Procedure

PartiesWrongful Death Causes of Action

Actions for Causing Death

Persons Entitled to SueSurvival of Right of Action of PersonInjured

Wrongful Death

Austin Nursing Center, Inc. v. LovatoSupreme Court of Texas. May 13, 2005 171 S.W.3d 845 48 Tex. Sup. Ct. J. 624 (Approx. 14 pages)


Austin Nursing Center, Inc. v. Lovato - WestlawNext https://a.next.westlaw.com/Document/I2a20c410efc011d9b386b232635d...

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4 Executors and Administrators Capacity to sue and be sued ingeneralA decedent's estate is not a legal entity and may not properly sue or besued as such.


5 Executors and Administrators Capacity to sue and be sued ingeneralInfants Right or capacity to sue and be suedMental Health Capacity to Sue and Be SuedAlthough a minor, incompetent, or estate may have suffered an injury andthus have a justiciable interest in the controversy, these parties lack thelegal authority to sue; the law therefore grants another party the capacity tosue on their behalf.


6 Death Survival of right of action of person injuredThe parties to a survival action seek adjudication of the decedent's ownclaims for the alleged injuries inflicted upon her by the defendant; had thedecedent lived, she would have had standing to seek redress in the courtsfor those injuries, but due to her death, a representative must pursue theclaim on her behalf. V.T.C.A., Civil Practice & Remedies Code § 71.021(b).


7 Death Persons Entitled to SueBecause a decedent's survival claim becomes part of her estate at death,the estate retains a justiciable interest in the survival action, and thus, hasstanding to pursue the claim. V.T.C.A., Civil Practice & Remedies Code §71.021(b).


8 Death Persons Entitled to SueIn a survival action, the decedent's estate has a justiciable interest in thecontroversy sufficient to confer standing. V.T.C.A., Civil Practice &Remedies Code § 71.021(b).


9 Death Persons Entitled to SueWhen a decedent has been personally aggrieved by a defendant's conduct,the survival action advances a real controversy between the estate and thedefendant so as to confer standing that will be actually determined by thejudicial declaration sought. V.T.C.A., Civil Practice & Remedies Code §71.021(b).


10 Death Persons Entitled to SueNursing center patient's estate had standing to pursue survival actionagainst nursing center and physician, where complaint alleged that patientdeveloped pressure ulcers while resident at nursing center and ultimatelydied. V.T.C.A., Civil Practice & Remedies Code § 71.021(b).


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11 Death Personal RepresentativesDeath Heirs and next of kinDefect in capacity of patient's heir to bring survival action against nursingcenter and physician as personal representative of patient's estate,namely that heir had not been appointed personal representative of estateat time suit was filed, was cured when heir was appointed personalrepresentative, and thus, heir had capacity to bring survival action, eventhough appointment as personal representative of patient's estate occurredafter expiration of two-year limitations period, where defect was cured withinreasonable time and prior to dismissal of case. V.T.C.A., Civil Practice &Remedies Code § 74.001 et seq.



*846 Ruth G. Malinas, Christopher John Deeves, Cynthia Day Grimes, Ball & Weed,P.C., San Antonio, Laura Swarbrick, David M. Davis, V. Elizabeth Ledbetter and PeterR. Meeker, Davis & Wilkerson, P.C., Austin, for Petitioner.

Alfonso L. Melendez, Anna Nigel Marketto, Melendez & Marketto, P.C., El Paso, andRaul Steven Pastrana, Pastrana Law Firm, Austin, for Respondent.

Opinion

Chief Justice JEFFERSON delivered the opinion of the Court.

On behalf of her deceased mother, Pauline Wilson Lovato filed a survival actionagainst Guadalupe Zamora, M.D., Austin Nursing Center, Inc., and relatedentities and individuals (collectively “Austin Nursing Center”). In her originalpetition, filed within the statute of limitations, Lovato asserted that she was thepersonal representative of her mother's estate. In actuality, Lovato was notappointed independent administrator until after the statute of limitations on thesurvival action expired. Austin Nursing Center moved for summary judgment,arguing that Lovato lacked standing to bring the survival action at the time the casewas filed, and the trial court granted the motion. The court of appeals reversed,holding that Lovato's later-acquired status as the estate's personal representativegave her standing, which related back to the time of the lawsuit's original filing.

We hold that the standing doctrine's requirements were satisfied and that the trialcourt had jurisdiction to hear the case. We further hold that although Lovato mayhave lacked capacity to bring the survival action at the time the lawsuit was filed, anydefect in her capacity was later cured by her appointment as the estate'sadministrator. Accordingly, we affirm the court of appeals' judgment.

I

BackgroundNinety-two-year-old Margarita Torres Wilson allegedly developed pressure ulcers*847 while a resident at Austin Nursing Center from May to June 1998. She wasdischarged from the center in June and transferred to another care facility. Wilsondied on August 18, 1998.

On January 27, 2000, before limitations expired, Lovato filed this survival action onbehalf of her mother's estate pursuant to the survival statute, which provides that “[a]personal injury action survives to and in favor of the heirs, legal representatives, andestate of the injured person.” TEX. CIV. PRAC. & REM.CODE § 71.021(b). Lovatoalleged that she was the “Personal Representative” of Wilson's estate, but also that“no administrator [of the estate] ha[d] been appointed.” Lovato asserted that AustinNursing Center's medical negligence harmed Wilson, resulting in physical pain and


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impairment, mental anguish, medical expenses, and disfigurement.

Two months after she brought the survival action, Lovato filed an application forindependent administration of Wilson's estate in the probate court, asking that shebe appointed administrator of the estate and alleging that her mother died intestate,had no real property, and had personal property valued at less than $2,000. Theprobate court appointed Lovato administrator nearly two years later, on May 9, 2002,after the statute of limitations on the survival action had expired.

On April 22, 2002, Austin Nursing Center moved for summary judgment, arguingthat because Lovato did not prove she was an heir or the estate's personalrepresentative, she lacked standing to bring the survival claim, depriving the trial courtof subject matter jurisdiction. Austin Nursing Center argued alternatively that thesurvival claim was barred by limitations because a party with standing did not timelyassert it.

Lovato filed her fourth amended petition and her first supplemental petition on May20, 2002. In these petitions, Lovato alleged that she was the “IndependentAdministratrix” of her mother's estate. Lovato then responded to Austin NursingCenter's motion for summary judgment, arguing that her fourth amended petitionrelated back; that she fulfilled the purpose and intent of the statute of limitations bynotifying the defendants of the survival claim; and that she had standing to bring thesurvival claim because she was an heir at the time the original petition was filed, andno administration was pending or necessary.

On July 18, 2002, the trial court granted Austin Nursing Center's motion forsummary judgment and dismissed the survival action. The court of appeals reversedthe trial court's judgment, holding that (1) Lovato had “filed her original petition withinthe limitations period, with authority to bring the survival action as an heir”; and (2)“Lovato became the independent administrator of her mother's estate and filed anamended petition in that capacity.” 113 S.W.3d 45, 55. The court reasoned that“Lovato cured her defective standing as personal representative of the estate,”because her post-limitations petition “relate[d] back to the original filing of her case.”Id. (citing TEX. CIV. PRAC. & REM.CODE § 16.068). Thus, the court of appealsconcluded that the trial court had jurisdiction to hear the survival action. Id.

We granted Austin Nursing Center's petition for review. 47 Tex. Sup.Ct. J. 658(June 18, 2004).

III

DiscussionAustin Nursing Center argues that the court of appeals erred because, under ourdecision in Shepherd v. Ledford, Lovato had standing as an heir only if she couldplead and prove that there was no administration pending in probate court and *848none was necessary. See Shepherd v. Ledford, 962 S.W.2d 28, 31–32 (Tex.1998).According to Austin Nursing Center, Lovato failed to meet this burden. AustinNursing Center also contends that the court of appeals incorrectly permittedLovato's post-limitations appointment as administrator to cure her pre-limitations lackof standing, an incurable jurisdictional defect.

Lovato contends that the court of appeals' judgment should be affirmed because shehad standing as an heir when she originally filed the survival action within thelimitations period. Alternatively, Lovato contends that even if she lacked standing asan heir when she originally filed the survival action, her post-limitations amendedpetition, which she filed as independent administrator of Wilson's estate, relatedback to the original filing of the survival action, thereby correcting any deficiency instanding. We turn first to the issue of standing.

A


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1

2 3

4 5

6 7

Standing Versus CapacityThe parties dispute whether Lovato had standing to assert a survival claim on behalfof Wilson's estate. Although courts and parties have sometimes blurred thedistinction between standing and capacity, we believe that the issue presented hereis more appropriately characterized as one of capacity.

A plaintiff must have both standing and capacity to bring a lawsuit. CoastalLiquids Transp., 46 S.W.3d at 884. The issue of standing focuses on whether a partyhas a sufficient relationship with the lawsuit so as to have a “justiciable interest” in itsoutcome, whereas the issue of capacity “is conceived of as a procedural issuedealing with the personal qualifications of a party to litigate.” 6A CHARLES ALANWRIGHT, ARTHUR R. MILLER, AND MARY KAY KANE, WRIGHT, MILLER &KANE, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1559, at 441 (2ded.1990). We have previously distinguished between these two thresholdrequirements as follows:

A plaintiff has standing when it is personally aggrieved, regardless ofwhether it is acting with legal authority; a party has capacity when ithas the legal authority *849 to act, regardless of whether it has ajusticiable interest in the controversy.

Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 661 (Tex.1996);see also 6A WRIGHT, MILLER, & KANE, FEDERAL PRACTICE ANDPROCEDURE: CIVIL 2D § 1559, at 441 (“Capacity has been defined as a party'spersonal right to come into court, and should not be confused with the question ofwhether a party has an enforceable right or interest.”).

In Texas, the standing doctrine requires that there be (1) “a realcontroversy between the parties,” that (2) “will be actually determined by the judicialdeclaration sought.” Nootsie, 925 S.W.2d at 662 (quoting Tex. Ass'n of Bus. v. Tex.Air Control Bd., 852 S.W.2d 440, 443–44 (Tex.1993)). Implicit in these requirementsis that litigants are “properly situated to be entitled to [a] judicial determination.” 13CHARLES ALAN WRIGHT, ARTHUR R. MILLER, AND EDWARD H. COOPER,WRIGHT, MILLER & COOPER, FEDERAL PRACTICE AND PROCEDURE:JURISDICTION 2D § 3531, at 338–39 (2d ed.1984). Without standing, a court lackssubject matter jurisdiction to hear the case. Tex. Ass'n of Bus., 852 S.W.2d at 443.Thus, the issue of standing may be raised for the first time on appeal. Id. at 445.

In addition to standing, a plaintiff must have the capacity to pursue a claim.For example, minors and incompetents are considered to be under a legal disabilityand are therefore unable to sue or be sued in their individual capacities; such personsare required to appear in court through a legal guardian, a “next friend,” or a guardianad litem. See Sax v. Votteler, 648 S.W.2d 661, 666–67 (Tex.1983); Peek v. DeBerry,819 S.W.2d 217, 218 (Tex.App.-San Antonio 1991, writ denied); see also TEX.PROBATE CODE §§ 601(14), 773; TEX.R. CIV. P. 44, 173. Similarly, a decedent'sestate “is not a legal entity and may not properly sue or be sued as such.” Price v.Estate of Anderson, 522 S.W.2d 690, 691 (Tex.1975); see also Henson v. Crow,734 S.W.2d 648, 649 (Tex.1987). Although a minor, incompetent, or estate may havesuffered an injury and thus have a justiciable interest in the controversy, these partieslack the legal authority to sue; the law therefore grants another party the capacity tosue on their behalf. Unlike standing, however, which may be raised at any time, achallenge to a party's capacity must be raised by a verified pleading in the trial court.TEX.R. CIV. P. 93(1)-(2); Sixth RMA Partners v. Sibley, 111 S.W.3d 46, 56(Tex.2003).

B

Survival Claims—StandingAt common law, a person's claims for personal injuries did not survive her

death. Russell v. Ingersoll–Rand Co., 841 S.W.2d 343, 344 (Tex.1992); see also

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8 9 10

Landers v. B.F. Goodrich Co., 369 S.W.2d 33, 35 (Tex.1963). In 1895, theLegislature abrogated this rule by enacting the survival statute, which now provides: “Apersonal injury action survives to and in favor of the heirs, legal representatives, andestate of the injured person.” See Act of May 4, 1895, ch. 89, 1895 Tex. Gen. Laws143 (now codified at TEX. CIV. PRAC. & REM.CODE § 71.021(b)); Russell, 841S.W.2d at 344. We have described a survival claim as one that belongs to thedecedent:

[Under the Texas Survival Statute], a decedent's action survives hisdeath and may be prosecuted in his behalf. The survival action, as it issometimes called, is wholly derivative of the decedent's rights. Theactionable wrong is that which the decedent suffered before his death.The damages recoverable are *850 those which he himself sustainedwhile he was alive and not any damages claimed independently bythe survival action plaintiffs (except that funeral expenses may also berecovered if they were not awarded in a wrongful death action). Anyrecovery obtained flows to those who would have received it had heobtained it immediately prior to his death—that is, his heirs, legalrepresentatives and estate.

Russell, 841 S.W.2d at 345 (citations omitted); see also TEX. CIV. PRAC. &REM.CODE § 71.021(b). The parties to a survival action seek adjudication of thedecedent's own claims for the alleged injuries inflicted upon her by the defendant. Hadthe decedent lived, she would have had standing to seek redress in the courts forthose injuries; due to her death, a representative must pursue the claim on her behalf.Here, that representative, Wilson's daughter, was ultimately granted the power to sueon the estate's behalf. A change in the status of the party authorized to assert thedecedent's personal injury claim, however, does not change the fact that the decedenthas been personally aggrieved and would not, therefore, eliminate the decedent'sjusticiable interest in the controversy. Because a decedent's survival claim becomespart of her estate at death, it follows that the estate retains a justiciable interest inthe survival action.

We therefore hold that, in a survival action, the decedent's estatehas a justiciable interest in the controversy sufficient to confer standing. SeeLanders, 369 S.W.2d at 35 (noting that a survival action seeks recovery for“damages sustained by the decedent and his estate as a result of the [wrongful]injuries.”) (emphasis added); see also Glickstein v. Sun Bank Miami, N.A., 922 F.2d666, 670 (11th Cir.1991) (holding that the decedent's estate had standing because“[t]he traditional requirement that the plaintiff show an injury in fact that is fairlytraceable to the conduct of the defendant is met by the allegation in the complaint thatthe defendants' actions resulted in the diminishment of the assets of the estate”)(footnote omitted). When a decedent has been personally aggrieved by a defendant'sconduct, the survival action advances a “real controversy” between the estate andthe defendant that “will be actually determined by the judicial declaration sought.” SeeNootsie, 925 S.W.2d at 662. Therefore, because the pleadings in this case allegedthat the defendants' negligent conduct injured Wilson, her estate had standing topursue a claim.

We next consider whether Lovato had the capacity to bring the survival claim on theestate's behalf.

C

Survival Claims—CapacityCertain individuals are afforded the capacity to bring a claim on an estate's behalf. Ingeneral, only the estate's personal representative has the capacity to bring a survivalclaim. Frazier v. Wynn, 472 S.W.2d 750, 752 (Tex.1971) (“[T]he personalrepresentative ... is ordinarily the only person entitled to sue for the recovery ofproperty belonging to the estate.”); see also Shepherd v. Ledford, 962 S.W.2d 28, 31

2


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11

(Tex.1998). We have acknowledged, however, that under certain circumstances heirsmay be entitled to sue on behalf of the decedent's estate. Shepherd, 962 S.W.2d at31–32. For example, in Shepherd, we held that “[h]eirs at law can maintain a survivalsuit during the four- *851 year period the law allows for instituting administrationproceedings if they allege and prove that there is no administration pending and none[is] necessary.” Id. We also acknowledged that a family agreement regarding thedisposition of the estate's assets can provide support for the assertion that noadministration of the decedent's estate is necessary. Id. at 32–34.

The parties dispute whether, under this Court's holding in Shepherd, Lovato wasqualified to bring suit as an heir at the time she filed the survival action. See Stewart v.Hardie, 978 S.W.2d 203, 206–07 (Tex.App.-Fort Worth 1998, pet. denied); FordMotor Co. v. Cammack, 999 S.W.2d 1, 4 (Tex.App.-Houston [14th Dist.] 1998, pet.denied). We need not decide whether Lovato proved heirship, however, because wehold that, in any event, Lovato acquired the capacity to sue as the estate's personalrepresentative when she was appointed administrator on May 9, 2002. We must,therefore, consider whether Lovato's claims are barred because she did not cure thedefect in her representative capacity until after limitations had expired.

D

Defects in CapacityThe survival action in this case is a health care liability claim governed by the

two-year statute of limitations in the Medical Liability and Insurance Improvement Act(the “MLIIA”). See Act of May 30, 1977, 65th Leg., R.S., ch. 817, §§ 1.01–12.01,1977 Tex. Gen. Laws 2039–2053 (former *852 TEX.REV.CIV. STAT. art. 4590i),repealed by Act of June 2, 2003, 78th Leg., ch. 204, § 10.09, 2003 Tex. Gen. Laws847, 884. The parties agree that limitations expired on November 1, 2000 and thatLovato filed her original petition before that date. Her fourth amended and firstsupplemental petitions, however, were filed after limitations ran. The parties disputewhether these amended petitions should relate back to Lovato's original petition.

Generally, cases involving post-limitations representative capacity involve anamended pleading alleging that capacity for the first time. See, e.g., Davis v. Preston,118 Tex. 303, 16 S.W.2d 117, 118 (1929); Pope v. Kansas City, M. & O. Ry. Co. ofTex., 109 Tex. 311, 207 S.W. 514, 516 (1918); see also Flores v. Cameron Co., Tex.,92 F.3d 258, 271–72 (5th Cir.1996). In such cases, the issue is usually whether theplaintiff's post-limitations amendment, altering the plaintiff's capacity, can relate backto the plaintiff's pre-limitations pleadings. This case is somewhat unusual, however,because Lovato has alleged representative status on behalf of the estate in everypetition filed with the trial court. Her original petition asserted that she was the“Personal Representative of the Estate of Margarita Torres Wilson.” Thisallegation, though apparently untrue, asserted that Lovato was bringing suit in hercapacity as the estate's representative. Thus, the issue here is not whether heramended pleadings relate back to her original petition—as every petition alleges herrepresentative status—but whether her post-limitations capacity cures herpre-limitations lack thereof. We conclude that it does.

We have previously recognized that the substitution of a personal representative fordependents does not introduce a new or different cause of action and that such asubstitution will relate back to the time of the original filing of the lawsuit. Pope, 207S.W. at 516. Similarly, when a widow filed suit in her individual capacity and lateramended her pleadings to assert her capacity as administratrix, we held “[t]hat thisdefect did not prevent her suit from being ‘properly commenced,’ ” prior to expirationof the statute of limitations. Davis, 16 S.W.2d at 118. We noted that:

The defect in her petition was that she sued as an individual, instead of asadministratrix. She was the real party at interest, no matter by whom the suit wasprosecuted.

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....

This action was commenced before it was barred under the terms of any statute oflimitations by the filing of the original petition and the service of citation on theDirector General.

Id.; see also Mo., Kans. & Tex. Ry. Co. v. Wulf, 226 U.S. 570, 575–78, 33 S.Ct. 135,57 L.Ed. 355 (1913) (holding that an amendment by a plaintiff to allege a claim in herrepresentative capacity as administrator *853 of estate under federal law, relatedback to claims brought in her individual capacity under state law; such an amendmentwas not equivalent to the commencement of a new cause of action so as to subjectthe amendment to the statute of limitations); Flores, 92 F.3d at 272–73 (5th Cir.1996)(applying federal relation-back rule to Texas survival claim to conclude that mother'samended complaint alleging that she was the administrator of her son's estate relatedback to her original complaint filed on behalf of her son but failing to allege herrepresentative capacity). Although we decided Davis and Pope before therelation-back statute was enacted, we do not believe the statute compels a differentresult. Moreover, when faced with a change in a defendant's capacity—an amendedpetition filed against an estate's representative, when the original petition named onlythe estate itself—we held that limitations did not bar the claim, because “the purposeand the nature of the claim asserted were clear from the outset.” Price v. Estate ofAnderson, 522 S.W.2d 690, 692 (Tex.1975); see also Rooke v. Jenson, 838 S.W.2d229, 230 (Tex.1992).

If, as we have held, a plaintiff's amended pleading alleging representative capacitysatisfies the relation-back requirements, an original petition that alleges the correctcapacity should suffice for limitations purposes, provided that capacity, if challenged,is established within a reasonable time. The trial court, by granting summaryjudgment, necessarily concluded that, despite her pleading to the contrary, Lovatowas not the estate's personal representative at the time she filed the original petition.While we presume that Lovato and her attorney filed that petition in good faith, wecannot ascertain from this record the basis for their pleading that Lovato was, in fact,“Personal Representative” of Wilson's estate when “no administrator has beenappointed.” The parties, or the trial court, are in a better position to determine whetherthe pleading was filed after reasonable inquiry. See TEX.R. CIV. P. 13; see also TEX.CIV. PRAC. & REM.CODE ch. 10.

In any event, it would be pointless to require that the plaintiff file an “amended”pleading containing the same allegations of capacity as were stated in her originalpetition. The estate commenced the suit before limitations expired; Lovato cured thedefect in her capacity before the case was dismissed. Under those circumstances,the estate had standing and was ultimately represented by a person with capacity topursue the claim on its behalf.

Having determined that Lovato remedied her defective capacity and that her originalpetition was timely, we need not reach Austin Nursing Center's remainingargument—that the MLIIA's mandatory two-year limitation period “notwithstanding anyother law” precludes Lovato's post-limitations amendment from relating back to heroriginal petition. Because Lovato's original petition asserting her representativecapacity was filed before the statute of limitations expired, the survival claim is nottime-barred.

*854 IV

ConclusionWe affirm the court of appeals' judgment. See TEX.R.APP. P. 60.2(a).

Justice JOHNSON did not participate in the decision.

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Parallel Citations

48 Tex. Sup. Ct. J. 624

Footnotes

See, e.g., Coastal Liquids Transp., L.P. v. Harris County Appraisal Dist.,46 S.W.3d 880, 884 (Tex.2001) (“Although the parties have argued theissue before us and below as one of standing, the real issue is Coastal'scapacity to sue.”); Light v. Wilson, 663 S.W.2d 813, 814 (Tex.1983)(“The capacity addressed in Rule 93(c), Tex.R. Civ. P., is Light'sstanding to assert or defend the action before the Court.”) (emphasisadded); Freedman v. Briarcroft Prop. Owners, Inc., 776 S.W.2d 212,215 (Tex.App.-Houston [14th Dist.] 1989, writ denied) (“Appellants'challenge that appellee lacks standing is, in actuality, a challenge toappellee's capacity to sue.”); see also 5 WILLIAM V. DORSANEO III,TEXAS LITIGATION GUIDE § 70.06[2] (2005) (“Texas courts have hadconsiderable difficulty in defining the relationship of the twin doctrines ofcapacity and standing.”); 6A CHARLES ALAN WRIGHT, ARTHUR R.MILLER, AND MARY KAY KANE, WRIGHT, MILLER, & KANE,FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1542, at 330(2d ed. 1990)(“[C]ourts and attorneys frequently have confused therequirements for standing with those used in connection with ... capacityprinciples.”); Firestone v. Galbreath, 976 F.2d 279, 283 n. 1 (6thCir.1992); Glickstein v. Sun Bank Miami, N.A., 922 F.2d 666, 670 (11thCir.1991) (“[T]he doctrine of capacity is often incorrectly consideredunder the rubric of a standing claim.”); Scanwell Labs. Inc. v. Shaffer,424 F.2d 859, 861 (D.C.Cir.1970) (noting that “[s]tanding has been calledone of the most amorphous concepts in the entire domain of the publiclaw” and describing “the mental gymnastics through which the courtshave passed in determining standing issues”); Cmty. Bd. 7 of Borough ofManhattan v. Schaffer, 84 N.Y.2d 148, 615 N.Y.S.2d 644, 639 N.E.2d 1,3 (1994) (“[T]he concept of capacity is often confused with the conceptof standing, but the two legal doctrines are not interchangeable ....”).

The Texas Probate Code defines “estate” as “the real and personalproperty of a decedent.” TEX. PROBATE CODE § 3(l ). Personalproperty “includes interests in goods, money, choses in action, evidenceof debts, and chattels real.” Id. § 3(z).

We recognize that, in Shepherd, we stated that “circumstances can existwhen an heir may have standing to bring suit on behalf of the decedent'sestate.” 962 S.W.2d at 31 (emphasis added). Although we used the term“standing,” we were actually describing a situation in which a decedent'sheirs had the capacity, or legal right, to bring a survival action on behalf ofthe decedent's estate. Id. at 31–32; see also Firestone v. Galbreath,976 F.2d 279, 283 (6th Cir.1992) (“According to the complaint, theEstate could trace a direct injury to the alleged acts of the defendants.The question is whether these plaintiffs can sue on behalf of the Estate.This would seem to be a question of capacity rather than standing ....”).We acknowledge that many of our courts of appeals (including the courtof appeals in this case) have held that the question of who is entitled tosue on an estate's behalf under the survival statute is an issue ofstanding, and in so holding, many have relied on Shepherd. See 113S.W.3d 45(“Whether a person has a right to bring a survival action onbehalf of an estate is a question of standing.”); Lorentz v. Dunn, 112S.W.3d 176, 178 (Tex.App.-Fort Worth 2003, pet. granted) (“Appellantargues that the issue should have been characterized as one of capacityinstead of standing.... We hold that the issue in this appeal is one of


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standing and not capacity.”); Stewart v. Hardie, 978 S.W.2d 203, 207(Tex.App.-Fort Worth 1998, pet. denied) (treating the issue as one ofstanding rather than capacity); Ford Motor Co. v. Cammack, 999S.W.2d 1, 5 (Tex.App.-Houston [14th Dist.] 1998, pet. denied) (“onlyheirs or personal representatives have a justiciable interest in recoveringestate property”); see also Pratho v. Zapata, 157 S.W.3d 832, 839–42(Tex.App.-Fort Worth 2005, no pet. h.); Moore v. Johnson, 143 S.W.3d339, 341–44 (Tex.App.-Dallas 2004, no pet.); County of Dallas v.Sempe, 151 S.W.3d 291, 295–98 (Tex.App.-Dallas 2004, pet. filed);Mayhew v. Dealey, 143 S.W.3d 356, 370–71 (Tex.App.-Dallas 2004,pet. denied); Coffey v. Johnson, 142 S.W.3d 414, 418(Tex.App.-Eastland 2004, pet. denied); Stempson v. City of Houston, No.01–02–00280–CV, 2003 WL 139603, at *2–3 (Tex.App.-Houston [1stDist.] Jan. 9, 2003, no pet.) (mem.op.); Jasso v. Long, No.04–01–00069–CV, 2001 WL 1503240, at *1–2 (Tex.App.-San AntonioNov.28, 2001, no pet.) (not designated for publication); Littleton v.Prange, 9 S.W.3d 223 (Tex.App.-San Antonio 1999, pet. denied);Pittsburgh Corning Corp. v. Walters, 1 S.W.3d 759, 766–68(Tex.App.-Corpus Christi 1999, pet. denied); Villegas v. Griffin Indus.,975 S.W.2d 745, 749–50 (Tex.App.-Corpus Christi 1998, pet. denied);Garcia v. Caremark, Inc., 921 S.W.2d 417, 421 (Tex.App.-CorpusChristi 1996, no writ). However, for the reasons outlined above, the issueis more appropriately characterized as one of capacity.

While this case was pending, the Legislature enacted House Bill 4(“H.B.4”) which repealed article 4590i and governs all health care liabilityclaims filed on or after September 1, 2003. Act of June 2, 2003, 78thLeg., ch. 204, § 10.01, 2003 Tex. Gen. Laws 847, 884 (now codified atTEX. CIV. PRAC. & REM.CODE §§ 74.001–.507). Because formerarticle 4590i continues to govern this case we will cite to the article.

Because pre-suit notice was given to Austin Nursing Center, theMLIIA's ordinary two-year statute of limitations was tolled for anadditional seventy-five days, making November 1, 2000 the last possibledate suit could be filed. See TEX.REV.CIV. STAT. art, 4590i, § 4.01(c).

See Act approved May 13, 1931, 42nd Leg., R.S., ch. 115, § 1, 1942Tex. Gen. Laws 194 (now codified at TEX. CIV. PRAC. & REM.CODE §16.068).

The burden is on the defendant to challenge capacity via verified plea,and the trial court should abate the case and give the plaintiff areasonable time to cure any defect. See TEX.R. CIV. P. 93(1)-(2);Coakley v. Reising, 436 S.W.2d 315, 317 (Tex.1968); Shiffers v. Estateof Ward, 762 S.W.2d 753, 755 (Tex.App.-Fort Worth 1988, writ denied).





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Change View

1 ActionParty's standing to sue isimplicit in concept of subjectmatter jurisdiction, and thusissue of standing can neverbe presumed and cannot bewaived.

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852 S.W.2d 440


TEXAS ASSOCIATION OF BUSINESS, Appellant,

v.

TEXAS AIR CONTROL BOARD and Texas Water Commission,

Appellees.

No. C–9556. March 3, 1993. Rehearing Overruled May 5, 1993.

Business association sought declaratory judgment that statutes authorizingadministrative agencies to assess fines for violation of environmental laws areunconstitutional. The 250th District Court, Travis County, upheld statutes, and directappeal was taken. The Supreme Court, Cornyn, J., held that: (1) statutes authorizingAir Control Board and Water Commission to assess fines prior to judicial reviewviolate open courts guarantee of Texas Constitution, but (2) statutes do not violateconstitutional right to jury trial.

Affirmed in part and reversed in part.

Doggett, Gammage, and Spector, JJ., concurred, dissented, and filed opinions.

West Headnotes (17)

RELATED TOPICS

Environmental Law

Water Pollution Control Board of WatersJudicial Review or Intervention

Standing of Organization Members


Valid Advisory Opinions

Texas Ass'n of Business v. Texas Air Control Bd.Supreme Court of Texas. March 3, 1993 852 S.W.2d 440 (Approx. 54 pages)


Texas Ass'n of Business v. Texas Air Control Bd. - WestlawNext https://a.next.westlaw.com/Document/I445dba25e7cf11d9bf60c1d57ebc8...

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3 Declaratory JudgmentDeclaratory Judgments Actis merely procedural devicefor deciding cases alreadywithin court's jurisdiction,rather than legislativeenlargement of court's powerpermitting rendition ofadvisory opinions. V.T.C.A.,Civil Practice & RemediesCode §§ 37.001–37.011.


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13 AssociationsAssociation has standing tosue on behalf of its memberswhere its members wouldotherwise have standing tosue in their own right,interests it seeks to protectare germane toorganization's purpose, andneither claim asserted norrelief requested requiresparticipation of individualmembers in lawsuit.


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14 Environmental LawBusinessmen's associationhad standing to challengeconstitutionality ofenvironmental agencies'statutory authority to assessfines; association membershad been assessedpenalties under challengedenactments, interestsassociation sought to protectwere germane to itspurpose, and neither claimasserted nor relief requestedrequired participation ofindividual members.


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Control Board and WaterCommission to assess finesprior to judicial review, and torequire supersedeas bond inamount of fines assessed asprerequisite to judicialreview, violated open courtsguarantee of TexasConstitution; prepaymentrequirement wasunreasonable financialbarrier to access to court.Vernon's Ann.Texas Const.Art. 1, § 13; V.T.C.A., Health& Safety Code §§ 361.252,382.089; V.T.C.A., WaterCode §§ 26.136, 27.1015.


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16 Environmental LawJuryStatutes authorizing AirControl Board and WaterCommission to assess finesprior to judicial review did notviolate state constitutionalright to jury trial;administrative proceedingsto enforce stateenvironmental laws were notanalogous to any action triedto jury in 1876, when StateConstitution was adopted.Vernon's Ann.Texas Const.Art. 1, § 15; V.T.C.A., Health& Safety Code §§ 361.252,382.089; V.T.C.A., WaterCode §§ 26.136, 27.1015.


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statutes, to administrativeagencies. Vernon'sAnn.Texas Const. Art. 16, §59(a).



*441 R. Kinnan Golemon, James W. Checkley, Jr., Albert R. Axe, Jr., Scott R. Kiddand Douglas W. Alexander, Austin, for appellant.

Douglas G. Caroom, Mary E. Kelly, Dan Morales, Nancy N. Lynch, William D. Dugat,III and Amy R. Johnson, Austin, for appellees.

Opinion

OPINION

CORNYN, Justice.

The Texas Association of Business (TAB), on behalf of its members, brought thisdeclaratory judgment action seeking a ruling that statutes empowering two stateadministrative agencies to levy civil penalties for violations of their regulations conflictwith the open courts and jury trial provisions of the Texas Constitution. Theadministrative agencies denied TAB's claims, and along with two Intervenors, filedcounterclaims seeking a declaration *442 that the same statutes and regulationscomport with those constitutional provisions.

Following a bench trial, the trial court denied the relief sought by TAB, and asrequested by the State and Intervenors, declared that section 4.041 of the TexasClean Air Act, sections 26.136 and 27.1015 of the Texas Water Code, and section8b of the Texas Solid Waste Disposal Act, as well as the rules and regulationspromulgated under those statutes, are constitutional with regard to the open courtsand jury trial provisions. We affirm the trial court's judgment as it relates to TAB's jurytrial challenge and reverse its judgment as to TAB's open courts challenge.

An overview of the regulatory scheme enacted by the legislature and these agenciesis essential to an understanding of this case. In 1967, the Texas Legislature enactedthe Clean Air Act of Texas. Clean Air Act of Texas, 60th Leg., R.S., ch. 727, 1967Tex.Gen.Laws 1941. The Clean Air Act was designed to safeguard the state's airresources without compromising the economic development of the state. Id. at § 1.The Act created the Texas Air Control Board and granted it the authority topromulgate regulations to accomplish the Act's goals. Id. at § 4(A)(2)(a). In the eventthe Air Control Board determined that a violation of its regulations had occurred, itwas authorized to enforce those regulations in district court. Upon a judicialdetermination that a violation of the Air Control Board's regulations had occurred,two cumulative remedies were available, injunctive relief to prohibit further violationsand assessment of a fine ranging from $50 to $1,000 for each day the violationspersisted. Id. at § 12(B).

In 1969, the Texas Legislature enacted the Solid Waste Disposal Act. Solid WasteDisposal Act, 61st Leg., R.S., ch. 405, 1969 Tex.Gen.Laws 1320. The expresspurpose for this legislation was to protect public health and welfare by regulating the“collection, handling, storage, and disposal of solid waste.” Id. at § 1. The TexasWater Quality Board was designated the primary agency to effectuate the DisposalAct's purpose. Id. at § 4(f). Like the Air Control Board, the Water Quality Board wasauthorized to enforce its rules and regulations in state district court. The Solid WasteDisposal Act provided the same remedies as the Clean Air Act. See id. at § 8(c).

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In the last of the relevant statutory enactments, in 1969, the Texas Legislaturepromulgated a revised version of the Water Quality Act. Water Quality Act—Revision,61st Leg., R.S., ch. 760, 1969 Tex.Gen.Laws 2229. By that Act, the Water QualityBoard was given the power to develop a statewide water quality plan, to performresearch and investigations, and to adopt rules and issue orders necessary toeffectuate the Act's purposes. Id. at § 3.01–3.10. The Water Quality Act provided thesame remedies as the Solid Waste Management Act and the Clean Air Act. See id.at § 4.02.

Originally, neither the Water Quality Board nor the Air Control Board had the powerto levy civil penalties directly in the event it determined that its regulations or ordershad been violated. Instead, each board was required first to file suit against theviolator in district court. Only the district court had the power to assess civil penalties.

The legislature substantially changed this enforcement scheme in 1985. That year theAir Control Board and the Water Commission (formerly the Water Control Board)were granted the power to assess civil penalties directly of up to $10,000 per day perviolation. Both administrative bodies also retained the option to pursue civil penaltiesin district court. *443 TEX.HEALTH & SAFETY CODE §§ 361.224, 382.081;TEX.WATER CODE § 26.123. This was the regulatory scheme in effect when thedistrict court rendered judgment in this case.

After the Air Control Board or Water Commission assesses a penalty, the offendermust either timely pay the penalty or file suit in district court. However, a supersedeasbond or cash deposit paid into an escrow account, in the full amount of the penalty, isa prerequisite to judicial review. TEX.HEALTH & SAFETY CODE §§ 382.089(a), (b),361.252(k), (l ); TEX.WATER CODE § 26.136(j). A party who fails to make a cashdeposit or file a bond forfeits all rights to judicial review. TEX.HEALTH & SAFETYCODE §§ 361.252(m), 382.089(c); TEX.WATER CODE § 26.136(k).

TAB alleges that it is a Texas not-for-profit corporation, that its members do businessthroughout Texas, and that it is authorized to represent its members on any matterthat may have an impact on their businesses.

TAB filed this suit under the Uniform Declaratory Judgments Act, TEX.CIV.PRAC. &REM.CODE §§ 37.001–37.011, alleging that some of its members had beensubjected to civil penalties assessed by either the Air Control Board or the WaterCommission. TAB further alleged that all of its other members that operate theirbusinesses pursuant to the pertinent provisions of the Texas Clean Air Act, theTexas Water Code, or the Texas Solid Waste Disposal Act or any rules or ordersissued pursuant to those provisions were put at “substantial risk (if not certainty)” ofbeing assessed civil penalties by the Air Control Board or the Water Commission.Thus this suit does not challenge specific instances of the Air Control Board's or theWater Commission's exercise, or threatened exercise, of the civil penalty power.Instead, TAB's suit is a facial challenge to the constitutionality of this administrativeenforcement scheme under the Texas Constitution.

The Defendants and Intervenors counterclaimed seeking a declaratory judgment thatthe statutes, rules, and regulations challenged by TAB do not, on their face, conflictwith the open courts and jury trial provisions of our constitution. The trial court grantedthe Defendants' and Intervenors' requested declaratory judgment and denied TAB'srequest for a declaratory judgment. The court also denied TAB's request for injunctiverelief.

TAB appealed directly to this court. See TEX.GOV'T CODE § 22.001(c);TEX.R.APP.P. 140. In this court, TAB has limited its challenges to claims ofunconstitutional denial of a jury trial and violation of our constitution's open courtsprovision.

I. Standing

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Before we reach the merits of this case, we first consider the matter of the trial court'sjurisdiction, as well as our own; specifically we determine whether TAB has standing tochallenge the statutes and regulations in question. Because TAB's standing to bringthis action is not readily apparent, and because our jurisdiction as well as that of thetrial court depends on this issue, we requested supplemental briefing on standing atthe oral argument of this case. In response, the parties insist that any question ofstanding has been waived in the trial court and cannot be raised by the court for thefirst time on appeal. We disagree.

Subject matter jurisdiction is essential to the authority of a court to decide acase. Standing is implicit in the concept of subject matter jurisdiction. The standingrequirement stems from two limitations on subject matter jurisdiction: the separation ofpowers doctrine and, in Texas, the open courts provision. Subject matter jurisdiction*444 is never presumed and cannot be waived.

One limit on courts' jurisdiction under both the state and federalconstitutions is the separation of powers doctrine. See TEX.CONST. art. II, § 1;Valley Forge Christian College v. Americans United for Separation of Church andState, 454 U.S. 464, 471–74, 102 S.Ct. 752, 757–60, 70 L.Ed.2d 700 (1982); Warthv. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2204, 45 L.Ed.2d 343 (1975); see also,Antonin Scalia, The Doctrine of Standing as an Essential Element of the Separationof Powers, 18 SUFFOLK U.L.Rev. 881, 889 n. 69 (1983) (noting that the dicta ofFlast v. Cohen, 392 U.S. 83, 100, 88 S.Ct. 1942, 1952, 20 L.Ed.2d 947 (1968),suggesting that standing is unrelated to the separation of powers doctrine has sincebeen disavowed). Under this doctrine, governmental authority vested in onedepartment of government cannot be exercised by another department unlessexpressly permitted by the constitution. Thus we have construed our separation ofpowers article to prohibit courts from issuing advisory opinions because such is thefunction of the executive rather than the judicial department. Firemen's Ins. Co. v.Burch, 442 S.W.2d 331, 333 (Tex.1969); Morrow v. Corbin, 122 Tex. 553, 62S.W.2d 641, 644 (Tex.1933). Accordingly, we have interpreted the UniformDeclaratory Judgments Act, TEX.CIV.PRAC. & REM.CODE §§ 37.001–.011, to bemerely a procedural device for deciding cases already within a court's jurisdictionrather than a legislative enlargement of a court's power, permitting the rendition ofadvisory opinions. Firemen's Ins. Co., 442 S.W.2d at 333; United Serv. Life Ins. Co.v. Delaney, 396 S.W.2d 855, 863 (Tex.1965); California Prods., Inc. v. PuretexLemon Juice, Inc., 160 Tex. 586, 334 S.W.2d 780 (1960).

The distinctive feature of an advisory opinion is that it decides an abstractquestion of law without binding the parties. Alabama State Fed'n of Labor v. McAdory,325 U.S. 450, 461, 65 S.Ct. 1384, 1389, 89 L.Ed. 1725 (1945); Firemen's Ins. Co.,442 S.W.2d at 333; Puretex Lemon Juice, Inc., 160 Tex. at 591, 334 S.W.2d at 783.An opinion issued in a case brought by a party without standing is advisory becauserather than remedying an actual or imminent harm, the judgment addresses only ahypothetical injury. See Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 3324, 82L.Ed.2d 556 (1984). Texas courts, like federal courts, have no jurisdiction to rendersuch opinions.

The separation of powers doctrine is not the only constitutional basis forstanding. Under federal law, standing is also an aspect of the Article III limitation of thejudicial power to “cases” and “controversies.” Sierra Club v. Morton, 405 U.S. 727,731, 92 S.Ct. 1361, 1364, 31 L.Ed.2d 636 (1972). To comport with Article III, a federalcourt may hear a case only when the litigant has been threatened with or hassustained an injury. Valley Forge Christian College, 454 U.S. at 471, 102 S.Ct. at758. Under the Texas Constitution, standing is implicit in the open courts provision,which contemplates access to the courts only for those litigants suffering an injury.Specifically, the open courts provision provides:

All courts shall be open, and every person for an injury done him, in

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his lands, goods, person or reputation, shall have remedy by duecourse of law.

TEX. CONST. art. I, § 13 (emphasis added). Because standing is a constitutionalprerequisite to maintaining a suit under both federal and Texas law, we look to themore extensive jurisprudential experience of the federal courts on this subject for anyguidance it may yield.

Under federal law, a lack of standing deprives a court of subject matter jurisdictionbecause standing is an element of such *445 jurisdiction. Carr v. Alta Verde Indus.,931 F.2d 1055, 1061 (5th Cir.1991); Simmons v. Interstate Commerce Comm'n, 900F.2d 1023, 1026 (7th Cir.1990); M.A.I.N. v. Commissioner, Maine Dept. of HumanServ., 876 F.2d 1051, 1053 (1st Cir.1989); Haase v. Sessions, 835 F.2d 902, 908(D.C.Cir.1987); Page v. Schweiker, 786 F.2d 150, 153 (3d Cir.1986); see also Lujanv. Defenders of Wildlife, 504 U.S. 555, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992);Heckler v. Mathews, 465 U.S. 728, 737, 104 S.Ct. 1387, 1394, 79 L.Ed.2d 646(1984); Warth, 422 U.S. at 511, 95 S.Ct. at 2211. Other states have followed thisanalysis in construing their own constitutions. See e.g., Prudential–Bache Sec., Inc.v. Commissioner of Revenue, 412 Mass. 243, 588 N.E.2d 639, 642 (1992); Bennettv. Board of Trustees for Univ. of N. Colorado, 782 P.2d 1214, 1216 (Colo.App.1989),cert. denied, 797 P.2d 748 (Colo.1990); Pace Constr. Co. v. Missouri Highway andTransp. Comm'n, 759 S.W.2d 272, 274 (Mo.App.1988); Terracor v. Utah Bd. ofState Lands & Forestry, 716 P.2d 796, 798–99 (Utah 1986); State by McClure v.Sports and Health Club, Inc., 370 N.W.2d 844, 850 (Minn.1985), appeal dism'd, 478U.S. 1015, 106 S.Ct. 3315, 92 L.Ed.2d 730 (1986); Smith v. Allstate Ins. Co., 483A.2d 344, 346 (Me.1984); Ardmare Constr. Co. v. Freedman, 191 Conn. 497, 467A.2d 674, 675 n. 4, 676–77 (1983); Horn v. County of Ventura, 24 Cal.3d 605, 156Cal.Rptr. 718, 726, 596 P.2d 1134, 1142 (1979); Stewart v. Board of CountyComm'rs of Big Horn County, 175 Mont. 197, 573 P.2d 184, 186, 188 (1977); Stateex rel. Albritton v. Moore, 238 La. 728, 116 So.2d 502, 504 (1959).

Subject matter jurisdiction is an issue that may be raised for the first time onappeal; it may not be waived by the parties. Texas Employment Comm'n v.International Union of Elec., Radio and Mach. Workers, Local Union No. 782, 163Tex. 135, 352 S.W.2d 252, 253 (1961); RESTATEMENT (SECOND) OFJUDGMENTS § 11, comment c (1982). This court recently reiterated that axiom inGorman v. Life Insurance Co., 811 S.W.2d 542, 547 (Tex.), cert. denied, 502 U.S.824, 112 S.Ct. 88, 116 L.Ed.2d 60 (1991). Because we conclude that standing is acomponent of subject matter jurisdiction, it cannot be waived and may be raised forthe first time on appeal.

If we were to conclude that standing is unreviewable on appeal at least threeundesirable consequences could result. First and foremost, appellate courts would beimpotent to prevent lower courts from exceeding their constitutional and statutorylimits of authority. Second, appellate courts could not arrest collusive suits. Third, byoperation of the doctrines of res judicata and collateral estoppel, judgments renderedin suits addressing only hypothetical injuries could bar relitigation of issues by a litigantwho eventually suffers an actual injury. We therefore hold that standing, as acomponent of subject matter *446 jurisdiction, cannot be waived in this or any othercase and may be raised for the first time on appeal by the parties or by the court.

We are aware that this holding conflicts with Texas Industrial Traffic League v.Railroad Commission, 633 S.W.2d 821, 823 (Tex.1982) (per curiam). The analysisthat leads us to the conclusion we reach here, however, compels us to overrule TexasIndustrial Traffic League and disapprove of all cases relying on it to the extent thatthey conflict with this opinion. Although our concern for the rule of stare decisismakes us hesitant to overrule any case, when constitutional principles are at issuethis court as a practical matter is the only government institution with the power andduty to correct such errors. See Payne v. Tennessee, 501 U.S. 808, –––– – ––––,

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111 S.Ct. 2597, 2609–11, 115 L.Ed.2d 720 (1991) (observing that reexamination ofconstitutional decisions is appropriate when “correction through legislative action ispractically impossible”).

Consequently, we proceed to determine here, on our own motion, whether TAB hasstanding to bring this suit.

Because standing is a component of subject matter jurisdiction, weconsider TAB's standing under the same standard by which we review subject matterjurisdiction generally. That standard requires the pleader to allege facts thataffirmatively demonstrate the court's jurisdiction to hear the cause. Richardson v.First Nat'l Life Ins. Co., 419 S.W.2d 836, 839 (Tex.1967). When reviewing a trialcourt order dismissing a cause for want of jurisdiction, Texas appellate courts“construe the pleadings in favor of the plaintiff and look to the pleader's intent.” Hustonv. Federal Deposit Ins. Corp., 663 S.W.2d 126, 129 (Tex.App.—Eastland 1983, writref'd n.r.e. 1984); see also W. Wendell Hall, Standards of Appellate Review in CivilAppeals, 21 ST. MARY'S L.J. 865, 870 (1990).

Here, however, we are not reviewing a trial court order of dismissal for want ofjurisdiction, we are considering standing for the first time on appeal. A review of onlythe pleadings to determine subject matter jurisdiction is sufficient in the trial courtbecause a litigant has a right to amend to attempt to cure pleading defects ifjurisdictional facts are not alleged. See TEX.R.CIV.P. 80. Failing that, the suit isdismissed. When an appellate court questions jurisdiction on appeal for the first time,however, there is no opportunity to cure the defect. Therefore, when a Texasappellate court reviews the standing of a party sua sponte, it must construe thepetition in favor of the party, and if necessary, review the entire record to determine ifany evidence supports standing.

TAB asserts standing on behalf of its members. The general test for standing inTexas requires that there “(a) shall be a real controversy between the parties, which(b) will be actually determined by the judicial declaration sought.” Board of WaterEngineers v. City of San Antonio, 155 Tex. 111, 114, 283 S.W.2d 722, 724 (1955).Texas, however, has no particular test for determining the standing of an organization,such as TAB. See e.g., *447 Touchy v. Houston Legal Found., 432 S.W.2d 690, 694(Tex.1968); Texas Highway Comm'n v. Texas Ass'n of Steel Importers, Inc., 372S.W.2d 525, 530–31 (Tex.1963). While we agree with the statement of the generaltest for standing set out in Board of Water Engineers, we foresee difficulties in relyingon it alone to determine the standing of an organization like TAB. For instance, whenmembers of an organization have individual standing, but the organization was notestablished for the purpose of protecting the particular interest at issue, it is notnecessarily in the members' best interest to allow such a disinterested organization tosue on their behalf. Furthermore, an organization should not be allowed to sue onbehalf of its members when the claim asserted requires the participation of themembers individually rather than as an association, such as when the members seekto recover money damages and the amount of damages varies with each member.

The United States Supreme Court has articulated a standard for associationalstanding that lends itself to our use. We adopt that test today. In Hunt v. WashingtonState Apple Advertising Commission, the Court held that an association has standingto sue on behalf of its members when “(a) its members would otherwise have standingto sue in their own right; (b) the interests it seeks to protect are germane to theorganization's purpose; and (c) neither the claim asserted nor the relief requestedrequires the participation of individual members in the lawsuit.” 432 U.S. 333, 343, 97S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977); see also New York State Club Ass'n v.City of New York, 487 U.S. 1, 9, 108 S.Ct. 2225, 2231, 101 L.Ed.2d 1 (1988);International Union, United Auto., Aerospace and Agric. Implement Workers of Am.v. Brock, 477 U.S. 274, 282, 106 S.Ct. 2523, 2528, 91 L.Ed.2d 228 (1986). Thisstandard incorporates the standing analysis we adopted in Board of Water Engineers,


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yet addresses the additional concerns we have noted.

We now apply the Hunt standard to the case before us. Reviewing the record inits entirety for evidence supporting subject matter jurisdiction, and resolving any doubtin TAB's favor, we conclude that TAB has standing to pursue the relief it seeks in thiscase.

The first prong of the Hunt test requires that TAB's pleadings and the rest of therecord demonstrate that TAB's members have standing to sue in their own behalf.This requirement should not be interpreted to impose unreasonable obstacles toassociational representation. In this regard the United States Supreme Court statedthat “the purpose of the first part of the Hunt test is simply to weed out plaintiffs whotry to bring cases, which could not otherwise be brought, by manufacturing allegationsof standing that lack any real foundation.” New York State Club Ass'n, 487 U.S. at 9,108 S.Ct. at 2232. We are satisfied that TAB has not manufactured this lawsuit. Acomparison of the association's membership roster with the list of businessessubjected to state penalties indicates individual TAB members have been assessedadministrative penalties pursuant to the challenged enactments. Additionally, TAB hasalleged that other of its members remain at substantial risk of penalty. A substantialrisk of injury is sufficient under Hunt. See e.g., Pennell v. City of San Jose, 485 U.S.1, 7 n. 3, 108 S.Ct. 849, 855 n. 3, 99 L.Ed.2d 1 (1988) (concluding that association oflandlords had standing based on pleadings that individual members would likely beharmed by rent ordinance). Thus TAB satisfies the first prong of the Hunt test.

The second prong of Hunt requires that TAB's pleadings and the rest of the recorddemonstrate that the interests TAB seeks to protect are germane to the organization'spurpose. TAB was chartered to “represent the interests of its members on issueswhich may impact upon its members' businesses.” Considering a very similar questionin New York State Club Association, the United States Supreme Court held that:“[T]he associational interests that the consortium seeks to protect are germane to itspurpose: appellant's certificate of incorporation states that its purpose is ‘to promotethe common business interests of its *448 [member clubs].’ ” 487 U.S. at 10 n. 4, 108S.Ct. at 2232, n. 4 (bracketed language in original). Likewise, the interests TABdesires to protect are germane to the organization's purpose, and thus the secondprong is met.

Under the third and final prong of the Hunt test, TAB's pleadings and the record mustdemonstrate that neither the claim asserted nor the relief requested require theparticipation of individual members in the lawsuit. The Supreme Court has interpretedthis prong as follows:

[W]hether an association has standing to invoke the court's remedialpowers on behalf of its members depends in substantial measure onthe nature of the relief sought. If in a proper case the associationseeks a declaration, injunction, or some other form of prospectiverelief, it can reasonably be supposed that the remedy, if granted, willinure to the benefit of those members of the association actuallyinjured.

Hunt, 432 U.S. at 343, 97 S.Ct. at 2441 (quoting Warth, 422 U.S. at 515, 95 S.Ct. at2213).

By seeking damages on behalf of its members, necessitating that each individualprove lost profits particular to its operations, the organization in Warth lacked standingto sue; rather, each individual member had to be a party to the suit. These facts aredistinguishable from Brock, in which the union challenged an administrativeinterpretation of statutory provisions relating to unemployment compensation. 477U.S. 274, 106 S.Ct. 2523. Recognizing that the suit raised “a pure question of law,”and that “the individual circumstances” of any aggrieved member were not in issue,the Court held that the UAW had standing to challenge the government's actions. Id. at


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287–88, 290, 106 S.Ct. at 2531–32, 2533; see also Pennell, 485 U.S. at 7 n. 3, 108S.Ct. at 855 n. 3 (facial challenge to rent ordinance does not require participation ofindividual landlords). Here, TAB seeks only prospective relief, raises only issues oflaw, and need not prove the individual circumstances of its members to obtain thatrelief, thus meeting the third prong of Hunt.

Having found that TAB meets all three prongs of the Hunt test, we conclude that TABhas standing to pursue the relief it seeks in this case.

II. Open CourtsTAB contends that the forfeiture provisions of the statutes and regulations in questionviolate the open courts provision of the Texas Constitution by unreasonably restrictingaccess to the courts. After the agency has found a party to be in violation of any ofthese statutes and regulations, the offender must either tender a cash deposit or posta supersedeas bond in the full amount of the penalties assessed, or forfeit the right tojudicial review.

Historically, we have recognized at least three separate constitutional guaranteesemanating from our open courts provision. First, courts must actually be open andoperating, so that, for example, the legislature must place every county within a judicialdistrict. Runge & Co. v. Wyatt, 25 Tex.Supp. 294 (1860). Second, citizens must haveaccess to those courts unimpeded by unreasonable financial barriers, so that thelegislature cannot impose a litigation tax in the form of increased filing fees toenhance the state's general revenue, LeCroy v. Hanlon, 713 S.W.2d 335, 342(Tex.1986). Finally, meaningful legal remedies must be afforded to our citizens, sothat the legislature may not abrogate the right to assert a well-established common lawcause of action unless the reason for its action outweighs the litigants' constitutionalright of redress. Sax v. Votteler, 648 S.W.2d 661, 665–66 (Tex.1983).

Here the second guarantee is applicable. This is not a question of theabrogation of any well-established common law *449 cause of action, just as it isnot a question of the physical absence of a court to which a complaint may bebrought. The issue before us is access to the courts. In previous cases involving thisissue, we did not predicate our decision on whether the party whose access had beenrestricted was attempting to assert a common law cause of action. In LeCroy, forexample, the court did not permit increased filing fees for statutory causes of actionwhile denying them for common law claims. 713 S.W.2d 335. Likewise in Dillingham v.Putnam, when the court struck down a statute requiring a supersedeas bond as acondition of appeal, the court did not concern itself with whether the particular appealbeing restricted involved a common law or statutory claim. 109 Tex. 1, 14 S.W. 303(1890). Similarly, in the present case, the issue is simply whether the prepaymentrequirement is an unreasonable financial barrier to access to the courts in light of thestate interest involved.

The stated purpose of the regulatory statutes at issue here is to protect our state'snatural resources. There is no question that this is an important state interest.The state argues that the prepayment provisions further this interest by increasing thedeterrent effect of the penalties and by aiding in their collection. The state maintainsthat a violator will be less deterred by an administrative penalty if it can delay paymentwithout bond while appealing the case in the courts. The state also argues that delaymay render the penalty uncollectible, as the violator may become insolvent.

In considering these rationales, we note that the prepayment provisions actuallyconsist of two elements. First, the assessed penalty must be paid, or financial securityprovided, within thirty days; enforcement is not stayed pending any period of judicialreview. Second, if payment is not made or financial security provided within thethirty-day period, the right to judicial review is forfeited. We agree that the rationalesadvanced by the state justify the first of these elements. Requiring expeditiouspayment of the administrative penalties increases their effectiveness. The legislature,however, could have imposed the first element without the second. It could have

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provided the agency with the right to collection of assessed penalties unless asupersedeas bond is posted, yet provided for judicial review. The requirement ofimmediate payment, without the corresponding forfeiture provision, would not haveimplicated the open courts provision, as the charged party could have obtained judicialreview regardless of payment. This approach would have been in accordance with theusual procedure governing appeals of trial court judgments. See TEX.R.APP.P. 40.Any litigant may appeal without superseding the trial court's judgment, but the merependency of an appeal does not stay enforcement of the judgment. *450 Ourspecific focus for purposes of our open courts analysis, therefore, is not whether therequirement of immediate payment is reasonable, but whether the forfeiture of theright of judicial review, if the penalties are not superseded, is reasonable.

We conclude that the forfeiture provision is an unreasonable restriction on access tothe courts. While the requirement of prepayment or the posting of a bond to stayenforcement furthers the state's important environmental interests by creating astrong incentive for timely payment of the assessed penalties, the forfeiture provisionserves no additional interest. The state may accomplish its goals by enforcing theprepayment requirements without infringing on a party's right to its day in court.Accordingly, we hold that forfeiture sections of the statutes and regulations at issuefacially violate our open courts provision.

III. Jury TrialTAB also claims that the statutes empowering these agencies to assess civil penaltiesviolate the right to a jury trial guaranteed by the Texas Constitution. We disagree.

Article I, section 15 of our constitution preserves a right to trial by jury for thoseactions, or analogous actions, tried to a jury at the time the constitution of 1876 wasadopted. E.g., State v. Credit Bureau of Laredo, 530 S.W.2d 288, 291 (Tex.1975);White v. White, 108 Tex. 570, 196 S.W. 508 (1917); Hatten v. City of Houston, 373S.W.2d 525 (Tex.Civ.App.—Houston 1963, writ ref'd n.r.e.); Hickman v. Smith, 238S.W.2d 838 (Tex.Civ.App.—Austin 1951, writ ref'd). A jury trial is not mandated by thisprovision for any other judicial proceeding. Id.

In Credit Bureau, we concluded that a suit for civil penalties for violation of aninjunction issued pursuant to the Texas Deceptive Trade Practices Act wasanalogous to the common law action for debt, tried to a jury at the time our constitutionwas adopted. 530 S.W.2d at 293. Thus, we held that the right to a jury trial for thataction remained inviolate. Id. We observed in Credit Bureau, however, that in certaintypes of adversary proceedings the constitutional right to a jury trial does not attach.Among the proceedings we referred to are appeals from administrative decisions.Id. (citing State v. De Silva, 105 Tex. 95, 145 S.W. 330 (1912), and *451 TexasLiquor Control Bd. v. Jones, 112 S.W.2d 227 (Tex.Civ.App.—Houston 1937, writref'd n.r.e.)). Consistent with this noted exception in Credit Bureau, we conclude thatthese agencies' assessments of environmental penalties are not actions, oranalogous actions, to those tried to a jury at the time the constitution of 1876 wasadopted. To hold that these environmental statutes and regulations promulgated in thelate 1960s merely parrot common law and statutory rights triable to a jury in 1876would turn a blind eye to the emergence of the modern administrative state and itsprofound impact on our legal and social order. In the late 19th century, ours wasprimarily a sparsely-populated agrarian society. See generally, T.R. Fehrenbach,Lone Star: A History of Texas and the Texans, 279–324 (1983). By contrast,concentrated industrial activity and its by-products, including the wide-spreademission of pollutants, with their resulting potential for significant damage to ournatural resources are phenomena of relatively recent origin. In response to suchphenomena, regulatory schemes, such as those challenged here, were designed tobalance mounting environmental concerns with our state's economic vitality. In 1876no governmental schemes akin to these existed. Thus, we conclude that thecontested proceedings are not analogous to any action tried to a jury in 1876.Accordingly, we hold that no right to a jury trial attaches to appeals from administrative

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adjudications under the environmental statutes and regulations at issue here.

We should not be misunderstood to say that the legislature may abrogate the right totrial by jury in any case by delegating duties to an administrative agency. Here, wesimply reaffirm what this court held almost a half century ago, in Corzelius v. Harrell,143 Tex. 509, 186 S.W.2d 961 (1945). In Corzelius, we concluded that certain judicialfunctions, including fact finding, may be delegated constitutionally by the legislature toadministrative agencies in furtherance of the preservation and conservation of thestate's natural resources. The decision in Corzelius was based on article XVI, section59(a) of our constitution, which provides in relevant part: “The conservation anddevelopment of all the natural resources of this State ... and the preservation andconservation of all such natural resources ... are each and all ... public rights andduties; and the Legislature shall pass all such laws as may be appropriate thereto.”TEX. CONST. art. XVI, § 59(a). “By the use of the broad language used in Article XVI,Section 59(a),” the court stated, “the Legislature is authorized to enact such laws asare necessary to carry out the purposes for which such constitutional amendmentwas adopted.” Corzelius, 186 S.W.2d at 964.

There is no doubt that the legislature delegated the power to assess these civilpenalties to the Air Control Board and the Water Commission as a manifestation ofthe public's interest in preserving and conserving the state's air and water resources.That intent is apparent from the policy statements of the relevant statutes. *452 Weconclude, therefore, that the delegation of the fact-finding function by the legislature tothe Air Control Board and the Water Commission under this statutory scheme waswithin the legislature's constitutional authority.

Of course, the fact that no jury trial is provided by the legislature to an alleged violatorof these environmental protection laws does not mean that the agencies' power toassess penalties is unbridled. The Air Control Board and the Water Commissionmay act only within constitutional and statutory parameters.

For the reasons set out above, we reverse that portion of the trial court's judgmentdeclaring that section 4.041 of the Texas Clean Air Act, sections 26.136 and27.1015 of the Texas Water Code, and section 8b of the Texas Solid WasteDisposal Act and the rules and regulations promulgated under those statutes comportwith the open courts provision of our constitution, article I, section 13. We declare thatthe requirement of a supersedeas bond or cash deposit paid into an escrow accountas a prerequisite to judicial review under TEX.HEALTH & SAFETY CODE §§361.252(m) (first clause), 382.089(c) (first sentence), and TEX.WATER CODE §26.136(k) (first sentence) is unconstitutional. We affirm that portion of the trial court'sjudgment declaring that the listed statutes, rules, and regulations do not violate the jurytrial provision of our constitution, article I, section 15.

Concurring and dissenting opinions by DOGGETT, GAMMAGE and SPECTOR, JJ.

HIGHTOWER, J., not sitting.

DOGGETT, Justice, concurring and dissenting.

“Don't Mess With Texas”

—A motto that captures the Texas spirit.

Texans understand the directive “Don't Mess With Texas”; the majority does not. Ifthe mess is big enough, if the stench is strong enough, no matter how great thedanger to public health and safety, an industrial litterer can “mess” with Texas withoutfear of immediate punishment or legally effective citizen action.

And what an occasion for permitting polluters to “mess” with Texas air and water. Ourstate tops the nation in total toxic emissions and ranks dead last among the fiftystates in important measures of environmental quality. Although last in air *453 and

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water cleanliness, Texas today becomes the first state to strike down the impositionof penalties by administrative agencies to enforce statutes protecting theenvironment. I dissent from today's manipulation of the law to paralyze anti-pollutionefforts, tragically announced at a time when protecting the quality of the air webreathe and the water we drink is so critical.

Today's opinion delivers a double whammy to protection of our natural resources.Polluters are first shielded from swift punishment for harming our environment, andthen the courthouse door is slammed shut in the face of Texans who organize toobject. Incredibly, this second punch was not even sought by the corporateorganization that brought this challenge; it was wholly designed by the majority duringthe three years that this cause has lingered in this court. Announced today is an easilymanipulable “friends in, foes out” rule to prevent further actions by those who organizeto protect taxpayers, consumers or the environment.

Through its broad writing designed to eviscerate administrative enforcement of ourstate's environmental laws, the majority has also created significant new uncertaintiesfor a wide range of state governmental activity—tax collection is imperiled, laws toprotect nursing home residents are effectively voided, and even a leading weapon inthe war on drugs is threatened. At a time of budgetary crisis exacerbated by themajority's great misadventure in public school finance, today's opinion raises asubstantial question of whether the State will be required to return to those whodespoil Texas millions of dollars in administrative penalties collected during the almosteight years this case has wandered through the judicial system.

This major blow to our environment is matched only by the threat to our system ofjustice lurking in the arcane language of today's opinion. Hidden within its lengthy legalmumbo-jumbo is an unprecedented blow to our jury system. The constitutional right oftrial by jury, already suffering at the hands of this majority, is no longer inviolate; it maybe abrogated at any time. Instead of walking into a courthouse, where a jury isguaranteed, citizens may be detoured to an administrative agency, to explain theirproblems to bureaucrats not directly answerable to the community.

Today precedent and tradition have been trampled as the majority's long-standing fearof ordinary people in our legal system has taken firm hold. The drafters of our TexasConstitution realized something that the majority has long ceased to appreciate—ordinary Texans can make an extraordinary contribution to our system of justice.The more their collective voice expressed in a jury verdict is disregarded, the morenew barriers are contrived to shut them out of our system of justice, the less justicethat system will offer.

I. Open Courts

The ability of state agencies to enforce environmental laws through the assessmentof administrative penalties is declared unconstitutional by the majority as contradictingour state guarantee of open courts. While concluding that TAB certainly has a right tojudicial review on behalf of its members, I disagree that the statutory restrictions itchallenges unreasonably restrict access to the courts.

Access to the courts is unquestionably a fundamental constitutional and common lawright. Article I, section 13 of the Texas Constitution forms the nucleus of thisprotection:

*454 The open courts provision specifically guarantees all litigants theright to redress their grievances—to use a popular and correctphrase, the right to their day in court. This right is a substantial stateconstitutional right.

LeCroy v. Hanlon, 713 S.W.2d 335, 341 (Tex.1986) (citations omitted). This courthas a long history of assuring that the right of access remains guaranteed to Texascitizens.

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In Sax v. Votteler, 648 S.W.2d 661 (Tex.1983), we required a litigant alleging anunconstitutional denial of access to the courts to show that: (1) a cognizable commonlaw cause of action is being restricted and (2) the limitation is unreasonable orarbitrary when balanced against the purpose and basis of the statute. The majoritytoday appropriately eliminates the first showing in certain cases. In somecircumstances the distinction between common law and statutory causes of actionclearly does not affect whether access to the courts has been denied.

The second part of the Sax test, however, continues to be applied in all open courtscases. Thus, in determining whether the open courts provision of the TexasConstitution is violated by the requirement that administrative penalties be paid as aprerequisite to judicial review, we must balance two competing interests: the right ofTAB's members to access to the courts and the state's concern with effective andtimely enforcement of its laws protecting the environment. The majority today restatesin rather vague terms this second prong: “whether the prepayment requirement is anunreasonable financial barrier to access to the courts in light of the state interestinvolved.” 852 S.W.2d at 449. As we held in LeCroy:

Because a substantial right is involved, the legislature cannot arbitrarily orunreasonably interfere with a litigant's right of access to the courts. Thus, thegeneral open courts provision test balances the legislature's actual purpose inenacting the law against that law's interference with the individual's right of accessto the courts. The government has the burden to show that the legislative purposeoutweighs the interference with the individual's right of access.713 S.W.2d at 341 (citations omitted; emphasis supplied).

Applying this test, we have permitted certain restrictions on access to the courts, whiledisallowing others. Compare LeCroy, 713 S.W.2d at 341 (court filing feeunreasonably restricts access to judicial system), and Dillingham v. Putnam, 109Tex. 1, 14 S.W. 303 (1890) (supersedeas bond as prerequisite to appeal, withoutregard to ability to pay, unconstitutional), with Clanton v. Clark, 639 S.W.2d 929(Tex.1982) (court may constitutionally dismiss suit for failure to timely file cost bond),and Federal Crude Oil Co. v. Yount–Lee Oil Co., 122 Tex. 21, 52 S.W.2d 56 (1932)(requirement that franchise taxes be paid prior to filing suit upheld under article I, §13); compare Lucas v. United States, 757 S.W.2d 687 (Tex.1988) (limitations ondamages for medical malpractice unconstitutional), with Rose v. Doctors Hosp., 801S.W.2d 841 (Tex.1990) (same limitations upheld under open courts provision inwrongful death cases). I favor a more complete and predictable open courts analysisdesigned to discourage such anomalous results.

*455 Today's implementation of the second prong of the Sax test demonstrates itsmalleability. After perfunctorily reciting the purpose of administrative penalties, themajority, without any further analysis, concludes that: “the forfeiture provision is anunreasonable restriction on access to the courts,” 852 S.W.2d at 450, and “theforfeiture provision serves no additional [state] interest.” Id. at 450. Enacted by theLegislature as an important means of enforcing our state's environmental laws, thesepenalties are today judicially extinguished. The majority determines that these laudablelegislative objectives are not sufficiently “important” to justify the possibility that theuse of penalties may perhaps someday impose some slight financial strain on somehypothetical polluter.

Whether examined under either the vague test employed today or my more exactingformulation, the majority's conclusory analysis suffers from at least three major flaws:(1) a failure to recognize the compelling interest, grounded in our state constitution,served by administrative penalties, including prepayment provisions; (2) a disregard ofthe extensive statutory constraints on penalty usage which represents the leastrestrictive means to achieve this purpose; and (3) an assumption that the prepaymentprovision interferes with individual access to the courts unsupported by even a singlespecific instance of such a restrictive effect.

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The balancing required by Sax mandates careful consideration of the rights beingaffected. The more significant the right the litigant asserts, the more onerous thegovernment's burden becomes. TAB has asserted a right to judicial review ofpenalties imposed against its members. This interest is encompassed within the rightof access to the courts, which we declared a “substantial state constitutional right.”LeCroy, 713 S.W.2d at 341.

The State has met its burden by demonstrating a compelling interest in employingadministrative penalties reflected in constitutionally-guaranteed protection of ourstate's natural resources. Although not critical in overcoming an open courtschallenge, a constitutional predicate for the state's interest is a highly persuasivefactor in the balancing process. As declared in article XVI, section 59(a) :

[T]he preservation and conservation of all ... natural resources of the State areeach and all declared public rights and duties; and the Legislature shall pass all lawsas may be appropriate thereto.This very mandate of the people, as well as protection of the public health andsafety was effectuated in the Clean Air Act, the Texas Water Code, and theSolid Waste Disposal Act, including the right to assess administrative penalties.Protection of Texas' air, water and land is undeniably a compelling interest.

*456 The form of these particular administrative penalties has certainly beenfashioned to serve this important state interest through the least restrictive means.Penalty usage is substantially limited and can in no way be said to be arbitrarilyimposed. All three statutes at issue require that, once a violation is established, theagency assessing a penalty must consider such factors as the seriousness of theviolation, including but not limited to the nature, circumstance, extent, and gravity ofthe prohibited acts; the hazard or potential hazard created to the public health orsafety of the public; the history of previous violation; the amount necessary to deterfuture violations; and efforts to correct the violation. There is thus statutoryassurance that the amount of any resulting penalties will be directly related to theconduct.

Requiring that assessed penalties be paid, or a bond in the same amount be posted,prior to challenging the agency action in court is not unreasonable under thesecircumstances. Unlike the filing fee held violative of the open courts provision inLeCroy, the legislative purpose is not to raise money by making it more expensive forcitizens to enforce their legal rights. Instead, the legislative objective is to deter andpunish violations of the law that pose an environmental threat.

The wheels of justice grind slowly, with final resolution often years in reaching. Indeed,in this court they sometimes hardly grind at all. Clearly those willing to profit frompolluting our natural resources will not hesitate to employ the delays in the judicialsystem to their advantage. A declaration of bankruptcy by a perhaps deliberatelyundercapitalized corporation during the pendency of a suit is likely to relieve thepolluter of any responsibility to remedy the damage it has caused.

Showing no awareness of the purpose of and need for administrative penalties, themajority finds that “expeditious payment” is adequately guaranteed by the ability of theagency, through the attorney general, to initiate an enforcement action to collect theamount assessed. 852 S.W.2d at 449 & n. 15. In other words, the purpose ofimmediate deterrence of violation of environmental laws is ensured by the filing of alawsuit that may take as many years to resolve as this case has. These agenciescharged with protecting our natural resources have long had the ability to bring anenforcement action in state court. See Tex.Water Code § 26.123; Tex.Health &Safety Code § 382.081; id. § 361.224. The effort of the Texas Legislature to improvethe effectiveness of enforcement through the use of administrative penalties is todayrendered a nullity.

Given the time and expense that must be devoted to pursuing an enforcement action

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in court, the State will have the capability to proceed against only the most egregiouswrongs. The vast majority of administrative penalties to date have been relativelysmall, reflecting technical yet important statutory violations. In the absence of anadministrative penalty power, most of these would have gone unpunished, even thoughcollectively the environmental impact of small violations could be more profound than amajor catastrophe. Relieving polluters from immediate sanctions dismantles theeffectiveness of our laws protecting natural resources; no lesser means has beenidentified that provides for prompt enforcement. I would hold that the state hasdemonstrated a compelling interest in environmental protection that has beenimplemented by the least restrictive means, thus overriding any modest impedimentthat the prepayment of penalties may impose on access to the courts.

*457 Not even the slightest evidence has been provided to this court to suggest anyactual restrictive effect. No affidavit of any member of the Texas Association ofBusiness appears in the record stating that an inability to pay an administrativepenalty has barred judicial review. As to most of the penalties assessed, $5,000 orless in amount, it is doubtful that such a contention could be made. The majoritynecessarily concludes that imposing fines of $2,000 against Exxon ChemicalCompany, Shell Oil Company and Union Carbide Corporation has left those entitiesfinancially unable to pursue an appeal. While the enormity of some future penaltycould in fact unconstitutionally bar judicial access, that is certainly not the case here.See Jensen v. State Tax Comm'n, 835 P.2d 965, 969 (Utah 1992) (payment ofassessed taxes, penalties and interest as precondition to suit “not unconstitutional inall cases,” but only those in which taxpayer financially barred from prosecutingappeal); see also Morrison v. Chan, 699 S.W.2d 205, 207 (Tex.1985) (medicalmalpractice statute of limitations not unconstitutional as applied to facts of case).

Eliminating the need to prove actual restrictive effect, the majority declares “irrelevant”that “the affected parties may be able to afford prepayment.” 852 S.W.2d at 450 n.18. Unexplained is how this statement can be reconciled with Dillingham, in which thiscourt found of critical importance the failure to accommodate those financially unableto post a supersedeas bond as a prerequisite to judicial review. Opining that “theguarantee of constitutional rights should not depend on the balance in one's bankaccount,” id., the majority would accord our state's largest businesses the sametreatment as indigents in avoiding financial responsibility for court and other litigationcosts.

Nor is the majority restrained by Texas decisional law validating similar requirements.We long ago upheld against this same type of challenge the condition that acorporation pay its franchise taxes in order to file a court action. Federal Crude OilCo. v. Yount–Lee Oil Co., 122 Tex. 21, 52 S.W.2d 56 (1932); accord RimcoEnterprises, Inc. v. Texas Elec. Svc. Co., 599 S.W.2d 362 (Tex.Civ.App.—Fort Worth1980, writ ref'd n.r.e.). Various statutory requirements that taxes, penalties andinterest be paid prior to contesting them in court have likewise sustained an opencourts challenge. See Filmstrips and Slides, Inc. v. Dallas Central Appraisal Dist.,806 S.W.2d 289 (Tex.App.—Dallas 1991, no writ) (property taxes); Robinson v.Bullock, 553 S.W.2d 196 (Tex.Civ.App.—Austin 1977, writ ref'd n.r.e.), cert. denied,436 U.S. 918, 98 S.Ct. 2264, 56 L.Ed.2d 759 (1978) (sales taxes).

The majority also ignores the certainty that far more than three statutes are impactedby today's decision. A broad range of regulatory enforcement programs vital toprotection of the public health and safety will be stripped of their most timely andeffective sanctions to deter harmful conduct. Laws designed to protect theold—residents in nursing homes —the young—our children away at camp —thesick and the injured, and those we have lost will be substantially weakened.Others, ensuring the sanitariness of food, drugs and cosmetics, as well as theslaughter and *458 disposition of dead animals, will be similarly rendered lesseffective. Even where such penalties have not been frequently enforced, theirpotential use may promote law enforcement.

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The most widespread damage, however, from today's decision will be in theenforcement of laws protecting our environment, where the Legislature hasdetermined again and again that such penalties are the most effective means ofassuring compliance and preventing pollution of our air, water and land. Themajority ensures that those who pollute will be brought to justice very slowly or not atall.

Other statutes that impose administrative penalties permit the filing of an affidavit ofinability to pay in lieu of prepayment or the posting of a bond. Because themajority's reasoning strikes down administrative penalties without reference tofinancial ability, 852 S.W.2d at 451, these statutes similarly cannot be enforced.

Today's writing poses a potentially crippling effect for collection of taxes. All of ourstate statutes in this area require that assessed taxes, penalty and interest beprepaid before a suit challenging them may be filed. See generally Tex.Tax Code §§112.051, 112.101. If such requirements are unconstitutionally void even to fulfill aconstitutional mandate of environmental protection, their validity for tax collection iscertainly subject to question. See R Communications, Inc. v. Sharp, 839 S.W.2d 947(Tex.App.—Austin 1992, writ granted).

Nor has the majority sought to consider the consequences of its decision for a majorweapon in the war against drugs, forfeiting prior to judicial review money, vehicles andother property alleged to have been used in violating our criminal laws.Tex.Crim.Proc.Code art. 59.02–.11. Most frequently invoked to seize assets fromdrug dealers, such as money and cars that could finance their defense, this statuteprovides for the return of property prior to trial only *459 on the posting of a bond forthe full value. Id. art. 59.02(b).

Procedures within our judicial system are also threatened. Why is not the requirementthat corporations and other organizations appear in court only through counsel aviolation of the open courts provision, since the cost of retaining an attorney in mostcases exceeds the average administrative penalty considered here?

Inadequately considered by the majority's opinion is its effect on the millions of dollarsin administrative penalties that have already been paid under the statutes nowdeclared unconstitutional. Yet, under the general rule that our decisions applyretroactively, past violators of environmental laws may stand to reap a substantialwindfall. In the firm grasp of this majority, “open courts” may have been rewritten tomean open coffers. While claiming that nothing in today's writing suggests that arefund is required, the majority apparently once again concludes that moniesextracted by the state under the coercion of an unconstitutional system may beretained. See Carrollton–Farmers Indep. Sch. Dist., 826 S.W.2d at 515–23 (holdingtax unconstitutional, but requiring taxpayers to continue payment for two years).

The majority today throws a large wrench into the workings of the importantadministrative mechanism of our Texas government. By severely limiting enforcementpowers, the majority leaves law enforcers little choice but to forego prosecution of lawviolators. Our laws designed to protect and conserve our natural resources aresubstantially weakened at the time their strength is most needed.

II. Trial by Jury

The harm caused to our environment by today's writing is equalled only by the severeblow struck against our fundamental right of trial by jury. In holding that TAB and itsmembers have no right to a jury trial, the majority employs an analysis that hasfar-reaching ramifications. While I recognize the need to accommodate the evolutionof the administrative state, the history of this important guarantee mandates that onlythe narrowest of exceptions be permitted.

The ability of each individual to have a case heard by other members of thecommunity is a vital part of our heritage and law. Long ago, Texans emphasized the

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paramount importance of this guarantee, stating in their grievances against theMexican government:

It has failed and refused to secure, on a firm basis, the right of trial byjury, that palladium of civil liberty, and only safe guarantee for the life,liberty, and property of the citizen.

The Declaration of Independence of the Republic of Texas (1836), reprinted inTex.Const.app. 519, 520 (Vernon 1955). A strong guarantee of this right had beenunsuccessfully sought in an 1833 draft constitution, which was submitted to Mexicoby Stephen F. Austin and was later incorporated in the 1836 Texas IndependenceConstitution.

The central role of the jury as a democratic institution was firmly recognized, indeedcelebrated, in our early jurisprudence by the Supreme Court of the Republic of Texas:

The institution of jury trial has, perhaps, seldom or never been fullyappreciated. It has been often eulogized in sounding *460 phrase, andoften decried and derided. An occasional corrupt, or biased, or sillyverdict is not enough for condemnation; and when it is said theinstitution interposes chances of justice and checks against venalityand oppression, the measure of just praise is not filled. Itsimmeasurable benefits, like the perennial springs of the earth, flowfrom the fact that considerable portions of the communities at statedperiods are called into the courts to sit as judges of contested facts,and under the ministry of the courts to apply the laws.... Let us thenpreserve and transmit this mode of trial not only inviolate, but ifpossible purified and perfected.

Bailey v. Haddy, Dallam 35, 40–41 (Tex.1841).

In 1845, expanding the scope of this right was the subject of spirited debate in thedeliberations over the new constitution for statehood. In addition to the previousguarantee, which was carried forward in a new Bill of Rights, further protection wasincluded in the Judiciary Article. Tex. Const. art. IV, § 16 (1845). While under ournational Constitution and those of almost all of our sister states trial by jury is availableonly for those actions that could have been brought at common law, the TexasConstitution since 1845 has also preserved that right in cases that historically wouldhave been brought in equity. Thus, even when a private party seeks injunctive reliefthat will inure to the public's benefit, any derogation of the right to a jury nonethelessviolates the Texas Constitution.

Urging support of the additional Judiciary Article guarantee, Convention PresidentThomas Rusk declared:

It is a dangerous principle to trust too much power in the hands of oneman. Would it not be better to trust a power of this nature in the handsof twelve men, than to confide it to the breast of one?

William F. Weeks, Debates of the Texas Convention 268 (1846). He was opposedby John Hemphill, later the first Chief Justice of this court, who actually “preferred thecivil law” system, id. at 271–73, and Jefferson County delegate James Armstrong,who insisted the new section would “operate very injuriously.” Id. at 270. He declared:

It would be better, in my opinion, to leave it to the legislature to applythese things; it is enough for us to say in the constitution that the trialby jury shall be preserved inviolate. If we intend the jury to determineevery thing, it would be better to dispense with the judge altogether, asa useless appendage of the court.

Id. Today it is this same fear of juries, fortunately rejected in 1845, that now

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unfortunately prevails.

The original language providing for trial by jury in the Judiciary Article of 1845 wasretained in later constitutions, Tex. Const. art. IV, § 16 (1861), Tex. Const. art. IV, §20 (1866), but was thereafter extended to “all cases of law or equity.” Tex. Const. art.V, § 16 (1869). It took its final form in our present Constitution of 1876, whichcontinues to afford not one but two assurances on this vital subject:

In the trial of all causes in the District Courts, the plaintiff or defendantshall, upon application made in open court, have the right to trial byjury....

Tex. Const. art. V, § 10.

The right of trial by jury shall remain inviolate.Tex. Const. art. I, § 15. Rather than keeping it “inviolate,” the majority today severelyviolates this right.

*461 Our heritage is now rejected by the majority in favor of a deliberately overbroadwriting that treats trial by jury as a mere anachronism. This is consistent with themajority's increasing disfavor of decisionmaking by ordinary citizens composed as ajury. Today's opinion insists that our constitutional assurance of trial by jury doesnot offer protection against legislative delegation of factfinding to an administrativebureaucracy. In essence, the majority engages in a massive redistribution of powerfrom the people to the bureaucratic arm of state government. This extreme position istotally unjustified in view of the staunch legal and historical underpinnings of ourconstitutional commitment to afford Texans a jury of their peers.

Today's opinion accurately describes one element of the dual constitutional protectionfor this fundamental liberty:

Article I, section 15 of our constitution preserves a right to trial by juryfor those actions, or analogous actions, tried to a jury at the time theconstitution of 1876 was adopted.

852 S.W.2d at 450 (footnote omitted). Then the majority grossly misconstrues thisstandard while making selective and misleading use of jurisprudence developed underthe further guarantee of article V.

With its hangnail sketch of Texas history limited to one historian's very generalizeddescription of Texas in the era “between 1835 and 1861”, 852 S.W.2d at 450, themajority ignores our longstanding concerns regarding threats to our naturalresources. As early as 1860, the Legislature acted to penalize polluters, providingthat:

If any person ... shall in anywise pollute, or obstruct any water course, lake, pond,marsh or common sewer, or continue such obstruction or pollution so as to renderthe same unwholesome or offensive to the county, city, town or neighborhoodthereabouts, or shall do any act or thing that would be deemed and held to be anuisance at common law, shall be ... fined in any sum not exceeding five hundreddollars....

In an early decision considering whether a criminal nuisance was posed by a tallowfactory near Galveston at which cattle were slaughtered and their carcasses and offalwere allowed to accumulate, this court stated:

It requires no aid of the common law to convince any one accustomedto pure air, and who has been brought by accident or necessity withinthe sickening and malarious influence of one of our modern tallow andbeef factories, that it is a disgusting and nauseous nuisance, even formiles around it ... [those] so offending should be indicted and punishedto the extent of the law.

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Allen v. State, 34 Tex. 230, 233–34 (1871). How significantly has this court's oncevigorous enforcement of anti-pollution laws waned.

Defilement of the environment was not only made punishable as a crime, but alsosubject to a common law action for nuisance. See generally Horace Wood, Wood'sLaw of Nuisances 501–21, 576–692 (2d ed. 1883) (discussing nuisance recovery atcommon law for various forms of air and water pollution). Such actions were regularlybrought in Texas before 1876 to halt activities harmful to our air and water. In 1856,this court recognized that “[w]hat constitutes a nuisance is well defined.” *462Burditt v. Swenson, 17 Tex. 489 (1856). Considering an action to enjoin operation ofa livery stable on Congress Avenue in Austin because “manure and filth has alreadyaccumulated to such an extent, that it now causes an unhealthy and disagreeableeffluvia, exceedingly offensive and prejudicial,” id. at 492, this court concluded such“noisome smells” constituted a nuisance. Id. at 502–03. In City of Fort Worth v.Crawford, 74 Tex. 404, 12 S.W. 52, 54 (1889), an individual asserted that, becauseof the dumping of garbage, filth and bodies of dead animals on city land,

his home was rendered almost uninhabitable; his family and himself were kept inbad health; and he was, in the language of a witness, “a walking skeleton.”This court further observed that

The stench was so offensive that he had to shut the doors to eatand sleep.... The testimony shows that the filth on this place ofdeposit was so indescribable, and was so offensive as to makepersons sick, and could be perceived a mile away.

Id. Affirming the judgment declaring the dump a common law nuisance, this courtdeclared:

There is also no doubt that every person has a right to have the airdiffused over his premises free from noxious vapors and noisomesmells....

Id.

The majority's suggestion that “pollutants ... are phenomena of relatively recentorigin,” 852 S.W.2d at 451, is contradicted by the nineteenth century legislativeresponse of criminalizing pollution and the common use of the common law ofnuisance to fight soiling of the air and water. With the ongoing construction of therailroads, the mining of coal and sulphur, the emergence of industry and the nascenceof our oil and gas industry, our state's natural resources were by no means pure andunthreatened in 1876. See James C. Cobb, Industrialization and Southern Society1877–1984, 128 (1984) (describing pollution relating to increased rail usage,lumbering and urban sewage); see also Robert A. Calvert & Arnoldo De Leon, TheHistory of Texas 186–191 (1990) (discussing the development of Texas industry inthe late 1800's, including lumbering, beef processing and mining); Louis J. Wortham, 5A History of Texas (1924) (examining industrial development in the nineteenthcentury). Only the scope and depth of the problem has changed. But even if thefouling of the environment were a recent technological “innovation” of the pastcentury, that would be irrelevant. As I recently wrote in another context,

The law is not irretrievably locked in the days before televisions andvideocameras, nor limited to operators of telegraphs and horse-drawncarriages.

Boyles v. Kerr (Tex.1992) (Doggett, J., dissenting). There is nothing abouttechnological change that has made trial by jury any less vital.

But because there was no modern bureaucracy in 1876, the majority insists: “nogovernmental schemes akin to these existed.” Id. at 451. While our laws and societyhave grown more complicated, the mandate *463 of our constitution has not. As we

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concluded in State v. Credit Bureau of Laredo, Inc., 530 S.W.2d 288, 292(Tex.1975): “The right to a trial by jury is not limited to the precise form of action ... atcommon law.” If there was an analogous cause of action with a right to jury trial in1876, then our article I jury trial guarantee requires it today. Yet the majority ignoresthe fact that even the earliest of pollution statutes was designed to deter and punishthose who harm our environment. Our jury trial article is thus decreed as dependenton form, not substance; not analogy, but exactitude. Under the majority's analysis,Credit Bureau was wrongly decided since a regulatory prohibition against deceptivenon-disclosure or ambiguous language with the capacity to deceive was beyond the“deceptive acts” of common law fraud or deceit as it existed in 1876.

Seizing upon the rather obvious proposition that the administrative state had not yetbeen created in 1876, the majority concludes that there is no right to trial by jury injudicial review of an administrative proceeding. But under article I it is the nature of thecause of action that controls, not the procedures under which it is enforced. Each ofthe three statutes considered today defines “pollution” of air, water or land toincorporate early nuisance concepts. Tex. Health & Safety Code § 382.003(3)(contaminants that “are or may tend to be injurious to or to adversely affect humanhealth or welfare, animal life, vegetation or property [or] interferes with the normal useand enjoyment of animal life, vegetation, or property”); id. § 361.003(44) (“contamination of any land land or surface or subsurface water in the state thatrenders the land or water harmful, detrimental, or injurious to humans, animal life,vegetation”); Tex. Water Code § 26.001(13) (contamination that “renders the waterharmful, deterimental, or injurious to humans, animal life, vegetation, or property”).The majority fails to examine these provisions and makes no attempt to distinguishtheir substance from nuisance actions at the time the constitution was adopted. Thefocus must be on the nature of civil and criminal nuisance actions as they existed in1876, not on whether administrative agencies existed then to bring such actions. Thatthe creation of some administrative agency was not contemplated in 1876 does notmean that any type of factfinding transferred to that agency in 1993 or hereafter isbeyond the purview of a jury. With its new approach, the majority is only clearing theway for a steady expansion of factfinding and decisionmaking by bureaucracy at theexpense of trial by jury.

Concluding that no common law action analogous to the assessment of administrativepenalties existed in 1876, the majority professes a superficial limit on its holding tiedto article XVI, § 59(a) of the Texas Constitution, as interpreted in Corzelius v. Harrell,143 Tex. 509, 186 S.W.2d 961 (1945). 852 S.W.2d at 451 n. 24. Nothing in thisprovision affects the determination of whether a nuisance action for pollution isanalogous to an enforcement action for the same conduct. Clearly, the majority'sreasoning rests solely on the fact that no administrative agency was charged in 1876with protecting the state's resources. Nor does Corzelius in any way address the rightto jury trial. Under the majority's asserted “narrow” holding, the right to trial by jury canbe immediately abrogated in any case in which natural resources are even remotelyinvolved, including private disputes that this court has held are subject to jury trial,such as those involving mineral ownership, contract rights, or mineral lease terms.See, e.g., Amarillo Oil Co. v. Energy–Agri Prod., Inc., 794 S.W.2d 20, 26 (Tex.1990).

The constitutional limitation on legislative power to delegate away the people's right totrial by jury was amply demonstrated by the writing of this court in White v. White, 108Tex. 570, 196 S.W. 508 (1917). There a husband had his wife, who apparently did notcontest that she was a “lunatic,” committed to a state asylum. Commitmentproceedings had been statutorily transferred to a “commission” appointed by a countyjudge and comprised of six members, “as many of [whom] shall be physicians as maybe possible.” Act of *464 April 8, 1913, 33rd Leg., ch. 163, art. 152, 1913Tex.Gen.Laws 342. Although a review of decisions of other states and of federalpractice indicated substantial support for what appeared to be a quite reasonablelegislative attempt to entrust the determination of mental competency to the expertiseof the medical profession, 196 S.W. at 514–15, this Court rightly concluded there that


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trial by jury means something more than a hearing before acommission....

Id. 196 S.W. at 511. Such “a hearing before a commission, in lieu of the time-honoredtrial by jury, is invalid.” Id. 196 S.W. at 515. Moreover,

[contrary] reasoning [in other jurisdictions] as to the right of thelegislature to dispense with jury trials is not applicable to our judicialsystem and laws, and it is obnoxious to our [Texas] Constitution....”

Id. I maintain that the wholesale transfer of authority for factfinding from juries to thebureaucracy announced here is no less offensive to the rights our Constitutionguarantees.

Beginning with the constitutional amendment that led to the creation of the RailroadCommission, the use of administrative agencies in Texas has steadily increased.Today this arm of government implements broad legislative plans regulating manyareas of public concern, including the conduct of public utilities, the development andconservation of energy resources, and the protection of the environment.

To preserve the workings of modern government, some exception for administrativeproceedings may be necessary, but it should be drawn narrowly so as not toencompass every conceivable action that could arguably be assigned to someexisting or future administrative body. And that is precisely what, until today, our Texascourts have usually done. In two decisions concerning administrative cancellation of apermit to sell liquor, courts narrowly recognized that no “cause of action” was involved.The court in Bradley v. Texas Liquor Control Bd., 108 S.W.2d 300 (Tex.Civ.App.—Austin 1937, writ ref'd n.r.e.), specifically excluded from its ruling cases “basedupon a civil right of [an individual] to compensation.” Relying on Bradley, the court inTexas Liquor Control Bd. v. Jones, 112 S.W.2d 227, 229–30 (Tex.Civ.App.—Texarkana 1937, no writ), noted that unlike other administrative proceedings thatmight involve rights of the same character as a “cause of action,” the cancellation of aliquor license is a proceeding brought by the state pursuant to its police power toprotect the “welfare, health, peace ... and safety of the people of Texas.”

This concern for “the safety of the people of Texas”—the rights and needs of thepublic, id., is not dissimilar from the doctrine of “public rights” rather imperfectlyemployed by the federal courts. State cancellation of a liquor license essentiallyrepresents a “public right.” In Atlas Roofing Co. v. Occupational Safety & HealthReview Comm'n, 430 U.S. 442, 97 S.Ct. 1261, 51 L.Ed.2d 464 (1977), the courtdistinguished between cases involving governmental action to protect the public healthand safety and those involving only private rights:

At least in cases in which “public rights” are being litigated—e.g.,cases in which the government sues in its sovereign capacity toenforce public rights created by statutes ... [the constitutional right to ajury trial] does not prohibit ... assign[ment of] the factfinding function toan administrative forum with which the jury would be incompatible.

Id. at 450, 97 S.Ct. at 1266.

Bradley and Jones are also consistent with writings in other jurisdictions strictlyexcluding from any administrative public rights exception actions invoking private *465rights for which the Constitution mandates a right to trial by jury:

Although the award of general compensatory damages may havesubstantive effect, in that it deters violation of the regulatory scheme... when the damages awarded advance a substantial private interestin remuneration that is disproportionate to the concept of public relief,the right to a jury trial is implicated and a jury is required.

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McHugh v. Santa Monica Rent Control Bd., 49 Cal.3d 348, 261 Cal.Rptr. 318, 344,777 P.2d 91, 117 (1989) (Panelli, J., concurring); Bishop Coal Co. v. Salyers, 181W.Va. 71, 380 S.E.2d 238, 246 (1989) (subjective determinations of damages areconstitutionally entrusted to juries); Broward County v. La Rosa, 505 So.2d 422, 424(Fla.1987) (constitutional right to jury precludes administrative awards of unliquidateddamages).

Fortunately the rights of Texans are not constrained by whether the right to a jury trialwas preserved in analogous actions in 1876. We have written quite clearly that aneven broader right to trial by jury is afforded under article V, section 10 than underarticle I, section 15. State v. Credit Bureau of Laredo, Inc., 530 S.W.2d 288, 292(Tex.1975). Relying on Walsh v. Spencer, 275 S.W.2d 220, 223 (Tex.Civ.App.—SanAntonio 1954, no writ), which described the “much broader guarantee” of the JudiciaryArticle, and Tolle v. Tolle, 101 Tex. 33, 104 S.W. 1049, 1050 (1907), which said of theprovision, “[l]anguage cannot be more comprehensive than this,” we expresslydisapproved of earlier cases “mistakenly” treating the two provisions

as identical in meaning, that is, as protecting the right of trial by jury only as itexisted at common law or by statutes in effect at the time of the adoption of theConstitution.530 S.W.2d at 292 (citing Hickman v. Smith, 238 S.W.2d 838 (Tex.Civ.App.—Austin 1951, writ ref'd), as improperly assigning the two provisions equivalentmeaning). We held that the Judiciary Article affords a unique right to trial by juryeven for causes of action unknown at the time of the Constitution's adoption. Id.

Instead of heeding this holding, the majority seizes upon a citation to a commentary inthat writing as an excuse to rewrite the Constitution. In the discussion of the article Vjury trial guarantee in Credit Bureau, which involved no administrative action, we noteda few “isolated” proceedings that do not constitute a “cause” that have been identifiedon a “case-by-case determination.” Id. at 293. We made shorthand reference to acommentator's brief list of exceptions carved from the otherwise inviolate right to trialby jury. Id. (citing Whitney R. Harris, Jury Trial in Civil Cases—A Problem inConstitutional Interpretation, 7 Sw.L.J. 1, 8 (1953) (listing child custody by habeascorpus and adoption proceedings, election contests, and contempt proceedings)).Additionally, Harris relied upon Jones for the broader proposition that proceedingsoriginally brought before administrative agencies are excepted from constitutional juryrights. 7 Sw.L.J. at 12–13.

*466 Today the majority overexpands this exception before considering the rule itprefers that exception to swallow. In Credit Bureau we attributed “broad meaning [to]the word ‘cause.’ ” 530 S.W.2d at 292. In defining it, we did not limit its meaning in thepast, but turned to a relatively contemporary dictionary as well as older authority. Id.Clearly this term must adapt to modern developments; our understanding of a “cause”is not frozen in 1876. See Davenport v. Garcia, 834 S.W.2d 4, 19 (Tex.1992). Boththe text of our Constitution and its historical backdrop demand that the right to trial byjury remain “inviolate.” When, as here, however, changing circumstances requirereexamination of the scope of this right in order to preserve the evolved workings ofgovernment, we must ensure that any exception does not destroy the guarantee.We should instead follow the command of our Constitution in light of our contemporarysituation, by limiting any exception in the most narrow way possible without completelyundermining the administrative state.

I would accordingly clarify any existing exception for administrative proceedings topreserve the right to trial by jury in all suits except those in which the state is enforcinga regulation or statute protecting the public. If construed too broadly, however, eventhis exception limited to “public rights” could destroy our traditional reliance on the jurysystem. Indeed, despite the writing in Atlas Roofing, such erosion has alreadybegun at the federal level. Properly limited, however, a “public rights” administrativeexception to the right to trial by jury is both constitutionally sound and easy to apply.

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While perhaps far-reaching in other contexts, “public rights” that conflict with the rightof each member of the public to have factual disputes resolved by a public jury mustbe narrowly construed. I would not permit the concept of “public rights” to be pervertedto deny such a fundamental right. In this limited circumstance, I would defineproceedings involving “public rights” as those in which the government, as a real partyin interest, enforces a regulatory or statutory scheme. Contrary to the majority, I donot suggest that we follow its standard preference for copying a “federal test,” 852S.W.2d at 451 n. 24. Rather, I recommend a narrow and clear Texas standard thatlooks to Texas law predating Atlas Roofing, and which learns from the misapplicationof this doctrine in the federal courts.

Here TAB's members are not entitled to a jury trial because the state is enforcingpublic regulations by imposing administrative penalties. Although this action isanalogous to a common law nuisance claim, here the state is protecting the public'sright to a clean environment rather than an *467 individual's use and enjoyment ofprivate property.

The right to trial by jury is a critical state constitutional guarantee. Denigrating myconcern with protecting this liberty, the majority dismisses my writing as “trumpeting.”852 S.W.2d at 451 n. 23. The trumpet call has sounded from the very earliest days ofour Republic, heralding our right to trial by jury, a clarion to our citizens to shout out topreserve their heritage against attack. It demands that any intrusion on this right benarrow in scope, clearly-announced and thoughtfully considered. The majority'srefusal to define with certainty its erosion of the right to trial by jury sounds a weak andshaky chord, reflecting a lack of commitment to this fundamental guarantee.Attempting to let the strong note drown the weak, the majority seeks to hide itsequivocation by reference to my conclusion that a jury trial is not required under theseanti-pollution statutes, id., and by criticizing the narrow, clear and thoughtful exception Ihave drawn today. Id.

The inviolate nature of the right to trial by jury demands that this vital guarantee becircumscribed in only the most extraordinary circumstances and that any exception toit be clearly and narrowly construed. Although I do not disagree with the resultannounced by the majority, the analysis employed is designed to destroy one of ourmost precious freedoms as Texans. The alternative I offer would permit ouradministrative bodies to implement efficiently their regulations, while ensuring thatefficiency concerns do not envelop a fundamental civil liberty.

III. Standing

The issue of standing is a stranger to this litigation. No party before this court hasever asserted that the Texas Association of Business lacked capacity to challengethe actions of state government. How rare the occasion when all litigants agree on theproper resolution of an issue, but how truly extraordinary is such unanimity when theparties are two state regulatory agencies, the Texas Association of Business, theSierra Club and the League of Women Voters. This, nonetheless, is the exceptionalcircumstance in which we find ourselves today as all of these diverse parties haveurged the court not to decide this matter in the manner adopted. Addressing thequestion of standing solely at the belated insistence of the majority, all partiesasserted that this issue was not in dispute; that, under recent precedent, standing hadbeen waived; and, alternatively, that the record adequately demonstrated the rightof the Texas Association of Business under Texas law to initiate this litigation. Whythen does the majority insist on writing? Because it dare not pass up the opportunity toclose access to our courts to those citizens who choose to challenge environmentaldegradation, neighborhood destruction and consumer abuse. Through a narrowlycrafted test, the majority extends an invitation to TAB to come into the courts whiletelling other public interest groups to stay out.

While devoting over half of today's opinion to a nonissue in this litigation, the majorityoddly limits its inquiry to only one of the three organizations asserting standing here.

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Nothing is said as to the League of Women Voters and the Sierra Club, both of whichintervened in the trial court and were aligned as defendants with the State. Assertingthe interests of its members in water and air quality, as well as its involvement inprotecting the state's natural resources, the League of Women Voters claimedstanding to defend the challenged regulations. Similarly, the Sierra Club *468 based itsstanding on its purpose of environmental enhancement and conservation of naturalresources. By completely ignoring whether these groups were proper parties and byembracing a federal standing test hostile to their participation, the majority erects newbarriers to deny Texans access to Texas courts.

To achieve this result, the majority must overcome what, until recently, was viewed asa considerable obstacle—Texas law. This court has repeatedly held that the issue ofstanding may not be raised for the first time on appeal, either by the parties or by thecourt. In Texas Industrial Traffic League v. Railroad Comm'n of Texas, 633 S.W.2d821, 822–23 (Tex.1982), we concluded:

A party's lack of justiciable interest must be pointed out to the trial court ... in awritten plea in abatement, and a ruling thereon must be obtained or the matter iswaived.

No plea challenging the standing of [the party] was filed in the district court. Theissue of standing was therefore waived, and the court of appeals erred in writingon the issue at all.

(Emphasis supplied). The sole issue presented in Coffee v. William Marsh RiceUniversity, 403 S.W.2d 340 (Tex.1966), was whether the court of appeals erred indismissing a case, on its own motion, for want of standing. This court held that,because standing had not been challenged in the trial court, that issue could notdeprive the court of appeals of subject matter jurisdiction. Id. at 347–48. Assumingthat standing was lacking in Sabine River Authority of Texas v. Willis, 369 S.W.2d348, 349–50 (Tex.1963), this court nonetheless held that dismissal was erroneous,because the absence of a justiciable interest was not first raised in the trial court. Wehave repeatedly cited these decisions with approval. See Central Educ. Agency v.Burke, 711 S.W.2d 7, 8 (Tex.1986) (per curiam); American General Fire & CasualtyCo. v. Weinberg, 639 S.W.2d 688 (Tex.1982); Cox v. Johnson, 638 S.W.2d 867, 868(Tex.1982) (per curiam).

Time and time again, the courts of appeals have also refused to consider challengesto standing not first raised in the trial court. Until today, the only criticism of our priorholdings to this effect has *469 consisted primarily of writings authored by oneappellate judge.

The majority has a simple way to deal with this venerable body of law—overrule onlyone case, making today's abrupt change in the law appear less drastic, while ignoringthe rest. In fact, six Texas Supreme Court cases must be overruled and no less thantwenty-five decisions of the courts of appeals must be disapproved to reach today'sresult. The concept of reliance on the prior decisions of Texas courts has long sinceceased to offer the slightest restraint on this majority.

Bulldozing a new path through this jurisprudential forest, the majority vaults standing toa new and remarkable prominence by suddenly discovering that it has not just one buttwo constitutional bases. And what unusual constitutional pillars each of these newfinds represents. First, the proscription of the separation of powers doctrine againstissuance of advisory judicial opinions allegedly requires rigorous enforcement ofstanding even when no party debates its existence. This link between standing andseparation of powers is not predicated on any directly relevant prior court decision,but instead is entirely premised on an article openly antagonistic to standing forenvironmental groups. 852 S.W.2d at 444, citing Atonin Scalia, The Doctrine ofStanding as an Essential Element of the Separation of Powers, 17 Suffolk U.L.Rev.881 (1983). The current majority may be the first in the nation to anchor standing on

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this constitutional theory.

The authorities addressing the prohibition on advisory opinions cited in support of thisproposition, of course, in no way implicate the question of standing. This precedent-setting concern with advisory opinions contrasts markedly with the eagerness to issuethis very type of writing within the last year. See Edgewood Indep. Sch. Dist. v. Kirby,804 S.W.2d 491, 501 (Tex.1991) (Doggett, J., concurring); Carrollton–FarmersBranch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489, 537(Tex.1992) (Doggett, J., dissenting) (advisory opinions issued and retracted asnecessary to thwart efforts to satisfy the constitutional command of equity andefficiency in our public schools). Writing on an issue not raised by any party, as themajority reaches out to revise the law of standing today, seems to me the veryessence of an “advisory” opinion.

The second newly-announced constitutional basis is equally ironic—our state's vitalguarantee that “[a]ll courts shall be open,” Tex. Const. art. I, § 13, in some inexplicableway, mandates that they be closed to some and requires continual judicial monitoringof all who attempt to enter. No authority of any type is cited for this *470 propositionthat “open” courts really means “closed” courts. Nothing in the history or text of theprovision justifies this reading nor has any Texas court previously attempted suchconverse interpretation. This constitutional guarantee is used today as a two-edgedsword: the majority invokes the open courts provision to bar environmental groupsfrom seeking judicial assistance in enforcing the laws, while in the very same opinionmisinterpreting this provision to allow continued violation of statutes protecting ourprecious natural resources.

Then, with a final flourish, standing is conveniently classified as a nonwaivablecomponent of subject matter jurisdiction. Until today, Texas followed the rule, adoptedby many of our sister states considering the issue, that objections to a party'sstanding are waived if not first raised in the trial court. No Texas case is cited forthe proposition that standing is part of nonwaivable subject matter jurisdictionbecause, until today, this court had repeatedly stated precisely the very opposite—thatstanding is not jurisdictional.

Texas has with good reason determined that standing is not excepted from traditionalrules of appellate procedure. Our appellate system is predicated on the requirementof presentation of complaints to the lower court coupled with preservation and briefingin the reviewing court. See Tex.R.App.P. 52; 74(d), 131(e). Appellate courts faceconsiderable difficulties in deciding an issue not presented to the trial court; ordinarily,the necessary facts will not be fully developed. The unstated effect of today's opinionis to require trial courts to develop facts as to undisputed issues or risk subsequentappellate reversal. This is not an effective use of our limited judicial resources.

The requirement that issues first be presented to the trial court serves anotherfunction—preventing parties from “laying behind the log”:

The reason for the requirement that a litigant preserve a trialpredicate for complaint on appeal is that one should not be permittedto waive, consent to, or neglect to complain about an error at trial andthen surprise his opponent on appeal by stating his complaint for thefirst time.

Pirtle v. Gregory, 629 S.W.2d 919, 920 (Tex.1982). While this court has condemned“trial by ambush,” *471 Gutierrez v. Dallas Indep. School Dist., 729 S.W.2d 691, 693(Tex.1987), today the majority promotes “ambush on appeal.”

Three purported policy justifications for the majority's actions are offered, with not asingle supporting authority. The first concern is that a strict standing rule is necessaryto prevent collusive litigation. Under Texas law, the filing of a fictitious suit constitutescontempt by counsel, Tex.R.Civ.P. 13, and may serve as the basis for a host of

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sanctions, including dismissal with prejudice. Tex.R.Civ.P. 215 2b(5). Nor does ourTexas judiciary lack the ability to reject collusive litigation. Felderhoff v. Felderhoff,473 S.W.2d 928, 932 (Tex.1971) (“We believe that our laws and judicial system areadequate to ferret out and prevent collusion....”); cf. Whitworth v. Bynum, 699 S.W.2d194, 197 (Tex.1985) (refusing to uphold Texas Guest Statute because of danger ofcollusion). Adhering to precedent today would in no way undermine the power todismiss fraudulent suits.

The second virtue proclaimed for today's holding is the guarantee that the lowercourts will be restrained from exceeding their jurisdictional powers. 852 S.W.2d at445. This concern is derived solely from the federal law mandate that a federalappellate court is duty-bound to verify not only its own jurisdiction but that of the lowercourts as well. Federal courts, however, have limited jurisdiction; Texas courts do not.Our Texas Constitution creates courts of general jurisdiction, investing them with all ofthe “judicial power of this State.” Tex. Const. art. V, § 1. The differences are evident inour procedural rules. While a federal court must affirmatively ascertain jurisdictionover parties appearing before it, a Texas court's jurisdiction is presumed until provenlacking by a contesting party. See Tex.R.Civ.P. 120a.

Lastly, the majority expresses concern as to the res judicata effect on other potentiallitigants of a judgment rendered in the absence of genuine standing. 852 S.W.2d at445–446. Aware of this concern, the very federal judiciary that this majority is soeager to emulate has failed to perceive it as a problem of significance. InternationalUnion, United Automobile, Aerospace and Agricultural Implement Workers ofAmerica v. Brock, 477 U.S. 274, 290, 106 S.Ct. 2523, 91 L.Ed.2d 228 (1986). Ifrepresentation is inadequate, or a conflict of interest between members exists, anyjudgment will have minimal preclusive effect. Id. Instead of completely barring accessto the courts, procedural safeguards can ameliorate any potentially overbroad effects.See generally Charles A. Wright, Arthur R. Miller & Edward H. Cooper, 18 FederalPractice & Procedure § 4456 at 490–94 (1981 & Supp.1991).

The manufactured nature of the majority's concerns becomes all the more evidentwhen the real world experience of Texas is considered. The majority is unable to pointto a single example of collusion during the three decades our Texas rule, which allowsthe issue of standing to be waived, has been in place. During this period there havelikewise been no examples of lower courts making a grab for extrajurisdictional power,nor of oppressed litigants shackled by the res judicata effect of contrived litigation.

In defining state requirements for standing, we are in no way bound by federaljurisprudence founded upon converse jurisdictional principles from our own. Texascourts can afford their citizens access to justice in circumstances where they wouldhave been unable to establish standing in the federal courts. See City of Los Angelesv. Lyons, 461 U.S. 95, 113, 103 S.Ct. 1660, 1671, 75 L.Ed.2d 675 (1983) (“statecourts need not impose the same standing ... requirements that govern federal-courtproceedings”); Doremus v. Board of Education, 342 U.S. 429, 434, 72 S.Ct. 394,397, 96 L.Ed. 475 (1952) (state courts not restrained by “case or controversy”limitations of Federal Constitution); Greer v. Illinois Housing Development Auth., 122Ill.2d 462, 120 Ill.Dec. 531, 524 N.E.2d 561 (1988) (“We are not, of course, requiredto follow the Federal law on issues of justiciability and standing.”).

The differences between our Texas Constitution and the Federal Constitution not onlyjustify, but also require, that citizen groups be accorded a broader right of access*472 to our state courts. The Texas Constitution contains no express limitation ofcourts' jurisdiction to “cases” or “controversies,” as provided by the federal charter.U.S. Const. art. III, § 2. Instead, it affirmatively protects the rights of litigants to gainaccess to our judicial system:

All courts shall be open, and every person for an injury done him, inhis lands, goods, person or reputation, shall have remedy by duecourse of law.


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Tex. Const. art. 1, § 13. As this court has recognized,

The provision's wording and history demonstrate the importance ofthe right of access to the courts.... The right of access to the courtshas been at the foundation of the American democratic experiment.

LeCroy v. Hanlon, 713 S.W.2d 335, 339 (Tex.1986).

This constitutional mandate is reflected in decisions of this court adopting an “opencourts” approach to standing in general and associational standing in particular. Onseveral occasions, we have recognized the power of the Legislature to exemptlitigants from proof of “special injury.” Scott v. Board of Adjustment, 405 S.W.2d 55,56 (Tex.1966) (standing may be shown even in the absence of particular damage);Spence v. Fenchler, 107 Tex. 443, 180 S.W. 597 (1915) (under statute, “any citizen”able to seek injunction, without showing particular interest or personal damage). Inenacting the Uniform Declaratory Judgments Act, the Texas Legislature has granteda broad right of standing: any person “whose rights, status or other legal relations areaffected by a statute” may seek a declaration of those rights. Tex.Civ.Prac. &Rem.Code § 37.004 (emphasis supplied).

This court has previously extended its “open courts” approach to groups representingthe interests of their members. In Texas Highway Comm'n v. Texas Ass'n ofSteel Importers, 372 S.W.2d 525, 530–31 (Tex.1963), we permitted a businessassociation to challenge an administrative order. Although the order addressed onlythe import of foreign products for highway construction, this court recognized standingof an organization whose interest in foreign imports was not so limited:

Some of [the respondents] are owners of imported foreign manufactured productssuitable for highway construction purposes. All of them are actively engaged in thesale and use of imported manufactured products.... [S]uch parties clearly have theright and litigable interest to have the challenged ... Order declared null and void.Id. at 531. Similarly, in Touchy v. Houston Legal Foundation, 432 S.W.2d 690(Tex.1968), the court considered whether an organization of attorneys had standingto maintain a suit against a charitable corporation to restrain violations of ethicalcanons governing the practice of law. Based solely on “the special interestattorneys have in their profession,” the court held standing was established.

The “open courts” approach of Touchy and Texas Highway Commission is quitesufficient to allow TAB access to the Texas *473 courts. These two associationalstanding cases are all but ignored today, brushed aside as setting forth “no particulartest.” 852 S.W.2d at 446.

Yet in these cases in which the merits of standing are preserved for appellate courtreview, the Texas test applied has not been complicated. We simply look to whether aparty has a stake in the action sufficient to ensure adversarial presentation of theissues and to whether the court's judgment will have any effect on those before it. SeeBoard of Water Engineers v. City of San Antonio, 155 Tex. 111, 283 S.W.2d 722,724 (1955) (“there shall be a real controversy between the parties, which ... will beactually determined by the judicial declaration sought.”). Because both of theseconsiderations are met in the instant case, reference to federal law is whollyunnecessary.

Today, however, to justify meddling with Texas standing law, the majority declares that“we foresee difficulties” not here with TAB, but in future cases involving organizationalstanding. 852 S.W.2d at 446. To cure these perceived but as yet totally unrealizedwoes, the majority imposes a difficult to meet, easy to manipulate standard drawnfrom federal law “that lends itself to our use.” Id. at 447. Never needing an invitation toimpose more federal requirements on Texas citizens, the majority writes into ourTexas law books the confused and troubling federal standing limitations. Notsurprisingly, that law has taken a regressive turn, denying standing to public interest

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associations, including those seeking to protect the environment. See Gene R.Nichol, Jr., Abusing Standing: A Comment on Allen v. Wright, 133 U.Pa.L.Rev. 635,659 (1985) (“One could perhaps be forgiven for confusing standing's agenda with thatof the New Right.”).

The benefits of permitting an association to represent the concerns of its membersare manifest. As recognized in United Auto Workers, 477 U.S. at 290, 106 S.Ct. at2533, “[T]he primary reason people join an organization is often to create an effectivevehicle for vindicating interests that they share with others.” Judicial economy ispromoted when one litigant can, in a single lawsuit, adequately represent manymembers with similar interests, thus avoiding repetitive and costly actions. The widerrange of resources often available for associations enhances their effectiveness inlitigation:

Special features, advantageous both to the individuals represented and to thejudicial system as a whole, ... distinguish suits by associations on behalf of theirmembers.... An association suing can draw upon a pre-existing reservoir ofexpertise and capital. “Besides financial resources, organizations often havespecialized expertise and research resources relating to the subject matter of thelawsuit that individual plaintiffs lack.” ... These resources assist both courts andplaintiffs.

Id. at 289–90, 106 S.Ct. at 2532–33. In some cases, an injury that is substantial as tomany may have an individual financial impact too small to make a challengeeconomically feasible. Associational representation may be the only means ofredressing conduct when the harm is limited in degree but substantial segments ofsociety are affected. Additionally, in challenging policies of government, organizationsare generally less susceptible than individuals to retaliation by the bureaucrats theychallenge.

These benefits are ignored as the majority declares that henceforth the right ofassociations to bring suit in Texas courts will be constricted by a three-part federaltest set forth in Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333,343, 97 S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977), requiring that “(a) its memberswould otherwise have standing to sue in their own right; (b) the interests it seeks toprotect are germane to the organization's *474 purpose; and (c) neither the claimasserted nor the relief requested requires the participation of individual members inthe lawsuit.”

Yet the Hunt test won't hunt in Texas. It is adopted purportedly because of thesimilarities between the state and federal constitutional underpinnings of the standingdoctrine. Two critical factors are ignored: (1) the significant differences between theTexas and United States Constitutions and (2) the fact that much of federal standingdoctrine is not mandated by the federal charter, but is imposed solely on the groundsof judicial “prudence.” Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45L.Ed.2d 343 (1975) (“This [standing] inquiry involves both constitutional limitations onfederal-court jurisdiction and prudential limitations on its exercise.”).

The majority works a grave disservice to our Texas Constitution by equating our opencourts provision, affirmatively guaranteeing all Texans access to our judicial system,with an express federal constitutional limitation on the right to seek redress in court.Despite the fact that the two provisions are vastly different in language, history andpurpose, the majority nonetheless determines to “look to the more extensivejurisprudential experience of the federal courts” to determine standing. This is clearlyan erroneous course. See Davenport v. Garcia, 834 S.W.2d 4 (Tex.1992, orig.proceeding) (in blindly adhering to federal law, “based on different language, differenthistory and different cases, “[f]rom our treasured state heritage, law and institutions ...[we] derive nothing....”).

Even the federal constitutional constraint is a simple one, looking to whether “the

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plaintiff has ‘alleged such a personal stake in the outcome of the controversy’ as towarrant his invocation of the court's remedial powers on his behalf.” Warth, 422 U.S.at 498, 95 S.Ct. at 2205, quoting Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691,1103, 7 L.Ed.2d 663 (1962). In fact, this bare-bones test closely resembles theapproach that Texas courts have long chosen to follow. To the extent Hunt constructsadditional barriers to access to our judicial system, they are wholly court-created.No justification for their adoption is contained in the majority opinion.

Moreover, in turning to the federal law of standing, the majority invokes a doctrine thathas been criticized more heavily and justifiably than perhaps any other. See, e.g.,Gene R. Nichol, Jr., Rethinking Standing, 72 Cal.L.Rev. 68, 68 (1984); Mark V.Tushnet, The “Case or Controversy” Controversy, 93 Harv.L.Rev. 1698, 1713–21(1980). Even the United States Supreme Court has recognized that federal standingrequirements have an “iceberg quality,” Flast v. Cohen, 392 U.S. 83, 94, 88 S.Ct.1942, 1949, 20 L.Ed.2d 947 (1968); yet the majority fails to navigate a course, notunlike the captain of the Titanic, that would steer Texas well away from this potentialdisaster.

The concept of standing is “employed to refuse to decide the merits of a legal claim.”Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice &Procedure § 3531, at 338. Critics of the doctrine's complexity and uncertainty haverecognized how subject it is to manipulation: “standing ... is no more than a convenienttool to avoid uncomfortable issues or to disguise a surreptitious ruling on the merits.”Id. at 348 (citing commentaries). Important rights can be left unprotected *475 as aresult. Id. at § 3531.3, 416–17 (“Standing decisions present courts with an opportunityto avoid the vindication of unpopular rights, or even worse to disguise a decision onthe merits in ... opaque standing terminology.... Unarticulated and arbitrarypredilection, cast as standing, defeats rights that deserve judicial protection.”).

Even during the three years that this particular cause has been pending here, thefederal courts have been hard at work to manipulate standing requirements to barpublic interest groups from seeking judicial vindication of rights common to theirmembers. In Lujan v. National Wildlife Federation, 497 U.S. 871, 110 S.Ct. 3177, 111L.Ed.2d 695 (1990), a nationally-recognized environmental group challenged a newdevelopment classification for certain federal wilderness areas that allegedly violatedseveral federal statutes. The suit was dismissed for lack of standing based upon arigid construction of the requirement of injury to the association's members. Thisdecision has been widely criticized as significantly impairing the ability of publicinterest groups to represent their members, particularly those that seek to protect thisnation's environment and natural resources. Today the majority eagerly positionsitself to give the same treatment to those Texans who would petition our state courtsto protect the public interest. The majority not only conspicuously relies on Lujan, 852S.W.2d at 445, but also embraces the extremist anti-environmental stancepropounded in an article openly critical of judicial opinions permitting citizens tocomplain of harm inflicted upon our natural resources. Id. at 443–444, citing AtoninScalia, The Doctrine of Standing as an Essential Element of the Separation ofPowers, 17 Suffolk U.L.Rev. 881 (1983).

Rather than a careful consideration of our Texas precedent and our unique TexasConstitution, today Texans are handed yet another unthinking embrace of federal law.Claiming “guidance” from federal precedent, 852 S.W.2d at 445, the majorityoverrules all Texas cases treating standing as a procedural issue, then unnecessarilymodifies all Texas precedent addressing the merits of standing. Without explanation,today's opinion simply photocopies into our Texas law books the federal law ofstanding with all of its much-criticized complexities. Once again the majority choosesmore Washington wisdom for Texas when what we need is more Texas thinking inWashington. See Bexar County Sheriff's Civ. Service Comm'n v. Davis, 802 S.W.2d659, 665 (Tex.1990) (Doggett, J., dissenting).

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While today the corporate members of the Texas Association of Business arepermitted to challenge the bureaucracy, tomorrow this same reasoning will beemployed to bar public interest, neighborhood, environmental and consumer groupsfrom vindicating the rights of their members. Today's opinion not only repudiates ourpast “open courts” approach to access to the judicial system but also eliminates thelong-recognized appellate requirement that *476 error be preserved. The majority hascharged well beyond traditional constraints in its writing.

To the extent this case is about standing, it is about standing still, about closing thecourthouse door, once standing open. For today the majority extends a standinginvitation to those who would harm our environment to act without fear of citizenchallenge in the Texas courts.

IV. Conclusion

Today the environment is the immediate victim. Those who pollute our rivers, releasetoxins into our air, and damage our land cannot be promptly penalized. Instead, onlyafter the very slow wheels of our judicial system have creaked to a stop will violatorsof environmental protection laws be held accountable.

Yet the environment is not the whole story. Much as a river may seem pure and cleareven at the place where illegal sewage is being pumped into it, the danger from acourt's opinion may not be immediately apparent on its surface. Only after thereasoning is applied in other cases is the severity of the resulting harm to our systemof justice revealed. Today's impairment of the ability of concerned citizens to vindicatethe rights of many in our courts and the majority's knockout punch to the right of trialby jury will unfold in future cases to bar participation of ordinary citizens in Texascourts.

The mess in Texas is not only with our environment but with the misinterpretation ofthe law.

GAMMAGE, Justice, concurring and dissenting.Though I would prefer not to write separately, I find I am unable to agree entirely withany single opinion of the court's other members. I must write this concurring anddissenting opinion because, while I agree with the disposition of this cause, I disagreewith substantial portions of the reasoning and language in the majority's opinion and Iagree with part of Justice Doggett's concurring and dissenting opinion.

I agree with the preliminary portion of Justice Cornyn's majority opinion, whichcorrectly sets forth the regulatory scheme and basic dispute.

I agree substantially with Part II of Justice Doggett's opinion and his jury trialdiscussion. In my view, whether or not a suit is a “cause” for purposes of the right to ajury trial is not controlled by whether it was first determined by an administrativeagency. I also agree with Part III of Justice Doggett's opinion relating to standing,which I will further address below. I agree with Part II of Justice Cornyn's majorityopinion. The statutes may not condition access to the courts on prepayment of apenalty. The principle here is the same as for a supersedeas bond. The statute maycondition the right to restrain the prevailing party (the State) from executing(enforcing) its judgment (administrative order) on the posting of a bond for the fullamount. It may not, however, condition the right to appeal the judgment on posting ofthe full penalty imposed. Dillingham v. Putnam, 109 Tex. 1, 5–6, 14 S.W. 303, 304(1890). This is true even if that “judgment” takes the form of an administrative agencydecision. Administrative agency decisions, for the most part, entitle an appellant toonly “substantial evidence” as opposed to de novo review. To further burden thoseregulated with prepayment of the “judgment” as the only alternative to total loss ofeven substantial evidence review violates the basic concept of our constitutional opencourts in Texas.

As to the issue (or non-issue) of standing, the majority in effect adopts the position of


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federal courts that standing is a jurisdictional question. Otherwise it cannot befundamental error to be addressed when no party raises it. Standing was not raisedand should not be addressed in this cause.

Even assuming standing is an element of subject matter jurisdiction, the court shouldnot write on the issue in this case. Even though a judgment is void and subject tocollateral attack at any point if there is an absence of subject matter jurisdiction, see*477 Mercer v. Phillips Natural Gas Co., 746 S.W.2d 933, 936 (Tex.App.—Austin1988, writ denied), unassigned error of lack of jurisdiction should be addressed only ifjurisdiction is in fact lacking. Since the majority concludes there was standing in thiscase, and since no party raised its existence as an issue, there is no reason toaddress it at all, even if it would be fundamental error if lacking.

The basis for the majority's discussion is its sudden revelation that “[s]tanding isimplicit in the concept of subject matter jurisdiction.” 852 S.W.2d at 443. Their opinionthen claims this implication comes from the separation of powers doctrine and theopen courts provision of the Texas Constitution. It is a curiosity of legal scholarship,however, that in the 156 prior years of its existence, this court never before foundstanding “implicit” in those constitutional provisions, but in fact wrote that standingcould be waived and hence was not fundamental error. Texas Indus. Traffic League v.Railroad Comm'n, 633 S.W.2d 821, 823 (Tex.1982). Justice Doggett's opinionadequately addresses why there is no implication from those provisions that standingis jurisdictional.

The majority's struggle to put standing in issue whenit is not prompts me to addresstwo statements in its opinion which strike me as either misleading or just plain wrong.The majority asserts, without citation to authority, that “[s]ubject matter jurisdiction isnever presumed,” 852 S.W.2d at 443–444, and in a footnote repeats that assertion inurging that “Justice Doggett confuses subject matter jurisdiction with personaljurisdiction. Only the latter can be waived when uncontested. See TEX.R.CIV.P. 120a.”852 S.W.2d at 444 n. 5. The majority's claim that subject matter jurisdiction is neverpresumed is at its very best misleading.

Connected with this discussion is the implicit assertion in another footnote that thereis a “jurisdictional standing” that is different from “objections to join a real party ininterest or to a party's capacity to sue rather than jurisdictional standing.” 852 S.W.2dat 445 n. 7. These remarks are made in an attempt to distinguish the cases cited byJustice Doggett from those of other states holding that standing is not jurisdictional. Isuppose we should be encouraged to find out that there are some types of “standing”that will not be jurisdictional, but it occurs to me that by using the term “jurisdictionalstanding” the court is begging the question—if it is jurisdictional, then it must befundamental. The problem is that the Texas cases, at least as I read them, define“standing” in terms of “the party's capacity to sue,” which is one example we aregiven of non-jurisdictional standing. The majority opinion is calculated—no,guaranteed—to cause confusion because apparently this court will henceforth telllitigants on a case-by-case basis whether the standing problems in their cases are“jurisdictional” or merely formal.

There is no need to create this confusion. The majority's fomenting it, however,requires that I address it to some extent. I will discuss the “subject matter neverpresumed” proposition first, then weave into the “jurisdictional standing” language.

I agree that subject matter jurisdiction is never presumed in one respect. Subjectmatter jurisdiction exists when the nature of the case falls within a general category ofcases the court is empowered to adjudicate under the applicable constitutional andstatutory provisions. See Pope v. Ferguson, *478 445 S.W.2d 950, 952 (Tex.1969),cert. denied, 397 U.S. 997, 90 S.Ct. 1138, 25 L.Ed.2d 405 (1970); Bullock v. Briggs,623 S.W.2d 508, 511 (Tex.App.—Austin 1981, writ ref'd n.r.e.), cert. denied, 457 U.S.1135, 102 S.Ct. 2962, 73 L.Ed.2d 1352 (1982). In this sense, there is no presumptionbecause if the case is not one over which the court had constitutional and statutory

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authority to act one does not “presume” subject matter jurisdiction to make it valid. If ajustice of the peace grants a divorce, the judgment is void because that is not the typeof case the constitution and legislature entrusts to that court, and appellate courts willnot “presume” the justice court had jurisdiction in order to make the judgment valid.

But what the majority addresses here under the rubric of “standing” is not a courtassuming jurisdiction over a type of dispute for which the statutes do not grant itpower. The district court undoubtedly had jurisdiction over the declaratory judgmentand injunction action brought there, since district courts may entertain declaratoryjudgment and injunction actions. The question of standing the majority gratuitouslyaddresses here is related to an incidental party issue.

This court has expressly held that some facts or similar matters relating to partyissues are presumed. For example, for many years the subject matter jurisdiction forcertain trial courts as set by the statutes has included a jurisdictional amount,sometimes as a minimum amount in controversy and sometimes as both a maximumand minimum. Womble v. Atkins, 160 Tex. 363, 370, 331 S.W.2d 294, 299 (1960).This court has held that jurisdiction, so far as the amount in controversy is concerned,is determined by the pleadings unless facts disclose that a party fraudulently or in badfaith pleaded claims to make it appear there was jurisdiction over the case wherethere was not. Brown v. Peters, 127 Tex. 300, 94 S.W.2d 129, 130 (Tex.Comm'n App.B 1936). Despite the supposed requirement that the pleadings demonstratejurisdiction, we have also held that unless the pleadings affirmatively show there is nojurisdiction, the court will presume the existence of jurisdiction in the trial court. Peekv. Equipment Serv. Co., 779 S.W.2d 802, 804 (Tex.1989). This is not the onlysense in which subject matter jurisdiction is “presumed” as to collateral matters. If adefendant contests jurisdiction and alleges in a verified pleading that plaintiff'sfraudulent pleading amount was for the purpose of conferring jurisdiction on the trialcourt, but the trial judge still renders judgment in the case, on appeal the fact issue ofjurisdiction is presumed decided against the defendant. Ellis v. Heidrick, 154 S.W.2d293, 294 (Tex.Civ.App.—San Antonio 1941, writ ref'd); see also Maddux v. Booth,108 S.W.2d 329, 331 (Tex.Civ.App.—Amarillo 1937, no writ) (appeal bond fromcounty court to district court did not show filemark making the appeal timely, held “theabsence of such a question being made in the trial court the presumption is that thecourt had jurisdiction”). Further, if the very power of the judge who sits is in question,that authority too may be presumed. It is presumed that the assignment of a retiredjudge was properly made pursuant to all statutory requirements absent an expressshowing to the contrary in the record. Texaco, Inc. v. Pennzoil Co., 729 S.W.2d 768,855 (Tex.App.—Houston [1st Dist.] 1987, writ ref'd n.r.e.).

There is a type of lack of standing that this court formerly held to be fundamentalerror. When there was a joint interest in property involved in the litigation, and the jointowner was not joined as a party, this court earlier held that the party defect wasjurisdictional fundamental error that could be raised for the first time on appeal. Theinjustice which that rule caused prompted *479 this court to reduce those“indispensable ” necessary parties to near nonexistence. Petroleum Anchor Equip.,Inc. v. Tyra, 406 S.W.2d 891, 893–94 (Tex.1966); see also Cooper v. Texas GulfIndus., Inc., 513 S.W.2d 200, 203 (Tex.1974). It was no accident that this court listedthe case which the majority today overrules, Texas Indus. Traffic League v. RailroadComm'n, 633 S.W.2d 821 (Tex.1982), as one of the cases showing that“[f]undamental or unassigned error is a discredited doctrine” as applied to thesecollateral defect-in-party type claims. Cox v. Johnson, 638 S.W.2d 867, 868(Tex.1982). After more than a hundred years of trying to narrow fundamental errorexceptions, the majority today takes a quantum leap backward.

In an appeal of or other direct attack on a trial court default judgment, it is service onthe defendant and related due process requirements which must affirmatively appearon the record. In such cases personal jurisdiction cannot be presumed. Capitol Brick,Inc. v. Fleming Mfg. Co., 722 S.W.2d 399, 401 (Tex.1986); Uvalde Country Club v.

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Martin Linen Supply Co., 690 S.W.2d 884, 885 (Tex.1985); McKanna v. Edgar, 388S.W.2d 927, 928 (Tex.1965). Lack of personal jurisdiction can be waived by the party,and personal jurisdiction is presumed in a collateral attack on the judgment, whereaserror in assuming constitutional or statutory jurisdiction not conferred upon the court inquestion can be neither waived nor ignored. See Crawford v. McDonald, 88 Tex. 626,631–32, 33 S.W. 325, 328 (1895). This court has long recognized that there may beparty issues, i.e., the matter is “a mere matter of procedure” as opposed to theconstitutional or statutory power of a court to render judgment, that may be presumedas to either type of jurisdiction. Id. at 630, 33 S.W. at 327.

The majority should not adopt the federal courts' position that “standing” isjurisdictional. There is a fundamental difference between federal law and state law thatcontrols here. Federal courts are courts of limited jurisdiction. Marbury v. Madison,5 U.S. (1 Cranch) 137, 178–79, 2 L.Ed. 60 (1803). The parties asserting a claimmust plead and prove (when not obvious) that jurisdiction exists. FED.R.CIV.P. 8(a). Aparty suing under a statute must establish his right to claim under that statute—hisstanding —in order to establish jurisdiction. General Comm., Brotherhood ofLocomotive Eng'rs v. Missouri–Kansas–Texas Ry. Co., 320 U.S. 323, 337–38, 64S.Ct. 146, 152–53, 88 L.Ed. 76 (1943). Consequently, standing is a part of jurisdictionunder federal procedure, related to the “case” or “controversy” requirement of thefederal constitution. Association of Data Proc. Serv. Orgs. v. Camp, 397 U.S. 150,151, 90 S.Ct. 827, 829, 25 L.Ed.2d 184 (1970). But there is no “case” or“controversy” limitation language in the Texas Constitution. In state courts of generaljurisdiction, the power to entertain any suit not prohibited by either the federalconstitution or federal law is presumed. Cincinnati v. Louisville & N. Ry. Co., 223U.S. 390, 32 S.Ct. 267, 56 L.Ed. 481 (1912). State courts have all residual jurisdictionthat federal courts lack. Id.; see generally 2 CHESTER J. ANTIEAU, MODERNCONSTITUTIONAL LAW § 10:1 at 4–5 (1969). We should continue to recognize that“standing,” like other procedural issues, may be waived. There is no reason tooverrule the Texas Industrial Traffic League case, or its related progeny.

SPECTOR, Justice, concurring and dissenting.I agree with the substance of the concurring and dissenting opinion by JusticeDoggett. I write separately, however, to explain why I would uphold the statutoryrequirement that those who run afoul of environmental laws make timely payment ofadministrative penalties before seeking judicial review.

In two other causes decided today, this court has considered open courts challengesto the statutory requirement that state mineral lessees prepay administrativedeficiency assessments before seeking judicial review of those assessments. Statev. Flag–Redfern Oil Co. and State v. Rutherford Oil Corp., 852 S.W.2d 480(Tex.1993) (considering Tex.Nat.Res.Code § 52.137). Our analysis in those casesfocused on the *480 public interest at stake: the State's only interest in theprepayment requirement, we noted, was its financial interest in immediate access todisputed royalty payments. Id. at 485. Thus, we concluded that the prepaymentrequirement of section 52.137 was no different, in constitutional terms, from thelitigation tax disapproved in LeCroy v. Hanlon, 713 S.W.2d 335, 342 (Tex.1986). Id.

The present case, in contrast, does not involve a litigation tax. The Clean Air Act, theSolid Waste Disposal Act, and the Water Quality Act embody this state's commitmentto protect the environment; and the prepayment requirements struck down today wereintended to give force to that commitment, not to raise revenue. Without the need toprepay administrative penalties, polluters will be left with little if any incentive to timelycomply with environmental laws and regulations.

The effects of today's decision, though, extend far beyond the statutes at issue in thiscase. By rejecting these prepayment requirements, without regard to the state interestinvolved, the majority has struck a severe blow to this state's ability to enforce a broadrange of regulations in the public interest. The similar statutory provisions identified in


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the opinion by Justice Doggett, 852 S.W.2d at 457, cannot be dismissed as minortechnicalities; they are carefully-crafted measures that the legislature considered vitalto protect the public from recalcitrant lawbreakers. Casting those provisions aside willseriously disrupt the effective operation of our state government.

The Texas Constitution cannot be construed in absolutes. The basic right of accessto the courts must be balanced against the need to protect the public's health andsafety. While the restriction at issue in this case may be substantial, I would hold thatthe public's interest in clean air and water, combined with the due process afforded toTAB's members in the administrative process, tips the balance in favor of theprepayment requirement. I therefore dissent.

Footnotes

The League of Women Voters and the Lone Star Chapter of the SierraClub intervened in the suit and were aligned as defendants with theTexas Air Control Board and the Texas Water Commission. JusticeDoggett contends that the standing of the Intervenors should beaddressed along with TAB's. We disagree. Standing concerns a party'sfaculty to invoke the court's subject matter jurisdiction. Once it has beeninvoked by a plaintiff, a court's subject matter jurisdiction is not affectedby the status of defendants or intervenors aligned in interest withdefendants.

Act of June 14, 1985, 69th Leg., R.S., ch. 637, § 33, 1985 Tex.Gen.Laws2350, 2359 (amending Texas Clean Air Act codified atTEX.REV.CIV.STAT.ANN. art. 4.041 (Vernon 1976), currently codified asamended at TEX.HEALTH & SAFETY CODE § 382.088; Act of June 15,1985, 69th Leg., R.S., ch. 795, § 6.001, 1985 Tex.Gen.Laws 2719, 2813(amending Solid Waste Disposal Act codified atTEX.REV.CIV.STAT.ANN. art. 4477–7 (Vernon 1976), currently codifiedas amended at TEX.HEALTH & SAFETY CODE § 361.252; Act of June15, 1985, 69th Leg., R.S., ch. 795, § 5.007, 1985 Tex.Gen.Laws 2719,2806 (amending TEX.WATER CODE § 26.136).

Although some amendments have been adopted since, they are notrelevant to the issue presented in this case. See Diana C. Dutton,ENVIRONMENTAL, 45 SW. L.J. 389 (1991) (summarizing statutorydevelopments).

“An appeal may be taken directly to the supreme court from an order of atrial court granting or denying an interlocutory or permanent injunction onthe ground of the constitutionality of a statute of this state.” TEX.GOV'TCODE § 22.001(c).

Justice Doggett confuses subject matter jurisdiction with personaljurisdiction. Only the latter can be waived when uncontested. SeeTEX.R.CIV.P. 120a.

The analysis is the same under the federal constitution. See e.g.Correspondence of the Justices, Letter from Chief Justice John Jay andthe Associate Justices to President George Washington, August 8, 1793in Laurence H. Tribe, American Constitutional Law 73 n. 3 (2nd ed.1988).

Of the states listed by Justice Doggett, only Illinois, Iowa, Kentucky, NewYork, South Dakota, and perhaps Ohio, Pennsylvania and Washingtonactually treat jurisdictional standing as waivable. See 852 S.W.2d at 469.The other state cases cited deal with the waiver of objections to join areal party in interest or to a party's capacity to sue rather than to


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jurisdictional standing. See International Depository, Inc. v. State, 603A.2d 1119, 1122 (R.I.1992) (addressing real party in interest objection);Princess Anne Hills Civ. League, Inc. v. Susan Constant Real EstateTrust, 243 Va. 53, 413 S.E.2d 599, 603 n. 1 (1992) (addressing realparty in interest objection); Sanford v. Jackson Mall Shopping Ctr. Co.,516 So.2d 227, 230 (Miss.1987) (addressing real party in interestobjection); Jackson v. Nangle, 677 P.2d 242, 250 n. 10 (Alaska 1984)(addressing real party in interest objection); Poling v. WisconsinPhysicians Serv., 120 Wis.2d 603, 357 N.W.2d 293, 297–98 (App.1984)(addressing real party in interest objection); Torrez v. State Farm Mut.Auto. Ins. Co., 130 Ariz. 223, 635 P.2d 511, 513 n. 2 (App.1981)(addressing real party in interest objection); Brown v. Robinson, 354So.2d 272, 273 (Ala.1977); Cowart v. City of West Palm Beach, 255So.2d 673, 675 (Fla.1971) (addressing capacity objection).

Justice Doggett disagrees that standing is a component of subject matterjurisdiction, yet he declines to explain what role standing plays in ourjurisprudence. From his harsh critique of the doctrine, it seems that henot only objects to the conclusion that standing cannot be waived but alsoto the conclusion that standing is a requirement to initiate a lawsuit.

Texas Industrial Traffic League relied on two cases to support its holdingthat standing cannot be raised for the first time on appeal: Coffee v.William Marsh Rice University, 403 S.W.2d 340, 341 (Tex.1966), andSabine River Authority v. Willis, 369 S.W.2d 348, 350 (Tex.1963). Weneed not overrule these two cases, however, because unlike TexasIndustrial Traffic League, we believe that standing was present in the trialcourt in these cases. Our concern is with a party's right to initiate alawsuit and the trial court's corresponding power to hear the case abinitio. Standing is determined at the time suit is filed in the trial court, andsubsequent events do not deprive the court of subject matter jurisdiction.Carr, 931 F.2d at 1061.

Justice Doggett claims that we overrule three additional decisions of thiscourt. See Central Educ. Agency v. Burke, 711 S.W.2d 7 (Tex.1986)(per curiam); American Gen. Fire & Casualty Co. v. Weinberg, 639S.W.2d 688 (Tex.1982); Cox v. Johnson, 638 S.W.2d 867 (Tex.1982)(per curiam). We disagree. These cases hold that matters not raised inthe trial court are waived. One exception noted by these decisions,however, is a lack of jurisdiction which may be raised by a party, or thecourt, for the first time on appeal. Justice Doggett does not believe thatstanding falls within that exception because he contends that standing isnot jurisdictional.

In most other jurisdictions, such prepayment provisions are required onlyto stay execution of judgments and are not prerequisites to the right toappeal itself. See Gary Stein, Expanding the Due Process Rights ofIndigent Litigants: Will Texaco Trickle Down?, 61 N.Y.U.L. REV. 463,469 (1986).

Thus, contrary to Justice Doggett's reading of our opinion, the Sax test isinapplicable.

The Clean Air Act was implemented to “safeguard the state's airresources from pollution by controlling or abating air pollution andemissions of air contaminants....” TEX.HEALTH & SAFETY CODE §382.002(a). The Texas Water Code was implemented to “maintain thequality of water in the state consistent with the public health andenjoyment ...” TEX.WATER CODE § 26.003.


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The importance is evidenced by article XVI, section 59(a) of ourconstitution, which provides in relevant part that: “The conservation anddevelopment of all the natural resources of this State ... and thepreservation and conservation of all such natural resources ... are eachand all ... public rights and duties.” TEX. CONST. art. XVI, § 59(a).

If the person charged does not make payment or post bond within thirtydays, the agency may forward the matter to the attorney general forenforcement. TEX.HEALTH & SAFETY CODE § 382.089(c), §361.252(m); TEX.WATER CODE § 26.136(k).

It has been argued that our procedure of allowing immediate enforcementof trial court judgments violates federal due process when the judgmentdebtor is financially unable to post a supersedeas bond and immediateenforcement will cause irreparable injury. Texaco, Inc. v. Pennzoil Co.,784 F.2d 1133 (2d Cir.1986), rev'd on other grounds, 481 U.S. 1, 107S.Ct. 1519, 95 L.Ed.2d 1 (1987). A similar argument could be fashionedunder the Texas open courts provision, but TAB does not assert thatargument here. TAB's open courts challenge centers not on therequirement of immediate payment, but on the forfeiture of judicial reviewif payment is not made.

Thus, contrary to Justice Doggett's assertion, we do not strike down thepenalties themselves. Nothing in this opinion prohibits the state'scollection of assessed penalties. We hold as violative of our open courtsprovision only the requirement that the penalties be paid as a condition tojudicial review. Furthermore, nothing in our opinion requires that penaltiesalready paid be refunded.

That the affected parties may be able to afford prepayment is irrelevant.The guarantee of constitutional rights should not depend on the balancein one's bank account.

TAB claims that the lack of a jury trial before the agency as well as thelack of a trial de novo violate article I, section 15. We limit our inquiry tothe absence of a trial de novo because, as this court has said: “Trial byjury cannot be claimed in an inquiry that is non-judicial in its character, orwith respect to proceedings before an administrative board.” Middleton v.Texas Power & Light Co., 108 Tex. 96, 185 S.W. 556, 561–62 (1916).Even if the right to a jury is denied before an administrative agency, thedispositive question is whether a trial de novo and the correspondingright to a jury trial is constitutionally required upon judicial review of theagency's decision. See Cockrill v. Cox, 65 Tex. 669, 674 (1886) (“Theright of jury trial remains inviolate, though denied in the court of firstinstance [in civil cases], if the right to appeal and the jury trial on appealare secured.”) (bracketed language in original).

Article I, section 15, provides, in pertinent part:

The right of trial by jury shall remain inviolate. The Legislature shallpass such laws as may be needed to regulate the same, and tomaintain its purity and efficiency. * * *.

TAB has not presented in this court, as it did below, its complaint thatthe statutes and regulations also violate the right to jury trial underarticle V, section 10 of the Texas Constitution.

While the Credit Bureau court specifically referred to the broader jurytrial provision in article V, section 10 when it discussed the administrativeproceeding exception, that exception necessarily also applies to the


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narrower provision found in article I, section 15.

We do not consider nineteenth century criminal nuisance lawscomparable to modern environmental regulations. See 852 S.W.2d at461.

Despite Justice Doggett's trumpeting of our constitution's guarantee oftrial by jury, he agrees that the right does not attach under thecircumstances of this case.

Justice Doggett contends that the basis for our jury trial holding isoverbroad. Instead, he would have us adopt the “imperfectly employed”federal test first enunciated in Atlas Roofing Co. v. Occupational Safety& Health Review Comm'n, 430 U.S. 442, 97 S.Ct. 1261, 51 L.Ed.2d 464(1977). Infra, 852 S.W.2d at 464. The basis for our decision is morelimited, arising as it does out of TEX. CONST. article XVI, section 59(a)and our decision in Corzelius.

The Clean Air Act proclaims:

The policy of this state and the purpose of this chapter to safeguardthe air resources of the state from pollution by controlling orabating air pollution and emissions of air contaminants, consistentwith the protection of public health, general welfare, and physicalproperty of the people, including the aesthetic enjoyment of airresources by the public and the maintenance of adequate visibility.

TEX.HEALTH & SAFETY CODE § 382.002.

The Texas Water Code proclaims in relevant part:

It is the policy of this state and the purpose of the subchapter tomaintain the quality of water in the state consistent with the publichealth and enjoyment

. . . . .

TEX.WATER CODE § 26.003.

The actions of the agencies involved in this proceeding are subject to theAdministrative Procedure and Texas Register Act (APTRA), whichspecifically affords a “full panoply of procedural safeguards” to a party tocontested case before those agencies. Southwestern Bell Tel. Co. v.Public Util. Comm'n of Tex., 571 S.W.2d 503, 507 (Tex.1978). Theseprocedural safeguards include the right to notice, the making of a fullrecord of the proceeding before the agency, the taking of depositions,the right to subpoena witnesses, the application of the rules of evidence,the preparation of proposal for decision and the filing of exceptions andbriefs, as well as separately stated findings of fact and conclusions oflaw. TEX.CIV.STAT.ANN. art. 6252–13a § 19 (Vernon Supp.1993).Judicial review is provided by section 19(e) under the substantialevidence rule, which directs a reviewing court to reverse and remand theagency adjudication if the agency decision is:

1) in violation of constitutional or statutory provisions;

2) in excess of the statutory authority of the agency;

3) made upon unlawful procedure;

4) affected by other error of law;

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reliable and probative evidence in the record as a whole; or

6) arbitrary and capricious or characterized by abuse of discretionor clearly unwarranted exercise of discretion.

Id.

We have held that judicial review under APTRA based on the recorddeveloped before the agency “furnishes more assurance of dueprocess and a surer means of determining whether an agency actedarbitrarily, capriciously and without due regard for the evidence.”Imperial Am. Resources Fund, Inc. v. Railroad Comm'n of Tex., 557S.W.2d 280, 285 (Tex.1977); see also, Southwestern Bell Tel. Co.,571 S.W.2d at 509.

Statistics compiled from data sent by companies to the EnvironmentalProtection Agency show that in 1990 535.7 million pounds of toxicchemicals were released into the Texas environment, more than in anyother state. Texas also ranked first in the release of chemicals known tocause both cancer and birth defects. See Texas Citizen Action, Poisonsin Our Neighborhoods, Toxic Pollution in Texas, Sept. 1992, at 1; seealso John Sharp, Texas Comptroller of Public Accounts, Texas at Risk:Environmental Hazards Threaten State's Air, Land, and Water, FiscalNotes Aug. 1991 (noting the release of about 800 million pounds of toxicsubstances in 1989). Additionally, only two states ranked below Texas inthe American Public Health Association's Pollution Standard Index,based on data gathered between 1989 and 1991. See American PublicHealth Ass'n, America's Public Health Report Card: A State-by-StateReport on the Health of the Public 59 (1992).

See Carrollton–Farmers Branch Indep. Sch. Dist. v. Edgewood Indep.Sch. Dist., 826 S.W.2d 489, 537 (Tex.1992) (Doggett, J., dissenting).

See, e.g., H. Runge & Co. v. Wyatt, 25 Tex.Supp. 291 (1860) (placementof counties within judicial districts); Dillingham v. Putnam, 109 Tex. 1, 14S.W. 303 (1890) (striking requirement of supersedeas bond as aprerequisite to appeal); Hanks v. City of Port Arthur, 121 Tex. 202, 48S.W.2d 944 (1932) (requirement that city be notified of street defectwithin twenty-four hours of accident unreasonable restriction on right ofaccess to courts); Sax v. Votteler, 648 S.W.2d 661 (Tex.1983) (strikingstatute of limitations barring action of minor); LeCroy, 713 S.W.2d 335(Tex.1986) (holding unconstitutional increased filing fees designed togenerate state revenues).

Oddly, the majority asserts that “the Sax test is inapplicable” to today'sopen courts decision, 852 S.W.2d at 449 n. 12, even as it explicitly relieson the analysis used in LeCroy, which in turn applied the Sax test. Nordoes the majority attempt to explain how its analysis today differs fromthat employed in Sax and LeCroy.

This natural resources provision receives conflicting treatment in today'sopinion, amply demonstrating both the malleability of the Sax test asapplied by the majority and the majority's disdain for the right to trial byjury. While declaring that article XVI, § 59(a) will not permit payment ofeven the most modest penalties under our open courts provision, themajority inexplicably finds that it forms an insurmountable barrier to theright to jury trial. The majority makes no attempt to reconcile itsinconsistent analysis of these constitutional guarantees.

Tex.Health & Safety Code § 382.002, provides that:


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It is the policy of this state and the purpose of this Act to safeguardthe air resources of the state from pollution by controlling orabating air pollution and emissions of air contaminants, consistentwith the protection of health, general welfare, and physical propertyof the people, including the aesthetic enjoyment of the air resourcesby the people and the maintenance of adequate visibility.

Tex.Water Code § 26.003, provides that:

It is the policy of this state and the purpose of this subchapter tomaintain the quality of water in this state consistent with the publichealth and enjoyment, the propagation and protection of terrestrialand aquatic life, the operation of existing industries, and theeconomic development of the state....

Tex.Health & Safety Code § 361.002, declares that:

It is the policy of this state and the purpose of this Act to safeguardthe health, welfare, and physical property of the people, and toprotect the environment, through controlling the management ofhazardous wastes, including the accounting for hazardous wastesgenerated.

Tex.Health & Safety Code § 382.088(c)(1–5) (Clean Air Act), §361.251(c)(1–5) (Solid Waste Disposal Act); Tex.Water Code §26.136(c). The Texas Water Code imposes additional considerations,including “the impact of the violation on a receiving stream orunderground water reservoir, on the property owners ... and on waterusers,” as well as the extent of previous violations, the degree ofculpability involved, any good faith effort to correct the violation and anyeconomic benefit gained as a result of the illegal conduct. Tex.WaterCode § 26.136(c).

See Appendices to Brief of Appellees Texas Air Control Board andTexas Water Commission.

See Appendices to Brief of Appellees Texas Air Control Board andTexas Water Commission at 27, 44, 55.

See Tex.Health & Safety Code § 242.066 (administrative penalty forstatutory violations “threaten[ing] the health and safety of a resident” of aconvalescent or nursing home); id. § 242.069 (penalty must be prepaidor a bond posted prior to judicial review).

Tex.Health & Safety Code §§ 141.016–141.018 (providing foradministrative penalties for violation of laws regulating youth camps andrequiring their payment or the posting of a bond prior to judicial review).

Tex.Health & Safety Code §§ 773.065–.067 (administrative penalties toenforce Emergency Medical Services Act).

Tex.Rev.Civ.Stat.Ann. art. 4582b, § 6G (Vernon Supp.1992)(administrative penalties for violation of statutes governing funeraldirecting and embalming).

Tex.Health & Safety Code §§ 431.054–.056 (Texas Food, Drug &Cosmetic Act); id. § 466.043 (regulation of narcotic drug treatmentprograms).

Tex.Health & Safety Code §§ 433.094–.096 (Texas Meat & PoultryInspection Act); id. §§ 144.081–.083 (Texas Renderers' Licensing Act).


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See also Tex.Rev.Civ.Stat.Ann. art. 5069–51.17 (Vernon 1987 &Supp.1992) (administrative penalties for violation of the TexasPawnshop Act).

Tex.Rev.Civ.Stat.Ann. art. 1446c, § 73A (Vernon Supp.1992) (permittingassessment of civil penalty for violation of Public Utility Regulatory Act“result[ing] in pollution of the air or water of this state or pos[ing] a threatto the public safety”); Tex.Rev.Civ.Stat.Ann. art. 4477–3a, § 16 (VernonSupp.1992) (Texas Asbestos Health Protection Act);Tex.Rev.Civ.Stat.Ann. art. 5920–11, § 30 (Vernon Supp.1992) (TexasCoal Mining and Surface Reclamation Act); Tex.Rev.Civ.Stat.Ann. art.6053–2 (Vernon Supp.1992) (safety standards for transportation of gasand for gas pipeline facilities); Tex.Rev.Civ.Stat.Ann. art. 8905, § 9(Vernon Supp.1992) (Water Well Pump Installers Act);Tex.Nat.Res.Code § 40.252 (Oil Spill Prevention and Response Act); id.§ 81.0531–.0533 (assessment of penalties for violation of RailroadCommission statutes and rules “which pertain to safety or the preventionor control of pollution”); id. § 116.143–.145 (violation of laws relating tocompressed natural gas “result[ing] in pollution of the air or water of thisstate or pos[ing] a threat to the public safety”); id. § 131.2661–.2663(violations of Uranium Surface Mining and Reclamation Act “result[ing] inpollution of the air or water of this state or pos[ing] a threat to the publicsafety”); id. § 141.013–.015 (violation of geothermal resourcesregulations “pertain[ing] to safety or the prevention or control ofpollution”); id. Tex.Water Code 13.4151 (regulation of water and sewerutilities); id. § 27.1013–.1015 (Injection Well Act); id. § 28.067 (regulationof water wells and mine shafts); id. § 29.047 (Salt Water Haulers Act); id.§ 33.009 (regulation of water well pump installers); Tex.Health & SafetyCode § 372.004 (water saving performance standards); id. § 401.389(Texas Radiation Control Act).

Tex.Ag.Code § 12.020(l ) (violation of agricultural statutes); id. § 76.1555(failure to comply with pesticide regulations); Tex.Water Code § 34.011(irrigation regulation); Tex.Rev.Civ.Stat.Ann. art. 41a–1, § 21D(f) (VernonSupp.1992) (public accounting); Tex.Rev.Civ.Stat.Ann. art. 135b–6, §10B(k) (Vernon Supp.1992) (Structural Pest Control Act);Tex.Rev.Civ.Stat.Ann. art. 5155, § 5(h) (Vernon Supp.1992) (labor wagelaws); Tex.Rev.Civ.Stat.Ann. art. 5282c, § 23A(k) (Vernon Supp.1992)(Professional Land Surveying Practices Act); Tex.Rev.Civ.Stat.Ann. art.6573a, § 19A(k) (Vernon Supp.1992) (Real Estate License Act);Tex.Rev.Civ.Stat.Ann. art. 9100, § 17(m) (Vernon Supp.1992) (TexasDepartment of Licensing and Regulation).

Under recent and highly erratic writings determining retroactivity, ofcourse, anything can happen. See, e.g., Carrollton–Farmers Indep. Sch.Dist., 826 S.W.2d at 515–23; Elbaor v. Smith, 845 S.W.2d 240(Tex.1992) (creating uncertainty by disapproval of a type of pre-trialagreements previously upheld by this court).

“The right of trial by jury, and the privilege of the Writ of Habeas Corpusshall be established by law, and shall remain inviolable.” ProposedConstitution for the State of Texas art. 4 (1833), reprinted inDocuments of Texas History, 80 (Ernest Wallace ed., 1963).

See Eugene C. Barker, Stephen F. Austin, in The Handbook of Texas84 (Walter Prescott Webb ed., 1952).

Constitution of the Republic of Texas, Declaration of Rights, Section 9(1836), reprinted in Tex. Const. app. 523, 536 (Vernon 1955), provided


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that “the right of trial by jury shall remain inviolate.”

In our time this great constitutional principle continues to be reaffirmed:

It is fundamental to our system of justice and the intention and policyof the law to permit all persons to have a trial by jury of disputed factissues essential for a determination of [their rights]. The right of trialby jury is a valuable right which should be guarded jealously by allstate courts.

Steenland v. Texas Commerce Bank Nat'l Ass'n, 648 S.W.2d 387,391 (Tex.App.—Tyler 1983, writ ref'd n.r.e.); see also Lopez v. Lopez,691 S.W.2d 95, 97 (Tex.App.—Austin 1985, no writ) (“trial by juryshould be granted zealously by all the courts of this state”).

Tex. Const. art. I, § 12 (1845) (retaining identical language from 1836provision).

See, e.g., May v. United Services, 844 S.W.2d 666, 674 (Tex.1992)(Doggett, J., dissenting); Boyles v. Kerr, 1992 WL 353277 (Tex.1992)(Doggett, J., dissenting); Leleaux v. Hamshire–Fannett Indep. Sch.Dist., 835 S.W.2d 49, 55–56 (Tex.1992) (Doggett, J., dissenting);Reagan v. Vaughn, 804 S.W.2d 463, 491 (Tex.1991) (Doggett, J.,concurring and dissenting); Greater Houston Transp. Co. v. Phillips, 801S.W.2d 523, 527 (Tex.1990) (Doggett, J., dissenting).

T.R. Fehrenbach, Lone Star: A History of Texas and the Texans 279(1983).

Act of Feb. 11, 1860, Tex.Gen Laws 97, a later version of which wasreferenced by this court in Gulf, Colo. & Santa Fe Ry. v. Reed, 80 Tex.362, 15 S.W. 1105, 1107 (1891).

The court further stated: “The word means, literally, annoyance; in law, itsignifies, according to Blackstone, ‘anything that worketh hurt,inconvenience, or damage.’.... ‘So closely (says Blackstone) does thelaw of England enforce that excellent rule of Gospel morality, of doing toothers as we would they should do unto ourselves.’ ” Id. at 492. AccordMiller v. Burch, 32 Tex. 208, 210 (1869).

See also Rhodes v. Whitehead, 27 Tex. 304, 316 (1863) (remanding fortrial a complaint against a dam across the San Antonio river, recognizingthat the creation “of pools of stagnant and putrid water” or the “tendencyto cause sickness in [the plaintiff's] family or immediate neighborhood,”was sufficient to constitute a nuisance); Jung v. Neraz, 71 Tex. 396, 9S.W. 344, 344–45 (1888) (nuisance properly alleged by claim that“interment of dead bodies in [proposed cemetery] would infect, poison,and injure [plaintiffs'] wells, and the use of low grounds, and further injureplaintiffs' health by the foul odors from the decomposition of saidbodies.”).

Although some critics allege that juries are not competent to deal withcomplex scientific and technological issues, empirical data demonstratesotherwise.

Research shows ... that the opportunity exists for meaningful [juror]participation in a wide range of adjudicatory and regulatoryproceedings.... To the extent that juries encounter difficulties, thesedifficulties often vex judges as well.... The full potential of layparticipation in adjudication has not been realized.

Joe Cecil, Valerie Hans, and Elizabeth Wiggins, Citizen


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Comprehension of Difficult Issues: Lessons From Civil Jury Trials, 40Am.U.L.Rev. 727, 773–74 (1991).

See Tex. Const. art. X, § 2 and interp. commentary (Vernon 1955)(noting that the provision was added to authorize the Legislature toregulate railroads after the people had issued strong complaints againstthem).

See also State v. De Silva, 105 Tex. 95, 145 S.W. 330 (1912) (alsoholding that cancellation of liquor license is not a “cause”).

In the commentary for recommended article V, section 14(e) of theproposed 1974 Constitution, the significance of holdings regarding thismore expansive language was also noted:

[T]he right of trial by jury guaranteed in Article V, Section 10 of the1876 Constitution is not dependent on the existence of the right atthe time the Constitution was adopted in 1876. The guaranteeextends to any “cause” instituted in the district court. A “cause” isdefined as a suit or action concerning any question, civil or criminal,contested before a court of justice.

See Texas Constitutional Revision Commission, A New Constitutionfor Texas: Text, Explanation, Commentary 120–21 (1973).

The Credit Bureau opinion was authored for the court by now formerChief Justice Jack Pope, who had written previously, “[t]he struggle forsurvival by the institution we call the jury is truly the epic of our law.” JackPope, The Jury, 39 Tex.L.Rev. 426 (1961). That struggle continuestoday.

Though he wrote in unnecessarily global terms regarding this exception,even Harris recognized that

[t]he plain language of the Judiciary section conferring the right oftrial by jury in all causes in the district courts would seem to entitleparties to jury trials irrespective of whether that right existed at thetime of the adoption of the Constitution.

Harris, supra, at 6–7.

The majority notes the existence of other statutory proceduralprotections, such as those contained in the Administrative Procedureand Texas Register Act, Tex.Rev.Civ.Stat. art. 6252–13a, § 19(e). 852S.W.2d at 452, n. 26. While important, these measures certainly do notconstitute a complete substitute for a jury trial. If the Texas Constitutionguarantees a right to trial by jury, no lesser protection will suffice.

To some extent every action legislatively entrusted to an administrativeagency involves a public right. At the same time even actions by privateparties may have incidental regulatory effects and are unquestionablyinvested with a public interest. See The Dallas Morning News, Inc. v.Fifth Court of Appeals, 842 S.W.2d 655, 663 (Tex.1992, orig.proceeding) (Doggett, J., dissenting from overruling of motion for leave tofile petition for writ of mandamus).

The “public rights” concept has been recently muddled by the federalcourts. In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct.2782, 106 L.Ed.2d 26 (1989), the court, although upholding the right to ajury trial for defendants sued for fraudulent conveyance by a trustee inbankruptcy, broadened the scope of its “public rights” exception toinclude all cases “involving statutory rights that are integral parts of a


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public regulatory scheme and whose adjudication Congress hasassigned to an administrative agency.” Id. at 55 n. 10, 109 S.Ct. at 2797n. 10. See also Thomas v. Union Carbide Agric. Prod. Co., 473 U.S.568, 586, 105 S.Ct. 3325, 3335, 87 L.Ed.2d 409 (1985) (rejecting theview that the government must bring suit in order for litigation to involve“public rights”). I believe that such an expansive reading of “public rights”would not be consistent with the broad state constitutional protection ofthe right to trial by jury in Texas.

In view of recent attacks nationwide on the jury system, a recent studydetermined that

Our central conclusion is that the civil jury system is valuable andworks well.... It is [not] “broken,” and therefore it need not be “fixed.”The jury system is a proven, effective, an important means ofresolving civil disputes.

The Brookings Institution, Charting a Future for the Civil Jury System2 (1992).

As the majority recognizes, “the parties insist that any question ofstanding has been waived in the trial court and cannot be raised by thecourt for the first time on appeal.” 852 S.W.2d at 443–444.

Despite the clear statement in Sabine River that “[w]e assume withoutdeciding that Sabine has no justiciable interest,” 369 S.W.2d at 349, themajority today asserts that “standing was present” in the trial court in thatcase. 852 S.W.2d at 446 n. 9.

See, e.g., Espiricueta v. Vargas, 820 S.W.2d 17, 20 (Tex.App.—Austin1991, writ denied); Integrated Title Data Systems v. Dulaney, 800S.W.2d 336 (Tex.App.—El Paso 1990, no writ); State v. Euresti, 797S.W.2d 296, 299 (Tex.App.—Corpus Christi 1990, no writ); Cissne v.Robertson, 782 S.W.2d 912, 917 (Tex.App.—Dallas 1989, writ denied);Broyles v. Ashworth, 782 S.W.2d 31, 34 (Tex.App.—Fort Worth 1989,no writ); Horton v. Robinson, 776 S.W.2d 260, 263 (Tex.App.—El Paso1989, no writ); L.G. v. State, 775 S.W.2d 758, 760 (Tex.App.—El Paso1989, no writ); Wilson v. United Farm Workers of America, 774 S.W.2d760, 764 (Tex.App.—Corpus Christi 1989, no writ); Smiley v. Johnson,763 S.W.2d 1, 4 (Tex.App.—Dallas 1988, writ denied); Ex ParteMcClain, 762 S.W.2d 238, 242 (Tex.App.—Beaumont 1988, no writ);Goeke v. Houston Lighting & Power Co., 761 S.W.2d 835, 837 n. 1(Tex.App.—Austin 1988), rev'd on other grounds, 797 S.W.2d 12(Tex.1990); Group Medical and Surgical Service, Inc. v. Leong, 750S.W.2d 791, 794–95 (Tex.App.—El Paso 1988, writ denied); City of FortWorth v. Groves, 746 S.W.2d 907, 913 (Tex.App.—Fort Worth 1988, nowrit); Barron v. State, 746 S.W.2d 528, 530 (Tex.App.—Austin 1988, nowrit); Reynolds v. Charbeneau, 744 S.W.2d 365, 367 (Tex.App.—Beaumont 1988, writ denied); Champion v. Wright, 740 S.W.2d 848,851 (Tex.App.—San Antonio 1987, writ denied); Texas Low–LevelRadioactive Waste Disposal Authority v. El Paso County, 740 S.W.2d 7,8 (Tex.App.—El Paso 1987, writ dism'd w.o.j.); S.I. Property Owners'Ass'n v. Pabst Corp., 714 S.W.2d 358, 360 (Tex.App.—Corpus Christi1986, writ ref'd n.r.e.); Gonzales v. City of Lancaster, 675 S.W.2d 293,294–95 (Tex.App.—Dallas 1984, no writ); Mabe v. City of Galveston,687 S.W.2d 769, 771 (Tex.App.—Houston [1st Dist.] 1985, writ dism'd);Develo-cepts, Inc. v. City of Galveston, 668 S.W.2d 790, 793 (Tex.App.—Houston [14th Dist.] 1984, no writ); Griffith v. Pecan PlantationOwners Ass'n, Inc., 667 S.W.2d 626, 628 (Tex.App.—Fort Worth 1984,


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no writ); City of Houston v. Public Utility Comm'n of Texas, 656 S.W.2d107, 110 n. 1 (Tex.App.—Austin 1983, writ ref'd n.r.e.); Public UtilityComm'n v. J.M. Huber Corp., 650 S.W.2d 951, 955–56 (Tex.App.—Austin 1983, writ ref'd n.r.e.); Vaughn Bldg. Corp. v. Austin Co., 620S.W.2d 678 (Tex.Civ.App.—Dallas 1981), aff'd, 643 S.W.2d 113(Tex.1982); War–Pak, Inc. v. Rice, 604 S.W.2d 498(Tex.Civ.App.—Waco 1980, writ ref'd n.r.e.).

Texas Dep't of Mental Health v. Petty, 778 S.W.2d 156, 166 (Tex.App.—1989, writ dism'd w.o.j.) (opinion by Powers, J.); Public Utility Comm'nv. J.M. Huber Corp., 650 S.W.2d 951, 954–56 (Tex.App.—Austin 1983,writ ref'd n.r.e.) (opinion by Powers, J.); Hooks v. Texas Dep't of WaterResources, 645 S.W.2d 874 (Tex.App.—Austin 1983, writ ref'd n.r.e.)(opinion by Powers, J.); see also Kircus v. London, 660 S.W.2d 869,872 n. 3 (Tex.App.—Austin 1983, no writ) (opinion by Phillips, C.J.).

See, e.g., Boyles v. Kerr (Tex.1992) (Doggett, J., dissenting) (objectingto majority's overruling of landmark Texas Supreme Court decisionpermitting recovery for negligence resulting in emotional distress);Walker v. Packer, 827 S.W.2d 833, 835 (Tex.1992, orig. proceeding)(Doggett, J., dissenting) (noting majority's “mass execution ofprecedent,” encompassing “a dozen or more Texas Supreme Courtcases and countless decisions of the courts of appeals”); Carrollton–Farmers Branch Indep. Sch. Dist., 826 S.W.2d at 539 (Tex.1992)(Doggett, J., dissenting) (discussing rejection by majority of its owndecision issued less than one year previously); Stewart Title Guar. Co. v.Sterling, 822 S.W.2d 1, 12 (Tex.1991) (Doggett, J., dissenting) (majoritydisregards its own recent precedent, looking instead to overruled case);Rose v. Doctors Hosp., 801 S.W.2d 841, 852 (Tex.1990) (Doggett, J.,dissenting) (disapproving of rejection of recent controlling precedent).

The United States Supreme Court has clearly stated that standing doesnot implicate separation of powers concerns. See Flast v. Cohen, 392U.S. 83, 100, 88 S.Ct. 1942, 1953, 20 L.Ed.2d 947 (1968) ( “Thequestion whether a particular person is a proper party to maintain theaction does not, by its own force, raise separation of powers problemsrelated to improper judicial interference in areas committed to otherbranches of ... Government.”).

See section I, supra.

See, e.g., Brown v. Robinson, 354 So.2d 272, 273 (Ala.1977); Jacksonv. Nangle, 677 P.2d 242, 250 n. 10 (Alaska 1984); Torrez v. State FarmMut. Auto Ins. Co., 130 Ariz. 223, 635 P.2d 511, 513 n. 2 (App.1981);Cowart v. City of West Palm Beach, 255 So.2d 673, 675 (Fla.1971);Lyons v. King, 397 So.2d 964 (Fla.App.1981); Greer v. Illinois HousingDevelopment Auth., 122 Ill.2d 462, 120 Ill.Dec. 531, 552, 524 N.E.2d561, 582 (1988); Matter of Trust of Rothrock, 452 N.W.2d 403, 405(Iowa 1990); Tabor v. Council for Burley Tobacco, Inc., 599 S.W.2d 466,468 (Ky.App.1980); Sanford v. Jackson Mall Shopping Ctr. Co., 516So.2d 227, 230 (Miss.1987); Fossella v. Dinkins, 66 N.Y.2d 162, 495N.Y.S.2d 352, 1019, 485 N.E.2d 1017, 1019 (1985); Public SquareTower One v. Cuyahoga County Bd. of Revision, 34 Ohio App.3d 49,516 N.E.2d 1280, 1281 n. 2 (1986); Federman v. Pozsonyi, 365Pa.Super. 324, 529 A.2d 530, 532 (1987); McMullen v. Zoning Board ofHarris Township, 90 Pa.Cmwlth. 119, 494 A.2d 502 (1985); InternationalDepository, Inc. v. State, 603 A.2d 1119, 1122 (R.I.1992); State v. Miller,248 N.W.2d 377, 380 (S.D.1976); Princess Anne Hills Civ. League, Inc.v. Susan Constant Real Estate Trust, 243 Va. 53, 413 S.E.2d 599, 603


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n. 1 (1992); Tyler Pipe Industries, Inc. v. State Dep't of Revenue, 105Wash.2d 318, 715 P.2d 123, 128 (1986); Poling v. WisconsinPhysicians Serv., 120 Wis.2d 603, 357 N.W.2d 293, 297–98(App.1984). The majority's odd attempt to distinguish some of thesecases, all of which are predicated in terms of standing, as involving solelythe question of whether the litigant was a proper “real party in interest”has never been drawn previously in the published decisions of any Texascourt addressing the question of standing. See cases cited at notes 44,supra, and 50, infra.

See Texas Industrial Traffic League, 633 S.W.2d at 822–23; CentralEduc. Agency v. Burke, 711 S.W.2d at 8; American General Fire &Casualty Co. v. Weinberg, 639 S.W.2d 688; Cox v. Johnson, 638S.W.2d at 868. To avoid overruling these, the majority claims all threerecognized that lack of subject matter jurisdiction can initially be raised onappeal. True, but ignored is the conclusion of each that subject matterjurisdiction cannot be waived while standing can be.

Our past acknowledgement of the legislative power to expand access toTexas courts is inconsistent with today's conclusion that we mustnarrowly limit access. See Mark V. Tushnet, The New Law of Standing: APlea for Abandonment, 62 Corn.L.Rev. 663 (1977) (because courtdecisions do not question legislative power to confer standing by statute,they suggest that standing rules are not constitutionally grounded).

Despite the participation of associational litigants before this court, wehave never before questioned standing on our own motion. See, e.g.,Austin Indep. Sch. Dist. v. Sierra Club, 495 S.W.2d 878 (Tex.1973).

See Safe Water Foundation of Texas v. City of Houston, 661 S.W.2d190, 193 (Tex.App.—Houston [1st Dist.] 1983, writ ref'd n.r.e.)(recognizing precedent of this court as according broad right ofstanding), app. dism'd, 469 U.S. 801, 105 S.Ct. 55, 83 L.Ed.2d 6 (1984);Texas Industrial Traffic League v. Railroad Comm'n of Texas, 628S.W.2d 187 (Tex.App.—Austin) (discussing Supreme Court's expansiveapproach to standing to allow access to Texas courts), rev'd, 633S.W.2d 821 (Tex.1982) (per curiam), overruled by Tex. Ass'n of Bus.v. Tex. Air Control Bd., 852 S.W.2d 440 (Tex.1993).

Accord Hunt v. Bass, 664 S.W.2d 323, 324 (Tex.1984) (recognizingstatutorily-granted standing of litigants to seek mandamus to reducesubstantial delays in court operations); Safe Water Foundation of Texasv. City of Houston, 661 S.W.2d 190 (Tex.App.—Houston [1st Dist.]1983, writ ref'd n.r.e.), app. dism'd, 469 U.S. 801, 105 S.Ct. 55, 83L.Ed.2d 6 (1984) (drinking water consumer group had standing to contestfluoridation of city water).

These requirements are allegedly necessary to protect “the members'best interest.” 852 S.W.2d at 447. Perhaps an organization's membersare in a better position than this court to determine what is in their bestinterest.

Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice& Procedure, § 3531.3, at 418 (“The problems [of standing] are difficultenough without the compounding effect of constitutional attribution.”).

See also, e.g., Valley Forge Christian College v. Americans United forSeparation of Church and State, 454 U.S. 464, 490, 102 S.Ct. 752, 768,70 L.Ed.2d 700 (1982) (Brennan, J., dissenting); Abram Chayes, TheSupreme Court, 1981 Term—Foreword: Public Law Litigation and the


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Burger Court, 96 Harv.L.Rev. 4, 23 (1982) (Having ritually recited thestanding formula, “the Court then chooses up sides and decides thecase.”); Michael A. Wolff, Standing to Sue: Capricious Application ofDirect Injury Standard, 20 St.L.U.L.J. 663, 678 (standing barrier “raisedor lowered based on the degree of hostility to, or favoritism for,consideration of the issues on their merits”); Albert Broderick, The WarthOptional Standing Doctrine: Return to Judicial Supremacy? 25Cath.U.L.Rev. 467, 504, 516–17 (1976).

See Katherine B. Steuer and Robin L. Juni, Court Access forEnvironmental Plaintiffs: Standing Doctrine in Lujan v. National WildlifeFederation, 15 Harv.Envtl.L.Rev. 187, 232–33 (1991); Sarah A.Robichaud, Note, Lujan v. National Wildlife Federation: The SupremeCourt Tightens the Reins on Standing for Environmental Groups, 40Cath.U.L.Rev. 443, 470–74 (1991); V. Maria Cristiano, Note, InDetermining an Environmental Organization's Standing to ChallengeGovernment Actions Under the Land Withdrawal Review Program, theUse of Lands in the Vicinity of Lands Adversely Affected by the Orderof the Bureau of Land Management Does Not Constitute Direct Injury—Lujan v. National Wildlife Federation, 2 Seton Hall Const. L.J. 445(1991); Michael J. Shinn, Note, Misusing Procedural Devices toDismiss an Environmental Lawsuit, 66 Wash.L.Rev. 893, 904–12(1991); Lynn Robinson O'Donnell, Note, New Restrictions inEnvironmental Litigation: Standing and Final Agency Action After Lujanv. National Wildlife Federation, 2 Vill.Envtl.L.J. 227, 251 (1991); Bill J.Hays, Comment, Standing and Environmental Law: Judicial Policy andthe Impact of Lujan v. National Wildlife Federation, 39 Kan.L.Rev. 997,1042–43 (1991).

Before it adopts a federal test and federal gloss, the majority asserts the“general test for standing in Texas” is what it quotes from Board of WaterEngineers v. City of San Antonio, 155 Tex. 111, 114, 283 S.W.2d 722,724 (1955). The majority overrules the Texas Industrial Traffic Leaguecase, which addressed standing in the context of “justiciable interest”discussed in the more recent cases of Coffee v. William Marsh RiceUniversity, 403 S.W.2d 340 (Tex.1966), and Sabine River Authority v.Willis, 369 S.W.2d 348 (Tex.1963). The context of the cases differedfrom Board of Water Engineers, of course. The precise meaning of“standing” in fact depends on the context. The majority adopts a federalgloss, and the federal courts have stated, “Generalizations aboutstanding to sue are largely worthless as such.” Association of Data Proc.Serv. Orgs. v. Camp, 397 U.S. 150, 151, 90 S.Ct. 827, 829, 25 L.Ed.2d184 (1970). Using “standing” to mean a party's legal capacity to sue ismy best description of the labyrinth of different cases the majority usesinterchangeably.

Richardson v. First Nat'l Life Ins. Co., 419 S.W.2d 836 (Tex.1967),relied upon by the majority for the proposition that pleadings must“affirmatively show that the court has jurisdiction to hear the cause,” 852S.W.2d at 446, was expressly distinguished in Peek. This unanimousopinion written for the Court by Chief Justice Phillips explained thatRichardson really meant that if the pleadings affirmatively showed therewas no jurisdiction, then the case should be dismissed, but otherwisethere was a presumption that the amount omitted from the pleading wouldsupport jurisdiction. Peek, 779 S.W.2d at 804.



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OPINION

No. 04-03-00741-CV IN THE INTEREST OF SSJ-J

From the 150th Judicial District Court, Bexar County, Texas Trial Court No. 2003-CI-06548

Honorable Pat Boone, Judge Presiding

Opinion by: Karen Angelini, Justice

Sitting: Catherine Stone, Justice

Sarah B. Duncan, Justice

Karen Angelini, Justice

Delivered and Filed: November 24, 2004

REVERSED AND REMANDED

Charles and Beverly Johnson, maternal step-grandfather and natural grandmother of SSJ-J, filed suit against Cedric Johnson, SSJ-J's biological father, seeking to be appointed managing conservators of SSJ-J. The death of SSJ-J's mother prompted the filing of the suit. The trial court granted Cedric's motion to dismiss for lack of standing. Charles and Beverly appeal. We reverse and remand.

Factual and Procedural Background

Charles Johnson is SSJ-J's step-grandfather by virtue of his marriage to SSJ-J's maternal grandmother, Beverly. SSJ-J's natural parents are Beverly's daughter, Shanequa L. Johnson, and Cedric Johnson. Although Shanequa and Cedric never married, there is a court order establishing paternity between SSJ-J and Cedric. In addition to establishing paternity, the trial court's order appointed Shanequa and Cedric joint managing conservators of SSJ-J, with Shanequa having the right to establish SSJ-J's primary residence. Upon Shanequa's death, Charles and Beverly filed an Original Petition in Suit Affecting the Parent-Child Relationship seeking to be named managing conservators of SSJ-J. SSJ-J was eleven years old at the time the suit was filed. In an affidavit attached to the petition, Beverly stated that SSJ-J had lived in her home and under her care, custody and control since she was born. Cedric filed a plea in abatement contending that Charles and Beverly lacked standing to bring suit.

Thereafter, Charles filed a First Amended Original Petition in Suit Affecting Parent-Child Relationship, dropping Beverly as a party. In his amended petition, Charles alleges that appointment of Cedric as sole managing conservator or joint managing conservator with exclusive right to establish the child's residence would not be in the child's best interest and would significantly impair the child's physical health or emotional development. Charles also filed an affidavit similar to the one previously filed by Beverly stating that SSJ-J had lived in his home and under his care, custody and control since she was born. He also stated that the child's physical health or emotional development would be significantly impaired if she were placed in the primary care and custody of Cedric. Beverly then filed a Petition in Intervention of Grandparent in Suit Affecting the Parent-Child Relationship. (1) She also alleged that appointment of Cedric as sole managing conservator or joint managing conservator with exclusive right to establish the


residence of the child would not be in the child's best interest because it would significantly impair the child's physical health or emotional development. And, Beverly filed an affidavit with similar allegations. Cedric then filed another plea in abatement and a motion to dismiss for lack of standing. The trial court considered Cedric's plea in abatement and motion to dismiss at a hearing in which no live testimony was taken. Thus, the trial court had before it the affidavits of Charles and Beverly and arguments of counsel. At the conclusion of the hearing, the trial court granted Cedric's plea in abatement and motion to dismiss for lack of standing. Charles and Beverly appeal.

Discussion

The question of who has standing to bring an original suit affecting the parent-child relationship seeking managing conservatorship is a threshold issue. In re Pringle, 862 S.W.2d 722, 724 (Tex. App.--Tyler 1993, no writ). Before determining the merits of a dispute, a trial court should determine whether a party has standing. Id. Standing is implicit in the concept of subject-matter jurisdiction. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993). And, standing presents a question of law. Brunson v. Woolsey, 63 S.W.3d 583, 587 (Tex. App.--Fort Worth 2001, no pet.). As with an order of dismissal for lack of subject-matter jurisdiction, we review an order of dismissal for lack of standing by construing the pleadings in favor of the plaintiff and looking to the pleader's intent. Tex. Ass'n of Bus., 852 S.W.2d at 446. When considering a plea to the jurisdiction, the trial court should look solely at the pleadings and must take all allegations in the pleadings as true. Wash. v. Fort Bend Indep. Sch. Dist., 892 S.W.2d 156, 159 (Tex. App.--Houston [14th Dist.] 1994, writ denied). Thus, we review the issue de novo. Doncer v. Dickerson, 81 S.W.3d 349, 353 (Tex. App.--El Paso 2002, no pet.).

Charles and Beverly contend that they have standing to bring suit pursuant to section 102.003(a)(9) of the Texas Family Code. Section 102.003, entitled "General Standing to File Suit," is the general standing provision for filing an original suit affecting the parent-child relationship. Section 102.003(a)(9) provides that an original suit may be filed at any time by

a person, other than a foster parent, who has had actual care, control, and possession of the child for at least six months ending not more than 90 days preceding the date of the filing of the petition.

Tex. Fam. Code Ann. § 102.003(a)(9) (Vernon Supp. 2004). Charles and Beverly have met section 102.003(a)(9)'s standing requirement by pleading that they had actual care, control, and possession of SSJ-J for the requisite period of time.

Despite this fact, Cedric contends that, in addition to meeting sections 102.003(a)(9)'s standing requirement, Charles and Beverly must also meet the requirement of section 153.131 of the Family Code. That section, entitled "Presumption That Parent to be Appointed Managing Conservator," provides that

unless the court finds that appointment of the parent or parents would not be in the best interest of the child because the appointment would significantly impair the child's physical health or emotional development, a parent shall be appointed sole managing conservator or both parents shall be appointed as joint managing conservators of the child.

Tex. Fam. Code Ann. § 153.131(a) (Vernon 2002). Thus, according to Cedric, Charles and Beverly do not have standing because they did not plead that appointment of Cedric would significantly impair SSJ-J's physical health or emotional development. We note, however, that Charles and Beverly did, in fact, include allegations in Charles's amended pleading, Beverly's plea in intervention, and their affidavits that appointment of Cedric as sole managing conservator or as joint managing conservator with the right to establish residency of the child would significantly impair the child's physical health or emotional development. Cedric urges, however, that these pleadings were not sufficient, because in order to have standing, Charles and Beverly must specify wrongful conduct by Cedric that could be considered harmful


to the physical or emotional health of the child. Cedric cites to a number of cases, including In re Aubin, 29 S.W.3d 199 (Tex. App.--Beaumont 2000, orig. proceeding), Von Behren v. Ven Behren, 800 S.W.2d 919 (Tex. App.--San Antonio 1990, writ denied), Lewelling v. Lewelling, 796 S.W.2d 164 (Tex. 1990), Brigham v. Brigham, 863 S.W.2d 761 (Tex. App.--Dallas 1993, writ denied), and In re W.G.W., 812 S.W.2d 409 (Tex. App.--Houston [1st Dist.] 1991, no writ). None of these, however, are on point.

In In re Aubin, 29 S.W.3d 199, 201 (Tex. App.--Beaumont 2000, orig. proceeding), the Burks filed suit under the former version of section 102.003(a)(9) against Aubin, the mother of three children, claiming that the children had been in their actual care, control, and possession for at least six months. Aubin filed a motion to dismiss challenging the Burks' standing to bring suit. Id. After the trial court denied her motion, Aubin filed a petition for writ of mandamus, alleging that the Burks had failed to establish standing at the temporary hearing and that the Burks had failed to prove that Aubin had placed the children in any clear and immediate danger. Id. The appellate court denied the petition without stating a reason for its ruling. Id. A year later, the Burks filed a motion for enforcement of the possession order and a motion to modify the temporary orders requesting that they be named temporary sole managing conservators. Id. In response, Aubin filed a motion to dismiss for want of prosecution, which included allegations that the trial court's temporary orders were an unconstitutional governmental interference with her right to rear her children. Id. When Aubin did not appear at the hearing on the motion to enforce, the trial court refused to rule on any of the motions and suggested the Burks file a writ of habeas corpus. Id. A month later, the trial court granted the Burks' application for an ex parte writ of attachment. Id. In response, Aubin filed another petition for writ of mandamus, requesting the appellate court command the trial court to vacate all of the orders granting writ of attachment, and to instruct his clerk to void the writs of attachment that have been issued. Id. at 201-02. In addition, Aubin requested that the appellate court command the trial court to vacate all temporary orders issued in this case, and to dismiss the suit. Id. at 202.

The appellate court, however, refused to order dismissal based on lack of standing, stating that there is some evidence in the record that the Burks had possession of the children for the requisite period. Id. at 203. The court further stated that the issue of whether Aubin is an unfit parent is the purpose of suits affecting the parent-child relationship and presents a factual dispute precluding granting mandamus relief on the trial court's denial of the motion to dismiss. Id. In re Aubin, therefore, does not support Cedric's argument.

Cedric also relies on Von Behren v. Ven Behren, 800 S.W.2d 919, 920-21 (Tex. App.--San Antonio 1990, writ denied), in which a grandmother brought suit seeking to become managing conservator of her grandchildren. She brought the suit, however, pursuant to the standing provision for grandparents or others who have had substantial contact with the child. Id. at 921. This provision required proof that there is serious and immediate questions concerning the welfare of the child. Id. In upholding the trial court's dismissal for lack of standing, the appellate court made the distinction between those who are automatically given standing and those who are, because of an emergency situation, undertaking a rescue mission. Id. Thus, this case is distinguishable because Charles and Beverly have automatic standing under section 102.003(a)(9).

The case of Lewelling v. Lewelling, 796 S.W.2d 164 (Tex. 1990), another case upon which Cedric relies, does not involve a standing issue, but instead is an appeal from a ruling on the merits.

Likewise, Brigham v. Brigham, 863 S.W.2d 761 (Tex. App.--Dallas 1993, writ denied), is an appeal from a trial on the merits and does not involve the issue of standing. Similarly, In re W.G.W., 812 S.W.2d 409 (Tex. App.--Houston [1st Dist.] 1991, no writ), is an appeal from a trial on the merits. Thus, none of these cases support Cedric's position. As such, Cedric has cited no authority supporting his argument that in order to have standing, Charles and Beverly must plead facts sufficient to satisfy both section


102.003(a)(9) and section 153.131(a).

In contrast, Charles and Beverly have cited pertinent authority in support of their standing argument. In Doncer v. Dickerson, 81 S.W.3d 349, 351 (Tex. App.--El Paso 2002, no pet.), the El Paso Court of Appeals interpreted the Family Code's standing statute in a situation similar to this case. In Doncer, Shelly Dickerson and Ray Doncer were married and had a son. Id. Upon divorce, Shelly and Ray were named joint managing conservators of the child, with Shelly having the right to establish the primary residence of the child. Id. Ray then married Deborah Doncer who, upon Ray's death, sought possessory conservatorship of the child. Id. at 251-52. Shelly argued that Deborah lacked standing because the child never resided in Deborah and Ray's home for a period of six consecutive months as required by the Family Code's general standing provision. Id. at 352. In holding that Deborah had standing, the El Paso Court of Appeals traced the history of the Family Code's standing statute.

The current Family Code standing statute derives from former section 11.03. Id. at 354. Section 11.03 originally provided that a suit affecting the parent-child relationship could be brought by any person with an interest in the child. Id. Later, a section was added which defined a person with an interest in the child as a person who had possession and control of the child for at least six months immediately preceding the filing of the petition or was named in the code as being entitled to service by citation. Id. This new section "establishe[d] a reasonable minimum time after which a person supplying care and having actual custody of a child is deemed to have worked his or her way into standing to file, or to intervene in, a SAPCR." Id. at 355. Thus, "the legislature has determined that a person having had actual custody of a child for the 'magic period' of six months should be presumed to have 'an interest in the child.'" Id.

The standing statute was again amended to provide a laundry list of those entitled to bring suit. Id. The list included "a person who has had actual possession and control of the child for at least six months immediately preceding the filing of the petition." Id. Once again, the standing statute was amended to provide that an original suit may be brought by "a person with whom the child and the child's guardian, managing conservator, or parent have resided for at least six months immediately preceding the filing of the petition and the child's guardian, managing conservator, or parent is deceased at the time of the filing of the petition." Id. at 356. The commentary in the legislative issue of the Section Reports states:

The amendment to subsection (a)(10) is primarily designed to give standing to a stepparent who assisted in raising a child in the event that the child's parent dies. Note, however, that the statutory language is not limited merely to stepparents; literally it can also include an unmarried cohabitant or even an adult sibling of the child of a deceased parent. It should always be borne in mind that standing to sue does not mean a right to win, but merely a right to be heard in court. Therefore, those who claim standing under this new subsection still will most often be faced with overcoming the parental presumption in a contest for managing conservatorship with the surviving parent. On the other hand, if possessory conservatorship is sought, this grant of standing is clearly the first step toward maintaining contact with the child.

Id. (emphasis added). When the Family Code was recodified, former section 11.03 became section 102.003. Subsection (8) became subsection (9) and subsection (10) became subsection (11). Id. at 357.

The standing statute was further amended to provide that foster parents who have had a child placed with them for not less than eighteen months have standing. Id. And, finally, the statute was amended to include section 102.003(a)(9), which provides that a person, other than a foster parent, who has had actual care, control, and possession of the child for six months ending not more than ninety days preceding the filing has standing. Id.

The El Paso Court of Appeals in Doncer was specifically called upon to interpret section 102.003(a)(11), which was "designed as a 'stepparent' statute, affording standing to, among others, a stepparent who


helps raise a child when the stepparent's spouse - one of the child's parents - dies." Id. at 358. The court of appeals, however, looked no further than the general standing statute to determine standing. Id. at 362. Likewise, in interpreting section 102.003(a)(9), we see no reason and have found no authority that would require going beyond the general standing statute. There is simply nothing in the Family Code, or in cases interpreting the standing provision, that requires a petitioner under section 102.003(a)(9) to allege facts showing that the appointment of the parent would significantly impair the child's physical health or emotional development in order to have standing. This is an issue that goes to the merits. Nevertheless, we recognize, as the El Paso Court of Appeals did in quoting the commentary to the Section Reports when the standing provision was amended: standing does not mean the right to win; it is only a right to be heard. Thus, those claiming standing to bring a SAPCR must overcome the parental presumption. Id. at 356. And, Charles and Beverly must still overcome the parental presumption in a trial on the merits.

According to Cedric, however, Troxel v. Granville, 530 U.S. 57 (2000), invalidates Doncer. For support, Cedric cites to Doncer in which the court of appeals noted that Troxel issued after the trial court's ruling. See Doncer, 81 S.W.3d at 362. Because the trial court did not address whether Troxel impacted Doncer's suit, the appellate court did not consider it either, as to do so would be to render an advisory opinion. Id. There is nothing, however, in Troxel that would affect the decision in Doncer. Similarly, there is nothing in Troxel that would affect whether Charles and Beverly have standing in this case. Troxel involved the constitutionality of a grandparent visitation statute that allowed any person to petition the court for visitation rights at any time and allowed the court to grant such rights based on the best interest of the child. Troxel, 530 U.S. at 60. The Supreme Court in Troxel held that the statute was unconstitutional because it infringed on a parent's fundamental right to make decisions concerning the care, custody, and control of her children. Id. at 72. Troxel does not, however, affect the standing issue presented by the case before us. As stated above, Charles and Beverly will still be required to overcome the parental presumption in a trial on the merits.

Conclusion

In accordance with the above, we hold that Charles and Beverly have standing pursuant to the section 102.003(a)(9) of the Family Code. Accordingly, we reverse the trial court's judgment and remand the cause to the trial court for further proceedings in accordance with this opinion.

Karen Angelini, Justice

1. According to Appellants' Brief, Beverly changed her status from petitioner to intervenor in order to invoke section 102.004(b) of the Texas Family Code, which provides specifically for grandparent standing. There is no need for reliance on the grandparent standing provision, however, since a grandparent can also qualify as "a person" under section 102.003(a)(9). See In re C.M.V., 136 S.W.3d 280, 285 n.2 (Tex. App.--San Antonio 2004, no pet.). Thus, whether Beverly is an intervenor or a petitioner makes no difference in this appeal; the issue is whether she and Charles have standing pursuant to section 102.003(a)(9).


Opinion issued November 2, 2006

In The Court of Appeals

For The First District of Texas

NO. 01–05–00632–CV

JULIE ANN HOBBS, Appellant

V.

JANET KATHLEEN VAN STAVERN, Appellee

On Appeal from the 306th District Court

Galveston County, Texas

Trial Court Cause No. 04FD1206

O P I N I O N

This appeal arises from a suit affecting the parent-child relationship

(“SAPCR”) in which appellee Janet Kathleen Van Stavern (“Kathleen”)

sought joint managing conservatorship of T.L.H., a minor child. Appellant


2

Julie Hobbs (“Julie”) is T.L.H.’s biological mother. Kathleen is T.L.H.’s

adoptive parent. Following a jury trial, the trial court signed a judgment

appointing both Julie and Kathleen as joint managing conservators of

T.L.H. In four issues, Julie contends that (1) Kathleen did not have

standing as a parent to file a suit affecting the parent-child relationship;1 (2)

the trial court submitted an improper instruction in the jury charge; (3) the

trial court violated the “principles of separation of powers”; and (4) the trial

court’s appointment of Kathleen as a joint managing conservator

“constitutes an impermissible impingement on [Julie’s] substantive due

process rights.”

We affirm.

Background

Julie and Kathleen began a romantic relationship in the summer of

1995 and began sharing a home that fall. The couple decided that they

wanted to have a child, and Julie became pregnant through artificial

insemination. Julie gave birth to T.L.H. on June 6, 1998. Both Julie and

1 In the “Points on Appeal” section of her brief, Julie defines her first issue as a

challenge to Kathleen’s joint managing conservatorship on the ground that such

appointment is “in contravention of Texas law and public policy.” However, in

the “Argument” portion of her brief, Julie focuses primarily on whether Kathleen

had standing to file the SAPCR. The public policy argument appears as a

secondary point within her first issue.


3

Kathleen parented and cared for T.L.H.

On August 1, 2001, Julie and Kathleen, as co-petitioners, filed a

petition requesting that the sperm donor’s parental rights be terminated and

alleging that it was “in the best interest of [T.L.H.] . . . to be adopted by

[Kathleen].” On November 13, 2001, the county court signed an order

terminating the donor’s parental rights, granting Julie and Kathleen’s

request that Kathleen be allowed to adopt T.L.H. and expressly creating a

parent-child relationship between Kathleen and T.L.H.

In February 2004, when T.L.H. was five years old, Julie and Kathleen

ended their relationship. Kathleen moved from the home the following

month. Citing her status as T.L.H.’s parent, Kathleen filed a SAPCR

requesting that she and Julie be named as T.L.H.’s joint managing

conservators.

Julie filed a plea to the jurisdiction contending that the trial court had

no subject-matter jurisdiction over the SAPCR because Kathleen lacked

standing as a parent to file such action. Julie asserted that the November

13, 2001 adoption order was void because Kathleen “was not a person

allowed to adopt [T.L.H.] pursuant to any subsection of the Texas Family

Code.” Julie also asserted that the adoption order violated public policy.


4

In addition, Julie filed a counter-petition for declaratory judgment seeking a

declaration that the adoption decree was void as a matter of law.

Kathleen responded that she had standing to bring the SAPCR as T.L.H.’s

parent and pointed out, inter alia, that Julie’s attacks on the adoption order

were untimely. The trial court denied Julie’s plea to the jurisdiction without

stating the basis for the denial.

A jury found that Julie and Kathleen should be appointed as T.L.H.’s

joint managing conservators. The trial court rendered a judgment on the

jury’s verdict. This appeal followed.

Standing

In support of her first issue, Julie contends that the trial court did not

have subject-matter jurisdiction because Kathleen lacked standing to file

the SAPCR.

A. Standard of Review

Subject matter jurisdiction is essential to the authority of a court to

decide a case. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d

440, 443 (Tex. 1993). Standing is implicit in the concept of subject-matter

jurisdiction. M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 708

(Tex. 2001). Standing focuses on who may bring an action, Waco Indep.


5

Sch. Dist. v. Gibson, 22 S.W.3d 849, 851 (Tex. 2000), and may be

predicated upon either statutory or common law authority. Everett v.

TK-Taito, L.L.C., 178 S.W.3d 844, 850 (Tex. App.—Fort Worth 2005, no

pet.). Whether a party has standing to maintain a suit is a question of law,

which we review de novo. See Tex. Dep’t of Transportation v. City of

Sunset Valley, 146 S.W.3d 637, 646 (Tex. 2004). In conducting our

review, we take the factual allegations in the petition as true and construe

them in favor of the pleader. See Tex. Ass’n of Bus., 852 S.W.2d at 446.

Besides the pleadings, we may also consider relevant evidence and must

do so when necessary to resolve the jurisdictional issues raised. Bland

Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000).

B. Analysis

In her SAPCR petition, Kathleen pleaded that she was T.L.H.’s parent.

Pursuant to the Family Code, a parent has standing to bring an original

SAPCR. TEX. FAM. CODE ANN. § 102.003(a)(1) (Vernon Supp. 2005).

Taken as true, Kathleen pleaded sufficient facts to show that she had

standing to file the SAPCR.

Julie first challenges Kathleen’s standing by contending that, for

purposes of filing a SAPCR, Kathleen is not a “parent” as defined by the


6

Family Code. Julie asserts that the Family Code defines “parent” as only

“the mother of the child or a man who has been adjudicated to be the father

of the child.” Contrary to Julie’s contention, Family Code section

101.024(a), which defines who is a “parent” within the context of a SAPCR,

expressly provides that an adoptive parent is a “parent.” Id. § 101.024(a)

(Vernon Supp. 2005). The record reflects that, on November 13, 2001, the

county court signed an adoption order creating a parent-child relationship

between Kathleen and T.L.H.

Julie next contends that Kathleen lacked standing to file the SAPCR

because the adoption order is void. Julie claims that, under the

circumstances, T.L.H. could only have been adopted by a stepparent or

former stepparent. 2 Julie points out that Kathleen was never T.L.H.’s

stepparent. For this reason, Julie contends that the adoption order is void

and could not serve as a basis for Kathleen’s standing to file the SAPCR.

Kathleen responds, as she did in the trial court, that Julie’s attack on

the adoption order was untimely.3 We agree.

2 We express no opinion on the validity of Julie’s claim.

3 Kathleen also raised other defenses to Julie’s attack on the adoption order.

Because we determine that such attack was untimely, we do not discuss Kathleen’s

other defenses.


7

Family Code section 162.012, provides, in relevant part, as follows:

§ 162.012. Direct or Collateral Attack

(a) Notwithstanding Rule 329, Texas Rules of Civil Procedure,

the validity of an adoption order is not subject to attack after six

months after the date the order was signed.

Id. § 162.012(a) (Vernon 2002). Here, Julie’s attack on the adoption order

came nearly three years after it was signed, well past the six-month

limitation. In her briefing, Julie offers no argument to refute specifically

Kathleen’s defense that section 162.012(a) bars Julie’s attack on the

adoption order. Our own research reveals no authority indicating that the

plain language of section 162.012(a) would not control. The Texas

Legislature made no exceptions to the six-month limitation—not for

challenges to purportedly void adoption orders, not for good cause, and not

for public policy reasons.4 See id. We conclude that section 162.012(a)

4 At oral argument, Julie revived a challenge to the application of section 162.012,

which she had generally raised in the trial court. Julie argued that applying

section 162.012 to bar her attack on the adoption order is contrary to the public

policy reflected in Family Code section 162.001, which she contends permits only

a stepparent to adopt when one parent’s parental rights have been terminated.

Julie’s argument is abrogated by the Legislature’s 2003 amendment of section

162.001, permitting persons other than stepparents to adopt. See Act of May 20,

2003, 78th Leg., R.S., ch. 493, § 1, sec. 162.001(b), 2003 Tex. Gen. Laws 1764,

1764. In any event, any limitation on who may adopt must be balanced against

the important public policy embodied in section 162.012 to provide finality of


8

precluded Julie’s attack on the validity of the adoption order. See id.; see

also In re C.R.P., 192 S.W.3d 823, 826 (Tex. App.—Fort Worth 2006, no

pet.).

We hold that the trial court did not err by denying Julie’s plea to the

jurisdiction based on Kathleen’s purported lack of standing to file the

SAPCR. We overrule the portion of Julie’s first issue regarding her

contention that the trial court did not have subject-matter jurisdiction over

the SAPCR.

Public Policy

adoption orders.

With little substantive argument and no citation to authority, Julie also

contends in support of her first issue that the trial court’s appointment of

Kathleen as a joint managing conservator violated public policy. Julie

asserts that “[l]ending credence to an alleged parent-child relationship that

is not acknowledged under existent law transgresses against the sanctity

and privacy of the parent-child relationship and the public policy in

approbation of such.” In a footnote in her brief, Julie also contends, with

little explanation, that the trial court’s “[e]ntertainment and resolution” of

Kathleen’s SAPCR was in some manner “tantamount” to a “proclamation”


9

validating same-sex relationships. As discussed, based on the procedural

history of this case, Kathleen was permitted by the Family Code to seek

joint managing conservatorship of T.L.H. We are constrained to follow the

provisions of the Family Code as enacted.

We overrule the portion of Julie’s first issue regarding her public policy

argument.

Charge Error

In her second issue, Julie contends that the trial court improperly

instructed the jury that the provisions of Family Code section 153.001(a)5

applied, “even though there was no marriage relationship.” On appeal,

5 The provisions of Family Code section 153.001(a) are as follows:

153.001. Public Policy

(a) The public policy of this state is to:

(1) assure that children will have frequent and continuing contact

with parents who have shown the ability to act in the best interest of

the child;

(2) provide a safe, stable, and nonviolent environment for the child;

and

(3) encourage parents to share in the rights and duties of raising their

child after the parents have separated or dissolved their marriage.

TEX. FAM. CODE ANN. § 153.001(a) (Vernon 2002).


10

Julie asserts that such instruction was “a matter of improper statutory

construction.”

Kathleen contends that Julie did not preserve this complaint because

she did not state the basis for her objection in the trial court. The record

shows that Julie’s only objection to the instruction occurred during the

charge conference. In this regard, Julie asserted, “Your Honor, we would

object to the public policy section being on Page 2 of the charge as well as

the legal presumption on Page 3 of the charge.”

A party objecting to a jury charge must distinctly point out the

objectionable matter and identify the basis of the objection. TEX. R. CIV. P.

274. The purpose of Rule 274 is to afford the trial court an opportunity to

correct errors in the charge by requiring objections both to designate the

error clearly and to explain the grounds for the complaint. See Carousel’s

Creamery, L.L.C. v. Marble Slab Creamery, Inc., 134 S.W.3d 385, 404–05

(Tex. App.—Houston [1st Dist.] 2004, pet. granted, cause dism’d); see also

C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 793 (Tex.

App.—Houston [1st Dist.] 2004, no pet.) (“To be sufficiently specific, the

party’s objection must identify the claimed error and explain the basis of the

party’s complaint. . . . A sufficiently specific objection enables the trial court


11

to understand the party’s precise grounds and to rule.”). An objection that

does not identify the claimed error and explain the basis of the complaint is

properly overruled and does not preserve error on appeal. See Carousel’s

Creamery, 134 S.W.3d at 404.

In this case, Julie’s general objection at the charge conference neither

clearly identified the error that she now claims on appeal nor explained the

basis for the objection. Therefore, Julie’s complaint that the trial court

improperly instructed the jury has not been preserved for review. See TEX.

R. APP. P. 33.1; Carousel’s Creamery, 134 S.W.3d at 404.

We overrule Julie’s second issue.

Constitutional Challenges

In her third and fourth issues, Julie contends that the trial court’s

appointment of Julie as T.L.H.’s joint managing conservator “runs afoul of

constitutionally mandated principles of separation of powers” and

“constitutes an impermissible impingement on appellant’s substantive due

process rights.” The record does not reflect that Julie raised these

arguments in the trial court. Thus, she has not preserved these issues for

our review. See TEX. R. APP. P. 33.1; see also Dreyer v. Greene, 871

S.W.2d 697, 698 (Tex. 1993) (“As a rule, a claim, including a constitutional


12

claim, must have been asserted in the trial court in order to be raised on

appeal.”).

We overrule Julie’s third and fourth issues.

Conclusion

We affirm the judgment of the trial court.

Laura Carter Higley Justice

Panel consists of Justices Nuchia, Jennings, and Higley.


Texas Constitution & Statutes: http://www.statutes.legis.state.tx.us/

1

SUBCHAPTER J. CERTAIN FRAUDULENT RECORDS OR DOCUMENTS

Sec. 51.901. FRAUDULENT DOCUMENT OR INSTRUMENT. (a) If a

clerk of the supreme court, clerk of the court of criminal

appeals, clerk of a court of appeals, district clerk, county

clerk, district and county clerk, or municipal clerk has a

reasonable basis to believe in good faith that a document or

instrument previously filed or recorded or offered or submitted

for filing or for filing and recording is fraudulent, the clerk

shall:

(1) if the document is a purported judgment or other

document purporting to memorialize or evidence an act, an order,

a directive, or process of a purported court, provide written

notice of the filing, recording, or submission for filing or for

filing and recording to the stated or last known address of the

person against whom the purported judgment, act, order,

directive, or process is rendered; or

(2) if the document or instrument purports to create

a lien or assert a claim on real or personal property or an

interest in real or personal property, provide written notice of

the filing, recording, or submission for filing or for filing

and recording to the stated or last known address of the person

named in the document or instrument as the obligor or debtor and

to any person named as owning any interest in the real or

personal property described in the document or instrument.

(b) A clerk shall provide written notice under Subsection

(a):

(1) not later than the second business day after the

date that the document or instrument is offered or submitted for

filing or for filing and recording; or

(2) if the document or instrument has been previously

filed or recorded, not later than the second business day after

the date that the clerk becomes aware that the document or

instrument may be fraudulent.

(c) For purposes of this section, a document or instrument

is presumed to be fraudulent if:


http://www.statutes.legis.state.tx.us/


2

(1) the document is a purported judgment or other

document purporting to memorialize or evidence an act, an order,

a directive, or process of:

(A) a purported court or a purported judicial

entity not expressly created or established under the

constitution or the laws of this state or of the United States;

or

(B) a purported judicial officer of a purported

court or purported judicial entity described by Paragraph (A);

(2) the document or instrument purports to create a

lien or assert a claim against real or personal property or an

interest in real or personal property and:

(A) is not a document or instrument provided for

by the constitution or laws of this state or of the United

States;

(B) is not created by implied or express consent

or agreement of the obligor, debtor, or the owner of the real or

personal property or an interest in the real or personal

property, if required under the laws of this state, or by

implied or express consent or agreement of an agent, fiduciary,

or other representative of that person; or

(C) is not an equitable, constructive, or other

lien imposed by a court with jurisdiction created or established

under the constitution or laws of this state or of the United

States; or

(3) the document or instrument purports to create a

lien or assert a claim against real or personal property or an

interest in real or personal property and the document or

instrument is filed by an inmate or on behalf of an inmate.

(d) If a county clerk believes in good faith that a

document filed with the county clerk to create a lien is

fraudulent, the clerk shall:

(1) request the assistance of the county or district

attorney to determine whether the document is fraudulent before

filing or recording the document;




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(2) request that the prospective filer provide to the

county clerk additional documentation supporting the existence

of the lien, such as a contract or other document that contains

the alleged debtor or obligor's signature; and

(3) forward any additional documentation received to

the county or district attorney.

(e) A presumption under Subsection (c)(3) may be rebutted

by providing the filing officer in the filing office in which

the document is filed or recorded the original or a copy of a

sworn and notarized document signed by the obligor, debtor, or

owner of the property designated as collateral stating that the

person entered into a security agreement with the inmate and

authorized the filing of the financing statement as provided by

Section 9.509, Business & Commerce Code.

(f) In this section:

(1) "Inmate" means a person housed in a secure

correctional facility.

(2) "Secure correctional facility" has the meaning

assigned by Section 1.07, Penal Code.

Added by Acts 1997, 75th Leg., ch. 189, Sec. 14, eff. May 21,

1997.

Amended by:

Acts 2005, 79th Leg., Ch. 407, Sec. 1, eff. September 1,

2005.

Acts 2007, 80th Leg., R.S., Ch. 895, Sec. 3, eff. September

1, 2007.

Sec. 51.903. ACTION ON FRAUDULENT LIEN ON PROPERTY. (a)

A person who is the purported debtor or obligor or who owns real

or personal property or an interest in real or personal property

and who has reason to believe that the document purporting to

create a lien or a claim against the real or personal property

or an interest in the real or personal property previously filed

or submitted for filing and recording is fraudulent may complete

and file with the district clerk a motion, verified by affidavit

by a completed form for ordinary certificate of acknowledgment,


http://www.legis.state.tx.us/tlodocs/80R/billtext/html/HB02566F.HTM

http://www.legis.state.tx.us/tlodocs/79R/billtext/html/SB01589F.HTM



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of the same type described by Section 121.007, Civil Practice

and Remedies Code, that contains, at a minimum, the information

in the following suggested form:

MISC. DOCKET NO. ______

In Re: A Purported In the ______ Judicial District

Lien or Claim Against In and For ___________________

(Name of Purported County, Texas

Debtor)

Motion for Judicial Review of Documentation or Instrument

Purporting to Create a Lien or Claim

Now Comes (name) and files this motion requesting a

judicial determination of the status of documentation or an

instrument purporting to create an interest in real or personal

property or a lien or claim on real or personal property or an

interest in real or personal property filed in the office of the

Clerk of (county name) County, Texas, and in support of the

motion would show the court as follows:

I.

(Name), movant herein, is the purported obligor or debtor

or person who owns the real or personal property or the interest

in real or personal property described in the documentation or

instrument.

II.

On (date), in the exercise of the county clerk's official

duties as County Clerk of (county name) County, Texas, the

county clerk received and filed and recorded the documentation

or instrument attached hereto and containing (number) pages.

Said documentation or instrument purports to have created a lien

on real or personal property or an interest in real or personal

property against one (name of purported debtor).

III.

Movant alleges that the documentation or instrument

attached hereto is fraudulent, as defined by Section




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51.901(c)(2), Government Code, and that the documentation or

instrument should therefore not be accorded lien status.

IV.

Movant attests that assertions herein are true and correct.

V.

Movant does not request the court to make a finding as to

any underlying claim of the parties involved and acknowledges

that this motion does not seek to invalidate a legitimate lien.

Movant further acknowledges that movant may be subject to

sanctions, as provided by Chapter 10, Civil Practice and

Remedies Code, if this motion is determined to be frivolous.

PRAYER

Movant requests the court to review the attached

documentation or instrument and enter an order determining

whether it should be accorded lien status, together with such

other orders as the court deems appropriate.


_________________________

(Signature and typed name and address)

(b) The completed form for ordinary certificate of

acknowledgment, of the same type described by Section 121.007,

Civil Practice and Remedies Code, must be as follows:

AFFIDAVIT

THE STATE OF TEXAS

COUNTY OF ______________

BEFORE ME, the undersigned authority, personally appeared

_____________, who, being by me duly sworn, deposed as follows:

"My name is _________________. I am over 21 years of age,

of sound mind, with personal knowledge of the following facts,

and fully competent to testify.




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I further attest that the assertions contained in the

accompanying motion are true and correct."

Further affiant sayeth not.

____________________________

SUBSCRIBED and SWORN TO before

me, this _______ day of _____,

_______.

____________________________

NOTARY PUBLIC, State of Texas

Notary's printed name:

____________________________

My commission expires:

____________________________

(c) A motion under this section may be ruled on by a

district judge having jurisdiction over real property matters in

the county where the subject document was filed. The court's

finding may be made solely on a review of the documentation or

instrument attached to the motion and without hearing any

testimonial evidence. The court's review may be made ex parte

without delay or notice of any kind. An appellate court shall

expedite review of a court's finding under this section.

(d) The district clerk may not collect a filing fee for

filing a motion under this section.

(e) After reviewing the documentation or instrument

attached to a motion under this section, the district judge

shall enter an appropriate finding of fact and conclusion of

law, which must be filed and indexed in the same class of

records in which the subject documentation or instrument was

originally filed. A copy of the finding of fact and conclusion

of law shall be sent, by first class mail, to the movant and to

the person who filed the fraudulent lien or claim at the last

known address of each person within seven days of the date that

the finding of fact and conclusion of law is issued by the

judge.




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(f) The county clerk may not collect a fee for filing a

district judge's finding of fact and conclusion of law under

this section.

(g) A suggested form order appropriate to comply with this

section is as follows:

MISC. DOCKET NO. ______

In Re: A Purported In the ______ Judicial District

Lien or Claim Against In and For ___________________

(Name of Purported County, Texas

Debtor)

Judicial Finding of Fact and Conclusion of Law Regarding a

Documentation or Instrument Purporting to Create a Lien or Claim

On the (number) day of (month), (year), in the above

entitled and numbered cause, this court reviewed a motion,

verified by affidavit, of (name) and the documentation or

instrument attached thereto. No testimony was taken from any

party, nor was there any notice of the court's review, the court

having made the determination that a decision could be made

solely on review of the documentation or instrument under the

authority vested in the court under Subchapter J, Chapter 51,

Government Code.

The court finds as follows (only an item checked and

initialed is a valid court ruling):

_______ The documentation or instrument attached to the motion

herein IS asserted against real or personal property or an

interest in real or personal property and:

(1) IS provided for by specific state or federal

statutes or constitutional provisions;

(2) IS created by implied or express consent or

agreement of the obligor, debtor, or the owner of the real or


property, if required under the laws of this state, or by

consent of an agent, fiduciary, or other representative of that

person; or

(3) IS an equitable, constructive, or other lien

imposed by a court of competent jurisdiction created or




8

established under the constitution or laws of this state or of

the United States.

_______ The documentation or instrument attached to the motion

herein:

(1) IS NOT provided for by specific state or federal

statutes or constitutional provisions;

(2) IS NOT created by implied or express consent or

agreement of the obligor, debtor, or the owner of the real or


property, if required under the law of this state or by implied

or express consent or agreement of an agent, fiduciary, or other

representative of that person;

(3) IS NOT an equitable, constructive, or other lien

imposed by a court of competent jurisdiction created by or

established under the constitution or laws of this state or the

United States; or

(4) IS NOT asserted against real or personal property

or an interest in real or personal property. There is no valid

lien or claim created by this documentation or instrument.

This court makes no finding as to any underlying claims of

the parties involved, and expressly limits its finding of fact

and conclusion of law to the review of a ministerial act. The

county clerk shall file this finding of fact and conclusion of

law in the same class of records as the subject documentation or

instrument was originally filed, and the court directs the

county clerk to index it using the same names that were used in

indexing the subject documentation or instrument.

SIGNED ON THIS THE ________ DAY OF ____________________.

_______________________________

DISTRICT JUDGE

________ JUDICIAL DISTRICT

_____________ COUNTY, TEXAS

Added by Acts 1997, 75th Leg., ch. 189, Sec. 14, eff. May 21,

1997.




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CHAPTER 9 SECURED TRANSACTIONS

Sec. 9.109. SCOPE. (a) Except as otherwise provided in Subsections (c), (d), and (e),

this chapter applies to:

(1) a transaction, regardless of its form, that creates a security interest in personal

property or fixtures by contract;

(2) an agricultural lien;

(3) a sale of accounts, chattel paper, payment intangibles, or promissory notes;

(4) a consignment;

(5) a security interest arising under Section 2.401, 2.505, 2.711(c), or 2A.508(e), as

provided in Section 9.110; and

(6) a security interest arising under Section 4.210 or 5.118.

(b) The application of this chapter to a security interest in a secured obligation is not affected by

the fact that the obligation is itself secured by a transaction or interest to which this chapter does

not apply.

(c) This chapter does not apply to the extent that:

(1) a statute, regulation, or treaty of the United States preempts this chapter;

(2) another statute of this state expressly governs the creation, perfection, priority, or

enforcement of a security interest created by this state or a governmental unit of this state;

(3) a statute of another state, a foreign country, or a governmental unit of another state or a

foreign country, other than a statute generally applicable to security interests, expressly governs

creation, perfection, priority, or enforcement of a security interest created by the state, country,

or governmental unit; or

(4) the rights of a transferee beneficiary or nominated person under a letter of credit are

independent and superior under Section 5.114.

(d) This chapter does not apply to:

(1) a landlord's lien, other than an agricultural lien;

(2) a lien, other than an agricultural lien, given by statute or other rule of law for services or

materials, but Section 9.333 applies with respect to priority of the lien;

(3) an assignment of a claim for wages, salary, or other compensation of an employee;




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(4) a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of

the business out of which they arose;

(5) an assignment of accounts, chattel paper, payment intangibles, or promissory notes that is for

the purpose of collection only;

(6) an assignment of a right to payment under a contract to an assignee that is also obligated to

perform under the contract;

(7) an assignment of a single account, payment intangible, or promissory note to an assignee in

full or partial satisfaction of a preexisting indebtedness;

(8) a transfer of an interest in or an assignment of a claim under a policy of insurance, other than

an assignment by or to a health care provider of a health-care-insurance receivable and any

subsequent assignment of the right to payment, but Sections 9.315 and 9.322 apply with respect

to proceeds and priorities in proceeds;

(9) an assignment of a right represented by a judgment, other than a judgment taken on a right to

payment that was collateral;

(10) a right of recoupment or set-off, but:

(A) Section 9.340 applies with respect to the effectiveness of rights of recoupment or set-

off against deposit accounts; and

(B) Section 9.404 applies with respect to defenses or claims of an account debtor;

(11) the creation or transfer of an interest in or lien on real property, including a lease or rents, as

defined by Section 64.001, Property Code, the interest of a vendor or vendee in a contract for

deed to purchase an interest in real property, or the interest of an optionor or optionee in an

option to purchase an interest in real property, except to the extent that provision is made for:

(A) liens on real property in Sections 9.203 and 9.308;

(B) fixtures in Section 9.334;

(C) fixture filings in Sections 9.501, 9.502, 9.512, 9.516, and 9.519; and

(D) security agreements covering personal and real property in Section 9.604;

(12) an assignment of a claim arising in tort, other than a commercial tort claim, but Sections

9.315 and 9.322 apply with respect to proceeds and priorities in proceeds; or

(13) an assignment of a deposit account, other than a nonnegotiable certificate of deposit, in a

consumer transaction, but Sections 9.315 and 9.322 apply with respect to proceeds and priorities

in proceeds.




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(e) The application of this chapter to the sale of accounts, chattel paper, payment intangibles, or

promissory notes is not to recharacterize that sale as a transaction to secure indebtedness but to

protect purchasers of those assets by providing a notice filing system. For all purposes, in the

absence of fraud or intentional misrepresentation, the parties' characterization of a transaction as

a sale of such assets shall be conclusive that the transaction is a sale and is not a secured

transaction and that title, legal and equitable, has passed to the party characterized as the

purchaser of those assets regardless of whether the secured party has any recourse against the

debtor, whether the debtor is entitled to any surplus, or any other term of the parties' agreement.

Amended by Acts 1999, 76th Leg., ch. 414, Sec. 1.01, eff. July 1, 2001.

Amended by:

Acts 2011, 82nd Leg., R.S., Ch. 636, Sec. 1, eff. June 17, 2011.

